Much of high finance is tacky. It necessitates – among other things – the cutting of deals, the splitting of fees and the allocation of commissions, all of which require grubby negotiations about sums of money. Its distinctive activities – financing companies, buying and selling assets – are riddled with conflicts of interest, and accompanied by decisions on executive remuneration, and the hiring and firing of individuals. These decisions are invariably difficult and rather arbitrary, and lead to lifelong hatreds and friendships.

Siegmund Warburg was a German Jew who was forced by Nazi oppression to emigrate to England in 1934. He quickly set up a business, the New Trading Company, as a corporate finance boutique and built it over the next forty years into the hugely successful London-based Warburg merchant bank. Siegmund Warburg was one of the most prominent and adventurous bankers of his era, and spent much of his life cutting deals, splitting fees and allocating commissions. Nevertheless, he is remembered in the City of London with affection and respect, even veneration, by hundreds of former colleagues and counterparties.

Niall Ferguson’s biography – High Financier: The lives and times of Siegmund Warburg – reflects the esteem that still attaches, almost twenty-eight years after his death, to Warburg as a person and to S. G. Warburg & Co as an institution. Ferguson is one of the world’s leading business historians as well as an accomplished popularizer of academic work. He has already made his name as a specialist in financial history with an outstanding collective “biography”, in effect, of the Rothschild family and bank. If Warburg’s surviving associates wanted someone to write a lasting and sympathetic record of his achievements, they could not have found anyone better qualified.

But is the result a good book? In particular, does it strengthen understanding of the development of the City of London in the post-war period, and so constitute a substantial advance in the history of modern finance? Ferguson – who was given access to 10,000 letters and diary entries which had hitherto been unavailable to others – has been too close to the Warburg coterie.

Consequently, this is not an impartial account of a fascinating and important, although often very controversial, businessman, and it does not place Warburg’s life (and indeed the life of S. G. Warburg & Co) objectively in the wider historical context. Ferguson is determined to lionize Warburg as the initiator and presiding genius of big trends, and to put him on a moral pedestal so that he appears more decent and honest, more of a gentleman, than his equivalents in the City of London of today. Both these endeavours involve spin. Ferguson overstates Warburg’s significance in the evolution of international finance and understates the ethical ambiguity of many of the transactions in which he was involved.

Warburg’s early years were turbulent and often traumatic. The Great Depression of 1929 to 1933 was followed by the closing of the world economy, as Germany and other nations – including Britain – restructured their international trading regimes. Exchange controls and import restrictions became the norm, in contrast with the commercial freedom of the decades leading up to the First World War when the M. M. Warburg & Co merchant bank flourished in Hamburg. Siegmund Warburg, born in 1902, was the only child of Georges and Lucie Warburg. Georges was unsuited for finance and is described by Ferguson as “the family underachiever”, while Lucie made Siegmund’s upbringing the central work of her life. He grew up in the Swabian countryside 400 miles from Hamburg, where Max Warburg – one of several cousins – led the family business. Siegmund was an outsider when he started work at M. M. Warburg & Co in 1924, just as he was when he founded the New Trading Company in his land of adoption in 1935.

Small investment advisory businesses have an advantage over larger rivals in a business environment subject to government controls. They can evade the controls, or suggest to others how they might evade them, with a better chance of getting under the official radar. In its first decade or so the New Trading Company was, in Warburg’s own words, primarily “a service house giving advice to its industrial and merchant clients”. An internal memorandum of 1953 by a Bank of England official was less flattering, noting that “throughout the war years and immediately afterwards the activities of the New Trading Co Ltd, both here and in South America, were to say the least very strongly suspect”.

Ferguson says that the memo was “laced with snobbery and anti-Semitism”, and quotes it at some length. It refers to the “salting away of fortunes out of Europe into America”, a “depository in Buenos Aires” and “names black-listed during the war”. Ferguson does not analyse further. He merely observes – as if it were sufficient – that “such prejudices were remarkably widespread in the British Establishment of the post-war era”. No doubt the official who wrote the memo – surmised by Ferguson to have been Hilton Clarke – was prejudiced to some degree, as are most officials at most times. Sympathy is of course owed to Jewish families who wanted to transfer their wealth out of the reach of the Nazis and their collaborators. But Ferguson could have probed further. The allegation is obvious, if unsubstantiated, that the New Trading Company helped its clients to break exchange controls. Hilton Clarke is described in John Fforde’s The Bank of England and Public Policy 1941–58 as an “expert in the technicalities of international payments and exchange controls”.

At any rate, in 1946 the New Trading Company was renamed S. G. Warburg & Co, and by the mid-1950s it had sufficient clout and respectability to join the Accepting Houses Committee. This gave it the ability to “accept” a bill (that is, to accept the risk of repaying the holder if the issuer failed) and made the bill “eligible” for sale to the Bank of England. More generally, the accepting houses – or merchant banks, as they were commonly known – helped in organizing company finance, usually by underwriting new securities issues, but also by offering various advisory services.

S. G. Warburg & Co starred in the first major take-over battle of the post-war period in 1959, when it acted for the American company Reynolds Metals, and Tube Investments in a combined effort to buy British Aluminium. The other bidder, Alcoa, was supported by more traditional City names, such as Hambros and Lazards, but Warburg and its clients were successful in taking control of British Aluminium. Ferguson argues that the older City firms were out-manoeuvred in a “gentlemen vs players” contest. He also sneers that – although gentlemen were “supposed to be good losers” – the older firms “were anything but”. Morgan Grenfell would not work with Warburg on corporate deals for the next fifteen years. Ferguson opines that Warburg’s critics were unjustifiably resentful, since “nothing improper” was done.

Again, he ought to delve further and think more widely. The rest of the City did not object to competition between rival bidders. What it disliked was Warburg’s method of operation, which was cavalier towards the London Stock Exchange’s central principle that market participants must not create a false market. The rulebook says that potential investors should have access to the same information and opportunities, and – if one company wants to acquire another – it should make its intentions clear at an early stage. But this was not Warburg’s approach in the Aluminium War. As Ferguson comments, “transparency was emphatically not Warburg’s watchword”. Along with its American partner, Kuhn Loeb, Warburg had set up eleven nominee companies to make the purchases, with “stealth” being “of the essence”.

Precisely because behaviour of Warburg’s kind was secretive and could mislead other investors, the Takeover Code of 1968 included rules against the formation of “concert parties”. The problem was that concert parties – of, for example, several nominee companies jointly masterminded by two or three houses – might “warehouse” the equity of a company without the knowledge of that company or the market. The Takeover Code did not exist in the late 1950s and Warburg’s tactics were certainly not illegal. Whether they were “improper” was debated at City lunches for years afterwards.

Bluntly, Ferguson needs to be more cynical. He does not seem to understand that high finance is full of low tricks, and that these low tricks are an inevitable part of the market economy. One of the strengths of S. G. Warburg & Co was that its senior executives, “the Uncles” as they were called, stayed together over many decades and could trust each other totally. A large part of the deal-making nitty-gritty was entrusted to Henry Grunfeld, also a Jewish refugee from Nazi Germany and almost as remarkable a man as Warburg. Grunfeld was helped in turn by Eric Korner, who had escaped from Vienna in the late 1930s. Sometimes an underwriting went wrong. S. G. Warburg & Co – always a rather small and lowly capitalized organization relative to the competition – would face the risk of having to take up large amounts of one company’s securities and perhaps lose heavily on the holding. Whenever they had a problem, Grunfeld would ask for Korner. To quote from the book, “On hearing about it, Korner would say, ‘Leave it to me. Forget about it.’ An hour later he would come back and say, ‘It’s all done’”. Quite so. S. G. Warburg & Co would have persuaded a third party to buy securities by telling it that they would go up; S. G. Warburg & Co itself did not want to buy them, because it was afraid they might go down.

Clever underwriting is like that, an exercise in mild deception, and there is nothing inherently wicked or immoral about it. All traders are selling something they don’t themselves want to own in excessive amounts. The trouble with Ferguson’s book is that repeatedly he tries to glorify the activities of Warburg and his bank, and to see in them a public benefit that is not and never was there. Often this habit is harmless, even if the boundary between biography and hagiography is transgressed.

When it comes to the Eurobond market, however, the tendency to lionize leads to misinterpretation. Ferguson has a thing about the inventors of “the” international bond market. Early in the second volume of his history of the Rothschilds, he says that “without doubt” their “most important contribution to economic history was the creation of a truly international bond market”. In his essay for a volume on The Origins of Value (2005), he went further and proposed that it was “not far-fetched to describe the loans issued by the Rothschild brothers for Prussia and Russia in the aftermath of the Napoleonic Wars as the first true Eurobonds”. Now, in High Financier, he has another go. The final paragraph of Chapter Eight on “The financial roots of European integration” includes the sentence, “The fact that around 70 per cent of all Eurobond issuance and secondary trading is in London is no accident of history, but the result of a conscious effort by Siegmund Warburg and his associates in the 1960s”.

Can Ferguson please make up his mind? Was it the Rothschild brothers in the 1820s or Warburg in the 1960s who “created” the Eurobond market? Might he consider two possibilities, that the Rothschilds’ bank in the 1820s and Warburg in the 1960s were only single players in the international finance of their respective times, and that Eurobond-type securities have been issued without interruption for several centuries? And can he drop this hogwash about the Eurobond market being part of a process of European financial integration promoted by the Brussels Commission? Despite its name, the Eurobond market is global and largely denominated in dollars, while the Commission dislikes it, and has tried to regulate and tax it more heavily.

This is a lively and readable account of an extraordinary man. But the preface’s claim – that High Financier is the biography “of the man who, more than any other, saved the City” – is poppycock. Niall Ferguson would have written a better book if he had shown more knowledge, cynicism and rhetorical economy about the modern City of London and its ways.

Niall Ferguson
HIGH FINANCIER
The lives and times of Siegmund Warburg
548pp. Allen Lane. £25.
978 0 713 99871 9

Tim Congdon is an economist, businessman and former member of the Treasury Panel that advised the Conservative government on economic policy between 1993 and 1997.

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