Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

Continue Reading


Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

Continue Reading


Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

Continue Reading


RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

Continue Reading


China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

Continue Reading

Archive | November, 2016

Chinese fund in Heathrow airport deal

Posted on 31 October 2012 by

China’s main sovereign wealth fund has struck a deal to take a 10 per cent stake in Heathrow airport, under which Spanish infrastructure group Ferrovial – the leading shareholder – will further reduce its exposure to the UK’s aviation hub.

CIC International, a subsidiary of China Investment Corp, is paying £257.4m to Ferrovial for a 5.7 per cent holding in Heathrow Ltd and £192.6m to its other owners for an additional 4.3 per cent of the operator.

    The deal comes less than three months after Qatar Holding, the Middle Eastern sovereign wealth fund, reached an agreement with Ferrovial, Britannia Airport Partners and Singapore’s GIC to buy 20 per cent of Heathrow Ltd for £900m.

    Heathrow Ltd also owns Stansted, Glasgow, Aberdeen and Southampton airports – although Stansted is in the process of being sold.

    The Chinese transaction values the equity of Heathrow Ltd, formerly known as BAA, at the same £4.5bn implied by the Qatari deal.

    If both deals are completed – the Qatari purchase is subject to approval by EU competition authorities, but CIC’s is not – Ferrovial’s stake in Heathrow will fall from 49 per cent 33.7 per cent.

    Iñigo Meirás, Ferrovial’s chief executive, said no further disposals were planned. “We’ve been working on this for the last 12 months,” he said. “We’ve been talking to CIC and the Qataris since after the disposal to Alinda,” he explained, referring to the sale of nearly 6 per cent of the UK airport operator to an investment group last year, which allowed Ferrovial to remove Heathrow’s more than £11bn net debt from its balance sheet.

    Olivia Peters, an equity analyst with RBC Capital Markets, said the question was now where Ferrovial would invest the proceeds. Options include an offer for Portugal’s state-owned airport operator ANA, or bidding to build and run one of several large US infrastructure projects.

    Mr Meirás said the company was also looking at potential investments in the UK.

    Heathrow Ltd is set to return £240m to shareholders this year – its first dividend since Ferrovial led a highly leveraged takeover in 2006 – and is set to keep up payments of about £60m a quarter.

    Roger Appleyard, head of credit research at RBC, said he saw potential for this figure to rise after Heathrow’s airport charges were set for the next regulatory period, which starts in April 2014.

    CIC’s 10 per cent stake will give it a seat on Heathrow’s board. If the EU approves Qatar Holding purchase, the fund will also appoint two directors.

    ICAP rebrands Plus exchange business

    Posted on 31 October 2012 by

    ICAP has relaunched a trading venue for small and medium sized companies, as part of a wider strategic move to develop an alternative exchange for trading equities and derivatives.

    The world’s largest interdealer broker by market capitalisation unveiled on Wednesday the ICAP Securities & Derivatives Exchange (ISDX) – a rebranded version of the Plus exchange business it bought for £500,000 earlier this year.

      ICAP said its priority was raising the quality of companies traded on the exchange, to make it a competitor to the Alternative Investment Market (AIM), London’s junior market. The group is developing a points system to assess companies hoping to come to the market, as well as those whose shares are already quoted on the exchange.

      “We will be raising the bar for the companies we have on the exchange as well,” explained Seth Johnson, group chief executive of ICAP. “They will have time to pull their socks up if they currently need to.” He added that companies with shares trading on Plus would have “ample” time to comply with the new criteria, which ICAP is aiming to finalise by early next year.

      Mr Johnson said his objective was to make the relaunched exchange – where shares in Arsenal Football Club, Mears Group and Shepherd Neame are currently traded – “better value” than alternative exchanges for SMEs.

      “What we will be looking to do is offer the brokers and advisers something different to what they’re being offered at the moment,” he said. “Plus [Stock Exchange] . . . was trying to offer effectively the same thing that was already being offered out there, and we do not plan to do that.”

      He said the points system ICAP is developing would be based on measures of a company’s financial strength and would reassure investors by bringing more clarity to the listing process. He did offer further details.

      One of the main attractions of the Plus business for ICAP was its licence as a recognised investment exchange, allowing it to offer “multilateral” trading facilities – in derivatives as well as equities.

      Mr Johnson said the exchange’s new name reflected this ability.

      “We haven’t got a timeline as to when we might start considering launching any listed derivatives or futures but it’s clearly something we’re spending a reasonable amount of time thinking about and investigating,” he said.

      There are 133 companies quoted on the ISDX with an average market cap of £10m.

      ICAP said it was focusing on raising the quality of companies on the exchange rather than aiming to attract a specific number of new listers next year.

      “There’s always a pipeline [of companies] out there,”said Mr Johnson. He added that advisers have told him they would be “more comfortable” with the idea of having shares trade on the exchange under ICAP’s ownership.

      UBS cull claims scalp of fixed income head

      Posted on 31 October 2012 by

      The radical restructuring at UBS claimed its most senior scalp on Wednesday, as the bank pushed ahead with a cull of 10,000 employees that is sending shockwaves through the investment banking community.

      Roberto Hoornweg, who co-heads the fixed income division, is poised to leave after almost three years at the bank, two people close to the situation said. His unit will bear the brunt of the cutbacks.

        The Swiss bank is expected to promote Rajeev Misra from co-head to sole head of the fixed income trading business, most of which will be brought into a non-core unit that will be wound down over the next three years.

        Mr Hoornweg, who joined UBS in January 2010 after a 17-year career at Morgan Stanley, could not be reached for comment. UBS also declined to comment.

        Earlier this week, the Switzerland-based investment bank unveiled a sweeping overhaul of its investment bank, which will be pruned into a much smaller unit that will support its core wealth management business.

        On Wednesday, the bank, which is shedding 10,000 positions globally over three years, embarked on job cuts in Asia. About 30 fixed income traders and sales people in Tokyo were put on leave, two people close to the situation said.

        Meanwhile, more details emerged of the circumstances surrounding the fate of about 100 London staff, who arrived at work early on Tuesday to find they could no longer enter the building using their security passes.

        They were escorted to a special room by a human resources representative who gave them a letter saying they were no longer allowed to go to their offices and were on special leave “until further notice”.

        London is expected to bear the brunt of the job cuts, with more than 3,000 of the current 6,613 jobs at the bank’s City offices under threat.

        Richard Luddington, vice-chairman of global capital markets at UBS, was also put on leave. He was mainly focused on the bank’s sovereign and super-agency business, which will be shut down.

        The sale of debt and bonds on behalf of states and public organisations has been rendered uneconomic under regulations that require banks to hold much more capital against a business that earns tiny fees, according to bankers.

        It is expected to be the only major cut at the bank’s debt and equity capital markets business, to which the bank is “unquestionably and unambiguously committed”, according to one insider.

        Additional reporting by Ben McLannahan in Tokyo

        Draghi expands role in fight to save euro

        Posted on 31 October 2012 by

        Like a company chief executive feted by analysts for stopping losses but who has failed to generate shareholder returns, Mario Draghi still has much to prove as he enters his second year in office.

        Formally, his job as president of the European Central Bank is to ensure he guides interest rates so prices neither rise nor fall precipitously over the medium term. On that measure he has been successful, so far.

          Informally, however, his task has become that of a commanding general in the battle to rescue the euro.

          One year after Mr Draghi took office, Spain’s cost of borrowing relative to Germany’s is greater than it was then. The economic outlook is dire for the 17-country bloc, and governments are still struggling to formulate a coherent political response to the sovereign debt crisis.

          After quoting a comparison of the euro to a bumblebee – “it shouldn’t fly but instead it does” – at an investment conference in London on the eve of this summer’s Olympic Games, Mr Draghi made clear that under his presidency the bank would not take a narrow view of its responsibilities.

          “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” he said, pausing for a moment before adding: “And believe me, it will be enough.”

          Two people with knowledge of the situation said that Mr Draghi, a US-trained economist who spent 10 years at the Italian Treasury before heading the country’s central bank, had not told the ECB’s 22-strong interest governing council that he planned to utter those words.

          As a result, one expected the governing council meeting a few days later to be stormy.

          But despite strong opposition from Jens Weidmann, Bundesbank president, to a new bond-buying programme, by September Mr Draghi was ready to announce “outright monetary transactions” with the backing of the 16 other national central bank chiefs and his four executive board colleagues.

          The scheme has been hailed as a breakthrough that pits anyone speculating on a euro break-up against the full might of the central bank.

          With no country yet to sign up for the fiscal conditions that would allow the bank to deploy the mechanism, it has already had a demonstrable effect in lowering the borrowing costs of countries such as Spain and Italy from their summer peaks.

          As such, OMT could yet be seen as the masterstroke that turned the crisis around – unlike the €1tn in three-year loans dubbed LTROs extended to banks earlier in the year that initially charmed financial markets before their effects wore off.

          But, as bank insiders point out, the OMT scheme bears great similarities to another three-letter acronym pioneered by Jean-Claude Trichet, Mr Draghi’s predecessor. That bond-buying programme, the securities market programme, or SMP, similarly horrified German central bank policy makers, and was hobbled as a result.

          OMT has been designed to address many of the problems of the SMP. It comes with fiscal conditions attached, it is unlimited in scope, it focuses on shorter maturity bonds, and it comes with a monetary policy narrative seeking to explain why a central bank whose mandate is price ­stability should be buying sovereign debt.

          It also comes with the German criticisms contained and isolated. Mr Draghi does not have to contend with Axel Weber, the former Bundesbank president who had been the favourite to succeed Mr Trichet, or Jürgen Stark, former executive board member. Both were fierce proponents of the classical Bundesbank doctrine that a central bank focuses solely on controlling inflation.

          Instead, Mr Draghi has the support of Jörg Asmussen, the current German member of the executive board, and has won the tacit backing of Angela Merkel, the German chancellor.

          Structural reforms and reshaping economic governance in the eurozone are clearly beyond the ECB’s mandate. Jean Pisani-Ferry, director of the Bruegel think-tank, says Mr Draghi’s success thus far has been in establishing a division of labour between politicians and the central bank policy makers.

          “He has managed to tell governments: you do your job, I do my job,” Mr Pisani-Ferry said, noting that Mr Draghi’s ability to do so was not assured from the outset.

          “Trichet was present at the creation so he was able to talk to them as a founding father, whereas Draghi was for them just another central banker.”

          Even Mr Draghi’s critics, who believe the central bank has been forced into territory it should not occupy by the failure of politicians to deal with the crisis, concede he has created breathing room for structural reforms in the weaker eurozone countries.

          Jörg Krämer, Commerzbank’s chief economist, is pessimistic, but says: “If there is a breakthrough, the history books will write about Draghi as the hero who gave the reforms time to work.”

          Berkshire bets on housing recovery

          Posted on 31 October 2012 by

          Warren Buffett’s Berkshire Hathaway has made another bet on a recovery in the US housing market, agreeing to lend the conglomerate’s trusted brand to a new venture with Brookfield Asset Management.

          Berkshire’s HomeServices of America unit will be the majority owner of a network of franchised real estate agencies, which will begin to offer services next year under the name Berkshire Hathaway HomeServices.

            Brookfield will contribute a network of more than 53,000 individual estate agents responsible for $72bn of residential real estate sales last year. The group acquired the business last year from Prudential Financial, but did not retain the rights to the Prudential name, which are taken back as existing franchise agreements expire.

            Mr Buffett told CNBC this month that he remains bullish on the US economy, which he expects to continue “inching ahead” even as global growth slows.

            The billionaire investor said Berkshire’s businesses have already begun to see a pick-up in demand related to improvements in the residential property market, and as a consequence he expects them to hire about 8,000 people in response this year.

            The latest deal comes as Berkshire, a conglomerate with more than 70 different businesses, has positioned itself for a recovery in US housing as foreclosure rates decline and record low interest rates encourage buyers back into the market after six years of declining prices.

            HomeServices is the second largest full service residential brokerage firm in the US, the company said. Acquired with the MidAmerican utility company in 1999, it has been built by buying up real estate brokerages around the country. Berkshire has also acquired a brickmaker and this month agreed to pay $1.5bn for a portfolio of home loans from Residential Capital, the bankrupt mortgage lender.

            Mr Buffett’s optimism has also begun to be backed up by economic indicators. New home construction in the US surged in September to its fastest pace in more than four years, offering further evidence that the housing sector was regaining strength.

            Housing starts rose 15 per cent in September, to a seasonally adjusted annual rate of 872,000 units, the fastest pace of growth since July 2008.

            Brookfield acquired Prudential Real Estate and Relocation Services for about $100m in December 2011, according to a financial disclosure. Brookfield, a real estate specialist with over $150bn in assets under management, has retained the relocation business separate from the new venture.

            JPMorgan sues ex-boss of ‘London Whale’

            Posted on 31 October 2012 by

            JPMorgan Chase, the bank that lost at least $5.8bn through a massive credit derivatives position created by a trader nicknamed the “London Whale”, has filed a lawsuit against his boss.

            The bank issued a claim in the High Court in London last week against Javier Martin-Artajo, court records show. Mr Martin-Artajo supervised Bruno Iksil, the trader who led the team that was allegedly responsible for the losses, and who was known by the monikers “Voldemort” and the “whale” for his outsize position.

              While the bank has filed its claim in court, it has not yet served it upon Mr Martin-Artajo, who will not have an opportunity to file his response until after that stage. This also means no details of the bank’s arguments are publicly available. The bank has up to four months to serve its claim.

              Mr Martin-Artajo is “deeply disappointed” by the bank’s action, said his solicitor, Greg Campbell at Mishcon de Reya.

              “Mr Martin-Artajo is confident that when a complete and fair reconstruction of these complex events is completed, he will be cleared of any wrongdoing,” he said.

              “There was no direct or indirect attempt by him at any time to conceal losses.”

              JPMorgan declined to comment.

              The bank’s London lawsuit, which was first reported by Bloomberg News, follows a pledge in July that it would attempt to claw back bonuses from the traders involved.

              The trading fiasco marred the bank’s reputation for risk management and led to the resignation of Ina Drew, who ran the chief investment office. It sparked an internal investigation, regulatory inquiries, and in September caught the attention of the powerful US Senate subcommittee on investigations.

              In its most recent trading update earlier this month, JPMorgan reported a net income of $5.7bn for the third quarter and said there were further “modest” losses from unwinding credit derivatives on the London office’s trading book.

              Mr Iksil and Mr Martin-Artajo have left the bank. The New York Times reported earlier this month that Mr Iksil has returned to his native France.

              The bank may not sue all the traders it alleges are responsible and has been in talks to attempt a voluntary return of bonuses.

              US authorities, including the Federal Bureau of Investigation, are probing JPMorgan over the situation. The UK’s Financial Services Authority is investigating.

              Regulators are scrutinising JPMorgan’s disclosure on an April call to investors that initially dismissed concerns over the position, as well as how traders in a London arm of the chief investment office were able to amass huge lossmaking positions.

              With additional reporting by Tom Braithwaite in New York

              US Treasury to issue $72bn of debt next week

              Posted on 31 October 2012 by

              The US Treasury announced $72bn of debt sales for next week and said it remained on track to issue floating rate notes in 2013 but had yet to decide on approving negative interest rates for short-term bill sales.

              The Treasury said it expected the Federal debt ceiling would be hit by the end of the year, but said accounting manoeuvres would extend its financing options into early 2013. The debt ceiling is not expected to be resolved until Congress addresses the fiscal cliff of automatic spending cuts and tax rises after the election.

                “We continue to expect that these extraordinary measures would provide sufficient ‘headroom’ under the debt limit to allow the government to continue to meet its obligations until early in 2013,” said the Treasury.

                The Treasury Borrowing Advisory Committee, a group of bond dealers and investors, told the Treasury at their quarterly meeting this week that a timely and orderly resolution of the fiscal cliff by year-end would help ease economic uncertainty and boost the overall outlook.

                The Treasury told the TBAC that they were on schedule to conduct the first Floating Rate Note auction late next year.

                “The timeframe reflects Treasury’s best estimate for implementing required auction regulations and information technology systems modifications,” said the Treasury.

                Bond traders said the delay reflected in part the difficulty of selecting an appropriate benchmark for the new security. Candidates range from Treasury bills, the Federal funds rate and Treasury general collateral from the repurchase, or repo, market.

                The question of allowing negative rate bidding on short-term bills had yet to be determined, said the Treasury, which wants the bond market to study their pricing systems and report any operational issues that could arise if negative rates are allowed in the future.

                This week’s quarterly meeting between the TBAC and the Treasury was also affected by hurricane Sandy, with participants speaking via a conference call rather than gathering in Washington at the Hay Adams Hotel.

                Representatives from Goldman Sachs, BNY Mellon, Credit Suisse and Western Asset Management did not participate on the call after committee members were informed that attendance would be optional.

                Next week’s debt sales will comprise a $32bn three-year note, a $24bn 10-year issue and a $16bn 30-year bond. The $72bn offering will raise $8.9bn of new cash as the Treasury meets a $63bn redemption in mid-November.

                Nasdaq acquires Mergent indexing business

                Posted on 31 October 2012 by

                The Mergent family of dividend indices have been snapped up by Nasdaq OMX group in a deal that will further strengthen the exchange operator’s existing indexing business and provide it with greater exposure to the rapidly growing exchange traded funds industry.

                The deal also provides further evidence of the deepening relationship between exchange operators and index providers.

                  Last year, the London Stock Exchange acquired control of the FTSE International index business from Pearson, the education and information group that owns the Financial Times.

                  That deal followed an agreement between the exchange operator CME Group and McGraw-Hill, the owner of Standard & Poor’s, which united their indexing businesses in a joint venture, bring the Dow Jones Industrial Average and the S&P 500 index together in the same company.

                  Mergent is the creator of the dividend achievers indices which track companies with strong long-term dividend growth.

                  These indices provide the benchmarks for some of the fastest growing ETFs, such as Vanguard’s VIG which has attracted just under $2bn in inflows so far this year.

                  Invesco PowerShares, the fourth largest US ETF provider, also offers ETFs based on Mergent’s dividend indices.

                  About $15bn in assets is currently benchmarked against Mergent’s dividend indices, mainly in ETFs, so they will provide a healthy income stream to Nasdaq OMX from licence fees.

                  John Jacobs, executive vice-president, said the deal would mean that at Nasdaq OMX’s index business would become one of the largest providers of dividend-themed indices.

                  “We see a growing need for indices to provide rules-based and transparent benchmarks for dividend and income themed investments,” said Mr Jacobs.

                  Assets of ETFs licensed by Nasdaq OMX are expected to increase 30 per cent as a result of the acquisition.

                  Mr Jacobs said the Mergent deal was the just latest step in the expansion of Nasdaq’s indexing business which has grown to include a family of US equity indices, a range of sharia indices, commodity and green indices and fixed income indices.

                  “We recognise that the world of indexing is changing and there is room for more efficient and effective index providers,” said Mr Jacobs, adding that Nasdaq intended to apply some of the efficiencies of its exchange operating business in its indexing activities.

                  Nasdaq recently launched a new data distribution system that allows its customers to analyse its indices more easily. It plans to launch a further 24,000 equity indices before the end of the year and to offer a new global equity index calculator to clients.

                  Mr Jacobs emphasised that as well as offering technological improvements and more efficient data distribution, Nasdaq intends to compete aggressively on cost against rival index providers.

                  “Index providers are in competition with each other. Indexing costs matters if you are an ETF manager and we believe that we can produce our indices better, faster and cheaper than anyone else in the industry,” said Mr Jacobs.

                  Sandy set to cost insurers at least $7bn

                  Posted on 31 October 2012 by

                  A woman cleans up the destruction at South Street Seaport in New York on October 30 2012©AFP

                  Even relatively conservative analysts predict Sandy will rank among the eight most costly hurricanes ever to have struck the US, with losses to the insurance industry of at least $7bn.

                  The more pessimistic point out initial forecasts have a tendency to underestimate the final tally, as was the case with hurricanes Katrina and Irene. One consultancy, PwC, says the total costs to the economy may well reach $45bn.

                    Even so, investors in the biggest US insurance companies – given their first chance to respond to the disaster on Wednesday – were unflustered as markets reopened.

                    Shares in the big US property and casualty insurance companies came under some selling pressure but few lost much more than 1 per cent.

                    The cool-headed market reaction to the widespread devastation partly shows that investors are confident the well-capitalised industry should withstand the looming multibillion-dollar payouts.

                    It also reflects the likelihood that the federal government will end up footing a big chunk of the bill.

                    Private sector underwriters in the US do not usually cover flood damage for households. Many households lack cover or are covered by the taxpayer-backed National Flood Insurance Program.

                    Public sector authorities will also bear much of the costs of repairing damage to infrastructure such as tunnels and subways.

                    Nevertheless, AIR Worldwide, the catastrophe modelling group, estimates that private sector insurers are facing a bill of between $7bn and $15bn.

                    Inflation-adjusted data from the Insurance Information Institute show that, at the top end of the range, Sandy would become the third most costly hurricane in US history, surpassing losses arising from Wilma in 2005.

                    Insurers are facing payouts for damage both to the structure and contents of property – residential, commercial, industrial and cars – and other costs, such as additional living expenses for residential claims.

                    Given that Sandy brought New York and other big cities along the eastern seaboard to a standstill, payouts for business interruption are also likely to form a big chunk of the total costs for insurers.

                    “With Katrina, we saw interruptions claims making up approximately 20 per cent of the overall insurance loss,” said Mohammad Khan, insurance partner at PwC. “Whether this is applicable to Sandy depends on the swiftness of recovery of the subway and other transports links.”

                    RMS, another disaster modelling company, indicated business interruption insurers would be keeping a close eye on “whether mandatory evacuations and no-go zones are maintained for an extended duration”.

                    It added: “It’s unclear how long it will take to restore power. Reconnection rates have been shown during previous hurricanes to be an important driver of losses, for example from perishable goods.”

                    Munich Re, the reinsurer, said on Wednesday that it might be weeks before a reliable estimate was available.

                    Banking may lose its allure for the best and brightest

                    Posted on 31 October 2012 by

                    As UBS announced plans to chop 10,000 staff this week, many traders reacted with shock. Little wonder: during the past three decades, it might have seemed inconceivable that any bank could slash its workforce so far, so fast. The young(ish) traders who suddenly found themselves locked out of UBS this week built their careers in an era when finance seemed to keep inexorably growing; investment bankers were woven into the fabric of the modern economy, along with ultra-high levels of banking pay.

                    But viewed through a long lens of history – say 100 years – this week’s news does not seem so unusual. For while finance might have swelled in recent decades, it is often forgotten that in earlier periods it also shrank, to a startling degree.

                      Take a look, for example, at some research conducted by a New York based economist, Thomas Philippon, partly in association with Ariell Reshef
                      of the University of Virginia. They chart the fluctuations of American finance since 1880 and show, firstly, how dramatically finance swelled from the late 1970s to today. Jobs in banking multiplied and the financial sector, adjusted for defence spending, rose from 4 per cent of gross domestic product to just under 9 per cent at the peak. Banker pay swelled too: although average banking salaries relative to non-banking professional salaries were almost at parity in the 1950s, by 2007 they were 1.7 times higher.

                      A similar expansion took place in the early years of the 20th century. Between 1880 and the early 1930s, finance’s share of GDP rose from 2 per cent to 6 per cent. Banker pay rose from parity with non-banker pay to 1.7 times then as well.

                      But the trend does not always go one way. After the 1929 crash, finance shrank sharply and banking jobs disappeared. So stark was this decline that from 1940 to the early 1970s, finance looked like a “normal” profession: it paid its staff on a par with other professionals, working in medicine or education, say, with similar levels of education.

                      Could a comparable swing occur now? Until recently it seemed hard to imagine. After all, bankers have not appeared to suffer much since 2008, which is precisely why so many politicians and voters feel so much anger. Headhunters reckon employee numbers and salary levels have declined by a fifth or so since 2007; but this reverses only a small part of the previous decade’s expansion.

                      However, this may reflect a time lag. For, once again, history is instructive. Back in the 1930s, bankers’ relative wages did not start falling until the mid 1930s and the size of the financial sector, relative to GDP, peaked in 1932, not 1929. That was partly because the entire economy was shrinking after the Wall Street crash. But another factor was that the Glass Steagall reforms were not implemented until 1933. Arguably, it took even longer until bankers finally realised that the nature of finance had changed: it was no longer purely a profit-seeking, speculative game, but was shaped by more of a utility mentality, thanks to government pressure and deleveraging (and, subsequently, the second world war).

                      This time, change is slower: four years after the crisis, the modern equivalent of Glass Steagall has not yet taken full effect and the shift from a speculative bank culture towards a utility mindset is less marked. That is partly because government does not control finance as tightly as it did in the 1930s; nimble financiers now hop across borders and many activities occur outside regulated banks.

                      Nonetheless, those half-formed Basel, Dodd-Frank and Volcker rules are starting to bite: when UBS announced its cuts, it said the new regime made it uneconomic to run a fixed-income operation. Deleveraging is under way too. So it should be no surprise that UBS now wishes to focus on simpler, more transparent transactions that serve the retail base. Nor should anyone be surprised that Axel Weber, UBS chairman, expects other banks to follow suit. After all, by earlier standards, we are still “only” in a period akin to 1933; there could be plenty more retrenchment ahead. According to recent calculations by Mr Philippon, the relative size of finance in the US economy did not even peak until 2010, not 2007; as in the 1930s, the really stark relative shrinkage might lie ahead.

                      That will be of no comfort to the UBS traders who were so crassly locked out. But there may be a silver lining for policy makers. In those postwar years, when finance was more of a utility and offered fewer ultra-well paid jobs, the brightest students flocked into other fields, such as manufacturing or medicine. That has not quite occurred in the US yet; surveys suggest that many business school students still dream of working on Wall Street. But with every new retrenchment, perceptions are changing. If that continues, the next decade could make the western economy a touch more balanced; or, at least, a place where finance finally starts to look more “normal”, compared to everything else.

                      * ‘Wages and Human Capital in the US Financial Industry 1909-2006’,
                      by Philippon and Resheff, 2009