The sudden collapse of S G Warburg in the mid-1990s was a defining moment in the structure of the UK's financial markets. Until that point it looked as if Britain could retain an indigenous investment banking industry. Afterwards ownership of all the major investment banks by foreigners became inevitable.
The collapse and subsequent rescue of Warburg's by the Swiss bank, SBC, was all the more baffling because it seemed to come out of a clear blue sky. Warburg's had been the outstanding beneficiary of Big Bang, assembling the most powerful investment bank in Europe by combining a leading corporate finance house, broker and jobber. Approval ratings by clients were astonishing. By the early 1990s earnings were on a steeply rising trend, peaking at pounds 200m in 1993.
The speed of the decline from colossus to pygmy desperately awaiting rescue could not have been more traumatic. Indeed, more than a decade later whenever two or more ex-Warburgers meet, the conversation still inevitably turns to the harrowing months that turned their working lives upside down and the real reasons for the collapse.
I spent last summer double-checking the story with the main participants. I was struck by two things. The first was how many of the developments had been wiped from the memory of those who were involved in them. Occasionally this memory loss was "strategic". The other striking fact was how participants remained unaware of key activity undertaken by others which had a direct impact on their own position. So a decade later and despite all the informal post mortems, I felt I was piecing together the course of events for the first time.
In the summer of 1994 Simon Cairns, the bank's chief executive (and the sixth Earl Cairns), took a decision that Warburg's go-it- alone strategy should be abandoned in favour of a merger with a major US investment bank. The house selected was Morgan Stanley - one of the leading "bulge-bracket" firms on Wall Street - and negotiations began in September. The talks proceeded over the next three months but before agreement could be reached rumours that Warburg was talking to another began to circulate in London and suddenly its share price took off. With the pressure on to make an announcement, the company decided to push ahead with the merger regardless, even though the negotiation would have to be completed through the pages of the financial press.
Great unhappiness developed among the inevitable victims of a combination in both firms, which severely undermined further progress, while Warburg's subsidiary Mercury Asset Management demanded a healthy premium for their external shareholders. Judging that these pressures would not allow sufficient time to complete the transaction, Morgan Stanley's chief executive John Mack pulled out without warning.
The impact of this rejection on Warburg morale was devastating. From the board to the trading floor, employees felt that the group had lost any sense of direction, an impression reinforced by the clumsy partial closure of the fixed interest division. At a time when other financial institutions were circling, looking for key personnel to build their presence, this left Warburg highly vulnerable. First to abandon ship was the equity capital markets team in early February, lured by exciting financial offers from Deutsche Bank. In the end about 200 executives found their way over to this rival. Cairns himself resigned at the end of the week, citing the loss of confidence of his team.
Now David Scholey, the chairman and former chief executive, was forced to find a safe haven. He selected SBC as Warburg's acquirer, rejecting the alternative, domestic, suitor Nat West. "NatWest made an appalling impression, shuffling in with peeping Tom-type mackintoshes," one of the members of the interviewing board recalled. "I couldn't see any credible way to work together with them. …