Money makes their world go round
A late-night bar in the West End, and Paul is holding court. “So I’m on the dance floor giving it a bit of that, this fella comes over and says, That trader you’re at war with, he’s found out it was you who put eight laxatives in his tea. Spent the entire weekend in the khazi. He’s furious. He’s boarded your house up.’ I was like, yeh, so what? But he goes, No, he’s boarded the entire house. You better have a look.’ He had as well. Not just the doors and windows, the whole thing, even the roof. Got a team of builders in to do it. Took me hours to get back into the place. Completely ruined my wedding, that did.”
Welcome to the world of the City trader, a gauche place not for the easily offended.
This is the underbelly of the Square Mile, frequented by the lads who make the money minute-by-minute, not the Oxbridge officer class who tend to be in charge. They are a humorous lot.
The latest to tap the funny bone is an oil dealer called Steve Perkins, who spent $520?million on a series of bets on the oil market in the midst of a four-day drinking binge that began with a weekend of golf. Perkins managed to dramatically move the global oil market by trading from his laptop in the early hours of the morning while so smashed that he blacked out. By his own admission, he had no idea what he was doing.
His firm, PVM Oil Futures, fired him and the Financial Services Authority has banned him from the City.
To those of us who live in a world of controls and caution, where expenses are queried and overdrafts are worrisome, this all seems extraordinary.
A reader surveying the details of the Perkins story, and his final calamitous trade made at 3.41am, emailed thus: “You mean to tell me that when I want to pay for my coffee at Starbucks by breaking a £50 note, they have to get two managers to approve it, but this bloke can trade nine million barrels of oil from his laptop at home in the middle of the night and nobody notices until the next day?”
It’s a reasonable point.
But the Perkins incident is more than just a joke. It throws a spotlight on a culture that remains stubbornly resistant to reform despite three years of financial crises.
After each rogue trading incident, from our own Nick Leeson to France‘s Jérôme Kerviel, financial firms insist that they have tightened up. They don’t hire “those” types any longer, they whisper, and the beefed-up compliance departments — the internal cops — are now brutal. Each new scandal exposes these claims as a sham.
Traders must be allowed, it seems, to do what they do at any cost. City firms need them and as long as they are winning, a blind eye will be turned.
But who exactly are they?
That cocky kid from school we have all known — well, give him a few basic qualifications, put him on steroids and that’s your boy (they are nearly all boys).
I met up with one last week and, while slurping lager and eyeing secretaries, this single 42-year-old who tried to quit but came back said: “I joined the City by accident at 16 after leaving school. I left at the age of 30 with £500,000 in the bank. I wanted to do something different. I was getting myself into trouble and drinking too much. I did a degree in psychology, which I really struggled with. I just barely scraped it.
“I went to see a careers adviser, who said I could be a probation officer on £14k a year. My rent was £25k. I just couldn’t handle the thought of working for so little cash. I came back to trading under duress. Sometimes I wish I’d done something else. But the money is hard to refuse.”
In some ways traders are the most honest of the various breeds working in the City. They are nakedly out for themselves, with no pretence that what they do does, or should, have any social value.
Asked to justify his existence, a dealer at a spread-betting house stumbled: “Well, if you put it like that. Erm. We spend a lot of money in bars and restaurants, I suppose. We buy fancy cars. We contribute to society that way.”
That’s a refreshing approach compared with investment bankers and public-relations execs, who tend to have views of themselves as men of integrity that may clash with reality. It’s telling that even traders don’t think that what they do is all that useful.
The people we are talking about here are not the sober-suited fund managers running pension schemes who aim to pay for the retirements of civil servants in 30 years’ time. They want to make a profit from a deal in an hour, a minute or a second.
Their worth is that they add liquidity to the market, they make it easier for everyone else to buy and sell. Beyond that, it’s a zero-sum game. They don’t create value, they just shift it around.
Essentially, traders are interested in two things: money and fun.
If you worry that you are taking life too seriously, a night out with the wheeler-dealers could be just what you need. I once suggested to a trader that, in order to avoid getting paralytically pissed, we went to the movies. It was met with incredulity. An eyebrow was arched. “You asking me out?” Books and films are of passing interest at best, unless they are about money.
One of the crowd left his nice, sensible wife for a stripper. He then left the stripper for a Russian stripper. This was a move upmarket, he reckoned, until she also turned out to be a credit card fraudster. His life is, has always been, total chaos.
Now 38 years old, he says: “I followed my dad into the City. It’s what you do in our family. You follow the money. I can’t see that I’d be happy doing anything else.
“I think about women all the time. It’s what gets me up in the morning. In terms of meeting them, being able to say you run a hedge fund is the best, probably better than saying you’re a footballer.”
You might think this an odd person for rich folk to be handing over £200,000 to punt on the stock market, but they do. Watching traders work can be impressive. The best are something close to autistic, with a head for numbers that allows them to do maths incredibly quickly.
“They are larger-than-life characters but they don’t quite fit into normal society. They couldn’t cope with large company culture, they thrive on working for themselves. On the surface they seem like arrogant people who bubble with confidence. Underneath, they know they are not socially adept.”
Why are the worst of them still allowed to run amok?
Says Buik: “The opportunities for rogue trading are less than before. The lesson was half learned after Nick Leeson, we have moved on from there. Jack the Lads spivving oil or gold in the middle of the night will be caught much more quickly these days. People will find ways around the controls but it’s harder.”
How wealthy are they? Only the very best make several million a year. The others live very comfortably but true riches are always just out of reach and outgoings will comfortably keep pace with incomings.
At the mid-level of a medium-sized firm, the average trader might get a salary of £150,000, a bonus of the same and a few extras. Sometimes they get paid just for placing trades on behalf of clients — a small slice of £10 million is a nice chunk of change.
Sometimes they get a percentage of the uplift from winning trades. The amount depends on the firm, and stock market conditions, but the gains can be split as much as 50/50 between the client and the firm, with the trader getting up to half of the half.
In the office by 6am and out by 4.30pm, the key to their job is that they’re usually betting with other people’s money. If they win, they get a taste, if they lose, it’s largely someone else’s problem.
Most are aiming to move into management by their forties and talk of burnout is common. Some who do make a mint retire early but then come back. They can’t help it; it is all they know how to do.
In this environment of absolutes — up or down, yes or no — traders get known for one thing only, and reputations stick. One said: “You become known as the guy who can get football tickets, or the dandy or the lounge lizard. You find yourself playing up to it rather than fighting it.”
As for how they dress, it depends on the firm. If you work for Morgan Stanley, you are expected to look immaculate. At smaller outfits, traders who don’t ever meet clients can dress like sacks of spuds.
Are they worried about a crackdown on their activities in the light of Perkins? Not really. With the FSA’s power draining away to the Bank of England, dealers reckon they are presently under less supervision than ever.
The FSA can’t even, it seems, control Steve Perkins.
Two days after he was banned from the City, it emerged that he is in talks about a new job trading energy contracts for a Swiss firm outside the FSA’s control.
The regulator sniffily noted in response to this news: “Mr Perkins poses an extreme risk to the market when drunk.”
Over in Geneva, they seem to think it’s a risk worth taking. Perhaps they are right.