The mysteries of Siegmund Warburg
by David Marsh
Mon 9 Aug 2010
Siegmund Warburg, the German-Jewish banker who gave his name to the financial firm that was undoubtedly the most successful post-war U.K. bank, would not have felt at home in today's capital markets. That is an understatement of the sort that would have resonated with the restlessly intellectual gentleman artist/capitalist who died in 1982 and whose life – or "lives" as the author puts it – are celebrated in Harvard professor Niall Ferguson's gripping biography published this summer.
High Financier – The Lives and Times of Siegmund Warburg
By Niall Ferguson
Allen Lane, 2010
The founder of S.G. Warburg & Co. was an enigma. A man of many parts: a believer in European integration who ultimately gave up his belief in a united Europe; a half-hearted Zionist who despaired of any resolution of the Israeli-Palestinian struggle; a successful banking pioneer who professed no real interest in money; an idealist who, were it not for his forced emigration to the U.K. under Hitler, would no doubt have remained in Germany and become a first-rank although somewhat verbose politician.
Warburg was rightly called "an artist in finance" by his old friend Paul Ziegler. In day-to-day dealings in the bank, as well as in weightier philosophical matters, he insisted on the primacy of written notes and documents, frequently elaborate to the point of pedantry.
His long-time associate Peter Stormonth Darling, former chairman of the Warburg asset management group Mercury Asset Management, says, "Warburg believed that the ideal banker was an all-rounder with an appreciation of literature and the arts, rather than a specialist immersed in financial matters.... Possessions meant little to him, with the exception of a well-stocked and lovingly assembled library in his house overlooking Lake Geneva."
How well would he have fitted into the Blackberry- and algorithm-studded banking scene of today?
The answer is: Not at all. Warburg's story is of value because it directs light into the evolution of banking – and leaves readers thinking that the "haute banque" (to use one of his characteristic phrases) of his creation would have a distinctly hard existence in contemporary times.
Not that Warburg did not encounter setbacks. One life-long disappointment was his failure to strike a place for Warburgs in New York, above all because of disagreements over linking up with Kuhn Loeb during the 1950s and early 1960s.
In the order in which he wrote down his five rather-prim premises for banking excellence for Kuhn Loeb in 1953, Warburg's prescriptions for a first-rate financial firm lay first and foremost in his strictures on "moral standing." Then followed demands for "reputation for efficiency and high-quality brain work," "connections," "capital funds" and "personnel and organisation."
Nothing wrong in that, you might say. In today's banking world, however, no one would risk ridicule by listing such conditions for success, let alone by trying assiduously to fulfil them. Yet this is what Warburg did – sticking steadfastly, often to the point of self-caricature, to his principles. After his death, his precepts were more or less forgotten. S.G. Warburg & Co. suffered the pains of aggressive over-expansion and eventual downfall.
A potential merger with Morgan Stanley came to nothing in 1994 after negotiations leaked out. In April 1995, his creation was bought by Swiss Banking Corporation for the relatively low price of £860 million – essentially the net asset value of the investment banking business plus an 8% premium. As Ferguson writes, "Somehow a Swiss bank seemed less of a humiliation than a Wall Street house or, worse by far, a British clearing bank."
After a succession of mergers and name changes, UBS (as it subsequently became) in November 2002 decided to drop the appellation Warburg altogether. Even the name Mercury disappeared shortly after Merrill Lynch bought Mercury Asset Management for £3.1 billion in 1997 – a sum that probably had Warburg turning in his grave.
Siegmund Warburg practised self-deprecation and hated arrogance almost as much as he did "mediocrity" and "mediocrities" (two more or less interchangeably favourite words).
His judgments were finely formed but not always right.
Witness his quixotic initial (although speedily changed thereafter) reaction to the rise of Hitler – including the phenomenon of anti-Semitism. "It creates," Warburg wrote in March 1933, "what we need more than anything else – a dynamism among those people [the Germans] who have had enough of played-out problems and exhausted strength."
Or his visceral opposition (which he fought hard and successfully to implant in U.K. Prime Minister Harold Wilson) to a devaluation of the pound in 1964 – a step that was taken eventually, after much pain and strife, in 1967.
His sheer quirkiness, and the unending store of aphorisms revealed in his letters and diary entries, give Warburg an aspect that is both larger-than-life and also strangely unworldly. One example is his almost supernatural belief in discerning character through handwriting, by means of the pseudo-science of graphology, which he applied not only to potential Warburgs employees but also (extremely unfavourably) to Edward Heath, British prime minister during the 1970s.
Warburg's legendary discipline and penchant for control extend well beyond his demise. Ferguson does a valuable job in assembling a fascinating, even haunting, study of 20th Century banking through the treasure trove of 10,000 documents opened up by the Warburg family. But we are treated on the whole to documents that Warburg himself must have written in the expectation that they would one day be published.
What we witness in this biography is a superbly crafted self-image of a quintessential force in international finance of the kind that will probably never return. Yet the true clues to unravelling Warburg's mysteries must lie in matters that even this master in record-keeping believed were too precious ever to commit to paper.
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