HISTORY - The World As We Found It
Breakthroughs, breakdowns, fashions. Four decades of finance as seen from behind, in front and between.
1967Institutional Investor debuts in March. The first issue, featuring a Montreal Stock Exchange trader on the cover, is delivered to Wall Streeters, fund managers and government officials. One story reports that the Securities and Exchange Commission is eyeing hedge fund regulation.
•Texas Instruments introduces the first handheld calculator.
•Annals of II: The price of securities research is soaring. II finds that “a major research effort requires approximately 15 senior analysts, 10 junior analysts, 12–15 statistical analysts and 8–10 in clerical help.” Firms, it warns, had “better be ready to spend more than $1 million a year.”
•U.S. banker Michael von Clemm invests $900 to help the Roux brothers open
Le Gavroche in London, delighting the city’s expense-account users and helping to launch a new era of British dining.
•Annals of II: Anticipating the dawn of a new century, an II list of 100 likely technical innovations includes permanent inhabited undersea installations, stimulated and perhaps programmed dreams and artificial moons.
•Barclays installs the world’s first cash dispenser machine, in North London.
•November 19: British Prime Minister Harold Wilson, hoping to boost exports and close a trade deficit, devalues the pound by 14.3 percent, to $2.40. He famously assures Brits that the pound “in your pocket” has not been devalued.
•Muriel Siebert, a seasoned brokerage employee, launches her own firm and becomes the first woman to buy a seat on the New York Stock Exchange, making the ratio of men to women 1,365-to-1. Her arrival forces the Big Board to build a women’s rest room.
Annals of II: Fund manager Fred Alger, 32, makes the cover of II with his 1967 compensation — $1.1 million — provoking widespread astonishment.
•Under new CEO Walter Wriston, First National City Bank establishes the first one-bank holding company, First National City Corp., enabling the firm to pursue ambitious diversification and international expansion.
•Annals of II: Hedge funds begin to proliferate, their 20 percent performance fees attracting a certain kind of manager: “Normally, dinner conversation is half business and half sex and politics,” a writer is told. “With these hedge fund guys, there is very little sex and politics.”
•The NYSE closes every Wednesday for six months to cope with a paperwork crisis caused by dramatically increasing trading volumes. By year-end almost 38 percent of U.S. household financial assets are in equities, a level that won’t be exceeded until the mid-1990s.
•Annals of II: Proving that the district remains a male bastion, the corner of Wall and Broad attracts up to 10,000 men daily, gathered to watch a woman with a 43-inch bust emerge from the subway.
Annals of II: Driven by their clients’ need to achieve performance, analysts begin to release negative reports. Still, confesses one, “If you’re really sour on a company — particularly because of bad management — you dare not put it down on paper.”
•Desktop quote machines, first introduced in 1961, are now a must-have. Hookup fees can run as much as $7,000 a year for a high-end model.
•Instinet is founded, introducing electronic trading for institutions.
•Annals of II: In the big dysfunctional family that is the NYSE trading floor, a man who wears a toupee is known as Rughead.
•Saul Steinberg, a young computer-leasing millionaire who acquired Reliance Insurance the previous year, attempts to buy Chemical Bank but is beaten back by establishment figures who do not wish to see one of the largest banks in the U.S. owned by a 30-year-old named Steinberg.
•Annals of II: How are money managers different from other men? A survey reveals that financiers are more likely to enjoy tennis, bridge and jazz concerts, while the control group are more apt to prefer fishing, camping and boxing. All like poker, stag parties and nightclubs. None wishes to lead a Boy Scout troop.
•In a sign of growing strains in the Bretton Woods system of fixed exchange rates, the International Monetary Fund introduces the special drawing right, a new reserve alternative to gold or the dollar, to support the growth of world trade. The SDR will later be redefined as a basket of currencies. France devalues the franc by 12.5 percent against the dollar, while West Germany revalues the deutsche mark by 9.3 percent.
Annals of II: The SEC bars the Energy Fund from using a rocket symbol because it would imply upward movement. Similarly banned are the color gold and an advertising depiction of a firm’s headquarters, which regulators deem much too solid and handsome.
•The Werner Plan: Luxembourg Prime Minister Pierre Werner sets out a three-stage process for creating a European economic and monetary union with a single currency. Although oil price hikes and financial crises will derail the initiative, Werner’s plan will serve as a preliminary blueprint for the 1992 Maastricht Treaty.
•Shocking the financial establishment, Donaldson, Lufkin & Jenrette becomes the first NYSE member to make a public offering. “A door to Wall Street’s private club suddenly swings open,” declares the New York Times.
•Bernie Cornfeld’s Investors Overseas Services fund of funds cannot pay the dividends it has guaranteed except by dipping into capital. Financier Robert Vesco rides to the rescue, buying IOS but allegedly pilfering some $200 million before fleeing the U.S. for Costa Rica. Cornfeld will spend time in a Swiss jail before being acquitted; Vesco will seek refuge in Cuba only to be sentenced in 1996 to 13 years in prison for trying to market an unproven AIDS drug.
•The mortgage-backed-securities market is born when Ginnie Mae guarantees a pool of mortgage loans. Freddie Mac opens, further expanding the market; it will issue its first modified pass-through mortgage-backed
participation certificates a year later.
•Joseph Searles III becomes the first African-American member of the NYSE.
•London’s Man Group loses a contract of almost 200 years’ duration supplying the Royal Navy’s daily rum ration.
•When construction workers disrupt a student demonstration against the Vietnam War in New York’s financial district, some traders join in with a few kicks and punches of their own.
Nasdaq begins trading on February 8.
•The U.K. decimalizes its currency: A pound is worth 100 pence instead of 240, and the shilling is consigned to the dustbin.
•Future presidential candidate and Texas computer maven H. Ross Perot bails out brokerage F.I. duPont, Glore Forgan & Co. with a $10 million check. He will throw a total of $100 million into the future duPont Walston before the company collapses in 1974. Is that a giant sucking sound we hear?
•The U.S. runs a balance-of-payment deficit for the first time since the depression of 1893.
•Annals of II: A junior Wall Street analyst starts at about $15,000, rising to between $25,000 and $50,000 at midcareer; a favored few earn as much as $100,000. The best salaries are at specialist funds and institutional brokerages, the worst at banks and mutual funds.
•With U.S. gold reserves dangerously low, President Richard Nixon announces on August 15 that the U.S. government will no longer convert dollars into gold. He also places a 10 percent surcharge on imports and imposes wage and price controls in a bid to contain inflation. In December, Treasury Secretary John Connally famously tells America’s allies, “The dollar is our currency, but your problem.” The Group of Ten agrees to a 9 percent dollar devaluation and to allow limited currency fluctuations in an effort to keep the Bretton Woods system alive.
The Chicago Mercantile Exchange begins trading, launching the first financial futures.
•In Europe’s first effective monetary cooperation, the six European Community members adopt the so-called Snake Agreement, limiting exchange-rate fluctuations.
•Annals of II: The magazine publishes its inaugural All-America Research Team ranking of Wall Street’s best-performing analysts. It will quickly become the most influential survey of Wall Street researchers.
•The first issue of Ms. magazine includes a recruiting ad from Merrill Lynch.
•After six years of near misses, the Dow breaks 1,000 on November 14. A two-year bear market promptly ensues, wiping nearly 50 percent off the index’s value.
The Chicago Board Options Exchange is born on April 26, when 911 contracts are traded.
•Annals of II: Venture capitalists repeatedly rebuff FedEx’s radical courier-service proposition, which requires an immense initial investment. Eventually, though, enough investors bite, and FedEx flies. Had it not, says II, the nascent venture capital industry never would have taken off.
•The world moves to floating exchange rates, ushering in a new era of volatility and financial innovation. The U.S. attempts one last devaluation, of 16 percent, in February before floating the dollar against European currencies on March 19, bringing an end to the Bretton Woods system.
•Annals of II: Wall Street lands only 11 percent of Harvard Business School grads, down from 20 percent a year earlier. “New York is too dirty and grubby,” explains one who opts to stay in Boston.
The median starting wage on Wall Street is $17,500, versus $16,500 in banking, but neither can touch
the petroleum industry’s princely $20,000.
•Britain, Ireland and Denmark join the European Economic Community, expanding Europe’s economic power but starting a long unraveling of its political cohesion.
•Annals of II: “The S&Ls: Should they be bought regardless of their fundamentals?” II asks.
•October brings the first oil shock, when OPEC members announce that they will quadruple the price of a barrel after failing to close a deal with the world’s major foreign-owned producers. Arab OPEC members impose an embargo on nations that supported Israel during its war with Syria and Egypt, causing shortages and gas lines across Europe and North America. World trade contracts; Japan’s economy slows; inflation in the West spikes.
•Ibrahim Oweiss, an economics professor at Washington’s Georgetown University, coins the term “petrodollars.”
The financial world wakes up to the dangers of settlement risk when Herstatt Bank, a medium-size bank in Cologne, is shut down by German regulators and counterparties suffer major losses.
•Hostile takeovers move into white-shoe territory. In the first such acquisition involving a blue-chip aggressor, Morgan Stanley represents Toronto’s Inco mining company in its bid for battery maker ESB.
•Annals of II: In New York the industry crowds into a small handful of bars, especially Harry’s East and West, which tradition dictates are restricted to traders so customers don’t hear any loose talk. In San Francisco the early close to the trading day sparks the rise of watering holes that also offer good food, helping to spark the creation of America’s foodie mecca.
•Congress passes ERISA to protect the rights of pension plan participants. The act enforces fund manager fiduciary responsibilities and establishes basic guidelines for transparency.
May Day: The SEC shuts down fixed commissions, giving rise to discount brokerages like Charles Schwab and setting the stage for massive consolidation on Wall Street.
•New York does not drop dead: The federal government agrees to extend credit to the city to ease
its fiscal crisis.
•The banker’s three-piece suit, out of favor since the 1940s, returns with a vengeance. The fashion
in facial hair: beards and muttonchops.
•French President Valéry Giscard d’Estaing invites the leaders of West Germany, Italy, Japan, the U.K. and the U.S. to meet for informal discussions about the global economy at Rambouillet, outside Paris, launching what will become the G-8.
Following the collapse of sterling, Britain’s Labour government accepts an IMF bailout — the last for a major industrial country.
•NYSE chairman James Needham resigns after four years. Published reports say he was pushed out after he fought — and failed — to maintain fixed brokerage fees.
•The advent of the Tafex electronic currency trading system fails to impress some bankers. Says a head forex trader, “My people don’t want to spend their whole day looking at some boob tube.”
•As trading hits a lull, the effects of May Day are beginning to kick in. Commission rates on Wall Street have dropped by as much as 85 percent.
•Annals of II: Japanese economists predict an end to their country’s era of rapid economic growth. Twelve years later they will be proved right.
Annals of II: The magazine reports on a newly competitive marketplace where payola thrives: At some Manhattan bars, if certain brokers show up, they are expected to pay for everyone’s drinks. When one institutional trader buys a new house, his favorite broker buys the furniture.
•Are short-sellers profiting from tips leaked to journalists like New York magazine’s Dan Dorfman and Barron’s Alan Abelson? Abelson denies it. Dorfman allows that they probably are but asserts that it’s the SEC’s job to stop them: “I’m a reporter, not a policeman.”
•Lehman Brothers, founded in 1850, and Kuhn Loeb, founded in 1867, announce plans to merge. The total capital of the combined firms: $78 million.
Annals of II: Demand for Japanese currency is exploding, and traders take calls at home until midnight to accommodate European and American investors. One frightens his wife with his habit of screaming “buy” and “sell” in his sleep.
•With the dollar tumbling to record lows, U.S. President Jimmy Carter persuades Germany and Japan to stimulate their economies at a G-7 meeting in Bonn in July. The so-called locomotive policy spreads stagflation worldwide and does little for the dollar, which hits lows of Dm1.73 and ¥177.
•In a bid to insulate the Continent from the dollar’s woes, French President d’Estaing and German Chancellor Helmut Schmidt agree to peg European currencies together.
Revolution shakes Iran, sparking a second energy crisis. Ayatollah Khomeini returns to Iran on February 1; in November, students storm the U.S. Embassy in Tehran and seize dozens of American hostages, attempting to force the U.S. to return the exiled shah for trial. The shah will die of cancer before the hostages are released 444 days later.
•Margaret Thatcher becomes Britain’s prime minister and embarks on a decadelong effort to restore the U.K.’s economicfortunes.
•The European Economic Community unveils the European Monetary System, which links currencies across the Continent.
•Annals of II: In an inaugural survey looking at the creditworthiness of 93 countries, bankers put the U.S. first and Uganda last. In between they rank the U.S.S.R. ahead of Ireland, Iraq ahead of Iceland and Sudan ahead of Turkey.
•Long used to calling the shots, Morgan Stanley declines an invitation to represent IBM on a
$1 billion debt offering when the company says that it will not allow the bank to be the sole manager. Rather than kowtow to Morgan Stanley, IBM chooses Salomon Brothers and Merrill Lynch White Weld Capital Markets as co-managers.
•The Hunt brothers of Texas, working with Arab partners, try to corner the silver market. They buy up half of the world’s supply before the price collapses in March 1980, forcing them into bankruptcy.
•Annals of II: The magazine notes the rise of Salomon Brothers. The firm’s success is widely attributed to CEO John Gutfreund, known for running meetings “like the shah runs Iran.”
•Pennsylvania tax consultant Theodore Benna realizes that an obscure amendment in the Internal Revenue Code — section 401(k), meant to expand profit-sharing abilities — could be used by employers to set up savings plans for employees. Reportedly, the inspiration comes to Benna while he is at prayer.
•Paul Volcker is named chairman of the Federal Reserve. His attack on the money supply will eventually end the stagflation crisis of the 1970s.
Annals of II: Investor relations is the hot place to be: A Morgan Stanley employee leaves research for IR — where she receives a salary of $120,000 and a new Mercedes.
•April kicks off with a New York subway strike that lasts a brutal 11 days. Kidder Peabody’s Albert Gordon, 78, is seen cruising to work on roller skates.
•Speculation abounds that characters in former investment banker Michael Thomas’s novel Green Monday are based on Wall Street mainstays like David Rockefeller and Robert Lehman — not to mention the author himself as an iconoclastic, suave, sexually voracious banker.
•Ronald Reagan is elected president of the U.S.
•The prime rate reaches a peak of 21.5 percent.
Weill Watch: American Express buys Shearson.
•Annals of II: The lot of analysts continues to improve, with technology specialists the most sought-after. An analyst who can bring in deals may make as much as $500,000.
•Supply-side economics rules. Ronald Reagan, dramatically lobbying Congress just weeks after being wounded in an assassination attempt, pushes through a historic three-year, 25 percent cut in income taxes, ushering in an era of recovery and the twin deficits.
•Salomon Brothers, Wall Street’s largest partnership, merges with commodity trader Phibro Corp.
•IBM does the first big currency swap, with the World Bank. Salomon arranges the deal, which opens up a vast new financing market.
•Future New York City Mayor Michael Bloomberg unveils his eponymous andsoon-to-be-ubiquitous computer terminal.
•Under newly elected President François Mitterrand, France begins a massive nationalization program, quickly leading to the devaluation of the franc and high levels of unemployment.
•In the U.S. the air traffic controllers’ union, Patco, calls a strike over employment conditions and pay. Reagan declares the action illegal, breaks the strike and eventually fires more than 11,000 controllers who had refused to return to work.
A federal judge orders the breakup of AT&T, creating a gold mine for investment bankers.
•With Reagan’s finance-friendly Republicans firmly in place, the bull market begins on August 12. It will run for 18 years.
•Sallie Mae and ITT trade $100 million of fixed-rate debt for $100 million of floating-rate debt — the first large recorded interest rate swap.
•June 19: Roberto Calvi, known as “God’s banker” because of his ties to the Vatican, is found hanging under Blackfriars Bridge in London following the collapse of Banco Ambrosiano. In 2005, Italian prosecutors will claim that Calvi was killed for stealing money from the Mafia and a right-wing Masonic lodge. The trial is ongoing.
•Funny money: Penn Square Bank in Oklahoma City collapses, having produced too many dicey energy loans.
•Mexico declares in August that it cannot service its debt, kicking off the decadelong Latin American debt crisis.
•Lotus 1-2-3 debuts. The combination of computers and calculators proves wildly popular at financial firms.
An E.F. Hutton retail broker appears nude in Playboy. “Maybe she thinks this will help her do more business,” a company official speculates. The broker later resigns under pressure.
•Annals of II: Revenues and profits are sky-high, tripled salaries and six-figure bonus checks are commonplace, and comp packages for senior people in desired areas like M&A can easily exceed $1 million. At least some of that money is spent on limousines. “A lot more executives want to be driven to work in the morning,” reports the owner of a New York service that has doubled its fleet of cars.
•Civil war breaks out at Lehman Brothers: Traders — including future CEO Dick Fuld — throw their weight behind Lew Glucksman and oust Pete Peterson.
•The SEC permanently adopts Rule 415 — allowing a company to file a single registration statement for bond or stock offerings — over the objections of Morgan Stanley and other investment banks.
•Annals of II: According to the magazine, there are 11 bankers in the world with fortunes in excess of $1 billion. None is American, one is European, and ten hail from either the Asia-Pacific or oil-producing Arab nations.
•Annals of II: Does PBS’s popular Wall $treet Week move stocks? Yes, but the gains occur two weeks before the show airs, apparently because of advance bookings and TV listings that reveal who will appear, reports II, basing its findings on an academic study. Investors who bought promoted stocks the day after the show aired actually lost 7.15 percent after a year.
•In May, Continental Illinois National Bank — which had purchased loans from now-defunct Penn Square — is bailed out by the Fed and the Federal Deposit Insurance Corp.
•Shearson/American Express acquires Lehman Brothers Kuhn Loeb in a deal worth $360 million.
•Annals of II: Gil Kaplan sells Institutional Investor to media company Capital Cities Communications.
•“Greenmail” becomes a buzzword after Saul Steinberg fails in a hostile bid for Walt Disney Co. but gets a $60 million premium for his shares.
•At Goldman Sachs, 75 partners make, on average, $5 million each; an estimated 400 employees below the partnership level earn more than $200,000. “We don’t need to know what other firms are like,” explains one partner. “Why should we pay attention to what they’re doing wrong?”
In February the dollar hits a post–Bretton Woods high: $1 buys Dm3.47 and ¥263.
•Annals of II: Women make up a quarter of all Wall Street professionals, but most firms do not have any women at the partner level.
•BusinessWeek dubs Salomon’s John Gutfreund the “King of Wall Street.”
•Technology advances: Grid Systems introduces a “lightweight” portable computer, which tips the scales at a mere ten pounds, compared with 30 for the previous generation of laptops.
•The Plaza Accord: Central bankers and Finance ministers from France, Japan, the U.K., the U.S. and West Germany meet at New York’s Plaza Hotel and agree on a plan to reduce the value of the dollar.
•The U.S. Supreme Court approves the constitutionality of regional interstate banking laws, giving rise to the superregionals.
Microsoft’s IPO gives birth to an immense wealth-creation machine in Seattle, and Wall Street, as equity appetites are piqued.
•Morgan Stanley goes public.
•Annals of II: Accustomed to requests for tickets to Knicks and Rangers games, Morgan Stanley veterans are astonished by the pressure from blue-chip clients desperate to see WrestleMania 2.
•Of the 1,300 members of Yale’s graduating class, 40 percent apply to First Boston.
•Home banking, a nonstarter almost everywhere, has 250,000 customers in France via Minitel.
•Annals of II: Wall Street’s payroll tops $14 billion, with packages of $2 million or more increasingly common.
•Arbitrageur Ivan Boesky is arrested as the SEC dusts off long-dormant insider trading regulations.
•The ground-breaking for London’s Canary Wharf descends into chaos when Isle of Dogs residents, apprehensive about changes the development will bring to their neighborhood, release swarms of bees and a herd of sheep among the well-dressed attendees.
•In France, Prime Minister Jacques Chirac and Finance Minister Édouard Balladur begin to reprivatize companies that had been taken under state control in 1981. Among the first firms to be returned to the private sector is Compagnie Financière de Paribas, which owns investment bank Paribas, and insurance concern Assurances Générales de France.
•October 27: London’s Big Bang ends fixed commissions and removes barriers between brokerages and market makers, setting off a spree of takeovers that will end with virtually all U.K. brokers in foreign hands.
•Weill watch: Sandy Weill buys Commercial Credit. Two years later he will add Primerica, thereby inheriting Smith Barney.
“Your bunny has a good nose.” These six words bring down Robert Freeman, Goldman Sachs’ head of risk arbitrage, who will be found guilty of insider trading, fined $1 million and sentenced to four months in jail.
•Economist John Williamson coins the term “Washington consensus.”
•Alan Greenspan succeeds Paul Volcker as Fed chairman.
•Warren Buffett pays $700 million for a 12 percent stake in Salomon Inc., the parent company of Salomon Brothers, warding off corporate raider and Revlon chairman Ron Perelman.
•Salomon names Barbara Alexander as its first female managing director; she joins 115 men.
•Yellow ties, suspenders, padded shoulders, power suits — so much sartorial armor, and all for naught on October 19, when the Dow drops 22.6 percent on record volume of 604 million shares.
•A Financial World survey of the top 100 earners in U.S. finance reveals a median income of $12 million.
•Greed is good, as finance meets popular culture. Oliver Stone releases Wall Street. Taking a wryer view of greed and finance, Tom Wolfe publishes Bonfire of the Vanities. The novel had also been serialized in Rolling Stone magazine.
Annals of II: With property values and the yen soaring, Japanese banks take the first six spots, and 16 of the top 25, in II’s annual ranking of the world’s biggest banks.
•Two First Boston bankers, Bruce Wasserstein and Joseph Perella, resign to open Wasserstein Perella & Co., a new force in M&A.
•Reacting to the Latin debt crisis, the Basel Committee on Banking Supervision introduces the Basel Capital Accord, which requires banks to boost capital to at least 8 percent of assets. For banks, it hastens a shift away from traditional lending and toward securitization and trading.
•Credit Suisse buys a controlling stake in First Boston, creating CSFB.
•Barbarians at the gate: Kohlberg Kravis Roberts launches the biggest LBO in history, eventually paying $25.1 billion ($31.3 billion including debt) for RJR Nabisco.
Mitsubishi Estate buys control of New York’s famed Rockefeller Center.
•Burning bed: The leveraged buyout of Ohio Mattress causes First Boston to wobble. The bank turns to Credit Suisse for capital.
•Nikkei bubbles over: Capping a five-year rally that saw Tokyo’s market cap surpass the New York Stock Exchange’s, the Nikkei 225 ends the year at a record 38,916 — before going into a 13-year downturn that wipes out 80 percent of its value.
•Annals of II: Underwear maker Jockey seeks a ½nancial type to join an ad campaign displaying successful athletes in their underwear. The company is besieged by Wall Streeters offering themselves as models.
•Junk bond king Michael Milken’s take-home pay is reported to be $550 million. Two weeks before his March indictment on charges related to insider trading, Milken receives two standing ovations at a banquet attended by le tout Wall Street.
•Drexel Burnham Lambert, where Milken is head of junk bonds, pleads guilty to six felony charges related to trades linked to Ivan Boesky’s illegal trade network. The firm agrees to pay a $650 million fine.
•Working with Harvard economist Jeffrey Sachs, Polish Finance Minister Leszek Balcerowicz gives his country a dose of shock therapy.
•Gayfryd Steinberg throws husband Saul a 50th birthday party costing an estimated $1 million — a pittance next to the $3 million spent the year before on Saul’s daughter’s wedding.
•Michael Lewis’s Liar’s Poker hits the shelves, detailing the shenanigans of traders at Salomon Brothers.
•Congress creates Resolution Trust Corp. to solve the S&L crisis.
•The union bid for UAL Corp., parent of United Airlines, collapses when Citibank and Chase pull out of financing the buyout. The bid’s failure sends the junk market into a swoon.
•On November 30 the Red Army Faction blows up the Mercedes of Alfred Herrhausen, killing the chairman of Deutsche Bank, West Germany’s largest bank.
Following German reunification, the deutsche mark replaces the East German ostmark.
•Land prices in Tokyo’s Ginza district hit a peak of $26,850 per square foot, making the grounds of the Imperial Palace theoretically more valuable than California.
•As China builds Shanghai’s Pudong district — a massive development that will become the city’s financial hub — the central bank announces that it will allow foreign banks into China. It’s the first such permission affecting the mainland, excluding special economic zones, since 1949.
•Brady bonds, named for U.S. Treasury Secretary Nicholas Brady, debut.
•Drexel Burnham Lambert’s parent company files for bankruptcy protection in mid-February, spelling the end for the firm that led the buyout boom. Michael Milken pleads guilty to six felony counts and pays $600 million in combined fines and restitution to investors.
•New Zealand’s central bank is the first to introduce inflation targets.
•Deutsche Terminbörse, the predecessor to Eurex, begins doing business as Germany’s first fully electronic exchange.
•The U.K. joins the European Exchange Rate Mechanism, but Margaret Thatcher’s stand against integration with Europe — conflicting with the views of her cabinet — will lead to her ouster in 1990.
•Annals of II: No U.S. bank ranks among the top 20 in the world by assets according to II’s global bank ranking. The top five banks are Japanese.
•Shell Malaysia issues the first Islamic sukuk bond. The market for the bonds — which comply with Islamic prohibitions on charging interest and disallow investments in alcohol, tobacco, gambling, among others — takes off.
Chemical Bank combines with Manufacturers Hanover, but keeps its name.
•Manmohan Singh, India’s Finance minister, begins to overhaul the country’s economy, pushing through an economic liberalization package and removing business red tape.
•The king falls: John Gutfreund resigns from Salomon in the wake of a Treasury bid-rigging scandal; the firm admits to manipulating the markets for U.S. Treasury notes and bonds from June 1990 to May 1991.
•The $20 billion financial empire known as BCCI comes crashing down amid investigations of fraud, money laundering and corruption.
•A record $5.5 billion syndicated loan goes to Kuwait, to rebuild after the Gulf War.
•The Soviet Union disolves. President Mikhail Gorbachev resigns on Christmas Day.
The Maastricht Treaty is signed. It calls for a single European currency by 1999.
•Woes at London’s Canary Wharf bankrupt the developers, Canada’s Olympia & York.
•Black Wednesday: On September 16, 1992, when interest rate hikes fail to prevent a run on the pound, the U.K. leaves the European Exchange Rate Mechanism, less than two years after joining. Hungarian-born investor George Soros breaks the Bank of England, having speculated that the pound would fall in value, earning himself $1 billion and costing U.K. taxpayers several billion more.
•HSBC Holdings bids $3.9 billion for Midland Bank. In January 1993, HSBC will move its head office to London to satisfy the U.K. banking regulator.
Annals of II: Fly-fishing remains a favorite pastime of City luminaries, but many are forsaking their customary Scottish streams for the Kola Peninsula in the Russian Arctic. Their Russian counterparts are having a less relaxing time of it: More than a dozen senior bankers will be murdered in Russia this year.
•Perella leaves Wasserstein Perella.
•Weill watch: Primerica pays $1 billion to buy Shearson Lehman’s retail brokerage and asset management businesses from American Express. A year later, the investment bank regains its freedom. American Express spins off Lehman Brothers Kuhn Loeb in an IPO; the new firm is Lehman Brothers Holdings.
•The French government replaces Jean-Yves Haberer, whose breakneck expansion of Crédit Lyonnais produced massive losses, and begins a record bailout that will cost taxpayers at least $17 billion.
•A high-water mark for globalization: A multi-national trade deal, possibly the last of its kind, leads to the creation of the World Trade Organization.
The Federal Reserve raises rates three times in February, triggering the biggest bond market rout in history — an estimated $1.5 trillion is lost. California’s Orange County will declare bankruptcy in December.
•Mitsubishi Bank takes over Nippon Trust Bank, the latest victim of Japan’s bad-debt crisis.
•After stock market valuations almost double in the course of a year, South Korea opts to liberalize investment rules.
•General Electric’s Kidder Peabody dismisses the head of its government trading desk, Joseph Jett, accusing him of concocting a scheme that created phantom trades and profits. Following the scandal, GE sells Kidder Peabody’s stockbroking and fund management business to Paine Webber.
•Interest rates spike, and Salomon suffers losses. At a shareholder meeting, chairman Deryck Maughan asks himself why he lost money for clients and answers, “We were long and wrong.”
•The Justice Department launches an antitrust investigation of Nasdaq dealers, and the SEC begins a review of the market, looking into allegations of price-fixing.
•Peso crisis: The recently elected government of Ernesto Zedillo devalues the Mexican currency in December, and within a week it plummets by a third. The U.S. Treasury and the IMF organize a $48 billion bailout.
Rogue trader Nick Leeson rings up $1.3 billion in losses, bringing down Barings Bank, which is taken over by ING.
•Bank of Tokyo and Mitsubishi Bank merge to form — what else — Bank of Tokyo-Mitsubishi in the first of a series of megamergers among troubled Japanese banks.
•CNBC journalist Maria Bartiromo begins reporting daily from the NYSE floor.
•Swiss Bank Corp. acquires S.G. Warburg, founded in 1946 by Siegmund Warburg, and renames it SBC Warburg
•Netscape holds its IPO. Can the dot-com boom be far behind?
•On a July day when Intel skids 11 percent, half of the trading in the stock occurs not on Nasdaq but on Reuters’ private electronic network, Instinet.
•Chase Manhattan and Chemical Bank merge, creating the largest bank holding company in the U.S.
•For the first time, U.S. mutual fund assets exceed deposits in the commercial banking system.
The average earnings of Financial World’s top 100 reach a record $56 million, as LBO specialists and private investors make hay from a rocketing market and hedge funds rebound following a bad patch.
•Annals of II: The U.S. has two new, unlikely financial hot spots. In Washington, firms staffed with former politicos are setting up shop to invest in emerging markets. And suburban Connecticut is beginning to blossom with hedge funds.
•The World Jewish Congress and New York Senator Alfonse D’Amato press Swiss banks to release money in the dormant accounts left by Holocaust victims, prompting the creation of the Volcker Commission, headed by ex–Federal Reserve head Paul Volcker, to investigate claims on the accounts.
•Cellular provider VimpelCom becomes the first Russian company to be listed on the NYSE.
•Prominent finance journalist Dan Dorfman suffers a stroke but lives, after two BusinessWeek exposés alleging kickbacks and other improprieties cost him his $450,000-a-year column at Money magazine.
•As the July 1, 1997, handover of Hong Kong to China approaches, some 700,000 of the colony’s citizens have bought themselves insurance in the form of a foreign passport.
•Alan Greenspan warns of “irrational exuberance” in the booming U.S. stock market. The Dow hiccups, dropping 55 points to 6,381 the next day before resuming an ascent that will have it surpassing 11,000 just two and a half years later.
White shoes meet bowling shoes: Dean Witter acquires Morgan Stanley in a deal valued at $10.2 billion. The transaction spurs a wave of consolidation among Wall Street firms.
•Euromoney PLC buys Institutional Investor for $142 million.
•Merrill Lynch pays $5.3 billion for London-based Mercury Asset Management Group, creating the third-largest asset manager in the world.
•Annals of II: Casual wear comes to finance: In London, SBC Warburg and NatWest Markets are casual all week; most firms relax their standards on Fridays.
•Weill Watch: Travelers Group buys Salomon for $9 billion.
•In Hong Kong thousands of hopeful buyers line up to get a piece of the IPO for China Telecom (now known as China Mobile), the mobile phone unit spun out of China’s Ministry of Posts and Telecommunications.
•October 27: A 554-point drop on the NYSE enacts the exchange’s circuit-breaker rule for the first time, stopping trading at 3:30 p.m.
•In November, Asia gets a sudden case of the flu, and some East Asian Tiger markets lose as much as 50 percent of their value.
•Market maker Bernard L. Madoff Investment Securities begins quoting NYSE-listed securities in sixteenths of a dollar, ending the centuries-old practice of listing them in eighths.
•Deutsche Börse goes fully electronic with the launch of Xetra.
•In December, Nasdaq dealers pay $910 million to settle civil lawsuits related to the price-fixing investigations that began in 1994. New order-handling rules spur a proliferation of electronic quoting platforms.
High-tech banking star Frank Quattrone jumps from Deutsche Bank to CSFB, where he will mint money throughout the Internet boom.
•The Asian financial crisis of 1997 catches up with Russia on August 17 — Black Monday — leading to a devaluation of the rubble and a major debt default.
•Hedge fund Long-Term Capital Management founders, requiring a $3.6 billion bailout.
•Senior officials at Chase Manhattan and DLJ are among those arrested in a federal crackdown on Cuban cigars. The round-up follows an extensive undercover operation involving an informant known as Jennifer Corona and federal agents posing as cigar smokers.
•Weill Watch: Travelers Group and Citicorp merge, creating Citigroup, the world’s biggest financial services company.
•Nasdaq parent NASD acquires the American Stock Exchange.
January 1: The 11 member states of the European Union adopt the euro.
•Annals of II: Hedge funds are booming, so why is no one interested in buying the hedge fund firms? An II postmortem on a failed deal for Tiger Management provides some answers: With $9 billion in assets, Tiger was valued at about $6 billion; traditional fund manager Franklin Resources, with $226 billion in assets, was valued at $9.2 billion.
•Apparently having missed numerous TV dramas suggesting that it is unwise for married executives to share sensitive corporate information with porn-star girlfriends and their associates, Keefe, Bruyette & Woods CEO James McDermott is indicted for doing exactly that. He will be found guilty of insider trading, fined and barred from the industry.
•Ameritrade personifies the country’s day-trading obsession with TV pitchman Stuart, a young office hipster who shows his middle-aged boss how to buy 100 shares of Kmart using his new online brokerage account. SEC chairman Arthur Levitt complains that the ad and others like it are creating false expectations of instant wealth.
•An estimated $300 billion is spent worldwide repairing potential electronic glitches associated with Y2K amid dire predictions that cascading power failures will plunge the world into darkness and computer-based enterprises into chaos.
•After a long and divisive internal debate, Goldman Sachs gives up its status as the last major privately held investment bank, raising $3.6 billion in an IPO.
•The SEC fines 28 Wall Street firms $26 million and suspends 51 dealers as a result of the 1994 investigation into price fixing at Nasdaq.
•Antiglobalization forces organize mass protests at the World Trade Organization meeting in Seattle.
January 1 arrives. Computers everywhere continue to operate exactly as they did on December 31, 1900, er, 1999.
•Lacking its own trading floor, Nasdaq opens its glitzy MarketSite, an office complex in Times Square lined inside and out with giant video screens to compete for airtime with the NYSE.
•With markets flooded with liquidity to ameliorate any Y2K-related bank runs, tech stocks soar. On March, 10 the Nasdaq peaks at 5048.62. On March 16, the Dow sees its biggest one-day jump: 499.19 points.
•April 3: U.S. District Court Judge Thomas Penfield Jackson rules that Microsoft is guilty of anticompetitive practices.
•April 14: The Dow, the Nasdaq and the S&P all sustain record drops.
•PetroChina lists in Hong Kong and New York. Warren Buffett’s Berkshire Hathaway will become its biggest shareholder.
•The SEC files securities fraud charges against Yun Soo Oh Park, an Internet-stock message board operator known as “Tokyo Joe,” alleging that Park used his Web site to tout stocks he already owned and planned to sell. In a 2001 settlement Park will agree to pay restitution and refrain from violating securities laws.
•On October 25, the euro hits a low of $0.82 against the dollar — 29 percent below its value when it was launched.
•Wall Street finally delivers on a congressional mandate to quote stock prices in decimals.
•CSFB buys DLJ. Hundreds of DLJ staffers quit.
•Regulation FD is enacted in a bid to end the selective disclosure of company information to favored analysts and investors.
A March report by Paul Myners, chairman of Gartmore Investment Management, criticizes the lack of transparency in U.K. money management and heralds a change in the way investors pay for trading and research.
•After 15 years of negotiation, China becomes an approved member of the WTO.
•The terrorist attacks of September 11 are followed by an outpouring of grief and emotion — and also a flood of back-dating, as thousands of executives attempt to lock in stock options at the depressed prices seen during the market’s worst week in 60 years.
•At 43, Clara Furse becomes the youngest-ever chief executive of the London Stock Exchange. That she is a woman goes almost unremarked upon.
•Enron collapses, followed by WorldCom and others.
The Sarbanes-Oxley Act is signed into law, enforcing new accounting standards and rendering the word “Sarbox” as integral to Wall Street’s vocabulary as “Botox” is to Los Angeles’.
•Financial Services Minister Heizo Takenaka launches a plan to end Japan’s decade-old banking crisis by forcing banks to halve nonperforming loans by 2005.
•So much for toga parties: In September, Manhattan District Attorney Robert Morgenthau indicts former Tyco International CEO Dennis Kozlowski and former CFO Mark Swartz for grand larceny and fraud. In 2005 the pair will be found guilty of looting the company of hundreds of millions.
•Having landed indictments for 17 members of the Gambino family, New York State Attorney General Eliot Spitzer turns his attention to organizations with family names like Lehman, Goldman Sachs and Morgan Stanley, extracting from blue-chip Wall Street firms $1.4 billion in fines and compensation stemming in part from overly rosy analyst reports. The SEC bars former Salomon Smith Barney analyst Jack Grubman and former Merrill Lynch analyst Henry Blodget from working in the securities industry again.
•SEC chairman Harvey Pitt is edged out of his job after a series of public statements and actions lead many to question whether he is aggressive enough regarding Wall Street and corporate corruption.
Annals of II: Institutional Investor launches Alpha magazine to cover the fast-growing hedge fund industry.
•The SEC conducts a two-day roundtable discussion on hedge funds: Do they require additional regulation?
•NYSE chairman Dick Grasso resigns over a controversial $190 million compensation package.
•The long-running Crédit Lyonnais saga lurches toward finality as the disgraced bank is purchased by rival Crédit Agricole, in the wake of suicides, criminal charges, massive losses and major bailouts. France eventually ratifies a $770 million settlement agreement related to U.S. fraud charges.
•Italian dairy giant Parmalat seeks bankruptcy protection and defaults on E14 billion ($18 billion) in debt following an accounting probe that reveals a market-rigging and false auditing scheme, sparking comparisons with Enron. Prosecutors charge former CEO Calisto Tanzi and numerous executives with fraud. Parmalat’s collapse prompts several multibillion-dollar lawsuits between the company and its lenders.
Far from a good thing: Media magnate Martha Stewart is convicted of trying to obstruct an investigation into her trading of ImClone Systems stock. She spends five months in prison and five more under house arrest.
•After failing to find a buyer for the downtrodden American Stock Exchange, NASD gives the exchange back to its members for free.
•Cazenove Group, which traces its roots to 1823 and is one of the last of the City’s great independent
banking firms, sells its investment banking business to JPMorgan.
•Oil concern Yukos is hit with massive bills for back taxes by the Russian government, beginning the breakup of the country’s biggest oil company. Owner Mikhail Khodorkovsky is arrested and sent to prison on several charges, including tax evasion.
•Deutsche Börse, led by Werner Seifert, bids $2.5 billion for the London Stock Exchange but is rejected.
The NYSE, under new CEO John Thain, agrees to acquire electronic market Archipelago; Nasdaq plans the takeover of Instinet’s electronic exchange.
•Deutsche Börse, under pressure from activist shareholders led by London hedge fund TCI, abandons its attempt to buy the LSE. Werner Seifert eventually resigns.
•Michel-David Weill loses control of Lazard — a bank his great-grandfather co-founded in 1848 — to Bruce Wasserstein, who takes the the firm public.
•New York loses ground to Hong Kong and London. Of the 24 largest global public offerings of the year, only one is listed in New York.
•Attack of the grumpy old men: Current and former Morgan Stanley executives unite against CEO Phil Purcell, who departs. Former president John Mack, vanquished by Purcell in an earlier internal power struggle, returns in triumph.
•Antonio Fazio, governor of the Bank of Italy, resigns after months of high political drama and allegations that he had favored Italian bank Popolare Italiana in its attempt to outbid Dutch bank ABN Amro for Italy’s Antonveneta. Fazio’s departure opens the Italian banking market, leading to ABN’s takeover of Antonveneta and BNP Paribas’s takeover of Banca Nazionale del Lavoro. Gianpiero Fiorani, former chief of Popolare Italiana, is arrested on charges of corruption and fraud.
Chinese banks go wild: Bank of China, the country’s second-biggest lender, raises $9.7 billion in an IPO; No. 1 bank ICBC follows, raising $21.9 billion.
•Leaders of the G-8 arrive in Moscow for their summit meeting and find a country that has $300 billion in currency reserves and an economy that has grown 60 percent since 2000.
•Global exchange merger mania continues: Nasdaq bids for the LSE and is rebuffed. The NYSE agrees to merge with Euronext, which had rejected an offer from Deutsche Börse.
•Annals of II: Alan García, populist president of Peru during the late 1980s, regains office thanks in part to TV ads that show him dancing to salsa music — illustrating, an adviser explains, “that neoliberalism has not crushed us.”
•Andrei Kozlov — first deputy chairman of Russia’s central bank and crusader for banking reform — is assassinated in Moscow following an after-work soccer game.
•The Chicago Mercantile Exchange and the Chicago Board of Trade announce plans to merge.
Annals of II: For the first time, the U.S. falls out of the top ten in II’s country credit rankings, placing 13th. Switzerland is No. 1.
•History is made when a brief late-February market correction that wipes $3 trillion from equities globally begins on the Shanghai Stock Exchange.
•The U.S. subprime mortgage market begins to unravel amid concerns about systemic risk related to easy credit and derivatives.
•Protesters against the Iraq war march on Wall Street. Unlike its Vietnam-era precursor, the event is so peaceful that the media barely mention it.
•April 27: The dollar hits an all-time low of $1.3681 against the euro on expectations that U.S. growth will trail Europe’s.
•With its reserves topping $1 trillion, China announces that it will invest $200 billion overseas in a new investment agency modeled on Singapore’s Temasek Holdings.
•Hugo Chávez, president of Venezuela, nationalizes the country’s last privately held oil project — and threatens to do the same with banks.
•The mega-LBO returns in a wave of record-breaking deals, including the $44 billion (with debt) proposed buyout of utility TXU by Kohlberg Kravis Roberts and TPG, and the $39 billion (with debt) purchase of Equity Office Properties Trust by Blackstone Group.
•The battle for ABN Amro: Barclays makes a bid for the Dutch giant despite calls from ABN’s shareholders to break up the bank and sell it for parts. Royal Bank of Scotland leads a consortium that promises to trump any offer of Barclays’. Meanwhile, a Dutch court blocks the sale of ABN’s U.S. subsidiary LaSalle Bank to Bank of America, prompting a lawsuit from BofA.
•Blackstone CEO Stephen Schwarzman shells out a reported $3 million, from his own pocket, for his 60th birthday party at New York’s Park Avenue Armory. He is dubbed “the new King of Wall Street” by Fortune magazine and announces that he will take Blackstone public.
•Annals of II: According to Alpha magazine, the average compensation for the 25 best-paid hedge fund managers is $570 million. James Simons tops the list, earning an estimated
•20th Century Fox announces a deal for a sequel to Wall Street, titled Money Never Sleeps. Michael Douglas will return as Gordon Gekko.