Business View: Too much rugby and lap dancing could prove fatal for Yuppies

Fifteen years ago, when Morgan Grenfell closed its stockbroking business, The Sun photographed some unemployed hoorays moaning over their Moët with the headline: "Death of the Yuppie".

The tabloid was wrong. The City of London-based Yuppie not only survived, but thrived. The 1990s was the greatest decade for young, financially literate, hard-working people to make money in Europe's financial capital. Bonuses of £2m, £3m, £5m or even £10m were not uncommon as money flowed in and out of the City's investment banks.

Much of this money failed to stick with the banks, which often struggled to make a decent return on capital while their employees made hay. Some called it the prune-juice effect. Others said it was the sort of socialist utopia Marx would have approved of, with the workers securing all the benefits of their labours.

But now, a decade-and-a-half too late for The Sun, we can declare this age to be at an end. The end of the dot-com boom, 9/11, recession and the second Gulf war have all contributed. However, this mighty merry-go-round is being stopped by two regulators – Eliot Spitzer and Sir Howard Davies.

What Spitzer, the New York attorney general, has done is challenge the inbuilt conflicts of interest that exist in integrated investment banks. Analysts are paid to give their views about quoted companies so that the "buy side" clients of the firm, the institutional investors, can decide whether to buy, sell or hold. At the same time, the firms' corporate advisory sides have a lot of these companies as clients. You don't want analysts telling people to sell the shares when the corporate side is trying to persuade them to buy, something that is most critical during a flotation, a cash-raising or a takeover.

After Enron, WorldCom and the dot-bomb, Spitzer attacked these conflicts. Wall Street has largely settled the charges, paying hundreds of millions of dollars in fines, and setting up "Spitzer-friendly" structures at the likes of Merrill Lynch, Goldman Sachs and Morgan Stanley.

And this is bad news for the analysts. Because though they are now free to say what they want, the banks can no longer cross-subsidise the research business with the corporate finance fees. The research side now lives or dies on how much it earns from commissions on deals from its institutional investor clients. This has never been enough to pay the £2m bonuses some analysts received, and even those fees are now under pressure from Sir Howard and his crew at the Financial Services Authority.

Earlier this month, the FSA issued a paper proposing the "unbundling" of so-called "soft commissions". These are charges for services provided free by investment banks to their clients, ranging from Reuters and Bloomberg screens to trips to rugby internationals and lap-dancing clubs. What the FSA is saying is that these charges should be made explicit, so that trustees of pension funds can see what is being paid to investment banks on their behalf by the people who manage their money.

This paper will open up a can of worms, and one that, like Spitzer's conflict of interest, was an issue even before The Sun wrote its premature headline. People will ask how soft is soft, and how bundled is bundled, and fund managers such as Gartmore will trumpet that they have struck deals with the likes of Merrill Lynch, which make this all explicit.

But when the smoke clears, what we will find is that there will be more pressure on the big firms to justify the 0.25-per-cent fee per transaction they charge. And more fund managers will turn to these new execution-only houses for their dealing, and buy their research directly from independent boutiques, cutting out the Goldmans, Merrills and CSFBs and their big fees.

And then we will truly see the end of a certain class of Yuppie.

Will Reuters swim with the fishes?

Tom Glocer ran into linguistic trouble at Reuters AGM when he compared the ailing information group to a "salmon swimming upstream". But regardless of whether salmon die after they spawn, the concern for Reuters will come when the tide turns in its favour. At the moment it can blame market conditions for its woes, but if the City and Wall Street start booming again, and Reuters does not start picking up business, the stench will be worse than week-old fish.

j.nisse@independent.co.uk