Warburg is role model for greedy bankers to adopt, says historian

ALWAYS cry over spilt milk. Always cross bridges before you come to them. Never indulge in wishful non-thinking.

These are the maxims that guided the life of Siegmund Warburg, the Jewish banker who fled Hitler's Germany to play a leading role in establishing the City of London as the world's pre-eminent financial centre.

"They really resonated with me," said Niall Ferguson, the historian who chronicled the life and times of Warburg in his new book, High Financier.

Harvard professor Ferguson is speaking at this month's Ilkley Literature Festival about Warburg, his influence on Britain and how his approach to finance could benefit our prevailing system.

In an interview with the Yorkshire Post, Prof Ferguson said: "What makes him fascinating is that he was the product of a now vanished world – the world of the German Jewish elite.

"The combination of high culture and high finance makes him a more appealing figure than many of today's bankers who may have high finance but who don't have so much of the high culture.

"What's impressive about him is that he has tremendously high and rigorous moral and ethical standards. It's a reminder that bankers did not used to be actuated by greed alone."

Warburg was born into the dynastic merchant banking family in 1902. His upbringing had an emphasis on moral and ethical responsibilities. His mother drilled into him that "happiness in life consists of fulfilment of duties and not of desires".

Warburg entered the family firm at a time of growing economic and political turmoil in Europe. He experienced the hyperinflation of the Weimar Republic, the subsequent Depression and then the collapse of democracy in Germany as Hitler came to power.

These experiences were the making of him and informed his philosophy of life, said Prof Ferguson. "When you have been through stuff like that, you are more cautious about the risks you take."

After arriving in London, Warburg set up a financial consultancy with family money. He later became the dominant merchant banker in the City

in the 1960s and 1970s and was one of the main architects of European financial integration.

He wielded considerable political influence, too, and was close to Harold Wilson's government. The bank played a significant role in the economic recovery of Britain, but despite Warburg's efforts was unable to halt the decline of automobile and textiles industries.

Although he was a banker, Warburg rarely mentioned profit and loss accounts or the bottom line in his correspondence. Instead, said Prof Ferguson, he was much more concerned with client relationships and management of the business rather than the money.

"I find that quite appealing at a time when Wall Street and the City of London seem to be dominated by people who are in it for the money," he said.

It is widely accepted that greed among bankers helped create the current financial crisis.

Asked how this problem could be addressed, Prof Ferguson said: "The conventional answer is regulation, regulation and regulation. If you can have more regulation, then bankers will behave better but the reality is that regulation alone is not enough.

"The most important thing is to make business education more concerned with ethical questions and less exclusively focused on financial concerns."

Warburg, who died in 1982, could be held up as a role model at a time when financial institutions are facing a crisis of confidence and loss of trust.

Prof Ferguson's talk at the Ilkley Literature Festival will ask if principled, relationship banking can be revived in an age of impersonal, high-volume transactions and off-balance-sheet shadow banking.

Prof Ferguson said: "The best argument for the Warburg approach is that you trust a banker like that to put the interests of the client first. What is going to bring about a revival of that relationship banking model is just disillusionment with the sheer cynicism and self-interested behaviour of certain bankers today.

"I hope what we are going to see is a revival of the approach in the new banks. Newer, smaller banks with cast-iron reputations would be a welcome addition right now."

He is concerned about the market dominance of too-big-to-fail banks with "hidden or not so hidden" government subsidies at a time when the wider economy would benefit from more competition.

Niall Ferguson will be speaking at Ilkley Literature Festival on October 17. Details at www.ilkleyliteraturefestival.org.uk

Britain needs to fill skills gap

The rebalancing of the UK economy away from financial services and the South-East towards manufacturing in the North won't happen easily, Niall Ferguson has warned.

The financial historian described the coalition government's aim as "a desirable thing in theory" but said the practical problem is that the British labour force is not an attractive prospect for foreign or domestic investors who have an interest in manufacturing.

"It's notably expensive and not terribly high skilled. If you were choosing between Germany and Britain you go for German skills. If you were choosing between China and Britain, you would go for cheaper Chinese labour.

"We have a real problem that goes back many years. We have a lot to do if we are going to become competitive. I would not expect quick results."