Financial insider talk in the city of London

Aeron Davis

Introduction

This chapter primarily focuses on private, exclusive forms of communication in London's financial networks. Its starting point is that multiple, internal forms of talk fulfill some vital communicative functions for elite participants. Such internal exchanges, which are very intense and in varied modes, produce 'City' forms of cultural cohesion and outsider exclusion. Each of these is important for sustaining the City's economic and political advantages. First amongst these, at least in the minds of participants, is the need to keep up with daily financial information flows and opinions. The communicative networks of the City are key to disseminating price-sensitive information and producing consensus trading decisions on a daily basis. It keeps insiders ahead of the investment curve (or not far behind) and leaves outsiders trailing in their wakes.

However, insider communication also serves other, less conscious and immediately instrumental functions. One of these is the generation of medium-term investment narratives and fashions. These, which include such things as the 'new economy', 'hi-tech' stocks or new trading and market philosophies, spur larger market movements over a few years. Sometimes these can aid the creation of bubbles and crashes, and with wider social and economic consequences. At a third level, comes the long-term generation of a financial market ideology that underpins beliefs, behaviours and discursive practices. This, in turn, is then exported to non-financial 'stakeholder elites', such as politicians, public company CEOs and pension funds. It is used to legitimate all market practices while delegitimizing non-market actors and institutions. It is also used to discipline states, economies and publics, remaking them, God-like, in the image of financial markets themselves. Thus, private forms of insider communication are central to the profitable workings of financial sectors, and to the maintenance of financial market power in contemporary, financialized states.

The discussion is in three parts. The first documents the communicative architecture and networks of London's financial districts. The second describes the everyday, instrumental communication that drives financial activity and pushes investment decisions. It then goes on to explain how the same exchanges and practices also create medium-term narratives and fashions that then have come to underpin new investment trends, sometimes leading to bubbles and crashes. The third, sketches the parameters of the longer-term financial market ideology that has come to dominate in recent decades and in spite of system shocks. The discussion draws on previous periods of interview-based research with fund managers, analysts, investor relations specialists and financial journalists.

Internal communication flows and financial cultures

The City, as with other financial centres, is an extremely rich and dense communication environment. Information, research and communicative exchange lies at the heart of finance as numerous decisions are made every minute of the trading day. In fact, gaining and circulating financially relevant information is a practical imperative for properly functioning financial markets. Such a goal supports financial market theory as well as attracting market participants for practical reasons.

At one level, much financial information and communication is publicly available and widely disseminated. Such information and business news coverage has expanded considerably in the post-war period (Parsons 1989; Tumber 1993; Tunstall 1996; Cassidy 2002). Standard regulations demand that companies release important financial information about themselves through the London Stock Exchange (LSE). Everyone, insider or outsider, has access to Regulatory News Service (RNS) of the LSE, either directly or via a news wire service. Everyone in the City also reads the Financial Times and other leading financial news publications. However, in many ways, public media are of decreasing importance in daily investment activity in the financial sector. For professional financiers publicly available information is of little use when everyone has it. To get ahead, private information and analysis is more useful. In the electronic age, public news media is far too slow to be useful to professionals. Similarly, those in the financial world rely relatively little on information they pick up from the 'amateur' observers of the media. Business and finance are highly complex topics that most journalists struggle to understand and keep up with (see Davis 2002; Doyle 2006; Tambini 2010). Public news media does serve some useful functions for insiders, as I will explain below, but its importance is longer-term, cultural and ideological.

Far more significant to financial insiders, on the day-to-day level, are the many varied forms of private communication networks and mediums. When investigating these alternatives (Davis 2002), a decade ago, I found there were over 90 exclusive financial print publications circulated in the City. On top of this, thousands of stockbroking ('sell-side') and fund management ('buy-side') analysts produced and circulated regular research reports. There are also many specialists, financial information suppliers, offering analysis at high subscription rates. In addition, there are a range of real-time electronic information feeds and database services that collate and summarize market information and trading activities in any sector.

Private, face-to-face meetings, conversations and phone calls are more intense and focused still. Analysts, brokers, public and investor relations specialists, journalists, fund managers and others are all involved in multiple dialogues every day. Many exchanges consist of formal meetings, for example, between company CEOs and fund managers (see also Holland 1997; Marston 1999). When interviewing fund managers it was not uncommon to find them involved in several hundred meetings a year with CEOs and directors: (William Claxton- Smith, fund manager) '[W]e operate as a team rather than individuals and ... it's something like, for the UK equity side of the business, 700 meetings, maybe more, per year.' Rather more communication takes place in a plethora of informal conversations: (Alistair Defriez, Takeover Panel) '[E]normous communication with the brokers ... They get feedback from the institutions and ... the press are also talking to the analysts. The press is going to the market and asking what they think about all this'; (Graham Williams, investor relations) '[B]rokers, institutions and the press all wanted and needed more current information. A constant dialogue was created, a daily exchange of views. Some analysts used to speak to me daily.'

London's financial sector (now more geographically dispersed than before) also provides social spaces and cultural cues to support the networks. Specialist language, dress, customs and codes of practice are in evidence everywhere. There are many social and practical facilities, such as bars, clubs and exclusive gyms, that enable participants to further extend the time they spend in the City. Many participants spend far more of their waking hours within the LSE elite micro culture than they do outside it. As such, the culture, institutionalized practices, language and communications of these networks are as extensive as any other observed cultural field or profession. Such levels of communicative exchange and shared culture both distinguish City insiders and exclude outsiders.

For financial elites, this rich communicative environment is an essential requirement of their job. It serves a plethora of professional functions, from personal networking to getting up-to-the-minute investment information. At a conscious level it is fundamental that one keeps up with fast-changing events and information updates, all of which may have a bearing on decision-making. Everyone wants to keep ahead of the curve or, failing that, keep up with the pack. At a less conscious level, such information exchanges also generate more sustained sets of beliefs, norms and practices, as well as more enduring investment narratives and financial elite ideology. The narratives and ideological positions are then exported to, and imposed upon, other 'stakeholder elites', in business and politics, and indirectly to the wider public. In all of this, financial and public media does play a supportive role, as a sort of echo chamber, both reinforcing City opinions and ideologies, as well as relaying them to associated, stakeholder elites via shared financial media and lobbying (see Davis 2011).

From functional short-term information flows to medium-term investment fashions and bubbles

At the most basic level, financial talk and information flows are essential for keeping financial activity going. Everyone is engaged in buying and selling a range of items: companies (shares), commodities (e.g. oil, gold, rice), real estate and currencies, debt (bonds) and financially constructed products (derivatives, CDOs, CDSs). They have also become about selling particular market sectors (e.g. shares versus bonds, established versus emerging markets, banking versus telecommunication) and selling financial institutions (London versus Frankfurt or New York) and economies. Since the future value of most things is very uncertain, financial actors are constantly attuned to all forms of information that might influence their trading decisions.

In many ways, this is just how financial markets are meant to work. Financially relevant information circulates, 'rational' investors respond, prices go up and down. Such tendencies are most common when selling company shares. Information on corporate quarterly earnings, new acquisitions and contracts, new senior management appointments, profit warnings and dividend announcements is all regularly released, spurring market responses. Similarly, in commodities markets, from oil to orange juice, information on droughts and weather-related factors, new reserve discoveries and new global market demands is also priced in. On another plane, larger economic indicators, such as employment figures, budget deficits, new credit ratings and quarterly growth rates, push investors to switch particular market sectors or economies. Thus, investors may move from oil to gold, from banking stocks to mining company shares or from Greek government bonds to German ones.

However, such communication also works to generate wider forms of internal financial market cohesion and consensus, while also excluding outsiders. Despite being in competition, market participants also rely on larger forms of consensus. Others have to agree in order for movements to take place, and larger movements with bigger profits need larger groups to agree. This was one observation of Keynes (1936) who observed that trading was more concerned to locate the 'average' opinion than to make individual assessments. Indeed, as I found out when conducting interviews, the most important financial information for investors is knowing what everyone else is doing and what indeed the general consensus is on anything being traded: (Andy Brough, fund manager) 'To play the game you have to be aware of the psychology of the other players in the game. Because you may well need them to buy your shares, or sell you the shares at some point'; (Michael Hughes, fund manager) 'The emphasis here is that it's a score for the stock not the company. In other words he is making an assessment of what he thinks the stock price is going to do, not whether he likes the company or not.'

At another level, there is a need to generate medium-term forms of consensus that establish more stable trading patterns and environments that insiders can use to 'anchor' their everyday calculative processes. One of these is the requirement that participants have relative agreement on the means of valuation itself. What accounting measures to take note of, the significance of individual financial indicators and the basis of valuing items in each market need a minimum level of agreement. So, while, at a conscious level, investors are communicating about measures and values, at an unconscious level they are also determining what are the measures to use at any one time (see Callon 1998; Miller 1998). Another form of consensus that participants seek to establish is over what actual markets are good to invest in: stock or bond markets, new hi-tech stocks or old steady ones, established national financial markets or new emerging ones. In recent decades, before the 2008 crash, industry reports and investor guides (e.g. Siegal 1998; Glassman and Hassett 1999) argued that wise investors should always put most of their capital into company shares markets rather than other markets (e.g. bonds, property, currency). According to Shiller's research (2001: 45), in 1999, 96% of wealthy investors agreed that the stock market was the most rewarding and safest place to invest their money. Some years after the 2000 crash, my interviewees continued to affirm this pro-equities investment philosophy (Davis 2007).

In the medium term, it has also been important to generate forms of investment narrative that, in turn, drive more extended investment trends or fashions. As one anonymous investor relations consultant put it to me: 'Investment is a fashion business. There is no doubt. It's just like clothes, houses, universities – they are all fashion businesses ... And certain management teams and companies are also fashionable ... if you are in fashion and you have currency you can use then you use it'. Thus, in certain decades, 'balanced conglomerates' as well as certain levels of corporate 'debt' and 'leverage' have been considered 'good'. In other decades, they have not. On the larger financial narrative scale, in recent decades, we have had various versions of the 'new economy': 'the new era economy', 'the creative' or 'knowledge-based economy', the 'end of the traditional business cycle', 'the era of permanently low inflation and low interest rates', the rise of the 'Asian Tiger' economies or the 'BRIC' economies and the decline of older, welfare state economies. However, the consequences of such trends can also be quite dramatic and destabilizing. For those inside, 'greed' and 'fear' equally drive activities in rollercoaster investment periods. As an anonymous fund manager explained: 'Mr market is a moving animal, and its mood swings will change to passions.' As everyone looks to follow each other, to keep within the safety of the financial herd, so movements can become quite large and dramatic leading to financial bubbles, crashes and instability.

A common narrative of the last two decades, which has frequently pushed large investor movements, is that of 'hi-tech' stocks in the telecommunications, media and technology (TMT) sector (see Shiller 2001; Cassidy 2002). Investor narratives have been vital here as such new emerging companies usually have no trading histories, no assets and, initially, produce no profits or dividends. In other words, they cannot be valued by conventional accounting measures. Such narratives enabled stock markets to reach unparalleled heights in 2000, as accounting practices and historical norms were ignored. From 1995 to 2000, the New York Dow Jones more than tripled in value – from below 3,500 points to just under 12,000. LSE went from just over 3,000 points to almost 7,000 points. Prices, relative to company earnings, tripled in that period, and were rather more out of alignment than during the previous record set in 1929, just before the Wall Street Crash (see Smithers and Wright 2000; Shiller 2001). Individual Internet company stocks especially rose dramatically to reach valuations that could never realistically deliver. Ultimately, in the collapse that began in 2000, both the US and UK stock markets lost over half their value and many TMT companies became worthless. As many fund managers interviewed about this period admitted, values did not make sense but they felt they had to be part of it just to survive: (John Davies, fund manager) 'You then start to see real share price performance ... You then start to worry because you haven't got any and you pile in. As everything keeps going up that gets worse and worse ... If you think it's going to go to a 25% premium on day one you don't really care what it does is the simple answer.'

For many on the financial market inside, such developments can destroy careers and companies as well as discourage future investment. However, what has to be remembered is that the biggest costs incurred are often to outsiders such as pension funds, insurance company investments and other longer-term holdings run by arms-length committees. These operate in the long term and hence are too slow to react. Insiders have instant information, can see trends developing and have more time to protect their personal or organizational investments (see Taibbi 2011; Ferguson 2012). As one insider explained: (Tony Dye, fund manager) 'You can't be too cynical or realistic about how the system works. It's out there to make money for those businesses and money for those people ... It's out there to take as much money from investors without them protesting ... The outsider doesn't understand. That's why you get so many people getting so much money for relatively little ... no one wants to give up on it and who can blame them if they can keep the gravy train going.' Of course, it is also the wider economy and ordinary employees who suffer from financial market crashes, losing pensions, jobs and homes.