Until a few days ago, when people talked about London's bankers, they always mentioned a little place in Soho called Movida, where one night an investment banker spent £26,000 ($49,300) buying his half-dozen friends a few dozen bottles of fine champagne, which he simply sprayed all over the room like a Formula 1 victor. He then happily picked up the £15,000 cleaning tab.
This week, with the British financial industry in crisis as a second major bank was taken over by the government, Movida's doors were closed. Manager Alex Wilson said in an interview at the bar that he hopes to reopen it with an eye to a different clientele.
Gone for good, he says, are the thousands of bankers able to afford the £3,500 average bar tabs of the good old days of 2008.
“Obviously, when 100,000 bankers are losing their jobs and their bonuses, something is going to have to change,” he said.
“We're hoping for some very wealthy oil people from Dubai, because the bankers just aren't coming out any more.”
Manhattan's meltdown may have grabbed the headlines, but London's fall has been far more precipitous, and this week it has begun cutting deeply into the financial sector's – known as the City – flamboyant lifestyle, and the mythology of itself.
The guy spraying Cristal on the curtains has been replaced this week, in the water-cooler talk along the Thames, with the rather different tale of Kirk Stephenson, the 47-year-old chief operating officer of one of the City's most successful private equity investment firms, Olivant.
On Saturday morning, Mr. Stephenson threw himself in front of a train near his country manor, leaving a wife and child behind. Colleagues said he had lost a fortune. That occurred only days after another investor killed his wife and children and burned down his highly leveraged country estate, hours before bailiffs were to repossess it.
There is a widespread sense that London has been more deeply wounded than New York, and the numbers support it. Bank bailouts in the past year have run to the equivalent of a staggering 8.6 per cent of Britain's gross domestic product. By comparison, the U.S. bank rescue burden, even with the proposed $700-billion (U.S.) government bailout included, amounts to only 7.1 per cent of the American economy.
And there are plenty of signs that the British collapse has cut deeper into the fabric of a city that has 350,000 people, or almost 6 per cent of its population, working in banking and finance.
Monday's government takeover of Bradford & Bingley, the country's eighth-largest bank and one of its largest mortgage lenders, raised fears that the entire British financial and banking sector may be heavily exposed to bad mortgage debt, which was widely issued in Britain during the huge real estate boom of the past 15 years.
Starting in the 1990s, many working-class residents withdrew capital from their homes to take out newly authorized “buy-to-let” mortgages on second rental homes, leaving their entire financial futures dependent on rental incomes. The British housing market, and the securities it has backed, is now widely seen as a delicate row of dominoes ready to fall. House prices in England have fallen by more than 10 per cent during the past year, according to mortgage lenders, after a decade and a half of almost continuous increase. Some reports now suggest that they could fall a further 30 per cent, creating a real estate crash that could rival the one in the U.S.
And, unlike the United States, the real estate crash has begun to hit the financiers themselves. Last week, 38-year-old investor Robert Bonnier was evicted by the bank from the Knightsbridge mansion he had bought last year for £12-million, making it the largest repossession in the country's history.
