As Peter Johnson took over the day-to-day roles, I took on a new job of managing the Investment Currency and Property Currency books. These things are all forgotten now but there is an interesting history here. After WWII there was an extreme shortage of foreign exchange in the UK and exchange controls were imposed. These were very strict and even covered the amount of cash that could be taken on holiday. This amount, incidentally, was very small and made it difficult to have any sort of real break overseas. Payments for imports were also heavily controlled but permission could be give by the use of what was called the Green Form. This form, along with supporting documentation had to be presented for each and every payment overseas for the import of goods. Each bank could approve up to a certain amount but above that, the form had to go to the Bank of England for approval.
We had two senior personnel in the Foreign Department that were responsible for this. Mr. Harris was one but I can’t remember the other chaps name. Harris was quite friendly but the other chap kept himself to himself so I didn’t really get to know him. I only knew Mr. Harris to talk to because I was a dealer and his office had a door into the Dealing Room. The hierarchy was very strict in those days.
Anyway, back to the main topic. Two aspects over overseas business that were extremely heavily controlled were securities and property transactions. The rules were quite simple, and very onerous. You only got involved if there was a lot of money involved. There were three rules that really mattered
- To purchase an investment or a property overseas, any foreign currency funds needed to be purchased on the special markets that existed for such funds. As the pool of funds could only be fed by the sale of an asset overseas, there was a substantial premium attached to these. If I remember correctly, the premium for Investment Currency was around 29 – 30% and for Property Currency it was a whopping 50 – 55%. This was because of the lack of disposal of foreign assets. The reason for this is explained below.
- Whenever an investment or property overseas was disposed of, the resultant funds were regarded as Investment or Property Currency. These were different from normal foreign currency funds as any repatriation of funds required that 25% of the proceeds had to be disposed of on the normal currency markets.
- There was no way to increase the amount of available funds as all funds available were created by the liquidation of previously held assets.
Thus, any overseas investment required the payment of a substantial premium to obtain the currency. Then, when you sold up, you only got that premium back 75% of the proceeds. This not only made the whole process extremely expensive but, due to the constantly depleting pool of funds, the situation always got worse.
My job was to not only manage the book, which meant buying and selling on these markets to meet customer needs and maintaining the bank’s records of our translations but also to make a profit where I could. This meant that I would trade on the markets and buy an excess when appropriate. I did this quite well and it became a speciality of mine. There were a limited amount of banks in the market that made trading prices. I remember dealing regularly with Hill Samuel and Guinness Mahon (the dealer there was a Mr. Galvanoni I seem to remember).
One day there was quite a flurry of activity in the bank with everyone gossiping about what was going on. Suddenly, I was asked to sell a substantial amount of Property Currency to one of our large property company customers. On asking for the property details, I was told that it didn’t matter as he was only going to sell it back to us. It turned out that the owner of the company had bought a property overseas without going through the Property Currency market and that he had been found out by the Bank of England. He no longer had the property but that didn’t impress them one bit. As he was a person of some standing in the City (the BofE thought such things were important back then when they really worried about the City’s reputation), it seems that they had called him in, given him a dressing down and then gave him 20 minutes to sort it out so that he met the rules. He had then hot footed it round to us and hence my sudden involvement. After buying the currency at a 55% premium and selling just 75% back at a similar price, he found the cost of his misdemeanour.