Blain’s Morning Porridge 27th June 2023: Canary Wharf or Prigozhin? Which will Sink the City?
“Many to many have stood where I stand. Many more will stand here too.”
The Canary Wharf saga has been “interesting”, but as demand for office space evolves, is it over? The events in Russia are a reminder to markets about instability, uncertainty and just how dysfunctional it could all become.
Before getting started on markets, a quick comment on Canary Wharf. The news HSBC is moving back to the City of London after 20-years feels like a bookending moment for London’s financial satellite.
The Wharf has featured too prominently in my career for me to ignore it. This morning’s picture is one of my own – a sketch a did very early one Spring morning from the balcony of our flat on Narrow Street. I am rather fond of it – it triggers memories of good friends, deals, laughs and tears, and more than a few frustrations, including my falling out with HSBC some 15 years ago. No regrets about any of it.
Back in the mid-1980s I was a very junior bag-carrier to a junior banker at Morgan Stanley when I first found myself out in the wilds of London’s dockland, at the then famous Limehouse TV Studios, attending a presentation laying out plans for a new financial Capital City. Just a few years later the Studio was gone, replaced by the One Canada Square Tower of Canary Wharf.
It was never pretty. The architecture was what we knick-named “Thatcherite” – based on how we imagined the then PM might randomly have put-together squares, arches, columns, circles and lots and lots of triangles from a kiddies wooden block set to explain to the designers her desired effect. Yet it was attractive to financial firms – plenty of space, modern offices that could swiftly be fitted with computers, (when I joined the City in 1985 there was one computer on the whole floor I worked on!), and transport links that improved little by little each few years.
The Wharf quickly acquired financial gravity as gleaming new offices for Morgan Stanley and Credit Suisse First Boston were opened. I found myself working in the Tower for Bear Stearns for the following decade. (There is a non-descript building at the Eastern End of the Wharf that would have been Bear’s European HQ if the Global Financial Crisis of 2008 had not sunk the firm.) Lawyers, accountants and parasitical consultants make up a large part of the roster of Wharf firms. For a while in the 2000s it felt like Canary Wharf was the next financial nexus.
In the early noughties I entered HSBC’s spanking new Temple of Gloom for the first time, joking the Royal Navy must have given up all its battleship grey paint to the bank to colour the whole building as boring as possible. It was actually a fine building – and the view from the top executive floors could be scary with floor to ceiling windows. When HSBC “dispensed” with my assistance I finally spent a few years working back in the proper city – in Ropemaker place, a spot where I have now seen 3 different buildings rise and fall. But Canary Wharf wasn’t done with me yet – I spent a few more years at BGC in yet another Canary Wharf office.
Most mornings I trudged from our Narrow Street flat to the Wharf – and I rather enjoyed it. Today, it’s the long commute from the south coast, testing my patience versus the vagaries of the broken British railways when I come into our small hot-desking office.
Today 15% of Canary Wharf is vacant. At present I am told the prices for prime, sustainable, environmentally and green compliant buildings are strong. But older buildings – including those on the Wharf – have to go. Banks and insurance firms are moving back into town. Wealth management has moved further West.
The question is: does the City of London still need Canary Wharf? Will the financial industry re-congregate back in the Square Mile of the old Roman city bounds? Or is it set to wither further? What will happen to Canary Wharf? Who will be the last financial institution to put the lights out?
I’d be intrigued to hear what readers think…
Meanwhile.. Back in the USSR…
If it wasn’t so serious it would be like a episode of comedy-history: The Great. No one has a clue what happened, is happening, will happen in Russia. But odds on Prigozhin’s longevity are…. short. It is all absolutely fascinating… with potentially massive consequences for markets.
From the start of the Ukrainian War I’ve been amazed at the number of otherwise clever financial analysts and commentators who remain certain Russia will still ultimately win Putin’s war. Some point to Russian’s economic strength, it’s steely determination and ability to withstand horrendous losses, its vast resources. Others are just shills. They choose to ignore the glaring fumbles, the damaging internal competition for Putin’s favour, or the chaos that’s accompanied every stage of Russia’s incoherent plans, flawed mobilisations, battlefield tactics and strategic objectives.
Despite the glaring differences in wealth, living standards, and life span between the West and Russia, the picture painted to the World is of a Russia that is economic and military equal of the West. That narrative has encouraged the breakup of the Western hegemony, encouraging formerly align nations to disalign, revealing the Gulf as willing to step away from the US, and boosting China as a credible alternative. The Ukraine war has changed Geopolitics for ever – the ending of Chinese deflationary exports is as significant a cause of current inflationary uncertainty as Russian gas.
Yet, I suspect Putin never had a grand plan to win the war, exploit it or build global strength around the “liberation of Ukraine” with the BRICS nations of the global south. I suspect Putin felt Ukraine was his by right – after all he’d paid his intelligence services to deliver it. That’s the real issue – just how detached Putin has been from the reality. It came to bite him last weekend.
Russia should be is the richest country on the planet. It is extraordinarily well endowed with natural resources and energy – yet for 400 years it has conclusively proved it lacks the political, commercial and administrative skills to organise the state to manage and exploit that wealth. The model remains essentially unchanged since the days of Ivan the Terrible – a strong leader sitting uneasy on the throne served by multiple security/intelligence services competing for patronage, wealth and prestige. Capitalism and the market never had a chance. Russia has never spawned an effective economy, but instead allowed kleptocracy to become its economic driving force. It isn’t helped by Russia’s demographics.
For the West there are multiple issues – but they all boil down to the potential consequences of ongoing Russian instability and unpredictability. The West needs energy and commodities – but has proved able to weather the short-term energy-shock. The next issue may be food – Russia further disrupting the flow of Grain from Ukraine will have global consequences in terms of food inflation, but also political instability in the many nations where social revolution is just a few missed meals away.
Or was the Prigozhin mutiny just a precursor of further internal instability to come? Maybe a real coup remains a possibility? And it might be well to remember the abiding lesson of the West’s flawed overthrow of Saddam Hussein: “Better the devil you know… than a new one..” What follows Putin could be much, much worse..
Five Things to Read This Morning
FT HSBC exit a sign of Canary Wharf’s post-pandemic woes
FT Bets on bond renaissance frustrated by stubbornly high inflation
WSJ Sequoia Made a Fortune Investing in the US and China. Then it had to pick one.
WSJ Tesla Leads Surge in Battered Clean-Energy Stocks
BBerg BOE Set to Tip UK Into Recession by Year End
Out of time, and back to the day job..
Bill Blain
