Stanley Ross Eluded Nazi Bombs to Transform World Bond MarketsJohn Glover
As 11-year-old Stanley Ross huddled in a shelter on a North London public housing estate in the summer of 1942, a German bomb landed just feet away. It was a dud.
“There was a stick of eight bombs and ours was the fifth, and it landed just there,” he said, pointing to the adjacent table during a June 6 interview at London’s Savoy Grill. “Had it gone off I wouldn’t be here now. I’d have been vaporized.”
The son of a London bus conductor, Ross later became the first non-German-born managing director of Deutsche Bank AG. He was visiting the Savoy where he and other Eurobond bankers and traders used to mingle with the likes of then-Prime Minister Margaret Thatcher and John King, who prepared British Airways Plc for sale to the public.
Ross, who left school at 15, traded the Autostrade SpA Eurobond that in 1963 was the genesis of today’s $4 trillion-a-year market that’s at the center of global finance. That deal 50 years ago came about after bankers led by Siegmund Warburg created the debenture so its interest payments were untaxed, attracting the pools of American dollars accumulating in Europe.
About $4.8 billion of Eurobonds were issued from 1963 through 1967, rising to $17.5 billion in the five years through 1972, according to Ian Kerr’s “A History of the Eurobond Market.” Sales this year are set to match the $4 trillion in 2012, according to data compiled by Bloomberg.
While Eurobonds have survived everything from the Cold War to the worst financial crisis since the Great Depression the 82-year-old retired trader said he is “very, very bearish about what is going to happen in the very near future,” to the world economy. In part because of the printing of money by world central banks to stimulate their economies, he said.
“Within a year you will see gold at twice the price it is now,” Ross said.
Ross’s Eurobond trading helped fund a lifestyle featuring a series of Porsche 928s and expensive restaurants. Combined with a look that included a monocle and mutton-chop sideburns, a habit of speaking his mind and authorship of “The Week in Eurobonds” newsletters, Ross became a spokesman for the Eurobond market in the 1970s and 1980s.
When Standard & Poor’s gave Finland a AAA credit rating in 1972, Ross asked “how many Kalashnikovs are pointed their way across the border, and how long it would take a Foxbat to get to Helsinki,” referring to Russian rifles and fighter planes.
The Finnish finance minister pointed out to Ross’s managers in New York that all the nation’s friends were happy “except one curious publication in London, written by Mr. Stanley Ross,” according to an article Ross wrote in May 1993. “Slapped wrists all round,” he commented, showing no sign of regret.
Ross helped set up the world’s biggest securities settlement system, and defeated a move by the Association of International Bond Dealers, the trade group he co-founded in 1969, that would have put him out of business, he said.
The battle with the AIBD leadership shows how Ross spotted technology that would force financial markets to change. Using a new feature on the Reuters system, Ross helped break a monopoly underwriters had on pricing information in 1979 by posting when-issued prices for new bonds, an indication of what the market would be prepared to pay for the securities after settlement.
At a stroke, underwriters lost the information advantage they previously held over issuers and investors. They couldn’t tell clients that a deal was going well when a published price was saying the opposite. Investors, too, benefited from the increased transparency.
At the AIBD meeting in London that year, the board attempted to have the practice, known as grey-market trading, banned. Members declined to go along with the proposal and voted it down.
“I used to think of him as a weapon of mass destruction,” Stanislas Yassukovich, who was chairman of the AIBD at the time and a Eurobond dealer at White Weld & Co., said in a May 28 interview. “He gave me kind of a baptism of fire. He was right. In a way he was pointing toward the future.”
Yassukovich, now 78, later became chairman of Merrill Lynch Europe and deputy chairman of the London Stock Exchange.
Ross said his path to bond trading started when Julius Strauss noticed a novel by Marcel Proust lying on his desk at Strauss Turnbull & Co., the London brokerage Ross joined in 1950. The partner was so impressed he took him out of the back office and onto the trading floor to buy and sell equities for more than a decade before he turned to debt.
In 1963, Strauss Turnbull was appointed broker to the $15 million Autostrade issue and Julius Strauss told Ross to trade the security. The bond business became larger than equities, Ross said. He left Strauss Turnbull in 1967 to set up the Eurobonds business of Kidder Peabody & Co.
As well as untaxed coupon payments, Eurobonds offered anonymity. The person holding the security could claim the payments. They were typically issued through groups of international underwriters, first in U.S. dollars and later denominated in all the major currencies.
In the early days, the settlement of trades in dollars were routed through New York. While buyers had to come up with the necessary cash they didn’t get their bond certificates until the trade settled at a later date, and only if the paperwork didn’t get mislaid, according to Ross.
“People had to wait for their bonds and the Swiss sometimes waited one or two years,” Ross said. “Everything came into the settlement system and we had to pay for it but nothing went out to give us the money back. And this was a deliberate policy.”
Ross threw Kidder’s weight behind Euroclear, now the world’s largest settlement system for domestic and international bond, equity and derivative transactions, and refused to trade with anyone who didn’t settle through it.
The company, which was set up by the Brussels office of Morgan Guaranty Trust Co. in December 1968, now settles more than 540 trillion euros of securities transactions per year.
In 1978, Kidder awarded him what he calls “the Order of the DCM” -- Don’t Come in Monday -- amid a fight with the sales force over commissions.
That, too, was part of the fallout from the transparency that came when prices were posted on dealers’ screens, he said. When the firm acceded to demands that sales people be given commissions on trades their clients had made directly with dealers, Ross was out.
Institutional Investor magazine illustrated the story of his demise at Kidder with a cartoon of him sitting on the branch of a tree sawing himself off it, captioned “The Rise and Fall of Stanley Ross,” he said.
“I am not vindictive but I derived the most enormous pleasure watching the almost immediate disintegration of Kidder Securities,” Ross said of the affair in his 1993 article.
Ross went into business with London money brokers Marlon House Group as Ross & Partners. He took the cartoon, put holly round the edges and, with the message “Don’t believe all you read in the press,” turned it into a Christmas card for his new venture. In 1983, over Ross’s objections, the company was sold to Drexel Burnham Lambert Inc. and he quit.
He joined Deutsche Bank as a managing director in 1984 responsible for building up its bond trading business just before the “Big Bang,” the U.K.’s deregulation of financial markets in 1986.
While Ross stayed with Deutsche Bank until 1991, he didn’t fit in with the German banking culture in the lender’s senior echelons. He now refers to it as “The Deutsche Bank,” and rails at what he called German dominance over Europe through the European Union.
“The way we are going, we are going to be totally controlled by Germany,” he said at the Savoy, fingering a brooch in the shape of the pound symbol that’s used by the U.K. Independence Party. “The whole of the euro zone is going to implode and we are in for the most horrifying time. Banks will be going bust right, left and center.”
Ross offered a bet that gold will double to $2,600 or more an ounce within 12 months. He wonders whether he should have made it a two-year bet, then reconsiders.
“No, no, we’ve done the deal,” he said, ever the trader. “Das ist gemacht. You’re done.”