MT Interview - Michael Spencer

Today he runs the world’s biggest interdealer broking firm. But before he made his money, he suffered career calamities that would have finished others.

by Chris Blackhurst
Last Updated: 31 Aug 2010

Michael Spencer is having his picture taken to go with this article. Suddenly, his mobile phone beeps. He's got a text message. He frowns and stops mid-pose to read it. His face breaks into a smile. He looks around at his colleagues, all pretending to work at their desks. It's from one of them, telling him his flies are undone.

At no point does Spencer check to see if he's properly zipped up. He did that in the lift on the way up. He waves in the direction of his staff. They're having fun at his expense, puncturing what ego there is, and he doesn't mind. It's hard to imagine some corporate chiefs taking the prank in the same spirit. The photoshoot would be halted, the culprit found and marched from the building. But this is Spencer.

The jokes his people play on him are the stuff of City legend. On one occasion, he staggered in late after a hard night's partying and fell asleep. Staff put the office clocks, and his watch, forward, and wrote on his forehead in green felt-tip, 'Hi Stef'. When he woke up, he panicked that he was late for lunch and rushed off to Claridge's to meet a client called Stefan... Last Christmas, for his firm's annual charity day – when all profits for one day are donated to good causes – his staff came into work wearing Spencer lookalike masks. Spencer, with stars from the arts and sport and other luminaries in attendance, roared with laughter.

There is a serious side. The boss who makes a point of checking his flies are done up is a calculating moneymaker (in City speak, a rainmaker). The richest self-made man in the City (he paid himself a cool £5 million salary plus bonuses in 2003), his personal fortune is well in excess of £300 million. He's a popular folk hero to many in the Square Mile, where business acumen and success are revered, known to friends and rivals alike as Spence or Spencer.

He runs Icap, the world's biggest firm of interdealer brokers or, as they are more loosely called, moneybrokers. From what were the offices of Lehman Brothers in London's Broadgate and are now his new HQ, he oversees an empire of 2,900 staff in 23 branches worldwide.

He also owns substantial stakes in Numis, the listed stockbroker, and City Index, the spread-betting firm. But it's as a moneybroker that Spencer has made his fortune and his reputation. He provides dealing services to banks and other financial institutions, acting as a wholesale buyer and seller of bonds, foreign exchange and future contracts, and derivatives. In the past few years, as volumes in straight equities have remained flat, all the growth and the action has been in Spencer's domain. Turbulent times have been good for business as companies have rushed to insure against wild currency and commodity swings. Through Icap, he now controls 30% of the £800 billion interdealing market. The latest set of accounts show that for the six months to 30 September last year, Icap made profits of £81.4 million on turnover of £395.8 million. To put that in context, that is almost £400 million in commissions on trades. The charity day when Spencer's staff wore fancy dress and mimicked him? It raised £4.2 million for a whole range of grateful organisations – from one day's trading in December. The electronic platform that his dealers use is capable of handling transactions worth $450 billion – in one day.

It's wrong, though, to think Spencer's pre- eminence is without challenge. For so long, having seen off the opposition, he has been the undisputed king of the derivatives and securities world, a colourful, forceful character who had the City and much of the world's other financial markets in his grasp. Then in 2003 he found himself with a serious rival. Under the leadership of the equally aggressive and determined Terry Smith, the stockbroking firm of Collins Stewart has transformed itself into a contender for Spencer's crown. Smith paid £251 million to buy Tullett, one of the big moneybroking firms. Now it has acquired Prebon, another. Suddenly, Smith has gone from owning zero to 25% of the market.

Theirs is a titanic struggle that has the City agog. Spencer bought his shares in Numis in 2003, a move interpreted by many as opening up a second front in the war with Smith (Numis and Collins Stewart are competitors, and Spencer's purchase of 10%, and his installation as chairman, were seen as hostile acts aimed at Smith). 'I like a good fight,' is Spencer's characteristically blunt response.

He isn't joking. It's easy to be fooled by Spencer. He looks positively 'wouldn't say boo to a goose', donnish, with his balding head, big brown eyes and glasses. But there's a ferocity about him that's never far way. His soft features can quickly give way to an angry grimace. His stare can be intense. His temper, by all accounts, is awesome. He can be charming and disarming one minute, snapping and hostile the next. He always looks immaculate, in favourite Hermes tie and, often, braces. His suit is bespoke, his shirt is from Turnbull & Asser. He doesn't ooze flash, just capitalism and power (he is a keen Tory supporter, a major donor and avowed Eurosceptic). He talks fast and his voice can lift several decibels, even in the course of a sentence, as he gets wound up. You can imagine him bellowing at his traders: 'Let's make money!' Not difficult to think of him, too, roasting one of his dealers for a bargain that has turned sour.

As Smith is finding out, Spencer relishes combat. He ran rings around another rival, Cantor Fitzgerald, and the old City Establishment. Now, it's the turn of Collins Stewart. He's annoyed that an e-mail he sent to one person has found its way round the City. It names some people who have left Collins Stewart. 'This is... because they cannot stand Terry Smith's autocratic management style.' Reaction in the City on reading Spencer's description of Smith was one of amusement – not for nothing did Spencer have a framed picture of Dr Evil, the Austin Powers villain, on his old office wall.

The other point about the memo, though, was that it showed just how serious Spencer is. Any weakness, even three people leaving Collins Stewart, will be pounced on. He's like that, is Spencer. Once it was making the deal that drove him; now it's about making Icap even bigger.

He's replaced the raucous machismo of the trading floor with the executive office, yet the motivation – and the testosterone – is the same. The thrill of the chase that comes with negotiating down a phone on a trade has been replaced by global domination strategy.

He may appear studious and calm but he has a burning intensity. He's always looking for the chance, his mind racing from one thing to the next. He's an inveterate gambler, yet he hates roulette because it requires no skill. He once started a market in the number of lace-up shoes under a City lunch table. 'Once you understand gambling,' he says, 'you just somehow manage to feel your way on how to make a slightly better price than others.'

He doesn't always win. He once lost £10,000 in a night at backgammon. More recently, his desire for a punt got him into trouble when he bought £5.5 million worth of shares in Marks & Spencer after meeting a friend, Stuart Rose, who was being lined up by Philip Green as a lieutenant on his proposed takeover bid. Spencer was subsequently cleared of insider dealing.

What came as a surprise to many was that Spencer, who has more money than he can conceivably need, should even get caught up in an old-fashioned insider trading furore. But that is to misunderstand him. As he pointed out, he takes positions in lots of companies. M&S was just one of them.

Ever since he can remember, he's wanted to make money. He was born in 1955, the son of a colonial administrator, a civil servant who later joined the United Nations. His early childhood was spent in Malaysia, in Sudan and Ethiopia. Did his childhood shape him? 'My African roots meant I was separated from the normal approach of only ever having lived in England. People I met in England had never seen true poverty. While we were privileged by the standards of the west, our living conditions in Addis Ababa were relatively primitive. There was no television, for example. I was also exposed to things that no western child would see, like people suffering from leprosy.'

At eight, Spencer was sent to England, to boarding school at Worth Abbey, Sussex. It was hard. While other boys had families nearby and could go home easily and see each other in the holidays, he had to get on to a plane to East Africa. It gave him a thick skin, and a rootless quality. He isn't really from anywhere. He has houses in West London and Suffolk – but the place that he has made his own and where he feels comfiest, you suspect, is the City.

He won a place at Oxford to read physics. He specialised in astrophysics but his aim, from 15 onwards, was to join the City. 'I was fascinated by money, by the financial markets,' he says. 'Money was a huge driver. I liked reading about Rhodes in Africa [Cecil Rhodes, founder of Rhodesia]. I wanted to read about people like him, and the Rockefellers and Morgans in the US, and how they made their fortunes, rather than Brideshead Revisited.'

He was inspired. 'In Africa, the explorers saw the continent as one great adventure. That's how I see the financial markets – as one huge adventure.' If he hadn't been doing his present job, he says, he'd like to have been a 19th-century merchant trader – 'a taipan in Hong Kong or a merchant prince'.

He did the milk round and landed a job at Simon & Coates, the stockbroker. Spencer then looked very different from the power-dresser of today. He had an Afro-perm, moustache and beard – a white Jimi Hendrix. He got the job because he was determined and addicted – he'd become obsessed with working in the Square Mile and consumed information voraciously. He started listening, as a student, to Financial World Tonight on Radio 4. As luck would have it, the Simon & Coates partner who interviewed him had been on the programme the previous evening. Spencer was able to recite what he had said. His hippie appearance notwithstanding, Spencer was offered the job.

He took to the City like a duck to water. It was his love of business but also an easy ability to get on with people. Then there was his numeracy. 'Much of my university degree had involved applied maths. There's no doubt that in the early days it gave me a competitive advantage.'

In 1979, he was was a stockbroker, young, with a smart firm. He was entitled to think the world was at his feet. Then it all went wrong. 'I rather naively believed one could get rich quick, and the whole idea of working in the City was to get rich quick,' he says, ruefully.

For someone who prides himself on analysing and scrutinising, Spencer came an almighty cropper. He thought gold was going to fall and took a large short position. He hadn't reckoned on the Russians invading Afghanistan. Instead of dropping, as he'd hoped, the price of gold soared from $200 to $800 an ounce. Spencer was transfixed, like a rabbit frozen in the headlights of an oncoming car. 'I remember praying and praying it would get better tomorrow, and then the agony of losing everything.'

Even though the loss wasn't the firm's but his own – he had been playing the markets with his own cash – he was fired, for 'spending a disproportionate amount of time trading on my own account and losing substantially more than I earned in 1979'. It was bitter blow, but he wasn't resentful. 'You've got to be disciplined and I wasn't. I'd lost my job from a highly reputable firm for all the legitimate reasons. In hindsight, they did me a huge favour. It was a great personal experience.' He adds, grinning: 'There were some very high quality people there – Collins Stewart was founded by ex-Simon & Coates colleagues.'

Leaving Simon & Coates also forced him to quit equities. He managed to secure a post as an interest rates analyst at Drexel Burnham, the US bank, in London, but it didn't last. 'You could say I had a haphazard approach and that I was eased out,' he says, breaking into a broad smile.

But Drexel was his type of employer – and helped Spencer to form his own credo at Icap. 'They were a US firm and quite different from a British one. They were indifferent to your background, to your educational pedigree. They were focused on your commercial nous and your hunger and your ability to make money. We were paid according to a meritocratic system.'

It was 1980, and the futures markets were in their infancy. Spencer immersed himself in trying to predict, and to make money from, the movements of the gold, cocoa, sugar and coffee prices, as well as interest rates. He was taught the new markets by Dr Richard Sandor, a Chica-goan and for many a futures guru. 'He was the inventor of many of the financial futures markets. He was my mentor. I have his picture in my office and I still see him twice a year.'

Then, after three years, Spencer made a trading error, didn't tell anyone, tried to cover it up and was sacked. 'It was just $110,000 and if I had come clean I would have been reprimanded. But as it was, I lost my job.'

Again, he had no complaints. But two jobs at two leading firms and two sackings? Hardly a great record. It was, however, almost certainly the best thing that happened to him in career terms. Despite the chequered record, he found another job (interdealers were in great demand as firms opened up and banks rushed to climb aboard the gravy train). He started at Charles Fulton, one of the new moneybroking firms. It was 1983-84 and he was in charge of a team of financial futures traders. The market was just taking off and Spencer was ideally placed to exploit the new developments and products.

Charles Fulton went public in 1985 and, as a divisional director, Spencer made £200,000. It was enough for him to realise his ambition to go it alone and to make money for himself. If he'd not had his two disasters, he would have stayed at Simon & Coates or Drexel or joined another major firm, like Salomon. As it was, he was able to set up Intercapital with three colleagues.

They left Charles Fulton and started Intercapital (later shortened to Icap) a month later, on 1 May 1986. His original partners have long since left the firm and the City. 'They all made too much money,' he chortles. Back then, however, 'we didn't have a bloody clue where we were going. We didn't know if we'd have a secure first few months, let alone a first year.' The first month, he says, was good. 'The second was okay. July and August were shocking. In September, the clouds parted. Since then, we've never looked back.'

The firm, he says, had 'a simple ideology: to pay people fairly and honestly. We recruited the best people in London over time, and many are now shareholders as well.' At first, though, this ideology did not extend to women. Icap saw itself as a man's firm in a man's business. 'No women allowed, it was a private club,' he has admitted. They didn't see anything wrong in it: theirs was a world of men behaving badly in the workplace, of unrelenting pressure relieved by bouts of laddish humour. When, finally, Spencer and his pals discussed letting in women, they found themselves debating, in his words, whether they could fart or burp at their desks, and carry on swearing and talking about sex – it really was like that.

Times and attitudes change. If he had his way now, says Spencer, he would go to the other extreme and positively discriminate in favour of women. 'They improve the class of the place and they work harder.'

There's no escaping the fact that the business of moneybroking can be a male-dominated, hard-playing, hard-working environment. Much of that image has been fuelled by Spencer himself. He acquired a reputation in the 1990s for throwing extravagant parties. On one occasion, in 1992, he turned Claridge's into a 1930s Chicago speakeasy.

And yet nobody could be less of a party animal than Spencer. He's happily married to Lorraine and they have three kids; he's sociable and extremely gregarious, but large, noisy, wild parties aren't his thing. He likes smaller dinners with fine wine and good, often political, conversation. Like so much with Spencer, the giving of parties was a calculated ploy. He thought, rightly, they would get the firm known and establish its name as a rising force.

In 1993, he stopped trading himself to focus on building the operation. 'It took a year to get over it. There's so much adrenalin. There's an addictive dimension to being a broker.' In 1998, he bought Exco and a year later Garban. Both firms were bigger than Icap and Spencer set about merging them with a gusto that shocked the City but meant that at the end, after hundreds of job-losses, including those of several friends (the interdealing community is small and everybody appears to know everybody else), he had the company he wanted.

There's no doubt that Spencer has altered. He's calmer now. Icap doesn't give the same parties. 'We've got too many staff now, too many clients.' He is not as visible on the trading floors as he used to be. In the evenings, while his traders head for nightclubs, he's more likely to be found at a Tory fundraising dinner. But he'd never go into politics full time. 'I'd want to be in an environment where what people say is what they mean. Here, we're in the same canoe and we're all pulling in the same direction.'

The business has settled down, too. The company is not growing at the pace it was. Turnover and profits fell in the latest half-year and pushed the share price down, for the first time ever. 'It was like taking a cold shower. We needed it to wake us up,' he says. The markets do not fluctuate as they once did – interest rates are relatively stable – and that can be bad news for a firm like Icap, which depends on volatility.

The days of din-filled trading floors and open outcry at exchanges are also disappearing: 'voice' is being replaced by electronic. The world's biggest derivatives market is interest rate swaps, used to hedge against changes in interest rates. Each year, about $140,000 billion worth are traded. Not surprisingly, they're Icap's biggest source of revenue, even ahead of government bonds. To corner even more of that market, Spencer has launched iSwap, an electronic trading platform. It's early days, but he claims to be confident of success. 'I have in my mind's eye a view of the future. It is electronic.'

Investing heavily in new products like this is part of his response to Smith. While his rival concentrates on merging his purchases, Spencer is powering ahead. In 2003, he paid £181 million for BrokerTec, an electronic dealer that dominates the market in US Treasury bills. Broker- Tec has taken Icap's share of electronic trading beyond Cantor Fitzgerald, his US arch-rival. There's no letting up. He wants to shift more and more of his business to electronic trading, while seeking further industry consolidation.

Icap and Spencer have grown up. The madcap days of youth and excess are behind them. This is a seasoned Spencer, more responsible and stable, if just as ambitious. 'Things are as challenging, and as interesting, and as intellectually thrilling, as they ever were. I'm not as impulsive as I was and I'm not as laissez-faire,' he acknowledges.

'There's been a major change in circumstances and in the challenges we face. You have to adapt, but I know I'm still exactly the same person underneath as I ever was. We learn from our experiences,' he adds, 'and in my case, the list of experiences is quite substantial.'

He's smiling. He knows it's remarkable how things have turned out. He stands up. It's time to go, there's his picture to be taken – and flybuttons to be checked. mt

Three tough challenges for Spencer

1 Can he remain top of the moneybroking pile in the face of a determined attack from Terry Smith's Collins Stewart? Smith is as clued-up and acquisitive an entrepreneur as himself.

2 How will he maintain Icap's profitability with decreasing volatility in the market?

3 He has in his mind's eye a view of the future. 'It is electronic,' he says. If his vision is to succeed, he must get the technological infrastructure right while also trying to achieve consolidation.

Spencer in a minute

1955 Born 30 May. Educated at Worth Abbey, West Sussex, and Corpus Christi, Oxford.

1976 Analyst, Simon & Coates, stockbrokers

1981 Vice-president, Drexel Burnham Lambert, US bankers

1983 Director, Charles Fulton, moneybrokers

1986 Chairman, Intercapital (later Icap), moneybrokers Hobbies running, riding, shooting, wine, art, politics.

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