The MT Interview: Terry Smith of Tullett Prebon

His views as an analyst got him fired from UBS. Now he runs the world's second biggest inter-bank broker.

by Chris Blackhurst
Last Updated: 09 Oct 2013

Do you know what these are? Terry Smith points to artwork on the wall outside his boardroom. It's a collection of framed words - 'easy', 'beer', 'hot' and so on. 'They're all words that can have money after them,' he says, before I can answer. 'And look, they're all made of money that relates to them, so 'ransom' is made out of the currency of Afghanistan.'

He wants to show me more. There's a piece sculpted out of gold coins and another made out of notes ... 'It's all a bit of fun, really,' he says, laughing chirpily.

'All a bit of fun' isn't a bad description of Smith. There is something endearing about him. From his slight physique and quickfire delivery to a competitive, rebellious streak that's never far beneath the surface, plus a searing intellect, he is engaging company. He's the City maverick who likes to play up to the role but is an outsider nevertheless - someone who's not afraid of taking on anyone, regardless of reputation and size.

At 57, he's formidably fit, despite a limp, having just ridden a mountain stage of the Tour de France. He loves boxing - hitting someone else, dodging and weaving, the sheer gladiatorial brutality of the sport. He grew up in poverty in the East End of London, the son of a lorry driver (who died of asbestosis) and his career has been marked by scraps galore.

He was the banking analyst who put out a 'sell' note on Barclays just weeks after being hired by its BZW stockbroking arm; later, he was fired by UBS after publishing a book that highlighted the sharper accounting practices of some of that bank's major clients; he took on the Financial Times for libel and won, securing a prominent apology and the payment of £300,000 in damages and a whopping £4.2m in costs.

He has battled repeatedly with his moneybroking rivals, notably Tory grandee Michael Spencer of Icap. More recently, he campaigned successfully for a permanent statue for Sir Keith Park, the Battle of Britain commander and one of his heroes (Smith is a keen pilot). And he's said to have head-butted a fund manager at a black-tie dinner, a tale he has never denied.

Row after row, tilt after tilt - yet here we are, enjoying the spectacular view over the City from the 37th floor of Tower 42, HQ of Tullett Prebon, the quoted inter-dealer broker he runs. He must relish looking down on the City establishment far below.

Tullett is the second-largest such firm in the world, behind Spencer's Icap, acting as an intermediary on trades between commercial and investment banks. He's also deputy chairman of Collins Stewart, the independent financial advisory and broking house, out of which he demerged Tullett Prebon, returning ú300m in cash to investors. At its peak in October 2006, before the global financial crisis, Collins Stewart Tullett was worth ú1.95bn - just six years after Smith had led a ú556m management buy-out.

For all his run-ins, Smith has become very rich. Yes, he likes to holiday in Barbados, he lives in London in the week and has a country home in Essex (he's married to Barbara, with two grown-up daughters), but he's not flash. He collects classic cars and likes country pursuits. But he tells how for his fiftieth, he went across the road to his local pub in Essex 'for a couple of pints', whereas Spencer had Robbie Williams to sing at his own bash in the south of France.

Smith is an iconoclast. Given his record of wealth and job creation, you might wish there were more like him. But he's a true one-off, impossible to replicate. Plus, more Terry Smiths would be utterly exhausting. He is the sort who could pick a fight in a phone box.

'I have a reputation for straight talking. I'm often described as outspoken. I don't view this as a criticism. One of the reasons we have got into the difficult and dangerous situation that afflicts our economy and society is that too many people followed the herd. There was too little high-quality independent analysis and we've been dominated by spin rather than reality.'

Smith is one of the few analysts to cross to the other side successfully. He had no choice. 'In 1992, I wrote my book Accounting for Growth and UBS sacked me. Since then, I've come to terms with it and probably it was for the best.' He chuckles. 'I was never comfortable as an employee. I had to strike out on my own - nobody in a major bank was going to offer me work.'

Ironically, he'd joined the bank because it wanted to clean up its reputation. Four UBS bankers had been arrested over the 1987 Blue Arrow scandal and the bank turned to Smith as its new head of research. He was a star-rated banking analyst, known for his directness and honesty - even if that meant telling BZW clients to get out of his then ultimate employer, Barclays. 'I said that Barclays' lending record was very dangerous - it was probably going to have to cut its dividend in the recession because of its property lending.'

He was right: Barclays did just that. Even so, 'it wasn't what someone on a traditional career path might do. I'm bad at saying things are good when they are not.'

Why? 'I dunno. Occasionally, words just come out. It's like I'm having an out-of-body experience - there's this person speaking and it's me.'

It helps that Smith has a sharp brain. At school, he won the physics prize. At university in Cardiff - the first in his family to go to uni - he got a first in history. 'I was offered a lectureship, but turned it down for vulgar commercial considerations, like making some money.'

He joined Barclays as a graduate trainee. He had stints as a bank manager in Wales and in Pall Mall. Then he moved to the finance department, which brought him in touch with analysts. He didn't see how they were any cleverer than him, so he quit - to go to broking firm W Greenwell as a research analyst.

Soon, he was the City's number one banking analyst. Barclays de Zoete Wedd headhunted him. Then came his criticism of Barclays. Despite that, James Capel, then the pre-eminent equities research firm, hired him, still to cover banks. Finally, UBS called, making him head of research. 'My brief from them was to reclaim the moral high ground.'

That he tried to do - but not in the way they imagined. 'Two FTSE-100 companies, Polly Peck and British & Commonwealth, had just gone bust, yet they appeared to be in good health. I wrote a 30-page report, showing 12 techniques that companies use to generate profits without growing their cash position.'

He was approached to turn it into a book. Some of the firms mentioned - notably Grand Metropolitan - were clients of UBS and they put pressure on the bank. 'I was called in and told to stop. I said I'm not stopping the book and I was thrown out onto the street.'

His book, Accounting for Growth, was a bestseller. Its overall message was that cash is king. 'Cash flow is hugely important. I say that here all the time,' he says, gesturing around. 'If a company's cash flow is in a mess, it is going to have a difficult time.'

Singer & Friedlander, the small investment bank, had talked to him in the past about setting up a broking arm. It'd gone ahead and created one, led by Leigh Collins and Andy Stewart. Smith teamed up with them in Collins Stewart. 'They were still starting off. I got on with them really well.' In 2000, they bought the firm out of Singer & Friedlander, floating it to pay off the debt. In 2003, he bought Tullett, and a year later Prebon, then he demerged them.

What's it like, having to manage and own a business, rather than sitting and analysing other people's? He grins: 'You could say it's a lot easier to be a theatre critic than to produce plays.'

His crucial advice to any would-be entrepreneur is 'keep costs low'. His office in Tower 42 is testament to that. Just seven employees are based there - he can't abide tiers of management. Most staff are at the sharp end, on trading floors in Tullett's offices around the world. 'For ages we had one mobile phone between us,' says Smith. 'And we had to go everywhere cattle-class.' Often, 'a company will claim it's got a revenue problem, but in fact it's got a costs problem', he says.

Another tip: 'Do something different.' No business, he says, can succeed by being the same as all the others. At Collins Stewart, they developed the Quest software system for analysing listed companies. 'We weren't big enough to employ teams and teams of analysts, so we came up with Quest, which is a way of enabling us to value shares of companies worth over $1bn objectively. It's a really useful research tool.'

The broker also carved out a niche for itself as the creator of the 'accelerated IPO'. He'd acquire a business with a view to floating it straightaway. Smith bought Northumbrian Water and floated it on AIM, with 30 institutional shareholders taking 75% of the share capital. It was ideal for straightforward businesses - he did the same with PD Ports and Centerparcs.

His third maxim for anyone going it alone is to apply a 'personality test' to would-be recruits. Forget psychometrics. 'It's dead simple. A test for you and for them: ask yourself: are they the sort of person who, at the end of the working day, you'd say "good evening" to before you leave? Or are they the sort that you say to them "come on down the pub"? If it's the former, don't hire them.' He's serious. 'It's easy to forget in any start-up the commonality of purpose. It's a small workforce and everyone has to get along. That's one of Andy Stewart's ideas, not mine,' he adds, 'but it's a good one.'

Tullett is in good shape, he says. 'The inter-dealer broker market thrives on volatility and activity, so we've had three record years.' In August, Smith had predicted 'unsettled financial market conditions' for the rest of the year, with periods of high volatility. 'The second half will be better than last year's but probably not better than the first half of this one, unless someone blows something big up or another Lehmans goes bust.'

Tullett's latest first-half profits and revenues fell - an expected drop following a mass poaching of 77 brokers in its US business by rival BGC the previous year. Smith admitted this had cut US revenues by 7% and accounted for almost all the 8% fall in group revenues to £476m. Profits fell 15% to £78.6m.

What also sets Smith apart is that he is an analyst who moved across, yet is not a broker. Spencer at Icap was a broker and still likes to be on the trading floor, listening to the calls, following the action and the markets.

It cuts both ways, Smith says. 'When we bought Tullett and then Prebon, we found management teams who were untrained in management. They were good at broking, but I'd ask them: what's the cash flow? And there'd just be silence. They'd never had to analyse the company strategically. Their operational skills were good, but they'd never had to look at the business overall and plan ahead.'

Now, says Smith, 'we train people to think about those things. It's true that there are brilliant entrepreneurs who can do everything naturally, but that isn't the commonest route. Everyone needs training from a mentor. So we have an apprenticeship scheme.' He smiles. 'It's a case of "you do the job, I'll get paid but you'll learn" - but it works.'

His industry has been characterised by numerous court cases involving mutual poaching, swift dismissals and lurid threats. Aside from the mass US poach, Smith will learn at a hearing in March next year what damages Tullett will receive for a similar but smaller incident when a dozen London employees were lured away.

It seems the most fiercely aggressive industry of all. That's because it's a people business, says Smith. 'We don't have factories and warehouses full of stock.' And it's headed by strong personalities. 'If you go back a decade, all the firms were privately managed, usually by one person who was a former broker. There was an element of them disliking each other.'

Generally, colourful characters do not get to the very top of business in the modern City, but they have done so in inter-dealer broking. They're also nearly all located in London, which is unique. 'New York is not a true international financial centre,' he says. 'When you're there, you're aware it is mainly serving American businesses and the American economy. Here, what we do is much more international.'

The five major inter-dealer brokers are all based in London, all run by men with testosterone-fuelled egos, chasing the same pool of talent and clients. 'Between us in London, we account for 90% of the world market.'

But when the feuding stops, says Smith, they'll pick up the phone to each other and there will be further consolidations. 'When there's a change of people in charge or someone's strategy fails or there's a regulatory change - that's when firms will fall into the arms of others.' Icap, he points out, is an amalgamation of six firms, Tullett five. 'There's further still to go.'

But Smith is a pessimist about the economy over the next few years. 'In the West and Japan, a lot of individuals are leveraged so many ways. The old adage is true, that the more they owe, the more it becomes the bank's problem. Then if there's more than one bank suffering it becomes the government's problem. And if it's the government's problem, there is nowhere else to go. We've seen it with Greece. But it's not just Greece - Portugal, Italy, Spain are vulnerable, and the UK and the US and Japan. And that is very alarming.'

According to some estimates, he says, 'there is $350trn of leverage in the world. That's a massive number and, remember, one person's debt is another person's asset - it all needs servicing.'

Politically, he is not aligned to any party, but enjoyed a good rapport with the previous administration. 'I went to Chequers to see the prime minister and I had a long chat with Alistair Darling at Davos, who said it was the most useful Davos discussion he'd ever had.'

What concerns him is that we're not looking at the bigger picture. 'In Britain, we need urgently to get our heads around an ageing population. Japan has suffered from it for years and now we, the US and Italy are feeling it. Not so long ago, the ratio of working man to retired was six or seven to one. Now it's 1.3 to one. It can't be coincidence that the biggest-growth economy in the world is Vietnam, with the youngest population.'

The approach in the West, argues Smith, has been 'to borrow and spend, when all the time China is gaining manufacturing expertise and India expertise in services, and they're both educating their people. We look down on Chinese manufacturing, but this is a country that has put a man in space - something we have not done. All we do is borrow more and keep on spending, but the problem of our ageing population, and the pressures this brings, is not going to go away.'

Despite all the flak thrown at it, the City of London, he says, will be OK. 'People forget that a large part of the financial services industry here did not suffer - for instance, insurance has enjoyed a boom.'

Tullett offered to help its staff move overseas to escape the bonus super-tax. How many did so? Not many, he says - he won't be specific. 'We underestimate the difficulty of loosening ties with the UK. If you've a family, it's not an easy thing to do.'

Would Tullett itself move? 'There would have to be a tangible corporate advantage to going and it couldn't be to a brass-plate sort of place. Zurich is interesting, and Singapore, but the odds are against.'

Banking will undergo change, which he says will be good for inter-dealer broking. It will create more small banks, which will have to deal with each other via firms like Tullett. 'We may be sitting on a goldmine in our industry with the legislation going through the US.'

There has been talk of Smith himself going into banking, perhaps setting up a retail, high street operation in the UK. 'I've been approached, but there will be a rash of new banks. Running Tullett and being on the board of Collins Stewart are enough. If I did anything, it would be to form my own fund manager.'

What he won't be doing is putting his feet up. He'd be bored within minutes. There's his fitness, cycling, flying (he keeps a small aircraft at Southend Airport) - and now the Park memorial.

He read about Park and felt it a scandal that the air chief marshal wasn't commemorated. 'If one man saved us in World War II it was Park, but nowhere in the UK is there a memorial to him. He was very badly treated after the Battle of Britain - the official history does not even mention him.'

A bust of Park is in pride of place in Smith's office and, typically, he devoted hours to researching the late RAF leader. He clearly identifies with Park: 'He was a bad politician and no diplomat.'

Smith's had a statue made for temporary display on the empty plinth in Trafalgar Square, and now Park is to have a bronze in a permanent spot in Waterloo Place. Smith is coy about how much it has cost. He initially put in £100,000 of his own money, but the final figure could be 'several hundred thousand'.

Once the statue is unveiled, will that be it for crusading Citizen Smith? 'I've learned a lot about campaigning. I've acquired a body of knowledge - maybe I should use it for somebody else. I'm open to suggestions, seriously. I've enjoyed doing it.'

Politics is out, although he did stand for the anti- European Referendum Party in the 1997 election and now feels vindicated by the eurozone crisis. A pity, because debating in the Commons would seem made for him. He shakes his head. 'I'd have been horrified if I'd been elected. I really would be the Alan B'stard of Westminster.'

He's grinning broadly. Alan B'stard of the City will do nicely.


  • To establish Tullett Prebon as the world's leading inter-dealer broker, ahead of Michael Spencer's Icap, and to grow Collins Stewart
  • To publish a third edition of Accounting for Growth, taking in the books of the major banks
  • To set up his own fund management business so that he can put other people's money where his mouth is
  • To cycle the entire Tour de France course and to find another hero from our past to resurrect with a character not unlike his own


1953 Born 15 May. Educated at grammar school in Stratford, London; University College, Cardiff; and Henley BS

1974 Graduate trainee, Barclays, rising to become branch manager in Pall Mall

1986 Recruited by BZW; then banking analyst at James Capel

1992 Head of research at UBS, fired when he publishes Accounting for Growth. Joins brokers Collins Stewart

2000 Leads MBO of Collins Stewart from Singer & Friedlander and floats it on LSE

2003 Collins Stewart buys Tullett and, later, Prebon

2006 Tullett Prebon demerged from Collins Stewart

2010 Sir Keith Park memorial to be unveiled on 15 September.

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