By Jason Nisse
Appeared in the Independent on Sunday on 26 January 2003
Jason Nisse meets Terry Smith, the City iconoclast who may have to roll with the punches again after spending £212m on a broker dream the most outspoken man in the City has just announced the biggest deal of his life - and he's suffering from laryngitis. "Too much time in aeroplanes flying around the world," Terry Smith explains, his singsong East End accent tempered to a growl. "I must've picked up some sort of a bug."
Whatever the bug is, it's best not to get on the wrong side of Terry. He may be chief executive of Collins Stewart, one of the City's most up-and-coming stockbrokers, and Collins Stewart may have just paid £212m in shares for Tullett, a moneybroker four times its size, but Smith shows no sign of mellowing.
He is no different to the man he was 17 years ago, when he put out a sell note on Barclays just weeks after being hired as a banking analyst by its stockbroking subsidiary. Or the man who, a decade ago, was fired as head of research by UBS after writing a book that questioned the accounting of some of its clients. Or the man who reputedly headbutted a fund manager at a black-tie do, a story Smith chooses not to deny.
Asked if he is becoming part of the City establishment, Smith, who turns 50 this year and relaxes by watching boxing in Bethnal Green, laughs and says: "Don't be silly."
That the son of an East End lorry driver, and the nephew of a prizefighter, ended up as chief of a £500m City powerhouse is one in the eye for those who think the City is still an old boys' club. A grammar school kid from Stratford, Smith was the first in his family to go to university, leaving to become a graduate trainee at Barclays. After spells as a bank manager in such exotic locations as Pall Mall and rural Wales, he moved to the finance department where he had to deal with City and Wall Street analysts. He didn't think these guys were any brighter than him, so when one broker, Greenwells, offered him a job for vastly more money, Smith decided: "I'll give it a go."
Soon he was the City's top-rated banking analyst and was headhunted by BZW, Barclays' broking arm. Despite his infamous note, he was poached first by James Capel and then by UBS, where he became head of research in London. While he was there he co-wrote Accounting for Growth, a dissection of questionable accounting practices at big UK companies. A few, notably Grand Metropolitan, happened to be clients of UBS and objected. When he refused to recant, he was fired.
"I don't seek out controversy," Smith argues. "It's just that if there's something to say, I'll say it." He also believes in sticking to his guns. Part of this is bravery, part of it a feeling that he is lucky to be where he is. "Cus D'Amato, the boxing trainer who trained everyone from Floyd Patterson to Mike Tyson, has a saying: `The hero and the coward both feel the same; they just don't act the same.' I wouldn't be human if I wasn't worried. But in the end I'm better off than I ever thought I would be."
After his ejection from UBS, Smith toyed with a few projects, including a hard-hitting financial magazine called Breaking the Mould, but ended up at Collins Stewart, then a small broking subsidiary of merchant bank Singer & Friedlander. His reputation for strident research put the broker on the map, but Singer became nervous and sold Collins Stewart to a consortium led by Smith for £122m. A few months later he floated the broker with a valuation nearly three times that.
Smith's way of running Collins Stewart shows his healthy disrespect for the high-costs, high-fees approach of big firms like Merrill Lynch or UBS. Basic salaries are low by City standards - even Smith is paid no more than £100,000 - but bonuses are high if things go well. When he points to his £2.1m bonus in Collins Stewart's accounts, he is not just boasting. "With flexible costs we don't just sit on our arse - we drive for market share."
And despite the bear market, things have been moving in Collins Stewart's favour. Many of the larger players have in effect given up on small quoted stocks, and some of Collins Stewart's rivals in that part of the market, such as Teather & Greenwood, have had their own problems. The post-Enron climate, where no one trusts research from the big integrated houses, also plays into Smith's hands, not least because he developed a statistics-based research tool called Quest which is truly independent.
Besides which, Smith loves bear markets. He savaged Vodafone for buying Mannesmann, described Vivendi Universal as "dangerous Eurotrash" and said Marconi was worth nothing when the shares were trading at £12. His current bear target is BSkyB.
Nevertheless, Smith realised that being too dependent on the mercurial equity markets was dangerous and he wanted to diversify. He identified Tullett, one of the world's top five moneybrokers, as a target last spring and has stalked it ever since. "At first they didn't want to sell; it took a long time to persuade them," he says. "Then there was due diligence; they've got 19 offices round the world and there were all sorts of legal issues."
The deal was finally announced last Thursday. It takes the group's staff count from 375 to nearly 2,200, turnover from £130m to over £500m, and profits to nearly £70m. Smith has got his work cut out making the businesses gel. "I have to prove my own rules wrong," he laughs, having said in the past that four out of five acquisitions turn out to be failures.
That's not the only difficulty. Collins Stewart is caught up in the split capital trusts scandal, having backed around £3bn worth of the controversial investments. Smith says he is confident the firm has no legal liabilities as it sold its trusts to professional investors. "They are all over 18. They knew what they were doing."
And Smith, of course, is over 18 and knows what he is doing. He has just taken on the challenge of his life. But is he worried? Not at all. He's bitten by the bug.
© The Independent