By Jeremy Charles
Managing Director and Global Head, HSBC Precious Metals / Former Chairman, LBMA

As Jeremy Charles stepped down as the LBMA Chairman in June, the Alchemist retraces his steps to find out about his experiences and views on the London bullion market.

What attracted you to work in bullion in the first place?

A: I think that like many people who are involved in the London market now, it all happened by complete accident. At school, I was interested in maths and geography and had an interest in the natural world, which is about as far away from the bullion business as you could possibly get.

Q: How did you get your first job?

A: I left school at 19 with a very arrogant attitude of “I’m fed up of being told what to do!” I’d spent four years at Trent College, a private school in Nottingham, for the latter part of my education and although I had a wonderful time there, I felt I’d had enough and that the time had come to find a job.

Unfortunately, during the mid 1970s, the UK was not in a strong economic position and there were few jobs available in industry. As a result, I was stuck in deepest darkest Derby with very limited prospects, until I saw an advertisement in one of the newspapers looking for “someone with 2 A levels who enjoys travel’’. That small ad really appealed and I thought: “That’s for me!”

I came down to London for the interview, which turned out to be at HSBC. They offered me the job on the basis that I got two suitable grades at “A’’-level, but to my horror, when I finally received the letter informing me of my grades, I’d missed out by the smallest of margins and, as a result, they were unable to offer me the job. So there I was at the end of summer 1975 with no job. I then wrote off to a few other banks on the off-chance and one of those I’d contacted, N M Rothschilds, called me up almost immediately for an interview. I was offered the job on the Friday and I said I’d start on the following Monday, without even thinking about it or talking to my parents about it. I moved down to London over the weekend, and that was it! On my first day in the job, I was told I was in the Bullion Department; I thought the very imposing HR lady said the bullying department, which sounded quite interesting if a little unusual for a bank but anyway, I just wanted to earn some money and be independent.

Q: What were you doing in your first job at Rothschild?

A: My first responsibility in my new job was looking after the Comex margining. Comex was a relatively new exchange at that time: that was where it all began for me. When I joined, the bank had just taken on 12 young people, the result of which was to lower the average employee age, very considerably; I had a fantastic time at Rothschild. The 12 of us, 18/19-year-olds amongst all these mature people, was just great. We’d do childish things like swap the managers’ desks around; and for all of us, it was just going straight from school to an environment that we treated just like school, but where I was getting paid for it! It was a lot of fun and we had some hilarious times there. I really look back with great affection and gratitude for the time I spent at that brilliant institution.

The English & Continental, Croydon

Q: How did your career progress?

A: At Rothschild, I covered every aspect of the operations side, which really was a great foundation for me. I was based in Croydon where the operations staff were situated. The dealing room and all the senior people were up at New Court. I was normally in at 7 in the morning, and would pop out for my breakfast and to read the papers at about 9 o’clock. I never asked anyone or told them where I was going; I just went out when everyone else was arriving. I did this every day for three years without even thinking about it, but it turned out to be a bit of a mystery among my colleagues, so much so that one morning they followed me to find out where I was going! I’m sure that the ‘English & Continental’ still serves up tea and toast in the Whitgift Centre.

Some of the graduates would come down from New Court and spend a morning with us, listening to what we had to say and spending some time in the operations before going to the dealing room. I remember John Bishop, who went on to be a very senior employee at Rothschild, asking me about the Comex margining. He was on the graduate training scheme and was going on to the dealing room. I thought this sounded very exciting and after three years of being there, I had decided that a “dealer’’ was the career I now wanted, even though I had no idea what that actually entailed.

There weren’t any vacancies at that time and I was told to come back in six months, but after waiting for what seemed to be forever, there was still nothing available due to the graduate training scheme, and I left Rothschild to look for pastures new and along came Johnson Matthey Bankers. The average age at Johnson Matthey was much lower than at Rothschilds. I was surrounded by lots of young people all of whom seemed to share a common goal – do a good day’s work and then go down the pub for six hours.

When I was interviewed by JMB, I’d said I wanted a chance in the dealing room, but they wanted me in the operations department. They had a lot of relatively inexperienced people in operations at that time and they said if I spent some time there they’d then give me a chance in the dealing room.

Soon after I joined, I identified a serious flaw in a number of accounts, which I mentioned to a 60-year-old manager, who didn’t take too kindly to a 22-year-old telling him he wasn’t doing things correctly. To his credit, however, I was given sufficient opportunity to explain the situation and I was proven right. I discovered a $110,000 error on one account alone, which had to go to the board for ratification.

If you wanted a chance in the dealing room, the bank would give you a three-month time frame to prove yourself and for you to find out: a) did you like it and b) did the dealers and managers like you. I got my chance in a memorable year for gold: 1980!

I was very fortunate because half way through my three-month trial, the bank suddenly announced that it was opening an office in New York. All of our senior dealers were sent out to New York, so even though I was a trainee still getting the teas in for the dealers, I was going to have to run one of the books. It really was a case of sink or swim. I remember the first two deals I did, which were in platinum. I made $1,000 and you wouldn’t believe how much I boasted to my friends about the fact I’d now “made it”, followed of course by a good six-hour session celebrating my new- found career.

Jeremy opening the conference in Kyoto.

Q:Were you involved in the fixing at Johnson Matthey Bankers?

A:Yes: I remember going to the fixing in a very grand room at Rothschild, where you have your Union Jack flag on your desk and you had to perform what was initially a very difficult task, listening to what the other four members were saying as well as taking the instructions you were receiving from your dealing room. Going there for the first time on your own was always a frightening experience given the mystique surrounding the gold fixing.

I remember one day, Martin Stokes, the chief gold trader at that time, telling me he was short of gold and that he was hoping the fixing price would fall sufficiently far for him to take his short position back for a suitable profit. The instruction I received, however, was to sell 40 bars, which at the time was quite a lot of gold. I was also told at the same time that whatever happened “do not let the price fix”. I put my declaration in “Johnson Matthey a seller”. The figures came over: “Johnson Matthey offer 40 bars. Rothschild buy 40 bars.” Fixed. My heart sank and I thought “Oh dear, I’m sure that’s not what Martin wanted... my dealing career has been a short-lived experience and I am going to be fired.” On my return to the office, however, Martin was very calm and said that it wasn’t my fault in any way. I really respected Martin for taking that attitude and it was one of the many lessons I learned from some of the tremendous people who I worked with.

Q:What memorable experiences did you have during your time at JMB?

A: There were many, but I guess the most memorable would have to be the infamous Brinks-Mat job, a £26 million bullion robbery of 6,800 of our gold bars! We were large players in the physical markets during the 1980s and we had arranged for a large shipment of gold to be sent out to Singapore. The delivery was due to go to two of our clients and had been prepared for shipment over the weekend of the 26 November 1983.The gold had been handed over to the transportation company for delivery and as we left the office on Friday evening, no one had any idea that our gold would become the most high- profile crime ever to take place in the UK! My job was to contact the unfortunate recipients of this delivery to inform them that due to “unforeseen circumstances”, there would be a small delay in the delivery of their metal. I don’t recall the responses from our clients but I’m sure that they never imagined it would be due to the UK’s largest crime!

Q: Are there any people still in the market with you from the JMB days?

A: Yes, there are still a lot of people in the market who will recall those JMB days very well, it was a fantastic grounding. Gerry Robinson and Simon Churchill were both in the operations side with me at JMB. Martin Stokes, David Spraggs, Rupert Prest, David Corcoran and Clive Turner all spent a lot of time at JMB, and of course my great friend David Rose, who I still work with after 26 years.

Q: How did JMB eventually “become” HSBC?

A: Johnson Matthey Bankers were taken over in 1984, after someone managed to lend out pretty much the entire bank’s capital and then didn’t get paid back. Fortunately for me, JMB held a lot of central bank accounts in gold and so the Bank of England had to step in. The Bank was concerned about systemic risk to the gold market as JMB was such a big clearer. I worked for the Bank of England for about a year before the company was bought by Mase Westpac. Mase was started by Warren Maji, who had come up with a novel idea to offer gold loans for financing gold mines in Australia. It was a very entrepreneurial business and the idea enabled the industry to expand massively across the globe.

Westpac sold the business to Republic National Bank, whose prime business was trading. Republic was not keen on the producer side of the business, but did like the physical and the trading business. The centre of Republic’s business was in New York, but as we were based in London, we did give them the global reach they were looking for at that time. There was a very limited management structure at Republic, which enabled it to be extremely dynamic. I don’t recall there being a compliance officer at the Bank and I certainly never met one. There were no written contracts that I can recall and it appeared that business was done on the shake of a hand. Oh how times have changed!

At the end of 1999, HSBC bought Republic National Bank primarily for the private bank business. However, with this business came two unusual niche businesses, the Precious Metals and Banknotes, which were both then integrated into HSBC’s infrastructure.

It was an Aladdin’s cave for me coming from Republic, where we had no corporate customers. Suddenly I had thousands of corporate opportunities. At HSBC, Rep Nat had brought the trading business, but I now had industrial consumers, and all of a sudden there was another area of business that I could turn my attention to and I loved it. HSBC was the icing on my cake as far as career was concerned. I had the world open to me and I had every type of client, every type of institution, the infrastructure support and the backing to do any sort of business I wanted to do. They did have a compliance officer, many in fact!, and something called documentation that apparently clients all had to sign.

Q: What is the biggest change you have seen since you joined the business?

A: In 2002, someone who I’d never heard of before, Graham Tuckwell, called me up completely out of the blue with an idea he wanted to talk to me about. His idea was to offer securities on the Australian Stock Exchange that would be 100% backed with physical gold. I thought this was an interesting idea but at the time, I never realised it would be as successful as it has become. Together with Graham and two of my HSBC colleagues, we developed the first gold ETF, which was launched on the Australian Stock Exchange in 2002. Other ETFs later came along and, for me, the growth and development of this business has been the most significant change since I joined the business in 1975.

Q: What was your first experience of the LBMA?

A: When I joined the LBMA, there was very much a focus on the physical aspects of the business, which I had always been fascinated by. I felt the LBMA would be good for business, and a good place to make new contacts. As time has passed, however, it became more of an opportunity to use my experience for the benefit of the London market as a whole. There have been a lot of threats to London’s position over the years and it would have been easy to ignore that threat. I simply could not do that.

Jeremy receiving his award for his time as Chairman

Q: How has London’s role changed over the years?

A: The change has been enormous. A number of people tell me that London’s influence has diminished, but that is not the case at all. I think the trading volumes may have slowed down but the reason for that is due to the fragmentation. A lot of global markets now compete with the OTC market.

Spot trading has changed and of course a lot of people focus on spot trading, but that is not only what the OTC market is about. What you can’t forget is that London’s products and services are much broader than just the spot trading element.

The LBMA’s Good Delivery List is used by every major exchange, and people realise globally that the experience and the expertise to know what a physical gold bar actually is basically resides in London’s vaults. Government authorities come from around the world and look at how the institutions structure themselves and how the market works here. They come to us from a customer’s perspective, from a regulatory perspective and from an operational perspective. This role of the London market is much more important than most people realise. Also the range of products and services has grown enormously and London’s influence is greater now than at any time in the past.

Jeremy in 6-hour mode

Q: What about the role of the forward market and the challenges that lie ahead?

A: The forward market is significant and the reason for this is that it provides the foundation for most of the bullion financing that goes on around the world. There are many contracts based on a Libor minus GOFO plus a credit spread and the LBMA’s provision of the GOFO benchmark is of crucial importance to all those who make deposits, take loans or trade as a result of these activities. Being responsible for this benchmark is a vital role of the LBMA.

A number of exchanges are interested in providing a solution to mitigate credit risk in the forward OTC market. This is definitely going to happen and the LBMA members need to understand and embrace this idea, and take it forward. In my opinion, it is not appropriate for the LBMA to give direction to the members on this matter. I think when we reach implementation, it will be a big benefit to the OTC market as a whole, but those discussions are ongoing and I’m sure that the winners will be those who are able to provide the right service at the right price in the right regulatory environment.

Q: Now that you are no longer the LBMA Chairman, what are you going to do with all of this spare time?

A: Well perhaps I should start off by saying that the experience I gained at the LBMA was invaluable. It opened my eyes to another aspect of the business and I am extremely grateful to both the Executive and to the Management Committee members for giving me such tremendous support during my time at the LBMA. I would really encourage everyone to participate in some way at the Association.

We are entering a new age and we as a market have got to be forward thinking. That is going to require a new set of people with a fresh set of ideas, who are going to be plugged into the needs of tomorrow’s market as well as today’s. As for myself, I’m not sure that I will have any spare time. I have a large business to manage at HSBC, which I find extremely enjoyable as well as challenging and that’s probably enough to keep me on my toes for the time being. Those six-hour evenings sound quite tempting again too though. Anyone for a pint?