Neil Newitt: Another World…
As part of her ‘Voices Project’ capturing, contextualising and explaining the London bullion market, Michele Blagg interviews Neil Newitt, one of the original signatories of the memorandum incorporating the founding of the LBMA in 1987.
A second career began for Neil in February 1968 when he joined Kleinwort Benson, having first joined the Royal Navy at 16, serving 11 years working his way through the ranks from Writer, Leading Writer and then Petty Officer Writer, before qualifying as an Officer. Married with three small children, he wanted to spend more time at home. Unfortunately, he would wait another 30 years before his plan worked out. During his time working in the bullion markets, he spent years on aeroplanes, away much more than if he had stayed in the Navy, where he was guaranteed a monthly salary and a job until he was 40, before retiring with a good pension. It was a gamble to turn his back on this security and an annual salaryof £1,200.
The first bank to offer Neil a position was Lloyds, offering a disappointing salary of £800. However, a contact in the wardroom mess said “I know somebody who works in the City”, Neil recalls. “This Colonel somebody or other, a real blimpy type, kept nagging and nagging me, because he knew I wanted to leave and he said ‘Why don’t you try and go to this bank?’, which was Kleinwort Benson,”1 which offered him a job with a salary of £1,200.
The role was very basic in the Documentary Credits Department, which Neil referred to as “not the world’s most exciting job”. Then, in March 1968,2 as chaos broke out in the gold market, his manager said: “You are only a trainee, you aren’t doing anything important here, so we are going to second you to a subsidiary company we have. They are under a great deal of pressure and we have agreed to lend you to them for a month or so.” Not quite sure what to expect, he turned up the next Monday at the offices of Sharps Pixley:
“I didn’t know who they were, but I found out they were one of the members of the London gold market, the Fixing, and I was introduced to the Managing Director, Stewart Pixley, the great, great grandson of the founder of the company … There were tons of gold bars coming in from New York – around 1,000 tons in that week alone. The only way that they could ship it was to send it from the US Federal Reserve in New York in huge US Air Force planes that went to Stansted Airport, and Brinks would collect it and deliver it to the Bank of England, where the five bullion dealers would buy it from the Gold Pool.”
Brinks would then take the gold from the Bank of England and deliver it into the huge bullion vault in Finsbury Square operated by Sharps Pixley. Neil remembers his horror and how miffed he felt when he was given a pair of overalls and a pair of thick canvas gloves and was told he would have to weigh all this gold. It was a huge job! “This isn’t what my new career led me to believe would happen,” he thought. As the flow of gold abated, he moved across to the main office, temporarily acting as Office Manager and covering for an ill colleague. On his return, Neil hoped to resume his “lovely posh” merchant banking career at Kleinwort Benson, but when he tried to move back, Stewart Pixley said: “No, we don’t want you to go back. We would like you to stay but not as a porter. How would you like to come into the dealing room?” It sounded interesting, so Neil stayed for the next 14 years.
Dealing rooms then were nothing like nowadays. Neil described his working environment as “very basic. The only outside means of communication were telephones and telex – no computers, no fancy gadgetry at all. You just picked up the phone or people from all over the world would telex, and you would make a price and off you would go.”
“no computers, no fancy gadgetry at all. You just picked up the phone or people from all over the world would telex, and you would make a price and off you would go.”
Things began to change after the 1974 US Government liberalised3 the holding of gold. Since 1933, American citizens had been prohibited from owning gold. This move opened up a whole new trading area. Witnessing the opening of the market and the advance in technology, Neil noted that:
“The Commodity Exchange started offering contracts and Reuters came up with this fantastic technology. It was a bit like a calculating machine with buttons that you pressed and at the end there was a rectangle with three orange neon circular bulbs, and we thought this was fantastic! All you had were three of these things, each showing a different digit. To make it even more difficult, it only showed the last three digits of whatever it was… you had to know that you had put it on the gold button and not the silver button, or the cocoa, or whatever. We thought this was a great advantage, so it helped a little bit.”
The dealing room at Sharps Pixley had two of the Reuters machines. Another thing that Neil pointed out, which he thought most modern dealers would find incredulous, was that at the end of the day, he would send a telex to his customers in Hong Kong, offering them a sale price for 9999 kilo bars, and another to Dubai offering a sale price for 995 tola bars, which they liked, and the price would be good until they got back in the next morning. There were no other markets open to his customers through the night and he would find out if he had sold 100-kilo bars in Hong Kong or so many 10-tola bars in Dubai. The dealers would then think about their position, because they had sold the gold and may not have had it in their book yet, so they would have to decide whether they covered it or left it. Neil observed that at that point in time it worked, but it wouldn’t now because “positions change from minute to minute and you have got to be completely on the ball”.
Dubai was an emerging market for Sharps Pixley, although the market had long been synonymous with the unofficial export of gold and silver to the Indian subcontinent. On one visit, Neil recalled the huge dhows that went cracking out of the small creek across the sea and, with the right bribes, would by-pass the Indian Customs. The profit margins made the risk of being caught worthwhile. This soon changed as markets became more international. In 1974, following the legalisation of gold imports in Hong Kong,4 Neil and his family were posted overseas to Hong Kong, where he was asked to establish an office for Sharps Pixley. He learnt the language and was soon quoting gold and silver in Cantonese. It was a difficult language to learn and he fondly remembered how he “loved that the Hong Kong Chinese were absolutely wonderful and quite often I would be the only gweilo (foreign devil) at dinner with the local gold dealers at the restaurant. The one thing that I learnt for sure was never ask what you are eating, just eat it – much better if you don’t know.”
“Tempers flared and people would throw phones and kick things. The market eventually calmed down. Then not long after, Neil received an offer to join Goldman Sachs.”
In the early 1980s, the American banks began getting really interested in having a presence in London. Neil received numerous calls from friends at J. Aron,7 asking him to go and talk to them. He resisted, but eventually Dennis Susskind, a partner at Goldman Sachs and well known in the market, called him up and said: “Look, just come and have a talk with me.” So Neil said “OK”. He had to rush off to the local travel agents and book a business class ticket to New York for the Thursday overnight flight (this was long before on-line internet booking was available). His wife was concerned about the cost of the ticket, but he reassured her that it would be reimbursed. It was all hush hush. Taking a day’s leave, Neil headed off to New York from Heathrow after work on Thursday evening. Landing on the Friday morning, he headed straight to the office, where he had the “toughest day” of his life. They really put him through the mill before he got the evening flight back to London. The following Wednesday, he received a call offering him a job. He shared with me that “there was a pay rise. The salary was very modest at Sharps Pixley and slightly less modest at Goldman Sachs. The days of big salaries were not around then.” Having accepted the post, Neil asked that nothing be done until he was able to talk to his boss at the time, Jack Spall. Unfortunately, Jack beat him to it and the following day buzzed down and asked Neil to go and have a word with him. Jack had received a phone call letting him know that the move was afoot. Things were smoothed out. Neil found it hard to leave Sharps Pixley behind, but off he went to what he describes as “another world”.
Amazed by the quality, the intellectual capacity and the things that Goldman Sachs did, Neil was very impressed with his new working environment. His initial doubts about whether he could cope with the new working regime soon abated, as he split his time between sales and his forte, communicating with customers. Personalising relationships was the key to success during this time before the internet and email. Neil would pick up the phone and know his customers voices, which went down very well. As he pointed out, “a central bank can deal with any of 20 people, why should it deal with you? Because he knows you, you have been out for a meal and you are pretty good friends, and you know his family – that kind of relationship building.”
Neil was one of four signatories on the original memorandum incorporating the founding of the London Bullion Market Association, signed on 27 November 1987. As the American banks – Goldman Sachs, J. P. Morgan, Citibank and others – had a greater presence and share of business in the London market, opening new offices, competition became fierce. The American banks were very competitive and were a serious threat to the dominant members of the Fixing, in which of course they were excluded from taking part. The main five Fixing brokers had good relationships with each other, socialising and communicating. Neil explained that having worked for one side and then the other, he was part of the team tasked to find a mutually satisfactory solution to the situation, so that old and new could work together.Despite some of the objections faced from a number of diehards – “Who needs these bloody foreigners?” and “It’s our market!” – during meetings at the Bank of England, thenthe ultimate regulator of the bullion market, the solution reached was the foundation of the London Bullion Market Association, which brought the American banks under its aegis. Neil’s recollection of events was that:“It was a satisfactory resolution … Things didn’t really change to start with. Various members from both sides came into the Committees … There were some who, anxious to get in on the management, felt excluded by the stuffy old gold market members, [but on the whole] the dealers and traders and the other members got on well together.”
“Amazed by the quality, the intellectual capacity and the things that Goldman Sachs did, Neil was very impressed with his new working environment. His initial doubts about whether he could cope with the new working regime soon abated”
Neil’s time working in the London market was one of the most interesting periods in itsrecent history – 1968 and 1980 were seismic! He participated in the Gold Fixing, dealt with many central banks and governments, lived in and travelled all over the world to many weird and wonderful places, and experienced some bizarre travel arrangements and hair-raising plane journeys. Neil retired in 1999, aged 60, but continued to travel. For a time, he set up and headed a Land Rover Charity driving across Europe delivering humanitarian aid to Bosnia- Herzegovina. As for his wife, who had had enough of never seeing him, he assured me that “she still quite likes me even now that I have been retired for 14 years!”
In the 1970s, Sharps Pixley did a good trade in gold coins. Part of the UK gold reserves were in gold sovereigns, with coins coming in canvas bags containing 1,000 coins, made upof new and old coins. They were an unbelievable treasure trove and when the bags arrived in the dealing office, they would sort through them to pull all the numismatic coins out and replace them with ordinary sovereigns. The coins could be Victorians, right from the beginning of Victoria’s reign, the Diamond Jubilee and the end of her reign, when she was depicted as a widow with veiled head. The Edwards were all the same, but in those days of colonial empire, sovereigns were minted in Pretoria, Ottawa, Delhi and Sydney (these were much rarer than the other sovereigns). Over the years, staff at Sharps Pixley compiled a collection containing every sovereign ever minted.
My thanks go to Neil for kindly agreeing to the release of the transcription of the recording made at the LBMA office on 13 May, 2014 for the Voices Project upon which this article has been based.
- Kleinwort Benson acquired Sharps Pixley in 1966, which increased the range of services the bank could offer clients, as it decided to link gold bullion to foreign exchange trading.
- In 1961, the Central Banks Gold Pool, operated by the Bank of England, was formed to stabilise the price of gold at around $35 an ounce. In January/February 1968, there was speculative fever that the US would abandon the Gold Pool and suspend convertibility of the dollar into gold. Rising gold demand, falling US gold reserves and losses from the Gold Pool reaching $400 million on Thursday 14 March persuaded the Bank of England to close the London Gold Market the next day, which remained closed for two weeks. When the market reopened on the 1 April 1968 to revised instructions from the Bank of England, the gold dealers announced that the London gold price would from now on be quoted in US dollars and that they would waive commission charges on gold purchases, while imposing a charge of a quarter of a percent on gold sales (for further detail, see: Rae Weston, Gold, A World Survey , pp.14-15).
- Between 1933 and 1974, it was illegal for US citizens to own gold in the form of gold bullion, without special licence. On 1 January 1975, these restrictions were lifted, and gold could be freely held in the US without any licensing or restrictions imposed.
- For many years, Hong Kong was a closed gold market, while its citizens could trade among themselves in tael bars, the British authorities banned direct gold imports into the colony. In 1974, free imports were again permitted (for further detail, see: Tim Green, The New World of Gold , 145-154).
- Neil made the journey with his son back to the UK via the Trans-Siberian Railway. At that time, you couldn’t go from Hong Kong to Beijing, so they flew to Japan, took a ship from Yokohama to Vladivostok and then on to Nakhodka, where they took a train up to Khabarovsk, which then went all the way across Siberia, taking about eight days to cover 10,000 miles. The cost was about £200.
- Nelson Bunker Hunt and his brother William had for some time been attempting to corner the market in silver. In 1979, the price jumped from $6 per troy ounce up to a record high of $48.70 per ounce. In January 1980, exchange rules regarding leverage changed, placing heavy restrictions on the purchase of commodities on margin. The Hunt brothers had borrowed heavily to finance their purchases and as the price began to fall, they were unable to meet their obligations, causing a panic in the markets (for further details, see: Stephen Fay, The Great Silver Bubble (1982).
- Goldman Sachs acquired J. Aron & Company in November 1981. J. Aron, a commodities trading firm, was merged with the Fixed Income division at Goldman Sachs and formed the Fixed Income, Currencies and Commodities division.