Bloomberg News

Trader Thompson Made Eurobonds Woman’s Best Friend Before Crash

July 10, 2013

Valerie Thompson went from a childhood hawking fish, fruit and vegetables in London’s run-down East End to a Eurobond star at Salomon Brothers Inc. when it was the world’s biggest trading firm. Like the successful trader she was, she got out at the top.

Eurobonds, international securities with untaxed interest payments, were only a decade old in 1973 when Thompson, who left school at age 15, landed a clerical job typing orders into a telex machine. She prospered as the market surged and was running new-issue strategy and managing the risk generated on London’s biggest bond trading floor when she left, just before the 1987 stock crash and as market returns began to diminish.

For all her acumen, Thompson, 57, says someone with her background couldn’t get a job in today’s financial industry.

“They closed the door,” she said in a lunchtime interview at Coya, the Peruvian restaurant on London’s Piccadilly, last month. “And they said, ‘You know what? To work in the City now you need three degrees.’ I find it downright wrong.”

The first Eurobond appeared half a century ago this year when S.G. Warburg & Co. led a $15 million deal for Italy’s highway operator Autostrade SpA that unleashed stagnant American dollars accumulating outside of the U.S. Now, the $4 trillion-a-year international debt market finances everything from Accor SA (AC)’s hotels to the Republic of Zambia.

‘Omnivorous Presence’

The securities, first denominated in U.S. dollars and now issued in all main currencies, constitute today’s biggest international capital market. The original financiers led by Siegmund Warburg, founder of S.G. Warburg, created the first bond to take advantage of a quirk in the tax code dating from the 19th century that allowed financial transactions originating in the U.K. between foreign parties to go untaxed.

Thompson, whom Michael Lewis dubbed “the omniscient, omnipotent, omnivorous Presence,” in “Liar’s Poker,” his account of the 1980s bull market in Eurobonds, left school in 1971 with no academic qualifications and little prospect of a higher-paying job than the one she started in July that year as a filing clerk.

“She was fearless, brassy, blonde and loud,” Lewis said in a telephone interview on June 20. “She kind of spoke for the people. There was never any sense that she was mean or political, but she was scary.”

Champion Sportsman

Getting a job in London’s financial industry today requires very different qualifications, said Jason Kennedy, chief executive officer of Kennedy Group, a London-based recruiter.

“The academic bar to get into banking is high, very high,” he said. Recruiters want degrees from the best universities and seek out something extra as well. They want “the guy who’s crossed the Sahara or camped in the jungle, or who’s done some special work experience. Ex-army or a champion sportsman, those are good too.”

Thompson hadn’t crossed anything much more exotic than Piccadilly in central London when she called Salomon’s chief in the city, Eddie Aronson, asking why, after two interviews, she was deemed too young for the telex operator’s job.

With the position paying 32 pounds a week, or about $75 at exchange rates back then, more than four times her previous wage, “I just thought I had to have that money,” she said.

Aronson, impressed by her determination, said she could start the following Monday.

Trading Desk

Thompson left the telex room and became an assistant to the trading desk in 1976, a year after Charles McVeigh took over as head of Salomon’s London office. The firm remained independent until 1997, when it merged with Smith Barney Inc., the brokerage unit of Travelers Group Inc., which formed Citigroup Inc. (C:US) the following year. McVeigh is now a senior adviser to Citigroup.

“She was one of the great traders,” McVeigh, 71, said in an interview over a pot of tea in his club near London’s Sloane Square. “Valerie was famous. She was a character and a half.”

Other Eurobond leaders are no strangers to the telex room. Hans-Joerg Rudloff, the chairman of Barclays Plc’s investment bank, delivered mail and telexes at Kidder Peabody & Co. in 1960s. He went on to make a name for himself as a syndicate manager in the 1980s at Credit Suisse First Boston, where he used novel trading tactics, such as buying whole debt deals to offer borrowers a guaranteed price for their bonds.

Thompson’s potential was noticed. The late Michael Mortara, who headed mortgage bond trading at Salomon for seven years and helped oversee the growth of that market under Lewis Ranieri, encouraged her to move into trading, she said.

‘Very Tough’

At first, Thompson said she didn’t really know what she was doing. She found herself dealing in bonds denominated in Dutch guilders, Deutsche marks, U.S. dollars and European currency units -- a basket of European currencies -- and then specializing in floating-rate notes.

“She was a very, very tough lady,” said Robert Kowit, who worked at Kidder as head of its international bond group until 1987 and is now a money manager at Federated Investors Inc. (FII:US) in New York. “She succeeded in a business not known for its depth of sensitivity toward females in the workplace.”

When interest rates in the U.S. peaked at 20 percent in March 1980 and started falling, the scene was set for a bull market and issuance of Eurobonds surged, as did the number of U.S. securities firms’ offices in London.

Investment-grade Eurobonds denominated in U.S. dollars had average annual returns of 11.3 percent during the 10 years through 1992 and gained every year that decade, according to Bank of America Merrill Lynch’s Eurodollar Index.

Black Monday

Thompson, who said she wanted to make good her lack of schooling and had two children to care for, quit Salomon in 1987, before the Black Monday market crash in October wiped 23 percent off the Dow Jones Industrial Average.

She went into consulting, recruitment and training and is now a personal life coach based in Eastbourne, on the south coast of England, where she moved in 2005 with the idea of writing a novel. In 1996 she published “Mastering the Euromarkets,” a guide to the international bond markets and after that wrote a self-help guide to improving mental health called “The Logical Magic of Change.”

Her novel, “Laws of Contrition,” was published in 2012. The tale of bad trades, love and lust is set in a fictional investment bank before the 2008 financial crisis, and is loosely based on her experiences. She told her children not to read it.

Timely Exit

Thompson’s exit was timely. Returns on dollar-denominated Eurobonds have never beaten the 1985 peak of 18.1 percent, Bank of America Merrill Lynch index data show. Risk-adjusted returns on the securities, which have beaten Treasuries over the past 25 years, are now poised for only their second losing year, based on Bloomberg data that adjust for volatility. This year, the notes are losing 1 percent.

Reduced returns haven’t eliminated the allure of the financial industry for young people. New York-based Goldman Sachs Group Inc. hired 350 summer analysts in its investment-banking division from a pool of more than 17,000 applicants, President Gary Cohn said May 30.

Enrollment for the Chartered Financial Analyst annual June exam rose for an eighth year to a record 149,954 candidates in 2012, and totaled 146,605 this year, the CFA Institute said in a statement on its website.

The qualification is in demand, said Chad Lawson, a team manager at London-based recruiter Robert Walters Plc. (RWA) Lenders typically hire graduates with a quantitative undergraduate degree, preferably with a master's as well, he said.

“Going back four or five years, it was more about who you knew,” he said. “Not anymore.”

Thompson had been working in the City, as London’s financial industry is known, for almost a decade and was already trading bonds when she gained professional qualifications. She studied and sat exams in general securities dealing, commodities futures and interest-rate options between 1980 and 1983.

“She was from that part of Wall Street that rewards gumption,” said Lewis. “She was so much better-suited to the job than the people who make it today.”

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net


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