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Business Analysis & Features

Is this the end of the line for Rothschild?

The banking dynasty scion wants to replace Bumi's board. Trouble is, he can no longer rely on the City's help, says Tom Bawden

Few dynasties have enjoyed such a stellar reputation as the Rothschilds. From the family's first forays into banking in the 1700s to its creation of an Indonesian coal miner in November 2010, the Rothschilds have enjoyed a more or less unimpeachable reputation for business that has lasted for centuries.

As recently as last May, it seemed the family had moved to the next level, as The Sunday Times Rich List estimated the wealth of 41-year-old Nat – the youngest in a line of Rothschild businessmen and architect of the London listing of the Indonesian coal miner Bumi – at £1bn.

This dwarfed the fortune of his father, Lord Rothschild, who was valued at a relatively paultry £465m, and suggested that Nat, who had something of a reputation as a party animal in his youth, may have grown up into the finest businessman of them all.

Since then, Bumi's reputation and share price have dived – taking Mr Rothschild's reputation with them – amid a series of high-profile disagreements over the running of the company, multiple top-level resignations and questions over corporate governance that suggest Nat Rothschild's ascent to the billionaires' club was based on a mirage. Bumi's shares, which began life at £10, have slumped by nearly three quarters, to close at 288.5p last night.

In the latest of what appear to be increasingly belligerent and desperate attempts to save his reputation, Mr Rothschild yesterday called on Bumi to oust 12 of its 14 directors, including its chairman and major shareholder, Samin Tan, and Sir Julian Horn-Smith, the well-respected former Vodafone deputy chief executive, who is the coal miner's senior independent director.

Representing himself as a champion of the little guy, Nat, a 12 per cent shareholder, said he "is of the view that the current board of Bumi has failed in its duties to minority shareholders and has mismanaged the Bumi group to their detriment".

Mr Rothschild's focus on the minority shareholders comes amid widespread suggestions in the City that the damage to his reputation has been so great in recent months he will struggle to attract investors for future projects.

One mining analyst said: "Rothschild's reputation has taken a big hit on this, and if he went round looking for money for start-ups he's going to struggle. Everything I see suggests it's a mess, and while I don't know how much of it is his fault, he is the one who raised the money and got involved."

The dispute between Mr Rothschild and the Bumi board has been turbo-charged by serious questions over corporate governance, with the issue becoming particularly sensitive since October, when the company revealed it had launched an independent investigation into its two Indonesian subsidiaries following "allegations concerning, among other things, potential financial and other irregularities".

Bumi was created in November 2010, when Indonesia's Bakrie brothers injected some of their coal assets into Mr Rothschild's London-listed cash shell.

Despite warnings from some quarters, the move seemed to magically unlock the value of these assets from Indonesia, a country whose reputation for corporate governance left something to be desired, by conferring on them a respectable London listing – and the legendary Rothschild name. That value has mostly evaporated.

In truth, the cracks were already beginning to show in Bumi well before last May, after Mr Rothschild was ousted as co-chairman in March when he called for a "radical cleaning up" at Bumi Resources, a subsidiary in which Bumi has a 29 per cent stake. But many in the City were still giving him the benefit of the doubt, and the reputation of the man who famously invited George Osborne to a party that he and Peter Mandelson were attending on the Russian oligarch Oleg Deripaska's yacht in Corfu remained broadly intact.

That is not the case anymore after an extraordinary fall from grace in recent months, with an increasingly bitter slanging match between Mr Rothschild and his opponents in Bumi culminating yesterday in his requisition of a general meeting to throw out most of the board.

Mr Rothschild's reputation enabled him to raise the money he used to create Bumi in a highly unusual way, persuading pension funds and other institutions to give him the funds – a cash shell – before he knew what he was going to invest it in.

He was then able to invest the money in assets which some – including Nat's Dad, who declined an offer to get involved – may have believed to be unwise, without the need to persuade any investors to back him.

It's too early to say for sure how much of that reputation Mr Rothschild will be able to claw back, but it's extremely unlikely he will ever have this kind of freedom again.

He does have some track record of making a profit, with the Atticus hedge fund he co-founded making stellar returns in the early years. But this success has been clouded by the closure of the fund in 2009 as the financial crisis took its toll, as well as a share price decline of about a fifth following the flotation of Genel, the oil company run by the former BP chief executive Tony Hayward, in which he is a key backer.

Operational performance aside, there is another concern among potential partners and backers – Nat Rothschild has a habit of publicly turning on them.

That encounter on a yacht in 2008 ended in a glorious falling out after Mr Rothschild wrote a letter to The Times claiming that Mr Osborne tried to solicit a donation from Mr Deripaska while on the yacht – an accusation the now Chancellor vigorously denied.

Mr Rothschild's letter was a retaliation against his prep school, Oxford and Bullingdon Club friend, Mr Osborne, whom he blamed for "dripping poison" to the newspapers about Gordon Brown, then Prime Minister.

And judging by Sir Julian's response to Nat's latest tirade yesterday, little seems to have changed. "Nat Rothschild's time as a director of Bumi was characterised by taking highly confrontational positions that proved counterproductive to addressing the company's issues," he said.