Comment: Independents still have a role

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The Independent Online
Independents still have a role

Rothschild is clearly feeling the heat. The very fact that the merchant bank felt obliged to put out a statement swearing unshakeable allegiance to the cause of independence is as revealing as the message itself. It is reacting to a climate of unquenchable expectation in the market that, following the spate of investment banking mergers earlier this year, the rest of the City's independent houses will tumble like ninepins. The effervescence of Schroder's share price is evidence that the market is not be moved by repeated protestations of independence.

There is little doubt that there are persistent suitors out there. Both ABN Amro and NatWest Group have successful securities operations, but are determined to make good weaknesses in corporate finance and asset management. In particular, NatWest, which has positively trumpeted its ambitions substantially to reinforce its investment banking activities both in London and New York, is viewed in the City as having woefully botched the chance of a strategic leap when it lost out on SG Warburg to SBC.

With Warburg and Kleinwort Benson gone, as well as Smith New Court, there are ever fewer takeover targets in the City. Schroders, Flemings, Rothschilds and Lazards are the only real options, given Hambros' unusual mix of businesses which would scarcely satisfy anyone looking for a classic merchant bank. But is the market correct in its seeming conviction that further consolidation is inevitable? Certainly, there is a case for arguing that, if there is a time for the families at Schroders or Flemings to cash in, then it is now at the top of the market.

But whatever the force of the argument for integrated investment banking conglomerates, with massive balance sheets, it is not a universal one. The investment banking market is as diverse as any other, offering ample opportunities alongside the integrated behemoths for the fleet-footed, flexible and focused.

There are corporate clients who still value "pure" advice, unburdened by product and trading concerns. Schroders' recent winning of the German Postbank mandate against American competition proves that big does not always win. There may still be a place for independents, but their numbers will eventually be even smaller than now.