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Comment: Problems multiply at SBC Warburg

Problems multiply

at SBC Warburg

Nobody ever pretended that merging Swiss Bank Corporation with SG Warburg was going to be easy but judging by the present turmoil the problems of doing so seem to have been multiplying. With most of the other City takeovers, the old guard is being allowed to carry on running the show much as before. That was never likely to be the case with the SBC takeover. Warburg was on its knees and anyway Swiss Bank already had a substantial investment banking operation in London that had to be accommodated within the new grouping.

None of this seemed to stop Warburg's old guard from believing it would continue in the driving seat. Over the past couple of weeks, that dream has been shattered. Swiss Bank has moved to eradicate all traces of the old Warburg culture and impose its own people and way of doing things on the new organisation. Even Sir David Scholey, chief architect of the modern Warburg's, is stepping down as chairman of the key investment banking committee.

Many of the other key management positions are being denied to former Warburg bigwigs too. All those hefty retention fees negotiated at the time of the takeover seem to be proving a waste of money. So far as corporate finance is concerned, SBC doesn't appear to want to keep them anyway. The latest upheaval has put noses so seriously out of joint that many are threatening to resign, though perhaps significantly, none have yet done so.

There are two ways of looking at what SBC is doing. Certainly such radical reoganisation cannot but help put key client relationships at risk. Bringing on younger people, imposing more professional management and reporting structures may be what the textbooks say should be done, but if half your business is going to walk as a result, it may not be such a good idea.

Alternatively, it may be that the old organisation was so fundamentally in need of reform that only a radical approach could stop the rot. SBC Warburg will no doubt one day emerge as a powerful corporate finance force once more but it is proving a long haul. Its new masters back in Zurich must certainly be wondering whether they got the better half of the deal when they paid pounds 860m for the bank. Potential bidders for Gartmore beware. Fund management, as much as investment banking, is all about people, name and pulling in the business. These are not easy businesses to manage.