EMU the key to City's future

THE MONDAY INTERVIEW; Ronaldo Schmitz: Wealth warning: The invasion of London by foreign banks has significantly raised the level of strategic influence they wield

The City will suffer if Britain stays out of European monetary union. The warning is delivered with a faint smile, but Ronaldo Schmitz's words carry cold calculation. "We would not anticipate a major shift of business out of London, at least not in the short term. But things will be much easier if the UK joins, because we shall not have to review our decisions, strategy and policies."

Mr Schmitz, 57, chairman of Deutsche Morgan Grenfell and board member of Deutsche Bank, is one of the growing band of senior foreign financiers who have lately adopted London as the centre of their investment banking operations. Their influence is for the most part still discreet, but increasingly powerful within the changing landscape of the City.

Deutsche's decision last year to centre its global investment banking operations in London around Morgan Grenfell, which it had bought at the end of the Eighties, marked a watershed for Germany's most powerful financial group. All the large German banks have followed suit.

A potent combination of fate, in the case of Barings, and remorseless competitive pressures from big-balance sheet houses, has seen an unprecedented number of British merchant banks, the leading broker and a fund manager, fall to the foreign invaders. Their significant investments have bolstered London's position as Europe's financial capital. But the size and speed of the shift in the balance towards foreign ownership has fuelled concerns about who controls the City's future, should circumstances change.

EMU could be one such event. Deutsche took its decision to focus on London well aware of Britain's Euro-angst, but confident that, as has usually happened in the past, it will not want to be left out. "I think the process under way in the City will also play a role in defining the UK's attitude towards EMU," says Mr Schmitz.

Deutsche put immense efforts into building up Frankfurt as its investment banking centre. But by 1994 it finally conceded it could not work, a decision whose implications reverberated throughout the German business establishment.

"Investment banking is, culturally speaking, an Anglo-Saxon business, driven by impulses from the most inventive financial culture in the world, New York. In building our operation, we realised the importance of using elements from an investment bank, Morgan Grenfell, and not those from the bureaucracy of commercial banking.

"It is also easier to speak English in London than Frankfurt, and to attract the talent that is crucial if you want to grow quickly."

With acquisitive foreigners still rustling their chequebooks around the City, those alarmed that Britain is losing control of its financial capital are unlikely to find comfort. But with that cultivated internationalism and fluent mid-Atlantic English typical of so many top German businessmen, Mr Schmitz, who spent several years in New York for his previous firm, the chemicals giant BASF, feels chauvinism has little place any more in truly global markets. "In the old days the customer paid a lot of attention to where a product came from. 'Made in Germany' was important. But the Japanese were the first to convince consumers that it is not important where something comes from, but the brand quality."

He added: "The great advantage of Britain is that it has traditionally been good at absorbing elements, capital or people, from the outside, and making them feel part of the establishment, integrating them for the benefit of the country. In 10 years, this latest foreigner influx into the City will have been shaped along Anglo-Saxon traditions and lines, and with it the influence emanating from London will increase."

But even if belatedly, corporate Germany has been changing too, waking up to the cost advantages of producing abroad and raising finance on international capital markets. This has forced once conservative banks like Deutsche to seek foreign pastures and inspiration.

Having sat around doing little with Morgan Grenfell for several years, Deutsche's decision finally to use London as the springboard for its ambitions to be in the premier league of global investment banking powerhouses unleashed a dash for growth that has frayed not a few tempers in the City. Since the beginning of the year, Deutsche Morgan Grenfell has hired 120 people, most of them in London, and many of them heavy hitters. Complaints from rivals about excessive chequebook poaching grew louder. "When we first made our announcement in October 1994 about investment banking, we could not have realistically entertained the ambition to hire 120 people. But then things in the market happened that tended to facilitate matters. When we saw the opportunity, we grabbed," said Mr Schmitz. "We strongly resist the chequebook accusation."

Not all has been sweetness and light back in Germany, as the big egos of the investment banking world, and their infinitely higher remuneration packages, clashed with the staid hierarchies of Frankfurt. Resentment was rife. But Deutsche had made its choice. "It was impossible to build an investment bank and maintain the German remuneration system, so we put the Frankfurt investment bankers on a more adequate compensation. But there were other shocks. You are not just talking about introducing different cultures, but also very different skill levels, people who are used to working at very high, demanding levels."

In its global ambitions, wanting to measure itself against the Wall Street giants, Deutsche is far from alone. Its domestic rival, Dresdner, wants to do the same with the help of Kleinwort Benson. Then there are SBC Warburg and UBS, ING Barings and ABN Amro, not forgetting the British contingent of NatWest Markets, BZW and HSBC.

All are regrouping in London for the assault. But they cannot all succeed in a such a ferociously competitive business.

"You need three things to win. A top rating, a strong capital base, and talent. Since we have the first two, we have been concentrating on skills."

Moreover, it is not a battle of equals in Mr Schmitz's view, because of the vital importance of the client base. "Deutsche Bank has traditionally been close to the big corporations of the world. We can tap into this strong position. The British banks, too, have traditionally had international corporate relationships. But the Swiss, the Dutch and the French don't have this. It is very tough to break into new clients."

John Eisenhammer

Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
Arts and Entertainment
Ben Affleck stars as prime suspect Nick Dunne in the film adaptation of Gone Girl
filmBen Affleck and Rosamund Pike excel in David Fincher's film, says Geoffrey Macnab
Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvSeries 5 opening episode attracts lowest ratings since drama began
Life and Style
A new app has been launched that enables people to have a cuddle from a stranger
techNew app offers 'PG alternative' to dating services like Tinder
Greg Dyke insists he will not resign as Football Association chairman after receiving a watch worth more than £16,000 but has called for an end to the culture of gifts being given to football officials
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
premier league
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Rachel, Chandler and Ross try to get Ross's sofa up the stairs in the famous 'Pivot!' scene
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments