Fleming cements ties with Keswicks
News Analysis: Two of Britain's most powerful dynasties hope to revive an ailing bank
Friday 04 December 1998
Under the terms of the agreement struck between Robert Fleming and the Keswick's main Hong Kong investment vehicle Jardine Matheson, Robert Fleming will take full control of Jardine Fleming, its 28-year-old Far Eastern investment banking joint venture.
In return Jardine will receive pounds 40m in cash and new Robert Fleming shares, diluting the Fleming family members' stake from 35 per cent to just over 30 per cent. A second Jardine representative, Rodney Leach, will join Henry Keswick on the Robert Fleming board.
In a further tidying up exercise Fleming is also buying out Martin & Co, the South African stockbroker from their joint venture Fleming Martin.
The announcement coincided with a sharp fall in profits at Robert Fleming. They were down from pounds 91.1m in the same period last year to pounds 20.8m.
John Manser, the Robert Fleming chairman, yesterday hailed the deal as a great step forward. He said it would enable the firm to redeploy staff and capital more freely within the business and allow more scope for common systems.
"Quite a lot has changed in the 28 years since we set up Jardine Fleming," he said. "For one thing it is a more global world. It is also a world which works on a functional rather than regional basis."
However, the decision to increase the firm's exposure to Asia at a time when others are reigning back is brave. Unsurprisingly, there was an enthusiastic reaction in Hong Kong where most of the recent traffic has been in the other direction.
Jardine Fleming lost pounds 2.3m in the first half and despite its prominent position in the merger and acquisition advisory league tables - the investment bankers' Holy Grail - it has had to be pruned back as new issue activity has all but dried up.
Nor has the Keswicks' experience in the UK been particularly happy. They came to the rescue of Trafalgar House when it was nearly sunk by its investment in Davy, a North Sea engineering firm. The investment was not a success, and they sold out to Kvaerner, the Norwegian shipbuilding and construction group that was desperate for a UK base.
The Keswicks fared little better with their investment via their food industry group Dairy Farm in the cut-price retailer Kwik Save. With sales plummeting, Kwik Save merged with Somerfield earlier this year
When whispers first started in the City that something big was afoot at Robert Fleming, many observers expected more dramatic news, like a decision to put the firm up for sale or seek a stock market quotation.
Critics said that Robert Flemings is at a crossroads - over the last few weeks there have been a number of high-profile departures, including Tony Chambers, the chief executive of banking, and Patrick Gifford, the well-respected chairman of Fleming Investment Trust Management. The firm insists that the departures were amicable, but there is little doubt that there is unhappiness within the firm.
Some outside shareholders are also pushing for an exit. But the idea of floating the firm on the stock market or of selling out to a bigger outfit has been opposed by Mr Manser and William Garrett, the chief executive, both of whom have the family's support.
The firm's investment management business is doing well but according to insiders the advisory side of the business was loss-making in the first half. Mr Manser refuses to comment.
Many are wondering whether the decision to build up the equity research and advisory business globally in an attempt to challenge the Lazards and the Morgan Stanley's has been a mistake. Despite a good run several years ago, and a strong position in both Asia and South Africa, the firm's global position has been sliding.
Mr Gifford, for one, is said to have become increasingly frustrated at the way the asset management side was being milked to pay for the unrealistic ambitions of the investment bankers. But his plan to spin off the asset management side and sell the investment banking business did not find favour with the board.
There would be no shortage of buyers, however. ABN-Amro, the Dutch bank that owns Hoare Govett, JP Morgan, and Paribas, the French investment bank, have recently made approaches. All have been rebuffed. "I like hard times," said Mr Manser. "It sorts the men from the boys."
In a world of financial services giants, Fleming is a rarity - a firm that is not only owned by a family trust but where family members' views carry weight.
Around 12 Flemings are active in the business. Some oddities, such as the insistence on guests consuming only beer, not wine, have disappeared. But others remain.
Despite having been London-based since 1900 when the original Robert Fleming moved his investment trust business from Dundee, the firm still wears its Scottishness on its sleeve.
Its main non-family backers are Scottish institutions such as Baillie Gifford and Stewart Ivory. The firm also owns the most extensive private collection of Scottish art in existence.
It is a structure that many see as an anachronism which leaves them ill-equipped to cope with an increasingly competitive world. The unravelling of the Jardine joint venture has long been talked about and is sensible as far as it goes.
But there are those who fear it will only postpone the inevitable. "Flemings," said one frustrated non-family shareholder yesterday, "should be sold. It is punching way above its weight".
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