The joint venture will give Rothschild the international equity distribution it has lacked ever since the end of its special relationship with the broker Smith New Court, which was bought last year by Merrill Lynch.
ABN Amro, which owns Hoare Govett in London, has long sought to acquire greater advisory strength in the City. It tried to buy Barings early last year, but was beaten by its Dutch bancassurance rival, ING.
After a lengthy pause following the spectacular consolidation in City investment banking last year, when several British houses fell to big- balance-sheet foreign predators, yesterday's deal retrains the spotlight on to the remaining independents such as Lazards, Schroders and Cazenove.
The joint venture, which will be run as a single business on a global basis, will comprise about 50 people dedicated to equity capital markets. It excludes UK domestic business. The merged entity will draw on Hoare Govett's sales, trading and research, but its corporate broking side will be entirely left out.
"This is an elegant and sensible solution between two mature groups," said Anthony Alt, Rothschild's chief executive. "It is totally consistent with maintaining our independence while leveraging off our skills in origination."
The deal came as Rothschild has been going through a rocky patch, suffering three high level departures in a matter of weeks. The latest to leave was John Bishop, a managing director at Rothschilds and its most senior executive in charge of trading. Speculation continues that more senior defections are impending, pointing to unease within the bank at a perceived lack of direction.
Stating that he expected the announcement to stem the criticism, Mr Alt took a defiant stance against the recent leavers and other rumoured departees. "Good luck to them, they can go and be buried in some large investment bank."
Equity capital markets is the vital stone in the arch linking a bank's corporate advisory business and the equity sales and research side. It is responsible for the pricing, bookbuilding and distribution of share offerings.
"The international corporate finance, advisory and sector skills of Rothschild complement the global research, sales and trading capabilities of ABN Amro," said Sir Evelyn de Rothschild, chairman.
Bernie Myers, a Rothschild managing director, said the deal gave the bank stronger international distribution than it had with Smith New Court. "This is not a replacement, it is a positive quantum leap," he said.
About 20 people from Rothschild will move to ABN Amro's office at Broadgate, in the City, where ABN Amro Rothschild will be headquartered.
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