View from City Road: Schroders shows a different route to success

It was a once in a decade year for merchant banks. Almost everything went right. Interest rates went down and market activity soared, an environment in which it would have been a challenge to lose money. Even the ropiest operations were provided with a valuable breathing space after the fallow years of recession.

For Schroders, however, 1993 provided a springboard for spectacular growth, and confirmed the house as one of London's biggest success stories in the post-Big Bang era.

The key part in the Schroders success story is the fund management side, which raised funds under management by nearly half to pounds 53bn. This included net new funds of pounds 6.5bn, with a big increase in numbers of clients, which represents potential for growth in the future. It is the divergence in the growth of fund management operations that separates the leaders, such as Schroders and SG Warburg, from the laggards such as Kleinwort Benson, which has just pounds 12bn under management.

The other big debate in merchant bank strategies is whether integration has really paid off. Those that have not made a full- blown assault on securities, such as Schroders, Morgan Grenfell, Barings and Flemings, seem to have fared relatively better than those that went the other route. Even the mighty Warburg, when stripped of Mercury's contribution, looks prosaic in growth rates (though not absolute size) compared to Schroders.

The question of capital that dogs Warburg does not worry Schroders, because of the differences in the strategies they have pursued. Investment management and corporate finance are not capital-intensive.

Warburg's market value is pounds 1.8bn against Schroders' pounds 1.2bn, but Warburg sees itself in a different league of international competition in securities - inhabited by the likes of Goldman Sachs, whose profits last year were the same as the UK bank's capitalisation.

Britain's best independent merchant banks have certainly grown out of all recognition, but their fiercest overseas competitors have risen still faster.

And at home, the long-term honours may still go to the investment bank arms of the clearers, such as Barclays' BZW, which made pounds 500m before tax. The pool of capital and customers to which they have access is hard to beat.