View from City Road: Success from standing alone

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The Independent Online
WARBURG'S likely entry to the FT-SE 100 after today's meeting on index constituents serves as much to highlight weaknesses in the sector as strengths. Britain's top merchant bank is bigger and more successful than its competitors, yet it must be doing some serious strategic thinking about its own future, as the likes of Goldman Sachs and JP Morgan continue to flex their muscles in London.

They are star players in the US, and are quietly building a big presence in the City, comparable at least with the merchant banks immediately behind Warburg in the pecking order. Warburg has yet to match that scale of international expansion away from its own home base.

Behind Warburg, outstanding players are hard to find. BZW is the most successful in clearing bank ownership, but it has gaps, for example in mergers and acquisitions, which these days is all about restructurings, at least in the UK. Schroders has been doing well - it is capitalised at two-thirds of Warburg's pounds 900m - but still lacks firepower.

Meanwhile, the ranks are thinning. Morgan Grenfell has gone to Deutsche Bank, Charterhouse may shortly go to a European owner and Kleinwort Benson - now worth a third as much as Warburg - might one day follow. Hill Samuel is in a sorry state and County NatWest is being reorganised.

The simple option, selling out to commercial banks, no longer seems a sound way to reinforce a merchant banking business that finds itself under pressure. Indeed, some of the most successful investment banks are specialists that stand alone.

On international playing fields, the City's indigenous merchant banks, as a group, are looking more vulnerable than ever.

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