View from City Road: Tentative toes in the New York water

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Remember all those stories last year about Warburg forming an alliance with a big US bank such as JP Morgan, to give the British group real market power in New York? Yesterday's deal by Schroders shows why all such talk is unrealistic.

It took Warburg's smaller London rival eight years to get to the point at which it was confident about owning all of Wertheim Schroder. You cannot barge in insensitively on a people business like investment banking. The talent is all too likely to walk out the door if its dignity is offended or its bonuses cut. The practical choices are a slow 'getting to know you' takeover, as Schroders has done, or organic growth.

Outside Schroders, the strongest New York push to date is being made by Warburg, which has largely chosen organic growth in preference to acquisition. Warburg has been hiring over the past year, and now has more than 400 staff in corporate finance, sales and trading, plus a well-respected research team following US companies, which most UK brokerages do not do.

Baring Securities has also been staffing up in New York, including sales and trading, but focuses primarily on cross-border deals. It also has a 40 per cent stake in Dillon Read, which it acquired in 1991, but although the two co-operate they in effect operate autonomously.

Lazard Freres is a hybrid when it comes to nationality, but it has about 600 staff in New York, though many of these are involved in its strong money management division. Barclays de Zoete Wedd employs about 150 people in New York, as does Smith New Court, while Natwest Securities, James Capel and Kleinwort Benson are also active.

For any firm with international investment banking ambitions, there is a powerful reason to get bigger on Wall Street. The Goldman Sachs and JP Morgans of this world have established threatening bases in London which have already made them more genuinely global banks than their British rivals. This transatlantic bridge gives them a strong sales pitch in expanding European financial markets such as Frankfurt.

London firms cannot afford to sit back and watch their US rivals strengthen their positions here without having a bigger crack themselves in the New York market. The lesson from experience of US firms in London is that to dive in head-first to a foreign investment banking market is a dangerous strategy. The steady and cautious expansion of Goldman Sachs in London stands in marked contrast to the spectacular advances and retreats of Citicorp in the 1980s.