View from City Road: Warburg occupies a unique position

Splendid though yesterday's profits from S G Warburg Group were, finally laying to rest as they did worries that the recent bond market crash had severely undermined performance, the fact remains that 1993 was probably a peak year for the bank.

Profits more than doubled to pounds 297m despite spiralling staff costs to pay for last year's bumper City bonuses. True, that still looks tiny compared with the big American investment banks with their huge proprietary trading desks, or even the securities offshoots of Barclays and National Westminster, but it is still a creditable performance given Warburg's limited domestic franchise and relatively small capital base.

The big question about Warburg remains fundamentally the same, however. Is the bank capable on its own of fulfilling its ambition of taking on the vast US global investment banks, or will it need capital backing from a strategic alliance to progress much further - JP Morgan is the name constantly cited.

Yesterday's figures, added to the bank's excellent prospects in the burgeoning world market for privatisation, provide some encouragement for the view that Warburg might just be capable of getting there on its own.

Warburg's pole position in UK privatisations and European cross- border mergers and acquisitions leave it uniquely placed to achieve its aim of becoming Europe's biggest home- grown investment bank.

Warburg's return on capital still leaves something to be desired. The way markets are now moving, however, it can argue that its relatively low exposure to proprietary trading - where the really big bucks were made in 1983 - is something of a blessing. Profits are set to fall this year, but not by nearly as much as the Americans.