Warburg is walking tall

The investment bank is back from the brink, its cultured style intact. Now it is taking the fight to Wall Street, says Peter Koenig

Cool, meticulous, objective, calculating self-interest over the long term - for 30 years a banker different from all other bankers bestrode the City and financial centres beyond. Then five years ago Warburg man disappeared.

In February 1994 the US Federal Reserve raised interest rates, killing off the first emerging markets boom. Money men scurried for the safety of the dollar. Warburg, the one City merchant bank left competing toe-to-toe against the bigger Wall Street houses, suffered a liquidity crisis.

It sought to merge with Morgan Stanley. But the deal fell down when Mercury, Warburg's autonomous fund-management affiliate, balked. In the end, the proudest British merchant bank of the post-war era was forced to sell itself to Swiss Bank Corp at virtually book value, pounds 687m - less than half the sum commanded by the lesser asset Mercury when it sold out to Merrill Lynch just three years later.

Warburg's fate seemed a preview of the disaster set to overtake Hambros. The bank which had invented the eurobond market - and so set the City fair to become the European capital of global finance - seemed destined to become a historical footnote, or a marketing tool for the gnomes of Zurich.

Instead, two things happened. First, the brand name proved resilient. "What none of us fully understood at the time was the power of the Warburg name," says Robert Gillespie, head of European corporate finance. "All over the world."

The Warburg brand of investment banking was developed by the late Sir Siegmund Warburg, a German Jewish banker in flight from the Nazis who started a small, outsider firm in the City after the Second World War. A quirky but brilliant bully, he had by the late 1950s established an ethos of perfectionism which clients found authentic.

Second, after Warburg's humiliating 1994 sale to SBC, a core of young bankers raised to Warburg specifications but who believed at the same time that the bank's older generation had gone stale, survived. "A large peer group of us decided we wanted to stay, hold together and make the whole thing work," says Rory Tapner, global head of equity capital markets.

"We got killed daily in the press. But against all that, all the upheaval, we kept doing business. Did other banks get the opportunity to see our clients? Yes. Did they steal some of our best people? Yes, they did. But we thought: if we can keep going under these conditions, imagine what we can do when things stabilise."

But things did not stabilise. At the end of 1997 the biggest of the big three Swiss banks, Union Bank of Switzerland, suffered big losses in Hong Kong when its futures and options book went awry. UBS was forced into a $29.3bn (pounds 18.3bn) shotgun marriage to SBC. Another round of turmoil at Warburg ensued as it merged with UBS's investment bank.

Employee numbers went from 2,000 to 3,800 and back to 2,800 in just months. To complicate matters further, Warburg had acquired Dillon Read, a small US investment bank. Then last autumn UBS (as the merged SBC and UBS was renamed) and Warburg Dillon Read (as it was renamed) got caught with their pants down in Russia. To make matters worse, the old UBS had a big exposure to LTCM, the US hedge fund that nearly went to the wall during the global financial crisis.

By the end of last year rumours suggested that UBS would sell Warburg. In March Warburg reported a 1998 loss of $484m, much more than analysts expected. UBS swore it was not selling Warburg. But it replaced top management.

The new chief executive was a young Swiss banker with an academic and central banking background named Marcus Granziol. His lieutenants were drawn from the core of English bankers who in 1994 decided not to jump ship.

"Warburg has done badly and its [old] managers are paying the price," it was said at the time by Christopher Streit, a fund manager at Bank Leu, which holds shares in UBS. "If the new team doesn't do better, UBS may well get out of investment banking."

The new team has done better. On 24 August Warburg reported pre-tax profits of $1bn for the first half of this year, a jump of 37 per cent jump on the same period last year. Leading the bank was its booming equity trading business. "We're the leaders in the pan-European network, based on size, breadth of network and coverage," says Colin Buchan, global head of equities. A US analyst reports that a recent survey by the US market research firm McLagan established that Warburg is now the world's third-largest recipient of commissions.

The bank's European mergers and acquisitions business has yet to recover from the turmoil of the past five years. Despite an increase in revenues on the back of the roaring European M&A trade - plus high-profile deals like advising Ford on its acquisition of Volvo - Warburg fell from fifth to ninth place in the league table of top M&A houses by volume of deals.

Warburg recognises there are no quick fixes, but sees itself as on course to repair damaged relationships with M&A clients while developing new ones. "Of the top seven or eight banks we are the only one with a headquarters in Europe, which gives us a unique opportunity," says Mr Gillespie.

US investment banks are known as good but aggressively self-interested. Warburg wants to become known as good, but more restrained. "Wall Street M&A bankers have to meet revenue targets," says Mr Gillespie. "I tell my bankers to do their jobs, sometimes advising clients not to do deals, and leave me to worry about the revenue targets."

Mr Gillespie strikes the theme that emerges from the bank overall: Warburg Man is back, under Swiss ownership perhaps, but once again a champion of the City. He is different from US investment bankers. Watch him fly going forward.

Not everyone accepts this proposition at face value. Keith Baird, analyst at Enskilda Securities, says Europe has become the investment bank market of choice. "Competitive pressures are growing. Shareholder value is taking hold. There's tremendous restructuring."

Wall Street, consequently, has targeted Europe. "It's the indigenous Europeans with their client relationships versus the Americans with their technical product." Mr Baird calls Daimler's acquisition of Chrysler a watershed. "Goldman advised Daimler, not Deutsche Bank," he notes.

He is impressed that Warburg has survived five years of turbulence relatively unscathed. But he sees global finance consolidating. The image is 500 top companies, 500 top institutional investors, and five investment banks in between.

"Goldman, Merrill, Morgan Stanley and CSFB make up the top four," says Mr Baird. "Warburg must fight it out with Salomon, Lehman and some others for number five."

Warburg is at a disadvantage in this fight because of its relatively weak place on Wall Street. "I am not saying they can't do it," Mr Baird explains. "But I am saying there are enough weaknesses to pose the question." Faced with this question, the trio of Warburg men go into thought- ful mode. They argue their presence in the US is underestimated. "Dillon Read is a much better US investment bank than people think," says Mr Tapner.

Ultimately, however, what comes through is an infectious optimism born of the shared sense that the tough part is behind the bank. "It's true. We're back," says Mr Tapner.

PROMOTED VIDEO
Voices
Chris Grayling, Justice Secretary: 'There are pressures which we are facing but there is not a crisis'
voices

Does Chris Grayling realise what a vague concept he is dealing with?

News
Brian Harvey turned up at Downing Street today demanding to speak to the Prime Minister

Met Police confirm it was a 'minor disturbance' and no-one was arrested

News
Blackpool is expected to become one of the first places to introduce the Government’s controversial new Public Space Protection Orders (PSPOs)
news

Concerns raised phenomenon is threatening resort's image as a family destination

Life and Style
gaming

I Am Bread could actually be a challenging and nuanced title

News
Nigel Farage has backed DJ Mike Read's new Ukip song
i100
Arts and Entertainment
Shia LaBeouf plays a World War II soldier in forthcoming drama Fury
films

Eccentric Fury star, 28, reveals he is 'not a really confident actor'

News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Time and Oak have developed a product that allows drinkers to customise the flavour and improve the quality of cheaper whiskey
food + drink

Sport
football

Peter Biaksangzuala died from his injuries in hospital on Sunday

Life and Style
The final 12 acts will be facing Simon Cowell, Cheryl Fernandez-Versini, Mel B and Louis Walsh tonight
fashion

The X Factor's judges colourful outfit was mocked by Simon Cowell

News
news

Footage shot by a passerby shows moment an ill man was carried out of his burning home

News
people
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Customer Service Executive / Inbound Customer Service Agent

£18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...

ASP.NET Web Developer / .NET Developer

£60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....

Operational Risk Manager - Asset Management

£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

Project Coordinator - 12 month contract

£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...

Day In a Page

Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album
Hugh Bonneville & Peter James: 'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'

How We Met: Hugh Bonneville & Peter James

'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'
Bill Granger recipes: Our chef's heavenly crab dishes don't need hours of preparation

Bill Granger's heavenly crab recipes

Scared off by the strain of shelling a crab? Let a fishmonger do the hard work so you can focus on getting the flavours right
Radamel Falcao: How faith and love drive the Colombian to glory

Radamel Falcao: How faith and love drive the Colombian to glory

After a remarkable conversion from reckless defender to prolific striker, Monaco's ace says he wants to make his loan deal at Old Trafford permanent
Terry Venables: Premier League managers must not be allowed to dictate who plays and who does not play for England

Terry Venables column

Premier League managers must not be allowed to dictate who plays and who does not play for England
The Inside Word: Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past

Michael Calvin's Inside Word

Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past