Warburg latest victim in battle of behemoths claims Warburg

John Eisenhammer says few can compete with US companies

It was an abject end to a depressing day. Sir David Scholey, chairman and chief executive of SG Warburg, had just completed a lacklustre address to his top people on why Britain's premier investment bank was laying itself at the feet of Swiss Bank Corporation. He paused. "I wish you all luck."

This was no rousing send-off into a new beginning but capitulation; the end of an era. Whatever the outcome of the SBC deal, Warburg's independent days are over. It has given up the struggle against the behemoths of Wall Street and their biggest continental rivals.

It was a sad day for British investment banking. Warburg was for long its pride. Even if thoroughly demoralised of late, and haemorrhaging senior staff, it is still in many respects a fine business. But it is not up to the ruthless demands of today's global financial markets.

Few economic sectors have changed so much over the past 15 years. Financial markets have grown explosively, both in volume and the complexity of the deals and instruments traded. The profits can be immense, but so too are the risks. Gone are the days when merchant banks could rely on chums in the corporate club, and fear only their neighbourhood rivals. The battleground for every significant deal nowadays is the world, pitting American against Briton, German against Japanese, Swiss against Dutch. Globalisation is the industry's buzzword. To compete in the major league of investment banking, firms need to be able to cover the world's markets, and to offer the full range of sophisticated services, contacts and expertise.

This requires an exacting standard of international management professionalism. Barings failed that test, demolished by the failure to control its global ambitions. But Barings is not alone. Much of British corporate finance still bears traces of sloppiness and parochialism that blunt competitive edge.

Globalisation also requires money, lots of it. The information technology required to drive and control trading systems across the world, the offices and expensive staff, devour hundreds of millions of pounds. Warburg tried. At one point it had an office of 600 in New York, straining to crack the American market. It failed. When the markets turned last year, after the heady expansion in the 1993 bull run, investment houses were left carrying vast fixed costs. They all bled, from Wall Street to Tokyo, slashing costs and jobs. But the biggest can absorb the pain; Warburg could not.

The ambitions of most other British investment houses have been more modest. Kleinwort Benson and Flemings, for example, have only a small presence in New York, selling non-US equity. But they too are having to satisfy customers who want global reach, and are competing head on with the giants. Particularly after the fall of Barings, many of the small and medium-sized merchant banks are squirming amid worries about institutions with small capital bases.

There is little doubt that others will be forced down the Warburg road. An internal memo sent round the top level of Kleinwort recently suggests uncertainty over its future; Flemings and Schroders must be feeling vulnerable. The investment banking landscape in the City, already convulsed by Big Bang in the Eighties, is building up for a slower quake. Warburg is the first shock. Securities houses will either retreat to their niches or be swallowed.

The pace of change is being set by Wall Street, as usual. Drawing on the vast resources of the world's richest single market, the New York firms are among the few able to bestride the financial world. Merrill Lynch, Morgan Stanley, Goldman Sachs, for all their global reach, still earn most of their money in the US, and can put armies into the field few can match. Many observers believe concentration will leave just five or six dominant global investment houses, with the Americans prominent.

In the UK, by contrast, the domestic economy has been far too small to sustain the global ambitions of the British houses. Which is why the City has had to open itself to the markets of the world. But the upshot has been that no other financial centre has such a presence of foreign owned- houses, with Warburg set to join the ranks.

In Europe, the only institutions with global-size coffers are banks and insurers. It is no coincidence that a Swiss bank is engulfing Warburg, or that Barings was bought by ING, the Dutch banking-insurance conglomerate. All the most talked- about predators are banks - ABN Amro of Holland, Deutsche and Dresdner of Germany, Paribas of France, and the Swiss trio. The two biggest British financial conglomerates in the City belong to Barclays and NatWest Group.

Size and wealth are no guarantee, however, as the Japanese have found. Having entered the City and New York in the Eighties with cheque-books blazing, they have gone into retreat.

But some of the biggest and richest commercial banks are still in the wings: the Americans. The Glass-Steagall act of 1933 has kept apart its lending and securities businesses. But there is every sign in Congress that this partition will soon be breached, leading to universal US banks on the continental model.

The potential for change, both on Wall Street and across the world, is colossal. The concentration of financial institutions would accelerate dramatically, as a new pack of cash-rich predators was unleashed. Some of the remaining independent brokers and merchant banks in the City, with their vast expertise, would make tempting prey.

But will this concentration be the end of the story? Perhaps not. For just as industrial conglomerates were all the rage in the Seventies, only to be mostly dismantled in the Eighties, so their financial cousins may also go out of fashion. One day, Warburg and Barings may walk alone again.

Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
voicesIs a huge gamble on oil keeping the First Minister up at night?
Sport
A 'Sir Alex Feguson' tattoo
football

Arts and Entertainment
Liam Neeson said he wouldn't
tv

Liam Neeson's Downton dreams

Voices
voicesApple continually kill off smaller app developers, and that's no good for anyone
PROMOTED VIDEO
Arts and Entertainment
Ben Whishaw is replacing Colin Firth as the voice of Paddington Bear
tv

Thriller is set in the secret world of British espionage

Life and Style
life

News
ScienceGallery: Otherwise known as 'the best damn photos of space you'll see till 2015'
Travel
travelWhy Japan's love hotels are thriving through an economic downturn
Life and Style
fashion

Bomber jacket worn by Mary Berry sells out within an hour

Life and Style
Alexander McQueen A/W 2014
fashionPolitics aside, tartan is on-trend again this season
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Rapper Jay Z performs on the Pyramid Stage at Glastonbury in 2008
musicSinger sued over use of the single-syllable sample in 'Run This Town'
Sport
Joel jumps over the board...and into a giant hole
footballFrom joy to despair in a matter of seconds
News
i100
Arts and Entertainment
Pointless host Alexander Armstrong will voice Danger Mouse on CBBC
tv

Much-loved cartoon character returns - without Sir David Jason

Arts and Entertainment
Meera Syal was a member of the team that created Goodness Gracious Me
tv

Actress to appear in second series of the hugely popular crime drama

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

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Audit Manager Central Functions

To £85,000 + banking benefits: Saxton Leigh: You will be expected to carry out...

Credit Risk Audit Manager

Up to £90,000 + benefits: Saxton Leigh: Credit Risk Audit Manager required to ...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week