Warburg needs more than the Dunkirk spirit

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As befits a general brought out of semi-retirement to save a desperate situation, Sir David Scholey, chairman and now chief executive once more of SG Warburg Group, was to be seen striding the trading floor and corridors of the bank's Broadgate offices yesterday attempting to rally the demoralised troops. Dunkirk spirit was the order of the day; backs against the wall, fix bayonets. Surrender was out of the question, he made plain. The bank would be forging ahead with an independent strategy; a cuddly takeover is simply not an option.

Whether or not this is a realistic strategy for Warburg, one thing is certain. Nearly 10 years after Big Bang, it is now plain as a pike staff, if it wasn't before, that Britain is going to find it well nigh impossible to grow its own independent, flag-carrying, global investment bank. Warburg tried, and for some years, with the British government behind it, it looked as though it might actually succeed. In truth, however, it was always too far behind the big US players to stand a chance.

Nor was Europe, with its still robust national barriers, ever likely to provide Warburg with the massive domestic franchise that has powered the Americans to their dominant position. Whatever the future for Warburg, the dream of building an independent British house to rival the Americans is now largely over. Lacking in both the capital and the resource necessary to compete on a global basis, it is a less ambitious, more parochial future to which Warburg must now resign itself.

Another series of mergers among the remaining independent houses in London - the most often touted are Barings and Cazenove, Schroders and Smith New Court - is unlikely to do the trick either. The effect would be to create a powerful competitor to Warburg, but not a global player like Salomon or Goldman Sachs.

In that sense, the thinking behind the abortive merger talks with Morgan Stanley was fundamentally sound. With one bound, it would have allowed the two of them to leapfrog the opposition into the number one slot. As we now know, however, the execution left a lot to be desired. In itself, this may have been symptomatic of the malaise that has crept into Warburg's affairs. It is a thin line that separates the hero from the failure. If Lord Cairns had pulled off the Morgan Stanley merger, he would have achieved universal acclaim. As it is, he has taken the rap for what turned into a fiasco.

Lord Cairns is too honourable a man to do anything other than take full blame for the shambles into which Warburg seems to have declined. None the less he has good cause to reflect on Jeremy Thorpe's famous comment on Macmillan's night of the long knives: greater love hath no man than this, that a man lays down his friends for his life. Sir David Scholey, now presented as the man of the hour, has, after all, been chairman of Warburg throughout its fall from grace and was, presumably, as much to blame for the Morgan Stanley flirtation as Lord Cairns. Still, someone has to remain aboard to man the bridge, and in the circumstances, Sir David is probably as good as anyone. His task, for someone who until very recently was looking forward to retirement, is certainly as tough as they come. Warburg is probably not in the state of terminal crisis many rivals would wish, but with a second profits warning now under its belt, the situation is plainly dire. There is a real danger of the brand and franchise disintegrating beneath him.

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