But Rothschild is not in a time warp. Even in these post-Big Bang deregulated days with billions of pounds whizzing round the world at the speed of light, it remains one of Europe's leading investment banks. Its name still opens doors but it is also bright and innovative enough to win business against the likes of Goldman Sachs, Morgan Stanley and SG Warburg. And unlike any of them, it is run and 100 per cent controlled by the family that founded it 200 years ago. Five family members sit on its board; a sixth heads the bank's fund management operations.
Down the road from Rothschild, on Cheapside, George Mallinckrodt looks out from his eighth-floor office at J Henry Schroder Wagg & Co, or, to give its public company name, Schroders. Mallinckrodt, a Swiss German with a central European accent and a penchant for German sayings such as 'Even small animals produce droppings', is chairman of the company and the brother-in-law of Bruno Schroder (and coincidentally a cousin of the Kleinwort family). The two represent the family interests in the group - a shareholding reliably estimated to stand at 48 per cent. Not quite a majority, but big enough to block a hostile takeover.
The bank is controlled de facto by a small group of descendants of the family of Johann Heinrich Schroder, who founded the bank in 1818. If this seems out of tune with the 1990s, it is also true that by common consent, Schroders is one of the City's biggest success stories of recent years. It is a bank whose client list is among the two or three best in the City and whose shares - first sold to the public in 1959 - have been so much in demand that they are the third best performing bank shares in the world over the past 13 years (in local currency terms). The group was recently admitted to the FT-SE 100.
The same success story can be replicated across the City. In an age when nepotism is frowned on and the old school tie is supposedly being replaced by a meritocratic system, the old banking families of the City are still very much in control of their traditional patch. Family influences stretch far beyond the banks still controlled by their founding families - such as Rothschild, Schroders and Fleming - and the banks where the families have theoretically ceded control but still hold the reins - Hambros, Barings and, to some extent, Kleinwort Benson. There are more subtle manifestations of dynastic control.
The success of the Verey and Meinertzhagen families, neither of which owns its own firm, demonstrates the energy of their members and the City's reverence for names. So does the fact that a member of the Lazard family still chairs Lazard Brothers nearly 80 years after selling the London merchant bank to the Cowdray family, founders of Pearson.
The experience of London is vastly different in this respect from that of Wall Street, the financial centre which is mostly closely comparable. There are no great banking families left in New York - not even the great JP Morgan succeeded in establishing a dynasty. The effect of deregulation in 1975 has been all-consuming. Famous 'white shoe' Wall Street names such as Harriman, Kuhn, Loeb, Hutton and the like have disappeared as the old partnerships have first incorporated, then amalgamated. The large Wall Street firms, with the exception of Lehman Brothers which recently bought itself out from American Express, and Goldman Sachs, which is still a partnership, are now either parts of larger corporations or are large quoted companies themselves.
London looked to be going the same way. The incorporation of old City institutions began some time before Big Bang in 1986. For example, Samuel Montagu, whose co-founder of the same name was a key City figure of the early part of this century and a governor of the Bank of England, was subsumed by Midland Bank in 1973.
Schroders and Kleinwort Benson had both floated on the stock market at the end of the 1950s, and many old-style corporate brokers had decided there was more business to be had if they amalgamated. But the process had been slow.
The deregulation of the London market, which followed the famous deal between Cecil Parkinson and Sir Nicholas Goodison - at the time respectively trade secretary and chairman of the Stock Exchange - led to a shake-up of the market, and the disappearance of many of the City's old names. Simon & Coates, Laurie Milbank and Scrimgeour Kemp Gee were among the stockbrokers that vanished into the embrace of larger public companies.
In the merchant banking sector, Charterhouse Japhet, Hill Samuel and Morgan Grenfell have also been bought by larger banks. Inclusion within larger, often foreign banks, was not a favourable environment for many of the old families. Among the few to survive was Simon de Zoete, who remains a senior executive of BZW several years after his family broking firm, de Zoete and Bevan, was sucked into the Barclays Bank group.
The takeover mania of 1986 was based on the assumption that big would be beautiful in deregulated markets, that big capital backing and large distribution were essential. When the likes of Barings, Fleming and Schroders decided to remain independent, few people thought they would thrive. Yet they have. Despite their ups and downs, they remain in a healthy state. How have they confounded the critics?
George Mallinckrodt says of banks such as Schroders or Rothschild: 'This stability of ownership enables these firms to plan long-term and implement their strategy without the constant pressure of short-term peer group comparison.' Family shareholders are not so obsessed with half-yearly results as many institutional investors are. A family bank can have a poor year and the family will not put pressure on the company because of this, so long as long-term strategy is in place.
Family banks have also taken quite different approaches to the deregulation of the London market, approaches that reflected the circumstances of the banks. There is an almost exact correlation between the family influence on the bank and the bank's attitude to the challenges. The tighter the family control, the less willing the bank appeared to be to risk large amounts of capital in becoming an integrated securities house.
Kleinwort Benson went the whole hog. It bought a broker, set up a market-maker and lost a heap of money in the process. It also nearly lost its independence to Banque Nationale de Paris and Dresdner Bank a few years ago.
Key to this process was a large fund-raising Kleinworts launched in 1987 with a pounds 144m rights issue. Family shareholders did not take up their full allocation, diluting their holding and influence.
David Peake, chairman of Kleinwort from 1988 until earlier this year and a member, by marriage, of the Kleinwort family, said that by the mid-1980s Kleinwort had ceased to think of itself as a family bank. 'The connection between shareholders and management had been severed a generation before mine. Now there is no special influence of the founding families on the management at the bank,' he said.
One of the reasons this occurred is that the family shareholding became widely dispersed among the founding families - so dispersed that Kleinwort now finds it hard to estimate accurately what shareholding they still control, but puts it at around 20 per cent. Family shareholders rarely vote en bloc. David Peake said that although there are still three members of the board connected with the founding families - the others being Sir Kenneth Kleinwort and David Benson - there is no differentiation between family shareholders and institutional investors. 'It is a very different situation from where one has one or two single individuals who are or represent huge family shareholders.'
In one case, Hambros, the family voluntarily gave up control, allowing the bank to plough money into other areas such as estate agencies and insurance. The transformation met fierce resistance, however. Charles Hambro, chairman, restructured the group, giving up the archaic shareholding structure that allowed family control over voting rights despite possession of only a small part of the capital. His cousin Rupert, who chaired the merchant bank, opposed this. He, his two brothers Richard and James, and his father, Jocelyn, left to set up their own bank, JO Hambro & Co. Its main interests today come through part ownership of JO Hambro Magan, a partnership with George Magan, a former director of corporate finance at Morgan Grenfell.
Hambros is on the cusp of a shift from a family-dominated to a fully accountable bank. The family is still influential, but the group can no longer be called a family bank. The acid test will come when Charles Hambro retires (he is 63) and a new chairman has to be chosen. His son Charles does not even sit on the main board. As one commentator wrote when Hambros sold its collection of antique furniturewhen moving offices a few years ago, what used to be a dynastic tradition is now only a bank.
There is a danger of the same transformation taking place at Barings and Flemings. They have proved themselves adept at the traditional merchant banking skills of skipping from one market to the next, always a step ahead of the competition. That has kept the families in control but the pressures of staying small are beginning to produce cracks that may finally dislodge them.
Barings is perhaps the most venerable name in the City. Founded in 1762 by Francis Baring, it became so powerful that in 1818 the Duc de Richelieu described the bank as the sixth great power (after Britain, France, Austria, Prussia and Russia). As deregulation approached, Barings was cautious. It bought a thriving Far East operation run by Christopher Heath, whom Barings paid so well that for a while he was the mostly highly remunerated executive in the UK. But it never threw itself into equities.
Since 1985, all of Barings' equity capital has been held by a charitable trust, the Baring Foundation, making expansion difficult.
Earlier this year Heath resigned after finding that the Barings would not provide the money he thought was needed for the securities side to compete with the likes of Salomon Brothers and BZW. Though it did not tear the bank apart, his departure left some questions about the future structure of the sixth great power.
The question marks over the future of Flemings are a favourite source of City gossip. The family retains a substantial shareholding - thought to be about 40 per cent - in this solid Scottish bank peppered with tradition. According to rumour, some members of the Fleming family would like to cash in on their inheritance. The Independent on Sunday has spoken to a leading City figure who says he is advising members of the family on the best way to dispose of their shares. Robin Fleming, the group's chairman, refuses to admit publicly that a problem is looming. However, few would bet that in a decade or so the family will still be running Flemings.
The opposite is true at Rothschild and Schroders. Both have shown how a family bank can thrive in a deregulated environment and at neither is there any sign of family control slipping. In both cases the shares are concentrated in a relatively small number of hands and the families have not lost their commitment to their traditional business. Moreover, both have turned the apparent disadvantage of a small capital base to their advantage, though the issue still rumbles beneath the surface.
The great house set up by Nathaniel Rothschild 200 years ago is still the most family oriented bank of all. Not only is Sir Evelyn de Rothschild very much in control of the group - senior executives are made to know who is the boss - but four other Rothschild family members sit on the board, a fifth runs the fund management side and the bank's deputy chairman, David de Rothschild, heads the family's private French bank.
Rothschild got its arguments out of the way long before Big Bang. In the mid-1970s a bitter rift opened up between Sir Evelyn and his cousin Jacob, now Lord Rothschild. The rift was as much about who was top dog as it was about strategy - and Jacob lost. He was cast into the wilderness (in Rothschild terms, at least), where he has ploughed his own unpredictable furrow ever since.
NM Rothschild sidestepped the deregulation issue, taking a 29.9 per cent stake in Smith Brothers, jobbers, just before Big Bang. This structure gave Rothschild exposure to the securities markets without making a large cash outlay. At the same time, however, Rothschild has not been able to enjoy the benefits of being an 'integrated' house.
Even more than Rothschild, Schroders has made a virtue out of necessity. The bank used to be a large lender, but the Latin American debt crisis in the early 1980s highlighted the risks of commercial banking, particularly in Schroders' New York operation, and a realisation that if the family was going to continue controlling the bank, it was necessary to pursue a policy which would be less capital-intensive.
In 1983 the family, the management and the outside directors came together to agree a strategic plan. It sold a majority stake in the New York bank to Industrial Bank of Japan, bought a 50 per cent holding in the US securities house Wertheim & Co and devised a strategy based on tight allocation of capital to both existing and new activities. As George Mallinckrodt says: 'It would be difficult for us to go out and have a rights issue without fundamentally changing the character of the bank.'
Family-controlled investment banks have been one of Britain's great exports and a unique and important element of British financial and cultural life. But like the rhino and the tiger, they are dying out. It seems that at least two, Rothschild and Schroders, may avoid extinction.
----------------------------------------------------------------- THE FAMILY BANKS ----------------------------------------------------------------- Bank Family shareholding Family members at bank Barings Transferred in 1989 into Peter Baring, chairman, Baring Foundation charity Sir John Baring, non-exec Nicholas Baring, non-exec Michael Baring, bank director Flemings Approx 40 per cent Robin Fleming - chairman Val Fleming, director Adam Fleming, non-exec Hambros Sold control in 1986 Charles Hambro, chairman Charles Hambro Jr, director JO Hambro All of the A shares and Jocelyn Hambro, chairman half of the B shares Rupert Hambro director Richard Hambro, director James Hambro, director Hambro Magan 35 per cent of parent Rupert Hambro, director James Hambro, director Kleinwort Approx 20 per cent Sir Kenneth Kleinwort, Benson non-exec David Peake, non-exec NM Rothschild 100 per cent of parent Sir Evelyn de Rothschild, Rothschild Concordia chairman David de Rothschild, dep chairman Edmund de Rothschild, non-exec Eric de Rothschild, non-exec Leopold de Rothschild, non-exec Amschel Rothschild, chairman of Rothschild Asset Mgmnt Schroders Approx 48 per cent George Mallinckrodt, chairman Bruno Schroder, non-exec -----------------------------------------------------------------
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