Comment: Credibility problem for NM Rothschild

Comment

Credibility problem for NM Rothschild

NM Rothschild has experienced such a flood of departures from its senior ranks in recent months that to describe the forthcoming raft of changes as a "management shake-up" seems a bit of a misnomer. It may be more of a case of management patch-up. But however adeptly Rothschild moves to fill the holes, rejuvenate and restore its reputation, there's no getting away from the fact that this once mighty family-controlled City bank faces a credibility problem as it approaches the millennium. It is not large enough to play with the big boys of international investment banking, nor is it small and specialist enough to thrive as a niche player. Scandal at Barings and Morgan Grenfell has further weakened the position of the small to medium sized player; traditional City merchant banks seem not only to be prone to the antics of rogue traders, they also lack the financial muscle to survive them when they do fall victim.

This is a bad enough backdrop for the likes of Rothschild. On top of that, insiders complain about a lack of direction, and they worry about the succession to the autocratic, and occasionally volatile, Sir Evelyn de Rothschild. The asset management operation meanwhile remains difficult. The link-up with ABN Amro on capital markets was a partial answer to the problem. To some extent it fills the gap in distribution created by the sale of Smith New Court to Merrill Lynch, but whether either party will find this a satisfactory long-term approach is open to question.

Likewise, co-opting David Rothschild from the French branch of the family dynasty into a more high-profile executive role in London may provide a solution to the succession, but it isn't going to be any kind of an answer to the structural problems described above. More encouraging are moves to bring together and coordinate the various national investment banks that make up the Rothschild clan. This approach has worked well for Lazards, though in that case there are cross shareholdings to ensure harmony between the New York, Paris and London banks. Whether it can be made to work in the Rothschild case is another matter.

It would be wrong, however, to start reading the last rites for this historic City institution. The world may be an inhospitable place these days for the independent, family-controlled investment bank but, with careful, switched-on management, it can be made to work. More questionable is whether David Rothschild, if he is indeed heir apparent, can repeat the trick. He made his name reviving the dynasty in Paris in the early 1980s after nationalisation. London is a very different environment.