View from City Road: Bankers favour togetherness

ONCE upon a time, British merchant banks believed they could rule the world from their wood-panelled offices in London. But gradually it became apparent that, to win business overseas, a corporate financier had to have an office abroad. This prompted merchant banks to expand their networks, which often meant they spent more money than the returns justified.

More recently, London's merchant bankers have taken a good dose of reality. Though some, like Schroders with its half-owned Wertheim operation in New York and NM Rothschild with its well-focused US side, have expanded on their own behalf, most have realised that partnership is the best approach. Thus Robert Fleming linked up with Jardine Matheson in the Far East, Baring Brothers joined with Wall Street blue bloods Dillon Read, and Morgan Grenfell was swallowed by Deutsche Bank.

The latest in this trend is Samuel Montagu, the merchant banking arm of Midland Bank. The Hongkong & Shanghai Banking Corporation takeover has opened a number of areas for Montagu to develop, but it felt it also needed a link with a US firm, and to that end it has signed a co-operation agreement with PaineWebber. Montagu will refer any US business from its clients to PaineWebber and vice versa.

These deals are never perfect, but it solves the problem of a client wanting to transact business in the US which the UK bankers are unable to do. For Montagu this is a small problem. But it raises the question of whether other UK merchant banks, such as SG Warburg, with more big clients, also feel the need for a US partner. Waiting for their own US offices to expand could be expensive.