It was now that the first steps were taken to narrow what Palin called “the great gulf that separated the partners from even the most senior members of the staff.” A century and a half of tradition ended in July 1960, when David Colville became the first non-family member formally to be made a partner (though he had already occupied a desk in the Room for some time). In September 1961 the general manager Michael Bucks was similarly elevated, followed in April 1962 by the experienced tax lawyer Philip Shelbourne, who helped to create the new Finance Department (responsible for corporate business). Since Jacob’s arrival brought the total number of partners close to the legal maximum of ten, other long-serving senior executives had to be content with the status of “associates” until the 1967 Companies Act raised the maximum number of partners to twenty. The transformation was completed in September 1970 when the partnership was finally incorporated, bringing to an end the era of unlimited liability. A new board was constructed with four non-executive directors and twenty executive directors, and decision-making passed from the partners to a new executive committee.
This “New Court revolution” in the management structure had a physical counterpart. In October 1962, at Evelyn’s suggestion, the old offices in New Court were finally demolished. It had already been necessary to expand across St Swithin’s Lane to Chetwynd House; now the firm had to spend nearly three years in City Gate House, on the south side of remote Finsbury Square, while the present six-storey building was constructed. The new offices symbolised the new generation’s determination to modernise the bank. Still, it was typical of the outside world’s exaggerated impression of the bank’s importance that a Japanese newspaper reported the construction of a new sixty-storey building. In reality, the London house was still relatively small. Its issued share capital when it was incorporated was just £10 million (with around £2 million of reserves), and its balance sheet showed assets totalling just £168 million. In terms of deposits N. M. Rothschild was also smaller than its City rivals. Nor did it have as many outside interests as the Paris house. All this helps to explain Jacob’s declaration in 1965: “We must try to make ourselves as much a bank of brains as of money.”
In the first instance, this meant moving into investment banking. In July 1961 Rothschild Investment Trust (RIT) was set up with £3 million capital, two-thirds of which was raised from outside investors. Under Jacob’s leadership, it thrived: initial pre-tax profits were in excess of 20 per cent of capital. By 1970 it had been joined by four other publicly quoted Rothschild investment trusts. Thereafter RIT took on something of a life of its own following its merger with three Eller man-owned investment trusts in 1974, investing widely in everything from oil and gas to hotels and auctioneers. Despite the economic shocks of the early 1970s, its gross receipts reached nearly £7 million by the end of the decade and its net assets were close to £100 million, compared with just £6 million in 1970. For Jacob, who only turned forty in 1976, it was a remarkable achievement. Yet it is important to emphasise that from its very inception RIT was moving in a different direction from its parent company. As early as 1975, N. M. Rothschild had reduced its stake to just 9.4 per cent. When Saul Steinberg’s Reliance Group acquired a quarter of RIT for £16 million in 1979, it seemed likely that the link to New Court might be broken altogether.
The first steps were also taken into the asset management business. In 1959, following the example of Philip Hill, Higginson and Robert Fleming, the bank became trustee of the National Group’s Shield Unit Fund, one of the first unit trusts. Direct asset management business soon followed, all of which (in compliance with the Financial Services Act of 1986) was later devolved to a new subsidiary company, N. M. Rothschild Asset Management.
A third important growth area was corporate finance. Apart from a couple of minor share issues in the late 1940s, little had been done in this line under Anthony. Ironically, in view of the bank’s later role in privatisation, he and Colville had refused to become involved in steel “denationalisation” when the Churchill government proposed it in 1953, regarding the idea as dangerously political. Nor was N.
M. Rothschild involved in the famous battle for the British Aluminium Co. of 1958-9, which is usually seen as ushering in the new era of takeovers and mergers. That changed in the 1960s, however, with a concerted effort to improve the bank’s relations with industry. In 1964 a branch was even opened in Manchester—the first Rothschild office in the city since 1811—followed two years later by one in Leeds. Admittedly, the bank’s first taste of corporate finance proper was discouraging. In February 1961 N. M. Rothschild advised Odhams Press in its resistance to a takeover bid from the Daily Mirror. The Mirror—advised by S. G. Warburg—won. But two years later, as advisers to the state-owned South Wales steel group Richard Thomas & Baldwins, a New Court team successfully trumped a rival bid for White-head Iron and Steel. By 1968 N. M. Rothschild could claim to be eighth equal in the City takeover league, having organised five deals with a total value of £370 million. Two years later, it was ranked fifth in a league table of issuing houses, having raised a total of £20 million for its client companies in the course of the year.
These were treacherous waters, however—and shark-infested. In 1969 N. M. Rothschild had its first encounter with the ebullient and fraudulent financier Robert Maxwell, when it advised Saul Steinberg’s Leasco in Steinberg’s £25 million bid for Maxwell’s Pergamon Press. The deal fell through when the bidders uncovered irregularities at Pergamon on a scale which prompted a Board of Trade enquiry into Maxwell. Sime Derby’s takeover of Clive Holdings during the “Barber boom” of the early 1970s proved equally problematic when Dennis Pinder, the Sime Derby chairman, was accused of insider dealing and arrested in November 1973. However, when Jim Slater resigned from the ailing Slater Walker bank in October 1975, it was to N. M. Rothschild that the Bank of England turned for assistance in averting a full-scale secondary banking crisis—a tribute to the Prime Minister Edward Heath’s confidence in the bank’s new chairman, Victor, who had belatedly taken up an active role in the family firm that April, and was soon energetically rationalising its antiquated management structure.
There were two other important areas of domestic activity in this hectic period. Firstly, N. M. Rothschild kept an eye open for investment opportunities for itself, especially in growing areas such as media and telecommunications. The bank invested in ATV, one of the first independent television companies, and in the less successful British Telemeter Home Viewing, an abortive early pioneer of “pay-television.” In addition, Evelyn sat on the boards of Beaverbrook Newspapers, the Economist and later The Telegraph plc. The old links to Alliance Assurance were also reinforced when Sun Alliance acquired a stake in Rothschilds Continuation, and Gresham Life was acquired for £6.9 million in 1973 (it was sold for £15 million six years later).
By this time, remarkably, most of N. M. Rothschild’s balance sheet was domestic. Nevertheless, it remained an international bank at heart. It retained its long-standing interest in gold, even after the breakdown of the gold pool as a consequence of the pressures brought to bear on the dollar by the Vietnam War. Although the Royal Mint Refinery was sold, the bank continued to be a major bullion dealer, operating not only in the London market but also in New York, Hong Kong and Singapore, and laying the foundation for its present pre-eminent position in the Australian natural resources market (at the time of writing, Rothschild Australia accounts for around a third of the N. M. Rothschild group’s profits). At the same time, its traditional business of channelling British capital into overseas investment promised to revive following the removal of the Interest Equalisation Tax in 1963 and the development of the “Eurobond” market. Here past ties could be an asset. When Portugal issued bonds worth $15 million in 1964, for example, it could cite precedents as far back as the 1820s for turning to N. M. Rothschild. In Latin America, under the direction of Leopold, the bank helped raise £3 million for the Inter-American Development Bank and £3 million for Chile in 1965; while three years
later it organised two major loans totalling £41 million to its old client Brazil—funds which were used for major infrastructural projects like Chile’s first atomic reactor and the Rio-Niteroi bridge. In 1966 N. M. Rothschild led a large syndicate raising the first tranche of funding for a trans-Alpine pipeline between Trieste and Ingol stadt, also old Rothschild territory. When Hungary became the first Eastern-bloc economy to borrow from Western banks in 1968, the decision to turn to New Court had numerous historical precedents. Pre-1914 links to Japan were also renewed by Edmund, who made several visits there between 1962 and 1969, arranging “Eurodollar” bond issues (in partnership with Nomura Securities) for a number of Japanese companies including Hitachi and Pioneer.
Above all—and the importance of this in shaping Rothschild attitudes can hardly be overstated—it was to the countries of the developing European Economic Community that the bank looked. It was at around this time that Guy, the head of the Paris house, was being touted in some quarters as “EEC banker Rothschild.” The same might equally well have been said of his London relatives.
A first tentative step in this direction was taken in 1960, when N. M. Rothschild and Warburgs placed £340,000 shares in the August Thyssen steel company on the London market—the first German shares to be quoted in London since the war. A year later the bank committed itself to join the Common Market Banking Syndicate (set up in Brussels in 1958) as soon as Britain signed the Treaty of Rome. The expectation was clearly that this would happen sooner rather than later. In September 1967 a Channel Study Group was formed (along with Morgan Grenfell, Lazards and Barings) in an effort to revive the old Victorian dream of a tunnel under the English Channel. Although this plan foundered like its predecessor, N. M. Rothschild maintained its interest in the project and acted as adviser to the European Channel Tunnel Group which initiated the present “Chunnel” in 1981. Another Europe-inspired project was the £20 million New Court European Investment Trust set up in 1972—at the time the European Communities Bill was going through parliament—in the hope of attracting British investors to continental securities. Most far-sighted of all was the Rothschild plan for a new currency called the “eurco” (“European Composite Unit”), based on the values of nine major European currencies. This forerunner of the later ecu and euro was primarily a practical response to the problem of sterling’s depreciation relative to the deutschmark: the idea was to offer investors fifteen-year bonds with a face value of 30 million Eurcos (around £15 million) and an 8.5 per cent coupon. This experiment was a success: when bonds worth 20 million Eurcos were issued for Metropolitan Estates and Property, they were heavily oversubscribed. In the light of subsequent debates it is ironic that the Daily Telegraph welcomed the idea as “an encouraging grassroots move towards monetary union.”
The logical way of advancing Britain’s financial integration with the continent was to establish some kind of cross-Channel institutional link. In 1966, for example, N. M. Rothschild and the National Provincial Bank joined forces to create a new European bank with £1 million capital, and something similar was attempted two years later with the Manufacturers Hanover Trust Co. and the Riunione Adriat ica di Sicurtà. However, the obvious strategy was to rebuild the old cross-Channel links between the British and French Rothschilds. The question was whether the two halves of this old partnership were any longer compatible.
The French Rothschilds’ post-war experience had been very different from that of their English relatives. The older partners had not long survived the end of the war: Robert died at the end of 1946, Edouard three years later. Despite the upheavals of the years after 1940, the new triumvirate—Guy and his cousins Alain and Elie—found themselves the heirs of a substantial portfolio. In June 1946 de Rothschild Frères’ assets were revalued (to take account of franc’s depreciation) at 250 million francs (around £1 million); but that figure did not include the family’s stake in the Compagnie du Nord and their investments in multinational companies like Rio Tinto, Peñarroya and Le Nickel. When new legislation allowed Guy and his partners to pool all their assets in a single investment fund, the Société d‘Investissement du Nord (1953), the total capital came to 4 billion francs (around £4 million). The range of their financial interests was enormous—by 1964 the Compagnie du Nord had stakes in 116 different enterprises ranging from cold storage to construction—but as in the past, mining and minerals remained in the forefront. Although there were setbacks associated with decolonisation in Mauritania and Algeria, Guy’s ambitious strategy in this field bore fruit in the late 1960s as Le Nickel absorbed Peñarroya and various other mining companies. When the aluminium company Henry Kaiser pulled out of a planned expansion of Le Nickel, Guy sold half the company to a government corporation and created a new umbrella for Rothschild mineral interests, IMETAL. It was not long before this too was expanding, acquiring (after a struggle) two-thirds of the Pittsburgh-based Copperweld, and a stake in the British Lead Industries Group.
Guy’s other main objective in this period was to compete with the French joint-stock banks which had been outstripping de Rothschild Frères since the First World War by attracting deposits, increasing shareholder equity and developing branch networks. Although the Paris house had increased its deposits by a factor of seven in the first two decades after the war, its balance sheet totalled just 421.5 million (new) francs (£31 million) when it was published for the first time in 1965, compared with a figure of 20 billion francs for the Credit Lyonnais. Narrowing that gap became possible with the ending of the legal distinction between banques d‘affaires and deposit banks in 1967. After exactly 150 years, de Rothschild Frères became Banque Rothschild, a limited-liability company with capital of around £3.5 million and a new modern office in place of the historic building in the rue Laffitte. The aim, as Guy put it, was to “collect more and more liquidities from the broadest possible clientele in the widest possible area.” Formally, the new structure implied a dilution of family control: the three partners held only 30 per cent of the shares, while the Compagnie du Nord (which itself had around 20,000 shareholders) now owned the rest. But as long as the Rothschilds dominated the Nord, this “democratisation” was only notional. In 1973 Elie modestly assured an interviewer: “You can’t compare the power of the Rothschild bank of 1850 with that of 1972. At that time ... we were the first. Today, we’re not so stupid as to think we’re something other than what we really are, the fifteenth.” But this was still something of an understatement, given the size of the Compagnie du Nord, which had effectively become the parent of the bank: between 1966 and 1968, its capital increased rapidly from 52.8 million to 335 million francs (around £25 million). Banque Rothschild drew additional strength from its links to James Goldsmith (who joined its board), acquiring 72 per cent of his Discount Bank for £5 million and going on to acquire three other banks to bring its total number of branches to twenty-one, employing around 2,000 people. When Banque Rothschild absorbed the Compagnie du Nord completely in 1978, its assets totalled 13 billion francs (around £1.3 billion).
The French Rothschilds would have been still bigger had it not been for the persistence of the split which had excluded Maurice from the Paris house in the 1930s. The supposed black sheep had made good in New York during the war, speculating on commodities so successfully—and inheriting so fortunately—that he was probably the richest of all the Rothschilds by the time of his death in 1957. Although his son Edmond had served a financial apprenticeship at de Rothschild Frères, working for the Transocéan company, he soon chose to set up his own venture capital company, Compagnie Financière, backing (inter alia) the immensely successful Club Méditerranée holiday company.
Nor was the Rothschild revival in France purely financial. Although (as in England) some of the family’s numerous houses had to be sold or given to the state after the war,4 Guy and his cousins did not take long to resume the traditional Rothschild role at the summit of Parisian “society.” Guy and his second wife in particular began to appear as often in the gossip or racing
columns as in the financial pages: it was she who urged him to reopen Ferrières and to throw lavish fancy-dress parties like the Proust Ball (1971) and the Surrealist Ball (1972). The other French branch of the family was meanwhile devoting most of its attention to the vineyards at Mouton, which Philippe inherited when his father Henri died in 1947, along with the neighbouring château d‘Armailhac (acquired in 1933). The older Lafite vineyards remained the joint property of James’s male descendants, though they were mainly managed by Elie and later Alain’s son Eric. (The protracted battle between the Mouton and Lafite branches of the family over the classification of the former’s produce attracted almost as much publicity as the parties at Ferrières.)
There was also a political dimension to the French Rothschilds’ high profile. The recruitment of the former civil servant Georges Pompidou to run the ailing Transocéan subsidiary in 1954 was unremarkable at the time: as Deputy Commissioner of Tourism, Pompidou was no more than a minor civil servant. However, Pompidou combined his ascent to the post of general manager with careful cultivation of General de Gaulle, then in his self imposed political retreat. When the political crisis over Algeria brought de Gaulle back to power as President of a newly constituted Fifth Republic, Pompidou left Banque Rothschild to run de Gaulle’s staff office for six months before returning to the bank after the constitution had been revised. He went back into politics as de Gaulle’s second Prime Minister between 1962 and 1968. Though probably of limited significance, Pompidou’s past links with the rue Laffitte did much to sustain the myth of Rothschild power on both the left and the right. The irony is that his period as President—following de Gaulle’s departure in 1969—coincided with a deepening crisis at Banque Rothschild.
The House of Rothschild Page 85
