The House of Rothschild

by Ferguson, Niall

  Yet the undoubted success of privatisation as a policy has done much to deflect criticism of these appointments. Not only has the Labour party entirely abandoned the idea of renationalising privatised industries; scores of foreign governments have also hastened to follow the British example. In doing so, many have turned to N. M. Rothschild as the leading expert in the field. In 1988 alone, the bank handled eleven privatisations in eight different countries. In 1996-7 it advised the Brazilian government on the sale of its stake in the Companhia Vale do Rio Doce iron ore mines, Zambia on the privatisation of its copper industry and Germany on the £6 billion flotation of Deutsche Telekom (an operation since repeated for its Australian equivalent Telstra). Viewed as a whole, this immense transfer of assets from the public to the private sector has been one of the most important developments of the late-twentieth-century world economy, comparable with the creation of a truly international market for government debt in the nineteenth century, which distributed government liabilities in a similar way. N. M. Rothschild’s contribution to the privatisation revolution is strongly reminiscent of its earlier role as the leading architect of the modern bond market.

  Nevertheless, advising governments about privatisation has only been a part of the bank’s corporate finance business since 1979. Probably of greater overall importance to the firm’s profits has been its continued success within the private sector. In 1996 N. M. Rothschild was—for the second year running-ranked fifth in the Acquisitions Monthly league table of mergers and acquisitions advisers, handling twenty-four deals with a value of more than £9 billion. This was not far behind the market leader, Barings. Seven years before, it had ranked eleventh.

  As in the 1960s and 1970s, the 1980s saw the growth of new offshoots of N. M. Rothschild. Of these, one of the most important was Rothschild Asset Management, which came to act as the umbrella for the bank’s various offshore investment funds. By 1987 the Rothschild group as a whole could claim to have funds totalling over £10.3 billion under its management, of which around £4.3 billion were handled by RAM. It was unfortunate for Victor’s younger son Amschel that his appointment as chief executive in January 1990 coincided with the onset of an international economic recession, for this weakened RAM’s performance. When the profits of the parent bank and RAM were added together, the gap between N. M. Rothschild and its rivals seemed to be widening fast. On the other hand, Smith New Court recovered from the 1987 stock market crash to see profits hit record levels in the early 1990s. When it was decided to sell the Rothschild stake in Smith New Court to Merrill Lynch in 1995, it fetched £135 million, compared with £10 million which had been paid for it less than a decade before. (The business of securities marketing which it performed is now conducted jointly by N. M. Rothschild with the Dutch bank ABN AMRO.) Mention should also be made of Biotechnology Investments, a specialist venture capital fund set up under Victor Rothschild’s direction in the early 1980s. Another initiative of which he would have approved was the bank’s membership of a consortium led by Tattersall’s which bid—unsuccessfully—to run the new National Lottery in 1992. As chairman of the 1978 Royal Commission on Gambling, he had recommended the creation of just such a lottery.

  The last development of the 1980s was the transformation of New Court Securities—the Anglo-French Rothschild affiliate in New York—into Rothschild Incorporated, which rapidly built up a formidable list of corporate clients under the direction of its chief executive Bob Pirie and his successor Hank Tuten.8 In the early 1990s Rothschild Inc. has managed to make almost as much money, if not more, acting for the creditors of recession victims like Olympia & York and the “junk bond” specialist Drexel Burnham Lambert.

  By the end of the 1980s, after a decade of sustained growth under Evelyn’s chairmanship, N. M. Rothschild & Sons had done much to disprove the Cassandras who had predicted that it had no future in the modern financial world. With share capital of £152 million, a balance sheet valued at £4.4 billion, dividends totalling £12 million and net profits of £5 million, the bank was no giant. But with 600 employees, 39 executive and 26 non-executive directors, it did not pretend to be. Moreover, the question remains open whether it was in fact necessary to become a “giant” to survive the 1980s. The experience of Jacob Rothschild after his break with New Court suggests that it may not have been.

  To begin with, Jacob appeared intent on achieving his vision of a new kind of financial conglomerate. In 1981 RIT merged with Great Northern Investment to form RIT & Northern. In the space of three years he acquired 9.6 per cent of the new breakfast television company TV-am, 50 per cent of the (unrelated) New York merchant bank L. F. Rothschild, Unterberg, Towbin and 29.9 per cent of the City broker Kitcat & Aitken, and merged with the Charterhouse Group to form Charterhouse J. Rothschild, with a market capitalisation of £400 million—more than double the size of N. M. Rothschild. In a speech in 1983—three years after he had left New Court—he predicted that, as international financial deregulation continued, “the two broad types of giant institutions, the worldwide financial service company and the international commercial bank with a global trading competence, may themselves converge to form the ultimate, all-powerful, many-headed financial conglomerate.” His own empire was beginning to approximate to that description.

  Yet almost as quickly it unravelled. The turning point came in April 1984, when Jacob unveiled plans for yet another merger—with Mark Weinberg’s insurance company Hambro Life. In the face of City criticism of its complexity, the deal was abandoned, causing a slump in Charterhouse J. Rothschild shares. Within a matter of months, Jacob sold off his stakes in Charterhouse and Kitkat & Aitken. In 1987 it was the turn of L. F. Rothschild to go (it subsequently filed for bankruptcy); and a year later he separated RIT Capital Partners as an investment manager from the core company J. Rothschild Holdings. This process of “down-sizing” continued in 1990 with the division of JRH into two separate companies: the unit trust Bishopsgate Growth and St James’s Place Capital. Plainly, this meteoric performance had much to do with the economic cycle, and particularly the 1987 stock market crash (though Jacob and his shareholders realised a substantial profit on his various acquisitions). But it also reflected specific setbacks like the failure of the £13 billion bid he made in 1989 (along with James Goldsmith and Kerry Packer) for the tobacco giant BAT, which sharply reduced pre-tax profits. Although there have been new ventures since, Jacob (who succeeded his father as the 4th Lord Rothschild in 1990) has increasingly redirected his energies towards public work—notably as Chairman of the National Heritage Memorial Fund between 1992 and 1998.

  An even more marked contrast is with the experience of the French Rothschilds in the 1980s; the moral—that size is not always an advantage—is similar. With Guy’s retirement as chairman of the bank and of IMETAL in 1979 and Alain’s departure from his last business post (as chairman of Discount Bank) the following year, a new generation was coming to the fore under Elie’s chairmanship, in particular Guy’s son David, who had begun his business career at Peñarroya in 1968 and, as chairman of the Compagnie du Nord, had presided over its merger with Banque Rothschild. But this change at the top came at a time of mounting crisis. Profits at Banque Rothschild had slumped from 20 million francs in 1976 to 8.5 million in 1977 and the following three years were not much better: profits for 1980 were 18.3 million (£1.9 million). For a firm of the size of N. M. Rothschild, these figures might have been respectable. For Banque Rothschild—the tenth largest deposit bank in France with deposits of some 3.4 billion francs (£346 million)—they were more than disappointing.9 The combination of size and weakness proved fatal when, in May 1981, the socialist François Mitterrand defeated Giscard d‘Estaing in the French presidential election—a victory repeated the following month when his party won an overall majority in the National Assembly.

  Since their 1973 pact with the Communists, the socialists had been committed to nationalising “the totality of the bank and financial community, particularly merchant banking and financial hol
ding companies,” a policy which, according to opinion polls, only 29 per cent of the electorate opposed. Now Mitterrand was in a position to fulfil that commitment; indeed, with four communist ministers in his government, he was bound to. Frantically and belatedly the Rothschilds attempted to demerge their industrial and banking interests, but the government vetoed this move and proceeded to take all banks with deposits above 1 billion francs into public ownership. Thirty-nine banks, including Banque Rothschild, were caught in the net. The bank founded by James de Rothschild thus became the state-owned Compagnie Européenne de Banque. To be sure, this was not Nazi-style expropriation. Compensation was paid in relation to share values at the end of 1980 and dividends distributed, adjusted for inflation: in the case of Banque Rothschild the sum due amounted to just 450 million francs (£41 million), of which the family received a third, in proportion to its share of the bank’s equity. Indeed, some observers saw nationalisation as a blessing in disguise for an ailing firm. But Guy in particular was bitter about this second political assault in just over forty years: “A Jew under Pétain, a pariah under Mitterrand,” he wrote in an angry article which appeared on the front page of Le Monde, “for me that’s enough.”

  The twist in the tale was that Henri Emmanuelli, one of the ministers in the government responsible for nationalising the Banque Rothschild, was a director of the Paris branch of Edmond’s Swiss-based Compagnie Financière, run jointly with his son Benjamin. Whether Edmond felt any Schadenfreude at the fate of the bank which his father had left on such bad terms is uncertain. What is beyond dispute is that, of all the Rothschilds, he was the most financially successful in the 1980s. In 1992 his Compagnie Financière had assets of around £1.1 billion, while his Banque Privée had an estimated £10.8 billion under management in 1995.

  Had the various Rothschild banking concerns lost all contact with one another, it would have been difficult for the Paris Rothschilds to recover from the blow of nationalisation. Yet within three years of the destruction of Banque Rothschild, a new Paris house had been established. The parent company of the new Paris house was a holding company called Paris-Orléans Géstion which had been set up by David and Eric outside the structure of Banque Rothschild prior to nationalisation. Along with David’s half-brother Edouard, the two cousins now decided to establish a small fund management company as a subsidiary of Paris-Orléans (which also owns the wine business, Domaines Barons de Rothschild). It took three years to persuade the reluctant Finance Minister Jacques Delors to grant a banking licence, and even then the government had the gall to prohibit the use of the family name, so that the new venture had to be launched in July 1984 as “PO Banque.” The ownership of the firm revealed the extent to which this was a genuinely multinational Rothschild entity: Rothschilds Continuation Holdings (see below) put up 12.5 per cent of the capital, Edmond’s Compagnie Financière 10 per cent and Rothschild Bank AG (Zurich) 7.5 per cent. The use of the five arrows symbol and the phrase “Groupe Rothschild” on the firm’s stationery underlined the point. It was a success: in its first two years, its share value trebled and by 1986 it was managing some £273 million of its clients’ funds, with capital of more than £4 million.

  The electoral defeat of the French socialists and the advent of “cohabitation,” with the Gaullist Jacques Chirac as Prime Minister in March 1986 under an increasingly conservative Mitterrand, allowed a full-scale revanche. Following the British example, the new French bank involved itself in privatisation, advising the government on the flotation of Paribas and, in October 1986, reclaiming the family name by becoming Rothschild & Associés Banque (later reverting to the old partnership structure as Rothschild & Cie Banque). Since then the new Paris house has become increasingly involved in French corporate finance. With capital of 150 million francs (£19 million) and around 15 billion francs (£1.9 billion) under management it is also one of the five leading corporate finance banks in France: a “boutique” in City terms, but a dynamic one.

  This second renaissance in Paris was only part of a broader effort instigated by Evelyn to recreate something like the system of international partnership which had been the Rothschilds’ greatest strength in the nineteenth century—in his words, to “get back together as a family.” The creation of Rothschilds Continuation Holdings AG as the Swiss-based parent company for an expanding “Rothschild merchant banking group” was in this sense pregnant with historical significance. For the first time since before the First World War, formal steps were being taken to unite the disparate family interests which three-quarters of a century of political instability had fragmented. Here, it might be said, lay the key to Evelyn’s strategy: his belief that the Rothschilds could combine the traditional virtues of the family firm with a genuinely global reach by constructing a modern version of the old Rothschild system: at the centre, a closely knit group of family-controlled companies, with an expanding network of agencies and associates with varying degrees of autonomy.

  The structure of the group at the time of writing can be simplified as follows. At the top of the “pyramid” is Rothschilds Continuation Holdings AG, a Zurich-based holding company, the principal investments of which are the following nineteen firms, here grouped geographically:• N. M. Rothschild & Sons Ltd, Rothschilds Continuation Ltd, N. M. Rothschild Corporate Finance Ltd and Rothschild Asset Management Ltd (UK)

  • N. M. Rothschild & Sons (CI) Ltd and Rothschild Asset Management (CI) Ltd (Channel Islands)

  • Rothschild & Cie Banque and Rothschild & Cie (France)

  • Rothschild Bank AG (Switzerland)

  • Rothschild Europe BV and Rothschild Asset Management International Holdings BV (Netherlands)

  • Rothschild North America Inc. and Rothschild Asset Management Inc. (US)

  • N. M. Rothschild & Sons (Australia) Ltd, N. M. Rothschild Australia Holdings Pty Ltd and Rothschild Australia Asset Management Ltd

  • N. M. Rothschild & Sons (Hong Kong) Ltd and Rothschild Asset Management (Hong Kong) Ltd

  • N. M. Rothschild & Sons (Singapore) Ltd

  The N. M. Rothschild group is thus a multinational entity (more than 50 per cent of its assets are now held outside the UK) with a wide geographical reach—again reminiscent of the system of houses which had been developed by Mayer Amschel’s sons after 1815. But it is also controlled by the family through another Swiss company—Rothschild Concordia AG—which has a majority (52.4 per cent) stake in Rothschilds Continuation Holdings AG. Closely linked to this structure is the Paris-Orléans holding company which controls 37 per cent of Rothschild & Cie Banque in Paris, around 40 per cent of Rothschild North America, 22 per cent of Rothschild Canada and 40 per cent of Rothschild Europe. The financial involvement of the Compagnie Financière is smaller; but the appointment of Edmond’s son Benjamin to the boards of Rothschilds Continuation Holdings AG and Rothschild Bank AG suggests that this may increase.

  In addition to the companies listed above, there are also smaller subsidiaries reminiscent of the old agencies of the nineteenth century Another historically charged move was the announcement in May 1989 that the London and Paris Rothschilds would be opening a subsidiary in Frankfurt: Rothschild GmbH. Two months later came the launch of Rothschild Italia SpA. By September 1990 similar operations were in place in Spain (Rothschild España SA) and Portugal. Nor is this network confined to Europe. In 1997 there were offices in Argentina, Bermuda, Brazil, Canada, Chile, Colombia, Czech Republic, Indonesia, Isle of Man, Japan, Luxembourg, Malaysia, Malta, Mexico, New Zealand, Poland, Russia, South Africa and Zimbabwe.

  It goes without saying that there are important differences between the structure of the present group of Rothschild houses and the system operated by the five Rothschild houses at their zenith in the mid-nineteenth century. But in many respects the resemblances are close. The subsidiaries in Europe, the Americas and Asia perform functions similar to those performed by the Rothschild agents a century and a half ago, often in the same places. Perhaps most important—and in contrast to most large financi
al institutions—both ownership and leadership of the group are shared between the key family members. In the nineteenth century, the five brothers and later their sons bound themselves and their houses together with occasional partnership contracts. Today six members of the family have between them a total of thirty-seven board seats (including chairmanships and vice-chairmanships) on fifteen of the principal component companies of the N. M. Rothschild group. In the nineteenth century, the family partners were only notionally equals: in terms of capital shares and even more in terms of leadership there tended to be a dominant partner. The same is true today, with Evelyn the key figure as chairman of Rothschild Concordia AG, Rothschilds Continuation Holdings AG, Rothschild Bank AG, N. M. Rothschild & Sons Ltd and Rothschilds Continuation Ltd, as well as being a director of a number of other companies in the group. And, as in the past, the question of the succession is of crucial importance as Evelyn approaches retirement. A marker in this respect was the appointment of David as deputy chairman of N. M. Rothschild & Sons in January 1992. At a time when other old City families were losing control of the firms they had established, the Rothschilds were reasserting their dominance. Five months later, Evelyn made the line of succession explicit when he told Le Monde: “If something happens to me, there is David. If something happens to him, there is Amschel. Working as a family has always been our trademark.” The death of Amschel in July 1996—following a meeting to discuss merging the Rothschilds’ international asset management operations—was a tragic blow; but it still seems reasonable to assume that, when Evelyn decides to retire, David will succeed him in the key positions. David now travels regularly to London—a journey which can now be done a great deal more easily and swiftly than in the days when James had to undertake it.