The first important strength of the family is unity.
SIR EVELYN DE ROTHSCHILD, 1996
The visitor to New Court today enters a black and white marble building in the modern style. The entrance hall, however, is dominated by William Armfield Hobday’s 1820 portrait of Nathan Rothschild and his family. That portrait would not hang there if the firm of N. M. Rothschild & Sons were not conscious of—proud of—its history. Nor would this book have been written. It is worth asking, however, what exactly the relevance of a bank’s past is to its present and future. For most of the nineteenth century, N. M. Rothschild was part of the biggest bank in the world which dominated the international bond market. For a contemporary equivalent, one has to imagine a merger between Merrill Lynch, Morgan Stanley, J. P. Morgan and probably Goldman Sachs too—as well, perhaps, as the International Monetary Fund, given the nineteenth-century Rothschilds’ role in stabilising the finances of numerous governments. Today, by contrast, the bank occupies a relatively small niche in the international financial services business, dwarfed by such products of corporate hypertrophy as HSBC, Lloyds-TSB and the projected banking Behemoth Citigroup. Is looking back, then, anything more than an exercise in nostalgia? That is the question this epilogue seeks to answer. It should not be read as a history of the bank since 1945, but as an essay on the role history has performed in ensuring its post-war survival and its present success.a
The history of N. M. Rothschild & Sons might have ended in the 1940s. That it did not owed much to Anthony de Rothschild. After his brilliant youth at Harrow and Cambridge, and his distinguished record in the Great War, he had dedicated himself to conserving his heritage as a Rothschild. Like so many of his ancestors, he was a keen collector, with a particular enthusiasm for Chinese ceramics, and a devotee of first growth clarets.1 He had been elected to the Jockey Club in 1925 and kept up his father’s stable of horses and house at Newmarket. He had married (in 1926) Yvonne Cahen d‘Anvers, whose family had been associated with de Rothschild Frères since the 1850s (he had even met her at his relative the Marquess of Crewe’s residence when the latter was ambassador in Paris). His role in the Jewish community also echoed that of previous generations: like his uncle Natty, he was chairman of the Four Per Cent Industrial Dwellings Company; like his father and his great-uncle Anthony before him, he was president of the Jews’ Free School. Yet the greatest challenge Anthony faced was in preserving his family’s most fundamental role: as bankers.
To this task he brought a certain austere diligence. Every day, he commuted by train from Leighton Buzzard (the nearest station to his house at Ascott) to Euston and on to New Court. After lunch in the partners’ dining room, Harold Nicolson described being “hurried out” at 2.30 p.m., “as then the work begins again and the great wheels of the Maison Rothschild revolve.” In truth, however, the war had substantially reduced the size of N. M. Rothschild’s “wheels”—and Anthony’s approach to business was not calculated to make them revolve at great speed. “They know where we live,” Ronald Palin remembered him as saying. “If they want to do business with us let them come and talk to us.” As a watchword for the post-war world, this was perhaps too fatalistic. Edmund found life at New Court distinctly sedate when he returned from the war: the partners arrived at the Room between 10 and 10.30 a.m. and spent the morning perusing the incoming mail “to see if there was anything likely to result in some business”:
It was our practice in those days for all letters, cheques, bonds, bills of exchange and other such papers to be signed by a partner ... In consequence, there was always a mass of documents waiting to be signed ... if ever, before putting my signature to a document, I ventured to say to Tony ... “I’m afraid I don’t quite understand this,” his reply was invariably the same: “No. You wouldn’t.”
Apart from a short and unhappy New York apprenticeship at Guaranty Trust and Kuhn, Loeb & Co. (where he “was made to feel very much the poor relation”), Edmund received little financial training before he became a partner. His younger brother Leopold, who became a partner in 1956, also did a tour of duty at Kuhn, Loeb, as well as at Morgan Stanley and Glyn, Mills; but Anthony had advised him not to read economics at Cambridge precisely because he was expected to become a partner. Nor was the former Lloyd’s treasurer David Colville—who now came to New Court as a kind of de facto partner—strictly speaking new blood: his step-grandmother was the Marchioness of Crewe, daughter of Hannah Rosebery. Much of the day-to-day running of the business was left to Hugh Davies, who had succeeded Samuel Stephany as general manager, and his assistant Michael Bucks—both men who had worked their way up through the clerical ranks at N. M. Rothschild.
Not that these things made the firm unique in the clubbish, not to say somnolent, City of those days. Part of the problem, of course, was that post-war Britain retained many of the economic controls of wartime, not least restrictions on what had always been the basis of Rothschild business: capital export. Under the Bretton Woods system, there was little scope for traditional international bond issues. This was, moreover, the zenith of British socialism, and although the Attlee governments owed a good deal more to Liberals like Beveridge and Keynes than to Marx, they were scarcely friendly towards the City. Consider the following views of one Labour party supporter, interviewed in January 1948:
I do not believe that people should be allowed to have a lot of money unless they have earned it; being the son of a rich man is not a good enough reason ... We have come to associate Conservative rule with the following conditions: unemployment, under-nourishment, unpreparedness, unpopularity abroad, unequal ... education and opportunities, undeveloped resources and lack of opposition to Fascism ... The only time when some of these wrongs were put right was during the war when conditions and the Labour members of the Cabinet forced the State Control of basic industries and commodities on the Government ... The war showed up the stupidity of the old Tory idea that people will only work for private gain and therefore that private enterprise is more efficient than state enterprise ... The old days of unrestrained private enterprise for private profit are, I hope, gone forever ... Having a lot of money does not automatically mean that one is happy ... The fact that under a Socialist Government the rich will not have so much money and advantages which they have not earned may be inconvenient to the rich; but this is unimportant, and I think that you will find that many rich people ... will not be unduly worried about this prospect.
The fact that these were the words not of Aneurin Bevan but of the 3rd Lord Rothschild may help to explain why he kept his distance from New Court throughout the 1940s and 1950s. When he finally left academic life for the private sector in 1959, it was to direct scientific research at Royal Dutch Shell (admittedly a firm with which the Rothschilds had historic links).
A restructuring of the old partnership had been in preparation since 1941, when Rothschilds Continuation Ltd had been created to act as a legal successor in the event of one of the two remaining partners being killed in the war: the new company became a partner in its own right. In 1947 N. M. Rothschild took a further step away from its original form with the creation of £1 million of voteless preference shares and £500,000 of ordinary voting shares. In retaining 60 per cent of the ordinary shares, Anthony ensured that he was the dominant partner; after him in the hierarchy came Edmund and Victor, who were each allocated 20 per cent (though Victor received a larger proportion of the voteless preference shares). It was a shift in the balance of power within the family which would have profound consequences in the next generation.
The point to emphasise, however, is the firm’s contraction in terms of capital. On the eve of the First World War, the capital of the London house had been close to £8 million. A reduction to £1.5 million—especially allowing for the pound’s forty per cent loss of purchasing power in the intervening period—signalled a dramatic decline, due in large part to business setbacks and unprecedented taxation. When Lionel died, he left an overdraft of £500,000, but his children also had to pay death duties totalling £200,000.
Anthony’s strategy was to rebuild the firm’s traditional overseas business. This was not easily done, given the fact that the direction of post-war capital flows was mainly from the United States to Europe. True, Edouard and Robert had by now set up Amsterdam Overseas (in conjunction with Peter Fleck of the Dutch company Pierson, Heldring & Pierson) to act as a New York base for Rothschild operations; but this does not seem to have generated much business for New Court. Initially, a great deal of labour went into untangling the various pre-war debts on which countries like Chile and Hungary had defaulted. New issues—like the 1951 offering of £5 million of 3.5 per cent stock for the International Bank for Reconstruction and Development (usually known as the World Bank)—were rare, and had to be shared with other City houses. The old Rothschild predominance in the South African gold market had already been reasserted three years previously when the international gold market reopened: once again, the world gold price was formally set in New Court’s “fixing room.” However, with the international gold pool aiming to hold the price of gold at $35 per ounce, this had lost much of its importance. Under these circumstances, the firm had to concentrate on documentary credit and acceptance business. This was far from unprofitable, but it had previously been the bank’s second or third string.
The most ambitious—and at the same time the most traditional—project of the post-war years was in Canada, more or less unknown territory for the Rothschilds. Joseph Smallwood’s scheme to develop the resource-rich province of Newfoundland (of which he was premier) was probably the most important financial opportunity generated by the bank’s continuing links with Winston Churchill2—links strengthened by the fact that his private secretary was David Colville’s brother Jock. Churchill had returned to Downing Street in October 1951 and was immediately attracted by Smallwood’s scheme, which he hailed as “a grand imperial concept but not imperialistic.” In that sense, the British Newfoundland Corporation Ltd (“Brinco”) was something of an echo of past glories, a reminder of the role N. M. Rothschild had played in the heyday of the British Empire. Indeed, Lord Leathers, Churchill’s Minister for Co-ordination of Transport, Fuel and Power, went so far as to ask: “You did Suez, so why can’t you do Newfoundland?” Yet despite this Anthony was hesitant—so much so that the members of the consortium very nearly turned to German banks instead. It was largely owing to the efforts of Edmund that N. M. Rothschild remained on board, and even then it was felt necessary to bring in other City firms, including Schröders, Hambros and Morgan Grenfell. The final agreement reached in March 1953 leased 60,000 square miles of land to the Brinco consortium for twenty years and, after surveys had effectively ruled out the exploitation of the region’s mineral and timber resources, it was decided to construct a hydroelectric plant at Hamilton Falls. It was characteristic of the late-nineteenth-century flavour of the enterprise that, when the consortium privately distributed two million Brinco shares, Churchill himself bought 10,000.
In the years which followed, however, it proved impossible to sustain the “imperial” tie, partly because the Bank of England was obliged to restrict overseas investment to counter the perennial post-war weakness of sterling, but also because the Canadian government wished to diminish the “foreign” control of Brinco. The Rothschilds were not consulted about the first public issue of “Churchill Falls” shares and, although they nevertheless agreed to take up to $7 million of the shares issued, they were discouraged from doing so by the Canadian banks. The obstruc tiveness of the Quebec government was especially damaging, as it controlled the overland cable route to New York, potentially the plant’s biggest customer. Although N. M. Rothschild participated in a subsequent issue of debentures for the Commonwealth Development Finance Co. in 1963 and a major loan to Newfoundland eight years later, the project never really extricated itself from this political tangle.3 The Churchillian strategy proved a wrong turning in the era of decolonisation.
By the later 1950s, however, there were signs of a change of direction at New Court. In 1955 Anthony suffered a stroke which incapacitated him and forced him to retire; he died six years later. The partnership had meanwhile been doubly reinforced. After Cambridge, the navy and spells at Rio Tinto in New York and the Toronto arbitrage firm R. D. Smith & Co., his son Evelyn joined the bank in 1957; while Victor’s elder son Jacob joined the firm six years later, after Oxford and stints with the accountants Cooper Brothers, Morgan Stanley and the investment partnership of Herman Robinow and Clifford Barclay. “We’ve been through difficult times because of the war,” Leopold recalled Anthony saying. “It’s up to you young people to go out and look for new business.”
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.
Despite the structural differences between Banque Rothschild and N. M. Rothschild, the process of restoring the links between the Paris and London Rothschilds began as early as 1962, when the French house invested £600,000 in a new company chaired by Guy and obviously intended to promote Rothschild reunion: Rothschilds Second Continuation. There followed a succession of joint ventures. The Paris house took a 60 per cent stake in Five Arrows, a holding company set up to manage the English Rothschilds’ mining interests in Canada. The London house then joined Warburgs and two other firms as members of the French Rothschilds’ property syndicate Cogifon. The following year both houses collaborated in setting up the European Property Company and in 1968 Guy de Rothschild became a partner at N. M. Rothschild, while Evelyn was appointed a director of Banque Rothschild. An important development in this context was the transformation of the New York affiliate Amsterdam Overseas into New Court Securities, the shareholders of which included not only Banque Rothschild but also Edmond’s Geneva-based Banque Privée. When the National Provincial scaled down its involvement in 1969 (following its absorption into the National Westminster Bank), a much larger entity was created along similar lines: Rothschild Intercontinental Bank (RIB), which brought together not only the London house (with a 28 per cent share) and the Paris Banque Rothschild (with 6.5 per cent), but also Edmond’s Banque Privée (2.5 per cent), as well as Pierson, Heldring & Pierson and two continental firms with historical links to the Rothschilds: Banque Lambert of Brussels and Sal. Oppenheim jnr of Cologne.
RIB was conceived as part of a wider global strategy. In 1971 it was brought in to float a $100 million loan to Mexico. Efforts were also made to revive Rothschild connections in Asia. In 1970, for example, N. M. Rothschild set up Tokyo Capital Holdings with Merrill Lynch and Nomura and floated loans for the Philippines and South Korea. In 1975, however, RIB was sold to the American financial giant Amex International (for £13 million). The global strategy appeared to falter.
One possible explanation for this lies in the changed economic circumstances of the early 1970s, which were characterised by inflationary problems in Western economies, exacerbated by the Organisation of Petroleum Exporting Countries’ decision to quadruple oil prices in November 1973. The oil crisis had its advantages for bankers in that the oil exporters deposited a large proportion of their vastly increased incomes with Western banks, which were then able to “recycle” the money by lending on to the struggling oil importers. However, the Rothschilds were at something of a disadvantage in this business. In 1963, the Arab League—which included a number of key OPEC members—had formally blacklisted all Rothschild banks because of the family’s links with the state of Israel. This ban was repeated in 1975. The identification of the Rothschilds with Israel meant that they could not play a prominent role in recycling Arab “petrodollars” (though it was possible for them to be indirectly involved).
In many ways, the Arab League blacklist reflects the persistence of the Rothschild myth. In fact—as in the past—Zionist sentiment was not uniformly strong in all branches of the family. Jimmy never ceased to hope for reconciliation between Britain and the Israeli politicians who had overthrown the Palestinian mandate (proposing that Israel be admitted to the Commonwealth in 1955) and left £6 million in his will to finance a new building for the Israeli parliament and the Weizmann Scientific Institute in Tel Aviv, while his widow Dorothy set up the Yad Hanadiv educational foundation, which Jacob and others continue to support. One Rothschild—Guy’s sister Bethsabée—actually settled in Israel. Like that of his grandfather and namesake, Edmond’s commitment to the new state was especially strong. He visited Israel in 1958 to discuss the financing of an oil pipeline from the Red Sea and even flew to Jerusalem during the 1967 Six Day War to make public his support of the Israeli government. By comparison, the London Rothschilds were more discreet, though they were reported to have donated to the Jewish Palestine Appeal in 1967.
On the other hand, a growing number of Rothschilds—including for the first time male members of the family—were now marrying out of the faith. Guy’s first wife had been in the Rothschild tradition: Alix Schey von Koromla was a Goldschmidt-Rothschild on her mother’s side (so his third cousin once removed) and both were active in the French Jewish community before the war. In 1957, however, he divorced, remarrying Marie-Hélène van Zuylen de Nyevelt—a slightly less distant cousin (her grandmother Hélène had been the daughter of James’s son Salomon), but a Catholic. He resigned the presidency of the Jewish Consistory soon after, though he remained president of the Fonds Social Juif Unifié until 1982. Other members of the family in France and England subsequently followed his example in marrying non-Jews, though when Edmond married a Catholic (Nadine Lhôpitalier) she converted to Judaism, as did Maria-Béatrice Caracciolo di Forino when she married Eric in 1983. When Guy’s son David also married a Catholic, Olimpia Aldobrandini, they compromised: their son Alexandre has been brought up as a Jew, but not their three daughters. He himself sees no contradiction between marrying out of the faith and devoting a substantial proportion of his time to Jewish institutions like the Joint Campaign for France and Israel and the French Foundation for Judaism. But in this respect at least the power of familial tradition was undoubtedly on the wane.
The N M. Rothschild Group
By the end of the 1970s, N. M. Rothschild and Banque Rothschild were approaching very different crossroads. In Britain the election of Margaret Thatcher’s government, with its strong commitment to market deregulation, heralded profound changes in the City of London, notably the abolition of exchange controls in 1979 and the ending of restrictive practices on the stock exchange in 1986 (the so-called “Big Bang”). The question was how best to respond to these changes. To Jacob, the success of Rothschild offshoots like RIT and RIB appeared to point towards an altogether new kind of bank, bearing little resemblance to the firm founded by Nathan. In his eyes, traditional London merchant banks were now too small to hold their own. On the one hand, he later argued, there were giants like Amex which made even the biggest UK clearing banks seem small. On the other were the City merchant banks: Kleinwort Benson (with market capitalisation of £235 million), Hill Samuel, Hambros and Schröders. He might have added—near the bottom of his list—N. M. Rothschild & Sons Limited. For when Jacob sold his shares in the bank for £6.6 million, that implied a total valuation of just £60 million. (The annual report suggested an even smaller figure of £40 million.) By this time, RIT had effectively outgrown its parent: it was valued at around £80 million.
Ever since the mid-1970s, Jacob had wanted to merge N. M. Rothschild with another, younger merchant bank: S. G. Warburg (the founder of which had served part of his banking apprenticeship at New Court in the 1920s).5 This Rothschild-Warburg combination would then have expanded to offer the widest possible range of financial services. But the plan—codenamed “War and Peace”—was opposed not only by Evelyn but also by Jacob’s own father Victor. An alternative strategy (known to insiders as “Pandora”) was to merge N. M. Rothschild and RIT, so that the original bank ceased to be a private, family-controlled operation. This too foundered in the face of Evelyn’s and Victor’s opposition. For them, the preservation of family control took precedence over expansion.
All this helps to explain Jacob’s departure from New Court in 1980. Given that RIT still held 11.4 per cent of Rothschilds Continuation (now valued at £57 million) compared with N. M. Rothschild’s stake of 8.2 per cent, it was bound to be a painful divorce; there was also the need to distinguish between two now separate entities both bearing the name Rothschild. After long and difficult discussions, it was agreed that a new business called J. Rothschild & Company would manage the assets of RIT (henceforth to be known only by its acronym). It was a serious rift within the English branch of the family.
What was the alternative strategy envisaged by Evelyn, who had taken over the chairmanship of N. M. Rothschild from Victor in June 1976? Some observers doubted whether there was one; indeed, it was suggested by some that Jacob’s departure would prove a fatal blow to N. M. Rothschild. Yet a strategy there was; one which, in essence, involved playing to the bank’s traditional strengths.
From its very inception, N. M. Rothschild had specialised in meeting the financial needs of governments, though it had been primarily associated with government loans; only occasionally (as when state railways were sold off) had it been involved in sales of government assets. In the 1980s, however, this was to become one of the bank’s most important areas of activity, as the Thatcher government—eager to “roll back” state involvement in the economy and to reward Conservative supporters with reductions in direct taxation—discovered the fiscal benefits of what became known as privatisation.
The origins of the Rothschilds’ involvement in privatisation can in fact be traced back to the period before Margaret Thatcher’s premiership. Though his contribution was only indirect, Victor’s role as the head of Edward Heath’s Central Policy Review Staff (or “think tank”) between 1970 and 1973 brought the Rothschilds back into the kind of direct communication with politicians which had been integral to their success in the nineteenth century. This may partly explain why in July 1971 the Heath government entrusted N. M. Rothschild with the sale of the Industrial Reorganisation Corporation. A year later came the more difficult task of selling the bankrupt Rolls Royce Motors on behalf of the receiver. Having failed to secure any offer above £35 million, the bank took the risk of offering the shares to the public for £38.4 million. Amid threats of a “work-in” by employees and renational isation by the Labour spokesman Tony Benn, the flotation proved less than easy; but valuable lessons were learnt. The following years saw a proliferation of contacts between N. M. Rothschild and the political world. In August 1976 Miles Emley was seconded from the bank to advise none other than Tony Benn as the Department of Energy began to sell its stakes in the North Sea oil fields, beginning with a tranche of BP shares the following year. Less than twelve months later, the former Minister of Agriculture and later Lord President Christopher Soames joined the bank as a non-executive director, while Sir Claus Moser left the Government Statistical Service to become vice-chairman in 1978. Such recruits from the public sector brought expertise and “contacts” to New Court which were to be useful as the volume of government business grew.6
The traffic also moved in the opposite direction, from New Court to the public sector and government. Shortly after the Thatcher government came to power in 1979, executive director Peter Byrom was appointed by Keith Joseph to the board of British Shipbuilders. Of particular importance was the role of John Redwood, who had joined N. M. Rothschild from All Souls, and who laid much of the political foundation for privatisation in his book Public Enterprise in Crisis, published in 1980. In August 1983 Redwood quit the N. M. Rothschild Equity Research Team to join Mrs Thatcher’s Downing Street Policy Unit, returning three years later as director of overseas privatisation. He and Michael Richardson, who joined N. M. Rothschild from the stockbrokers Cazenove in 1981, can (and do) claim much of the credit for turning the idea of privatisation into a political reality, though the firm’s involvement predated their arrival.
It would nevertheless be misleading to claim that N. M. Rothschild led the way in the Thatcher government’s asset sales. In fact, the bank was passed over when the new government sold a further tranche of BP shares in October 1979 and again when it sold its stake in Cable & Wireless. However, N. M. Rothschild did manage the sale of the National Electricity Board’s shares in Ferranti in July 1980; and, more important, it also handled the first true privatisation in February 1982 when the high technology company Amersham International was sold—the first time a wholly government-owned concern had been floated on the stock market. Partly for this reason, the flotation aroused political controversy. Geoffrey Howe’s decision as Chancellor was to sell the shares at a fixed price of 142 pence each, but when the issue was oversubscribed more than twenty-three times, pushing the share price up to 193 pence, the Labour party launched an ill-judged attack. Calling for a public enquiry, the Shadow Chancellor Roy Hattersley unwisely implied that there was more than a coincidental “correlation between contribution to the Tory party and the receipt of business from Government.” He was obliged to eat his words when it was confirmed that N. M. Rothschild had made no contribution to the Conservatives. Such attacks continued when the BNOC (Britoil) sale went ahead in 1982, despite the fact that this time the shares were offered by tender with a minimum price. It did not go unnoticed that the head of Britoil was a former N. M. Rothschild director (Philip Shelbourne), though the bank was only one of six underwriters, and it was Warburgs who advised the Energy Secretary Nigel Lawson. A year later, in December 1983, N. M. Rothschild acquired a 29.9 per cent stake in the stock exchange jobber Smith Brothers, paving the way for the creation of a jointly owned stockbroker, Smith New Court.7 Jacob, it seemed, was not the only Rothschild able to prepare for Big Bang.
Despite being passed over for the British Telecom contract, N. M. Rothschild scored its biggest success in 1985-6 when it won the “beauty contest” to advise British Gas on its £6 billion sell-off. This was to be perhaps the most effective of all the Conservative government’s attempts to promote its ideal of a “share-owning democracy,” personified by the advertisers’ ubiquitous “Sid.” By guaranteeing a minimum £250 shares to all applicants and limiting overseas and institutional investors to just 35 per cent of the total, it was hoped to avoid the persistent problem of oversubscription. When the flotation went ahead on December 3, a total of four million investors applied for £5.6 billion worth of shares. A remarkable feature of the operation was the exceptionally low underwriting commissions charged on domestic purchases by N. M. Rothschild and the other banks involved, which ranged from 0.25 per cent on the first £400 million to just 0.075 per cent on £2.5 billion. It was widely believed that the banks had undercharged the government by accepting such low rates; though as a bid for privatisation market-share it was probably astute.
The risks involved in such massive operations should not be underestimated. N. M. Rothschild was subsequently criticised by the National Audit Office for advising the government to sell the Royal Ordnance to British Aerospace for £190 million in 1985, on the ground that it was worth more. But the experience of the final BP sale two years later showed the extreme difficulty of such valuations. In April 1987 N. M. Rothschild had won the contract to handle the sale of the government’s remaining 31.5 per cent stake in BP (worth around £5.7 billion) and to issue £1.5 billion new shares. The plan was to offer most of the shares to ordinary UK investors at a fixed price of 120 pence, auctioning the remainder to institutions and overseas buyers. By September there was confident talk of 20 per cent gains for investors and minimal underwriting charges for the government. Then, on the very eve of the sale, came the stock market crash of October 19, 1987. The bank argued for calling off the sale, rightly anticipating that the share price would go into free-fall. But the Chancellor of the Exchequer Nigel Lawson insisted on pressing on and was persuaded only with difficulty to create a “floor” of 70 pence above which the Bank of England agreed to maintain the price. This still implied heavy losses: Smith New Court lost more than £8.5 million.
Yet the proponents of privatisation at New Court were undeterred. In 1987 the bank was among those appointed to advise the Electricity Council on the privatisation of the twelve regional electricity boards, successfully opposing the Energy Secretary Cecil Parkinson’s plan for an “exploding” or “packaged” privatisation whereby the boards would have been sold as a single unit. In the same year it took on the task of privatising the ten water authorities. The following year brought the £2.5 billion British Steel sell-off. There was renewed controversy in 1991, when N. M. Rothschild was appointed to advise on the privatisation of British Coal, for the bank’s report that only fourteen pits were suitable for stock market flotation led directly to Michael Heseltine’s announcement in October 1992 that the remaining pits would have to be closed, with the loss of up to 44,000 jobs. The bank has since been involved in the privatisation of British Rail and Northern Ireland Electricity, and has advised the government on the sale of housing association loans and student loans.
It is inconceivable that a programme as radical as privatisation could have been implemented without close contact between the government and the City. It is equally inconceivable that such contacts could have been overlooked by the government’s critics. After Margaret Thatcher’s deposition in 1990, political support for the Conservative government dwindled rapidly; and the links between New Court and Westminister inevitably became the target of fresh Opposition criticism. In the wake of the 1992 election, which the Conservatives narrowly won, it was conspicuous that not only the Chancellor Norman Lamont, but also his junior minister Tony Nelson and the Environment Minister John Redwood were former N. M. Rothschild employees, while others (Oliver Letwin and later Robert Guy) sought election as Conservative candidates. But it was the appointment of former ministers (and senior civil servants) to positions at New Court which prompted the most public comment. Peter Walker, the former Secretary of State for Wales, became a non-executive director of the bank’s Welsh subsidiary and of Smith New Court. Norman Lamont joined the N. M. Rothschild board after being replaced as Chancellor in 1993. Sir Clive Whitmore, the former permanent secretary at the Home Office, also joined the board, as did Sir Frank Cooper, the former permanent secretary at the Ministry of Defence; and Lord Wakeham, the former Energy Secretary who had earlier commissioned N. M. Rothschild to assess the viability (and potential for privatisation) of British Coal.
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 holding 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 anySchadenfreude 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 financial 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.
The integration of the diverse Rothschild businesses has not been without its problems, of course, not least the crisis which hit the Rothschild Bank in Zurich in 1991-2. In the wake of the nationalisation of Banque Rothschild, Elie had become chairman of the Zurich bank, appointing Alfred Hartmann as general manager and later deputy chairman. The first sign of trouble came in 1984, when the bank was censured by the Swiss Banking Commission for its involvement in an illegal 50 million Swiss franc loan. Six years later, there was further embarrassment when the Zurich bank bought shares in Suchard on the eve of a Rothschild-backed bid for the company by Philip Morris. In July 1991, in a bid to stop the rot, N. M. Rothschild acquired 51 per cent of the company and Evelyn took over as chairman. What he discovered there invites a comparison with the experience of Anselm after his arrival in Vienna in 1848 (or perhaps Lionel’s when he was confronted with the Creditanstalt crisis). Initially, it was announced that 63.5 million Swiss francs of the bank’s hidden reserves would have to be liquidated to cover losses on bad loans of around 100 million Swiss francs (£40 million). Compared with the firm’s capital of 185 million francs (£74 million), these were alarming figures. But the process of cleaning out the Augean stables had only just begun. In September 1992 it emerged that a senior executive at the bank, Jürg Heer, had authorised a number of large and illegal loans, principally to two German-Canadian property financiers. Total losses on these transactions were initially estimated at 200 million Swiss francs (£80 million), a figure which later had to be revised upwards to 270 million Swiss francs—more than the firm’s entire capital. Had Rothschild Bank AG been a wholly independent entity, that would probably have been the end of its existence. However, as part of the wider Rothschild structure, it could be salvaged with an injection of 120.5 million Swiss francs, and most of the lost money was subsequently recovered.
The Zurich crisis was a reminder of the dangers of a multinational structure with a family firm at its core: small mistakes can have grave consequences. Yet compared with the disaster which engulfed the Rothschilds’ historic rivals Barings in 1995—when a “rogue” dealer’s illegal speculations in Singapore bankrupted the firm—the Zurich crisis was trifling. The fate of Barings, which was subsequently bought by ING, is the extreme case of what can go wrong for a traditional City merchant bank. It has not, however, been alone in passing into non-British ownership. S. G. Warburg has been bought by the Swiss Bank Corporation, Morgan Grenfell by Deutsche Bank, Kleinwort Benson by Dresdner Bank and the Hambros Banking Group by Société Générale. Of the elite of City firms which used to make up the Acceptance Houses Committee, Rothschilds is one of only four which have succeeded in retaining their independence.10
Once again historical parallels come to mind. Throughout the nineteenth century, the single most important reason why the Rothschilds were able to withstand the financial crises; revolutions and wars which swept so many of their competitors into oblivion was that a crisis in one house could be contained and resolved with the assistance of the others. The rescue of the Paris house in 1830 and the Vienna house in 1848 are the two classic examples. The reconstruction of Rothschild Bank in Zurich recalls those earlier episodes.
The development of the N. M. Rothschild group thus needs to be understood partly as a way of defending the tradition of Rothschild independence in a world of ever-larger financial giants, not as a strategy for becoming one of those giants. At the time of writing, Rothschilds Continuation Holdings has shareholders’ equity (capital, reserves and accumulated profits) of £460 million, or total capital resources of around £800 million if a broader definition is used. In addition, the Paris-Orléans holding company has capital of around £ 100 million. Of course, this puts the group a long way behind the biggest bank in the world, HSBC, which has total market capitalisation of around £55 billion; but such a comparision does not compare like with like. A better comparison is with Schröders, one of the few other independent City merchant banks, which is only slightly ahead; or with the firm which was incorporated as N. M. Rothschild & Sons Limited in 1970. An increase in capital and reserves from £12 million to £460 million is no mean achievement: it represents growth, adjusted for inflation, of nearly 400 per cent. The question which remains is how the family-controlled “mini-multinational” structure which Evelyn has created over the past decades will fare as international financial markets become characterised by ever higher levels of integration.
The modern financial world is often said to be quite different from the financial world of the past. Transactions, it is argued, are far larger than ever before and are executed with unprecedented speed thanks to advances in electronic communication. Public and private systems of regulation lag behind innovations like derivatives. The reserves of central banks are dwarfed by the vast turnover on the international foreign exchange markets. In the era of “globalisation,” nation states themselves are obsolete; family firms even more so. The future belongs to vast international corporations. Yet the reader of this history may be inclined to question such crude assumptions. To be sure, compared with the period between 1914 and 1945—and perhaps also with the period before 1979—the financial world has completely changed. But compared with the hundred years before the First World War, the 1980s and 1990s looks less exceptional. Relative to the world’s demographic and economic development in the nineteenth century—and certainly relative to the very limited financial resources of nation states—international capital movements in the nineteenth century were very large. Compared with what had gone before, nineteenth-century communications dramatically accelerated the speed at which business could be done. Regulation lagged far behind innovations on the bond market and stock market. Markets were volatile; trivial errors could have devastating consequences for individual firms. For most of the nineteenth century, there can be no doubt that the kind of firm which stood the best chance not only of prospering but of surviving more than a decade or two was a firm like the one founded by Mayer Amschel Rothschild and led from the ghetto to greatness by his Napoleonic son Nathan. It was rooted in a distinctive ethos of familial solidarity (concordia), a religiously rooted morality (integritas) and hard work (industria)—an ethos which proved remarkably durable despite the fissiparous tendencies of all large families, the corrupting effects of social assimilation and the myriad temptations of wealth. At the same time, its multinational structure gave it a unique degree of flexibility, enabling it to withstand even the worst economic and political crises.
A modern financial corporation may be able to replicate this flexibility. Perhaps, through the various spin-offs of bureaucratic rationalisation we call “management,” it can even improve on the original. But it cannot easily replicate the ethos of the earlier kind of structure; for no amount of corporate rhetoric can turn its widely dispersed multitude of shareholders, directors, executives and employees into a family. Francis Fukuyama and others argue that one of the weaknesses of modern Western institutions like the corporation is that they do not elicit trust and loyalty from individual employees or investors. Perhaps the family firm does that better, even if a price is paid in forgone economies of scale.
It is a moot point whether or not bankers benefit—as bankers—from knowing their own history; as A. J. P. Taylor once said, men learn from history only how to make new mistakes, and too much knowledge of financial history can induce excessive risk-aversion in a professional investor. At least one senior figure in the N. M. Rothschild group has observed that he is a good deal more interested in the future of the Rothschilds than in their past; he is right to be. On the other hand, the history of N. M. Rothschild & Sons and the other Rothschild houses has a contemporary relevance—indeed utility—to him and his colleagues in one respect: the name Rothschild is in many ways as big an asset as any which appears in the balance sheets of the Rothschild group. It is a brand name like no other in international finance; and if nothing else this book shows why that is.
Moreover, the past has a more subtle influence on the present, quite apart from its value as source material for corporate publicity. It is something to live up to—a reputation to preserve—and that is often as good a motivation in business as the more prevalent, and sometimes more short-sighted, profit motive. One of the more surprising findings of this study has been the relatively low rate of return on capital achieved by the Rothschild houses in the second half of the nineteenth century, a phenomenon partly explained by the relatively high ratio of capital to liabilities which they maintained. Part of the secret of long-run success in banking is, of course, not to go bust; the Rothschilds’ relative risk-aversion is one reason for their financial longevity. This has its roots in the psychology—to be precise, the longer time horizon—of a family firm, which has the interests of future generations as well as present shareholders to consider.
In 1836, following the death of Nathan Mayer Rothschild, his brothers, sons and nephew bound themselves together in a new partnership agreement. In doing so, they recalled how their father Mayer Amschel had told them nearly thirty years before “that acting in unison would be a sure means of achieving success in their work”; how he had “always recommended fraternal concord to them as a source of divine blessing.” It was a principle they exhorted future generations of the family to remember:
May our children and descendants in the future be guided by the same aim, so that with the constant maintenance of unity the House of Rothschild may blossom and grow into full ripeness ... and may they remain as mindful as we of the hallowed precept of our noble ancestor and present to posterity the godly image of united love and work.
It is remarkable that, two centuries after Nathan first arrived in England, those words should still have a meaningful resonance.