Family favourites
THE shocks come through at this time of year, as the merchant banks sidle up to say a word or two about their figures. A word or three, this time, for the banks' privilege of making undisclosed transfers in and out of undisclosed inner reserves is evidently doomed. Kleinwort Benson has gone furthest towards candour, keeping its re- serve secret, but publishing profit (and loss) figures which mean what they say. Even Barings, which always used to show a profit just large enough to pay for the dividend, now admits to rather more. Barings bears out my current theory about merchant banking, which is that the fami- ly banks are the ones now coming out on top. The theory is that, when the banks were wondering whether to go nap on the great new business of securities trading in London, the families asked what it was going to cost. It would, they were told, require many millions of new capital. Oh, yes, said the families, and are we supposed to put our hands in our pockets for that? Or let others subscribe for new shares, and so weaken our grip on the bank? Go away, Toby, and think of something else. So the Schroders and the Barings sat tight, and so at the time did the Hambros. So did Lazards, which has recast itself in the mould of a private banking partnership the partners were not enthused about backing the new idea with what amounted to their own money. Banks with no domi- nant family, like Morgan Grenfell and Hill Samuel, went ahead. Both have now pul- led out, after Morgan lost its shirt and Hill Samuel its independence. The big bet still riding is at Kleinwort Benson. Going into the securities business cost Kleinwort £45 million, and staying in has been expensive too (share trading last year lost £40 mil- lion). Raising new capital by a rights issue brought the family shareholding down from about 40 per cent to about 25 per cent. Kleinwort sticks to its bet, and reports that share trading is back in profit. Such bets need time to pay off. Barings' modest bet on the Far Eastern markets, Baring Securities, is now paying off like a fruit-machine, and competitors wonder whether Barings may float the securities business as Hambros did with Hambro Life. That, though, has no predictive value for Kleinwort, and with the formidable Hank Greenberg of American Insurance nibbling at the shares, there must be a limit on the time it can take to land its bet.
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