BUSINESSWEEK ONLINE : DECEMBER 11, 2000 ISSUE
INTERNATIONAL -- FINANCE The Rothschilds Are on a Roll (int'l edition) Small is beautiful when it means personal service 'Schroder. Morgan Grenfell. Warburg. Fleming. Kleinwort Benson.'' Sitting in his modest Paris office a stone's throw from the Elysees Palace, David de Rothschild ticks off the names of once independent European investment houses that have slipped into the embrace of huge banks. ''They're all gone. We and Lazard are the only ones left.'' On the face of it, this harsh landscape bodes ill for the 58-year-old chairman of Rothschild & Cie Banque and his cousin, Evelyn de Rothschild, chairman of NM Rothschild & Sons, the clan's London-based branch. The fabled Rothschild name was once synonymous with prodigious wealth and power. Today, the Rothschilds head a group whose employees number just 550. The likes of Goldman Sachs, Morgan Stanley Dean Witter, and Citigroup dwarf it. Despite having its best year ever for mergers and acquisitions, the Rothschild group's total investment banking profit for 2000 will be barely $200 million, a fraction of what the big boys take home. With such competition, Rothschild ''is going to be very fragile in the long run,'' says one prominent banker in Paris. Still, the Rothschilds are on a roll. As their larger rival, Lazard Freres, struggles to keep business amid staff defections and shareholder dissent, the Rothschilds seem to be not only holding their own but expanding. This momentum follows a long, difficult period from the mid-1980s when the Paris branch rebuilt after it was nationalized under Socialist President Francois Mitterrand. The Rothschilds know the dynasty Amschel Rothschild founded in a Frankfurt ghetto can never dominate European banking as it did in the 19th century. But through astute hiring, care and feeding of key staff and clients, and selective pushes into core markets, Rothschild is grabbing deals not only from Lazard--which has nearly five times its headcount--but from some truly big banks. ''We are very much around and doing things our way,'' says Evelyn, 69, the elder statesman of the clan. David, who runs the group's bread-and-butter investment-banking business, is expected to become chairman of NM Rothschild when Evelyn retires. To stay in the game, the Rothschilds --London and Paris partnerships controlled by the respective family branches and linked by cross-shareholdings (chart)--are banking on the rareness of their brand of service. ''Let's say the cultural alternatives to the more and more uniform and bureaucratized firms are now much reduced,'' says David. NO AGENDA. What Rothschild offers is handholding for its clients. Senior people are present on a deal from pitch to closing--not always the case at the investment-banking titans, where ''relationship'' bankers seldom handle the nitty-gritty of deals. Rothschild is no financial supermarket, and its capital is limited. But the firm considers that a selling point because it has no other agenda--say, pushing a loan--behind its advice. ''I think clients know we are totally independent,'' says Evelyn. Rothschild's clients largely agree. ''Even when there is no business at hand, Rothschild stays in touch. They pay attention,'' says Elie Vannier, chief financial officer of GrandVision, Europe's largest optical retailer, which has more than $750 million in sales. From a small number of offices, Rothschild advises GrandVision, which operates in 14 countries. ''Why go to a bulge-bracket firm?'' Vannier asks, using industry jargon for the biggest banks. Kid-glove treatment has been a great sell this year, an unprecedented boom time for M&A in Europe. The Rothschild name has appeared on a surprising number of cross-border transactions. According to Thomson Financial Securities data provided by Rothschild, the group has almost doubled its M&A volume, to 141 deals this year from 74 in 1998. They advised the French government on the creation of EADS, the $17.6 billion merger of France's Aerospatiale, Germany's DASA, and Spain's CASA; Deutsche Telekom on the $15 billion restructuring and sale of its cable assets; and Britain's National Grid Group on its $8.9 billion acquisition of U.S. utility Niagara Mohawk Holdings. The total value of Rothschild-managed transactions has jumped to $316 billion year-to-date from $108 billion in 1999. The total is inflated because Rothschild includes the $202 billion Vodafone takeover of Mannesmann, a deal in which the firm didn't play a lead role. But Rothschild does lead in numbers of deals--though not in dollar volume--in Britain and Italy. GOOD VIBES. Internal stability and increasing integration of the legally separate Rothschild houses' operations have also helped the firm. In contrast with Lazard's highly public feuds, relations among partners and associates in London and Paris are good. Associates say pay lags behind rivals', but they consider the atmosphere more congenial. ''Rothschild culture,'' says Tony Alt, vice-chairman for investment banking in London, ''is not totally overpowering, as I think it is at some of the other financial institutions.'' Insiders also credit David's management style for attracting and keeping top people, in contrast with the more authoritarian ways of Lazard Chairman Michel David-Weill. ''Rothschild and Lazard are fundamentally similar kinds of family-controlled firms,'' says a senior French banker. ''But David is much more of a consensus player and gentle gatherer of people than Michel.'' The cordial atmosphere has attracted heavy hitters from the outside, including Gerald Rosenfeld, CEO of Rothschild North America Inc., who came to the firm in January from Lazard New York, where he ran investment banking. He is one of several Lazard vets to defect, including Paris rainmaker Pierre Tattevin. David insists ''we're not trying to lure people away from Lazard who have not already made their minds up to leave.'' Keeping staff happy in a competitive market takes its toll on earnings. At NM Rothschild, administrative costs, including pay, rose 31% in the fiscal year that ended on Mar. 31, 2000. One reason for the more modern management style--at least at the French branch--may be that the Paris operation is quite young. That was the ironic result of the nationalization of France's 39 largest commercial banks in 1982--including Banque Rothschild. Because Lazard had no commercial banking, it escaped--and dominated French finance for 20 more years. It took David, his brother Edouard, and their cousin Eric--who runs asset-management--until 1986, when the Socialists lost power, to get a new banking license. So they started without any deadwood. ''We've reinvented ourselves in the past 15 years, which is why we don't have the generational problems Lazard has,'' says Edouard. The road ahead won't be easy. Rothschild's future may depend on how well its current success in M&A translates into other areas, where it is late to the party. That's why the family's North American bet is key. Rosenfeld and his growing team must make up for years of neglect. An earlier attempt to tap transatlantic business--Lazard's cash cow--failed in the 1980s. Similarly, Rothschild--with a brand name to die for--manages only $40 billion or so. ''The Rothschild group has not made as much of asset management as it could,'' concedes Paul Manduca, whose job in the U.S. is to build asset management. The Rothschilds reject one choice out of hand: merging or selling. ''If we even lifted our little finger in the direction of selling, we'd be approached,'' says David. ''I'm not being arrogant about it. It's just that we are a rare commodity.'' And the Rothschilds rather like it that way. By John Rossant in Paris and Stanley Reed in London, with Julia Lichtblau in New York _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The Rothschilds Are on a Roll (int'l edition) GRAPHIC: All in the Family INTERACT E-Mail to Business Week Online

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