Author: Jules Gray
7 Sep 2015
Long before the troubled days of 2008’s economic meltdown, and even before the decadent days of the 1980s, major financial institutions had built themselves very different reputations. Acting as the noble custodians of wealth and offering impartial, expert advice to clients, old-fashioned merchant banks were not derided by the general public as financial charlatans in the way they are now.
These banks, many of which spawned at the height of the Industrial Revolution that transformed global trade, helped to radically change the world. Facilitating global trade on a scale never seen before, merchant banks played an integral role in how the world was shaped over the last two hundred years. They continued to evolve over time and, at the height of the 20th century, became vast investment houses with operations throughout the world.
While many of these institutions were formed in London – the financial and trade capital of the world for much of the last two centuries – there are a number of significant firms from elsewhere in Europe that developed through wealthy merchant families and trade hubs. Amsterdam, Dresden, Frankfurt and Paris all saw a number of banking institutions form over the last two centuries, some of which are still around today.
Many look back at the middle part of the last century as a golden age for the banking sector, when it was geared much more toward the interests of the client than the bank itself. The age of the ‘gentleman banker’ reflected this, with the old-style British merchant banks – now commonly known as investment banks – helping to guide clients in their investment decisions in a far more personal way than they do today.
While many of the famous names from that bygone era evolved into the financial behemoths of the modern economy, a considerable number either fell by the wayside or were swallowed whole by rival institutions. European CEO takes a look at the history of six of Europe’s most revered banking institutions that have since ceased to exist, and what has become of them.
Robert Fleming & Co (FF&P and Standard Chartered)
One of the most distinguished names in international banking history, Robert Fleming & Co was established in 1873 by pioneering Scotsman Robert Fleming. The company quickly grew from its initial form of a group of investment trusts into a worldwide investment firm, managing assets worth £63bn at its peak in 1997.
During its history, the company helped to fund America’s railroads, and was also an early mover into both the Asian and African markets in the 1970s. In 1970, Robert Fleming & Co joined forces with Hong Kong’s Jardine Matheson to form the Asian investment bank Jardine Fleming. The company was hugely proud of its Scottish heritage, with bagpipes greeting London visitors to its office and many pieces of Scottish art within its collection.
In assets were managed by Robert Fleming & Co at its peak in 1997
However, shortly after its 1997 peak, the company was beset by trouble, largely as a result of the Asian financial crisis of that year, to which is was heavily exposed. By 1998, the company’s profits sank from around £91m to just £20.8m. In spite of attempts to revive its flagging fortunes in 1999, the company was eventually sold to Chase Manhattan Bank in 2000 for $7.7bn. That company has since become JP Morgan Chase, one of the world’s largest and most successful investment banking institutions.
For the Fleming family, however, the sale did not mark an end to their time in financial services. One of its members, Roddie Fleming, established Fleming Family & Partners (FF&P) shortly after the sale, a boutique family office that operates on behalf of both family members and other clients. With operations in both London and Zurich, FF&P has around £4.5bn in assets under management.
In 2005, 20 percent of FF&P was sold to Standard Chartered. Following this, at the end of last year, the wealth manager joined forces with another London-based firm, Stonehage, to create Stonehage Fleming. The new entity has more than 500 staff located in seven different countries, with just under £8bn in assets under management.
Perhaps the most shocking collapse of a venerable financial institution of all time was that of Barings Bank. Founded in 1762 in London, by the German Baring family, the merchant bank became one of the most prestigious and revered financial institutions in the world. In its early days as the John & Francis Baring Company, it acted primarily as a wool trader, before it diversified into other commodities, as well as offering financial services, at a time when global trade was dramatically expanding.
The company quickly grew to offer all manner of financial services, with clients not just in Britain, but in Amsterdam, France, Germany, and the US. It even helped to finance the US Government during the War of 1812 with Britain, even though it could have denied it capital.
Was the total value of Barings’ operations following its collapse
Over the subsequent 180 years, Barings maintained a leading role in international banking, at one point helping the UK Government to fund its Second World War efforts, while also representing the British establishment – including the Royal Family – thanks to a more restrained investment strategy.
However, by the end of the 20th century, the company had begun to operate in the risky derivatives business. One of its traders in Singapore, Nick Leeson, became perhaps the most famous rogue trader in history when he gambled the bank’s money, without the authority of his superiors, on the future of the Japanese market. Leeson’s unhedged futures bets resulted in the bank suffering losses of £827m, collapsing in the aftermath. It was a shocking and sudden end to such a reputable banking institution. Though caused by one man, much of the criticism fell on the internal auditing processes of the bank itself, which many felt should have been aware of Leeson’s activities. Leeson hid his losses using a now-infamous error account, with the number 88888 (the ‘five eights’ account), so-denominated because the number eight is considered lucky in Chinese culture.
In the aftermath, Barings’ operations were acquired by Dutch bank ING for the nominal sum of £1. Leeson was promptly arrested and spent four years in a Singapore prison. The story was made into a film, Rogue Trader.
SG Warburg (UBS)
Founded in 1946 by revolutionary German banker Siegmund Warburg, SG Warburg & Co was one of Europe’s most revered financial institutions during its 50 years of operation. Warburg, a member of the prominent German-Jewish banking family of the same name, established the bank in London, alongside Henry Grunfeld, after the two had fled Nazi Germany during the 1930s.
The company was hailed as a pioneer within global banking, helping to establish London as the financial capital of the world. It was well-known for pioneering the use of mergers and acquisitions in the London market, and was the first company to arrange a hostile takeover in the UK. It was also the first bank to issue the Eurobond, which helped to create the Eurodollar market. This was thanks to Warburg’s fervent belief that financial integration of European markets was an essential step for the continental economy.
Throughout the 1960s and 1970s, SG Warburg secured an increasing number of clients because of its reputation for high-quality work and an unrivalled intellectual culture, imparted by its founder. During the 1970s, the company moved into the US through a joint venture with France’s Paribas. The venture was beset with difficulty, thanks in large part to the cultural differences between the English, American and French employees.
In 1980, Warburg passed away, but the company continued in its pioneering role. It played a major part in the Thatcher government’s Big Bang deregulation reforms of the London market during the 1980s, expanding its operations in the process. However, after another botched attempt at entering the US market through a failed merger with Morgan Stanley in 1994, the company was acquired by Swiss Bank Corporation, creating SBC Warburg. A 1998 merger between the new company and another Swiss banking institution, UBS, created UBS Warburg. Sadly, the historic Warburg name was finally dropped from the bank’s name
Morgan Grenfell (Deutsche Bank)
Another London-based investment bank, Morgan, Grenfell & Co, was at one point widely known as one of the oldest and most influential merchant banks in the world. Founded by American George Peabody in 1838, the bank formed the UK subsidiary of his US bank JP Morgan. When, in 1909, English banker and politician Edward Grenfell was made a partner of the firm, it was renamed Morgan, Grenfell & Co. Another American company with a stake in Morgan Grenfell was Morgan Stanley, helping solidify the bank’s presence in the US.
Was the amount Deutsche Bank was fined when it acquired Morgan Grenfell
The company developed a reputation as one of the most respectable merchant banks in the UK, and had a strategically advantageous relationship with its American parent owner. In the years after the First World War, Morgan Grenfell helped to rebuild Europe by aiding a number of governments in raising finance. By 1933, however, JP Morgan decided to sell 33 percent of its stake in the company, giving Morgan Grenfell more independence. JP Morgan retained the remainder of its holding in the firm until 1983.
In 1989, German banking giant Deutsche Bank revealed plans to acquire Morgan Grenfell. A £950m deal resulted in the new company, Deutsche Morgan Grenfell, having 30 global offices and a combined 2,300 employees. The two firms had previously worked together as far back as 1874, when they came together to supply the City of Vienna with a £2m loan.
The acquisition of Morgan Grenfell caused problems for Deutsche Bank, especially when it was hit with a £2m fine for financial irregularities during the 1990s – a record at the time. By 1999, the world famous Morgan Grenfell name was finally retired, when Deutsche Bank renamed the firm Deutsche Asset Management. This brought an end to an institution that helped spawn two of the most recognisable banks in the world.
Hope & Co (ABN Amro)
A bank that could trace its roots back long before many of its European rivals, Hope & Co was a well-known Dutch bank that existed for more than 250 years. Although it was founded by a group of Scottish bankers, it was set up in Amsterdam as a result of frequent Scottish trade in the Netherlands at the time. The six Hope brothers who formed the company were heavily involved in the shipping industry, offering storage, insurance and loans to companies in the port cities of Rotterdam and Amsterdam. At the time, Hope & Co operated largely by transporting Quakers to the US, as well as through the slave trade.
Saw Hope & Co assist the US in buying the Louisiana Territory from France
In the following century, Hope & Co began operations overseas, helping to facilitate investments in rail projects in both the US and Russia. It was also known for helping the US government to buy the Louisiana Territory from Napoleon’s France in 1803. By the 20th century, the company had refocused its business towards Dutch investments.
The bank was also famed for its extensive archive, which was a vital source of historical information on Amsterdam’s role as the global centre of commerce during the 18th century. This has now been handed over to the Amsterdam City Archives. It also had a vast collection of art by the likes of Rembrandt and Jacob van Ruisdael, which was subsequently given to the City of Amsterdam.
By 1962, however, the company was struggling to remain competitive, and decided to merge with rival R Mees & Zoonen, which later became Mees & Hope. This was, in turn, bought by Dutch firm ABN Bank, which would then merge with Amro Bank to create ABN Amro. That company would then merge Mees & Hope with another firm it owned – Pierson, Heldring & Pierson – creating MeesPierson and selling it to Fortis. When that company collapsed during 2008’s financial crisis, operations were merged with ABN Amro once again.
Dresdner Bank (Commerzbank)
In the aftermath of the shocking global financial crisis of 2008, a number of huge names in the banking industry quickly disappeared. Most prominent of all was American giant Lehman Brothers, but during the following few years, a considerable amount of consolidation and reshaping of the market occurred. In Germany, one of the country’s oldest financial institutions, Dresdner Bank, ceased to exist, having operated for almost 150 years.
Saw Dresdner Bank become the first bank to open an office in East Germany
Founded in 1872 as a result of the consolidation of a number of German banking institutions, the firm was headquartered in Dresden. Starting with 30 employees and initial capital of 24 million deutschmarks, the bank quickly expanded its branch network across the country. By 1895, it had opened its first international office in London, and by the turn of the century it had the most extensive network of branches in Germany. A close alliance was formed with JPMorgan in the US in 1905, expanding its reach outside Europe.
After Germany’s banking crisis in the 1930s, Dresdner was largely nationalised, before being reprivatized in 1937. However, at the height of the Second World War, Dresdner was known as the bank of choice for the SS, while it also aided in confiscating Jewish people’s property and wealth. Once the war was over, Dresdner returned to its normal operations and continued to expand overseas, opening offices in Singapore, Australia, Japan, Canada, Hong Kong and China. In 1990, it was the first private bank to open an office in former East Germany.
However, Dresdner Bank’s fate was not so much sealed by the financial crisis, but by the culmination of a number of years of owning and being owned by other large institutions. A 1995 acquisition of highly regarded British investment house Kleinwort Benson furthered this, and the bank was soon acquired by insurance giant Allianz in 2002. By 2008, Commerzbank had bought the company for €9.8bn, and ultimately ended the brand.