The inability of the current investment banking model to withstand the ongoing liquidity crisis has forced many investment bankers out of business or those few that have survived to get by on reduced or no bonuses this year. However, as lenders globally continue to write off and provision for a significant volume of soured loans, U.K.’s Rothschild group, one of the world’s leading investment banking organizations, has posted record results. The bank has been able to maintain its very strong performance again this year, despite the credit crunch, economic slowdown and the threat of a U.S. recession, with investment banking and corporate banking businesses both producing record revenues.
The bank, according to Timesonline - reported a 31%, 459 million euro, improvement in profits. In addition, record results from the organization’s advisory and private banking operations enabled the bank to pay record bonuses to its 2,700 people in June.
The bank’s chairman Davide de Rothschild, following unconventional investment banking strategies, has steered his organization clear of proprietary trading, prime broking and other activities that have devastated rivals as a result of an environment where asset prices keep falling while liabilities remain fixed. The bank however, still wrote off 96 million euro because of souring loans. At some point, considering the global financial system is galloping off a cliff - today’s difficulties in investment banking will prompt an overhaul of the system favoring those players that have shown themselves to be the most cautious during this cycle.
Alongside its pro-forma group-wide results, Rothschild also unveiled that it had entered into a co-operation agreement in the field of M&A and Equity Capital Markets advisory in the food and agriculture sectors on a global basis with Netherlands' Rabobank, a premier global financial institution providing financing and other services to food and agri business clients around the world.
As part of the deal, notes Timesonline, Rabobank is buying a 7.5% stake in one of the key holding companies in the Rothschild empire, Rothschild Continuation Holdings, which owns the N M Rothschild business in the U.K.
Rabobank becomes the second biggest investor outside the Rothschild family after the trading group Jardine Matheson, which owns 20%. This is Rothschild’s second joint venture with a Dutch bank.
Rothschild advisory clients include Rio Tinto (RTP), which is fighting a hostile bid from BHP, Billiton (NYSE:BHP), and British Energy in its deal with France’s power giant EDF, a deal that gives the French company a dominant role in the British nuclear industry.