Rothschild takes independent path

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Rothschild and Lazard are prospering while rivals are in trouble

The turmoil in the financial services industry is proving to be a major opportunity for two blue-chip institutions that stayed focused on providing independent advice, Lazard and NM Rothschild.
They steered clear of the complex financing deals that have left their bulge-bracket rivals with wounded balance sheets and preserved their reputations for providing strong strategic counsel, untainted by cross-selling.
Now, both groups are prospering as rivals seek help and the economic cycle brings their other great strength, restructuring practices, to the fore.
As jobs in the sector are shed by the thousands, Rothschild and Lazard are seeing advisory revenues soar.
Rothschild is busy working with rivals in trouble, including advising Lehman and its administrator on the sale of its Asian operations to Nomura; Dresdner on its sale to Commerzbank; and Alliance & Leicester on its merger with Santander.
"The current market crisis will lead to a fundamental change in investment banking models which have been riddled with conflicts and excesses.
This offers significant opportunities for Rothschilds with its focus on independent advice," says Nigel Higgins, co-head of global investment banking at Rothschild.
Mr Higgins says Rothschild has tended to increase its market share during downturns by keeping to its knitting – advising on mergers and acquisitions and debt and not dealing in an array of products like its Wall Street rivals.
The bank has more than 900 people dedicated to pure M&A advice, about 100 of whom specialise in debt advisory and restructuring. The bank is currently advising Alitalia on its bankruptcy plans and it is also helping directories publisher Yell restructure its debt.
This focused approach has certainly paid off. Although Rothschild only ranks 14th in the league tables for global M&A, it has generated more than €1bn ($1.5bn) in revenues from all its advisory business for the 12 months to March 31 this year – a 10 per cent increase on last year.
The low global ranking reflects, in part, Rothschild's much smaller US business, which has largely stayed away from many of the large private equity mandates that dominated the M&A landscape for the first half of last year.
Instead, the firm has been building market share in emerging markets, particularly in Russia, India and China, where it has a larger advisory footprint than many of its closest rivals, such as Greenhill and Lazard.
"We will continue to tap into the rich seam of business available in those markets," Mr Higgins says, emphasising the firm's ability to pick up roles in government deals or private family sales."
Rothschild's global reach allowed it to mobilise teams across India, Singapore, Hong Kong and London in a matter of hours in order to secure the sale of Lehman's Asian operations to Nomura earlier this week.
The bank has also built a solid mid-cap advisory business, an area many of its larger Wall Street rivals shunned in favour of the big-ticket mandates.
But it is the bank's debt and restructuring business which is likely to shine over the next two years as, with debt markets shut, clients are forced to look at broadening their corporate plans to include considering disposals, or making debt-to-hybrid and debt-to-equity swaps.
"Our market share in debt advisory and restructuring can only grow during the current market turmoil where debt has gone from being a commodity to a scarcity," Mr Higgins says.

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