The City's small independent merchant banks have pursued very different strategies, and achieved very different results, say Andrew Loudon and Alistair Blair.
Independent merchant banks are rarer than they were. Of the big blue chips, only Schroders remains. But there has always been a healthy undergrowth of less ambitious merchant banks - some have done well, some have not.
The best investment on our chart has also been the most boring. Close Brothers has never bet the bank or reached for the stars - only for the next rung. This has delivered 22 years of unbroken profit growth, making it the exception to the maxim that employees, rather than shareholders, tend to be the beneficiaries of an investment bank's success. Close has concentrated on niches the global players cannot be bothered with. In corporate finance advice, its market is medium-sized companies. In asset finance, it is big in Heidelberg printing presses. The advantage is that success depends more on reputation and expertise than size.
If Close Brothers is a goody-goody two shoes, Hambros is a buccaneer.
Hambros has never been a mainstream merchant bank. Throughout its history, it has taken big side bets on firms and individuals that have turned up at its door. This year's tilt at the Co-op on behalf of Andrew Regan was part of a fine tradition. In the '70s Hambros lost a pile on Norwegian tankers, and in the '80s on oil and gas. These would have killed it but for the even bigger pile it made by backing Mark Weinberg to set up Hambro Life (now Allied Dunbar), which delivered a one hundredfold return on a £1 million investment. As Big Bang beckoned, Hambros decided not to put its Hambro Life profits into expanding in the City, but into estate agency. As the graph shows, this initially looked smart, but then came a long reckoning that is only now being reversed.
In 1986 the Hambro family broke up. Rupert cashed in his shares, left the bank in charge of his cousin, Charles, and set up what became successful corporate finance boutique, Hambro Magan, recently bought by NatWest for a handsome but undisclosed sum.
In the '50s and '60s, Sir Walter Salomon, variously described as 'sinister' and 'enigmatic', built an amazing web of companies linked by cross shareholdings.
Rea Brothers was the middle of that web which, by 1985 was looking pretty dusty. But Salomon, by then an octogenarian, was still in charge and celebrated Christmas by sacking his designated successor, who had been an impressive catch from Midland Bank the year before. The bank's octogenarian mien intensified. It was seen as a decent vehicle for some foreign bank seeking an entree into the City but Salomon had to pass on first. He did, and that is what spiked the share price in 1987. In came the offers. His son, William, turned them all down, put himself in charge, and has spent the last 10 years keeping his father's web intact. This has taken a lot of ingenuity that might have paid big dividends had it been applied to the banking business.