It's a dynasty drama at Rothschild plc

By Alex Brummer, February 18, 2010

No dynasty is more associated with Anglo-Jewry and Israel — through the works of the Hanadiv Foundation — than the Rothschilds. So changes in the flagship London-based bank NM Rothschild remain of much fascination throughout the Jewish world.

Goldman Sachs may be the most profitable and written about of Jewish investment banks, but it is Rothschild that remains the most durable as a family controlled enterprise. An indication that this might be changing came recently when Rothschild Continuation Holdings, the Swiss-based holding company for the Rothschild banks across Europe, let it be known that for the first time it was reaching beyond the family with the selection of Nigel Higgins, a veteran of Rothschild for 27 years, as chief executive.

Baron David de Rothschild remains executive chairman of the family enterprise, although at 67 years old he has begun to think about succession.

Running Rothschild in recent times has become far more complex. The bank has eschewed most of the risky business widely referred to as “casino banking” and concentrated on advisory and fundraising operations. It had a good “great panic”, advising on many of the rights issues and rescue fundraising operations in the aftermath of the crisis, and staff numbers have crept up to 900.

In addition, it has recently launched its own private-equity style fund for clients.

Changes at NM Rothschild are fascinating to the Jewish world

As the bank has regained some of its panache under the leadership of David de Rothschild, the issue of succession has become increasingly important. David de Rothschild, the head of the French branch of the family, took control of NM Rothschild and the bank’s holding company when former chairman Sir Evelyn de Rothschild retired a decade ago.

It was during Sir Evelyn’s era that a high-profile split occurred in the family. Evelyn fell out with his cousin Jacob (now Lord Rothschild) who went off to found his own financial house, Rothschild Investment Trust (RIT), which bore many enterprises, including the insurer St James’s Place.

Jacob’s son Nathaniel Rothschild had success running his £7bn hedge fund Atticus, and in the wildest days of the credit boom of the “noughties” he was characterised in the media as the “richest Rothschild of them all”.

There was much speculation that Nat, with his knowledge of modern finance and strong connections to the Russian oligarchs, could be the ideal successor to David at the family bank, ending the generation-long split in the family.

My understanding is that this is much less likely to happen. Nat’s business relationship with the Russian oligarch Oleg Deripaska, together with the unfortunate meeting with George Osborne on the oligarch’s yacht while the Tory was staying with Nat on Corfu in 2008, is not the kind of image that NM Rothschild wants. So bringing him inside the tent looks less likely.

So who, then, will succeed David? Other family members inside the business are his brother Eric — who is the same generation as David — and has more than enough in his glass as proprietor of the famous Lafite-Rothschild vineyard at Paulliac in Bourdeaux.

This makes the most likely successor David’s 29-year-old son Alexander, who originally worked in Paris, but is now ensconced at the bank’s famed New Court headquarters in the City.

Power at the top may now be shared with the choice of a non-family chief executive in line with London corporate governance practice. But the dynasty, almost certainly the French branch, looks to be in charge for some years to come.

Kraft chief executive Irene Rosenfeld has an uphill task in winning over the Cadbury workforce now that the Chicago cheese-maker has secured control of the iconic confectioner.

Rosenfeld, who keeps a kosher home, won few friends in Britain when her first step after taking over Cadbury was to announce the closure of the company’s Somerdale plant near Bristol, with the loss of 400 jobs.

If Cadbury had remained in British hands, the operation would have remained scheduled for closure anyway. The problem for Rosenfeld and Kraft is that as part of their takeover spiel — and in an effort to calm trades union opposition to foreign control — Kraft had specifically promised to keep the Somerdale factory going. Instead, operations are to be transferred to Poland.

Opposition in the Midlands to the Kraft bid has meant that Rosenfeld has told colleagues that she would feel unsafe visiting the Cadbury’s heritage headquarters at Bournville. Former Cadbury executives say that morale has been so undermined by the Kraft deal that Cadbury may now struggle to hit growth targets laid out its defence documents.

Rosenfeld also has problems in the US. Legendary investor Warren Buffett was among those who warned Rosenfeld not to overpay for Cadbury. Now it has been revealed that the veteran corporate raider Nelson Peltz, who held a large pre-Cadbury stake in Kraft, has sold off 90 per cent of his share stake. Ironically it was Peltz who effectively made Cadbury vulnerable to a bid by forcing a split of the confectionary company from its soft drink arm Schweppes, owner of Dr Pepper.

The Kraft boss is going to need all the schmoozing power she can muster to put this lot right.

Alex Brummer is City Editor of the Daily Mail

Last updated: 3:03pm, February 18 2010