NatWest pays for corporate finance credibility

It was only six years ago that Lord Alexander, chairman of NatWest, was reading the last rites to his investment banking operation, then known as County NatWest. With the Blue Arrow scandal still hanging like an albatross around County NatWest's neck, his message to staff was they had just two years to get their act together, or face closure.

This was hardly a statement guaranteed to enthuse either employees or clients, but it was also ill judged for another reason. Today NatWest Markets is not just another successful part of the main clearing bank, it is also a vital part of its operations.

Admittedly, this is a business transformed by the injection of the main bank's treasury and foreign exchange functions, but even so it would be hard to imagine a modern clearer without a large presence in capital markets and investment banking. Had County actually been allowed to go to the dogs, NatWest would have been in trouble.

For all its success, NatWest Markets still lacks credibility in big league corporate finance. Hence yesterday's purchase of Hambro Magan, and its 40 top-drawer corporate finance specialists. NatWest is buying less a company than a team. All of them, as Martin Owen, chief executive of NatWest Markets, so delicately puts it, are being "lashed to the tiller" with every financial incentive and lock-in clause known to man.

Whether they are going to enjoy themselves quite so much as part of a large clearer is a different question. Hambro Magan has thrived and prospered as an independent boutique; indeed this has been its main selling point. It has also positively encouraged the development of star corporate financiers. The emphasis is still very much on the "special" client relationship, an approach which is now distinctly unfashionable among larger investment banks. As the old guard at SG Warburg is only too painfully aware, all that disappears, once absorbed into one of the behemoths.

All the same, they could be right to make the transfer. The age of the small free-wheeling boutique operation is all too likely to die with the Conservative Government. If George Magan, head of Hambro Magan, is right about this, we are moving into an era when to survive in corporate finance, you need cross-border capability and a strong capital markets presence.

As for NatWest Markets, this acquisition makes a useful addition to Gleacher, the not dissimilar corporate finance boutique it bought out in the United States last year, and offers a real chance to match BZW with across-the- board expertise and services. It may be second best to plan A, the attempt to snatch SG Warburg from under Swiss Bank Corporation's nose, but it is certainly a far less traumatic approach to the ambition of becoming one of the world's biggest investment banks. Merging Warburg's with NatWest Markets might ultimately have created a more robust and credible world player, but boy, would there have been bad blood along the way, given the degree of overlap and consequent job losses. As it is, NatWest is being forced to adopt the piecemeal approach. We'll presumably never know how much Hambro Magan is costing, since no one is saying. But you can bet your boots it did not come cheap.