Rathbone Brothers plc

159 New Bond Street
United Kingdom
+ 44 20 7399 0000
+ 44 20 7399 0011
Web site: http://www.rathbones.com

Public Company
Employees: 78
Operating Revenues: £109.95 million ($211.82 million) (2004)
Stock Exchanges: London
Ticker Symbol: RAT
NAIC: 523120 Securities Brokerage; 523920 Portfolio Management

While Rathbone Brothers plc (Rathbones) dates its history to a 1742 founding as a Liverpool-based shipping business, the company eventually came to be best known for providing financial services, with a focus on the investment management and unit trust markets. Rathbones operates from offices in London and Liverpool—the latter city is also the site of the group's backoffice operations—as well as six regional offices, including an office in Scotland. Since the late 1990s, the bank has built up a growing offshore presence, with operations in Jersey and Geneva, Switzerland, and in the British Virgin Islands. Rathbones also has grown through a series of acquisitions, as well as through the hiring of individual investment managers and their client portfolios. The United Kingdom remains by far the group's primary market. The United Kingdom also represents nearly 90 percent of the more than £7 billion of total funds under the group's management at the beginning of 2005. Investment management and banking accounts for approximately 80 percent of the group's operations, with trust services providing the remainder. Although the founding Rathbone family remains associated with the company, Rathbones has been listed on the London Stock Exchange since the mid-1980s. Former and current company employees hold about 25 percent of the group's stock. The company is led by Chairman Mark Powell, CEO Roy Morris, and CFO Andy Pomfret.

Shipping Dynasty Until the 20th Century

Rathbone Brothers was founded in 1742 by William Rathbone II. Born in 1696 in Gawsworth, a village near Macclesfield, England, Rathbone went to work in Liverpool, then a fast-growing British port, starting his professional life as a sawyer. By 1742, Rathbone had launched a business trading timber.

Rathhbone's son, William III, inherited his father's business and built it into a major international trading company. The younger Rathbone continued the local timber trading business, but extended its activities to encompass a wider range, adding new goods, and especially, new foreign trading routes. By the end of the century, the Rathbone family counted among the most prominent of Liverpool's rising shipping industry. William III was later joined by his son, William IV.

Much of the family's operations took place through a series of partnerships into the early 19th century. The company took on its more permanent form only in 1824, when brothers William V and Richard Rathbone, together with James Powell, formed a new partnership under the name of Rathbone Brothers & Co. By then, the company had established prominence for itself as a leading trader of cotton from the United States.

Over the following decades, Rathbone Brothers added additional partners, including William VI and his brother Samuel Greg Rathbone, who joined the company in 1842 and 1847, respectively. Another important figure in the company's development was Henry Wainwright Gair. By the 1840s, Rathbones had begun importing grain from the United States as well as cotton. The company, which built up an important fleet during this period, also profited from its trade with the United States by launching shipments of tea and coffee to the United States. India, too, represented an important trading market for the company, particularly for cotton and textiles. In 1841, the company's interests in India were strengthened when it became the official Liverpool trading agent for the giant East India Company.

To support its growing trade interests, Rathbones established an agency in New York in the 1840s, initially under the leadership of Henry Wainwright Gair. At the same time, the company extended its reach to China, opening two agencies in Shanghai and Canton. Launched by Samuel Greg Rathbone, the company's Chinese branch began operating under the name of Rathbone, Worthington and Co. The company began exporting tea and silk from China, and importing British products to the country. Other Rathbone operations launched during the second half of the century included salted beef from South America; wheat, corn, and cotton from Egypt; and coffee from Brazil. The increasing reach of the company's operations prompted it to establish a new agency in London. Originally operated under the leadership of Rathbones partner William Lidderdale, the London branch began the base of operations for a new generation of Rathbones, William Gair Rathbone VII.

Changing Focus in the 20th Century

Like many of the great British trading houses, Rathbones' fortunes dwindled toward the turn of the 20th century. Increasing competition, including the appearance of a new generation of powerful companies in the United States, cut deeply into Great Britain's former trade dominance. At the same time, the appearance of new technologies, including steam and internal combustion engines, and the first intercontinental communications services, increasingly pushed the trading house toward obsolescence.

By 1890, Rathbones had begun to struggle to retain its profits. By 1898, the company's difficulties had forced it to shut down its London agency altogether. Rathbones' financial problems continued into the new century, and by 1912, the company was forced to restructure its operations. From that point, Rathbones progressively abandoned its trading operations in favor of a new field, that of financial management.

Entering the 20th century, the Rathbone family had become one of the country's most prominent. The Rathbones also had gained a reputation for their social and political advocacy. William IV had lead the way, taking the stand against British involvement in the slave trade, despite Liverpool serving as a major hub in that traffic. William V had fought corruption in the city's government, while William VI had been responsible for founding the area's District Nursing program. The family's social commitment continued into the new century, donating its family's Greenbank estate—home to the Rathbones since the late 18th century—to the University of Liverpool starting in the 1930s.

The Rathbone partnership in the meantime began a new, quieter life providing asset management services to the Rathbone family. Rathbones evolved into an accredited bank over the next decades, although the company did not develop typical banking products, such as checking accounts and other services. Instead, the company focused its operations on treasury management, in large part based on clients' excess assets. Rathbones also retained fairly closed operations. Into the early 1980s, the company's client base remained mostly limited to the Rathbone family and their friends and contacts.

Reforms to Britain's banking sector in the 1980s, coupled with the Thatcher government's pro-capitalistic stance, encouraged Rathbones to become interested in expanding its business. As part of that effort, the company abandoned its partnership status in 1984, and instead listed its stock as a public limited company (plc) on the London Stock Exchange that year. Nevertheless, Rathbones maintained certain aspects of its partnership past, such as the granting of equity shares in the business to its employees. By the dawn of the 21st century, former and current Rathbone employees held more than 25 percent of the company's shares. This helped lend a partnership-like feel to the company's corporate culture.

Leading U.K. Private Banker in the 21st Century

Yet Rathbones' public listing also exposed it to shareholder pressure. Into the late 1980s, the company appeared relatively inefficient, achieving only slender profit margins. Rathbones responded to the situation by agreeing to merge with another financial planning company, Comprehensive Financial Services Ltd., or CFS.

CFS was founded in 1971 by Oliver Stanley, with backing from a number of institutional investors. The London-based company initially acted as a consultancy, providing financial planning services. In 1975, however, after Stanley led a management buyout of the firm, it began expanding its services, not only in the United Kingdom, but also to a foreign clientele. In 1984, the company placed a number of its shares on the London exchange's Unlisted Securities Market. This in turn permitted the group to expand its operations into the discretionary fund management market through the acquisition of CFS (Investment Management) Ltd. That firm was owned and led by two former Dunbar Fund Managers, Micky Ingall and Jonathan Ruffer. Into the late 1980s, CFS enjoyed strong profits.

Company Perspectives:

Independence is an increasingly rare phenomenon, especially today where large financial institutions often deliver "one-solution-for-all" services. At Rathbones we value our independence as it gives us the freedom to develop investment strategies that are right for our clients whatever their financial goals and risk profile. Independence also gives us the confidence to deal with change. While our firm has its roots in the 18th century, our approach is very much of today. We understand the vagaries of the world economies and are always ready to adapt individual investment strategies to meet the ever-changing circumstances of our clients. It is vital to have the experience, the insight, the technology and, of course, the presence of mind to do so—rapidly and decisively. And, finally, independence allows us to deliver a genuinely personal service that is based on an investment manager developing an investment solution that is individual to each client.

Although half the size, in terms of assets under management, as Rathbones, CFS proved twice as profitable. The merged company, which retained the Rathbone Brothers name, was able to exploit the complementary geographic scope of both companies, as well as Rathbones' coveted status as a full bank. The larger Rathbones portfolio benefited from CFS's tighter efficiency; at the same time, the company also could take advantage of Rathbones' presence in Liverpool, which offered far lower overhead costs than CFS's London-based business.

Going forward, Rathbones began making a series of small acquisitions, including adding individual fund managers and the client portfolios, as well as small trust and other asset management firms. Rathbones also moved to establish a European presence ahead of the lowering of trade barriers among EU countries in 1992. As part of that effort, the company established an office in Geneva, Switzerland in 1989. Initially a partnership, Rathbones acquired full control of its Geneva branch in 1990, giving the bank an important entry into the underdeveloped unit trust management market in Switzerland. In that year, also, Rathbones established an office in the British Virgin Islands, increasing the scope of its trust and company services.

Rathbones made two significant acquisitions in the mid-1990s. In 1995, the company acquired investment management firm Laurence Keen. That purchase was followed up by the acquisition of Nielson Cobbold at the end of 1996. Operations of the three firms were then combined into a single entity in 1998, based around Rathbones' London and Liverpool centers. By expanding the company, Rathbones was also able to expand its geographic scope, with regional centers appearing in Edinburgh, Bristol, and Worcester, and elsewhere in Great Britain. Acquisitions continued to play an important role in Rathbones' growth, with additional purchases including the smaller firms of Albyn Investments and Walsham Consultants.

Rathbones also had moved onto the Channel Islands, allowing its customers to take advantage of the liberal tax laws there by establishing a dedicated Unit Trusts business. In 1998, the company expanded its Channel Islands presence with the acquisition of Curzon Secretaries & Trustees Ltd., which was subsequently renamed as Rathbone Jersey Ltd. Following that acquisition and the amalgamation of Lawrence Keen and Nielson Cobbold into the company, Rathbone launched a massive redevelopment of its administrative systems, creating a single, unified investment management computer system.

That process was completed, in large part, in 2000. The new system not only permitted the company a significant cost savings, notably by greatly reducing administrative tasks, but also provided a low-cost platform for further expansion. The company then launched a new round of acquisitions, including the 2000 purchase of Jersey-based Nigel Harris Trust Company Ltd. Other purchases by the company included Galsworthy & Stones and Oaktree Investment Management, as well as a number of individual investment managers.

Despite the difficult economic climate of the early 2000s, Rathbones maintained its strong growth. Between 2001 and the end of 2002, the company's assets under management portfolio grew by more than £1 billion ($1.6 billion). That growth continued toward mid-decade. By 2003, the company's total assets under management topped £5 billion. By the end of 2004, the group's total funds under management stood at nearly £7 billion ($13.6 billion), and the company expected its total assets portfolio to top £8 billion by the end of 2005. In this way, Rathbones, with a history stretching back more than 260 years, entered the new century as one of the United Kingdom's leading independent investment management banks.

Principal Subsidiaries

Rathbone Bank (BVI) Ltd. (British Virgin Islands); Rathbone Investment Management (C.I.) Ltd. (Jersey); Rathbone Investment Management Ltd.; Rathbone Jersey Ltd. (Jersey); Rathbone Stockbrokers Ltd.; Rathbone Trust Company (BVI) Ltd. (British Virgin Islands); Rathbone Trust Company B.V. (Netherlands); Rathbone Trust Company Jersey Ltd. (Jersey); Rathbone Trust Company Ltd.; Rathbone Trust Company S.A. (Switzerland); Rathbone Unit Trust Management Ltd.

Key Dates:

William Rathbone II establishes a sawyer business and timber trading company in Liverpool.
William Rathbone V and brother Richard Rathbone form a new partnership with James Powell, called Rathbone Bros. & Co.
Rathbones becomes the principal trading agent in Liverpool for East India Company.
Samuel Greg Rathbone becomes partner and expands operations with offices in Shanghai and Canton, China; Rathbones also opens an office in New York and, later, an office in London to handle increasing trade in tea and silk from China.
Financial problems lead to the closing of the London agency.
Rathbones restructures and converts its focus to financial management.
Oliver Stanley founds a financial services consultancy in London, which later becomes CFS.
Stanley leads a management buyout and expands the range of services offered by CFS.
Rathbones lists on the London Stock Exchange; CFS places shares on the Unlisted Securities Market.
CFS acquires CFS (Investment Management) Ltd.
Rathbones and CFS merge, under the Rathbone Bros. name.
Rathbones expands to Geneva and the British Virgin Islands.
The company acquires the Laurence Keen investment management firm.
The company acquires the Nielson Cobbold investment management firm.
Keen and Cobbold are merged into a single, unified business; the company acquires Curzon Secretaries & Trustees Ltd. in Jersey.
The company acquires Nigel Harris Trust Company Ltd. in Jersey.
Rathbones forecasts total assets under management to top £8 billion by the end of the year.

Principal Competitors

Fortis N.V.; AEGON N.V.; CDC IXIS Capital Markets; Westpac Banking Corporation; Landesbank Berlin–Girozentrale; DnB NOR ASA; BNP Paribas Arbitrage; Caisse Interfederale de Credit Mutuel; UniCredit Banca Mobiliare S.p.A.; Mediobanca S.p.A.

Further Reading

Avery, Helen, "The Bald Truth About Rathbones," Euromoney, November 2004, p. 6.

Nottingham, Lucie, Rathbone Brothers: From Merchant to Banker 1742–1992, London: Rathbone Brothers PLC, 1992.

Owens, Martin, "The Rise of Rathbones," Private Banker International, December 2004, p. 11.

—M.L. Cohen

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