Schroders plc

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Schroders plc

31 Gresham St.
London EC2V 7QA
United Kingdom
Telephone: (+ 44) 20-7658-6000
Fax: (+ 44) 20-7658-3870
Web site: http://www.schroders.com

Public Company
Incorporated: 1818 as J. Henry Schröder & Co.
Employees: 2,700
Total Assets: £5.95 billion (2000)
Stock Exchanges: London
Ticker Symbol: SDR
NAIC: 523110 Investment Banking and Securities Dealing; 522293 International Trade Financing

Schroders plc is one of the world’s largest asset management banking groups, offering a range of private banking services to institutions; corporations; charities; local, regional, and national governments; unit trusts and pension funds; and the wealthy. The company’s network of more than 40 offices worldwide help it oversee assets of nearly $200 billion. In addition to its investment management operations, the company’s Schroder Ventures oversees its venture capital and buyout activities, with investments worth more than $7 billion. Based in London, Schroders generates more than two-thirds of its revenues in Europe, and more than half in the United Kingdom. The U.S. market accounts for 18 percent of sales while the Asian Pacific adds 11 percent of sales. Schroders is quoted on the London Stock Exchange and led by CEO David Salisbury. The founding Schroder family maintains a nearly 50 percent share of the company’s stock, enabling it to stick to its independent course against an era of mergers and consolidation resulting in the creation of a smaller field of globally operating mega-banks. Schroders itself was forced to exit the investment banking market, selling off those operations to Salomon Smith Barney, a unit of industry mammoth Citigroup, in 2000. Instead, the company has concentrated fully on asset management, building up its private banking services and extending its range of pension fund offerings.

Merchant Origins in the 19th Century

The Schröder family had already established itself as a prominent merchant family in their Hamburg, Germany base by the beginning of the 19th century. Like many other prominent families active in trade, the Schroders had also branched out into a number of Europe’s major cities. In 1804, Johann Heinrich Schröder traveled to London, joining his brother’s merchant firm there.

Schröder set out on his own in 1818, founding the firm of J. Henry Schröder & Co. The new company continued the family’s traditional trading activities while gradually adding a new dimension, that of merchant banking. The rise of international trade during the 19th century brought a need for more secure payment methods. Merchant banks were created in order to provide trading houses with guaranteed payments. The appearance of merchant banks was to play a central role in encouraging the growth of international trade. Johann Heinrich Schröder was succeeded by son John Henry, who took over the company at the age of 24 in 1849.

The Schröder firm (known as Schroders) profited both from the growth of international trade and the growing demand for its merchant banking services. The firm’s trade financing activities were to overtake its trading operations during the century; the company also moved into other financial areas, such as bond issuing and capital investments. In 1863, Schroders became the only source of foreign capital in the United States during the Civil War when it issued £3 million to the Confederates. Back in Europe, the company established a charitable trust, Schröder Stiftung, in 1850, that later was to earn Johann Heinrich Schröder a baronage from the king of Prussia. John Henry Schröder was similarly honored by Queen Victoria at the end of the century, in recognition for the financial assistance he had provided to the British royal family. By then the next generation of Schroders had joined the firm; John Henry’s son Bruno became a partner in 1895. Bruno Schröder received a baronage from Kaiser Wilhelm II in 1904.

Schroders had by that point achieved international prominence. The company was the first to bring a foreign loan to the Japanese government, raising £1 million in order to provide funds for building the railroad between Tokyo and Yokohama. While the company continued to rise with the development of international trade through the latter half of the century, it pursued its merchant activities as well. In the 1870s, for example, Schroders acted as one of the major traders for Peruvian guano, then widely used as fertilizer.

At the turn of the century, Schroders had grown to become one of the largest merchant banks in London—and by the outbreak of World War I had claimed the number two spot. The firm was also a leader in the issuing of foreign loans. Among the company’s noteworthy transactions of the period was a controversial £15 million loan arranged for the Sao Paulo, Brazil government to help stabilize coffee prices, made in 1909.

Survival in the War Years

Schroders continued to build on its successes in the years leading up to World War I, as London became not only the focus point of a rapidly growing international trade market but also the financial capital of the world. At the same time, Schroders was quick to move into new financial markets and products being developed at the time, such as foreign exchange dealing and commodities futures trading. The company expanded rapidly during this time, with operations covering nearly all of Europe.

The outbreak of World War I inaugurated a long period of struggle for both the Schroders and their company. Despite a long history as one of England’s leading merchant banking families, the Schroders had remained German citizens. The outbreak of hostilities between England and Germany opened the Schröder firm to possible seizure by the British government. Bruno Schröder himself was threatened with sequestration for the duration. Yet within days after the declaration of war, Schröder was naturalized as a British citizen.

If Schröder had avoided imprisonment, he could not avoid seeing the family firm suffer as the British and European financial markets collapsed with the war. The U.S. dollar took over from the British sterling as the world’s leading currency; the international bonds market meanwhile was shifted to New York. By the end of the war, Schroders, along with England’s other merchant banks, struggled to regain their position. Schroders was able to rebuild its position as a leading acceptance house. Yet the United States had emerged from the war as the world’s new financial center. In 1923, Schroders opened a new subsidiary in New York, the J. Henry Schröder Banking Corporation, which became known as Schrobanco.

In 1926 the next generation of Schroders, led by Helmut, son of Bruno Schröder, joined the bank in time to face a crisis. At that time, the company branched out into a new business, that of investment management, creating a separate department for this activity. Yet the international financial crisis and, in particular, the collapse of the German economy, nearly forced the company out of business. The ensuing buildup and then outbreak of World War II brought new difficulties for the company, which saw much of its assets frozen for the duration. As the company itself stated, “Survival was J. Henry Schröder & Co.’s foremost achievement in the depression and war years.” With its European operations in disarray, the company concentrated on building up its U.S.-based Schrobanco unit. Operated as an independent company, Schrobanco remained largely protected from the misfortunes of its European parent.

When Bruno Schröder died in 1940, son Helmut took over as the firm’s senior partner, as well as head of Schrobanco. Following the war, the company refocused its European operations on the slowly recovering London market; the firm’s London headquarters concentrated primarily on domestic business, while its U.S. subsidiary became the center of its international finance activity—and the largest part of the Schröder group. At home, however, Schroders focused on developing an investment funds business, which proved the motor for the company ‘’s growth in the second half of the decade, as London regained its prominence as one of the top financial centers in the world.

By the end of the 1950s, the company had largely succeeded in redeveloping its fortunes. At the time, the company also anglicized its name, dropping the umlaut to become Schroders. Two years later, in 1959, Schroders converted from a partnership to a private company, then took a listing on the London stock exchange, changing its name to Schroders plc. Despite going public, the Schroder family maintained firm control of the company through a majority shareholder’s position. The next generation, in the form of Bruno Schroder, joined one year later, and was named to the board of directors in 1963.

In 1962, the company merged with another merchant bank, Helbert, Wagg & Co. Founded in 1823, that firm had built up a strong specialty with its brokerage operations. The newly enlarged Schroders quickly began expanding worldwide, establishing offices in the major financial markets, launching unit trusts, and broadening its asset management and lending activities. By the end of the 1970s, Schroders was present across Europe, including Switzerland, and in Hong Kong, Singapore, Japan, and Australia.

Asset Management Specialist in the 21st Century

A series of bad loans to the South American market during the 1970s and 1980s brought Schrobanco into difficulty and by 1986 Schroders decided to sell this business to the Industrial Bank of Japan. At the same time, the company temporarily exited its unit trusts operations, selling that business to National Mutual Life. Under terms of that deal, Schroders agreed not to reenter that market before the end of the decade, while continuing to manage some of the unit trusts.

Company Perspectives:

The aim of our continuing businesses is to apply our specialist asset management skills in serving the needs of our clients worldwide and in delivering value to our shareholders .

The so-called “Big Bang” deregulation of the British banking industry went into effect in 1986, opening up the country’s financial markets. As a result, Schroders began concentrating more closely on its corporate finance and investment business. Boosting this was the company’s acquisition of 50 percent of Wertheim & Co. Inc., based in New York. Yet the company’s lack of capital prevented it from joining the acquisition fever of the period, as banks began acquiring brokerships and other businesses now allowed by the deregulation move. For this reason, Schroders was relatively unaffected by the stock market collapse of 1987.

Schroders returned to unit trusts management at the beginning of the 1990s, focusing especially on the Japanese market. The company’s funds management business was also gaining rapidly, building from just £15 billion at the end of the 1980s to more than £50 billion in 1994. In that year, the company acquired full control of Helbert, Wagg & Co., which was then renamed Schroder & Co. Inc. Schroders was also expanding its presence in the Asian markets, notably with the opening of a subsidiary in China, while building up a position in the newly opened Eastern Bloc countries.

Schroders became the target of a takeover attempt by Dutch banking powerhouse ABN/AMRO in 1995. The Schroder family, led by Bruno Schroder, resisted the offer, insisting on remaining independent. By then, however, the world financial community had entered into a new round of consolidation aimed at creating a very few global giants. Schroders began to find it increasingly difficult to compete with this new generation of mega-banks—not only for clients, but also when recruiting top personnel. Schroders itself added to its problems as its investment division struggled to keep up with the industry index. The difficult economic situation in a number of markets in the late 1990s, such as Asia and Russia, also caused the company grief.

Schroders attempted to prop up its investment side by taking on more weight—in 1999, the company entered negotiations to merge with Beacon Group, founded in 1992 by former Goldman Sachs executive Geoffrey Biosi. The deal would have enabled Schroders to capture a strong position in the international marketplace. When that deal fell through, however, the company, now led by CEO David Salisbury, reviewed its options. By the beginning of 2000, Schroders had adopted a new strategy, announcing that it was selling its investment banking arm to Salomon Smith Barney, part of Citigroup.

Meanwhile, Schroders became a dedicated assets management group. At the end of 2000, Schroders launched a new subsidiary, Schroders & Co., organized around its former Schroders Personal Investment Management Limited subsidiary and incorporating the company’s acquisition of Liberty International Pensions Limited, which was renamed Schroders Pensions. Schroders & Co. was also expected to serve as the company’s springboard into the wider European private banking market.

Among the moves meant to bolster this effort was the opening of a new branch in Frankfurt, Germany, in August 2001. In that year, also, the company launched a new institutional stakeholder pension product, designed to extend its range of services for corporate clients. At the same time, Schroders renewed its efforts to expand in the Asian markets, as the economies in that region picked up speed again; yet the company’s attempt to acquire Taiwan’s Masterlink Investment Trust was thwarted when it was outbid by Prudential Insurance Company. This development seemed to highlight the company’s vulnerability in an era when it found itself among the last of the remaining independent British merchant banks. Without the deep pockets of its behemoth competitors, observers wondered how long Schroders would resist any future takeover offers. For the moment, however, Schroders seemed to settle in comfortably to its new identity as an assets management specialist for the 21st century.

Key Dates:

1818:: J. Henry Schröder & Co. is formed.
1863:: Company issues £3 million bond during American Civil War.
1870:: Company backs first foreign loan to the Japanese government, for Tokyo-Yokohama railroad.
1909:: Company arranges £15 million loan for Sao Paulo, Brazil.
1914:: Schröder family members are naturalized as British citizens.
1923:: J. Henry Schröder Banking Corporation (Schro-banco), based in New York, is formed.
1926:: Company launches investment management services.
1957:: Schroder name is anglicized.
1959:: Schroders converts to private company, then goes public.
1962:: Company merges with Helbert, Wagg & Co.
1986:: Schroders acquires 50 percent of Wertheim & Co., then gains full control eight years later.
2000:: Schroders sells investment banking arm to Salomon Smith Barney; acquires Liberty International Pensions.
2001:: Company launches institutional stakeholder pension products.

Principal Subsidiaries

Burnaby Insurance (Guernsey) Limited (Channel Islands) ; Milk Street Investments (No 5) Limited; Milk Street Investments Limited; PT Schroder Investment Management Indonesia (85%) ; Schroders & Co.; Schroder & Co. Bank A.G. (Switzerland) ; Schroder & Co. Limited; Schroder (Deutschland) Holdings GmbH (Germany) ; Schroder Administration (Guernsey) Limited (Channel Islands) ; Schroder Cayman Bank and Trust Company Limited (Cayman Islands) ; Schroder Executor & Trustee Company Limited; Schroder Finance Partners LP (U.S.A.) ; Schroder Holdings plc; Schroder International Finance B.V. (Netherlands) ; Schroder International Holdings Limited; Schroder International Limited; Schroder Investment Company Limited; Schroder Investment Management (Guernsey) Limited (Channel Islands) ; Schroder Investment Management (Hong Kong) Limited; Schroder Investment Management (Italy) S.p.A.; Schroder Investment Management (Japan) Limited; Schroder Investment Management (Luxembourg) S.A.; Schroder Investment Management (Singapore) Limited; Schroder Investment Management Australia Limited; Schroder Investment Management Brasil S.A. (Brazil) ; Schroder Investment Management Canada Limited; Schroder Investment Management Fondsmæglerselskab A/S (Denmark) ; Schroder Investment Management International Limited; Schroder Investment Management Limited; Schroder Investment Management North America Inc. (U.S.A.) ; Schroder Investment Management North America Limited; Schroder Investments (Bermuda) Limited; Schroder Investments (SVIIT) Limited (Bermuda) ; Schroder Middle East Limited; Schroder Pensions Limited; Schroder Property Investment Management Limited; Schroder Trust Bank (U.S.A.) ; Schroder U.S. Holdings Incorporated; Schroder Unit Trusts Limited; Schroder Venture Managers Limited (Bermuda) ; Schroder Ventures (1991) Limited; Schroder Ventures Holdings Limited; Schroder Ventures International Holdings Limited; Schroder Ventures Investment Company Limited; Schroders (Bermuda) Limited; Schroders (C.I.) Limited (Channel Islands) ; Schroders (Shanghai) Financial Advisory Co. Limited (China; 85%) ; Schroders Australia Holdings Limited.

Principal Competitors

3i Group Plc; Abbey National plc; Bank of Ireland; Barclays Plc.; The Charles Schwab Corporation; Close Brothers Group Plc; Goldman Sachs; HSBC Holdings; Jefferies Group; Legg Mason; Lloyds TSB; Merrill Lynch & Co., Inc.; Natexis; The Royal Bank of Scotland Group plc; Singer & Friedlander Group; St. James’s Place Capital; UBS Warburg.