March 25, 2010 5:07 pm

The Rothschilds’ family fortune

THE HISTORY
The Rothschild family has a history of swimming against the tide. The seeds of its banking empire were planted in war-torn Europe in the early 1800s, when the sons of Mayer Amschel Rothschild left their native Germany to spread the family name across the continent.

They had a vision to build a unified business that would transcend the borders of France, England, Italy, Germany and Austria. More than 200 years and much upheaval later, the family dynasty is still intact. The core banking business is now in the hands of the seventh generation and largely still owned by descendants of Mayer Amschel, although the family recently appointed a non-relative as chief executive for the first time in its history.

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Out of all the divisions of the Rothschild business, the French branch has arguably faced the greatest turbulence.

Founded in 1812 by Baron James de Rothschild, the youngest of the five sons, the business grew by issuing bonds for government loans, financing railways and the mining business. It was seized by the state during the second world war and suffered another nationalisation in the 1980s when the French socialist government took control of all the country’s banks with deposits above FFr1bn ($170m at 1982 rates).

Banque Rothschild became the state-owned Compagnie Européenne de Banque, and the family received FFr150m for its share of the equity.

Baron Eric de Rothschild, chairman of the UK Private Banking & Trust, describes the nationalisation as “a real shock”. His father, Alain, and his cousin David’s father, Baron Guy de Rothschild, had rebuilt the Paris bank after it was seized during the second world war. “Our fathers were brought up in the bank; it was their second home,” he says. “And all of a sudden something very sentimental was lost.”

But the Rothschilds are resilient. Baron Guy fled France after the nationalisation, but barons Eric and David endeavoured to rebuild the bank. A small victory came when they asked the government what it planned to name its new bank.

“They looked at us in a funny way and said it would continue to be called Rothschild,” says Baron Eric. “We pointed out that the bylaws of the bank said if no more Rothschilds were on the board, then the name would lapse. They were absolutely furious.”

Barons Eric and David, along with the latter’s half-brother Edouard, launched a small fund management company using Paris Orléans Géstion – a holding company in which they owned stakes – as a launch pad.

Three years later, they were granted a banking licence. Shortly after, they reclaimed the family name, becoming Rothschild & Associés Banque and later, Rothschild & Cie Banque.

In 2003, the French business merged with the English arm under a new company, Concordia BV, to facilitate cross-border deals. Four years later, Paris Orléans took full control of Concordia.

In March this year, the family named Nigel Higgins, a 27-year veteran of the bank, as chief executive of the family holding company.

While the English and French businesses are now run as one, they have maintained their identities. The French side focuses on a narrower range of activities, mostly advisory business around mergers and acquisitions and asset management. It has never rebuilt a lending business and has not expanded into some of the more lucrative but riskier activities favoured by other banks.

THE WEALTH
The family empire is divided among a web of descendants and a few external shareholders. The ownership structure is opaque, which makes it hard to estimate the family wealth, although it is one of the richest in the world.

People close to the family credit its success to the fact the wealth has never been exclusively in the hands of one heir. Descendants have shared power and responsibility; multiple generations hold stakes in the core banking business.

The core global banking and private equity businesses are held by Concordia BV. First owned in equal shares by the English and French families, the company is now controlled by Paris Orléans. In 2008, Sir Evelyn de Rothschild, chairman of the English branch, and his family interests sold their 50 per cent stake in Concordia for a combination of shares in Paris Orléans and cash.

Paris Orléans manages €28.3bn ($38.5bn) of assets and has a value of roughly €600m. Family members hold almost 60 per cent of the capital, according to company information.

The family’s estate has been badly hit by the global downturn: the Rothschild group saw profits fall by almost half in the year to the end of March 2009.

OTHER INTERESTS
Aside from banking, the Rothschild name is best known for its production of fine wine. Baron James purchased Château Lafite, the family’s flagship Bordeaux vineyard, in 1868. Baron Eric took over the management of Lafite in 1974 and has extended the business to include châteaux in Bordeaux and other regions of France.

The wine business accounts for a significant part of the family wealth. It has produced exceptional vintages during the past 30 years. Château Lafite-Rothschild 2005 Pauillac now retails for almost £700 ($1,050) a bottle.

The Rothschilds are Jewish and have been generous donors to Jewish charities. They were involved in the development of Jewish colonies in Palestine and established the Open University in Israel. The family are also avid collectors, from art and properties to butterflies, stamps and silver.

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