The bumpy road to JP Morgan’s capture of Cazenove

The Cazenove name carried a mystique and heft, yet, a decade later it had been absorbed entirely into JPMorgan Chase & Co. (Source: Reuters/File)

Cazenove & Co. at the turn of the millennium was still the grand old name of British stock broking and corporate finance. Its partners and staff of former soldiers and old Etonians still dealt shares and advised executives in the same genteel fashion they had for almost 180 years. They didn’t work too much or sell too hard, but they became rich nevertheless.

The Cazenove name carried a mystique and heft in the City of London greater than rivals because of its close links to the biggest UK companies, its discretion and its treasured independence. Yet, a decade later it had been absorbed entirely into JPMorgan Chase & Co. Its metamorphosis was deliberately unhurried, which perhaps in the end helped make it one of the most successful takeovers in the notoriously bloody field of investment-banking deals.

But for Robert Pickering, who helped lead the changes as a young partner and then the firm’s first chief executive officer, it became a personal nightmare. His was “one of the best jobs in the City,” but it turned into a brutal battle for control, which he recounts in the forthcoming Blue Blood: Cazenove in The Age of Global Banking.

His prose is dispassionate: There is none of the expletive-laden breast-beating of John Mack’s recent tales of “killing it” at Morgan Stanley and Credit Suisse. It isn’t a self-pitying or vengeful story, but Pickering is definitely pointing fingers. There is frustration and anger at the boardroom “knife fights” in his time running the JPMorgan-Cazenove joint venture. He is open about his difficulties, feeling targeted and undermined and ultimately losing a power struggle. It’s a refreshing change from the more typical “I was right and here’s why” executive memoir.

Others may have different views of what happened and how. Pickering’s nemesis in the final acts was Bill Winters, who was then global co-head of JPMorgan’s investment bank and now chief executive officer of Standard Chartered Plc. The final third of the book is all about the challenges of creating and managing a joint venture and Pickering’s deteriorating relationship with Winters.

His account includes context and support in the quoted memories of senior colleagues who were there, including Cazenove’s legendary chief rainmaker, David Mayhew, who still regularly turns up to work at JPMorgan at the age of 82.

I offered Winters a right of reply and he simply said in an email: "I was always pleased that the JV proved a great success both at the time and even more so in the subsequent years."

Cazenove began its transformation because the arrival of hungry American competitors after the wave of UK deregulation since the 1980s heaped ever-more competitive pressures on the City. The partnership avoided the first wave of takeovers, carefully guarding its reputation for impartial advice. But margins were shrinking in its old-fashioned business and in dealing stocks it was falling behind bigger banks. This threatened the intelligence behind its advice and its ability to raise money for big companies. Something had to be done.

There are good management lessons on making complex changes from the early period when Cazenove abandoned its partnership structure, raised money from new shareholders and appointed Pickering as CEO at just 41 in 2001. He re-examines decisions that tied his hands in subsequent years and the occasionally tough but overdue professionalization of the broker.

The aim was to eventually list Cazenove & Co. on the London Stock Exchange, but markets were uncooperative in the wake of the dotcom bust, and it struggled to grow its takeover advisory and equity-trading businesses. The narrative action picks up in 2004 with several rounds of deal talks with Barclays, Credit Suisse First Boston, Lehman Brothers (Eek!) and others.

There are some entertaining cameos. Pickering learns ahead of time that John Mack is about to be squeezed out at CSFB. Bob Diamond, then head of Barclays Capital, showers him with superlatives and big numbers, but a deal makes no sense and hits a dead end. Pickering suspects that Diamond saw the chance to win a trophy asset and thought he ought to have it; he’d worry about what to do with it later.

But the most interesting part of the book is the birth of the joint venture with JPMorgan and its rocky management before Pickering’s exit in 2008 and the buyout of old Cazenove shareholders in 2010.

The 2005 tieup took months of negotiation, particularly around the governance structure designed to preserve JPMorgan-Cazenove’s operational independence from its giant 50% owner. In the early days, there are bumps in the cultural road and mismatches of expectations: Pickering admits that both sides forgot to think about how they should explain the JV to all the people from both sides who worked in it. There are losses of clients and staff.

Pickering is also amusingly baffled and irritated by the American side’s obsession with the mood of what he calls “The Juniors,” the early-career workhorses of US banking. In old Cazenove, everyone mucked in together.

These things settle down and the JV starts to grow and win new fee-paying jobs and clients, but in the boardroom problems only fester. The board comprises Pickering, Mayhew and Cazenove’s finance chief representing the Cazenove shareholders; Winters and two senior JPMorgan bankers for the US bank; plus a handful of independents who end up as mainly passive observers to a series of set-piece battles.

There are fights over conflicts of interest, such as when a JPMorgan client — Telefonica SA of Spain — makes an offer for a Cazenove client — O2. Which bankers should withdraw? There are skirmishes over recruitment, promotions and bonuses, and most of all over whether Cazenove people are limiting JPMorgan’s access to their main treasure: That golden list of clients.

Pickering feels bombarded by personal criticism and is constantly battling Winters’s efforts to exert greater control, which goes against the strict governance deal struck for the JV. Ultimately, Winters wants to replace Pickering with a CEO of his choosing. There is a deeply awkward board dinner, during which Klaus Diederichs, one of the JPMorgan members, suddenly and inappropriately volunteers to replace Pickering. Mayhew remembers it as “very uncomfortable.”

Pickering gets a chance to talk to CEO Jamie Dimon in early 2007 about the situation. Dimon seems sympathetic and tells Pickering to let him know if things get really out of hand. Pickering replies: “I’m telling you that now.”

The battle for control leads Winters to launch an early buyout attempt for the joint venture with a low-ball offer that results in a full-blown shouting match, an episode never previously made public. That summer, Pickering first talks to Mayhew about recruiting a potential new CEO. Then, as the global financial crisis begins, everyone is briefly occupied with survival. But nothing improves and by Christmas 2007, Pickering realizes it’s time to exit. Of course, Winters didn’t survive much longer before being pushed out by Dimon in 2009. Pickering claims to have noticed a prickliness between the two men from early on.

Pickering’s account isn’t sensational, but it is highly readable and full of the knotty problems, errors and irritations of everyday management and radical institutional change. There is much that might be either helpful or reassuring for aspiring and current executives.

It was left to others to finally integrate the joint venture into JPMorgan. Today, 200 years after its founding in 1823, the Cazenove name survives on the calling cards of the megabank’s stock brokers and corporate finance bankers in London.