View from City Road: Morgan's freedom at stake

From Deutsche Bank's point of view, the takeover of Morgan Grenfell has only been good in parts. The deal under which Morgan remained separately managed, and collaborated at arm's length with its parent, distracted the German bank from a much more important agenda, which was the development of a powerful international securities business.

Over the past couple of years, Deutsche has been rudely reminded of this lacuna. Aggressive American investment banks such as Goldman Sachs have snatched plum advisory jobs such as eastern German privatisation and the Daimler-Benz listing in New York from under Deutsche's nose. Deutsche is livid.

The Americans are succeeding with German customers because they can promise a window on the London and New York markets, through their integrated securities businesses, which offer equities, derivatives and bonds in any mix you care to name.

German companies appear to be dropping their reliance on borrowing from local banks in growing numbers and instead seeking the wider and more versatile sources of finance that the London and New York markets are the world's experts at providing. Deutsche needs access through the markets to big institutional investors to satisfy customers at home.

For Morgan, which pulled out of equities because it could not make a go of the business, the writing as an independently managed firm is on the wall.

The job of developing securities trading seems likely to go to Deutsche's own offshoots in London and New York, which are substantial operations. Deutsche's intention is to build its own business. If that doesn't work, it could always make an offer to Cazenove.

A big push in derivatives would also make sense. The mushrooming of Credit Suisse Financial Products in just four years has proved this is an area where you definitely can grow your own. Swiss Bank, after grafting on a Chicago futures trading operation, has proved equally successful. The Germans are looking to the Swiss as role models.

Logically, Morgan should keep control of global corporate finance and mergers and acquisition business; it is much better at it than the Germans.

But if integrated US investment banks are the threat, then surely that means Morgan is about to be forced further under the Deutsche umbrella, losing what's left of that famous independence. It will be interesting to see whether John Craven, the Morgan chairman who is on the Deutsche board, can stomach the change.