Cazenove looks to JP Morgan deal to lock in senior partners

NEW YORK - Cazenove, the broker to the Queen, is talking to the giant Wall Street bank JP Morgan Chase about creating a joint venture which would end the independence of the City's best known advisory firm.

The 181-year-old firm is considering a proposal from JP Morgan that would see both parties take an equity stake in the joint venture.

By structuring the deal in this way, JP Morgan hopes to agree a lower value than the £1bn to £1.5bn the City believes an outright buyer would have to pay.

It also hopes the structure would lock Cazenove's senior partners into remaining with the firm.

The talks are the latest in a long line of proposals that Cazenove has considered. It has also had a serious approach from Lehman Brothers, another US investment bank. Barclays also expressed interest in merging Cazenove with its investment banking operation.

The blue-blooded brokerage is also considering floating itself on the stock market as an independent entity.

While talks with JP Morgan are at an early stage, the structure of its joint venture proposal could be attractive to Cazenove because its senior partners would be able to retain control of its business.

Giving Cazenove's partners equity in the joint venture would also tie them in to staying with the firm, JP Morgan hopes.

This would be more attractive than a straight-forward takeover, such as that mooted by Lehman, which could see a stream of Cazenove partners leave the firm after collecting their windfalls from the deal.

JP Morgan would not comment on the talks.

While the bank already has substantial investment banking operations in London, a deal would give an enormous boost to the American bank's presence in the City.

Cazenove's client list, which includes half of the FTSE 100, would give JP Morgan access to blue-chip clients to whom it would hope to sell a broad range of financial products which Cazenove, as an advisory firm, currently does not offer.

JP Morgan would give Cazenove a certain amount in cash, though the partners would receive a stake in the joint venture.

Cazenove's 1,000 employees would be joined with some of JP Morgan's European investment banking staff.

Cazenove sparked a flood of interest from rival banks when it announced it would end its partnership structure and float on the stock market.

Poor market conditions have prevented it from listing its shares, and in June its chief executive, Robert Pickering, said it was considering selling the business.

JP Morgan has already made a major foray into the UK's brokerage market.

Chase Manhattan, which merged with JP Morgan in 2000, previously swallowed the private investment house Fleming for $7.7bn. Critics say Fleming was not able to flourish once it was subsumed.

JP Morgan hopes the joint venture proposal would mean it could avoid making similar mistakes with Cazenove.

- INDEPENDENT