The last major merchant bank in the City of London, Schroders, has sold its investment bank business for £1.35bn ($2.21bn) to US banking giant Citigroup.

The announcement comes on the day that another of the City's oldest names, Gerrard, has been taken over by South African insurer Old Mutual for £525m.

Asset management

Schroders says it will now concentrate on asset management and private banking. This part of the business operates in 23 countries and controls assets worth over $200bn.

The investment banking business will be merged with Salomon Smith Barney, which is part of Citigroup, the world's largest financial firm.

The deal allows the Schroder family, who own 50% of the bank, to turn some of their stake into cash.

However, the bank said that some of the money will "be applied to the development of the asset management business".

Schroders said Citigroup would pay a premium of £550m on top of the bank's estimated net assets of £800m at the end of 1999.

However, what remains of Schroders will incur "substantial costs" to implement its new strategy of focusing on asset management and private banking. The transaction is expected to be completed by May this year.

Shoring up Salomon Smith Barney

In a statement, Citigroup's chairmen and co-chief executives John Reed and Sanford Weill said the deal represented "another critical step in our efforts to realise the promise of Citigroup. It doubles our investment banking platform in Europe and gets us to where we want to be in that important region several years ahead of schedule."

The acquisition is seen as an attempt to strengthen Salomon Smith Barney's European operations, especially in the key mergers and acquisitions arena.

Sir Win Bischoff, chairman of Schroders, will stay with the investment banking part of the business and join Citigroup as chairman of Citigroup Europe.

His deputy Peter Sedgwick, will replace him as chairman of Schroders, while David Salisbury will become chief executive.

With the sale of the investment banking part of Schroders, the City loses one of its last British-owned merchant banks.

German roots

Schroders was founded in 1818 by German banker Johann Heinrich Schröder.

The business soon transformed itself into a merchant bank, guaranteeing bills of exchange which were an important instrument of international trade at the time.

The firm soon became well established in the City, and at the start of World War I the London-based members of the Schröder family gave up their German citizenship.

The bank's name, though, was not anglicised until 1957.

Old Mutual strikes

Another old City name to sell out is Gerrard, owners of stockbroker Greig Middleton.

They have been bought by South African insurer Old Mutual for £525.

The company is more than 140 years old.

Gerrard's stock broking operation, with 20 offices, will be integrated in Old Mutual's Capel Cure Sharp business.

The asset management part of the company will boost Old Mutual's activities in the area.