Cazenove's investment banking unit, which advises nearly half of Britain's leading companies, is to be merged with the rival operation run by JP Morgan, ending 181 years of independence.

The two banks are each to pump £50 million into a joint venture, to be named JP Morgan Cazenove, which will rank as the UK's top-ranking corporate broker and adviser on mergers and acquisitions.

JP Morgan will also pay £100 million to Cazenove, which is to return £340 million to shareholders, bringing huge windfalls to employees.

The announcement of the joint venture, which will employ Cazenove's 750 corporate finance and broking staff and 70 JP Morgan workers, follows lingering speculation of a tie-up. Cazenove, while boasting a client list including the Queen and David Beckham and 43 companies listed in the FTSE 100, is viewed as lacking the scale and firepower to compete in the long-term with the sector giants.

David Mayhew, the Cazenove chairman who will take the same role at the joint venture, said that effective client service "increasingly means access to capital and a broad range of sophisticated financial products".

The formation of Morgan Cazenove would enable staff "to provide impartial advice while meeting the changing demands of our clients".

However, many observers have questioned whether Cazenove can, when involved in a joint venture, maintain the impartiality on which its reputation was built.

The terms of deal also allow JP Morgan to buy the new business outright in five year's time.

Robert Pickering, the Cazenove chief executive who is to lead the new company, said that the venture would provide a "unique proposition" of relationship-based advice and JP Morgan's financial firepower.

Cazenove's fund management business is not to be included in the merger.

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