The Guardian from London, Greater London, England • 17

Thursday May 11 1995 17 Back me on pay, Giordano pleads, page 18 Shape up or ship out, says GM, page 1 8 Sainsbury wants Texas price cut, page 1 9 Rate hopes lift world markets, page 20 Guardian Financial Editor: Alex Brummer Tel: 0171-239-9610 Fax: 0171-833-4456 Notebook Warburg sells out to Swiss Cowardice in the face of heavy fire SBC's chiefs deny insider trading company's remuneration committee it was, after all, he who awarded Mr Brown the 75 per cent pay rise which acted as a catalyst for the company's subsequent public mauling. The former head of BOC has never been shy of airing his view that top executives deserve top pay rates. He has also never backed away from earning big sums himself. Many institutional investors are so convinced of this argument that they seem to feel British Gas was lucky to woo a man of Mr Giordano's calibre for as little as 450,000 part time even though this is 150,000 a year above what the company regards as the maximum going rate for a non-executive. And, as his letter to major shareholders yesterday makes clear, Mr Giordano thinks British Gas is at the cutting edge of payand-perks disclosure.

Not for the first time at British Gas or other FTSE 100 companies there is a yawning dislocation between the board's view of itself and the public perception. Mr Brown's 75 per cent pay rise was handled with an ineptitude which setting aside the tragic and embarrassing shambles of staff cuts, wage freezes and showroom upheaval should alone cast doubt on whether Mr Brown or Mr Giordano is worth what they currently command. Given all of this, the board is unlikely to approach the annual meeting with anything like rock solid confidence that it has sufficient proxies to see off the outrage of a large group of investors. No wonder Mr Giordano has been forced to eat humble pie with his big shareholders. What a pity it has taken him so long to recognise that even Britain's largest companies need to placate their public.

I Blw! mr wBKm I day after more than a week of intense negotiation. Warburg, which late last year failed to agree merger talks with Morgan Stanley, the US investment bank, has been under added pressure to link with a partner because of heavy losses by its investment banking operations. Sir David, who had earlier braced the market for the bad profit news, yesterday announced that the investment banking operations had suffered a catastrophic financial performance, with last year's 241 million profit collapsing into a loss of 22.2 million. The group was kept in the black by a huge contribution from its stake in MAM, which nevertheless saw overall profits fall from 297 million to 42.1 million for the year to March 31. Profits were hit by the collapse in the trading market, together with costs of restructuring parts of the business.

Details about the combined operation still have to be ironed out. although the Zurich-based buyer, under chief executive Georges Blum, says it will maintain the investment banking operations in London. Sir David said that it was too early to say how many redundancies could be involved. He hinted that special bonuses could be paid to ensure staff loyalty during the merger period. Although it will be chaired by Sir David, the combined investment banking operation to be known as SBC Warburg will be managed by SBC director Marcel Ospel, who is to take over as chief executive.

Mr Ospel. who heads SBC's international finance operation, has been with the bank since 1977 and now becomes one of the most powerful players in the City. Analysts said yesterday that the price paid represented a significant premium to Warburg's net asset value of 800p. Although the offer was regarded as relatively generous, shares dived 32p to 805p. MAM, which has been buoyed up by speculation about a possible bid from the National Westminster bank, slipped 19p to 882p.

The market reckons that the combined investment banking group could be the biggest force in European investment banking. Analysts warn that the new company will still lack the financial fire-power to compete with the very largest Wall Street operations, such as Merrill Lynch. Goldman Sachs and Morgan Stanley. British bankers hoist the white flag Patrick Donovan City Editor biggest and 'most highly rated investment bank ran up 'the white flag yester day as SG Warburg finally agreed to sell off its loss-making investment banking operations to Swiss Bank Corporation for 860 million. The deal, aimed at creating the strongest force in European investment banking, represents the biggest shake-up the City has seen since the market was restructured during "Big Bang" nearly eight years ago.

Announcing the move, Warburg's chairman and chief executive, Sir David Scholey, who is to head the combined operation, said the deal "fits like the clunk of a Rolls-Royce He said that SBC leading operations in everything from foreign exchange to derivatives and Euromarkets would complement Warburg's strengths in mergers, equity underwriting and research. The deal does not include Warburg's 75 per cent holding in Mercury Asset Management, the pre-eminent force in European fund management. As part of the agreement, SG Warburg is paying back the cash proceeds to its shareholders and distributing its 75 per cent holding in Mercury Asset Management. MAM's chief, Hugh Stevenson, said last night that the fund management group had "great confidence" in its ability to continue as a fully independent company. It is receiving 35 million from Warburg to cover the costs of restructuring.

Investors will get 3.65 per share in cash and 0.538 shares in MAM, which puts a total value on Warburg shares of at least 850p. The deal was sealed yester In step Warburg's Sir David with SBC group chief executive the new operation, in company photograph: frank martin Nuclear sell-off may carry 'health' warning Edited by Alex Brummer THE capitulation of SG Warburg, to the relatively modest financial overtures of the Swiss Bank Corporation does neither credit to the spirit of the merchant bank's senior management including Sir David Scholey nor to the City of London. Although the price of 860 million for the investment bank may look generous when one surveys the carnage of Warburg's just-published financial results, it is mean when you consider the goodwill which comes with the Warburg name and client list and the exit prices achieved by a bankrupt Barings (including its fund management business) and Morgan Grenfell in 1989. The really worrying aspect is that Warburgs, which pioneered the hostile takeover in Britain and which has been so tenacious over six decades on behalf of clients, has been supine this time around. All financial organisations go through bad patches.

It was not so long ago that Barclays Bank made its first loss in 300 years; that Citibank had to be all but bailed-out by the Federal Reserve; and that Salomon Brothers in New York lost the cream of its talent after a government bond scandal. But they all have bounced back. At Warburgs the management, by failing to take a strong grip, allowed morale to collapse, talented staff to leave and essentially put itself up for sale. This could never have happened had Siegmund Warburg, a resolute refugee from Nazi oppression, still been at the helm. His legacy has been betrayed by his successors.

Nobody should underestimate the loss to the City. It may well be that SBC Warburg is no-tionally headquartered in the City as always. But nobody should doubt that the shots will now be called by the gnomes of Zurich. As was the case when Rover moved to BMW. Britain has given up an important degree of business sovereignty.

The UK is in danger of being no more than the European equivalent of a Caribbean-style offshore financial centre, rather than a proprietary investment banking centre. Gas bags WHEN someone has scaled the heights of opprobrium as convincingly as has the British Gas chief, Cedric Brown, it is hard to turn attention elsewhere. But now Dick Giordano, the well remunerated non executive chairman of British Gas, is moving towards centre stage alongside Mr Brown. Mr Giordano (who earns more than 2,300 for every day he spends at British Gas) has undeservedly been left out of the limelight. As head of the News in brief Power firm sets egm date Northern Electric will hold the extraordinary meeting demanded by rebel shareholders on June 2.

They want to allow Trafalgar House to make a revised takeover bid for the company of at least 9.50 a share. The initial bid of 11 a share lapsed earlier this year, following uncertainty over the regulation of electricity prices, and the Northern board rejected a revised offer of 9.50. Northern said it strongly recommended that shareholders vote against the resolution at the extraordinary meeting. But analysts believe that even if the rebels win, Trafalgar may wait until the regulator's pricing review is published, probably early in July. Northern's share price jumped by 19p to 819p in the belief that the egm brings a new bid closer.

South's export boom The fruits of Britain's export boom are going to manufacturers in the South and Midlands as firms in Scotland and the North lag behind, survey evidence released yesterday suggests. Exports for the UK as a whole are running at historically high levels but Scotland saw overseas orders falling in US fires opening shots as Tokyo trade war looms Mark Milner SENIOR executives from Swiss Bank Corporation faced a grilling yesterday before an all-party committee of MPs over derivatives contracts taken out in connection with Trafalgar House's 1.2 billion takeover bid for Northern Electric earlier this year. During the hearing before the Treasury select committee, one of its members, Quentin Davies, the Conservative MP for Stamford and Spalding, compared the contracts which allowed Trafalgar to benefit from the rise in the price of shares in Northern Electric and other regional electricity companies once the bid was announced with stock market "dawn He argued that those who had sold shares in Northern Electric, which allowed SBC to hedge its position with Trafalgar House, did not know a bid from Trafalgar was on the way while Swiss Bank did know. SBC's compliance officer, Kath Cates, told the committee that while SBC's corporate finance arm, which took out the derivatives contracts, and Trafalgar knew about the bid, the firm's market making arm, which constructed the hedging position by buying shares in the cash market had not known that the offer for Northern was on the way. She said SBC's actions had been cleared with the Takeover Panel and the Stock Exchange.

"You say no insider dealing took place in the Trafalgar House bid?" asked Mr Davies. "That's right," said Ms Cates. Earlier, Robert Gumerlock, a director of SBC's international operations, told MPs that the bank believed there would be additions to the rules governing derivatives trading round the world, but warned against countries taking unilateral action. undertaken to sell off under an agreement with the electricity regulator to stimulate competition. But he added the company was not afraid of being referred to the MMC over the matter.

Attacking the Government's nuclear sell-off plans, he said: "Here is the Government saying it wants to encourage competition while bringing two nuclear establishments together. It is hard to see the logic." Scottish Power has outlined plans to extend its interests in telecoms, gas and retail into England and Wales alter it reported a 6.9 per cent increase in pre-tax profit last year to 375 million. It is also watching developments in the electricity market south of the border. The National Communications Union, which organises about 1,000 Mercury stall, but is not recognised by the company, said there were already 220 Birmingham staff on the redeployment list from earlier redundancies. NCU's Mercury officer, Grace Mitchell, said those affected by the new announcement were primarily women on low pay "who are not in a position to uproot their families and Mercury said lack of space for expansion on the Birmingham site "and anticipated improvements in customer service and efficiency from operating from a single site" were the chief factors for its decision.

The Birmingham site offered little scope for growth beyond the present 230 employees. The company's, purpose-built customer service centre at Wythcnshawe, Manchester, which now employs 600 people, could accommodate 1. 000. Mercury, which will be spelling out details of its relocation proposals to employees over the next few days, said Birmingham would remain "a key hub" of the company's business. to challenge the special status and are also continuing to press the case for base load generators which declare themselves inflexible to be paid less generously and for better rewards for operators of plant which have to be ready to meet demand peaks.

David Porter, head of the Association of Independent Electricity Producers which includes National Power and PowerGen, said: "We will be looking to see if their status in relation to the grid code remains appropriate when they are private companies." Mr Henry said that National Power had two offers "worth considering" for up to 4,000 megawatts of plant which it has Simon Beavis Industrial Editor THE Government may be forced to attach a "health" warning to the prospectus for its 3 billion sale of the nuclear industry that revenues for the atomic companies could fall because of a shake-up of rules in the electricity market. The news came yesterday as the new chief executive of National Power, Keith Henry, attacked plans to create one large company comprising Nuclear Electric and Scottish Nuclear saying they were at odds with government policies to stimulate competition. The prospectus warning con Saving the silver BRITAIN'S nuclear power stations and rail network are about the last of the family silver. If the Government succeeds in selling them off. the only significant asset still in public hands will be the Post Office.

Meanwhile, the Labour Party has ditched its historic commitment to nationalisation. For both parties, then, the key issue is regulation. A publication from the Institute for Public Policy Research, released yesterday, makes a start on an alternative agenda to the competition-driven Tory model. The authors concede that real competition can bring benefits and point to telecommunications as an area where technology means monopolies can be broken up. But the book calls for at least two other objectives of regulation: ensuring that there is equitable access to staples of life, and guarding the nation's strategic interests such as planning energy supplies over the long term by maintaining a diversity of fuel sources.

Ownership, as the IPPR argues, is simply one way of regulating an industry, and ends count for more than means. Labour has a great opportunity to carve out a distinctive and better approach to at least protecting the silver. the first four months of the year, according to a geographical breakdown of the CBI's Industrial Trends Survey. Supermarket sale Alldays, the convenience chain owned by Watson Philip, has bought 18 Presto shops from Argyll, the Safeway supermarket group. The selling price is 1.0 million, plus the value of stock and the stores will be converted over the next five weeks.

The sale is part of Argyll's bid to improve Presto's performance. The Alldays chain, some of which is operated under franchise, has more than 400 shops. Swan Hunter bidder An Aberdeen-based company, Broad Abandonment Research and Technology, with just 12 employees, yesterday emerged as a late bidder for the Swan Hunter shipyard. The company claims Far Eastern finance backs shipbuilding and oil rig recycling plans, which could employ up to 3,000 at Swan's Wallsend yard on the Tyne. Pensions go-ahead The European Commission has cleared a German plan to provide DM1.55 billion (708 million) in extra pension funds for employees of the recently priva-tised German airline.

Lufthansa. Troubled Mercury pulls plug on its customer services office Unions fear that train builder ABB is to close York works Scholey, left, who stays on at Georges Blum cerns Nuclear Electrics special status in the electricity market in England and Wales which means that stations have a guarantee to run continuously. Tiie Government proposes to privatise six of Nuclear Elec-tric's most modern reactors and two belonging to Scottish Nuclear, as separate subsidiaries of a new joint holding company, leaving nine ageing Mag-nox stations and 8.5 billion of liabilities in state ownership. All the reactors have a "must run" status under the electricity grid code because they are not easy to turn on and off. Their inflexibility means they even take precedence over other base-load plant.

But competitors are planning The German giant Daimler-Benz is currently evaluating the business with a view to merging it with its own AEG transport interests. Closure would mean the death knell for a York industry that began in 1839, and was once the most important railway centre outside London. Tony Walton, branch secretary of the RMT at York, said: "I don't think it will be good news. It doesn't sound good. British Rail has been dragging its heels for some time and the company has been saying that they need the next phase of the Networkers if they are to survive." Mr Bayley said last night: "In May last year Roger Freeman said he expected the contract to be awarded in September.

Rail privatisation has put a blight on orders and because the Government has failed to break the deadlock the York works looks likely to be the Mr Bayley said he was shocked at a letter he received yesterday from railways minister John Watts, claiming that "the British Railways Board and the Department remain committed to completing the decision process cent more US car parts and permission for the opening of 500 more US-owned car retail outlets in Japan. General Motors, Chrysler and Ford have only, a handful of showrooms in Japan between them. A hit list of affected products will be published soon, triggering a 30-day "consultation" period, in which American firms can lodge objections. Such a delay has been used in similar clashes before, to give the Japanese a chance to back down. The Clinton administration added to the pressure on Tokyo, by opening up a second front at the World Trade Organisation in Geneva.

US trade envoys told WTO Director General, Renato Rug-giero. that Washington intended to bring a suit against the Japanese "in approximately 45 "We believe Japan continues to thwart the open and equitable trade that is the objective of the World Trade Organisation," Mr Kantor told a news conference at the White House. "What we are looking for is a level playing field," he added. US car dealers have already begun their effort to overturn the planned sanctions, warning that vast increases in the price of Japanese cars could spell financial ruin. "Would you buy a $100,000 Lexus?" asked Florida dealer, Ronald Salhany.

"Bill Clinton and his company are about to put us out of business," he told the Wall Street Journal. But support for the anti-Japan move came from the president's Republican opponents. On Tuesday the US Senate passed a resolution approving the tough stance with a commanding majority. Even so, Mr Kantor was at pains to play down the latest clash. "We haven't had a trade war in the world since 1932," lie said.

"I don't expect there'll be a trade war. That's giving hyperbole a bad name." Jonathan Freedland in Washington THE Clinton administration fired the first shot in a looming trade war with Japan yesterday, as it unleashed a package of stinging sanctions aimed at opening up Tokyo's notoriously-closed car market. Blasting Japan for its "unreasonable and discriminatory" trade practices, US trade representative Mickey Kantor warned Tokyo yesterday to brace itself for a series of punitive measures, following the breakdown of 18 months of automobile talks last weekend. Sources said the overall effect could amount to billions of dollars more than threatened in the clash over copyright with China earlier this year. Details are to be announced later this week, but are likely to include a 100 per cent tariff on luxury Japanese cars, like the big-selling Lexus and Acura.

Such an extra tax would amount to a virtual ban, US-based dealers warned yesterday. Also targeted will be a list of Japanese-made car components. The move was the latest round in a long-term US struggle to persuade Japan to abandon protectionist practices and open its markets to US manufacturers. Japan has a worldwide trade surplus of $145 billion (91 billion). The auto trade has long been a sore point.

Analysts say much of Japan's $66 billion trade surplus with the US in 1994 was due to their success in exporting cars Mr Kantor's threat was backed by President Clinton, who is in Moscow. First word of the salvo came from Mike McCurry, the presidential spokesman. The US insists it will not budge until it gets movement on two of its key demands: a commitment by Japanese companies to buy 20 per Martyn Halsall MERCURY, the troubled telephone company, was yesterday accused of putting a further 230 jobs at risk as it continued cost cutting. Mercury is to close its customer relations office in Birmingham and relocate its business customer service centre to spare accommodation in Manchester. The move followed a forecast on Monday, by Duncan Lewis, Mercury's chief executive, that an extra 70 million savings could be expected from the centralisation of customer service operations.

The company stunned employees in December by declaring redundant 2,500 of its 1 1 ,400 strong workforce, and abandoning its payphones network. The job losses were more than twice those expected by union leaders. The latest retrenchment will see the transfer of work and jobs over several months, starting in June. The company said that all affected employees would be offered assistance with relocation. Rebecca Smithers NIONS were last night bracing themselves for an announcement today by the train builder ABB that it is to close its York works with the loss of 750 jobs.

A spokeswoman for ABB confirmed that chief executive Stig Svard, managing director of the company's Rail Vehicles division, is to address a mass meeting of staff on the factory's "future workload and manpower Unions admitted last night that they were expecting the worst, while Hugh Bayley, Labour MP for York, condemned the Government's complacency in allowing new orders to dry up because of an investment "hiatus" in the runup to rail privatisation. Swedish-Swiss owned ABB the privatised Brel, the British Rail engineering company also has plants in Derby and Crewe. But it has warned for some time that the future of the York works was in doubt unless it clinched a 150 million order to build more Networker Express trains for British Rail..