The Guardian from London, Greater London, England on May 31, 1995 · 15
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The Guardian from London, Greater London, England · 15

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London, Greater London, England
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Wednesday, May 31, 1995
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15
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15 Wednesday May 31 1995 Names give survival plan cautious support, page 1 6 Trading in London foecaSrcied, page 1 7 BET empire strikes back, page 1 6 Tomorrow: Showdown at British agm Financial Editor: Alex Brummer Tel: 0171-239-9610 Fax:0171-833-4456; V - Notebook FinanceMW9m for M Stanley Sarah WhHebloom ORGAN Stanley, the US financial house, has been fined a record 240,000 by the UK securities regulator after' admitting breaches of conduct of business rules which led five private clients to endure multi-million losses on forex transactions. The' Wall Street investment bank paid out around $30 million (19 million) three years ago to restore the wealthy individuals to their original capital positions. All but one of the clients who include Robert Louis-Dreyfus, the chairman of the sportswear firm Adidas accepted the compensation and are understood to have agreed to keep the matter private. Announcing the disciplinary action, the Securities and Futures Authority said yesterday that Morgan Stanley had failed to ensure that dealing on four of the accounts was suitable and "not too frequent". The firm had admitted not providing the clients with information, about the trades, the underlying transactions and the open positions. It is understood that the clients' losses arose from a large open position on the .Italian lira in 1992, when the European exchange rate mechanism . was crumbling. The. five clients were not aware of the . risks. Four of them incurred losses greater than their original investments. Morgan Stanley's management was unaware of the situation, the SFA said. "Records available to management did not show market to market positions and the firm did not adequately monitor the amount of margin which had to be paid by four, of the clients." Morgan Stanley made no Labour accuses British Gas of misleading big shareholders Simon Beawis Industrial Editor LABOUR last night accused British Gas of misleading institutional shareholders ahead of today's annual meeting at which more than 7,000 shareholders will question directors about pay and purks. As the company prepared for the meeting moved at the last minute to the London Arena in Docklands to accommodate the army of shareholders wishing to attend Nigel Griffiths, Labour's consumer affairs spokesman, said leaked letters from British Gas to the big institutions showed that the company had misrepresented the controversy over pay rises for directors and employees, and pay cuts for retail staff. Richard Giordano, British Gas chairman, is expected to use the meeting to outline plans for a further restructuring of top pay and to signal that a deal with retail staff is imminent after the company backed away from plans to cut their pay by 15 per cent. The disclosure that Cedric Brown, the chief executive, was to receive a 75 per cent pay increase to 492,000 provoked public outcry and was a prime motivation for the CBI, at the behest of ministers, setting up its committee on top pay. Mr Griffiths said yesterday that he had received a "highly confidential" internal document in which the company denies that Mr Brown's pay is excessive and that it imposed cuts in retail staff pay. Retail staff are voting on a new pay package which will mean a pay freeze for existing staff and one-off cash payments to give up some holiday entitlements, plus a 10 per cent reduction for new recruits as well as less holiday allowance. A total of 7,114 shareholders have indicated that they will attend today's meeting and will be bussed in from all over the country. But the company has been lobbying big institutional shareholders to support it if any resolutions go to a poll. It has cost British Gas 579,000 to cancel the original venue, the London Barbican, book the Arena and provide food and refreshments, and Inform shareholders of the change in venue. M orgain) comment yesterday. But the SFA made clear that the firm had drawn the matter to its attention in the first place and that no other "related wrongdoing" had been found. The firm also "promptly took steps to improve its procedures". The regulator said that it had taken into account such "mitigating" factors when settling with Morgan Stanley. But City observers said that the SFA had clearly viewed the offences with concern sufficient to warrant the biggest penalty ever exacted from a securities company operating in the UK. In addition to the fine, Morgan Stanley was required to make a "substantial payment" towards the SFA's costs. Experts believe this is likely to have been almost as much as the fine itself. Although the SFA agreed on the terms of the settlement some time ago and the firm took the loss in respect of the compensation pay-outs in 1992, no announcement had been made because of ongoing disciplinary action against Burk-hard Brauch, the former vice-president of Morgan Stanley International. Mr Brauch, who left the investment bank more than two years ago, faces a Financial Services Act disciplinary tribunal. No date for the hearing has yet been set. The SFA announcement made clear the serious-nature of the. regulatory failures by Morgan Stanley, which accepted that it had broken two of the principles laid down by the Securities and Investments Board for conduct of business. These were principle two, requiring firms to act with skill, care and diligence, and principle nine, requiring firms to provide clients with essential information. Maxwells in the dock on charges off conspiracy Dan Atkinson KEVIN and Ian Maxwell, former chairmen of, respectively, publishing group MCC and Mirror Group Newspapers, are due in an Old Bailey court later today on charges of conspiracy to defraud the trustees and beneficiaries of company pension schemes. The two will appear along with financial adviser Larry Trachtenberg and Robert Bunn, former MCC finance director. It is thought . the trial , will last until Christmas. Kevin Maxwell, aged 36, is charged with conspiring with his late father, Robert Maxwell, to defraud the trustees and beneficiaries of funds managed by Bishopsgate Investment Management with regard to the alleged use of shares in Scitex, a printing company. This relates to the period July 3 to November 6, 1991. Kevin is also charged jointly with Ian, aged 38, Mr Trachtenberg, aged 42, and Mr Bunn, aged 47, of conspiring to defraud the trustees and beneficiaries of BIM-managed funds with regard to the alleged use of shares in Teva, an Israeli pharmaceutical company. This relates to the period November 5 to 21, 1991, Kevin will be represented by Alun Jones QC, Ian by Edmund Lawson QC, Mr Trachtenberg by Michael Hill QC and Mr Bunn by Peter Rook QC. The Crown is employing two QCs, Alan Suckling who will open for the prosecution and Richard Lissack. Presiding will be Mr Justice Phillips, a specialist in commercial matters who has recently presided over cases relating to Lloyd's insurance market and investors who lost money underwriting its policies. Robert Maxwell's death at sea was reported to the London Stock Exchange on November 5, 1991. His sons took charge of his two main public companies shortly afterwards. The trial will take place in the Chichester Rents courthouse in Chancery Lane, a satellite of the Old Bailey, which has spacious rooms specially designed for the hearing of financial cases. Jurors were picked from a pool of 700 people, with many candidates excluded on grounds of health, work commitments, holidays and family needs. It is likely that, at the trial's end, the judge will grant them a lifetime exemption from further jury service. Lawyers cash in, pago 2, 02 uotwiHt, . - m m h&jz . msesm: Signs of pessimism . . . Latest Housing Richard Thomas THE battered housing market received two fresh blows yesterday with the release of figures showing a marked drop in mortgage lending, and a warning from a high street bank that home ownership could be approaching saturation point. . Research by the British Bankers' Association shows the number of home loans advanced by UK banks dropping from 29,629 in . March to 22,386 last month. The total value of new mortages also fell to 1,118 million in April, against 1,510 million in March and 1,379 million in April last year. Ill-starred Hoover sold off to Candy Tony May and David Gow HOOVER'S American parent, Maytag Corporation of Iowa, has ditched its Hoover European Appliance Group, which was involved in a free-flights advertising fiasco which triggered compensation claims of 100 million or more. It is selling it to Candy group, a private Italian company, for 106 million a loss of 81.2 million The free-flights fiasco in which 225,000 customers enjoyed free flights after buying an appliance but a further 370,000 were disappointed and can sue has already cost Maytag 48 million and could run in the courts for years. Maytag's decision to sell came the day after it was disclosed that a judge in St Helens, Lancashire, had given the go-ahead for fresh legal action. In a ruling which, according to lawyers, threatened to cost Hoover several hundred million pounds, the judge threw out the company's application Royal drug supplier seeks Sedative maker for queen and rhinos will float, writes RICHARD THOMAS THE firm that supplied Queen Victoria with her opium nightcap and has a global monopoly in the production of rhinoceros sedatives, is coming to market. Meconic, since 1990 the owner of 200-year-old Mac-farlan Smith, hopes to raise 17.5 million when it floats on the Stock Exchange next month. But the extra cash is not for an improved royal narcotic service. Today the com home - loan figures are bleak news market Meanwhile, John Massey, head of the Midland Bank's mortgage services, warned that there was no sign of a pick-up in the market. "Incomes are under pressure, home owner: ship is reaching saturation point and home-moving is slowing down," he said;. "-'.' ? Mr Massey added that homeowners were suffering a painful transition from a consumer-based to export-led economy. The BBA's detailed breakdown of lending, which comes on top of even worse numbers from building societies last week, confirmed this gloomy outlook. The average size of a bank mortgage shrank by 2.5 per cent last month to 49,000 the first to have cases brought by 127 angry clients struck out before they came to court. This has paved the way for thousands of compensation cases. Maytag is appealing against the ruling. The sale to Candy should secure jobs at Cambuslang near Glasgow and at Merthyr Tydfil in South Wales. Candy intends to develop the main production facilities, develop the Hoover brand and make available its extensive European sales network. As well as the two UK plants, Candy will get the Hoover headquarters building, a factory in Portugal, and the rights to the Hoover trademark in Europe, parts of the Middle East and North Africa. Hoover's 3,000-strong workforce will bring the number employed by Candy to 7,000 and Candy's annual turnover, should exceed 750 million. The Hoover European businesses had operating income of 750,000, on increased sales, in the first quarter of 1995, compared with, a loss of 1.3 million a year ago. pany is more interested in the legal production of drugs such as cocaine for facial pain relief, galanthamine extracted from snowdrop flowers for the treatment of Alzheimer's disease, and the contract manufacture of codeine for products such as Nurofcn-plus and Solpa-deine, the biggest-selling headache pill in the UK. Meconic also meets in full the half-kilo annual world demand for etorphine, primarily used to knock out rhinoceroses. About a third of Mecouic's turnover results from its world leadership in the strictly regulated opiates market, which has grown rapidly as "slow-release" medicines that can be taken for sellers gloom deepens annual dip since the end of 1992, the BBA said. Gross loans were down by 11 per cent between March and April, and net loans the difference between loans made and repayments received were almost static at 521 million last month.'.. Tim Sweeney, director-general of the association, said that-fears of dearer borrowing may have dissuaded potential buyers. "No doubt concerns about a further rise in interest rates contributed to the slowdown in the market. "Although the banks' figures for April were not as poor as those issued by the building societies, they are obviously disappointing." Finance firm fail PIA test Sarah Whitebloom IIVE firms of financial advisers have been closed down as a result of the Personal Investment Authority's decision to reject their applications for membership, the retail regulator disclosed yesterday. Two of the five GJ Cross & Co (Life and Pensions) of Henley and Abbey Estates Life & Pensions of Harrow had been authorised to carry on business as members of the financial services industry since the current regulatory system was established in 1988. MTM Life & Pensions, of Lancashire; Arrowings, of Leicestershire; and Havelock Sones, of Surrey, were given authorisation in the past few years. The PIA gave no details of its reasons for turning down the applications. But when it was established last year, it made great play of the fact that its entry requirements would be tougher than those of previous regulators. It said that it would by patients at home have replaced injected medical versions. The firm benefits from being the only licensed UK supplier of almost all of the controlled drugs it produces. But the legal opiates market is approaching saturation point, and Meconic is increasingly turning to contract production of medicine elements for other pharmaceuticals firms and to other fine chemicals. One of the most successful is bitrex, of which the firm is sole supplier to the world market. Bitrex is the most bitter substance known to man and is used in household cleaning goods to deter children from swallowing them. In the year to the end of SWOTS; mm help to weed out rogue firms and companies not properly equipped to carry on investment business and deal with the public. The PIA, led by its chief executive. Collette Bowe. revealed that all five closed firms had formerly been, members of the much-criticised watchdog Fim-bra, which regulated independent financial advisers and which the PIA was created to replace. Fimbra is still operating in respect of firms which are awaiting clearance by the PIA's membership committee. It withdrew the five firms' authorisation to carry on investment business last month because of the PIA's proposed rejection. . This was the second tranche of firms thrown out of the financial industry for failing to meet PIA entry requirements. Earlier this month the PIA announced that it had rejected membership applications from seven other firms, six of which were former Fimbra members. Yet more rejections are expected to follow. Estate. 7 BlTOfMRK b injection April, Meconic's turnover rose to 29.6 million from 26.4 million the previous financial year, while operating profits jumped to 4.7 million from 3.4 million, according to estimates in its pathfinder prospectus published yesterday. Profits before taxation were 4.2 million, up from 2.8 million. Because of its stronger-than-expected cash flow, the company has increased its flotation target from 15 million to 17.5 million. "Meconic has a strong track record of profitable growth and strong cash generation," said managing director Marshall Smalley. "The flotation will provide us with a more flexible capital base." Realistic stab at monetary union Edited by Alex Brummer THE European Commission's green paper on monetary union is a brave and realistic document. It does not seek, like some defenders of Maastricht, to gloss over the difficulties of shifting as many as eight or 10 European countries towards a single currency by the end of the century. The psychological and technical problems of accomplishing such a switch will be enormous and will require a huge communications, advertising and education programme by participating governments. Moreover, the transition period as countries move towards union could be one of currency mayhem. The world has had some preview of this. The convulsions on the foreign currency markets in September 1992 and again in August 1993, when the French franc came under attack, all but led to the breakup of the exchange rate mechanism, the forerunner to the single currency. In the case of the proposed new transition, the chaos, according to the Commission, could come from non-participating currencies and those outside the proposed union; from pressure caused by a sharp movement in the third currency such as the dollar or by a loss of credibility in the willingness of participants to move to full currency union. However the benefits, if the European governments hold their courage, could be huge. Europe would have a reserve currency to rival" the' yen" and the dollar; transactions costs would be eliminated and, if it worked, there is the possibility, as BAT chairman Patrick Sheehy noted last night, of Britain being locked into a virtuous circle, which would produce lower real interest rates that would encourage investment. Barings baton THE timetable for the release of the British inquiry, into the Barings collapse always looked tight. Indeed, when one looks at the time it takes Department of Trade inspectors to complete their inquiries into the affairs of companies' that go wrong, the work completed by Ian Watt and his team on behalf of the Board of Banking Supervision was done with some speed. The first part of the report, which deals with the events which led to the Barings collapse is essentially done. Confidential extracts have gone out to those named in the report for comment, including Bank of England officials implicated in the inquiry. There will doubtless be considerable holes in the Bank of England's account, largely because it has been denied access to the principal witness, Nick Leeson, who languishes in a Frankfurt prison, and to the in News in brief Power firms get bids go-ahead The regional electricity companies will be allowed to buy the pump storage power generation business of National Grid, . after the national electricity transmission company is floated later this year, the industry regulator. Professor Stephen Littlechild, has ruled. The business comprises two power stations in North Wales, estimated to be worth a total of 300 million. It is likely to be demerged from the Grid, jointly owned by the 12 regional power groups, later this year ahead of a flotation. The regulator said yesterday that it would not be detrimental to competition if one of the 12 regional companies were to bid for it. Feel tight factor The Co-operative Movement, which claims to be Britain's most comprehensive retailer with 4,600 outlets, recorded a surplus of 160 million in 1994, compared with 158 million in 1993. "National economic growth during the year, has been described as rapid, but this expansion has not been reflected in consumer spending as conditions remained tight and the 'feel-good factor' proved elusive," said a report to the formation being collated separately by the Singapore authorities. It will come as no great surprise if the authorities in Singapore decide that the Bank of England's supervisory policy unit was rather slow in its responses about questions on Barings derivatives trading. The notion that responsibility for the whole Barings collapse was down to one rogue trader was always farcical. While the first part of the Bank of England report, which seeks to apportion blame, will be the most fascinating, it should not deter attention from the longer-term lessons of the Barings affair. The potential for mistakes in derivatives has again been highlighted with the regulatory action taken by the Securities & Futures Association (SFA) against Morgan Stanley. The second half of the Bank's report will be struggling with critical issues: whether derivatives are a useful tool or not to which the answer will almost certain be yes; whether proprietary trading should be tolerated probably, providing the . risk management system is more foolproof than it was at Barings; and whether regulation, internal and external, needs to be strengthened to deal with future Barings problems almost certainly. If the UK report, published in July comes to grips with all these issues then the extra delay of around one month will have been worth it. But Labour's City spokesman, Alis-tair Darling, is right to insist that the full report is with the Commons before MPs totter off for their summer break. Gas checks EVEN if the result of today's British Gas annual meeting has been stitched up in advance, at least the. 7,140 shareholders who have registered their interest in attending will have their say c( on the salaries, bonuses 'and share options enjoyed by British chairman Richard Giordano, chief executive Cedric Brown and other directors. The public humbling to the point at which Mr Giordano was forced to turn the votes on remuneration into one of confidence for the institutions sends a resounding message to other privatised companies: shareholders are no longer willing to take excess lying down. But what about those individuals involved in the utilities who have no shareholder democracy to answer to? There, is the gas regulator, Clare Spottis-woode, seeking a British Gas style lift in salary from her employers, the DTI. Then, even more grotesquely, there is Roger Farrance. former chief executive of the Electricity Association a trade group which once provided central services to the industry who in his last year in office, 1994. received a "shadow" options package worth 536,047. This for essentially running a trade group, with little executive clout. One supposes that shareholders in the electricity companies could complain at their annual meetings: hut then they have a lot else on their minds, from David Jeffries of the National Grid to their own over-compensated bosses. Co-operative Congress in Edinburgh. Trusts recover Net sales of unit trusts made a modest recovery last month, rising to 361 million against 316 million in March. But the continuing lack of confidence in the stock market is reflected in the fact that April's net inflow was less than half the 740 million achieved in the same month last year. N&P ponders The National & Provincial Building Society board yesterday considered a number of bid proposals it has received. The directors said they will make available certain additional information to enable parties who have indicated an interest in developing a partnership with the Society to refine their proposals. Recall costs Philip Morris said it expects a second quarter pre tax charge of $100 million (64 million) to pay for its cigarette recall. The company said it expected the amount to double to about $200 million after including two to three, days of lost cigarette sales. It is estimated that the company will lose about two to three billion in cigarette unit sales.

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