More than nine months after the Financial Services Authority first laid down its allegations of collusion to the heads of the 21 firms which it deems to be at the heart of the split-capital investment trust débâcle, the messy negotiations look to be finally drawing to a close.
But while the end might be in sight, progress over the past few months has been painfully slow, with the eventual conclusion certain to represent some dramatic climbdowns over a handful of issues which have seen both sides deadlocked for weeks.
At the start of October this year, much of the hardest work was already done. After initially refusing to pay anything towards the FSA's compensation whip-round, all of the brokers, banks and fund managers involved finally agreed to contribute something - if only to get the whole matter behind them.
At the same time, the FSA conceded that its original target of £350m was perhaps a little high, and was willing to meet the firms somewhere in the middle of their initial offer of about £120m and its own demand of £350m.
Between the brokers, fund managers, banks and their insurers, about £275m looked close to being settled on, and much of this early agreement remains intact. Among the brokers and fund managers, Aberdeen still looks set to pick up the largest tab, of about £60m, while Collins Stewart is set to pay as much as £20m. The three large banks - HSBC, UBS Warburg and ABN Amro - were initially also in for about £20m each. However, it is thought this may have been reduced, as well as the £35m which the FSA was hoping to receive from the companies' insurers.
The main sticking point over the autumn, however, has not been the money but how to deal with the individuals involved. Having already agreed to back down on the amount of compensation it was looking for, the regulator was reluctant to reach a conclusion which did not involve a series of public hangings.
Aberdeen Asset Management's Chris Fishwick and Brewin Dolphin's David "Dotty" Thomas are two of a handful of names central to the split-cap sector, and which the FSA now wants to ban from the City.
While the firms have no problem with the concept of disciplinary action against their former employees, the hitch is that such bans can be administered only by apportioning blame - ever the dirty word of the split-cap negotiations. The absence of blame has always been central to the settlement process, to ensure that the firms will not be sued by former clients once the agreement is announced. But if their former employees are deemed culpable, the companies will still be exposed to the threat of legal action.
Several executives involved in the negotiations have been frustrated that were it not for the FSA's determination over the matter of individuals, the whole case could have been closed weeks ago. Those such as Mr Fishwick are reputedly happy to continue working in an unregulated capacity on the edge of the City, and could be persuaded to stay there without the force of a ban. Unfortunately, informal assurances are not the kind of solution the regulator is looking for.
Although relations between the FSA and the 21 firms are at least now less heated than they were during the summer, many chief executives remain angered by the regulator's unwillingness to compromise at the final hurdle. "Everything moves so slowly," one said. "This could have all been resolved months ago if they were not so determined to engineer a grand finale."
But the FSA is running out of time. Next month, Mr Thomas's appeal against the FSA's attempts to refuse him regulatory status is set to resume at the Financial Services & Markets Tribunal. This could be bad news for all involved in the settlement talks.
If the tribunal pre-empts a settlement and backs the FSA's original plans to block Mr Thomas's authorisation, the first official dose of blame will have been apportioned, making it difficult for the regulator not to take a similar line with other individuals. Such a move could collapse the finely balanced negotiations and see all the firms, and individuals, battle it out with the FSA through the tribunal.
Another added pressure is the Treasury Select Committee, which this summer warned John Tiner and Callum McCarthy, the FSA's chief executive and chairman respectively, that if a settlement was not reached soon it would not be afraid to take matters into its own hands.
John McFall, the committee's chairman, and his merry band have already shown their teeth over the subject of split-caps, when they accused the former FSA chairman, Sir Howard Davies, of being "asleep on the job" two years ago. A further inquiry into the sector would only serve to further humiliate Sir Howard's successors, who already suffered a loss of face this summer when the firms involved publicly criticised the manner in which the pair had handled the splits negotiations.
It was this anger and frustration which led to news of Mr Tiner's demands for £350m, leaked to the press - a figure the FSA will now have to publicly climb down from if and when a settlement is finally reached.
At one stage, tensions ran so high that John Duffield, the chairman of New Star Asset Management, and Terry Smith, the chief executive of Collins Stewart, threatened to sue the regulator for libel after comments made by its senior press officer.
Securing a mutually agreeable settlement will not put an end to the saga. If current estimates of a £235m compensation package are correct, this will fall a long way short of the £700m which the Association of Investment Trust Companies (AITC) estimates is necessary to compensate retail investors in splits, or even the £350m needed to compensate investors in zero dividend preference shares. Zeros were an income-paying share-class within split-cap trusts, marketed to investors as low risk but which lost thousands of investors the majority of their capital.
Daniel Godfrey, the AITC's director general, is concerned that if current estimates for the size of the settlement are correct, many split-cap shareholders will not be sufficiently compensated. However, he concedes that reaching an agreement now may be the only way to guarantee any compensation at all.
Mr Godfrey said: "The starting point should be to look at what financial detriment has been caused by wrongdoing. If it has caused X pounds of detriment, that's the amount of compensation that should be paid. But if it might take up to four years to get X pounds, and there's a risk that if we take another four years we may end up losing and consumers may end up getting nothing, then if we can get half of X today, maybe it's better to take that."
A speedy solution would certainly be in the best interests of the investment trust sector, which is struggling to tempt investors after a long bear market and the scandal about splits.
The firms and the FSA must also be keen to put the saga behind them. A spokesman for the FSA said yesterday an announcement may come "tomorrow, next week, Christmas Eve, January 15 or in six months' time - as soon as they've got something to announce". The talk in the industry, however, is that a settlement before Christmas, even as soon as this week, is on the cards.Reuse content