and MARY FAGAN
Barclays de Zoete Wedd and Kleinwort Benson were put in the firing line yesterday over their role in the pounds 4bn flotation of the Government's remaining shares in National Power and PowerGen after the Stock Exchange demanded a Treasury inquiry into the sale.
The row arose because shares in the generators were hit almost immediately after the sale in early March by a warning on electricity prices from the regulator, Offer. The watchdog had told the Government the previous week that a statement was being considered.
Michael Lawrence, chief executive of the exchange, said that if it had not been for Crown immunity, it would have referred the findings of its own investigation into the events surrounding the sale to the Securities and Futures Authority or some other regulatory body.
However, the SFA confirmed that its only power under the Financial Services Act is to investigate corporate finance advisers and not their clients. The advisers to the Government were BZW and Kleinwort, both of which are members of the SFA. Representatives involved in the share sale are Amir Eilon, managing director of corporate finance at BZW, and David Clementi, joint chief executive of Kleinwort Benson.
The pressure on the two firms, both of which refused to discuss the issue, was stepped up when Kenneth Clarke, the Chancellor, said repeatedly on Radio 4's Today programme that the decision to proceed with the controversial sale of the shares was taken after consulting the investment banks, as well as Offer.
Mr Clarke said it was decided after the consultations with the advisers that the forthcoming statement, which primarily affected regional distribution companies, was "not relevant or material" to the sale of the generators.
In the event, the pricing announcement by Professor Stephen Littlechild, director-general of Offer, wiped more than pounds 3bn from the value of shares in the sector on Tuesday 7 March, only 24 hours after dealings began in the shares.
The Stock Exchange is expected to seek changes in the way utility regulators behave to prevent them hitting the markets with unexpected announcements at sensitive times. The exchange said there was no sugestion that the regulators' independence should be compromised in any way, but added: "The incident has made clear that regulators ought to consider the effect on our market of the timing and content of any announcement they might make."
But in the short term, City institutions are thought to have pressed the Stock Exchange not to let the immediate Treasury issue fade. They were concerned that the exchange had run into an impasse over Crown immunity.
The Treasury is immune from actions under Section 47 of the Financial Services Act, which bans market manipulation through spreading false or misleading information. It was this immunity that blocked the City regulators.
In theory, the exchange could have sent a dossier on the advisers to the SFA even though it was prevented from taking action against the seller of the shares, the Treasury.
However, it was decided that it would not be right to probe the advisers in isolation from other parties including the Treasury and Offer. So the solution was to go back to the Treasury and ask it to organise its own investigation.
These issues are separate from the insider dealing accusations made by the Labour Party against the Treasury. The Chancellor said there was no Crown immunity from prosecution under insider trading legislation, although officials explained later that this referred to individuals in government.
The Department of Trade and Industry is looking separately into whether insider dealing is involved while the Serious Fraud Office is considering launching an investigation.Reuse content