COMMENT : Euro-babble can't obscure the budget crunch

`Can you eat fungible bonds? Are they an Italian delicacy and if so do they turn mouldy if not consumed by their maturity date?'

Somehow the scramble to qualify for economic and monetary union would not be complete without an incomprehensible contribution from a bunch of accountants. So here it is, in the words of the Statistical Office of the European Communities in Luxembourg, or Eurostat for short:

"Eurostat has decided in the case of fungible bonds (bonds which are issued in tranches at different points in time without change in the date of payment of the coupons) to treat the accrued coupon to be recorded as a short-term liability under the heading `Accounts receivable and payable' (code F72 of ESA 79), which does not enter into the calculation of the debt based in the definition of Council regulation 3605/93."

What does this mean and, more importantly, can you eat fungible bonds? Are they an Italian delicacy and if so do they turn mouldy if not consumed by their maturity date? None of this need detain us. All we need to know is that the above formula will slice 0.18 per cent off France's fiscal deficit this year and help the Italians lop an even more impressive 0.26 per cent off their's.

That may not sound very much. Nor, as EMU scams go, is it in quite the same league as Italy's special Euro-tax or the France Telecom pensions wheeze. But every little bit helps when you are used to struggling with a deficit to GDP ratio nearer to double figures and the magic number that gets you into the single currency club is 3 per cent.

That is not all Eurostat has decided although you would need an advanced diploma in Euro-babble to get the full picture. For those who prefer to stick to the sub-titles, the Belgians have been told they can sell off their gold stocks, but only to reduce their public debt, not the deficit. Britain, meanwhile, has been told that it can continuing selling off assets to the private sector, leasing them back and counting the payment against its deficit.

Back in the real world, Britain has decided it would rather not join the first wave of EMU even though it may be the only one that qualifies on the basis of its 1997 fiscal deficit. Meanwhile the Germans, who will be there at the start provided the Italians are kept out, look like missing their growth forecasts by a mile, courtesy of sharply rising unemployment. Ditto the French.

Eurostat has done it bit to help out. But unless there are further deep budget cuts in continental Europe this year, it will not be enough.

Electra clambers aboard gravy train

A small group of City types is about to make a killing and we are not talking about bond market dealers, corporate financiers or utility fat cats. Step forward senior directors of Electra Investment Trust, who had the good fortune to be invited aboard the gravy train when another of British Rail's rolling stock businesses was sold off. As executives at Charterhouse, the merchant bank, proved when they bought a stake in the Porterbrook train leasing company, such tiny investments can repay themselves 100 times over.

The pounds 90,000 of equity put up by the highly paid Charterhouse executives produced profits of pounds 12m - and that ignores a further pounds 20m bonus that could emerge from a separate profit-sharing arrangement with their employers.

Electra has more than 20 per cent of the equity in a sister company. Eversholt Leasing, which was bought by its management in a deal backed by another venture capitalist, Candover. According to Electra Investment Trust's annual report, the company has not one but two ways in which Michael Stoddart, its chairman, and senior executives of Electra Fleming, the trust's management arm, benefit from investments made by their funds.

They are entitled to part of the profits of Electra Private Equity Partners, a fund managed by the group which specialises in unquoted companies such as Eversholt.

Under a long-term incentive scheme, they also invest personally alongside the Electra funds. It seems likely that these arrangements include the Eversholt deal.

This is all standard practice for the venture capital industry, which vigorously defends it on the grounds that the institutions that put up most of the money for venture funds prefer to deal with people who also put their own private cash where their mouths are.

Imro, the fund management regulator, approves co-investment, as long as it does not involve conflicts of interest with clients. But there are no hard and fast rules about what is acceptable, and each case is looked at separately.

As so often happens, it is a question of balance and judgement. However, there must come a point at which financing structures based on tiny amounts of sweet equity must be judged to have pushed out the boundaries too far, even for a City that is accustomed to rewards that are disproportionate to the effort.

With Eversholt, we have yet to see the details of the sale. But the boundaries of acceptability have certainly been passed by Porterbrook, where a handful of people, including the company's management, made lottery-like profits from pin money investments with negligible downside. Perhaps the equity is called sweet because so much of the profit sticks to the fingers.

Captain Hook walks plank at Ivory & Sime

Things are not what they used to be for the Tory-supporting and still extremely wealthy Cayzer family. Already facing the near-certainty of a Labour government in a few months, it has recently been forced to watch as Ivory & Sime, its flagship investment in Scotland, slowly sinks into the waters of the Firth of Forth.

In the last few months, rats have been leaving the Charlotte Square-based fund management group faster than from one of the Cayzers' old Clan Line steamers plying the Cape route. If Deutsche Morgan Grenfell can be riven in twain by the departure of just one star fund manager, what price a much smaller group which loses six senior executives, including a main board director, in the space of two months?

Yesterday Caledonia Investments, the Cayzers' main investment vehicle, belatedly moved in to stop the rot. Colin Hook, the ramrod straight ex- Royal Engineers managing director, was asked to fall on his sword, and was immediately replaced by the suitably tartan-sounding Sir David Kinloch.

Mr Hook's military training has not proved a useful management tool. It was made clear from the start that non-commissioned officers were not welcome in the Ivory mess when six fund managers were summarily ejected from the board soon after his arrival. Whether Caledonia has a more sensitive touch remains to be seen. But with fund management currently flavour of the month, even the rusting hulk of Ivory & Sime is likely to be attractive to a predator. Despite protestations that its stake is not for sale, a decent offer might be hard for the Cayzers to resist.

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