Crisis deepens at Warburg

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The Independent Online
The directors of SG Warburg were locked in crisis talks at the bank's London headquarters yesterday as it emerged that the Bank of England recently intervened to prevent Lord Cairns from resigning as chief executive.

There is mounting speculation there will be changes in the boardroom coupled with a heavy redundancy programme that could affect more than 1,000 staff.

The Bank's intervention over Lord Cairns, according to a senior merchant banking source, happened soon after the collapse late last year of Warburg's attempt to merge with Morgan Stanley, the US investment bank.

Lord Cairns, who spent much of yesterday discussing the crisis of confidence at the bank with other directors, is seen in the City as the architect of the plan to link with Morgan Stanley.

According to the banking source, Lord Cairns discussed his position with fellow directors soon after the collapse of the merger talks. The Bank of England is understood to have advised Warburg to continue with Lord Cairns at the helm until it resolved its problems.

This has sparked additional speculation that Sir David Scholey may be coerced into rethinking his decision to step down as chairman of Warburg in the summer. The intention, should Sir David leave the bank, would be to make Lord Cairns chairman and chief executive.

Sources said that Lord Cairns would be placed in an impossible position and would need to appoint a strong right-hand man as chief executive. An appointment from outside the bank would probably be necessary to placate investors, who last week started to show open signs of concern.

Warburg shares started trading at 761p last Monday but finished the week at 726p, losing 25p on Friday alone while the rest of the stock market advanced. The week's fall sliced £77m from Warburg's stock market value to £1.6bn.

The collapse of the Morgan Stanley deal has left Warburg struggling to cut costs while trying to achieve its global banking ambitions. It is also faced with the problem of what to do about Mercury Asset Management, its 75 per cent-owned subsidiary which was instrumental in scuppering the Morgan Stanley tie-up. Shares in Mercury slipped last week from 776p to 764p, valuing it at nearly £1.4bn.

Rumours of sweeping redundancies among Warburg's 5,500 staff worldwide have become rife, and the consensus is that the bank will soon wield the axe on one-in-five employees. It is thought the research department and back-room support areas will feature prominently in any redundancy programme.

Meanwhile, top staff have already started to leave, and Warburg is expected to move fast to prevent a trickle of defections from becoming a flood. Six equity trading executives walked out on Friday. Their departures followed those of Maurice Thompson and Michael Cohrs, who resigned as joint heads of equity trading on Tuesday to join Morgan Grenfell, Warburg's rival owned by Deutsche Bank.

Leading merchant banks are set to capitalise on Warburg's difficulties. Money is no object, with Mr Thompson and Mr Cohrs reportedly lured by two-year pay packages of £3m each.

Germany's leading banks have signalled their intention of bolstering operations in London after concluding that Frankfurt will never live up to expectations that it would become one of the world's leading financial centres.

Simply recruiting valued staff, though, will not satisfy the aspirations of German banks to become prime investment banking forces in London. Securing a stronger foothold in equity trading in London is seen as a precursor to an acquisitive strike by Deutsche. As well as Warburg, Cazenove, the blue-blooded stockbroking firm, and James Capel have been suggested as possible bid targets.

Morgan Stanley has not ruled out the possibility of a second attempt at a merger, although such a move might be resisted by Warburg employees, many of whom would have been made re dundant under the original proposals.