Dealing probe is imminent

THE Bank of England is expected to launch a full insider dealing investigation this week into whether any of the 20 international banks involved in the pounds 7.2bn Treasury loan announced last Thursday profited from their advance knowledge. At least one of the big four UK clearing banks and a number of continental banks have come under suspicion.

News of the loan immediately pushed up the value of sterling, and gilt-edged stocks rose by up to pounds 3. But as soon as markets closed, many dealers complained that some leading banks seemed to have had advance warning.

The complaints span the foreign exchange and gilts markets as well as financial derivatives such as futures.

'If there were a formal complaint we will certainly take it seriously and will certainly investigate it,' a Bank of England spokesman said.

It is understood, however, that no formal complaints had been made by the weekend. Because of the wide range of markets possibly involved, all of which come under the Bank's responsibility, Bank officials fear that launching an investigation without specific allegations could prove pointless.

Half of the Treasury loan, designed to help support sterling on the foreign exchanges, is in the form of borrowing facilities with 20 British and continental banks.

Officials close to the negotiations with the banks say that the bankers' knowledge was strictly limited.

They would only have known that the British government was raising a large loan. They would not have known the full size of the loan since half of it is being raised from note issues, which the banks were not told about.

Nor would they have known the exact timing of the Treasury's announcement of the loan on Thursday afternoon.

Insider dealing in these markets, however, is likely to be extremely hard to prove. Bankers also pointed out that allegations of foul play often surfaced after big events on the currency markets.

Two years ago, when Britain joined the exchange rate mechanism, there were accusations that Gerrard & National, the discount house, made excessive profits from the market movements immediately afterwards. After a Bank of England investigation, however, Gerrard was cleared of any wrong-doing.