Deutsche Morgan Grenfell may sue fund auditors and trustees

Deutsche Morgan Grenfell is considering taking legal action against the auditors and trustees of the three unit trusts formerly managed by Peter Young, who is now being investigated by the Serious Fraud Office.

The role of auditors KPMG and General Accident, former trustees of the funds, will be scrutinised by DMG once all its own investigations into the three trusts have been completed.

"The priority now is to complete the investigations before we make any other decisions," a DMG spokesman said.

DMG and its German parent Deutsche Bank are determined to complete an exhaustive investigation before taking any further action relating to the problems at the funds. Already the offer of resignations by a number of senior personnel have been refused and will not be reconsidered until the internal inquiries are finished.

Hilmar Kopper, spokesman of Deutsche Bank's board of managing directors, said: "We know there were deficiencies in controls, but it is very important to see that those in charge immediately realised that they had not, here and there, lived up to what was expected of them. It was in a sense of mutual trust that they came to us, accepted they had failed and offered their resignations. We are looking into it, but we want to be fair. Firm but fair."

Mr Kopper reassured investors that safeguards had already been put in place to ensure that there will be no repeat of the problems at the three European Trusts. "We as a group acted in a most responsible way," he said. "We acted quickly and we acted decisively. Today everything on the surface is in order for the investors. The important thing for them is that they are backed by a financially strong and solid organisation."

However, Mr Kopper stressed that the internal investigations were designed not just to establish the facts but also to see what lessons could be learned for the future. "We want to see if we need an even more independent set of controls and a more precise and definite check on whether necessary changes have been implemented fast and fully," he said.

He denied that control of Morgan Grenfell Asset Management would pass back to Frankfurt but hinted that the unit trust business might be absorbed into Deutsche Bank's European mutual funds business.

"Control must be where the business is and where the regulatory framework has to be observed and that is London," Mr Kopper said. "The other issue is whether the rather small unit trust business should form part of the rather important mutual fund business we have in Europe as a whole. We will decide that over time but there is no immediate urgency."

Mr Kopper also reaffirmed that the problems with the unit trust business have not soured Deutsche Bank's view of its London-based investment banking operations.

"We are where we want to be with investment banking and have completed about 85 per cent of our task," he said. "It takes a long time in investment banking because you just can't switch a lever."

However, he denied suggestions that the bank has been overpaying new recruits and encouraging a performance-led mentality.

"It is nonsense to say we are overpaying. People do not leave us so that they can be paid less," Mr Kopper said.

"I believe that salaries in the industry are too high but no one has proved to me that we are paying more than the norm. We would be stupid if we do overpay. Good people join us because behind the name they find something they can mould."