GRE counts the cost of funding one man's empire: A bankrupt London agent has left the insurance group with losses of tens of millions of pounds, reports Paul Durman

VINODCHANDRA Manubhai Patel is not a name that will be well-known to the shareholders and policyholders of Guardian Royal Exchange. Yet Mr Patel's standing with GRE and the highest echelons of its management was so strong that he was able to arrange pounds 80m of loans from the insurer for his companies and associates.

Losses on these loans, a large part of GRE's pounds 600m commercial loans portfolio, are expected to run into tens of millions of pounds.

Doubts about its loan business recently led GRE to sue its former auditors, Coopers & Lybrand, for alleged negligence. GRE has also taken legal action against some of the valuers involved.

The demise of Mr Patel and Unique Insurance Services, his firm based in Wembley, north London, attracted little press attention. It seemed to be just another of GRE's numerous difficulties with its life insurance agents.

However, Vinod Patel was no ordinary GRE agent. For much of the 1980s, he was the insurer's top-producing salesman, receiving millions of pounds in commissions. He was on excellent terms with GRE's senior management, including Sid Hopkins, who has since become the insurer's chief executive.

When Mr Hopkins was promoted to deputy chief executive in 1989, Mr Patel marked the occasion with a huge party which, some say, was thrown in Mr Hopkins' honour. It was 'rather a grand affair', according to one who was there. Nearly 300 guests gathered at the Spiders Web hotel at Watford Gap to eat curry and drink champagne with the insurance salesman and his paymaster.

Mr Hopkins remembers it rather differently. He says he lost regular contact with Mr Patel after about 1984. He attended the 1989 party with GRE colleagues just as he would have attended other 'sales promotion meetings' that Mr Patel liked to hold. He had not been informed that it was being held in his honour and 'did not allow him to characterise it as a gathering to mark my promotion'.

As the 1980s drew on, Mr Patel's ambitions grew broader and he became heavily involved in property, buying numerous hotels around the country - in Wolverhampton, London and the Home Counties. He even bought a golf club.

GRE bankrolled this empire, lending Mr Patel's companies millions of pounds of policyholders' money, which it treated as an investment of its life fund. The loans were typically made to off-the-shelf companies whose sole assets were the properties they would buy with the loans.

By the time Mr Patel's financial world came tumbling down in the summer of 1991, he had guaranteed pounds 14m of loans from GRE. These made up nearly two- thirds of his personal debts of pounds 22m, which forced him into bankruptcy last year. Liquidators have sold off the hotels, the golf club and other properties to pay off his companies' creditors but GRE is still owed pounds 7m by Mr Patel.

Many of Mr Patel's hotels have turned out to be very poor investments. For example, the Wentworth Lodge Hotel near Crawley in Sussex, on which Mr Patel had given a guarantee of pounds 4.7m, was sold for just pounds 1.2m.

But the legacy of problems GRE faces from its involvement with Mr Patel is much greater than this. Quite apart from his own borrowings from GRE, Mr Patel arranged numerous loans, some of them for sums in excess of pounds 1m, for his clients and associates.

A former lieutenant says GRE's total lending to Mr Patel's clients amounted to about pounds 50m- pounds 60m, in line with GRE's figure of pounds 80m. It is not known how much unpaid interest should be added to this figure.

One insolvency specialist who has had dealings with the mess left by Mr Patel's companies says: 'The question one has to ask is why people allowed the borrowings to get so high and lent so much money initially. GRE could not lend him enough - they were persuading him to borrow. He seemed to get ridiculous sums of money.'

The readiness with which Mr Patel was able to obtain loans from GRE's commercial lending department in Ipswich engendered jealousy from other agents, particularly Asian competitors. The loans were frequently too large to be authorised by John Allard, who headed the lending department, and could only be made with the approval of GRE's senior management. In line of command this meant Norman Shepherd, the GRE director responsible for investment at the time, who had overall charge of lending.

One former GRE agent claims that staff in the lending department were 'just stooges . . . issuing offers under instruction from above'.

A former GRE employee explains: 'At that time VM Patel was God. No one dared stand up to him, nobody dared to be the manager who said no.' When Mr Patel threw a party for his clients, as he did two or three times a year, GRE would order its managers to attend. 'Patel wanted to impress his clients, wanted everybody from GRE to be paraded before them.'

Mr Hopkins says Mr Patel deserved GRE's support because of the large quantity of good-quality business he had provided for the insurer going back as far as 1970. But he says the loans made to him were made on normal commercial criteria; neither he nor anyone else involved with life sales had any say in the matter. 'I had absolutely no authority for the granting of any form of loan. After all, insurance men are not in any way experts in assessing loans, or the collateral for those loans.'

He says GRE's loan officers would have decided whether to make an advance after asking their life insurance colleagues about the agent: how valuable was he, how good was his business, did he owe GRE any money?

Given Mr Patel's reputation, it is perhaps not surprising that GRE was slow to respond when his insurance business, the key to his success, began causing problems. Too many clients began to cancel their GRE policies, bills were not being paid on time.

By 1989, 'everybody had concerns about him,' a GRE informant says. But when he warned marketing staff that things were going wrong he was told: ' 'We can't possibly raise it at this stage.' No one was prepared to be the one that stopped it. Everybody was able to see it needed to be stopped.'

Mr Hopkins says he finds it 'extremely doubtful' that GRE's mortgage lending arm would have failed to take action if it had been aware of problems.

Mr Shepherd retired at GRE's normal retirement age three years ago. Mr Hopkins says his departure coincided with GRE's recognition of the scale of its lending problems. GRE says it is keen to pursue any chance of recovering further money from Mr Patel, but this task has been made more difficult by his move to Orlando in Florida.

His last-known address is given on the annual returns of a company called Patshull Park. Despite his bankruptcy, Mr Patel, now 54, was listed as a director of this firm as recently as January. Since being contacted during the preparation of this article, he appears to have changed his telephone number.

GRE has installed a new management team at its life company in recent months, led by David Meldrum. The company is also keen to point out that the executive directors who were at the helm in the late 1980s have retired or been replaced. However, this is not the full story. With the exception of James Morley, the finance director, most of the top jobs have been filled by internal promotion. The chairman, Charles Hambro, has remained in his post and several other non-executive directors also remain.

(Photographs omitted)