Keeping the investment bankers in check

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The Independent Online
And now another accolade for the "Extel Programme Trading House of the Year" - er, the biggest couple of fines ever imposed by the Securities and Futures Authority, one of them, lamentably, for "failure to act with skill, care and diligence" in the execution of - you've guessed it - a large programme trade. It was perhaps unwise of Swiss Bank Corporation to highlight this bizarre and previously unheard of City award on the day it was so heavily fined. As mitigation, it made limp reading. On the other hand it certainly raised a laugh with the competition. Many rival houses found it hard to conceal their delight at SBC's discomfort.

Both episodes are serious matters for which SBC thoroughly deserves its punishment. They must have been, for the SFA needs the agreement of the accused to issue statements and impose fines of this sort. Although hedged around with the usual legal caveats about how these offences hadn't been deliberately committed, SBC would have had to swallow hard to agree such a damning and damaging indictment of the way it conducts its affairs.

Nonetheless, there is a sense in which SBC has been made an example of here. No one would suggest that practices like these have become common practice in the City, but by the same token, nor are they entirely unheard of. SBC made its name in the City as a bank that was willing to sail close to the wind and use some highly controversial techniques (innovative is the description SBC would prefer) in its attempt to gain competitive advantage. It is therefore little surprise that it should find itself up before the beak in this manner. Aggressive, go-getting behaviour nearly always carries a regulatory risk.

In the first of the cases the SFA examined, where the Chinese walls that are meant to exist between corporate finance and stock market trading became entirely transparent, SBC knew full well that it was doing something highly contentious which rivals were bound to challenge, and as a consequence it went to great lengths to ensure compliance with the rules and regulations. Unfortunately, it wasn't fastidious enough, and compliance failed to check the overenthusiasm of market-makers when they discovered what corporate finance was up to. The first rule of sailing close to the wind is to get it right in every particular, not just some of them. If you do not, then you must expect to suffer the consequences.

At least this time round there's a beak to be up before. In the 1980s, cavalier and illegal practice was allowed to flourish unchecked, culminating ultimately in the great nemesis of the Guinness scandal. Action of this type should help prevent practice spiralling out of control again. This time round regulators seem to be be doing a reasonable job in defending the dam.

Since acquiring SG Warburg, SBC has quite visibly toned down its approach. Having bought the franchise, there's now no need to be quite so aggressive in attempting to win it. It is therefore surprising that the second episode, which happened very recently, should have occurred at all. The explanation seems to be that this was genuinely just a botched job. There was no deliberate attempt to disadvantage the client in order to profit the house. Both episodes are nonetheless symptomatic of the conflict of interest big integrated securities houses like SBC perpetually face. Are they in it for their clients, or for themselves? Clients must draw their own conclusions.

Wall Street unlikely to catch the Asian flu

Is this a brief summer chill that is afflicting the world's stock markets, or the start of flu pandemic? Wall Street and the European markets had another wobble yesterday, following some of the sharpest one-day falls ever in the Asian markets the previous night.

So far there seems to be no question of contagion between the two. On the contrary, the monthly Merrill Lynch survey of fund managers indicates that investors are switching out of Asia directly into the US. The proportions reducing their holdings in the former and raising their weighting in the latter are the highest since the survey started in 1990. Strange behaviour this, for what investors seem to be doing is selling markets which have fallen steeply in order to buy into a market which is at an all-time high. But it does suggest that it is premature to start worrying about an international correction in equities.

The Asian problem is a local one. The region's stock markets are suffering the aftermath of overheated domestic demand. The resulting ballooning of current account deficits, which prompted the initial devaluations, have led to hikes in interest rates and burst a few property bubbles. No wonder sentiment has been badly dented.

But although Asia's worries are unlikely to spill over into the US and Europe, a sustained fall in the Dow would almost certainly pull the rug out from underneath other markets. Unfortunately, that US correction still looks like a real possibility.

The American economy has been incredibly well behaved but eventually the recovery will falter and - probably around the same time - inflation will start to pick up. The Fed will raise interest rates and profits growth will slow from the present 10 per cent a year gallop.

Airbus plan is still a long way from take-off

As policy U-turns go, France's agreement to allow Airbus to convert into a limited company takes some beating. Lionel Jospin, the new French prime minister, is of course perfectly entitled to tear up his predecessor's policies. Harder to understand is why a Gallic left winger should want to back such an Anglo-Saxon approach to Airbus's future. Perhaps it was lunching with the Blairs that did the trick.

The previous administration campaigned long and hard against removing Airbus's 27-year-old consortium status, but had planned to privatise Aerospatiale. Mr Jospin is the exact opposite, signing up to the restructuring but abandoning the Aerospatiale sell-off.

However, though the greatest obstacle to setting Airbus on the right footing for the next century has now been cleared, we are still a long way from take-off. Given the months of wrangling to get this far down the runway, few in the industry can seriously believe that the detailed negotiations from now on will be anything other than tortuous.

For starters there is the issue of how the assets should be divided up. BAe claims that its plants are more efficient than Aerospatiale's or Dasa's, and it should therefore get a larger share of the company than its present 20 per cent of the consortium. Naturally, the other partners do not accept this.

Then there is the thorny question of who will run the company. BAe would like us to believe that the other three partners will agree an impartial search for the best of international talent. Mmmm. Does anyone seriously think that France will accept a candidate from outside the mother country to sit behind the desk in Toulouse? An important breakthrough has been achieved, but we are still a long way from the end game.

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