LIG criticised for private talks: Calls to analysts bring wrath of Stock Exchange and fears of crackdown

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THE LONDON Stock Exchange yesterday sent shock waves around the City when it publicly criticised London International Group, the Durex manufacturer, for privately warning analysts and investors that their profits expectations were too high.

The criticism has sparked fears of a crackdown on companies disseminating trading information, often price- sensitive, through private conversations with brokers - a practice widespread in the City. But the exchange denied that it had changed its stance and said the criticism was consistent with previous comments on companies' behaviour.

Only four companies have previously been publicly criticised by the exchange. The rap on the knuckles for LIG follows telephone calls made to 13 analysts and four investors by a senior employee on 1 February in which the analysts were told to revise their forecasts of profits for the year to March because of a 'not insubstantial loss expected in the photoprocessing division'.

The warning prompted a series of downgradings by analysts - Smith New Court, for example, cut its forecast by pounds 4m to pounds 33m. It also hit LIG's shares, which fell 22p to 249p that day and a further 11p the following day.

The exchange says the employee - who was authorised by LIG directors to release some information - 'on at least three occasions . . . exceeded the authority by giving additional information indicating the amount of the reduction in the expected profit'.

But it adds that both the information authorised by the directors and the additional information disclosed by the employee 'were of a kind that should have been notified to the Company Announcements Office. There were no circumstances justifying that information being passed to selected persons instead'.

LIG said it was 'concerned' by the exchange's criticism, adding: 'The board does not believe that the company should be singled out for criticism since the information which was authorised to be disclosed was of the type generally communicated to the market in this manner.'

Under the exchange's listing rules companies are required to announce price-sensitive information through its own announcement service. But companies are generally reluctant to issue formal profits warnings, which can do considerable damage to their reputations, preferring instead to feed the news to the market gradually through discussions with investors.

Many institutional investors are opposed to formal profit warnings because they often have a disproportionate effect on share prices.

The criticism of LIG comes in the middle of an argument about the enforcement of market rules and was interpreted as a warning to companies that try to influence the market without making a public announcement.