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Now Trinity Mirror feels the hacking heat

Shareholders to quiz chief executive Sly Bailey after claims by former employee prompt inquiry. Richard Northedge reports

Top investors in Trinity Mirror, which publishes the Sunday Mirror, Daily Mirror and The People, want to know more from its chief executive, Sly Bailey, about phone hacking allegations made last week by a former employee.

Big shareholders, including Standard Life and Aviva, are understood to be making their views known to Trinity's chairman, Sir Ian Gibson, after Ms Bailey launched an inquiry last week into its entire national and regional editorial operations. The review does not specifically cover hacking, but a company spokesman said: "We can confirm that we're conducting a review of editorial controls and procedures."

On Friday the controversy over potential illegal practices at Trinity intensified after allegations were made on the Guido Fawkes website that money had been paid to a blagger for illegally obtained information while Piers Morgan was editor between 2001 and 2002. Guido also claims that invoices, totalling £442,000, were sent to the Mirror group over a six year period for services provided by the blagger. The latest news will put Ms Bailey under even more pressure to explain whether phone-hacking, and other practices, were carried out by her newspaper. Investors are already nervous about the group -Schroder Investment Management, Trinity Mirror's biggest investor, recently sold 4.5 million shares, reducing its stake to 15.6 per cent. Shares in Trinity, which had gained from the recent elimination of its main Sunday newspaper competitor, News Corporation's News of the World, fell almost 10 per cent to 44p on the hacking allegations last week.Ms Bailey is due to present interim results next week. Analysts expect another fall in earnings for the whole year, from 28.5p a share in 2010 to just 22p, with only a 1p pick-up in 2012. Ms Bailey says she does not envisage paying a dividend until the trading environment improves.

Bradley Mitchell, investment manager at Royal London, one of the top-four shareholders with 5.3 per cent, said: "When you've got a business that's facing massive structural problems – which the whole sector has, nationally and regionally – it's quite difficult to look at the trend in profits and make a black-and-white decision about the management." He is waiting for the results of the inquiry, being carried out by legal director Paul Vickers, before forming a view on the investigation. "We have to see how it pans out," he said. "All we have is speculation and innuendo".

Sir Ian faces embarrassment if the group's inquiry finds evidence of hacking. Morrisons, the supermarket group that he also heads, was one of the first companies to withdraw advertising from the News of the World because of hacking this month. That Sunday tabloid ceased publication within days of the advertising boycott.

Trinity had distanced itself from the News of the World's practices and has benefited considerably from the paper's closure. Circulation of the Sunday Mirror and The People rose by more than 60 per cent after the rival closed and they are fighting for its share of its advertising revenue.

Last week's allegations of phone hacking at Trinity Mirror came from James Hipwell, who was one of the Daily Mirror's City Slicker financial reporters between 1998 and 2000 and who was later jailed for dealing in shares he tipped. The Daily Mirror editor at the time was Piers Morgan, now a television show host, who denies the allegations strongly.

The Trinity review is due to go before the board in September. Mr Vickers also sits on the Press Standards Board of Finance which funds and sets the remit of the Press Complaints Commission (PCC), the industry body whose handling of the hacking scandal has been widely criticised.

He will be involved in finding a new PCC chairman following Friday's announcement that Baroness Buscombe is to leave. The editor of the Sunday Mirror, Tina Weaver, is a member of the PCC.

Sir Ian, a former director of the Bank of England and a non-executive director of Northern Rock at the time of its nationalisation, joined Trinity in 2006. Ms Bailey joined in 2003 – also after the time of the new hacking allegations – but further problems caused by ethical issues would put additional pressure on her. The company's shares have fallen by more than 90 per cent over the past five years, and shareholders have received no dividends since 2008.The phone-hacking allegations could also be studied by Lord Justice Leveson, the judge appointed to head a government inquiry into press regulation. Trinity has appointed City solicitors Herbert Smith to deal with that report.

Mr Mitchell of Royal London said: "The inquiry will take a long time but we're hoping that it will clear it up. The main area affecting the Mirror is Mr Morgan, who is quite high profile, but it's impossible a shareholder could take a strong view yet."

In the short term there is fierce competition to win the 2.7 million people who bought the News of the World each week. News Corporation may produce a Sunday edition of its own Sun daily paper to recapture its old market. The Sunday Mirror was selling only about 1.2 million copies before its rival closed and The People just over 500,000.