OUTLOOK: Steam-age suspicion surrounds Swiss Bank

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The Independent Online
Apparently sane men once passed an Act of Parliament to prevent steam locomotives travelling faster than a man could walk. The shock of the new. Novel methods often take years to gain acceptance. Swiss Bank Corporation's antics in London's corpor ate finance and equity markets hardly fall into the same revolutionary category as 19th century locomotives but they seem to be encountering a similar suspicion and resistance.

The Swiss Bank story is a comparatively simple one - a Continental bank with a big balance sheet trying to bust its way into a market largely monopolised by traditional British houses. The bank seems prepared to use some aggressive and innovative techniques. It certainly likes to create a noise.

Many would call it sailing close to the wind; the pioneer is always in danger of that such is his hurry and urgency. Undoubtedly methods are being applied that others would reject as dubious and suspect. Rivals would love to see Swiss Bank stumble. So far, however, they have been denied the spectacle. Swiss Bank has kept studiously within the rules in introducing the financial equivalent of the Fosbury flop.

That hasn't stopped raised eyebrows and a great deal of tut-tutting over the latest antics. Swiss Bank is advising Trafalgar House in its £1.2bn bid for Northern Electric. Its fee is linked to the share price of Northern Electric and certain other regional electricity companies. The arrangement has in turn been hedged so that Swiss Bank guarantees itself a minimum payment. Certainly this is an unusual arrangement which involves trading in the shares of the company being bid for, but provided it was by the book, which it was, there appears to be nothing wrong with it.

Of perhaps more concern are the large positions Swiss Bank has built up in Northern, Yorkshire and a number of other regional electricity companies through its market-making arm. As might be expected, Northern has made as much as it possibly can out of it, for it looks suspicious.

It hardly needs saying, however, that if there was any question of the market-making arm dealing on the basis of privileged information provided by corporate finance there wouldn't just be a bad smell. They would all be in jail. For as long as the authorities tolerate big integrated houses and the Chinese walls that separate their functions, such apparently suspicious positions are bound to crop up.

They are certainly a good deal more common than most people realise. Were it not for Yorkshire's determination to expose the position, Swiss Bank would still be hiding behind the market-makers exemption that all other integrated houses use in similar situations. When you break a few plates, however, you cannot expect sympathy.

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