Soros may have lost his Midas touch

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IS THE shadow of the man who drove Britain out of the European Exchange Rate Mechanism in September 1992 once again hanging over the pound? Well, no, not according to anybody outside his small retinue of admirers.

The financier George Soros is said to have bet heavily - to the tune of $6bn-$8bn (pounds 3.6bn-pounds 4.8bn)- at the end of March on sterling's exchange rate falling from a level at which one pound bought just over 3.10 German marks to DM2.70 within three months.

But excited reports that the arch-speculator has made as much as $2bn in profit have been greeted with great scepticism in the City, where the pound has reacted to the Soros rumours by rising rather than falling.

Soros Fund Management - which has a policy of never commenting officially on its trades - is said to have bet against sterling by buying "put options" in the foreign exchange markets.

These deals - one type of those mysterious derivative transactions - give their purchaser the right to sell pounds at a fixed rate on a fixed date. If you buy put options that allow you to sell sterling at DM2.70 in three months' time, you expect to be able to buy pounds at a lower rate when that time actually comes and then sell them on at an instant profit to whoever sold you the option.

It is a pure bet on the exchange rate going down. The prize depends on the odds the seller of the option places on the outcome.

But almost nobody thinks betting on a falling pound is a big gamble; virtually every pundit has been predicting it for months. Mr Soros will only have done really well if he made his bet against sterling at the right time.

Experts in derivatives doubt he will have made multi-billion dollar profits. Traders report that several funds have been placing the same kind of bet in recent weeks.

In fact, the myth of Mr Soros's Midas touch seems in need of polishing. Another foreign exchange expert said yesterday: "His recent performance has not been spectacular. If he has made a good call this time, no wonder he wants to get people talking about it."