The best of banking enemies
Wednesday 03 May 1995
Warburg and Swiss Bank Corporation have been embroiled in several of the bitterest disputes the City has seen for years.
The Enterprise bid for Lasmo, the Eurotunnel rights issue last year and the Trafalgar bid for Northern Electric all led to recriminations that highlighted the cultural divide between the two organisations.
On the one hand was Warburg, in recent years the epitome of the City establishment, with a dominant position in UK corporate finance. On the other were the brash corporate financiers and dealers of SBC, breaking their way audaciously into the London market with the help of sophisticated financial engineering and the enormous balance sheet of the parent bank. SBC became the bank everybody loved to hate.
Warburg advised Enterprise in its unsuccessful bid for Lasmo, which involved a cash raid on the target oil company's shares. SBC, expecting a raid, had built up a stake in Lasmo shares. But when the moment came, Warburg chose to be highly selective in its purchases and ignored SBC, which was outraged by the discrimination and complained to the Stock Exchange.
With both sides still bristling, SBC made a flamboyant gesture in underwriting almost a third of the £858m Eurotunnel rights issue last summer, and the bank made clear that it planned to keep a substantial part for distribution to its immense European client base.
But as Eurotunnel's share price sagged, SBC was blamed by Warburg for almost wrecking the whole deal by trying to reduce its exposure during cliff-hanging negotiations that lasted through the night.
The most recent spat came in Trafalgar House's unsuccessful £1.2bn bid for Northern Electric, in which Warburg advised the target and SBC the bidder.
SBC built up stakes through its market making arm, not only in Northern but also in a number of other regional power companies, using contracts for differences, a form of option.
Warburg complained and the row snowballed, leading to questions in Parliament. The regulators cleared SBC, but tightened the rules to prevent repeats.
Diving in at the deep end is no excuse for shirking the style stakes
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