View From City Road: A dangerous moment for Warburg

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The Independent Online
Just how serious for SG Warburg Group is the Stock Exchange inquiry into share dealings in the final days of Enterprise's ill-fated pounds 1.7bn bid for Lasmo? On the face of it, not very. Warburg insists that the issue is a largely technical one concerning a grey area of the Stock Exchange rule book - in essence just a commercial dispute between two member firms. With the complaint coming from Warburg's old sparring partner, Swiss Bank Corporation, many see the episode as little more than part of an ongoing feud - point-scoring by a vindictive competitor.

Well, maybe, but if the findings continue to go against Warburg, the implications are rather more far- reaching than the bank would like to pretend. In an 'in camera' preliminary judgment, the Stock Exchange's domestic and equity rules committee - made up of market practitioners from rival firms - has already come down against Warburg. Refusing to accept the findings, Warburg is appealing to a higher authority. At issue is whether Warburg, in conducting a market raid for 10 per cent of Lasmo at an advantageous cash price, should first have satisfied pre-placed orders, among them one from Swiss Bank Corporation. The market raid prompted widespread allegations of favouritism. Three out of the four institutions - including Phillips & Drew Fund Management - from which Warburg bought shares at the advantageous price later voted in favour of the bid.

The Stock Exchange is looking only at the narrow issue of the pre- placed orders, but even an adverse finding on that would be damaging enough. By implication it would mean that Warburg cannot be trusted to honour its clients' orders. Worse, if the Exchange forces Warburg to go through with the Swiss Bank and other similar pre-placed orders, it could mean that Warburg ends up having to pay the advantageous cash price to holders of more than 10 per cent of Lasmo, which would be a breach of Takeover Panel rules. Not so technical after all.

As Sir David Scholey, chairman of Warburg, is only too well aware, reputations are much more easily lost in corporate finance than gained. History is littered with examples of once- mighty houses that threw away their position by error of judgement or one badly conducted transaction. There are plenty in the City who would like to see Warburg stumble. Might Enterprise - a failed bid that ended in a bad smell - prove to have been the trip wire? It seems unlikely but without doubt Warburg has been chastened by the experience. In the long run that may be no bad thing. There's nothing like a bad shock to stir a company out of its complacency.