Warburg dispels rumours of disaster in derivatives

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The Independent Online

Fears of "Barings-style" difficulties in the derivatives market swept both sides of the Atlantic last night as the troubled UK investment bank SG Warburg and America's blue chip bank J P Morgan were forced to make statements to douse the rumours.

Warburg denied that it was having difficulties meeting margin calls on Frankfurt's futures and options exchange, the Deutsche Boerse AG (DTB) and Morgan issued a two sentence statement amid mounting speculation that the Federal Reserve had been forced to bail out one of its derivative units.

Morgan said: "It is our practice not to comment on our financial performance until we release out quarterly results. We see no reason today to depart from that practice."

Warburg said there was no truth in the rumours that had knocked its share price down as low as 680p before ending 7p lower at 689p.

The rumours came as six Wall Street securities houses undertook yesterday to follow much tougher controls on their derivatives operations in order to avoid similar problems.

In Frankfurt, Joerg Franke, the board official responsible for the DTB told Reuter the exchange had no indication that any institute trading on the exchange was in trouble.

There were strong market rumours that MM Warburg, a German bank with no connection to SG Warburg, was having problems meeting margin calls. MM Warburg denied any problems.

SG Warburg, Britain's leading merchant bank, has been the subject of continuing rumours following its aborted merger talks with American giant Morgan Stanley.

A Warburg spokesman confirmed the bank had sacked 90 people in its derivatives section, based in London, Tokyo and Chicago, as part of a plan to scale down the derivatives section at the bank, which currently employs 240 people.This follows over 180 job cuts when Warburg slashed its eurobond activities in January,and reinforces the view that Warburg is in the throes of a large cost cutting programme.

The Warburg spokesman said the decision had nothing to do with the collapse of Barings last week after losses made by derivatives trader Nick Leeson in Singapore.

The sackings were ordered by a new executive committee set up after the bank's managing director, Lord Cairns, was replaced by Sir David Scholey on 13 February, he said.

He added that the dismissals had not affected Warburg's staff in Singapore. The Barings collapse "was not in any way a problem connected to derivatives products, but to the internal controls at the bank," he said.