Warburg in Isosceles write-off

S G Warburg, which revealed in its half-year results that unexpected shocks had cost it pounds 20m, is set to shake its shareholders' confidence further by writing off a large part of a pounds 30m loan to Isosceles, the Gateway supermarkets group.

Isosceles announced last week that its bankers have agreed a moratorium on repayments of the group's pounds 1.4bn debts until May. This means that pounds 80m of expected repayments will be 'rolled up', and the banks will provide around pounds 30m of extra finance while Isosceles attempts to work out a debt restructuring - its third in two years.

Warburg, which received an estimated pounds 25m fee for advising Isosceles on its pounds 2.2bn takeover of Gateway in 1989, was replaced by Midland Group earlier this month as the co-ordinator of the 38-strong banking group that has lent Isosceles pounds 1.1bn. Hill Samuel, which successfully masterminded the restructuring of Brent Walker's pounds 1.5bn debts, has also replaced Warburg as Isosceles' merchant bank.

Robin Binks, the director who headed the Warburg team on the deal, has since left the company to join Cannon Street Investments.

The loan is an embarrassment to Warburg, which does not like to use its balance sheet for lending. At 30 September, Warburg's loans to third parties were just pounds 1.69bn, compared with total assets of pounds 18.9bn. Almost all these loans are to clients of the bank in support of fee-earning business.

As it led the fund-raising, it was forced to take some of the loan on its own books to show good faith to other lenders. Even so, it is a relatively small lender, with other banks, such as Bank of Nova Scotia, Industrial Bank of Japan, Midland and Bank of Scotland, believed to have exposures in the region of pounds 100m.

However, many of the other banks have made provisions against their loans to Isosceles. 'This group started getting in trouble in 1990, for heaven's sake,' said one commercial banker. 'My credit commitee had me writing it down then. They'll want a bit more off it this year as well.'

Lord Cairns, Warburg's chief executive, said in November that the group had not made any provision against the Isosceles loan and that he saw no need to do so. It is understood that Warburg is reviewing this position.

Most commercial banks have written off at least half the value of their loans to Isosceles. It is understood that at least one leading lender will write off the whole loan in its 1992 accounts.

Warburg has already suffered indirectly because of the troubles at Isosceles. Mercury Asset Management, the fund manager in which Warburg has a 54 per cent holding, has written off its entire investment in Isosceles. MAM bought Isosceles shares both for the funds that it manages and on its own account. Its direct holding was written down in two stages.

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