Warburg pares bond market-making role

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The Independent Online
SG Warburg, Britain's leading investment bank, has been forced to sack 180 employees and withdraw from non-UK and US bond market-making, after suffering big losses in the choppy bond markets of 1994.

The bank denied that the drastic move, which should cut costs by £25m a year, had anything to do with the recently abandoned merger talks with American rival Morgan Stanley. It was rather the first move by troubleshooter David Burnett, brought in before Christmas to turn the ailing division around.

Last December the joint heads of Warburg's fixed-interest and treasury division, Peter Twachtmann and Peter Bass, were removed and Mr Burnett installed.

Lord Cairns, Warburg's chief executive, said yesterday:"A review of our fixed-interest businesses undertaken over the last six months, which was interrupted by the merger discussions with Morgan Stanley and completed after the appointment of a new head of the division, has resulted in the decision that significant changes are necessary in this area to produce acceptable financial returns."

Warburg said it has decided to "concentrate its worldwide development on its equity, equity-linked and derivative activities; corporate finance; and asset management".

This would entail "a substantial restructuring of the fixed-interest activities to create a smaller, profitable business concentrating on UK and US government and sterling bonds, money markets and foreign exchange, and fixed-interest derivatives".

Warburg said the activities to be discontinued had not earned a satisfactory return over the past five years. In November, it reported a 57.9 per cent drop in first-half pre-tax profits to £62.5m from £148.8m in the same period a year earlier.

The bank said it would withdraw from debt market-making in marks, yen, lire, French francs, Belgian francs, guilders, pesetas, Danish kroner and Swedish kronor. The international sales force for government and corporate debt securities would be disbandedand the debt capital markets group reduced.

Warburg said it would further develop sales and trading as a UK gilt-edged market-maker and the issuing and trading of sterling bonds directed towards UK institutional investors.

It would expand its money market, foreign exchange, and futures and options brokerage operations, and continue the proprietary trading desks in London and New York, including its status as US Treasury primary dealer, where it made healthy profits in 1994. Operations would be expanded in Euro medium-term notes.

Warburg said its structured products and over-the-counter bond options teams would be combined with the equity derivatives business. The international Australian and New Zealand dollar bond activities, conducted by Potter Warburg, would remain unchanged.

Lord Cairns said:"We have built successful worldwide equity, corporate finance and asset management businesses. While a correspondingly large debt franchise is not essential to our continued success, we believe our energies and financial resources will be best invested in the development of a more limited fixed-interest capability."

Mr Burnett commented: "Our fixed-interest and treasury product range is now concentrated on those areas where the value we create is more apparent to, and more likely to be rewarded by, our clients."

The restructuring will not not affect Warburg's 75 per cent-owned subsidiary Mercury Asset Management