Warburg's reputation could be badly dented

COMMENT: `Whether this was a case of premeditated price manipulation, or whether it is capable of a more generous interpretation, remains to be seen. The broader point of principle is whether securities houses should be allowed to hedge their positions at all ahead of such transactions'

Poor old SBC Warburg. On the day it announces bumper profits it is also hit by news of a Securities and Futures Authority investigation of its handling of a pounds 300m programme trade. This is not another incident of "rogue trading", nor did it involve Warburg's in any significant monetary loss. But the loss to reputation could be equally significant, for what Warburg's stands accused of, rightly or wrongly, is deliberately trying to disadvantage a client in an area of business - big programme trades - where it is one of the City's market leaders.

The episode bears some repeating. Every week Warburg's executes anything up to 30 big programme trades, where big lines of stock are bought and traded out to the market, and it bids for a lot more. Last October it won the contract to sell off about pounds 300m of shares which were being disposed of as part of the liquidation of the Kleinwort Benson European Privatisation Trust (Kepit). Clients generally accept that the bank be allowed to hedge its position ahead of executing the trade. On this occasion, however, the hedging was so obvious that it alerted the market to what was about to happen.

Foul, yelled Kepit's financial advisers Merrill Lynch, which accused Warburg's of deliberately smashing the prices down to its own advantage. Whether this was actually a case of premeditated price manipulation, or whether it is capable of a more generous interpretation, remains to be seen. This is one of the key questions the SFA is attempting to address. Whatever the case, there are shades of the old "contracts for differences" row here. The broader point of principle is whether securities houses should be allowed hedge their positions at all ahead of such large-scale transactions.

In time-honoured fashion, Warburg's has moved to pre-empt whatever the SFA may do or say. Two traders have gone and the client, though not compensated, was eventually given the sort of favourable prices he might have expected all along.

In other words, everyone's happy. Or are they? The statement accompanying Warburg's results yesterday refers in terms to the bank's "active involvement in block trading, utilising our capital strength and distribution capability in service of our clients". Whatever the SFA's eventual findings on the Kepit incident, Warburg cannot emerge well. Whichever way you read it, no client is going to do business with a company it believes might disadvantage its interests.

The fact that this happens the whole time in markets, that practice of this sort is endemic among securities firms, doesn't really lessen the damage. Many people are going to look at the bumper profits and bonuses now being earned in the City and think "now we know why".

How many times before have we heard ICL, the once mighty computer giant, talk of new beginnings and successful transformations? It is only a slight exaggeration to say that ICL has had more upheavals than British Leyland, British Steel, British Shipbuilding and all the other corporate rescue cases put together.

"ICL now has no factories left," the latest man in the hot seat, Keith Todd, proudly announced yesterday as he outlined yet another new dawn as a services, software and consulting organisation. This is a far cry from the 1960s when the UK's entire computer manufacturing capacity was pushed into a merger under the ambitious title of International Computers Limited by the then minister for technology, Tony Benn. For the following two decades ICL became the very embodiment of the British disease - weak directionless management, poor marketing, under-investment and tangential technology and product.

The takeover by Fujitsu in 1990 was supposed to change all this, giving ICL the long-term commitment it had so obviously lacked in the past. But the reality has been more of the same traditional British fudge. Sir Peter Bonfield managed to generate a reputation as the company's saviour. Yet just months after he went off to run British Telecom ICL was in the throws of another huge internal restructuring drive.

Selling off the hardware business, the latest big idea, has so far done little to answer the basic question: just what is ICL meant to be about? Mr Todd clearly has grand hopes for the Internet revolution. "We intend to be a leader in the new world," he says. Well possibly, but is ICL really any better placed to succeed in this brave new world than its many up- and-coming rivals. The restructuring last year has done nothing to boost ICL's profitability.

For ICL, that long sought after stock market float is always three years away. Yes, there would be a stock market quote before the turn of the century, Mr Todd insisted. The last time ICL said there was a three-year time horizon on its float was - er - about three years ago. The odds are that Mr Todd, or his successor, will still be vainly waiting well into the next millennium.

In two years' time the dastardly bureaucrats in Brussels plan to do away with one of the few remaining pleasures available to red-blooded, red-skinned Englishmen - their inalienable right to stock up with duty- free booze and fags on the way back home from holiday in some sun-drenched continental location.

Not surprisingly, the Duty Free Confederation, a motley crew of airport, ferry and airline operators, drinks companies and duty-free shops, are not very keen on the idea. Now they have hired their own consultants, National Economic Research Associates, sent them away with their spread sheets and economic impact models and come up with the startling finding that the abolition of duty-free, far from boosting Government receipts, will result in a net loss to the Exchequer of pounds 18m a year.

According to the research, the increased duty and tax yielded through abolition will be more than offset by lower corporation and income taxes as travellers alter their spending habits, retailers lose sales and employees lose their jobs. Abolishing perks is never popular. But duty-free is a perk available only to the overseas traveller and a perk, moreover, directed mainly at the Brits - we account for a quarter of all duty-free sales a year.

If the Duty Free Confederation is concerned about loss of tax revenues and jobs then it would be far better employed campaigning for a lowering of duty paid. The duty on a pint of beer is five times higher here than in France. Correcting that imbalance to a modest extent would boost sales, preserve jobs and, at a pinch, might even be tax positive, quite apart from reducing the temptation to go booze cruising across the Channel.

The trouble is that the Duty Free Confederation will never lobby for such a tax harmonisation because it is not in the interests of its members who benefit massively and disproportionately from the current duty-free arrangements. The Duty Free Confederation will continue to bang the drum right up to 30 June 1999 but it should be resisted. Why should other taxpayers continue to subsidise the fares of European air and sea travellers in this way?

Suggested Topics
Life and Style
“What is it like being a girl?” was the question on the lips of one inquisitive Reddit user this week
Arts and Entertainment
Armando Iannucci, the creator of 'The Thick of It' says he has
tvArmando Iannucci to concentrate on US show Veep
Life and Style
Luis Suarez looks towards the crowd during the 2-1 victory over England
Life and Style
Swimsuit, £245, by Agent Provocateur

Midsummer swimwear season is well and truly upon us – but diving in at the deep end is no excuse for shirking the style stakes

German supporters (left) and Argentina fans
world cup 2014Final gives England fans a choice between to old enemies
Arts and Entertainment
A still from the worldwide Dawn of the Planet of the Apes trailer debut
peopleMario Balotelli poses with 'shotgun' in controversial Instagram pic
A mugshot of Ian Watkins released by South Wales Police following his guilty pleas
peopleBandmates open up about abuse
Basketball superstar LeBron James gets into his stride for the Cleveland Cavaliers
sportNBA superstar announces decision to return to Cleveland Cavaliers
Javier Mascherano of Argentina tackles Arjen Robben of the Netherlands as he attempts a shot
world cup 2014
Arts and Entertainment
The successful ITV drama Broadchurch starring David Tenant and Olivia Coleman came to an end tonight
ebookA unique anthology of reporting and analysis of a crucial period of history
Four ski officials in Slovenia have been suspended following allegations of results rigging
sportFour Slovenian officials suspended after allegations they helped violinist get slalom place
14 March 2011: George Clooney testifies before the Senate Foreign Relations Committee during a hearing titled 'Sudan and South Sudan: Independence and Insecurity.' Clooney is co-founder of the Satellite Sentinel Project which uses private satellites to collect evidence of crimes against civilian populations in Sudan
Arts and Entertainment
Balaban is indirectly responsible for the existence of Downton Abbey, having first discovered Julian Fellowes' talents as a screenwriter
tvCast members told to lose weight after snacking on set
Life and Style
More than half of young adults have engaged in 'unwanted but consensual sexting with a committed partner,' according to research
Life and Style
A binge is classed as four or more alcoholic drinks for women and five or more for men, consumed over a roughly two-hour period
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business


£50000 - £70000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

Programme Support, Coms, Bristol, £300-350p/d

£300 - £350 per day + competitive: Orgtel: My client, a leading bank, is curre...

(Junior) IT Systems Administrator / Infrastructure Analyst

£28000 - £32000 per annum + pension, 25 days holiday: Ashdown Group: A highly ...

Finance Officer

Negotiable: Randstad Education Birmingham: Randstad Education are seeking a Fi...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice