A choice of two AGMs for angry telco investors

Marconi and BT AGM's; Settlement blues; RBS supremacy

With both the Marconi and British Telecom annual meetings scheduled for today, beleaguered telecom investors are almost spoilt for choice on where best to vent their anger. Is it to Nottingham for the humdinger of a row that is likely to greet the luckless BT board, or is it to London's QE2 centre for what promises to be an epic display of heat and noise from punch-drunk Marconi shareholders?

Unfortunately, the angriest shareholders of all find themselves hamstrung, but for different reasons. Lord Weinstock, who ran Marconi for 33 years in the days when it was known as GEC and accuses his successor Lord Simpson of squandering his inheritance, is prevented from attending in person by a bad back. He will instead have to run his campaign against the board via remote control.

On the other hand, John Mayo, who was unceremoniously dumped as chief executive-designate two days after Marconi's calamitous profits warning, will be there. But he would be foolhardy in the extreme to give it to his former boardroom colleagues with both barrels while he is still awaiting his severance cheque.

Even so, the Marconi chairman Sir Roger Hurn is still guaranteed a deluge of hostile questions. One which springs to mind is why he is remaining as chairman even though he is not standing for re-election, which neatly denies shareholders the opportunity to register their displeasure by voting against him.

But there is plenty of other ammunition apart from Sir Roger's continued stewardship of the company. One puzzle which the board might like to clear up is how it was still expecting "growth" this year just five weeks before it announced that profits would halve and sales would fall by 15 per cent.

Another is just who was responsible for the public relations disaster of the share option rebasing plan, announced just weeks before the profits warning. Sir Roger and Lord Simpson fully deserve all the lambasting they are likely to get. More questionable is whether the resurrected Lord Weinstock should be allowed to dictate who runs the company in future.

Settlement blues

Stock settlement – transferring ownership of securities from one party to another – is a dull old business if ever there was one but among those who make their living from this legally crucial part of all equity transactions the debate is hot, hot, hot. Should Europe's national settlement systems be merging with each other to create a single European settlement system, or would investors be better served by having a number of competitor settlement systems from which to choose? Should national stock exchanges be allowed to control their settlement systems, or are investors best advised to keep the two functions separate?

It is a common misunderstanding that the cost of settlement is the most expensive part of share transactions – other than commission and stamp duty, that is. In fact, settlement is in most cases the least costly aspect of buying and selling equities. Where it does become expensive, however, is when it is cross border. The cost, for instance, of buying German equities in Germany and then settling the transaction through London's Crest, is in most cases ridiculously high, and visa versa. Which is why most investors who buy German shares do so through the Frankfurt market and then settle the transaction using Germany's Clearstream settlement system. Even then, the cost is usually steep for a foreign national.

As can readily be seen, national stock markets have a big vested interest in maintaining this position. Control over the local settlement system is seen by most European bourses as a potent weapon in the fight to keep competitors at bay. The Deutsche Börse owns 50 per cent of Clearstream, and Euronext, the merged Paris, Amsterdam and Brussels exchanges, also requires settlement through sister systems.

The London Stock Exchange, whose shares become publicly listed for the first time on Friday, would like to be in the same position. But after the fiasco of Taurus in the early 1990s, settlement was stripped from the Exchange and placed with Crest, which today is mutually owned by its customers. As a result, the LSE's public stance is a bit different from European counterparts. Don Cruickshank, the LSE's chairman, is on record as saying separation should be forced on other European exchanges as well, so that everyone is on a level playing field.

His argument makes a lot of sense. Vertical integration between exchanges and settlement systems is plainly anti-competitive, while horizontal integration between rival European settlement systems into a single utility for Europe is at this stage impractical. Differing tax, legal, and regulatory regimes mean that some degree of local settlement would have to remain in place. Much the best solution, therefore, is for rival exchanges to be forced to settle transactions where the customer wants them settled.

This doesn't necessarily require the intervention of the European competition authorities. If the big investment banks are as against vertical integration as they say, why don't they start shifting liquidity to Virt-x, the marriage of Tradepoint and the Swiss exchange, which already offers customer choice in settlement? London would have easily the most to gain from such a market driven approach to settlement, which is perhaps why the European authorities have been so slow to act.

RBS supremacy

Everything seems to be going right for Royal Bank of Scotland. Its acquisition of National Westminster Bank a year and a bit ago looks to have been one of the most inspired, value-enhancing takeovers in recent corporate history. What's more, Sir George "lucky" Matthewson, the chairman, can be confident that if he had tried it in today's harsher regulatory environment, it wouldn't have been allowed. He managed to slip in just before the bar came down.

The group's cautious, piecemeal approach to overseas expansion, underlined yesterday with the $2.1bn acquisition of Mellon Financial's retail retail arm, also seems to contrast favourably with those who would rush into a big high-risk European merger, with very possibly disastrous consequences. With so much going right for RBS, it is tempting to assume something must be about to go wrong.

The most obvious danger is a deterioration in credit conditions, but even here the group's robotic chief executive, Fred Goodwin, insists that the position is much better than generally assumed. The quality of credit remains strong, he says, even though the half year results show provisions growing more strongly than loans. Rivals would take great pleasure in seeing the Matthewson/Goodwin double act trip up. Now more than ever they need to remember the old adage that the price of supremacy is eternal vigilance.

j.warner@independent.co.uk