Merchant banks must guard against 'negligence' lawsuits

THE BANK of England is pressing merchant banks to improve internal procedures to lessen the risk from enormous lawsuits for negligence, writes Peter Rodgers.

The Bank's supervisors are worried about the effect of a number of record awards, including one against Samuel Montagu over the aborted sale of Quadrex. More recently, Yeoman, the Irish leasing firm, won pounds 35m from SG Warburg, and a pounds 600m suit has been launched against BZW by the administrators of British & Commonwealth.

The Bank's annual report on the Banking Act, published yesterday, attacked the popular view that Britain was overbanked, with excess capacity among the banks and building societies. A study of bank profitability found that after adjusting for distortions caused by the banking cycle, the trend of profits over the past 15 years had been 'flat or slightly upward'.

This meant there was no clear evidence of excess capacity in the banking system, which would have produced a downward trend in profits, the report said.

The Bank made a profit of pounds 120m before tax against pounds 88m last year and paid pounds 48m to the Treasury, retaining pounds 47m after tax. The Deposit Protection Fund has now paid pounds 75m of an estimated pounds 80m due to BCCI depositors, but 30,000 of the 50,000 eligible to claim have not done so.