Analyst accused of concerted campaign to damage LVMH

The world's leading luxury goods group, LVMH, yesterday accused Morgan Stanley, the investment bank, of mounting a "concerted campaign of aggression" against its image, brand names and shares over three years.

In the first case of its kind in France, a Paris court was told the US bank had deliberately tried to undermine LVMH's share price and reputation to lift the fortunes of its luxury rival, Gucci, which is a Morgan Stanley ally and client.

Morgan Stanley rejected the charge and accused LVMH of seeking revenge for its defeat in the so-called "handbag war" for the control of Gucci in 1999-2002, in which the US bank had played a leading role.

The case turns partly - but not entirely - on opinions given on LVMH's performance by Claire Kent, a British analyst for Morgan Stanley and a leading commentator on the luxury goods sector.

LVMH's lawyers accused Ms Kent of taking part in an "organised and concerted aggression" by writing a series of "biased" and undeservedly negative reports on the French company.

This is believed to be the first time that an American controversy over the crossing of ethical boundaries in commercial banks - between objective stock-market analysis and the bank's other interests - has crossed the Atlantic.

LVMH is seeking €100m (£69m) in damages for "denigration". Morgan Stanley, which denies all wrongdoing, is counter-suing for €10m. The first chamber of the Paris Tribunal de Commerce delayed its judgment until the New Year.

Maître Georges Terrier, appearing for LVMH, said Morgan Stanley's actions should be seen as part of a "system" which had already been uncovered by legal action in the United States. He said the New York office of the bank had - with nine other US merchant banks - already agreed to a $1.4bn (£827m) out-of-court settlement of alleged violations of the "firewall" between their analysis and merchant banking divisions.

(The banks have reached the settlement with the New York public prosecutor's office without admitting any wrongdoing.)

M. Terrier said it was reasonable to assume that Morgan Stanley's London office, in which Ms Kent worked, was also under pressure to produce market analysis which helped the bank's other activities and major clients.

He reminded the court that he had produced documentary evidence of 168 alleged occasions between 1999 and 2002 - not all involving Ms Kent - when Morgan Stanley had produced "flagrantly biased" comments on LVMH.

The bank's motivation was clear, he said. It had advised another French company, PPR, in its ultimately successful attempt to snatch Gucci from under the nose of LVMH at what seemed an excessive price to many analysts. It was in Morgan Stanley's interest to boost the market price of Gucci. The best way to do so was to encourage independent investors to lose confidence in the market leader, LVMH.

M. Terrier gave, as an example, an "alert" issued by Morgan Stanley in July last year, suggesting that LVMH's debt load was becoming critical and could affect the share price. This, he said, was based on a three-months-old report which was, in fact, much more favourable to the company. LVMH's lawyer also cited a Morgan Stanley report which accused the Louis Vuitton leather-goods component of LVMH of having a "mature" profile of designs - in other words, ageing and without much growth potential. In fact, Louis Vuitton - and LVMH as a whole - went on to weather the downturn in the luxury market better than other companies, including Gucci.

As a sign of Morgan Stanley's bad faith, he said, the bank had appended more than 100 of its reports with a "warning notice", claiming it had direct financial interests in LVMH. This was "false", the lawyer said: Morgan Stanley had no direct interest in LVMH. On the other hand, he said, the US bank gave no notice to its clients that it was working closely with Gucci.

Morgan Stanley's lawyer, Maître Philippe Nouel, said LVMH's allegations were "wholly baseless". Not a single complaint had been made by LVMH until the beginning of last year. The entire action could be explained by LVMH's "defeat in the so-called handbag war" and an attempt to exploit the US legal settlement.