Investigation launched over British Land vote

The Department of Trade and Industry (DTI) has launched an investigation into the decision by three major investment institutions to lend shares in British Land so that Laxey Partners, a corporate agitator, could put pressure on the the company's management.

At last Tuesday's annual general meeting of the property group, Laxey voted with a 9 per cent stake to unseat John Ritblat – the company's long-standing chairman and chief executive – and other directors and to propose share buybacks and that British Land hand over management of more of the company's property portfolio to external managers. All these resolutions were defeated, but a clearly ruffled Mr Ritblat announced afterwards that he was stepping down from the board next year.

It has since emerged that Laxey owns 1 per cent of British Land in its own right. The rest was borrowed temporarily from Hermes, the Post Office pension fund manager, Barclays Global Investors and Scottish Widows, the life insurance and investment arm of Lloyds TSB, and returned after the British Land meeting. The loan was organised by Credit Suisse First Boston (CSFB), the Swiss investment bank.

There is no suggestion that any of these organisations did anything illegal, but Mr Ritblat is furious that they enabled Laxey to exert far more power over British Land than it merited. However, sources close to Mr Ritblat denied last night that either he or British Land had asked the DTI to investigate. A DTI spokeswoman said: "We never confirm or deny that an investigation is taking place."

Nevertheless, both the London Stock Exchange and the Financial Services Authority (FSA) have voiced concerns at the practice of stock lending. It has long been a legitimate way for institutions to make additional money out of their shareholdings, but is seen as destabilising if the shares go to inappropriate borrowers. Stock lending has been blamed for helping to exaggerate recent stock market falls.

Mr Ritblat said: "What on earth did CSFB and the lenders think they were up to? This was bad corporate governance and, in my view, a disgrace. What everybody wants to know is how it can be that shares you don't own can be borrowed for the day and used to vote with."

Lord Newby, the Liberal Democrat Treasury spokesman in the House of Lords, has told the FSA: "The use of borrowed stock in this way appears to be a major abuse of the system."

It is understood that the three lending institutions have apologised to British Land for the embarrassment caused by their actions.