7 Jan 97
Daily Telegraph: Such gall
Sir, As one of those financially ruined by Lloyd's, may I heartily endorse Mero Tetby's letter (Jan 3).
What is even worse than David Rowland's "ludicrous knighthood" is that he had the temerity insensitivity and appalling bad taste to accept it.
7 Jan 97
Times: Letter to the Editor
No sympathy for same old Lloyd's
Sir, You reported onDecember 19 that Lloyd's of London is going to court to recover outstanding funds from non-paying names. The case would perhaps be more deserving if Lloyd's had fulfilled its own obligations. Lloyd's has so far failed to pay out so-called Finality Surpluses owed to large numbers of names, perhaps thousands, under the terms of the settlement offer. These were due, at the very latest, at the beginning of December. No word of explanation has been offered for the delay, and the authorities at Lloyd's apparently do not think that it matters. Now the names have done what was required of them by voting for the reconstruction of Lloyd's and Equitas, it seems that Lloyd's no longer cares about them. It looks as though the new Lloyd's is going to be just like the old, only perhaps more so.
10 Jan 97
Times: Explanation of delays at Lloyd's
From the General Manager, Communications, Lloyd's of London
Sir, Sir Guy Millard (Business letters, January 7) asserts thatno explanation has been forthcoming from Lloyd's for the late payment of members' surpluses resulting from completion of the reconstruction and renewal programme. This is not so.
Anumber of letters have been despatched to relevant members and their agents regarding payment procedures. The most recent on December 18, from Lloyd's chief executive officer, Ron Sandler, to all affected members, specially addressed the matter of delays in payments, explained their back-ground and apologised for their occurrence.
There is no way that such openness can be described in the terms used by Sir Guy.
10 Jan 97
Times: Merrett will not work in Lloyd's again after £1m deal
STEPHEN MERRETT, the former Lloyd's of London deputy chairman who was accused of "negligence, incompetence and dereliction of duty" in a High Court case two years ago, is to pay £1 million in damages, and will never work at Lloyd's again.
MrMerrett, once one of Lloyd's most powerful underwriters, has struck a deal with Lloyd's, in return for protection from future legal action. Major Ronald Ferguson, father of the Duchess of York, and Adam Faith, the actor-singer, are among names who lost more than £300 million on Merrett Syndicate 418. The £1 million will be paid to the 1,900-strong Merrett Syndicate 418 (1985) Names' Association.
Sir Nicholas Lyell, the Attorney-General, and Sir Rocco Forte, the hotelier, are among other names involved. Under the deal, theMerrett underwriting agencies have agreed to pay about £2.2 million to Lloyd's, representing their share of the £225 million contributed by underwriters to the Lloyd's settlement. Mr Merrett will not, at any time, be a director, employee or shareholder of any company in the Lloyd's market. He will become a party to the settlement - protecting him from future lawsuits from names - but will receive no debt credits in the settlement of his finality bill.
Lloyd'shas agreed to drop its inquiry into Mr Merrett. The ultimate sanction of a £1 million "fine" and a self-imposed ban on working in the market is unlikely to have been matched by any disciplinary tribunal. Mr Merrett resigned as deputy chairman of Lloyd's in September 1993, after intense pressure from senior figures in the insurance industry. The Merrett names saw their efforts rewarded in November 1995, when they were awarded landmark damages in the High Court.
Mr Justice Cresswell, the presiding judge, expressed "serious reservations" about Mr Merrett's approach as an underwriter, in a damning 640 page judgment. Mr Merrett, he said, gave inadequate time and attention to his duties, and was "unconvincing" in his evidence in court. The judge was equally critical of Ernst & Young, which was deemed negligent in its role as auditor to the Merrett syndicate.
The Merrett deal must still be ratified by the Council of Lloyd's and the board of Equitas. John Mays, chairman of the Merrett 418 action group, said: "I'm pleased that we've drawn a line under the litigation, and that there is a benefit to our members."
Mr Merrett was formerly one of Lloyd's most powerful underwriters. He joined the business built up by his father, Roy, in 1963, and becamechairman of Merrett Group in 1976.
10 Jan 97
Times: Disclosure forces fall in fees. PIA rules help to cut investment costs by 3.9%
TOUGH new rules requiringinsurance and investment companies to reveal their management fees have led to a drop in overall charges, according to a report (Marianne Murphey writes).
However,investors with a high-charging company could still pay five times as much as the clients of companies with much lower charges.
Theregulations, known as disclosure, were introduced in the wake of the pensions mis-selling scandal and forced financial services companies to make their charges clearer and more comprehensible
In itssecond annual report, the Personal Investment Authority (PIA), of which Colette Bowe is chief executive, says that charges overall have fallen 3.9 per cent in one year. Those companies that had been the most expensive showed the biggest improvements.
However, for aten-year endowment unit-linked policy, one of the lowest-charging pensions from Equitable Life would cost £300 out of total contribution of £3,600 over five years based on premiums of £60 a month. A similar product from Hearts of Oak Friendly Society, would cost £1,500 out of a total contribution of £3,600. Other high-chargers were Pearl, United Friendly (which has merged with Refuge to become United Assurance), Wesleyan Assurance Society, Windsor Life, Albany International, and Reliance Mutual.
The study found that there waslittle difference between the price of direct products and those sold by an adviser. The PIA also found evidence of investors bartering with advisers over charges if they intended to make large contributions to policies.
10 Jan 97
Times: Lloyd's expected to top £1bn for second year
Lloyd'sof London is expected to announce profits of more than £1 billion for the second year running this summer. And profits are expected to hold up well for the next few years, in spite of falling rates, and fears of over capacity in the insurance market.
Profits for the1994 underwriting year are estimated at £1.18 billion, according to Chatset, the insurance analyst. Lloyd's made a profit of £1.084 billion in 1993 - a sharp reversal on the £1.2 billion loss of 1992. Rates were high in 1993, and there were few of the catastrophes that dogged the market in the late 1980s.
Lloyd's, which has previously forecast 1994 profits of £1.008 billion, is due to publish the precise numbers in May or June. Figures are published three years in arrears. Chatset forecasts bottom-line profits of more than £1 billion for 1994, £850 million for 1995 and £600 million for 1996.
Of the individual markets,marine has performed exceptionally well in 1994 and 1995, and the anticipated profit in 1996 is above average. Non-marine has also done well, and aviation should produce a respectable profit in each year. The area of weakness is motor. Chatset has downgraded its profit forecast for 1994 from £109 million to £57 million. In 1995, motor is expected to show a loss of £12 million, compared with a forecast of £67 million.
Chatset saidcorporate capital's presence at Lloyd's had increased from 30 to 44 per cent in the past two years, prompting concerns about over-capacity. Chatset said: "With all sections of the market suffering from weakening rates, the last thing it needs is over capacity and a scramble amongst underwriters for business. The further influx of corporate capacity would appear to be completely unjustified." Capacity at Lloyd's is expected to increase by 3.3 per cent to £10.32 billion in 1997. Just over half - £5.78 billion - will be provided by 9,972 individual names.
10 Jan 97
Times: Still in a stew at Lloyd's
FUNNY place, Lloyd's. In one corner,council members are pinning on medals and collecting knighthoods. In the other, a former deputy chairman effectively submits to a £I million fine, and pledges never to work in the Lloyd's market again. Out in the shires, more than 2,000 names are still waiting for cheques promised to them three months ago. Several hundred more are waiting for the day when the bailiffs come calling.
Ponder thisfor a moment, and one realises how little has changed. Reconstruction and Renewal (R&R) was supposed to be a harbinger of peace and tranquillity. Hard-pressed names could write - or receive - that one last cheque, and kiss goodbye to the whole sorry business. No such luck.
Theblack-balling of Stephen Merrett is one of several running themes. Before Christmas, Lloyd's admitted to embarrassing delays in sending out cheques to 12,000 names owed £570 million under R&R. So far, 9,800 have received £370 million, and no-one knows when the process will end. Stories persist of names receiving the wrong amounts. Court action by Lloyd's against non-paying names is expected to resume next week.
Profitsin 1994 are expected to top £1 billion, but weakening insurance rates and increasing over-capacity could yet leave their mark. Throw aggrieved names into the pot, and one is left with a fiery dish with a lingering after-taste. Sample with care.
10 Jan 97
Daily Telegraph: Lloyd's results set to cheer
UNDERWRITING resultsfor 1994 at Lloyd's of London are expected to be the best since 1986, itself the best for more than 20 years.
Total profitis forecast by the Lloyd's analyst at £1.18 billion, another improvement on previous estimates.
Profitforecasts for 1995 and 1996 have also been upgraded. But Charles Sturge of Chatset warned: "There is going to be a squeeze on rates. It takes a really good wind storm in America to wake the market up a bit" and make underwriters worry about cutting rates further
The1995 year will probably produce a £9.7 billion profit, followed by £7.3 billion for 1996, Chatset says. It is concerned insurance capacity at Lloyd's has risen again for 1997, to reach £10.3 billion, "at a time when there is already over-capacity at Lloyd's" and says only half the capacity will be used this year.
Lloyd'syesterday received domestic insurance licences in Japan. It will compete for business including aviation, personal accident, marine and nuclear, and is expected to be taking in £30m of premiums by about 2000.
MrMerrett has undertaken never to operate at Lloyd's and will pay £1m to members of his syndicates. In return he is being included in the global settlement, and disciplinary procedures are being dropped since his undertakings are heavier than the probable sanctions.
Hisagencies are contributing £2.2m to the global settlement.
10 Jan 97
Daily Telegraph: Lloyd's Council
The ruling Council of Lloyd's has formally re-electedSir David Rowland and John Charman as chairman and deputy chairman.
10 Jan 97
N0 major disasters, no underwriting scandals - this is the new-look Lloyd's of London. The latest results from the insurance market are confounding the sceptics.
Independent analyst Chatset, which accurately predicted the market's worst moments estimates net profits for1996 of £614m. This is a sharp fall from the two previous ‘golden years' which together netted £1-9bn, but is far better than feared.
Bumper profitsin 1994 and 1995 have attracted more capacity to the insurance market, causing rates to soften. But Lloyd's is now dominated by bigger syndicates. They have been strong enough to hold out for better terms. There were few catastrophes last year, says Chatset director Charles Sturge.
Despite all the good news thefuture looks bleak for Names, Lloyd's private investors. Several of the best syndicates are now exclusively controlled by corporate investors. Lloyd's chairman Sir David Rowland says Names have a future. Trends suggest otherwise. This year, Names' share of underwriting capacity drops sharply to 56pc.
The quoted Lloyd's vehicles may soon be the only practical way into the market. Some are highly attractive. Sturge expectsPremium Underwriting, now 137½p, to pay a bumper dividend.
Meantime,Stephen Merrett, the disgraced former Lloyd's deputy chairman, has reached a settlement. His agency will pay £2.2m compensation to Lloyd's and he personally will pay £1m to Names in his syndicate 418.
Merrett will receive no help from Lloyd's in settling his losses. He has promised to stay away from the market. In 1995, Mr Justice Cresswell castigated him for using ‘half-truth and falsehood' in reporting to names.
11 Jan 97
Daily Telegraph: Fenchurch and Lowndes Lambert in merger talks
Theconsolidation among insurance brokers gathered pace yesterday as Fenchurch and Lowndes Lambert, two medium-sized groups, revealed they are in merger talks.
The disclosure in ajoint statement, was prompted by the Stock Exchange following a recent run-up in Fenchurch's shares.
Having hit alow of 46p in the middle of last month, they added 8½ to 66½ yesterday.
Theshares had been languishing after Fenchurch lost a big piece of business - rumoured to be American energy group Enron - to rival Lloyd Thompson.
Yesterday's announcement also pushed Lowndes Lambert shares up 7 to 110p, valuing it at£67m compared with Fenchurch's £24m.
The companies said theirbusinesses are complementary: Fenchurch is biased towards the competitive UK retail market following its 1995 acquisition of regional broker Houlder, while Lowndes Lambert's business is international.
Details of the merger are expected over the next few weeks. David Margrett, chief executive of Lowndes Lambert, would not comment on the new board structure.
"Obviously, we areputting two businesses together, there will be a reconstruction, but the intention is that it will be a merger in the true sense of the word," he said.
15 Jan 97
Times: A question of honour and the failure of self-regulation at Lloyd's
Sir, I amextremely dismayed that David Rowland should head the New Year's Honours List in recognition of his having launched Lloyd's on its new path.
Are memories really so short? This new path was necessary only because theCouncil of Lloyd's, of which Mr Rowland was a prominent member, failed miserably to execute self-regulatory duties and so prevent its self-inflicted crisis.
Let us remember that the failure of the Council of Lloyd's to self-regulate allowed the emergence ofmalignant practices such as the LMX spiral/churning, gross misrepresentation, incompetence and negligence, and for these to run riot.
It was these practices that led directly to the worst purported losses in the history of Lloyd's PR, to financially ruin for thousands of innocent people.
Seldom is it mentioned that as a broker Mr Rowland benefited financially when Lloyd's went off the tracks, and then again when as chairman of Lloyd's he was assigned the task of rectifying the damage caused. For this he has received anexorbitant salary and a £400,000 bonus from Lloyd's.
Nobody at Lloyd's deserves an award, and an award for burning its own boats. The fact is that Mr Rowland has simply devalued the awards made to those whose achievements are truly worthy of recognition.
Yours faithfully, Mero Tetby
16 Jan 97
Times: Lloyd's hearings resume
Lloyd'sof London returns to court today in its attempts to recover funds from non-paying names. Lloyd's hopes to secure Order 14 judgments in three test cases, setting a benchmark for future debt recoveries. The hearing opened in December. Arguments on behalf of names in Canada will be heard on Monday. Judgment is expected towards the end of the month. A separate case alleging fraud in the insurance market is due to open in he High Court this month. Lloyd's has now paid £381 million out of £570 million in rebates due to 12,000 names. Some names will receive two cheques, making it difficult to tell how many people have received payment so far. Lloyd's has been criticised for delays in distributing funds to names.
16 January 97
Daily Mail: Lioncover dilemma at Lloyd's
Three monthsafter Lloyd's of London pushed through its £3-2bn rescue plan, there are already some alarming cracks appearing.
Lioncover, the company set up to handle claims from the PCW scandal of the Eighties, has still not been transferred into the rescue vehicle, Equitas.
Lloyd's sources say there areproblems persuading reinsurers to pay claims, creating a £135m shortfall.
Lloyd's chairman Sir David Rowland has overcome worse problems in his time. But thesituation is symptomatic.
Legal battlescontinue in the US, where Names (investors) are making progress in their claim to sue in US courts instead of in Britain.
There iscontinuing uncertainty over the exact size of final settlement payments due from names. ‘The figures keep changing', says one Name, who is close to the market.
19 Jan 97
Mail on Sunday: Hugh crackdown on Lloyd's cheats
Thebiggest crackdown on fraud, malpractice and incompetence in a City institution is under way at the Lloyd's insurance market.
David Gittings, director of Lloyd's regulatory division, is leading 63 investigations into many of Lloyd's 210 Insurance brokers and underwriting agents, who look after the affairs of investors, known as Names.
Informationcollected during six inquiries has been passed to police around the country for possible action against the firms and individuals involved.
More than adozen underwriting agents face expulsion from the market because they failed to observe best business practice when managing investors' affairs.
Somefirms may be forced to close or merge because they do not satisfy Lloyd's requirements, while others may have their licences at Lloyd withdrawn.
A newregulatory plan for Lloyd's is due to be unveiled tomorrow. It will stress the commitment of the market's regulators to stamp out abuses.
Gittings is a former director of surveillance at theSecurities and Futures Authority, the main regulatory body for share dealing and future trading.
He took on the role at Lloyd's just over ayear ago and has initiated 27 investigations. When he arrived 36 were already in progress and have yet to be completed.
His concerns willcast a long shadow over the completion of the Lloyd's rescue plan for Names who are facing ruin after more than £8 billion of losses.
When the Lloyd's authorities gained Names' approval for the£3.2 billion rescue plan last summer they hoped that their troubles would be over.
21 Jan 97
Times: Lloyd's plans to implement tougher regulatory regime
Lloyd's of London has unveiled atough new regulatory regime which will lead to speedier investigations and threatens tighter scrutiny of Lloyd's brokers.
New rules toprotect names and corporate members are planned under the offensive, which will see a market expansion of disciplinary and enforcement teams. The drive is underpinned by the appointment of a new head of regulatory proceedings, Noel Lawson, who was director of supervision at the London Commodity Exchange.
Regulationof Lloyd's is due to be reviewed by the Government after the general election, possibly as part of a wider review of city regulation. Lloyd's is anxious to bring regulation in line with City watchdogs and has commissioned a top-level group, led by Sir Alan Hardcastle, chairman of the Lloyd's Regulatory Board, to review existing arrangements.
Sir Alan said: "The function of regulation must be to ensure honesty and competence in the operation of the business in the market. We must ensure that Lloyd's keeps abreast of developments in regulation elsewhere in the City."
John GreenwayMP, chairman of the all-party insurance and financial services group, welcomed the initiative. He said: "Now the future of Lloyd's has been settled, the important next stage is to re-examine the regulation of the market.
Goalsfor 1997 include faster conduct of investigations, stricter surveillance of the Lloyd's capacity auction process and the introduction of new rules for the further protection of capital providers. Monitoring of individual transactions will be introduced.
Up to 6,000 individual Lloyd's brokers could be obliged to seek registration. A consultative document will look at the need for trust accounts for client money and will consider whether conduct of business rules are desirable on matters such as best execution.
Equitas, the company that has taken on the 1992 and prior liabilities of Lloyd's, is moving to new headquarters close to the Lloyd's building. The move to Exchequer Court in St Mary Axe will be completed by July.
Unionamerica, a US-owned insurance group, has acquired a controlling stake in Jago Capital, the dedicated Lloyd's corporate capital vehicle.
21 Jan 97
Daily Telegraph: Lloyd's to push for outside regulation
Lloyd's of London is likely torecommend external supervision of its regulation when the recently-appointed review committee reports in the summer.
Sir Alan Hardcastle, chairman of the Lloyd's regulatory board, said he would not be surprised if the committee suggested theruling council of Lloyd's be answerable to the Treasury and the Securities and Investments Board.
Sir Alan said the government is likely to have a similar view. The regulatory report for last year, published yesterday, said: "It is widely expected Lloyd's regulatory arrangements will be reconsidered by parliament, whichever party is in power."
This will probably be part of ageneral review of City regulation. But it may be years before the new regime gets through parliament.
Last year the insurance marketimposed nine disciplinary fines, ranging from £500 to £15,000, mostly for failure to meet deadlines for providing information. More than 2,000 people working in the market were vetted. Of these, 45 were either rejected or withdrew.
Lloyd's isinvestigating the auctions last year of underwriting capacity. Some deals may have been on the back of insider information.
Lloyd's is also trying to find a way ofpreventing excess capacity, which it describes as "a threat to the solvency and stability of the market". However, it has to avoid breaking EU regulations against anti-competitive behaviour.
It is also looking for acomputer system that will continuously monitor every transaction in the market.
24 Jan 97
Daily Telegraph: Lloyd's owes Names £60m
LLOYD'S of London admitted yesterday that itstill owes Names £60m, which it had promised to pay by early December, and revealed that of that amount £40m "has not yet been made available to us"
Under Lloyd's £3.2 billion settlement offer, 12,600 Names were to bereimbursed a total of £570m.
Afifth of that is not due to be paid yet but the bulk - £460m - was to be paid by December 4.
In the members' magazine One Lime Street, published yesterday, chief executive Ron Sandler discloses that600 Names have received nothing while the other 12,000 have received "all or part" of the sums due to them
Mr Sandler adds that£40m of the amount owed cannot be paid because Lloyd's has yet to receive the funds. We cannot say with certainty when is will happen."
MrSandler, who last November strenuously denied any delay in the payment process, conceded: "There has been a great deal of irritation and frustration felt by Names because of the delays."
However, asked when Names could expect their money he replied: "1t depend." "Some could expect theirs by mid-February while, for the £40m held in solicitors' escrow, "we cannot yet provide an estimate."
John Darcy, a Name who continues to underwrite at Lloyd's, says he hasyet to receive any of the £11,900 Lloyd's owes him.
30 Jan 97
Daily Mail: US court ruling lets Names start action
Bizarre decisions in the US courts were the original undoing of Lloyd's of London. Now the insurance market is again coming under threat after alandmark victory by rebel Names.
TheSouthern district court of New York has ruled that all Names who wrote business in the US can join a class action against Citibank.
Thebank is one of the trustees holding hundreds of millions of Names' funds.
The cash is held in the US to guarantee pay-outs to American policyholders.
Page 23of the Names' offer document required them to give up the right to sue Citibank and other parties connected with Lloyd's.
Many Namesinitially accepted the offer, but reserved their legal rights. Lloyd's says this counts as an outright refusal. The High Court in London is set to rule on the issue next month. Either way, the total number of refuseniks looks set to rise.
Ominously for Lloyd's, the Names are being represented on ano win-no fee basis by Milberg Weiss, one of the heaviest-hitting US law firms.
Even if the rebel Names succeed in grabbing US funds, this will simplymean more headaches for the Names who accepted the Lloyd's offer.
1 Feb 97
Daily Telegraph: Lloyd's ‘in new threat from spiral'
The Lloyd's insurance market is atrisk of a return of the "spiral" - in which syndicates reinsure risks they have already insured, ending up with huge exposure to one loss - that was so damaging in the late-1980s.
Theclaim came in a newsletter from members' agency Christie Brockbank Shipton. "With arbitraging rapidly coming back into fashion, there is no doubt that mini-spirals are beginning to be built up," the report says.
Arbitragingis when an underwriter tries to make money by laying off a risk to a reinsurer for less than he was paid to take it. The practice is particularly prevalent when rates are soft as they are now.
The newsletter adds: "Marine underwriters are leading the charge downwards, trying to discover new depths." However, non-marine is not much better, with all catastrophe rates under pressure." Aviation rates are 20pc to 25pc below last year's, with the agency predicting premiums are unlikely to cover a typical loss year. Average motor rates are lower, it says, while costs are rising 4pc to 5pc.
Thesituation is unlikely to improve until "various sectors of the market experience a series of huge individual catastrophe losses, or when capital is removed after a long war of attrition."
Christieblames Lloyd's for allowing too much capacity in the market. Charles Harbord-Hamond, Christie's managing director said: "Lloyd's introduced new corporate capital into the market that doesn't need any more capital."
Christie also called forrenegotiation of the condition contained in the Lloyd's facility in respect of the £300m loan, whereby it is required that Lloyd's should underwrite not less than 80pc of its capacity for 1997."
However, Mark Hewlett ofSyndicate Underwriting Research said Christie's fears were overdone: "One is always concerned about the possibility of the spiral returning, but we haven't seen any evidence of the old-fashioned spiral that brought so much grief and pain in the late-1980s."
8 Feb 97
Daily Telegraph: Lloyd's Names face fresh cash demand
ALMOST9,000 Lloyd's Names who accepted its settlement offer last year will soon receive further bills for all average of £2,880 each.
Lloyd's reckons anadditional £25m is due from the Names because the final exchange rate, American claims and funds at Lloyd's are different from the calculation when the first "finality statements" went out in August.
Ceasing Nameswho paid finality bills in sterling cash by the end of September will face no further demands unless their funds at Lloyd's turned out to be insufficient. Some 175 Names who fall into that category will have to pay an average of £28,000 each.
Some2,500 Names will be asked for an average of £7,000 each because they need to meet the dollar solvency test imposed by American regulators.
Thisrequires dollar assets to equal dollar liabilities. It was not clear until the end of last year just how big the dollar claims would be, and how much could be released.
Six thousand Nameswill have to come up with a further £300 apiece because of the strengthening of sterling against the dollar since the finality statements were issued. Many Names are angry because they feel that Lloyd's should have hedged the exposure.
Lloyd'sis still unsure exactly how many of the 32,100 Names who accepted its £3.2 billion rescue plan will be affected.
Its debtallocation model can tell how many are affected by each kind of additional bill, but not yet how many may have to pay more than one type.
Lord Mount Charles, the Irish rock concert-promoting peer who is one of the biggest underwriters at Lloyd's. reacted angrily to the news.
Once one of the market'sbiggest supporters, Lord Mount Charles is reconsidering his participation because of delays in paying him his £34,000 surplus from the 1993 year of account.
Hesaid of the additional bills: "I would be absolutely appalled if that happened. It would certainly not be in the spirit of ‘reconstruction & renewal', even if it is in the fine print."
19 Feb 97
Daily Telegraph: Steer clear as Sedgwick seeks new opportunities
UNLIKE Willis Corroon,Sedgwick would like to be part of the consolidation of the overcrowded global insurance broking industry. But whether it will be in the vanguard or the baggage train of deals is unclear.
Since American group .Aon formed the world's biggest broker by acquiring Alexander & Alexander in December, the options for Sedgwick seem limited. A move on it by Marsh & McLennan, now talking to Minet, or the privately-owned Johnson & Higgins may make more sense.
In the meantime Sedgwick, a global broker, is coping withsoft rates and subdued demand. Growth in brokerage and fees grew from 3pc after nine months to 4pc for the year. The rise in expenses was an underlying 2pc.
But, withpressure on net interest and investment income on the broking side, it was left to Sedgwick's consultancy businesses to push the group's pre-lax profits up 5pc to £95. 5m.
Greater emphasis on consultancy seems to be working. Profits, a fifth of the total, are up 14pc. Growth at Sedgwick Noble Lowndes in Britain rose from 4pc at the nine months stage to 15pc for the full y ear. Sedgwick wants to grow consultancy further and the ambition remains a key to any merger moves. It is also the reason whyWillis Corroon now leaving this area, will not fit the bill.
Apotential £5m hit from unhedged currency exposure this year could restrict earnings growth, justifying a rating of only 10-times expected earnings. Merrill Lynch forecasts £99m pre-tax.
On amaintained dividend, the yield is 7pc, but cover is slim and cash flow scarcely burgeoning. The shares up 2½ at 129½p, should be ignored.
19 Feb 97
Daily Telegraph: Smithlands accountant found guilty
CERTIFIED accountantDavid Sharratt was found guilty yesterday of fraudulent trading when he was in charge of the finances of the Midlands-based Swithlands Motor Group which collapsed in November 1993.
Sharratt, 51, from Thringstone, Leicestershire, wasremanded in custody overnight and the jury at Oxford Crown Court continue their deliberations today against John Hayes, 39, Swithlands' company chairman, and Richard Hayes, 34, the operations director both from Quorn, Leicestershire, who also deny fraudulent trading between November 1991 and November 1993.
During a six-month trial the prosecution alleged the three men duped banks and building societies and millions of pounds were lost during the company's failed floatation attempt.
Sharrattdenied manipulating accounts and making false agreements and said that if he was going to "cook the books" he would have done it on his own.
The Hayes brothers said they werenot heavily involved in the company's financial affairs and relied on the advice of financial experts.
21 Feb 97
Financial Times: Shares in GKN rise as US judge hints at cut in damages
Shares in GKN yesterday rose 22p to 935½p after the UK engineering group said aUS judge had signalled he might cut a multi-million dollar damages award against the company by more than 30 per cent.
GKN wasconvicted last December of defrauding 2,500 franchisees of Meineke Discount Mufflers, its specialist US exhaust retailer, by diverting fees intended for advertising campaigns.
Ajury in North Carolina awarded punitive damages of $150m (£92.5m) and $197m in compensation - which could be trebled to $591m under the state's Unfair Trade Practices Act taking the total to $741m.
Yesterday, however, GKN saidjudge Robert Potter sitting in the federal district court in Charlotte, had issued a legal notice which implied the award could be sharply reduced.
The company said Judge Potter had indicated he wouldrecognise "releases" signed by some of Meineke's franchisees, under which they waived their right to compensation.
Lawyers acting for the franchisees, however, said they wouldcontinue to press for more than $740m in damages and would shortly file legal submissions claiming the releases were obtained fraudulently and under duress.
GKNhas said it will appeal against the damages, thought to be the largest filed against a UK company in the US. That process could take more than 18 months.
Judge Potter has given thetwo sides a week to file a formula on how damages should be allocated among the Meineke franchisees.
If theyfail, judge Potter has made clear he will enter a ruling that could either increase or reduce the jury's award
GKN said yesterday it would make an "appropriate provision" against its 1996 accounts to cover damages, although it predicted the provision would not affect its 1996 dividend.
Industry analystsare split on the financial impact of the likely damages
Somebelieve Judge Potter will impose damages at the higher end of expectations, which could virtually wipe out GKNS estimated £560m cash reserves. Others say the award will not adversely affect the company
GKN reiterated that itsnet assets, as of June 30 last year, were £993m and net cash stood at £483m.
21 Feb 97
Daily Telegraph: GKN perks up as US court says claim could be cut
GKN shares jumped 22 to 935½p after thecompany said the level of potential damages it faced in a lawsuit brought by disgruntled US franchisees could be reduced by at least 30pc.
Last Decembera North Carolina jury awarded damages of $398m (£247m) against GKN to franchisees of its Meineke Discount Muffler Shops chain. The litigants had filed a case in 1993 alleging breach of contracts over advertising payments.
Last week, lawyers acting for the Meineke franchisees soughtincreased damages of $740m, enough to almost wipe of GKN's cash holdings of £483m. In December GKN said that its bill for damages could be up to $554m.
Last Friday, Judge Robert Potter, of the district court of North Carolinadeferred a ruling on the $740m damages claim. GKN says the court has now notified the parties that the claim could be resolved so that the level of damages that might have been awarded would be cut by 30pc or more.
Thecourt has given both sides until next Wednesday to agree a formula for allocating damages to particular classes of plaintiff.
After that, court will make ajudgment on the damages following legal submissions that could take about a month. GKN said any appeal is expected to take at least 18 months to resolve.
21 Feb 97
Financial Times: Court upholds Lloyd's reinsurance rescue move
Lloyd's of London yesterdaywon the first round of a critical High Court case brought against Names - individuals whose assets have traditionally backed Lloyd's - who refused to accept the terms of its recovery plan. It is now expected to issue a fresh wave of writs as part of efforts to recover debts.
Theruling affirmed the Insurance market's authority to reinsure billions of pounds in losses into a new company called Equitas under a recovery plan completed last September.
"Thisjudgment enables Lloyd's to pursue all non acceptors of the settlement who have argued that they are not obliged to pay their Equitas premium," said Mr Philip Holden, head of Lloyd's financial recovery department.
Though lawyers acting on behalf ofNames contested this interpretation in a faxed letter to Freshfields, Lloyd's solicitors, Mr Holden said the pursuit of Names refusing to settle would be "vigorous."
More than90 per cent of 34,000 Names have accepted the plan and compensation for their losses: about 1,300 have not. Lloyd's warned yesterday that, under the terms of the £3-2bn settlement offer, its ruling council would not be able to consider acceptances after February 28.
Yesterday's case was originally against three Names who refused to settle, butLloyd's dropped proceedings against one because of concerns over the defendant's age and health. Lloyd's has already served writs on another 570 Names in the UK, US and Canada, and is expected in the next three weeks to send writs to another 700 who have refused to pay their debts. It is seeking to recover about £400m.
Unproven allegationsthat Lloyd's defrauded Names by hiding knowledge of its losses while encouraging them to use their personal assets to support underwriting still hang over the insurance market.
At aHigh Court hearing next month, Lloyd's will seek a ruling that Names must "pay now, sue later" under the terms of the reinsurance contract with Equitas.
MrJustice Colman, who is presiding over the case, has given Names the chance to submit evidence of fraud.
MsCatherine Mackenzie -Smith, co-chairman of the United Names Organisation said yesterday: "We are going to be producing some fraud evidence which is what they Lloyd's don't want." She declined to say what documentary evidence the Names had.
21 Feb 97
Times: Lloyd's claims court victory over dissidents
LLOYD'S of London yesterday said it hadwon a significant court battle with dissident names over sums owing to the society.
In what wasbilled as a test case for 1,681 members who refused to accept the settlement package, a High Court judge dismissed challenges to the legality of the reconstruction and renewal plan.
However, non-paying members said the decision was irrelevant. They said allegations of fraud could yet derail attempts to collect the £466 million still owing.
Lloyd's hadapplied for an order against two names, Dennis Leighs and David Wilkinson, which would confirm that the reconstruction was legally sound, removing one obstacle thrown up by many who refused to pay the cost of reinsuring their old liabilities finally into a new body called Equitas.
MrJustice Colman ruled that Mr Leighs and Mr Wilkinson's criticisms of the Equitas scheme were not "arguable defences" for non-payment.
Philip Holden, the solicitor representing Lloyd's, said "This judgment enables Lloyd's to pursue all non acceptors of the settlement who have argued that they re not obliged to pay the Equitas reinsurance-to-close premium. Our pursuit will be vigorous and, by virtue of this judgment, will be effective."
This wasangrily denied by Michael Freeman, representing Mr Leighs and Mr Wilkinson. He said fraud allegations are yet to be resolved: "Until they get judgment on the fraud issue, there's no way they can extract a penny piece ."
OnMarch 17, Lloyd's will seek to persuade Mr Justice Colman that any fraud allegations will have to be dealt with after the names have paid their Equitas premiums under a "pay now, sue later" clause.
Thehearing involves looking at the hypothetical implications of the allegations being proved right, assessing Lloyd's claim that the pay-first system is essential.
In the meantime, Mr Holden said Lloyd's would beable to pursue many other debtors who could not allege fraud.
21 Feb 97
Daily Telegraph: Court clears Lloyd's to pursue refuseniks
LLOYD'S of London won alegal victory against two "refuseniks" yesterday allowing it to pursue Names who rejected last year's rescue plan for premiums for Equitas the reinsurance company set up as part of the rescue.
Mr Justice Colman granted Lloyd's "Order 14" summary judgments enabling it to obtain monies owing to it under "reconstruction and renewal" in the High Court.
Lloyd'sissued its first batch of writs in October and in December sought the judgments against British Names Dennis Leighs and David Wilkinson.
However, theNames intend to continue to fight Lloyd's and a hearing on their allegation of fraudulent misrepresentation against the society is scheduled to be heard in the High Court next month
Adispute has arisen as to whether Lloyd's will be free immediately to pursue the 1,681 Name, who refused to sign R&R and who, Lloyd's says, owe the society almost £500m.
22 Feb 97
Financial Times: Binder's partners agree £53m settlement
About150 former partners of BDO Binder Hamlyn, the UK accountancy firm, have agreed an $86.1m (£53.1m) out-of-court settlement with ADT, the US-based security firm, it was announced yesterday.
T he settlement is one of thelargest ever reached with a UK firm but is far less than the £65m £105m with interest and costs awarded by a High Court judge when the case was bought by ADT in 1995.
Thepartners had planned to fight that judgment at the Court of Appeal later this year. It was understood to outstrip the firm's professional insurance cover by £34m. The settlement can be met through existing cover.
The agreement comes less than 24 hours after theUK government unveiled detailed plans to allow UK firms to shield partners' personal wealth from litigation stemming from the negligence of fellow partners.
"Thecosts and the uncertainty of the outcome of litigation have influenced us in taking this essentially commercial decision," said a spokesman for BDO Binder Hamlyn. "We firmly believe the original judgment was unsound and we are aware that there was considerable professional interest in following the progress of our appeal hearing."
Accountantshad hoped the appeal case would settle whether they could owe a "duty of care" to a company with which they had no formal contractual relationship.
ADTalleged that, at a meeting in 1990, Mr Martyn Bishop, a Binder's audit partner, gave a verbal assurance to ADT about the 1989 accounts of Britannia Security Group - a company which BDO Binder Hamlyn had audited.
ADTwent on to purchase Britannia Security Group and said it based its price on Mr Bishop's assurance on the accounts - even though he was not employed by them as a reporting accountant. ADT said that when the take-over was over it had found that BSG was worth £40m, rather than the £100m it had expected.
At the time BDO Binder Hamlyn said it was surprised that such a "duty of care" could exist over what it said were informal, and verbal, remarks made at a meeting called in haste. BDO Binder Hamlyn ceased trading in October 1994 when the London practice merged with Arthur Andersen World-wide Organisation. Some of the firm's provincial offices joined other large firms.
"The terms of the settlement involve theimmediate payment to ADT of $77.5m with a further payment of $8.6m to be made on a deferred basis," said an ADT spokesman in Hamilton, Bermuda.
MrAdrian Burn, senior partner of Binder Hamlyn, BDO Binder Hamlyn's successor firm and part of Andersen World-wide, said: "The pragmatic issue is that the risks are very considerable. If we had lost, all our assets would be on the line. There was no other sensible route."
22 Feb 97
Financial Times: Can you trust the accounts? Company figures can lie
What do you expect from company accounts - 100 per cent accuracy? And can you count oninstitutional investors spotting any errors?
Some people in the City believeprivate investors are not interested in the full accounts and that summary financial statements are all they need. Yet there are a number of investors who, like me, read all the detailed figures avidly - including the tiny print of the notes.
It is worth remembering that, of the1,335 shareholders at the annual meeting of brewer Young & Co in 1988, it was a lone individual who objected to adoption of the accounts. He claimed there was a discrepancy of £119,618 in the section dealing with the origin of cash funds and where they went.
The other shareholders voted to adopt the report and accounts - yet the chairman admitted: "Thislone shareholder was right and it was greatly to the embarrassment of the auditors." Other companies have issued reports with financial misprints that few have spotted.
Of much more concern are major financial problems at a number of companies. One of the most recent examples isWickes, the do-it-yourself retailer which announced last June that it had discovered accounting problems "relating to the timing and recognition of profit from supplier contributions."
How could any prudent investor have foreseen such an event? I had noticed, from wandering around my local Wickes store (and not buying anything), that it seemed much less busy than the nearby B&Q. But, short of visiting a lot of Wickes branches, how could I have known whether trading in the local store was typical? Perhaps people in the Midlands loved Wickes, but I did not invest in it.
InJune 1988,1 did invest in Sound Diffusion after looking at its accounts. By December that year, the company had gone into receivership.
I did not know personally anyone who used Sound Diffusion's services leasing communications, security and other electrical equipment to hotels, nursing homes and other establishments.
How was I to know thatDepartment of Trade and Industry inspectors would say later that the auditors "failed to identify. . . serious defects in the company's lease accounting practices and did not adequately audit the amount receivable under finance leases"?
Since then, I have been wary of investing in companies with large-scale leasing activities.
Another personal experience made me cautious about the value attributed in accounts to "stocks" of products and materials.
Many years ago, I overhead an entrepreneur talking on the telephone to a colleague. He was in the middle of take-over negotiations for another company and wanted to increase the perceived value of his own firm.
So he asked for thestock figure to be increased on the ground that no one else would know the true figure as the auditors were unlikely to visit all the warehouses and count what was there.
I am also cautious about stock valuations because products are worth only what someone will realistically pay for them. And if stock levels have shown a marked increase from the previous year, does this mean the product is failing to sell? Is it even worth its cost price if few people want to buy it?
Iexamine company reports for details of money owing from customers. If these figures have increased greatly from the previous year, then I wonder how many of the customers might go bankrupt and be unable to pay their debts.
I also look at thecompany's borrowing levels and take note of any foreign currency transactions. Has the company locked itself into an unfavourable currency or interest rate?
Has it changed its financial year-end? If so, was there a good reason? Haveprofits been boosted by "exceptional" items? If so, are the company's general trading activities showing a decline?
There are many other items I look for in the accounts. But these can be only as good as the people who prepared and audited them.
Does the finance department pay all bills automatically or are there suitable checks in place to ensure that accounts are not paid for non-existent and other fraudulent "services"? .
If there is a series of transactions with a particular supplier, are checks made to ensure that purchases are being made at the keenest possible price?
Or has one supplier been given preference in return for "kickbacks" to the person placing orders for over-priced goods?
Some years ago, I read a study of fraud which indicated that "disgruntled mistresses" were more likely to lead to the discovery of fraud within a company than financial controls.
Indeed,frauds were more likely to be discovered by accident than by auditors. Although I feel some finance directors and auditors could be tougher, I accept that not everything can be controlled.
Running a successful business (and investing in one) means that some risks have to be accepted.
Stakis is one company that recognised this fact in its 1996 report.
It said the company had a proper control framework; which provided "reasonable but not absolute, assurance against material mis-statement or loss."
The report added: "It should also be appreciated that internal controls are inevitably, vulnerable to being circumvented or overridden."
Perhaps other companies should be similarly forthright .
24 Feb 97
Daily Telegraph: Names who held out get better terms
LLOYD'S of London has beenmaking deals with Names who refused to participate in last year's rescue plan, offering them better terms than they were offered then.
The news willenrage those Names who supported the rescue because they were persuaded by the argument that it was the best deal available.
Sally Noel, who owed Lloyd's almost £300,000, was offered a £63,000 settlement under last year's plan but declined to settle. However, she says, she was later given a chance to discharge her liabilities with a payment of only £25,000 on condition that she sign a confidentiality agreement.
MrsNoel accepted the offer at a meeting last November with the lawyer Philip Holden, who is in charge of debt recovery at Lloyd's. but she later changed her mind.
She said: "I could have walked away from this after nine years of putting my life on hold, but I personally felt that the truth had to be exposed. I felt that if I gave up not only litigation but also my right to speak, I would have hated myself."
A spokesman forLloyd's said: "I can't confirm or deny that there were those who got a better deal for hanging on for three or four months after the end of September."
He said: "Until the closure of the recovery plan onFebruary 28, Philip Holden and his team are holding discussions with any Names who have not yet settled and who wish to do so. The debt recovery process recognises the reality of those for whom there is a limit to what can be recovered."
While Lloyd's efforts appear to be directed to those who cannot pay their liabilities, it is understood thatmost of the 1,681 refusing to do so "Won't pay" rather than "can't pay".
Lloyd'swas unable to say how many Names it had done deals with after the rescue was approved in September.
28 Feb 97
Evening Standard: Hook set to pull in Lloyd's £200,000
Colin Hook, the former managing director of fund management group Ivory & Sime who departed abruptly following criticisms of his management style, is poised to gain £200,000 for his services as head of an action group in the Lloyd's insurance market.
Hookchaired the action group representing 1,700 investors, the so-called Names, before he joined Ivory & Sime in 1994. The Names he represented had suffered around £500 million of losses on insurance syndicates managed by the Feltrim agency.
As part of the £3.2 billion rescue offer for all Names hit by losses more than50 action groups received payments to cover legal costs and the expenses and remuneration for their committees.
Aremuneration committee, which included former W H Smith chairman Sir Simon Hornby, was set up by the Feltrim action group to decide on payment to its 10 representatives and the current chairman, Damon de Laszlo. Also on the committee is Peter Buckley, chairman and chief executive of Caledonia Investments.
Caledoniahad been responsible for bringing Hook to Ivory & Sime when it acquired a 29% stake in the fund management group in 1994.
The committee is set to report itsrecommendations next month that the 10 action group leaders should share £1 million. Hook, as chairman in the early years, is expected to be awarded £200,000 and de Laszlo a similar amount.
De Laszlospearheaded a successful legal action against many Lloyd's companies over the losses which lead to Lloyd's rescue scheme. In spite of that he is believed to be considering waiving his share of the prospective pay-out.
Theissue has sparked a major row within the Feltrim action group committee. Some believe Hook should receive nothing as he left at a crucial moment in the Feltrim group campaign to join Ivory & Sime.
Thequestion of payments to past and present members of the Feltrim action group is to be raised at a special general meeting on 27 March that is likely to be stormy as many Names believe that the payments to action group leaders have been excessive.
When heleft Ivory & Sime earlier this month Hook was earning a salary of £120,000 but was not expected to receive any other payment from the group following his departure.
Names who had invested in insurance syndicates managed by Feltrim included tennis players Buster Mottram, Mark Cox and Virginia Wade, as well as Sir Simon Hornby.
1 Mar 97
Daily Telegraph: Hook pay-out
Claims thatColin Hook, the ousted managing director of Ivory & Sime, is in line for a £200,000 payment from the Feltrim Names action group where he was chairman were played down yesterday.
1 Mar 97
Financial Times: Wellington takes provision
Wellington underwriting, the insurance group which earlier this month tabled a£32.6m agreed offer for Lloyd's corporate investor Premium Underwriting, is to take a provision to cover underwriting losses in the motor insurance market.
Just days after the board of Premium recommended the bid to its shareholders, a review of Lloyd's insurance syndicates managed by Wellington revealed a substantial deterioration in the profitability last year of a syndicate which writes personal and commercial motor insurance. The final dividend of 1996 would be maintained.
Premium Underwriting yesterday said it still backed Wellington's bid despite the loss.
1 Mar 97
Financial Times: It's tough to be an insurer - recovering from the latest downturn will not be easy
Full-yearresults this week from Commercial Union and Guardian Royal Exchange showed how tough it became last year to underwrite profitably in general insurance. Margins were savagely squeezed by a severe winter, with the worst clutch of weather-related claims in the US for 75 years, and continued pressure in the fiercely competitive UK market.
Both companies indicated thatpremium rates in the private motor market, which often acts as an indicator of broader trends, were bottoming out after two years of steep falls. But neither sounded convinced that a recovery was imminent.
While the insurance market is cyclical by nature, thedepth and severity of the latest downturn is due in part to the success of telephone-based insurers, such as Direct Line, in taking huge chunks of market share away from more established rivals. "Looking at general insurance, there is still nothing to indicate what is going to trigger an upturn in rates," says Steven Bird, composite insurance analyst at Merrill Lynch.
Moreover, while there was alower-than-usual global incidence of major catastrophes last year, the cost of winter weather-related claims in the US and IJK soared. The Association of British Insurers said this week that a doubling in domestic property damage, to £730m contributed in large part to a 17 per cent jump in claims last year, to £2-7bn..
CU was able to take heart from its exposure to overseas life markets - the UK non-life market accounted for only 16 per cent of total premium income. In the course of11 years, life assurance has increased its share of the world insurance market to 57 from 42 per cent. But general insurance is where the earnings volatility lies, and analysts predict another slide in profits this year for the composites.
Given theuncertain outlook, some explanation is needed for the performance of composite shares relative to the rest of the stock market. Since May last year, the sector has outpaced the FTSE All-Share index after losing ground earlier in 1996.
Before that, growth in profits after recession-related losses in the early 1990s had failed to galvanise share prices because of apoor performance in bond and equity markets in 1994. The composites under-performed the rest of the market by 47 per cent from the beginning of 1990 until May last year.
It is not difficult to pinpoint the precise moment at which the composites turned: it was just after 7.30 am onMay 3. Royal Insurance and Sun Alliance triggered huge share price gains across the entire sector when they announced plans to join forces in the biggest UK insurance deal for over a decade. The merger created a £6bn international insurance giant.
Theeffect of this announcement was staggering. Daily speculation of impending take-overs, and a more solid conviction that further consolidation among the composites was inevitable, fuelled further share price gains. The flow of strong life figures, reflecting booming pension sales, also lent support.
Theincreased competition has piled pressure on all of the composites to reduce overheads. By introducing new technology to speed up claims handling, for example, they have tried to become more efficient. Royal and Sun Alliance are expected to benefit from economies of scale and the removal of duplication, mainly through 5,000 job losses across the group, of which 80 per cent are planned for the UK.
In addition, bulgingcash surpluses from higher investment returns for the past two years, and record profits just before 1996, have raised hopes that one or two of the composites could return capital to shareholders through a buy-back or special dividend.
The question for investors now is whether they should take profits, given the forecast for the underwriting cycle this year and the uncertainty of take-over speculation; or whether the shares have further to run on the higher valuations applied to life assurance and the prospect of cash pay-outs.
ForGuardian, the central issue is as much one of surplus capital as of the need to get an underdeveloped life operation to grow. John Robins, chief executive, knows investors are aware of the group's cash pile. He revealed this week that Guardian had up to £1bn to spend on a life assurer and suggested a buy-back was "inappropriate". The shares dipped as investors factored in the goodwill write-off associated with buying a life assurer, many of which are valued at a premium to assets.
The following day, John Carter,CU's chief executive, was asked about group strategy. He is in a rather different position, since CU's well developed and highly profitable international life business already accounts for 44 per cent of group income.
Although also keen to improve this further, Carter strongly emphasised that the top of a bull market might not be the best time to make an acquisition. Thefrenzied bidding auction for Scottish Amicable illustrates this point of view.
With buy-backs improbable and mutually-owned life assurers expensive, the shares could prove a better longer-term bet.
2 Mar 97
Mail on Sunday: Lloyd's Names face a fight for survival
Many of the remaining 8,959 Lloyd's Names are fighting a rearguard action to preserve their status as sole traders at Lloyd's.
At stakeare the plum tax advantages that go with it.
Movesare underway to eliminate the remaining Names, the traditional investors in the strife-torn Lloyd's insurance market, and replace them with investment from companies.
High level talksare taking place between the Lloyd's authorities, the Inland Revenue and the US Internal Revenue Service to establish a tax regime to tempt the remaining Names to transfer their investments to companies.
Lloyd's financial crisis, when it sustained £8 billion losses, forced the authorities to look for new sources of investment.
Around25,000 Names have left the market since the losses emerged.
Toreplace their input Lloyd's has for the first time allowed 202 corporate vehicles to enter the market.
ButLloyd's chairman Sir David Rowland and senior deputy chairman John Charman want the market to be based entirely on corporate capital as it could provide more stability for the market.
This wouldrequire the remaining Names to transfer their investment.
Alreadycorporate vehicles provide 44% of the market's capital, with the other 56% from Names. Next year companies are expected to provide the majority of Lloyd's financial backing.
However, therapid reduction in the influence of Names has angered insurance brokers, who still introduce old-style Names to the market through subsidiary companies.
Manyare trying to sell these companies, but fear that Lloyd's current plans may make them worthless.
7 Mar 97
Financial Times: GKN ordered to pay record $600m damages by US court
AUS court yesterday imposed the largest commercial damages ever recorded against a UK company by awarding almost $600m (£368m) against GKN, the British engineering group.
The motor components and defence equipment manufacturer - which yesterday reported annualpre-tax profits of £362.8m compared with £322.4m for 1995 - has been ordered to pay $591m in compensation and punitive damages for defrauding franchisees of Meineke Discount Mufflers, its specialist US exhaust retailer.
Yesterday's rulingexceeded the "worst-case scenario" set out by GKN last December, when it warned that the total damages might reach $554m.
The case centred on allegations that GKN and Meineke hadillegally diverted payments made by GKN's 2,500 US franchisees, which should have been used for advertising.
Ajury in Charlotte, North Carolina, decided the company was guilty of breach of contract, negligence and fraud.
News of the award emerged several hours after GKN surprised City analysts bynot including any provision against its results for the outcome of the case.
It had previously said a ruling was unlikely before mid-March. Had it treated yesterday's award as anexceptional charge, this would have virtually wiped out the company's 1996 pre-tax profits.
GKN refused to comment on the ruling but officials made clear an appeal would be filed that could delay the pay-out.
Its legal advisers were last night said to be digesting the implications of the ruling from Judge Robert Potter. Although ajury last December awarded $197m in compensation and $150m in punitive damages against GKN, Judge Potter decided the compensatory element should be trebled under North Carolina's Unfair Trade Practices Act.
That hasincreased the total liability from $347m to $554m. GKN had earlier expressed "total and complete amazement" at the award, particularly as the original compensation claim was just $31m.
Nevertheless, the company is expected to draw comfort from the court's decision to reject attempts by lawyers acting for the Meineke franchisees to seek a$740m fine.
It is likely to tell investors thedamages could be reduced by at least 30 per cent because some of the franchisees signed releases in which they waived their right to compensation.
8 Mar 97
Daily Telegraph: Lloyd's ruling
ALos Angeles appeal court has accepted that part of a case between Lloyd's and American underwriting Names, who refused its global settlement offer can be heard in America.
8 Mar 97
Daily Telegraph: Broker fined £6,000 over inflated premium
CHARLES O'Sullivan, an insurance broker working at Lloyd's of London, has been fined £6,000 by Lloyd's and has been censured for discreditable conduct.
A fax he sent to the broker who had brought the business through him to Lloyd's "misrepresented the amount of the London brokerage as a percentage of the total gross premium payable."
Theaim was to inflate the amount payable and divide the surplus premium between Mr. O'Sullivan's employer and the Lloyd's underwriters. "Mr. O'Sullivan now concedes that the practice was inappropriate," said Lloyd's
The judgment is one of a series of disciplinary findings at Lloyd's which also resulted in a broker,Ian MacCall International. being fined £15,000 for pooling money from various sources and using £400,000 of it "for a purpose not permitted by the byelaw."
In addition,Sedgwick Oakwood Underwriting Agencies has been fined £60,000 by Lloyd's for allowing seven South African underwriting members to continue doing business at Lloyd's in contraventions of the council's ruling and for claiming the seven had funds at Lloyd's when in fact their bank guarantees had been cancelled.
Lloyd's yesterday published a summary of its disciplinary proceedings in the past three months, which also resulted inthree other fines on agents.
In addition,one underwriting agency and one broker were deregistered in the period for failing to meet Lloyd's standards
Last autumn Lloyd's introduced asummary procedure for dealing with minor breaches of regulation or procedure to speed up the process.
During the final five months of last year the disciplinary authorities issued55 formal warnings under this procedure for minor breaches and failures to comply with details of the rules. So far this year they have notched up 20 with most of those being for being late in submitting regulatory documents.
Individualregistrations which were introduced last year have so far resulted in 3,000 people being approved but 32 applications were withdrawn and another 38 were given only restricted approval and had conditions imposed on them.
AFurther 600 applications are still being processed.
9 Mar 97
Independent: Scare for Lloyd's in US
TheUS Securities and Exchange Commission has come out strongly in support of rebel US Names, alleging that their recruitment to the Lloyd's of London insurance market constituted a fraudulent sale of securities in breach of US law. Writes Paul Farrelly.
TheSEC's statement, late on Friday came as Lloyd's prepared to appeal a federal court ruling in California, which - if it stands - would allow rebel names to sue the insurance market in the US for the first time.
This follows aruling on Thursday in the Ninth US Circuit Court of Appeal, which reversed a lower court decision in Lloyd's favour.
You haveentities selling securities here that try to require investors to sign contracts saying that any subsequent suits have to be filed in a foreign court that's never heard of a security," SEC general counsel Richard Walker said.
"For the future, this means you can't waive the rights and protections of federal securities laws."
This weekend, there was confusion over the remarks. TheSEC filed a supportive "amicus" brief on jurisdiction last year but has always ducked ruling formally that Lloyd's falls under its ambit.
Itremains unclear whether Mr Walker, the SEC's top lawyer was being protective of investors signing away their rights to sue or whether he was indicating that a wider-ranging move is on the cards.
So far, of2,996 US names, 576 have not accepted Lloyd's Equitas reconstruction plan, which closed a week last Friday. Just 675 of 25,652 UK names are also holding out.
A Lloyd's spokesman said it was still taking legal advice on the appeal.
15 Mar 97
Daily Telegraph: US court approves tobacco healthcare action
BAT Industriesand the American tobacco industry suffered a setback yesterday as a court allowed the attorney-general of Mississippi to sue for compensation for the cost of treating smokers in hospital.
TheMississippi case is likely to be the first of the important Medicaid lawsuits -in which whole states are attempting to recover healthcare costs - to reach trial.
BAT Industries'shares fell 14 to 540½ p yesterday. On Thursday, American rivals Philip Morris and RJK Nabisco had falls of around 10pc in their shares after the ruling but rallied yesterday.
In the past month courts inCalifornia and West Virginia have dismissed Medicaid cases at the pre-trial stage on the grounds that the state lawyers did not have the right to bring them.
However theMississippi Supreme Court rejected similar arguments brought by the industry and Kirk Fordice, the state governor. "The petitioners have simply not presented circumstances which would warrant our intervention at this time," the court said.
Mike Moore, theMississippi attorney-general, said the ruling was the best he could have hoped for. "They threw the governor out of court," he said. "They threw the tobacco companies out of court."
He now plans toclaim $940m (£590m) when the case is heard next June 2.
BATdismissed the ruling as purely procedural. "All the court has done is to decide not to decide the issues now, said a spokesman. "It is not a decision on the merits of the case now."
Yesterday's ruling came a week afterBAT said it would welcome a financial settlement to halt all legal actions.
15 Mar 97
Daily Telegraph: Mississippi burning issue facing BAT
AS their shares slid yesterday, BAT Industries tried to stay cool. The ruling from theMississippi Supreme Court was merely procedural, they coughed. From an industry that has relied on procedural arguments to delay, or even halt, most of the big state-sponsored and class action cases it was a good wheeze.
WhatBAT, Philip Morris and RJR Nabisco did not say is that the Mississippi judgment, which clears the way her Mike "Flashbulb" Moore, the local attorney-general, to bring his case in June is the first sign that the American judiciary is getting bored with the tobacco companies' delaying tactics.
There is alot at stake here. If the Mississippi Medicaid case goes against them, the companies' negotiating position would be seriously weakened, just as they have admitted that the old "fight to the death'' approach to litigation delivers permanently depressed share prices.
Theprices had got so depressed they were silly. After the mark-down that followed Grady Carter's $750,000 celebrations last August, BAT shares have risen by a third, and Philip Morris by nearly two-thirds. They were cheered by a couple of pre-trial judgements in Medicaid cases in West Virginia and California. At $750,000 a time, Carter-style claims from individuals, are hardly life-threatening.
TheMississippi case threatens this cosy analysis. It is just one of 22 being brought against the industry and the other 28 states are watching with interest. Then there is the persistent rumour that Liggett, the minnow of the American industry, will settle the Medicaid cases in exchange for handing over some damning evidence to use against the big boys. If that is true, they should be puffing furiously.
15 Mar 97
Daily Telegraph: MPs told of pension scandal death toll
THEparliamentary committee probing the failure of City regulators to clear up the personal pensions scandal has learnt that nearly three times more people have died while waiting for compensation than have received it.
According to anofficial document lodged in the House of Commons library, out of 560,000 ‘‘urgent cases" identified by the mis-selling review only 6,810 people have been paid compensation. But another 18,742 of these personal pension plan holders have died since the review began three years ago.
Thatmortality rate is about treble the average for adults, actuaries pointed out yesterday. One, who asked not to be named, said: "Perhaps it is because the regulators have identified an even larger group of potential mis-selling cases than the 560,000 originally stated.
"Alternatively, it may be because of thestress these people have suffered while they have been waiting for compensation."
WhenJoe Palmer, chairman of the Personal Investment Authority, was asked by the select committee on Monday how many people had died while waiting for justice, he said he did not know. Now the authority has replied to the committee in writing but the regulator refused to discuss the contents of its letter yesterday.
However,Diane Abbott, MP, who asked the original question, confirmed the authority has admitted that deaths in the compensation queue outnumber payments by three to one. She said: "The way the authority has dawdled over the compensation review is a disgrace.
"This ispartly because there are people on the board connected with the firms involved, particularly Joe Palmer. There is no sense of urgency. They need to set time targets for the industry and if they do not stick to them, the firms should be penalised. It has all been too cosy."
Mr.Palmer was chief executive of Legal & General for most of the 1980s. When personal pensions were created in 1987, all the major insurance companies sold them. Many people were incorrectly advised to buy when they would have been better off remaining in company or occupational pension schemes. Last week Legal & General suggested to the regulators that, instead of attempting to speed up compensation payments, these could be delayed until people retired.
Thatproposal infuriated the charity Age Concern. Director Evelyn McEwan said yesterday: "We are gravely concerned that the insurance companies which mis-sold these pensions have not only shirked their obligations but are now proposing to put off compensation even further into the future. The review so far has been a tremendous debacle and the insurance industry's name is mud."
New competitorsin the low-cost pension field joined in the criticism. Tony Wood, marketing director of Virgin Direct, said: "The fact that 18,000 people have died waiting for redress is absolutely obscene."
"It is notable that the companies most to blame for the pension transfer scandal are nowlicking their lips over plans to privatise state pensions. They have not got the right to be involved in this new area if that is how they run their business."
TheTreasury, and the regulatory authorities for which it is responsible, declined to comment yesterday, other than to say: "We are determined, along with the regulators to speed this whole thing up."
15 Mar 97
Daily Telegraph: Bring out silly hats for Palmer's end of the PIA show
JOE Palmers becoming the Douglas Hogg of self-regulation. Unfortunately, unlike Hugless Hogg, the voters do not get the chance of removing him from his post. Still, as chairman of the Personal Investment Authority, Mr. Palmer's days look numbered nevertheless. If Labour wins, he faces the sack. He would be well advised not to wait until Polling Day.
This week aparliamentary select committee dragged some shocking statistics from the PIA: three times as many people have died waiting for compensation for pensions mis-selling than have so far actually been compensated.
It is understandable, if inexcusable, that Mr.Palmer somehow failed to have this damning figure to hand when he faced the MPs on Monday. The evidence was quietly placed in the Commons library a few days later. This is not the first time - nor is it likely to be the last-that the regulators have kept us all waiting for an unsatisfactory answer.
Thelatest pledge, that the insurance companies will do all they can to ensure that widows of the dead pensioners will get paid, merely turns tragedy into farce.
ThePIA is supposed to be fighting for the customers, not for the insurance companies. Mr. Palmer, of course, has far more experience of the latter from his days at Legal & General. L&G is generally considered to be one of the good guys in the life business (these things are relative) but this week it admitted that, three years since the mis-selling scandal first came to light, it has agreed compensation with only a tenth of its outstanding problem policyholders. It is not even as if the PIA guidelines are particularly painful. Money-Go-Round reports today how one reader struggled for six years to obtain redress. After he rejected the first offer calculated under the regulators' approved formula, he has now received mom than treble the compensation originally offered.
There is asimple way to concentrate the minds of the life offices to cleaning up this mess, rather than their procrastinating until it dies of poverty in old age. The government could make it plain that no life office with any unresolved mis-selling problems would be allowed to take part in its grand plan to privatise the state pension.
If thePIA really was on the side of the consumer, it might make a similar suggestion itself, but with Mr. Palmer in the chair, the life offices need not worry about such an uncomfortable prospect. It is more likely that he will develop a limp, wear a silly hat, and go the whole Hogg. Either that or he will be pictured selling his daughter a personal pension assuring the world that there was absolutely no risk to her financial health.
15 Mar 97
Daily Telegraph: It pays to reject insurer's first offer - Jan Eakin tells how a pension mis-selling victim trebled his compensation
EVEN the small minority ofpersonal pension victims who are fortunate enough to have been offered compensation should think twice before accepting the first sum offered.
One reader who wasincorrectly sold a personal pension by Equitable Life has more than trebled the compensation by rejecting the insurer's first offer.
Although it wascalculated on the basis approved by the Personal Investment Authority, Roger Hudson of Wrexham, Clwyd, was disinclined to accept it on the basis of "once bitten, twice shy."
So hetook independent financial advice and rejected Equitable's first offer. Now the insurer has sent him more than £7,600 and paid his adviser's fees. But Mr. Hudson is still angry that the affair has taken more than six years to sort out.
According to theregulators, more than 560,000 personal pension planholders are "urgent cases" to be considered for compensation. In the three years since the regulators began talking about the problem just 37,000 cases have been fully investigated and only 6,810 people have received compensation.
In contrast, thePIA admitted this week that 18,742 have died waiting for their cases to be assessed, nearly three times more than have received compensation.
Equitable Lifeaccepted last October that Mr. Hudson had been wrongly advised to leave a company scheme and buy a personal pension. It offered him £2,338 to make up any loss. But Mr. Hudson was suspicious of the calculations used and employed Northern Insurance Consultants, of Birkenhead, to look into the matter.
They took over negotiations with Equitable andfive months later the insurer has more than trebled its offer.
Mr. Hudson 61, contributed to its final salary pension scheme for 28 years. He was made redundant in 1988 and a couple of years later, after becoming self-employed decided to transfer his rights to a personal pension plan with Equitable Life. He said: "I thought that bytransferring I would get a bigger pension and Equitable Life said I would. But after a year or so it didn't look right. I got a projection which said the fund would only give me £100 a month in my retirement.
"Then I saw press comments and decided to write to them. In effect I had towait two years for an answer and when they did it was wrong."
The initial fee paid to Stephen Jesset, of Northern Insurance Consultants, was £150. When Mr. Jesset looked into the matter more closely he decided to take up the issue on Mr. Hudson's behalf.
So convinced was he that Mr. Hudson was owed far greater redress he arranged that further costs should be based on a no win, no fee basis. Thetotal costs came to £350 and Equitable agreed to reimburse Mr. Hudson.
Mr. Jessett said: "It looks as ifEquitable Life misread the regulatory guidelines. Mr. Hudson has remained self-employed up to the present date. Consequently, he has no other State Earnings Related Pension Scheme entitlement for the reduced contracted out deduction to be applied against."
Mr. Hudson said: "It is a fiasco. The whole thing stinks. I have had nearly two years of uncertainty about my pension, something that is very important to me.Equitable was very much in the wrong and it had a very cavalier attitude."
A spokesman for Equitable Life said: "The PIA rules require a number of standard assumptions to be made in the review when calculating compensation, and we are required by our regulator to follow them.
"However, in this particular case, use of the client's actual and somewhat special circumstances rather than the standard assumptions produced a more favourable answer - which we decided to pay."
Mr. Jessett said: "Who knowshow many other people who have been reviewed for compensation may have been offered the wrong amount."
15 Mar 97
Daily Telegraph: Ex Wickes directors take cut in pensions
SANFORD Sigoloffand Sanford Kaplan, who were non-executive directors of Wickes while the do-it-yourself retailer suffered a serious fraud in its buying department for three years, have agreed to forgo about half of their £l2,000-a-year pensions, it emerged yesterday.
Paying pensionsto non-executive directors is highly unusual. The Wickes payments came to light last December when it unveiled a £53m rescue rights issue that saved the company from collapse.
Wickes, whoseformer managers are under investigation by the Serious Fraud Office is continuing to pay pension of £12,000 a year to two former non-executive directors, Lord Sieff, 83, the former chairman of Marks & Spencer, and Peter Humphries, 76, who chaired Wickes' audit committee until he retired last June.
Wickes yesterday announced that Mr.Sigoloff, 66, and fellow non-executive director Robert Burrow, 44, will resign from the board at the company's annual meeting on May 1.
Mr.Burrow, together with Wickes non-executive chairman Michael von Brentano, waived their rights to pensions. Mr. Kaplan, 80, retired from the Wickes board last December.
Mr.Kaplan and Mr. Sigoloff, who are both American, were close associates of Henry Sweetbaum, the company's former chairman and chief executive who resigned after the scandal broke last June.
He denies any wrongdoing.
Wickes yesterday reported aloss before tax of £55.7m for last year, as forecast at the time of the December rights issue at 150p a share.
Itsshares climbed 1½ to 153p yesterday having traded at more than 200p earlier in the year on hopes of a take-over.
Chief executive Bill Grimsey, who announced like-for-like sales ahead by 13pc for the first nine weeks of this year, said he hadnot received any approaches from potentially interested buyers.
But he added "Today is really the closing chapter on 1996. It's been a very difficult period but we have managed successfully the first stage of our recovery process."
Finance director Bill Hoskins said thattalks continue on selling the loss-making businesses on the Continent.
15 Mar 97
Daily Telegraph: Nomura president quits over scandal
HIDEO Sakamaki, president of Nomura Securities, resigned yesterday to make symbolic amends for a scandal involving suspected illegal deals. He will stay on as adviser to the company.
Mr. Sakamaki said: "As atop official of the company I think 1 should take responsibility." Masahi Suzuki, chairman of Nomura Securities, is taking over as president.
Mr Suzuki said "Myfirst priority is to restore confidence. I would like to transform the company to one with a healthy situation."
Thescandal which surfaced last week involves two executives who allegedly made illegal deals and gave the profits to clients who are reportedly linked to members of Japan's gangster underworld.-+
Thetwo executives have since resigned and the deals are being investigated by the Securities & Exchange Surveillance Commission.
Thescandal has once again tainted Nomura's image and the company's share price has fallen sharply on the Tokyo stock market.
22 Mar 97
Financial Times: Minister attacks US judges over Lloyd's
Thegovernment has written to a Californian appeals court attacking a decision which allowed US investors in Lloyd's of London to sue the insurance market under US securities fraud and racketeering legislation.
Itsaction prompted a storm of protest from some US Names - individuals whose assets have traditionally supported the insurance market - who are continuing to fight Lloyd's.
TheNames allege they were defrauded by being placed on syndicates which reinsured asbestos and toxic waste claims, or had a heavy concentration of risks. They say Lloyd's knew the syndicates carried big losses but did not disclose them. The ruling in the US appeals court reversed an earlier decision by a district court which dismissed the Names' claims that they should be able to sue Lloyd's in the US.
It was anunwelcome embarrassment to Lloyd's, which has appealed. The centuries old insurance market is trying to rebuild an international reputation besmirched by the legal and financial problems of its past.
MrAnthony Nelson, minister for trade, described as "erroneous" the view expressed by two of the judges presiding over the case that Lloyd's was a "business corporation" and subject to the rules of normal international commerce. "The insurance at Lloyd's is carried on by the members (Names) and not by the corporation," he said. He added that Names wanting to litigate would "receive fair, unbiased and speedy justice in English courts."
But theCalifornia-based American Names Association, which is backing the legal action as part of a continuing campaign against Lloyd's, dismissed Mr Nelson's comments.
MrRichard Rosenblatt, a representative of the association, said: "I don't think the courts will look kindly on the interference by the British government in domestic matters of the US. They have done their own cause more damage than good." The association, which will be holding a street demonstration in New York next week, continues to allege fraud, and to attack the system of self-regulation at Lloyd's.
The appeals court made no judgment on the facts. It saidclauses in contracts signed by Names agreeing that complaints should be handled by English courts should be voided because they violated US securities laws.
"A plain, speedy andadequate remedy for the wrongs alleged by the plaintiffs is not shown to exist in Britain," the court said in its original judgment, which also described Lloyd's as "a business corporation so powerful that it has obtained from the British legislature substantial immunities."
This isnot the first time the government has intervened in litigation against Lloyd's.
Itwrote a letter supporting the insurance market last August, when the success of a plan to reinsure more than £8bn in losses suffered by Lloyd's from 1988 to 1992 was threatened by a court ruling in Virginia.
Yesterday, In anEnglish High Court, the insurance market denied separate allegations that it had committed fraud by recruiting new members while hiding knowledge of its losses.
23 Mar 97
Financial Mail: Blue-chip ‘disgrace'
HIGH-profile investors in the Lloyd's insurance market face joint losses of nearly£50 million from underwriting motor claims.
They include Lady Archer, wife of novelist Lord Archer, Ian Posgate, once a leading Lloyd's underwriter, Lord Mark Fitzalan Howard, and Carel Mosselmans, a former chairman of Sedgwick, Britain' largest independent insurance broking group.
They are among more than700 Names who invested in the Renown motor insurance syndicate. It is managed by Wellington, one of the largest agency companies at Lloyd's, and was regarded as a blue-chip investment.
Since1994 the syndicate has been hit by growing competition in the motor insurance market, which led to sharp reductions in premiums. It has also suffered from rises in the size and frequency of motor insurance claims.
"It is anutter disgrace," says Posgate, who claims he warned agency executives that the syndicate was taking on poor quality motor business from South Africa.
The losses haveemerged just months after Lloyd's completed a £3-2bn rescue deal for past losses that threatened to ruin Names. But the Renown losses have emerged since 1994 and are not covered.
Since1994 Renown's losses have been steadily rising and could reach £33 million for the 1996 account alone. Total losses since 1994, according to analysts, may reach £47 million.
Namesare not the only ones affected. Companies, which were allowed to invest in Lloyd's for the first time three years ago, have a big stake in the syndicate. Last year they provided a third of its financial backing.
Among the companies with investments areDelian Lloyd's Investment Trust, Hiscox Select Insurance Fund and New London Capital.
Wellingtonalso has a large investment together with Premium Underwriting, a specialist Lloyd's investment company that it recently acquired.
For Lloyd's thelatest development will cause further embarrassment. One of the insurance market's deputy chairmen, Ian Agnew, is also deputy chairman of Wellington Underwriting and the losses have angered the Names whose affairs the company manages.
25 Mar 97
Daily Telegraph: Lloyd's advice proves costly
Keith Fawkes-Underwood was yesterdayawarded £669,000 damages after suing north London accountancy firm Herewood Phillips and its partner Nicholas Hamilton over advice he received about his membership of Lloyd's.
Mr Justice Goudie said in the High Court: "The key witnesses were Mr Fawkes-Underwood and Mr Hamilton. I have significant reservations about the reliability of both of them."
Hisconclusion, however, was that Mr Fawkes-Underwood understood little about Lloyd's, and turned to accountant Nicholas Hamilton for help. Mr Hamilton "did not claim to be au fait with Lloyd's" but gave advice without warning him about choice off syndicates.
Mr Fawkes-Underwooddrifted into a number of dangerous syndicates, including the ones in the now notorious "LMX spiral."
"Aconsideration by Mr Hamilton of what was appropriate for |Mr Fawkes-Underwood would have led to a realisation that high-risk syndicates were inappropriate," concluded Mr Justice Goodie.
There isplenty of information, including the league tables, so that accountants were "in breach of duty by failing to advice Mr Fawkes-Underwood each autumn that he should not allow himself to be on the syndicates."
Histotal losses were £730,900, but there will be some recoveries. Herewood Phillips said last night: "We were extremely surprised at the judgment and we most certainly will appeal."
25 Mar 97
Daily Mail: Lloyd's row fired up over new court ruling
A High Court ruling may cause nightmares for accountants and financial advisers up and down the land.
In the High Court yesterday Judge James Goudieawarded £668,620 damages plus interest against London chartered accountant Hereward Phillips.
Theplaintiff was Keith Fawkes-Underwood, who is an expert on antiquarian books, but according to the judge did not have much understanding of Lloyd's.
In1988 the accountants billed him for ‘general advice and assistance concerning your Lloyd's underwriting activities.'
Thejudge berated Herewood fore failing to advise, or even apparently notice, which syndicates were more risky. It did not even check the annual syndicate league tables. People who bill for giving advice will have to be more careful in future.
Fawkes-Underwood was represented in court by his solicitor.
The defendants used a QC and a top firm of solicitors. Theruling will be appealed.
31 Mar 97
Times: Clause validly excludes liability for gross negligence
Before Lord Justice Hirst, Lord Justice Millett and Lord Justice Hutchinson [judgment March 18]
Atrustee exemption clause could validly exclude liability for gross negligence. Such a clause was neither repugnant nor contrary to public policy.
The Court of Appeal so held dismissing an appeal by the beneficiary, Paula Rachel Armitage, against the trustees of a settlement in her favour. Richard Nurse, Dudley Thomas Bowman Stammers and Brian Arthur Stammers, personal representatives of Arthur George Stammers, deceased, Margaret Lambert McLeod Flatman, personal representative of Keith Flatman, deceased, and Jeffrey Reginald Wright, and the trustees' cross-appeal.
Mr Bernard Weatherill QC for the beneficiary; Mr Gregory Hill for the trustee.
Lord Justice Millett said a clause in the settlement provided that no trustee should be liable for any loss or damage to the fund or its income "unless such loss or damage shall be caused by his own actual fault."
The clause has been taken from a standard set of precedentsDerry v Peak [(1889) 14 App. Cas 337] established that nothing short of a fraudulent intention in the strict sense would suffice for a case of deceit or fraud properly so called. Proof of dishonesty was required. Dishonesty was not a necessary factor in so-called equitable fraud.
Thecommon law knew no generalised tort of fraud. Derry v Peak was an action for fraudulent misrepresentation and care had to be taken when concepts of acting knowingly or recklessly were applied not to a representation but a breach of trust, which could be of many different kinds. If trustees consciously acted beyond their powers they might deliberately commit a breach of trust if they did so in good faith and in the honest belief that they were acting in the interest of the beneficiaries their conduct was not fraudulent.
In his Lordship's judgment theclause exempted the trustee from liability for loss or damage to the trust property no matter how indolent, imprudent, lacking in diligence, negligent or wilful he might have been, so long as he had not acted dishonestly.
It had beensubmitted that a trustee exemption clause which purported to exclude all liability for actual fraud was void, either for repugnancy or as contrary to public policy. The question was whether a trustee exemption clause could validly exclude liability for gross negligence.
There was an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them. If the beneficiaries had no such enforceable rights there was no trust. But his Lordshipdid not accept that those core obligations included the duties of skill and care, prudence and diligence.
The duty of the trustees toperform the trusts honestly and in good faith for the benefit of the beneficiaries was the minimum necessary to give substance to the trusts, but in his Lordship's opinion it was sufficient.
It was far too late to suggest that the exclusion in a contract of liability for ordinary negligence or want of care was contrary to public policy. What was true of a contract must be equally true of a settlement.
English lawyers, unlike those in civil law systems, had always had ahealthy disrespect for the distinction between negligence and gross negligence. There was no norm in common law for the maxim culpa iara dolo dequiparetur [gross negligence is equal to fraud].
The submission that it was contrary to public policy to exclude the liability of a trustee for gross negligence was not supported by any English or Scots authority. None of the nineteenth-century cases dealt with the much wider form of exemption clause which had since become common and none of them was authority for the proposition that it was contrary to public policy to exclude liability for gross negligence by an appropriate clause clearly worded to that effect.
However, the view was widely held that such clauses had gone too far.Jersey had introduced a law in 1989 which denied effect to a trustee exemption clause purporting to absolve a trustee from liability for his own fraud, wilful misconduct or gross negligence."
The subject was presently under consideration in this country. If such clauses were to be denied effect, it should in his Lordship's opinion be done by Parliament which would have the advantage of wider consultation with interested parties.
Lord Justice Hutchison and Lord Justice Hirst agreed.
Solicitors: Royds Treadwell; Hood Vores & Allwood, Dereham. Greenland Houchen, Attleborough and Mills & Reeve, Norwich.
2 Apr 97
Financial Times: Insurers facing holocaust suit
A group ofHolocaust survivors has filed a class action law suit in New York seeking $7bn against seven large European insurers, claiming that the companies refused to pay out on policies of relatives who died at the hands of Nazis.
The suit, filed on Monday in the US District Court in Manhattan, names as one defendantAssicurazioni Generali, Italy's largest insurer, which is already defending itself against similar allegations made by a group of 53 families in Israel.
Generali, which had its roots in the Austrian-Hungarian empire, had a dominant market share in eastern Europe before the second world war.
Yesterday, Mr Guido Pastori, director-general of Generali in Trieste, said the company would not comment until it had seen the full30 page suit.
However, he said Generali'ssubsidiaries in eastern Europe were nationalised by communist governments after the second word war and therefore had no legal obligation to pay policies. We never paid any policies issued in eastern Europe after nationalisation," he said
Under theterms of the nationalisation, the new state-owned insurance companies took over both the assets and liabilities of each insurer, Mr Pastori said.
However, lawyers for the plaintiffs will argue thatGenerali and the other insurers had an obligation to pay claims with excess assets located outside eastern Europe. According to the lawsuit, relatives of Holocaust victims who had been policyholders made repeated attempts to obtain payment of claims, but were rebuffed.
Other defendantsare Wiener Allianz Versicherung Aktiegesellschaft (also known as Phenix AIlgemeine Versicherungs Aktiegesellschaft); AGF, the French insurer; Riunione Adriatica Di Sicurta, the Italian insurer; Allianz Group, of Germany; the Austrian group Der Anker, and Bavarian. Reinsurance Company, based in Munich.
2 Apr 97
Financial Times: Liggett in financial difficulty
Liggett, the US cigarette maker that caused a storm two weeks ago by reaching a deal with anti-tobacco forces, is in serious financial difficulties, a filing with the Securities and Exchange Commission shows. The figures shed more light on the decision by Mr Bennett LeBow, chairman and chief executive of Brooke Group, Liggett's parent, to hand over part of Liggett's pre-tax profits to tobacco opponents as part of the legal settlement.
The SEO filing, consisting of Brooke Group's annual report, reveals that theagreement was in large part meaningless because Liggett did not make any pre-tax profits last year and does not expect to do so in the near future. Liggett's accounts are heavily qualified by the company's accountant, Coopers & Lybrand, which warns that looming debt repayments "raise substantial doubt about the company's ability to continue as a going concern." The filing shows that Liggett made operating losses of $18. 4m last year and expects still larger operating losses this year. Based on this trend, it does not expect to generate sufficient cash from operations to meet payments on some secured notes next year and the year after without restructuring or refinancing its debt.
Analysts sayLiggett's motivation in reaching a deal with tobacco opponents was to make the company attractive as a take-over target if litigation started to go against the industry. Richard Tomkins.
3 Apr 97
Daily Telegraph: Profits top £1bn again at Lloyd's
LLOYD'Sof London made a pre-tax profit of a shade over £1 billion during 1994, only slightly down on the previous year.
The market's underwritingcapacity was £10~9 billion, which means Lloyd's is still at the most profitable level it has managed in more than 10 years.
The 1994 profit figure is very slightly below the level forecast for the underwriting period just a year ago. Thetotal would have come out ahead of projections but sterling's recent greater strength against the dollar knocked about £70m off the translated profits, since a large portion of Lloyd's business is denominated in dollars.
For the1995 underwriting year the insurance market is expecting a further decline in profits, to about £882m. But that too may be knocked further by the strengthening pound.
As competition in insurance has increased world-wide, premiumrates have been forced down for the past two years. They are likely to continue sliding for at least another three or four years.
SomeLloyd's underwriters have learnt from previous disasters and turned away business rather than write it at a loss. As a result, Lloyd's is using a steadily falling portion of its underwriting capacity.
Even in a good year like 1994 there werehuge discrepancies within the market: syndicates 45 and 561, both managed by Bankside, produced profits of 31. 4 and 34. 8pc of their insurance capacity.
By contrast,syndicate 97, owned by Wellington, made a loss of between 5. 63 and 6. 6pc for individual or corporate members.
This is thefirst time Lloyd's has made a preliminary disclosure of its results before the grand announcement ceremony in May. The move was forced on it by the incursion into the market of quoted corporate underwriters. The detailed explanation and commentary will still arrive next month.
8 Apr 97
Times: Tobacco groups duel over Marlboro Man
REMBRANDTGROUP, the South African tobacco-based conglomerate, is suing Philip Morris, the US cigarette group, over an alleged infringement of famous trade names.
In awrit, lodged at the High Court in London, Rembrandt alleges that Philip Morris has broken an agreement precluding it from using tobacco trademarks - including the Marlboro Man - in the southern African region. It is seeking an injunction against further breaches, and is pressing for unspecified damages.
The court move is anembarrassment to Philip Morris, which, with other US tobacco companies, faces high-profile law suits from American cancer sufferers.
Thetobacco industry received a knock last month, when Liggett Group, the smallest of the US producers, broke ranks and said tobacco was addictive and could cause cancer. Under a deal with 22 state attorneys-general, Liggett pledged to pay 25 per cent of its profits for 25 years, in order to settle the litigation.
Thefour large tobacco companies obtained a court order, preventing Liggett from turning sensitive documents over to prosecutors.
Linklaters & Paines,the law firm, is acting for Rembrandt in its dispute with Philip Morris. The firm would not comment.
No one was available at Philip Morris in New York.
8 Apr 97
Financial Times: Auditors qualify Equitas accounts
Auditors to. Equitas have qualified its first accounts, published yesterday, because of doubts over thereliability of data relied on to assess the risks it faced.
Equitas is the company which last year assumed the billions of pounds in financial liabilities which threatened to destroy the Lloyd's of London insurance market.
Coopers & Lybrand, the auditors that examined the reinsurance group's financial position, questioned the "quality and completeness" of information used to calculate the assets it needed.
Equitas said thedata came from a wide range of sources including Lloyd's insurance syndicates, but much of it was unaudited and some was of. "poor quality".
The group saidcloser scrutiny of the data might lead to a substantial reassessment of its liabilities. It was not clear by how much these could increase or decrease if at all.
Tens of thousands of-investors in Lloyd's agreed last September to reinsure their losses in Equitas under the terms of a recovery plan which offered them the chance to walk away from the insurance market free of future liability.
A group representing about 8,000 of the investors - individuals called Names whose assets have traditionally backed Lloyd's - said It was "troubled" by the audit.
"Reinsured Names need as much reassurance as they can get andheavily qualified accounts do nothing to help," said Sir David Berriman, chairman of the Association of Lloyd's Members.
Coopersfelt it was unable to give an unqualified opinion because it did not have access to all of the information it would require.
It didnot say it disagreed with the accounting practice of Equitas and did not issue a disclaimer.
Theaccounts showed that Equitas had a cash surplus of £588m after receiving an £11-2bn premium to reinsure all of Lloyd's losses for 1992 and prior years. The surplus was lower than expected as the group took a £122m charge because assets transferred from syndicates were undervalued.
MrDavid Newbigging, chairman of Equitas, said the need to "validate" information supplied by syndicates should not be interpreted as criticism of a reserving project which took three years to complete.
He stressed there was no reason to believe that the data was wrong or any information missing.
Equitas hopes it will be able toimprove the quality of the information it has collected with an electronic "data warehouse" expected to come on line tills summer.
"We have anobjective to improve if not remove that area of the qualification," said Ms Jane Barker, finance director.
Coopers also noted that theunpredictable nature of the risks fuelled uncertainty,
with future claims likely to differ from estimated liabilities. About40 per cent of claims are likely to stem from policies insuring "long-tail pollution" and health hazard risks in the US.
8 Apr 97
Times: Equitas doubtful about its survival
THE precarious state of Lloyd's of London's recovery was underlined yesterday, whenEquitas, the reinsurance corn p any formed to take on billions of pounds in long-term Lloyd's risks, conceded that it could be forced into receivership.
Coopers & Lybrand, auditor to Equitas, says "significant uncertainties" surrounding the extent of outstanding claims mean Equitas may not be able to meet its insurance liabilities in full. This would effectively push it into receivership, with disastrous consequences for London's standing in world insurance.
Thewarning is contained in Equitas's maiden set of report and accounts, which catalogues generous levels of pay in the Equitas boardroom. Michael Crall, chief executive, received remuneration of nearly £430,000 in the eight months to September 4, when Equitas became operational. Mr Crall, an American, was guaranteed a minimum bonus of £100,000 during his first year, and received £75,000 towards his relocation to the UK.
Total feesto auditors reached £9. 4 million. Coopers & Lybrand was paid nearly £5 million, with the balance due to auditors across a range of Lloyd's syndicates. Costs associated with the formation of Equitas totalled £130 million.
More disturbingis the extent to which Coopers & Lybrand has qualified the Equitas accounts. The firm gives warning that future claims experience is likely to differ from estimated liabilities, "potentially to a material degree." Significant uncertainties surround three key provisions - £14. 8 billion in outstanding claims; £4. 3 billion in reinsurers' share of these claims; and £1. 5 billion in reinsurance recoveries.
Adownward adjustment could be sufficient to wipe out Equitas's surplus of £588 million, as at September 4. This would trigger a "proportionate cover" clause, under which Equitas would be entitled to pay claims at a reduced rate. Failing this, Equitas could be tipped into receivership.
Equitas was a key plank in the Lloyd's reconstruction and renewal (R&R) plan. Ittook on 1992 and prior-year liabilities for Lloyd's syndicates, ring-fencing 34,000 names from past losses.
The Equitas premium for reinsuring prior-year losses, pegged at£14. 7 billion, had fallen to £11. 2 billion by September.
Sir David Berriman, chairman of the Association of Lloyd's Names, said he was "troubled" by the inevitable qualification, while recognising that Equitas was doing all it could to reduce uncertainty. He said: "Reinsured names need as much reassurance as they can get." Equitas hopes to provide a clearer picture of liabilities by March 1998. David Newbigging, chairman of Equitas and former head of Jardine Matheson, said the company had inherited a mass of untested data. He said: "It does not necessarily mean there is a huge potential black hole on the downside."
MrNewbigging received nearly £206,000 in remuneration last year. Jane Barker, the former Stock Exchange chief who signed up as - finance director in December 1995, received nearly £230,000, including a guaranteed minimum bonus of £40,000.
8 Apr 97
Daily Telegraph: Equitas comes in £3-5bn cheaper
Equitas the company set up by Lloyd's of London to cope with pre-1993 insurance losses,needed premiums totalling £11. 2bn to start operating in September last year, compared with the £14. 7bn estimated at the end of 1996.
Thesharp drop is because some claims were paid in the interim and money was recovered through reinsurance. Equitas'' finance director, Jane Barker, said that the amount is likely to drop to half over the next three or four years.
The chairman of Equitas, David Newbigging, said in thefirst report and accounts produced by Equitas that he was hoping to insulate members of Lloyd's from the old losses, and even to produce a surplus on the operations to be repaid to the members.
Coopers & Lybrandprovides wholesale qualification of the accounts, because future claims are hard to predict, there may be changes in judicial, technological or special behaviour and the yields on investments is also uncertain.
Inaddition for legal reasons Equitas has withheld details of big claims which could go to court, as the accountants have neither the specific information nor the ability "to determine whether proper accounting records have been maintained."
Equitas is about totake 100,000 sq. ft. of office space in St Mary Axe in the City near Lloyd's to house its 675 staff (it has another 700 working as specialist organisations on subcontracted work).
The report also shows MrNewbigging gets fees of £200,000, Michael Crall, chief executive, is paid a total of £344,000 and Jane Barker £218,000. The non-executives get between £25,000 and £35,000.
13 Apr 97
Sunday People: Lloyd's ‘deal with MPs saved John Major's skin
Asecret deal saved the skins of up to fifty Tory MPs who owed £26 million to Lloyd's of London, it was claimed last night.
Furious investors say the pact allowedJohn Major's sleaze-hit Government to stagger on for a year.
The MPs would have been barred from office if they had been declared bankrupt.
But critics allege the conservative bigwigs were offered "preferential terms" by Lloyd's to settle their debts. In return, the Government is said to have vowed not to launch a public inquiry into the Lloyd's crash or to call for tougher regulation of the insurance market.
The City firm nearlycollapsed five years ago after a series of international disasters, including the 1988 Piper Alpha oil rig blast, caused £8 billion losses.
The investors - or Names - were then ordered to stump up to cover the massive debt.
Retired Lloyd's agent Jonathan Balcon, the uncle of actor Daniel Day-Lewis, said: "There have been special allowances made for Tory MPs."
"Not one has been on the receiving end of a writ for what they owe but hundreds of ordinary people have."
Mr. Balcon, 65, of Tunbridge Wells, Kent, lost £50,000 and his wife Sally, 64, is being sued for £31,000.
He added: "Lloyd's has saved this Government."
"They could have bankrupted several MPs, which would have disqualified them from office."
Lloyd's Names Sally Noel, who owes £297,000, said: "TheNeill Hamilton sleaze scandal has nothing on this."
"Conservative MPs have been given preferential treatment that was not available to other Names."
"It saved lots of bye-elections and meant the Government could carry on for more than a year."
Former Conservative council candidate Mrs Noel, 52, of Yeovil, Somerset, claimed two Tory MPs had tipped her off about the deal.
According to figures published by Lloyd's, six high-flying Tory losers have not benefited from any secret deal. Two areBoard of Trade President Ian Lang and Attorney General Sir Nicholas Lyell, who between them lost an estimated £1. 2 million.
A third iscash-for-questions backbencher David Tredinnick, who lost £1. 8 million.
Andsenior Tories Tim Renton, Sir Peter Lloyd and James Arbuthnot are understood to be more than £500,000 out of pocket.
All six have now settled.
Nearly 2,000 investors are opposing the rescue deals being hammered out.
Last night a Lloyd's spokesman called thespecial deal claim "a load of rubbish."
He insisted: "We did not differentiate between MPs and anybody else."
13 Apr 97
Sunday Business: Lloyd's faces world's biggest fraud case
1,800 Lloyd's end up suing London insurance it would be the biggest-ever fraud case Court rules in Names next
Names who Lloyd's and its officers on public fraud are awaiting ruling, due by the latest. Solicitor Freeman, who is Names said about a full fraud action, includingdiscovery of all documents dating back to the 1980s and the calling of all the major players at Lloyd's into court."
The350 Names, All members of the United Names Organisation (UNO), did not settle with Lloyd's under last August's Reconstruction and Renew R&R) where Names agreed to pay their debts and settle their old liabilities in the new reinsurance vehicle, Equitas.
Instead, they continued to argue and they, and others, had been defrauded by Lloyd's when it recruited many newcomers to the market in the early 1980s without telling them that it knew of the impending financial disaster of massive claims stemming from asbestosis and pollution claims.
Names say they have strong evidence showing that senior figures in the market, who were also executives in the ruling body of the Corporation of Lloyd's, actually suppressed growing documentary evidence of the increasing size of future claims.
But the 350 Names are among 1,800 world-wide who have not settled under R&R, and now Lloyd's has started actions against individual Names for recovery of the full amount of their debts to the Lloyd's Central Fund. Lloyd's picked outthree individual Names, members of the UNO, for recovery actions under a speedy Order 14 hearing starting on 15 November last year.
The Names, backed by the UNO hadtwo main defences - one involving non-fraud issues, and a second, involving the allegations of fraud. Mr Justice Colman ruled against them on the non-fraud issues, but decided that the allegations of fraud should - unusually for an Order 14 hearing - be heard in public some time in March.
ButLloyd's is thought to fear a public hearing that would drag up the long-maintained accusation of fraud and countered that with an unusual summons to court.
In thesummons, Lloyd's asked that the court assume that there had been fraud at Lloyd's. But it also stated that even if that was true, then its "pay now, sue later" clause in its contract with Names takes legal precedence, meaning it can relieve the |Names of the money owed immediately. That would also disable the Names' ability to push the fraud case either as a defence, or in a direct suing action.
But Names hope the judge will dismiss Lloyd's summons. If so, they will pursue a direct action to bring Lloyd's to trial, which could be joined by the rest of the 1,800 Names who did not agree R&R.
Catherine Mackenzie-Smith, chairing the UNO said: "The Names are determined that wrong-doings will not be swept under the carpet and the truth about fraud at Lloyd's will come out."
The UNO Names are among those hit hardest by the huge losses racked up by the worst years, and may face bankruptcy. Meanwhile, the Court of Appeal has given permission for UNOmember Sir William Jaffery to be substituted as the appellant in the Clementson test case challenging Lloyd's powers under European law.
John Clementson lost the case in court and settled under R&R. But the UNO believe, it can now win an appeal, which could devastate Lloyd's ability to force Names to pay up.
The UNO has until6 May to raise £500,000 to be paid into court as a surety to pay costs.
15 Apr 97
Times: Lloyd's ready to tighten up monitoring
Lloyd's of London is set tointroduce electronic monitoring of transactions as part of a wider drive to clean up the insurance market.
The move, which wouldbring Lloyd's in line with the Stock Exchange, is aimed at spotting concentrations of high-risk or inconsistent underwriting. Carelessly written business contributed to the problems that fuelled losses of £8 billion at Lloyd's and nearly caused the market's collapse.
Lloyd's currentlysamples a random batch of 100 transaction slips a day by hand. The idea is to use computer software to look for patterns in the thousands of transactions that pass through Lime Street daily. A prototype system is likely to be in place by the summer.
Lloyd's isreviewing all aspects of regulation in a drive to improve standards. A report is due next month. Sir Alan Hardcastle, chairman of the Lloyd's Regulatory Board, is eager to streamline the Lloyd's rule-book, working with David Gittings, director of regulation, and Noel Lawson, head of regulatory proceedings.
Lloyd's is required to meet solvency standards set by the Department of Trade and Industry (DTI), but is otherwiseunique in having no external regulator. This is due to be reviewed after the election, whoever comes to power.
Oneoption would see the DTI remain responsible for regulation on behalf of policyholders, with investor protection falling under the Securities and Investment Board. The funding of external regulation - possibly through a levy on the market - is a key issue yet to be decided.
Directorsand senior managers at Lloyd's underwriting agencies have been obliged to seek individual registration under a byelaw passed in April 1996. About 3,300 have been registered, with a further 150 still to go. The requirement could be extended to take in up to 6,000 Lloyd's brokers.
Lloyd's isstepping up the number of inspections, using market professionals on secondment. About 40 underwriting agents and 80 syndicates will be visited this year.
Goals for this year includefaster conduct of investigations, an expansion of disciplinary and enforcement activity and stricter surveillance of the Lloyd's capacity auction process.
17 Apr 97
Financial Times: Morgan Grenfell fund arm fined record £2m
Imro, the fund management watchdog, yesterdaylevied the biggest fine by a City of London regulator on .Morgan Grenfell Asset Management, one of the leading asset management groups in Britain.
Mr. Philip Thorpe, executive of Imro, announced that MGAM was beingfined £2m for several breaches of its rules, including failing to stop Mr. Peter Young, one of its star managers, making hidden investments with customers' money. MGAM will have to pay £1m to cover Imro's costs.
Several executives, including Mr.Young, were dismissed last autumn when it was discovered he had been inflating the value of funds under his control by investing in unlisted shares.
Dealingswere suspended in three UK-based investment funds that held £1-4bn for 90,000 Investors. Last month Deutsche Bank, Germany's biggest bank and owner of MGAM, disclosed that the scandal could cost it up to £430m, including £180m spent supporting the unit trusts and up to £200m on compensation for investors.
"The mismanagement of these funds has caused unnecessary concern to an enormous number of Investors," Mr. Thorpe said. "Thecomplexity and volume of this case requires that a very clear message is sent out."
MGAM said it had addressed the failings identified by Imro and had put in place arrangements for paying compensation to investors.
Imro's reportdetails several breaches of its rules by MGAM. It criticises MGAM for failing to prevent its funds "from making inappropriate investments in certain holding companies used to circumvent the regulations."
MGAM failedto notify Imro of problems relating to the management of European Growth, one of its funds, in spite of concerns reported to "at least one member of the board of MGAM, by no later than April 1987."
Mr. Thorpe said MGAM had "paid dearly as a consequence of inadequate management control. The affair plainly illustrates the dangers of ignoring repeated warnings."
IMRO iscontinuing its investigation into the dismissed executives.
17 Apr 97
Daily Telegraph: Record £2m fine for Morgan over ‘Peter Young affair'
ARECORD fine of £2m, plus an order to pay costs of more than £1m, was imposed on Morgan Grenfell Unit Trust Managers by City regulators yesterday.
About90,000 investors in three of Morgan's unit trusts which were incorrectly priced for more than a year will receive compensation of £200m within the next few weeks. A spokesman for Deutsche Bank, which owns Morgan, said the total cost of the "Peter Young affair" was likely to exceed £400m.
Tax-free compensation for losses caused by the rogue fund manager will be paid to people who held units in Morgan Grenfell European Growth; Morgan Grenfell Europa or Morgan Grenfell European Capital Growth between August 1, 1995, and September 5, 1996. Unauthorised holdings of unlisted securities led to "pricing irregularities" in these funds which held £1. 4 billion when dealing in them was temporarily suspended last September.
Little more thanhalf that sum - £790m - remained in these funds yesterday, despite a £180m capital injection by Deutsche last year. Nearly a fifth of the original unitholders have also sold up since dealing recommenced, although the fund manager said this will not affect their entitlement to compensation.
Philip Thorpe, chief executive of theInvestment Management Regulatory Organisation, said: "The mismanagement of these funds has caused unnecessary concern to an enormous number of investors."
"It is right that this is beingcorrected promptly and thoroughly. The firm has paid dearly as a consequence of inadequate management control. This affair plainly illustrates the dangers of ignoring clear and repeated warnings."
Theregulator's written statement makes no mention of the funds' auditors - accountants KPMG - or their trustees - General Accident - who "retired" in June last year. It does, however, add: "It was reported to at least one member of the board of Morgan Grenfell Asset Management, by no later than April, 1996, that the fund manager persistently acted in a way that abided by the letter rather than the spirit of the unit trust regulations; despite giving several undertakings to change his behaviour. The irregularities were connected with -although not limited to - Peter Young who carried out day-to-day management of European Growth and Capital Growth."
Mr.Young and six other senior employees, including five Morgan Grenfell directors, were sacked within weeks of the problems becoming public. A spokesman for the fund manager said yesterday: "All of the individuals concerned have left Morgan Grenfell. There is no question at all about its financial security. Deutsche Bank has supported it with sufficient funds to pay compensation even where no actual loss has been suffered by an investor but where these funds' performance fell below the average for the European Growth unit trust sector."
Robert Smith, who replaced Keith Percy as chief executive of Morgan Grenfell Asset Management last October, said: "Thefine reflects the size of the financial problem caused by the Peter Young affair and associated management failings in our unit trust business.
Compliance controlsand operating methods have been subjected to rigorous review and I have full confidence in the people and systems we now have in place."
A spokesman for theSerious Fraud Office said: "Our investigation, which includes inquiries overseas, is continuing."
How events unfolded -High cost of fall from top
June, 1998: Morgan Grenfell European Growth swells to £800m in size after topping the unit trust performance tables. But its trustees, General Accident, "retire".
July, 1996: Peter Young is named "fund manager of the year" by trade magazine Investment Week. The Securities and Futures Authority notifies Morgan that it is investigating claims by its member, Fiba Nordic Securities, that it sold large amounts of unlisted securities to three of Morgan's unit trusts.
September3, 1996: Dealings in three Morgan funds holding £1. 4 billion on behalf of 90,000 investors are suspended after the regulators discover holdings of unlisted securities exceed 10pc maximum allowed for unit trusts, leading to "pricing irregularities".
September, 5: Dealings in the three trusts resume and £100m of units are encashed.
September, 7: Deutsche Bank injects £180m into the three funds to make good any "pricing irregularities" caused by over-valuation of unlisted securities.
September 19: Peter Young is dismissed.
October, 17: Keith Percy, chief executive of Morgan Grenfell Asset Management, is replaced by Robert Smith. Four other senior employees, including four directors, are sacked.
November, 22: Deutsche Bank announces that responsibility for Morgan's £8 billion unit trusts will be transferred to Germany.
December, 21: Basis for "£200m compensation package" announced by the Investment Management Regulatory Organisation.
17 Apr 97
Financial Times: Mis-selling forces record levy from PIA
Member companies. of thePersonal Investment Authority face, a levy of £32. 9m this year, three times the amount paid in. 1996~97, mostly to compensate victims of pensions mis-selling by companies that are no longer trading.
The record levy announced yesterday by theindustry-funded Investors Compensation scheme includes £23. 3m for an estimated 2,500-plus pensions-related cases involving Companies that are expected to be declared: in default this year.
Averageexpected compensation of £9,000 is in line with previous payments for. mis-selling. The cost will be divided among PIA's 4,000 member companies on a basis to be announced shortly.
PIA said the figure represented a "substantial chunk" of ICS's total estimated liability for pensions, mis-selling cases, although it was subject to. Revision. According to some estimates, the industry's final bill for pensions mis-selling could reach £4bn, although most of that will be met by existing companies, rather than through ICS.
ICS compensates qualifying customers of failed companies that belonged to one ofthree self regulatory organisations - PIA, the Securities and Futures Authority and Imro, which regulates investment managers. ICS's costs and payments are funded by a levy on each regulator, which recoups the money from its members. For the first time, ICS announced a levy relating to companies expected to be declared in default in the current year, rather than just assessing in arrears for completed cases. The ICS levy on PIA includes £1. 62m for expected non-pensions related cases in 1997-98 as well as £7. 98m for 46 defaults declared in 1996-97 or previous years.
The latter figure takes in expected compensation payments to customers ofKnight Williams, the defunct financial adviser at the centre of a long-running dispute over selling of inappropriate investment products, mainly to pensioners or people near retirement age.
PIAwas set up in 1994 to take over from Fimbra, the SRO for Independent financial advisers, and Lautro, the regulator for life Insurers. More than 98 per cent of PIA's levy for 1996-97 relates to former Fimbra members.
Only theallocation of the £28. 3m levied for 1997-98 pensions-related cases remains to be decided by PIA, which indicated the formula would have to be "feasible and fair." Of the rest of the levy, the first £5m will be met by independent financial advisers. Ten per cent of the balance will come from IFAs and 90 per cent from product providers that used the IFA distribution network.
In1995, a High Court judge rejected a challenge by Sun Life, the life assurance company, to ICS rules which required all PIA members to meet compensation bills for Fimbra members that went out of business before PIA was formed.
Imro members will not have to pay any levy this time, because the amount raised previously, including£1. 47m last year, is expected to cover all defaults or potential defaults under investigation.
SFA-regulated companiesface a total bill of £214,544, compared with £2. 5m last year. The levy reflects a supplementary call on earlier cases, because no SFA members were declared in default In 1996-97.
17 Apr 97
Financial Times: Watchdog whimpers
Imro'sdecision to fine Morgan Grenfell Asset Management over the Peter Young affair eight months after the event smacks of stable doors and bolting horses. Nor is the UK regulator's conclusion - that MGAM's internal controls were inadequate - much of a revelation. And the £3m in fines and costs being imposed on the fund management group looks rather pointless considering that Deutsche Bank, MGAM's owner, has set aside more than £400m to bail out Mr. Young's ailing funds and compensate investors. Deutsche would have had to spend that money regardless of Imro's decision, in order to safe-guard its reputation.
Instead, Imro might usefully have cast its net a littlewider. While MGAM must continue to take most of the blame for this scandal, it is worth remembering that auditors KPMG gave Mr. Young's funds a clean bill of health as recently as last July. And the corporate trustees of those same funds, first General Accident and subsequently Royal Bank of Scotland, had a clear responsibility for checking their prices. They were, after all, paid several hundred thousand pounds a year for their trouble.
17 Apr 97
Financial Times: Portsoken penalty
Morgan Grenfell discomfort in having tocough up a £2m fine in the aftermath of the Peter Young affair is matched only by the discreet sense of would get cash right now.
The problem is that it will take more than two to tango; politicians and the powerful anti-tobacco lobby must also be satisfied. And a$10bn or so annual levy combined with a ban on outdoor advertising would still leave US tobacco companies better off than those in Britain, for example. In the UK, tax on cigarettes is 50 percentage points higher and a Labour government would probably ban outdoor advertising. This might not be enough pain for the industry's opponents, which include the Clinton administration. Given the conflicting interests of the parties involved, the chances of a favourable solution look at best 50:50.
Thedanger for investors is that if tobacco companies push for a settlement they do not get, they will look far more vulnerable in the law courts. Of course, they will never admit guilt in any settlement - it would open the legal floodgates overseas - but their willingness to negotiate will be seen as evidence of weakness. Nonetheless, the potential rewards to investors probably still outweigh the risks, given the extent of their discount ratings.
17 Apr 97
Financial Times: Smoked out
What is good for the big tobacco companies is notnecessarily good for America.
So thesettlement which Philip Morris and RJR Nabisco Holdings are discussing with lawyers acting for those who say that smoking has damaged their health must be viewed sceptically. The plan would require an act of Congress to indemnify the companies against future actions by those claiming damage from tobacco. In return, the companies would set up a fund of up to $300bn over the next 25 years - about a quarter of revenues - to pay compensation.
Thebiggest winners would, as usual, be lawyers. They would claim assured fees running into hundreds of millions of dollars a year, rather than the uncertain gains from fighting many cases. For although tobacco assuredly can kill most people know that fact. Convincing juries that producers are to blame in particular instances has not been easy.
AlthoughUS legal processes are uncertain and far too expensive, a settlement which requires a new law to limit citizens' rights to sue tobacco companies may not be the answer, even if it were feasible. Nor would it end disputes, for quasi-judicial processes would be needed to attempt to filter out bogus claims against the fund. And big questions would remain about tobacco companies' responsibilities elsewhere, particularly in the developing world.
IfCongress is to consider action, it should first curb the marketing of tobacco. That will not help those who have died of lung cancer, but it might reduce future suffering. And it could be done without turning too many lawyers into millionaires.
17 Apr 97
Daily Telegraph: Cigarette firms talk of $300bn settlement
CIGARETTE makersPhilip Morris and RJR Nabisco are in negotiations with tobacco plaintiffs for a $300 billion (£190 billion) settlement of the barrage of litigation the industry faces.
AlthoughBritain's BAT Industries, which owns the Brown & Williamson tobacco company, is not present at the negotiations, Philip Morris, maker of Marlboro cigarettes, and RJR, maker of Camel cigarettes, are negotiating on its behalf and keeping BAT informed.
Tobaccoshares jumped on the news, with Philip Morris up $3 at $42, RJR $3 1/8 higher at $3¼ and, in London, BAT rose 28p to 541p.
Theproposals under consideration include a $300 billion payment into a special fund by the industry over 25 years. Analysts expect the companies to fund the payment by raising the price of a packet of cigarettes, and they expect the cost to be shared by the companies according to market share.
BAT Industriescommands 16pc of the US market, putting its possible exposure at around $48 billion.
Spokesmen forPhilip Morris, RJR and BAT all declined to comment directly but the talks were confirmed by the White House, which is monitoring the negotiations, and by two state attorneys-general involved.
Minnesota attorney-generalHubert Humphrey said: "We are at the beginning stage. This is the first time I've seen a tobacco representative sitting across the table in the three years that we've been involved in the litigation. I don't necessarily feel what I have heard so far is enough."
Diana Temple, tobacco analyst at Salomon Brothers, believes theindustry was jolted into talks by fears that it could lose about 30pc of individual cases. The talks began about two weeks ago.
18 Apr 97
Financial Times: Lloyd's stands firm on capital reforms
Lloyd's of London said it would stand firm oncontroversial proposals, published yesterday, to increase the capital individual Names must put up to support underwriting at the reformed insurance market.
Mr. Andrew Duguid, secretary to Lloyd's council, said thereforms were needed to improve security for policyholders. "They need to be confident in the market," he said: "At the end of the day you are selling reliability."
The package of measures designed toimprove Lloyd's so-called "chain of security" will bolster its case in talks currently being held to try to secure a credit rating for the whole market - rather than its separate syndicates.
Names - the Individuals whose assets have tradition-ally backed Lloyd's - reacted quickly to the reforms, which may result inmany reducing their underwriting capacity or leaving Lloyd's.
One Names' leader said Lloyd's appeared to be biased towards thenew-style Names who already back 44 per cent of the market. "We do not want to be bullied away from Lloyd's," he said.
Mr. Robert Miller, forthe Association of Lloyd's Names, said the proposals seemed "rushed". He said: "It's being driven by this urge to have a security rating."
Mr. Duguid said Lloyd's was "pretty firm" in its plans - although Names have until May 16 to comment. He denied that Lloyd's was persecuting Names: "It is not designed to do that - there is no hidden agenda."
At present, most Names - who have unlimited personal liability - holdfunds at Lloyd's representing 20 - 30 per cent of the total business they can back, compared with a minimum of 50 per cent for corporate investors.
Lloyd's proposes that theminimum for individuals be raised to 32. 5 per cent next year and 37. 5 per cent the year after. The move would require all investors - individual and corporate - to show evidence of assets totalling 50 per cent of premiums they support. For Names, other personal wealth would make up the balance to 40 per cent in 1998 and to 50 per cent in 1999.
By 2000, Mr. Duguid added, individual Names would have to show afurther 12. 5 per cent in personal wealth - bringing total assets to 62. 5 per cent. This reflected the risk related to their security, he said. Names could reduce this total by depositing more funds directly at Lloyd's.
Theseratios and the timetable - appear fixed, but Mr. Duguid did signal that plans to outlaw the use of Names' homes to obtain bank guarantees as part of their funds at Lloyd's might need fuller discussion. Names would still be able to use such guarantees as personal wealth.
Lloyd's was also intalks with the Inland Revenue to see if assets held in the market's special reserve fund -to meet claims - might be used by Names to compute their personal wealth.
Mr. Duguid unveiled further proposals toenhance the security offered by the other three links in Lloyd's so-called "chain of security". He said the market's premium trust funds should be subject to an investment code rather than the present "hotch potch".
Further reformsare suggested to ensure syndicates have adequate reserves to meet claims, to provide "guidance" on the selection of reinsurers, and to popularise the use of "disaster modelling" to forecast the impact of catastrophes.
Mr. Duguid said that as Lloyd'sset down minimum requirements for Names and corporate investors, a methodology was already being developed to judge when investors needed to provide greater security. He revealed that some corporate investors already met such obligations. Under the plans all investors would face a risk-based capital analysis.
18 Apr 97
Daily Telegraph: Aspiring Lloyd's names face £350,000 funds hurdle
THE future of the traditional Lloyd's Name - the individual writing with unlimited liability - has become evenmore uncertain following proposals from the insurance market to increase the funds Names have to show to underwrite.
By1999, Names must show they have £350,000-compared with £250,000 now, or only £100,000 for the 43 p.c. of Names who underwrite on lower-risk MAPA syndicates - before they can join the market.
Names'gearing - the degree to which they can use their funds to underwrite - is to decrease dramatically because Lloyd's is proposing that Names put up a greater proportion of the premiums underwritten. Instead of putting up between 20 p.c. and 30 p.c., Names will have to put up 50 p.c. by 1999 - the same as most corporate Names. However, only 37.5 p.c. will be required to be held in trust at Lloyd's.
Lossestotalling £8 billion over five years have already helped reduce the number of Names from a peak of 32,000 in 1988 to 10,000 now. Corporate capital, introduced in 1994, now accounts for 44 p.c. of Lloyd's £10 billion of capacity.
Christopher Stockwell, a disaffected Name, said yesterday: "Lloyd'sno longer sees a role for the individual Name. This is consistent with putting the squeeze on the individual Name to make room for corporate capital."
However, Andrew Duguid, head of strategic planning at Lloyd's, said: "There isn't a hidden agenda to drive people out. Thepurpose is to make sure the capital is strong and equitable across categories."
19 Apr 97
Daily Telegraph: 180,000 will share Morgan Grenfell's payout
MORGAN Grenfell now expects180,000 investors to receive compensation for the Peter Young affair, double its original estimate, the fund manager disclosed yesterday.
Frances Davies, head of pooled funds at Morgan, said its investigation of nominee accounts - where many investors may be registered as a single holding -revealed far more people affected than previously thought.
However, the value of compensation payments for pricing irregularities, which led to the temporary suspension ofthree funds worth £1. 4 billion, is likely to remain about £200m.
Regulators, who imposed a record £2m fine on Morgan earlier this week, yesterday praised the compensation offer and the speed with which it is being delivered.
In a separate move, the fund manager confirmed thatfour directors who left after the affair are likely to continue being paid until October under the notice terms of their one-year contracts.
19 Apr 97
Daily Telegraph: Morgan's £200m compensation to be shared by 180,000 investors
TWICE as many investors Will receive compensation from Morgan Grenfell over the Peter Young affair as originally estimated, the fund manager said yesterday.
Frances Davies, the head of Morgan's pooled funds, explained how180,000 people, rather than the 90,000 forecast, will share in its £200m compensation scheme.
The extra numbers are emerging from Morgan's investigation of nominee accounts-such as those set up by insurance companies, intermediaries and savings schemes - where each account may hold units on behalf of many investors.
Payments arise out of "pricing irregularities'' in three funds which held a total of £1. 4 billion, leading to dealings being temporarily suspended last September.
Compensation will be paid where investors inMorgan Grenfell European Growth, Morgan Grenfell Europa or Morgan Grenfell European Capital Growth received lower returns than they might have received from comparable funds between August 1,1995, and September 5, 1996.
City regulators have approved an index of European unit trusts to show what Morgan's unitholders might have received if their funds had not broken the rules by holding so many unlisted shares.
That means Morgan will pay compensation to some investors who have suffered no actual loss but who did suffer a relative loss-that is, they did not do as well as they might have done.
Ms Davies explained: "The European Growth index increased by15. 14 p.c. during the period for which compensation will be paid, whereas our European Growth unit price rose by 2. 05pc.
"So compensation of about 13 p.c. will be paid, although that is a very rough guide as few holdings remained static over the period. For example, people withdrew income or bought more units.
"Each individual's entitlement is being calculated separately on a daily basis. We are determined none of our investors will lose money."
Morgan's determination to atone extends even to bailing out investors who would have lost money anyway as European stock markets fell at the end of 1995. Ms Davies said: "Where someone sold units at a loss, even if that loss is less than the fall in the index at that time, we will make good the deficit.
"Anyone who held units in the affected funds during the compensation period will not end up with less than their original investment."
Cheques will be sent to all direct investors at the end of this month, although those in nominee accounts may wait longer where administrators have failed to supply details.
The Investment Management Regulatory Organisation, which imposed a record £2m fine on the fund manager, praised its efforts to make amends. A senior regulator said: "Given the complexity of the problem, we are very pleased with the speed at which Morgan Grenfell has worked with us to get compensation flowing."
19 Apr 97
Daily Telegraph: Slow progress in pensions scandal
SIX insurershave done more than the rest of the industry put together to sort out pension scandal cases, according to a survey by the Daily Telegraph.
Over thesix years between 1988 and 1994, some 20m personal pensions were sold by the insurance industry. Up to 1-Sm of those sales, it is estimated, may have been based on bad advice.
Money-Go-Round contacted the13 companies identified in research by the Personal Investment Authority as having been among the worst offenders and asked them for a progress report.
Sixof the companies, Barclays, Co-operative Insurance Society, Equitable Life, the Lloyds/TSB group, NatWest and Pearl had between them a 15 p.c. share of the pensions market. But they account for nine out of 10 of the 9,000 mis-selling cases which have so far been resolved. Only one of the remaining seven companies - the Prudential - was willing to reveal figures. The remaining six claimed that the information was "competitor sensitive" and the figures would be "misleading".
Those who would not provide the information requested includedBritannic Assurance, Allied Dunbar, Hogg Robinson Finance, Legal & General and Sedgwick Noble Lowndes.
Last year Alan Jenkinson, a director of policy atSedgwick Noble Lowndes, said: "It would be jolly unfair if it was felt that this problem could be swept under the carpet." However, his company refused to answer questions about its progress in the pensions review.
Although the Prudential supplied figures, they seemed to indicate it has so far only carried out therequired checks on half the pensions it sold between 1988 and 1994. A spokesman for the Pru said it had carried out checks on more than 1m pensions covered by the mis-selling scandal.
He said detailed investigation is being made of50,000 cases. However, he said this did not indicate that all of them had received bad advice.
The spokesman refused to say how many mis-selling cases had so far been identified or how many cases had been completely resolved.
Sun Lifesaid: "The new guidance released by the PIA in February provides a means for progressing the review and we envisage we will have completed a large proportion of our cases by the end of the year."
Allied Dunbar'sdirector of corporate affairs, Bob Gill, said: "Allied Dunbar has committed 540,000 man hours conducting the review to date; sent approximately 779,000 letters to clients and occupational schemes; requested details of occupational scheme benefits for 2,765 schemes covering 6,595 members and paid more than £300,000 to occupational schemes for the supply of information."
Despite all this effort, however, hundreds of thousands of people are still waiting for their cases to be resolved and that is whatPearl says is the most important consideration. Spokesman Ken McKay said: "Some people in the industry seem to have lost sight of the fact that it was salesmen, advisers and other representatives who originally gave customers the wrong advice.
"That is something we must accept and ensure it's put right as quickly as possible."
24 Apr 97
The "Accounts" of Equitas - as at 4 September 1990
Destined to become a collector's item.
Purported assets of £15,974,000,000 Purported liabilities or £15,386,000,000. Purported shareholders' funds (all non-equity interests (sic)) of £588,000,000.
3 pages and more of the Auditors Report. 3 and more pages for them to report that the figures shown in the Accounts can not be validated; that "The scope of their work was limited", That "the quality of syndicates' data was inadequate"; that "the reserving methodologies were inappropriate". That "there are significant uncertainties as to the accuracy of the provision for claims outstanding of £14,757 million, reinsurers' share of claims outstanding at £4,285 million and coinsurance recoveries of £1,523 million". That "the evidence we considered necessary for our audit is not wholly available"; that "we did not receive access to available Information ... because of the risk of breaches of legal privilege" [surely this is unique for the audit of an insurance company?] and that "we were therefore unable to determine whether proper accounting records had been maintained".
Yet in spite of those and other wonderful qualifications they were able to report that "Except for material adjustments (which were not enumerated) …. in our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 4 September 1996".
You bet they could. If you charged audit fees of £4,680,000, as Coopers and Lybrand (Coppers and Dollars) did here, well then, I'll bet you too would certify the Accounts in like manner. Who wouldn't?
True shareholders' funds of £101 resulted tram the issue of three little shares, but what of the other so-called shareholders' funds of £588,000,000? They are "non-equity", whatever that means, They represent the result at worst, of a blatant fraud on Lloyd's Names or, at best a cynical piece of false accounting executed in probable contravention of the Theft Acts. If neither, then Equitas must be complemented on making the most profitable day-trade in the history of world finance. Names were charged a total of £11,190,000,000 as their premium to reinsure their outstanding underwriting commitments with Equitas Reinsurance Ltd. Yet on the very same day as that premium became payable, that company ceded those same risks to its subsidiary, Equitas Ltd., for £10,472,000,000. A day-trade profit of £718,000,000, out of which Lloyd's were rewarded with a pay-off of a mere £130,000,000. But this was not an arm's length deal; it was an in-house and clearly dishonest manoeuvre planned well beforehand by an institution long associated with deception, misrepresentation and cover-up. It is not too difficult to figure out who the suckers were. But were they defrauded? Some might think so, but not, presumably, the DTI which, of course, must have approved all aspects of it beforehand in addition to approving each of the directors and key executives of Equitas as being fit and proper to run one of the world's largest insurance companies.
But, is Equitas solvent? After all, the DTI has approved it as being so. But consider this. Not only have the auditors said in so many words that the Equitas accounts are hokum, those Accounts disclose that bust and disgruntled Names have not paid, and still owe, a massive £3,809,000,000 of the reinsurance premiums which they should have paid by 4 September 1990. We know that many Names simply do not have the money. And many other Names are effectively beyond the clutches of the English Courts. If a mere 15% of that huge backlog cannot be collected, then all the alleged capital of Equitas (equity and non-equity alike) will simply disappear. It is noteworthy that the Accounts fail to make any provision for the non-payment of even a small part of that £3,809,000,000. No wonder. Just a small provision would cause the whole elaborate construction to collapse.
Never mind. The directors are protected. So all will be well for them. In addition to their handsome remuneration (how could they quibble at Coppers and Dollar's fees in the circumstances) they have received personal indemnities from both Equitas and from Lloyd's to cover them in the event they should slip up. But of Course they must be assumed to have prepared the Accounts carefully and with the greatest diligence. It's a great comfort for all the victims of Lloyd's, is it not?
What is certain is that the opening Accounts of Equitas will go down for posterity in the annals of the insurance industry, the accounting profession and, one suspects, the legal profession. And for that we must complement everybody who has been involved in their creation.
© THE Clerk
26 Apr 97
The "Accounts" of Equitas - as at 4 September 1996 - Memo #2
It may be that some readers of my recent critique of the Equitas Accounts may not have fully appreciated the import of what Equitas has done. If so, let me now make an analogy which I hope will clarify what has happened. Imagine this scenario:
A new insurance company is formed with a share and total capital base of just £100. Because its promoters are highly placed men of great influence, whose companies contribute lavishly to the ruling political Party's coffers, the Government persuades the Department of Trade and Industry to approve it so that it can legally conduct insurance business. Not just a little business, but a lot of business; up to £11 billion of premiums. That is a huge amount. (of course, if you or I were to ask the DTI to approve our £100 insurance company to do that amount of business, we would be escorted rather forcibly and quickly to the funny farm. No Government in the civilised world would approve such an absurd proposal. They would all expect us to first put up real solid capital to the tune of at least £700 or £800 million before we were allowed to start up.)
Let us then imagine that our new insurance company goes out to solicit business. It soon identifies around thirty thousand distressed and worried individuals who have been unable to get any insurance company anywhere to insure them, so bad are their risks and so bad their reputations. It then offers them insurance cover. When it becomes apparent that many do not want to do business with such an insubstantial company, the Government and its henchmen pass laws which force all the thirty thousand, willing or not, to take out policies on whatever terms the new company so decides.
But things become even worse. The new company throws salt on the sores and wounds of those wretched people. It tells them that the premiums they will have to pay are very much higher than can ever be economically justified; but that is just too bad and no-one will have any legal grounds for complaint. After all the new £100 insurance company must be given the chance to make a big profit; and the directors and their hangers on will have to be properly paid for their hard work
So the might and force of the law prevail. The new £100 company insures those thirty thousand unfortunates. But, surprisingly, the company refuses to allow them to even see their insurance policies; it doesn't even bother to issue them. Not surprisingly, a few of these poor people take umbrage and refuse to pay their premiums.
But by and large, the great majority do and the Government and the promoters of the new £100 insurance company are well pleased, sufficiently so that the chief promoter and entrepreneur is knighted by the Queen. But they believe that they must finish the job properly, at least as they see it, even though it would mean bankrupting some of their poor wretched clients. They start to sue them for unpaid premiums, while still refusing to issue or hand over the insurance contracts under which they are suing. Truly Mickey Mouse. Yet surely they must, at the least, be complemented on having a great sense of the bizarre? Regardless, they believe a lot of money is involved; for they later put it out that they believe their company is owed the rather large sum of £3. 8 billion.
In spite of this little bit of outstanding business, the promoters and directors of the new company think they have done a great job. They decide they must broadcast their huge success. After all maybe more knighthoods, well paid directorships and share options can be picked up. They get their accounting staff to draw up official Accounts for the company so that they can publish them and let everybody know exactly how big a success it has all been. They re-work the figures in their books so that they can tell the world that their £100 company has overnight become a £588 million capital company, as well as making an instant profit of £718 million, perhaps the biggest one day profit in the history of finance. Was it really real'? It must have been for they then reward their major sponsor with a nice little pay-off of £130 million for all its help. But just to make sure that no-one can question their great financial coups and wizardry, they engage one of the world's leading firms of chartered accountants to audit and certify the Accounts,
However, after the company publishes those Accounts, a sceptical financial analyst reads them and finds out that the £718 million profit is not a profit at all. It has not been realised, and if it ever were to be real sod it would take perhaps twenty or thirty years for that to happen. He reads that the whole of that huge sum came from a simple book-keeping entry and inter-company transfer between the company and its wholly owned subsidiary. Surprisingly, he notices that although the auditors refuse to validate that huge "profit" they do not draw attention to its artificiality. The auditors do not report that the new company has breached all present and long established accounting principles in reporting that fictional surplus; and they do not report that the true capital base of the company is not the alleged £588 million, but only the original paltry £100.
In my earlier memo of 24.04.97 about Equitas, I forgot to mention my amusement when I read that Equitas had rot actually collected or received in it £101 of share capital. Its real paid-in capital was a big round zero. The Equitas Accounts are full of lovely little gems like those. It is worth tawny the time to read them in detail. Your author, a chartered accountant thinks they are a classic of their genre.
The esteemed firm of international auditors meanwhile collect their fees of £4.7 million and depart; a job well done. After all they do report that, although they were not allowed to see all the papers and records they needed, they saw enough to be pretty sure that the company does not have proper books or accounts, and that they think that what they have seen is an utter and complete shambles.
Now, when confronted by the sceptical analyst over this apparent bit of financial chicanery the directors excuse themselves by saying that they had made it quite clear to the thirty thousand unfortunate wretches in advance that the premiums they would have to pay would be quite excessive; and that they would write down the value of those premiums just as soon as the deal was done. That, they say, makes everything OK.
But does it? The sceptical analyst thinks to himself that if a burglar tells you a month or two ahead of time that he will burgle your house, that does not make his burglary legal. It is still a crime. But the directors reject that notion as superficial and unsophisticated. They believe they have the force of law behind them and that judges will uphold their actions. And maybe they will in England. But maybe they won't elsewhere.
All I know, as your simple author, is that if the directors of any real quoted and public company were to attempt anything remotely like the above imaginary insurance and accounting fraud they would, within minutes, find the Stock Exchange, the Fraud Squad and the force of all the official Authorities descend on them. They would be able to look forward to a very lengthy free vacation, all at the taxpayers expense.
But all the above is just imagination. A creative writer's dream, is it not? After all! what else could it be except fiction? It certainly couldn't happen in England. Or could it?
O.T.H.E. Clerk 26-04-97
27 APR 97
Sunday Business: Lloyd's comes home to roost for top Tories - Fifty leading Tories, including Prime Minister John Major, face a rough ride this week as angered Lloyd's Names hit back in the hustings over an alleged cover-up to save MPs from bankruptcy
Allegations of a ‘sleaze' deal to save 50 Conservative MPs from bankruptcy in exchange for preventing a judicial inquiry into fraud in the Lloyd's of London insurance market will haunt the Tones when parliamentary candidates are quizzed by angry Names in their constituencies this week.
Senior government ministers associated with the alleged deal, includingPrime Minister John Major, Deputy Prime Minister Michael Heseltine, and Anthony Nelson of the Department of Trade and Industry (DTI) as well as former DTI minister Neil Hamilton, are among those targeted by the Names' campaign.
Enraged campaigners want a deathbed conversion from the Conservatives promising that they will instigate an immediate, full judicial inquiry into the affair if they are re-elected to office this week. Without such a promise, campaigners say the Conservatives can count onlosing up to half a million votes of Names, their families and friends, by defecting to either the Referendum party or the Liberal Democrats.
Businessman Alastair Mackillop, who is running the campaign, said: "The desired end product is justice for Names. A judicial inquiry is the first step to a judicial review; which might then force Lloyd's to rescind Names' contracts and lead to compensation for Names."
Campaigners will present a briefing note to parliamentary candidates describing allegations of fraud at Lloyd's and arguing that most Names who accepted the Reconstruction and Renewal (R&R) settlement in August last year did so reluctantly "under duress and harassment."
They will also present parliamentary candidates with a questionnaire to seek their agreement that Lloyd's withheld information about impending losses during the 1980s.
Parliamentary candidates failing to answer constituents' questions are likely to be publicly harangued in their hustings.
John Lloyd, a campaigning Name and former loyal Tory, said: "The Government deserves to lose the election over this issue. Why on earth would it not want to investigate something like this? They went overboard on BCCI and Barings, but those losses pale into insignificance by comparison. This is the biggest fraud in history."
Sally Noel, a Name, attended the hustings of Heseltine and Hamilton last week, and said afterwards: "Everyone I know will be voting for anyone other than the Conservatives. Lifelong Tories are outraged by a party they voted in to protect them, only to be betrayed and, as Names, to be used to save the jobs of the Government. We have been financially raped and emotionally tortured."
Noel is now canvassing on behalf of Sir James Goldsmith's Referendum party in protest over the issue.
Mackillop said his campaign group is also considering legal action against the DTI and its senior staff for their role in obstructing a judicial inquiry into Lloyd's.
The supposed deal between the Government and Lloyd's dates back several years to when51 MPs, of which 50 were Conservatives, were revealed to be among the Names suffering huge financial losses from the mounting claims on long-tail insurance disasters: Total losses for the 51 were calculated as exceeding £22m, including deterioration arising from expected future claims. Bankruptcy would have wiped out the Conservatives' parliamentary majority, resulting in an early election.
None of the MPs were bankrupted, and Names have long-believed they were bailed out in a political deal, despite Lloyd's former chief executive Peter Middleton publicly denying this back in 1993.
Despite the cross-party Treasury Select Committee calling for an independent inquiry into Lloyd's last year, the Government continues to reject this as unnecessary. It has also argued, in letters to Names, that it cannot interfere in Lloyd's affairs, despite having already done so recently on behalf of Lloyd's in the US legal actions when it filed Amicus Curiae statements to the US courts supporting Lloyd's.
Foreign governments can file Amicus Curiae as a means ofassisting US courts with background information to help clarify issues of policy or law relating to that government's jurisdiction.
DTI Minister Anthony Nelsonalso wrote recently to a Californian appeals court, denouncing a decision allowing US Names to sue Lloyd's under US fraud and racketeering law, and describing as "erroneous" the decision by the decision by US judges that Lloyd's was a "business corporation" subject to normal international rules of commerce.
Names are also angry over ministers' refusal to allow a government-backed judicial inquiry into their concerns, as framed in the Lloyd's Act 1982. Names argue that a judicial inquiry would provide sufficient evidence of fraud at Lloyd's for a winnable judicial review, which could overturn Lloyd's powers and force the market to compensate them for their losses.
Names argue they cannot now afford the high cost of privately handing a judicial review, and that under the terms of the 1982 Act the Government should step in.
Despite Anthony Nelson's repeated claims in the US and UK that all Names wanting justice would receive "fair, unbiased, and speedy justice in the English courts", most Names believe there is little affordable chance of them seeing any justice at all unless a full inquiry is held.
A furious round of letter-writing to Cabinet ministers, including Major, Nelson, and party chairman Dr. Brian Mawhinney, who wrote to Tory Names seeking their support in the election, is accompanying the Names' political campaign.
Names' letters, copies of which were seen by Sunday Business, all call for an inquiry and fiercely attack the Government for resisting it. In a letter to Major, John Lloyd described the Prime Minister as "living in an ivory tower" and his own horror at "the inept and callous manner in which you and the Deputy Prime Minister have governed and approached the forthcoming election."
Another Name, Betty Orme wrote to Major: "In protecting Lloyd's from an independent inquiry you are underwriting fraud and bad faith that have been admitted by present and past chief executives [of Lloyd's]."
Around 1,800 Names world-wide refused to settle with Lloyd's under last August's R&R deal, which required Names, allegedly under duress, to pay up their debts and settle their old liabilities by paying premiums to new reinsurance vehicle, Equitas.
Instead, they continued to argue that they and others were defrauded by Lloyd's when it recruited droves of newcomers to the market in the early 1980s without informing them of the impending disastrous losses stemming from global asbestosis and pollution cases.
A Lloyd's spokesman said last night: "There was absolutely no deal done by Lloyd's with any particular group of Names, MPs or whatever. MPs received the same treatment as everybody else, meaning they had debt credits under R&R and, if they had been on action groups suing agents, a litigation settlement as well."
Names claim to have evidence showing senior figures at the Corporation of Lloyd's controlling body actually suppressed documents and research indicating the size and volume of future claims.
Campaigners also saytotal losses incurred from the bad years in the 1980s were nearer £12-15 billion, rather than the £8 billion admitted by Lloyd's for the purposes of reinsuring losses in Equitas.
Since auditorsCoopers & Lybrand qualified the Equitas maiden accounts last month due to the "unquantifiable" losses, some Names now fear Equitas will be insolvent in less than 18 months.
Currently theUnited Names Organisation (UNO), representing around 350 individuals, is locked in a legal battle in the High Court with Lloyd's which has begun recovery actions against UNO members under the ‘pay now, sue later' clause in Names' contracts.
As a defence, the UNO alleges that Names were defrauded by being unwittingly placed on syndicates which heavily reinsured asbestosis and pollution claims.
The UNO isappealing a judgment on the crucial technicality proposed by Lloyd's that Lloyd's can sue Names for money owed on the losses, even if there had been fraud at Lloyd's.
27 Apr 97
Sunday Telegraph: Abtrust back on take-over trail
ABTRUST Lloyd's Insurance Trust, the acquisitive insurance market investment group, is poised to make another take-over. The trust is believed to be looking at a merger with either Christie Brockbank Shipton, the members' agent, or Angerstein Underwriting, a rival trust.
A merger with Angerstein would create a group with more than£600m capacity, 6 per cent of the market and a rival to Limit, the market leader with £644m.
Neither group would comment but two thirds of Abtrust Lloyd's is owned bythree institutions, Aberdeen Trust, Scottish Value Trust and Benfield Rea Investment Trust, which expect further market consolidation.
A deal would continue the scramble for underwriting capacity at Lloyd's, which has prompted a recent series of take-overs and mergers.
Christie Brockbank is one of leading members' agencies and would make Abtrust one of the strongest forces in the market. The trust has already bought other members' agencies, such asMinories and Cox Tudsbery & Wills, whose Names have a capacity of £650m.
Managing agents, running the syndicates, will also play a key role in creating insurance companies within Lloyd's. Limit and Angerstein have bought managing agents, but analysts believe managing agencies and insurance companies will now buy investment trusts. Theirshares trade at premiums to asset value.
27 Apr 97
Sunday Telegraph: Solicitors face huge compensation suits
SOLICITORS could face a compensation bill of more than£100m following a landmark court victory by Bristol & West in a case against 87 lawyers.
The Bristol & West case ended in' the High Court on Friday and the lender is to receive compensation of up to £4m. But the action opens the way for other similar negligence suits against solicitors involved in mortgage transactions.
Thesolicitors involved in the Bristol & West case were representing both lender and borrower in a common practice known as joint representation. Lenders argue their businesses have been damaged by joint representation because of conflicts of interest that have arisen among lawyers acting for both sides in a mortgage deal.
Lenders such as Bristol & West claim they have lost money as a result of solicitors' conveyancing negligence or malpractice.
If more lenders are successful in suing for damages then joint representation could disappear.
Nick Eyre, Bristol & West's general counsel, said: "Other lenders have been watching this case with great interest."
It would onlytake 25 mortgage lenders to win similar cases for the compensation bill to mount above £100m.
Thesolicitors' defence in the Bristol & West case was paid for the by the Solicitors Indemnity Fund, an insurance scheme which covers lawyers against claims for solicitors negligence. The fund is expected to .pick up the compensation bill as well.
The Law Society which regulates solicitors, is coming under pressure to end joint representation to protect the interests of both lenders and borrowers as well as solicitors who face being sued in the future.
At the heart of the problem is whether solicitors should disclose confidential information about one client involved in the same transaction as another client.
For instance, a solicitor could discover relevant financial information about a borrower when not pursuing inquiries specifically. for the lender.
But defenders of joint representation argue that hiring separate lawyers would result in mortgage transactions becoming far more expensive and drawn out as work became duplicated.
The motion claims a continuing high level of public dissatisfaction with the existing system for dealing with complaints against solicitors.
1 May 97
Financial Times: BAT hopes insurance will cover litigation
BAT Industries, the tobacco and financial services group, is investigating whetherhundreds of insurance policies, many written several decades ago, might offer it some protection from the billions of dollars in potential liabilities threatening cigarette manufacturers embroiled in US tobacco litigation.
Through itsBrown & Williamson subsidiary, BAT is one of several companies fighting lawsuits in the US which claim health damage from smoking.
Reporting flat first-quarter pre-tax profits of £591m (£590m), the group said yesterday that it wasseeking to establish the exact nature of exclusions in general liability insurance policies.
But it described theissue of insurance coverage as extremely complex.
"There aredifferent exclusions with different insurers over different time periods," said Mr. Martin Broughton, chief executive. "It's certain to require litigation to clarify the position."
Some analysts have long believed that thewording of the exclusion clauses was weak, potentially exposing the insurance industry to the kind of losses it has suffered from pollution and asbestos claims in recent years.
The problem was highlighted when more than100 insurers were named as defendants in a Louisiana court case last month, where the state attorney-general is trying to recover the costs of treating tobacco-related illnesses.
The group reiterated its belief that thetobacco lawsuits would have no material effect on its bottom line. But Lord Cairns, chairman, warned that investors should be braced for "occasional reverses along the way, especially at the lower court level". Defence costs are thought likely to rise slightly this year from $100m (£62m) in 1996. BAT was open to proposals for ending legal action, but declined to comment on reports that several US tobacco manufacturers are negotiating a $800bn settlement.
The group blamed a highly competitive US tobacco market and the strong pound for a pedestrian performance during the first quarter of 1997. Earnings per share fell from 11.4p to 11.3p.
It was forced to take a £22m charge for the closure of a factory in Germany as part of continuing efforts to concentrate production of cigarettes in its bigger plants. Excluding that provision and the adverse impact of exchange rates, which depressed profits by £23m,tobacco profits rose 8 per cent and financial services improved 3 per cent.
BAT said it had an "open mind" regarding the future of its financial services businesses. It acknowledged a demerger from the tobacco division would be expensive, but reiterated it would consider making an acquisition toexpand its presence in the life assurance market or a tie-up with a retail bank.
New life assurance and pensions business at Allied Dunbar, one of the group's two UK-based insurance subsidiaries, fell 5 per cent to £55m.Eagle Star increased new sales at its life arm by 14 per cent, but underwriting losses in the UK's fiercely competitive motor and household markets doubled to £40m. In the US, insurer Farmers increased profits 6 per cent to £163m.
The shares fell 3p to 521p.
That insurance could offer BAT some relief from future tobacco damages seems at
present more remote than a watertight out-of-court deal to end litigation, something in itself very difficult to achieve. Moreover,if the really big court awards do start rolling in, what use is insurance to a company already bust several times over? The disappointing performance in the US has prompted some analysts to lower their forecasts. Predicted pre-tax profits for the year of £2. 65bn (£2-49bn) put the shares on a prospective multiple of 10 - a 30 per cent discount to the market. Not surprising, given the litigation worries.
31 May 97
Daily Telegraph: Lloyd's profit for 1994 tops £1bn
LLOYD'S of London madeprofits of £1.01 billion in the 1994 year of account, but is predicting that profits will fall to £600m for 1996 because of intense pressure on rates.
However, the 1994 profit was struck after members' contribution to the market's rescue plan, "reconstruction and renewal", and£654m of personal expenses.
When£82m released from reserves is included, the total profit came to £1.1 billion.
The result included anadverse effect of £100m due to the strength of sterling and represents a return of 18pc on premiums of £5.7 billion.
This is Lloyd's second highly profitable year-the market made £1.08 billion in the1993 year of account - and comes after five disastrous years in which it lost a total of £8 billion.
The market expects to make £900m for the 1995 year of account.
Chief among the sectors suffering the fiercest competition is motor. While it enjoyed a "healthy" profit of £117m on premiums of £973mbefore personal expenses, it is expected to make a small loss in 1995 and 1996.
Marine made profits of £565m on net premiums of £1.3 billionbefore personal expenses, as both rates and deductibles - the level of risk retained by the insured - rose through 1994.
Similarly, non-marine made profitbefore personal expenses of £837m on premiums of £2.9 billion.
In both sectors rates have been in decline after peaking in 1994.
The aviation sector made profitsbefore personal expenses of £150m on premiums of £500m.
31 May 97
Daily Telegraph: Broker fined £10,000 over bogus account
A CITY stockbroker who persuaded a friend to set up a bogus account which ledto 12 people losing money has been expelled from working in finance and fined £10,000 by the Securities and Futures Authority.
Denis Duley, 53, an associate at stockbrokers Fiske between June, 1992, and April, 1996, has admitted he is "no longer fit and proper" to be registered to work in the City. He admitted using funds from the account to pay off his mortgage arrears.
Fiske has been reprimanded after admitting failing both to supervise Mr Duley and to monitor the account. It has been fined £55,000 and ordered to pay costs of £14,000. Fiske has compensated 11 clients.
Senior executive officer Clive Harrison., 58, has been reprimanded and ordered to pay costs of £2,000 after accepting that his position meant he must take responsibility for the stockbrokers' failings..
In January, 1993, Mr Duley persuaded a friend to open a dealing account at Fiske. A month later Mr Duley used the account to buy 100,000 warrants and then sell them at a profit of just over £7,220. The friend kept £50 and turned the remainder over to Mr Duley.
Mr Duley persuaded 12 clients to place money in the account, claiming it would spread the cost of dealing commissions.
31 May 97
Daily Telegraph: Share surge reveals Heath plan
A SURGE in the price ofCE Heath's shares yesterday uncovered plans by the insurance broker's executive directors and DLJ Phoenix Private Equity for a £98m management buy-out.
The company's shares, which had been languishing near a five-year low of around 87p, jumped 14½ to 102p. Heath's management is led by chairman Michael Keir and chief executive John McKenzie Green.
Heath responded after the close of trade with an announcement that the executives and the company were in "advanced" discussions which could lead to an offer of 143p a share, valuing it at £98m.
31 May 97
Daily Telegraph: Nomura arrest
HIDEO Sakamaki, former president of Nomura Securities, was arrested yesterday by Japanese prosecutors who allege that he illegally made a 49.7m yen (£256,000)payment to corporate racketeers.
0 Jun 97
Accountancy Age: Pannells faces lawsuit from Lloyd's Names. Firms in danger of further Lloyd's claims.
Pannell Kerr Forster has been hit by a potentially ruinous £240m lawsuit over audits of a Lloyd's insurance syndicate.
The disgruntled Names, members ofnon-marine syndicate 190 which specialised in asbestos and pollution cover, are suing Pannell's over its audits covering one or more of the 1979 to 1989 (inclusive) underwriting years of account.
The move could throw the insurance market's global settlement, produced by Lloyd's to end all litigation, into disarray. It exposes Lloyd's firms, such as the main panel auditors, to further litigation, experts claimed.
Ernst & Young, Coopers & Lybrand, Neville Russell, Arthur Andersen and Littlejohn Fraser last year stumped up more than £200m to end all legal action against them.
In this case, Pannells, which is the only leading auditor not to contribute to the global settlement, could enjoin other parties involved with Syndicate 190 including the managing and members' agents in the action against it
One Lloyd's expert said: "This means that other parties [besides Pannell's] could be enjoined, but whether they would be protected by the terms of the settlement is uncertain."
The 190 Names made huge losses, estimated to come to more than £240m, following massive claims from the US over the past 18 years. They are seeking damages and interest, fornegligent advice."
Representatives of 190 Syndicate this week refused to comment on their bombshell decision to go after Pannells.
Accountancy Age understands that the 400-strong group of names are waiting for the writ to be served on the next fortnight before they put forward evidence backing their claims.
Pannells, however, offered bullish defence of its wo Richard Pearson, chairman said: "We can say with absolute confidence that there is nothing wrong with our Lloyd's audits and that this writ will be most rigorously defended.
The lawsuit brought against Pannell Kerr Forster by Lloyd's Names may have far-reaching ramifications for all those who contributed to the insurance market's massive £3-2bn settlement last summer.
Under the terms of the agreement, Pannells could enjoin other parties involved with Syndicate 190 - such as the managing and member agents in the litigation - in the legal action, even if these businesses have already contributed to the Lloyd's Global Settlement.
The Settlement Offer Document, put together in July 1996, said: " Names who accept the settlement offer may continue to bring claims against persons who are not included in the Settlement Agreement (for example, non-contributing auditors) … Such persons may bring third-party or contribution claims against parties to the settlement Agreement."
A Lloyd's expert predicted that others, including the auditors which have contributed millions of pounds to extricate themselves from costly litigation, could now find themselves back in the courts, should Names now party to the Global Settlement decide to sue them.
7 Jun 97
Daily Telegraph: Rowland turns down unlimited liability
SIR David Rowland, who guided Lloyd's of London through last year's £3~2 billion rescue after five years of disastrous losses, told the society's annual meeting in London yesterday that he wouldno longer underwrite with unlimited liability.
Sir David, the Lloyd's chairman, emphasised that Lloyd's would not prevent anyone from continuing to write with unlimited liability, as some Names had feared it might. But he stressed the risks of large losses.
Sir David also said that theannual venture, in which individual Names come together each year to form underwriting syndicates, could continue. But he said that he favoured a system of continuous capital.
"These three forces -ability to compete flexibly, reduce costs and attract capital - combine to produce a powerful wish to create a new structure within Lloyd's: the integrated vehicle," he said. An integrated vehicle is one in which the capital provider and underwriter are commonly owned, whereas traditional Names have always been separate from underwriters.
Sir David moved to reassure Names who might have been concerned that they would lose the value of their right to underwrite. He said "Those who wish to create vehicles like this will need to offer current members cash or shares in order to convert existing syndicates to this type of structure."
Sir David said the insurance market should not be obsessed with its capital structure.
The 300-year-old market used to draw its capital solely from individuals writing with unlimited liability, until corporate capital entered the market three years ago.
Sir David has acceded to requests from the mainstream Association of Lloyd's Members and the High Premium Group tophase in measures to increase the capital required from Names.
Despite the presence of protestors outside, this was one of the smoothest annual meetings in years. Speeches by both Sir David and chief executive Ron Sandler were warmly applauded.
7 Jun 97
Daily Telegraph: Metal traders set for £100m tax bill
OFFICIALS of theInland Revenue's special compliance office are about to agree a £100m settlement in unpaid tax going back up to seven years with 50 metal futures traders at the London Metal Exchange.
The overall figure includes penalties, which vary depending on the degree of co-operation from individuals, and interest charged on a daily basis.
The settlements result from an in-depth inquiry by the special compliance office, the Revenue's most senior and powerful investigators.
In recent weeks, the Revenue has escalated its enquiry from aCode of Practice 8, relating to non-fraud investigations to a Code of Practice 9, which covers instances of suspected serious fraud. The investigation focused on the tax implications of large-scale "own-account dealing", where traders execute deals for their own gain, and is believed to have extended to the Channel Islands, where offshore accounts might have been used by individual traders.
Own-account dealing does not breach the rules of the Securities and Futures Authority, which regulates traders. But the authority requires such trades to be recorded and reported to senior management.
A senior market figure said a number of small off-market firms specialising in private client business have handled the deals for traders in the market.
7 Jun 97
Daily Telegraph: US star broker admits fraud
A KEY stockbroker at a defunct New York broking firm indicted with defrauding investors of $75m (£45m) has pleaded guilty to racketeering charges.
Roman 0kin, 29, who worked for A R Baron, pleaded guilty to a single count of enterprise corruption, a crime punishable by up to 25 years in prison, and has agreed to co-operate with prosecutors. The investors alleged to have lost money include the former Pilkington chairman Sir Anthony Pilkington and the late 10th Duke of Atholl.
Mr Okm, who had faced almost 80 counts, was the star salesman among 13 brokers charged. They allegedly spent about $180,000 of the proceeds in strip clubs.
Mr Okm is the third Baron broker to plead guilty in the case.
The case is expected to go to trial in the autumn.
20 Jun 97
Financial Times: Tobacco negotiations on brink of settlement
US. cigarette makers and anti-tobacco lawyers yesterday appeared to be on the brink of reaching a historic settlement that would end the biggest legal claims against the tobacco industry in return for payments of at least$12bn (£7bn) a year.
As President Bill Clinton left for the G7 summit in Denver, Mr Bruce Lindsey, an aide who has liaised with both sides during the talks, stayed behind to monitor the final negotiations.
Several state attorneys general involved in the talks said negotiators were poised to present an agreement in principle to the White House, andtobacco stocks jumped sharply in New York amid rising expectations that a settlement would be finalised before the weekend.
At 1pm, shares inPhilip Morris, the biggest US tobacco company, were up $23/8, or 5 per cent, at $477/8, and shares in RJR Nabisco, the second biggest US tobacco company, were up $11/8, or 3 per cent, at $355/8.
Cigarette makers have been in talks with representatives from40 states since April about a deal that would settle the biggest law-suits pending against the tobacco industry in return for payments totalling at least $300bn over the next 25 years; increased regulation, and curbs on advertising.
The main participants in the talks are lawyers representing tobacco companies and attorneys general of states suing the tobacco industry for the billions of dollars they have spent on treating sick smokers, The two sides have agreed the framework of a deal that would settle all the states' lawsuits against the industry, plus all present and future class action lawsuits brought on behalf of smokers. Individual smokers, however, would still be able to sue.
One sticking point that has prevented a deal being struck is whether individuals should be allowed to sue forpunitive damages as well as compensatory damages. The public health community is concerned that the tobacco industry should not escape punishment for its perceived wrong-doings.
The other main obstacle has been the extent to which theFood and Drug Administration would be able to regulate the industry. The tobacco companies do not want the agency to have unlimited powers for fear that it would insist on the gradual elimination of nicotine from cigarettes.
Yesterday the two sides appeared to be working towards a deal under which the industry would be relieved of punitive damages for its past conduct in return for extra payments into the settlement fund.
21 Jun 97
Daily Telegraph: Lloyd's cuts it short
GRATITUDE in politics is a lively sense of favours to come.Ian Lang was the winter favourite to be Lloyd's of London's next chairman. Now he has dropped out of his ministerial revolving chair, out of parliament and out of the running.
A cast around for a Cadbuarially correct rent-a-chairman got nowhere in particular, and I learn that that the selectors are down to a short list of three:Max Taylor, from Willis Faber, the Lloyd's brokers; Adam Broadbent, from Schroders, the merchant bankers; and Jonathan Agnew, chairman of Limit, the biggest of the new specialist insurance companies, which do more and more of Lloyd's business.
Mr Agnew heads the betting. He alsoheads the party working on the annual joint venture, in which Lloyd's surviving individual members band together. There are powerful forces at Lloyd's who would like to disband it. No one in a million years would think of reinventing it, or suggest that an insurance market's liabilities, some maturing over half a century, are best met by a series of clubs, each with a one-year life span.
I am sure that Lloyd's, like most markets, needs a few active punters who can chance their arm, and Mr Agnew must try to preserve them, but Isee no future for its country members and not much for their agents. My test for a new chairman is to find a tactful way of putting that.
21 Jun 97
Financial Times: $370bn tobacco pay-out in US
US cigarette makers yesterday agreed to pay out about $37Obn (£225bn) over the next 25 years - far more than expected - as the price for a historic settlement intended to protect the industry from all big anti-smoking lawsuits in the US.
In another big concession to the anti-tobacco lobby, they also accepted unconditionalregulation by the Food and Drug Administration, opening the way for the agency to order a gradual reduction in the nicotine content of cigarettes sold in the US.
But manufacturers won an important concession in return. Under the agreement, individuals bringing lawsuits against the industry over claims that smoking has damaged their health will he allowed tosue only for compensation - so excluding potentially ruinous punitive damages.
If the deal is to stick, it requires the approval of the White House and legislation by Congress. Some health advocates say the plan will bring more benefits to the tobacco companies and lawyers than to society.
To counter these accusations, the negotiators have introduced "social" provisions, such as additional financial penalties against the companies if under-age smoking does not fall by 30 per cent within five years.
The settlement was announced in Washington DC late yesterday after nearly three months of negotiations between the tobacco companies and the attorneys-generalof 40 states suing the industry for the billions of dollars they have spent on treating sick smokers.
The industry has agreed to pay $10bn-!5bn a year over the next 25 years in return for protection from all existing and future class action lawsuits and state lawsuits.
But profits will not suffer too greatly. Companies will raise the money by increasing US cigarette prices by about 50 cents a pack.
21 Jun 97
Daily Telegraph: Tobacco's $368bn price for peace – Curbs on advertising – Cigarettes to be regulated as drugs – Anti-smoking programmes launched – Lawsuit fund
AMERICAN tobacco companies last night struck a landmark deal to settle most of the legal claims against them in return for payments totalling $368.5 billion (£230 billion) over 25 years.
Under the agreement reached with the40 US state attorneys general suing the industry to recoup public funds spent treating sick smokers, the tobacco companies will settle hundreds of lawsuits, launch major anti-smoking programmes, allow tobacco to be regulated by the Food & Drug Administration as a drug and will sharply curtail cigarette advertising.
Sources in Washington, where the talks were being held, said the $368.5 billion would be placed in a fund, which would be used to pay for health programmes, to settle state suits and certain class actions and to pay for damages in individual cases.
In a major breakthrough negotiators are understood to have resolved the thorny issue of whether to grant the industry immunity from punitive damages.
They are not expected to be allowed for individual cases alleging past wrongdoing by the industry, but will be awardable to punish and deter wrongful behaviour if cigarette makers engage in future wrongdoing, sources said.
About $50m of the total has been earmarked specifically to "punish" the industry. The money will be used to pay for health coverage for uninsured children.
Tobacco shares initially rose on hopes a deal would be forged but by early afternoon in New York Marlboro cigarette maker Philip Morris was down 7/8 at $46 5/8, Camel cigarette maker RJR Nabisco was 5/8 lower at $35¼.
In London, shares in BAT Industries, whose Brown & Williamson subsidiary makes Kent and Lucky Strike cigarettes, added 7p to close at 589p. The companies declined to comment.
If the agreement is approved President Clinton, new legislation must be passed by Congress, where the deal is expected to be buffeted by a number of competing interests.
But Senate Majority Leader Trent Lott said the Senate could address the matter until September or October.
Mississippi Attorney General Mike Moore, the lead negotiator for the states, said: ‘We have punished the industry by changing the way they do business.'
The talks began in April but have been pressured because the first trial between a state and the industry is scheduled to begin on July 7 in Mississippi.
Throughout the four decades of tobacco litigation the industry dismissed all suggestions that it should settle the growing barrage of litigation it faced, arguing that settlements would only bring more lawsuits. But the industry came under pressure from Wall Street, where tobacco company shares have been held back by the threat of a colossal courtroom judgment.
The industry has spent some $600 million a year defending itself in US courtrooms.
Former Food & Drug Administration Commissioner David Kessler said: ‘The fight has only just begun. Dividing the pot of money that's on the table is where the blood will be shed.'
22 Jun 97
Sunday Times: NHS to sue tobacco industry
A GROUP of NHS health authorities is launching a legal action against tobacco manufacturers to recover the millions of pounds spent annually on treating smoking-related diseases. Their decision comes in the wake of an American settlement under which cigarette companies have agreed to pay £225 billion over the next 25 years into a fund for sick smokers.
So far 11 health authorities in Sussex, Kent, Surrey and South London have joined forces with Croydon Health Authority to split the preliminary legal costs to prepare their challenges.
They are already spending at least £60m a year treating smokers, while the bill across the NHS is an estimated £1 billion.
Terry Hanafin, chief executive of Croydon health district, which approved the initiative at a board meeting on Friday, said the next stage would be a drive to recruit local health managers across Britain. "The idea is to make tobacco companies pay into a fund to help with the cost of treatment for people suffering from smoking-related diseases," said Hanafin this weekend.
Other districts such as Cambridge and Huntingdon have expressed interest in the proposal. Smoking kills 120,000 people a year in Britain: many die from cancer in middle age.
Surveys in London have shown that more than half of all 14 and 15-year-olds have already started smoking, a picture repeated in urban areas throughout the country. One in two will die from the effects.
John Melville Williams QC, an expert in personal injury law, has already given a favourable legal opinion to anti-smoking campaigners. Williams said the authorities would need to prove the tobacco companies had engaged m ‘acivil conspiracy" to continue promoting harmful products, resulting in financial loss to the healthcare providers.
The American deal, which still needs to be approved by President Bill Clinton and the United Congress, gives the tobacco companies immunity from future lawsuits in return for their enormous pay-off.
The tobacco industry is facing mounting pressure to make similar deals world-wide: theIsraeli government plans to take legal action to recoup healthcare costs of treating tobacco victims and the Canadian state of British Columbia has embarked on similar legislation.
A similar settlement in Britain would mean that two-thirds of the 35,000 people stricken by lung cancer each year could demand a £50,000 pay-out from cigarette manufacturers.
The financial burden on the British companies Gallaher and Imperial Tobacco, which manufacture brands such as Silk Cut and Embassy, would exceed their combined animal profit of £900m.
Martyn Day, a solicitor who has taken up claims against the tobacco companies for 47 lung cancer victims on a no win, no fee basis believes a preliminary judgment could open the floodgates against the tobacco companies here.
His cases go to the High Court on July 1 when a judge will be asked to rule whether tobacco companies were negligent in failing to protect customers against smoking-related lung cancer whether cigarette tar is the harmful factor and whether action could have been taken to reduce tar content.
Next month Tessa Jowell, the health minister, is hosting an international meeting to discuss smoking issues and to launch a tobacco control programme. Her attendance will foreshadow a government white paper which will set out the framework forbanning cigarette advertising and sports sponsorship by tobacco companies.
A spokesman for the Department of Health said yesterday health authorities would be expected to raise their proposals for litigation at the conference.
However, British cigarette companies maintain the American settlement does not affect their determination to fight claims against them. Ian Birks, Gallaher's head of corporate affairs, said the cases brought by Day would be defended..
22 Jun 97
Sunday Times: BAT faces £36bn bill in tobacco settlement
BAT INDUSTRIES faces a £36 billion hit spread over 25 years following the landmark deal in America last Friday between the tobacco industry, American states and the medical community.
The levy, which could end the uncertainty facing the industry over American litigation, is the biggest imposed on a British company and adds up to £1.5 billion a year. The figure is huge when compared with the £2.5 billion BAT made in profits last year from its tobacco to financial services operations, which include Eagle Star and Allied Dunbar.
Tobacco analysts are this weekend evaluating the consequences of the settlement. It involves companies paying $368.5 billion (£230 billion) over 25 years to cover the costs of treating smoking-related illnesses. But while an outline deal has been agreed, it still has to be passed by Congress and signed by President Clinton.
As the owner of Brown & Williamson, which makes Kool and Lucky Strike cigarettes,BAT is America's third-largest tobacco company, with 16.5% of the market. Under the deal reached with the 40 state attorneys-general suing the industry, the fine will be split on an annual basis, depending on each company's market share.
If the bill is passed, American tobacco companies will make a down payment of $10 billion, of which BAT's share will be $1.7 billion. Further payments will be made on a rising scale. BAT will pay 16.5% of $8.5 billion in the first year, the same share of $9.5 billion in the second year, rising to 16.5% of $15 billion in the fifth year. But analysts believe companies will fund the payments by raising prices.
America is one of the cheapest places to buy cigarettes - a premium packet costs about £1.20 compared with more than £3 in Britain. Federal and state taxes stand at only 30% compared with 80% in this country. InBritain, the government generates £8 billion from 80 billion cigarettes sold annually whereas the American government gets a similar amount from a market of 480 billion cigarettes.
But analysts warn that if other countries follow America's lead, it could have severe consequences for the industry. Thom Brown, of Rutherford Brown & Cutherwood, said: "There's a lot of cash-flow in the industry, but if the whole world wakes up to the concerns about smoking like the US has, it will be a field day for lawyers all over the world."
Analysts expect BAT and other tobacco companies to increase the price of a packet of cigarettes by 20% in the autumn. BAT shares are expected to show signs of nervousness tomorrow. Some analysts hope BAT could accelerate the demerger of its financial-services division into a separate company now the litigation uncertainty is removed.
23 Jun 97
Financial Times: US tobacco deal faces tough scrutiny - Companies may have to accept harsher terms
US legislators and public health advocates have warned that thehistoric settlement between the tobacco industry and its foes will face tough scrutiny and, in some cases, outright opposition when it comes before Congress.
The controversy over the$368bn (£222bn) deal could mean the tobacco industry will have to accept harsher terms than those proposed if the settlement is to pass into law.
Late on Friday the tobacco industry and anti-tobacco lawyers announced they had signed an agreement under whichtobacco manufacturers would pay $368bn over the next 25 years and accept tougher regulation in return for immunity from big legal claims.
Mr Martin Day, the London solicitor whose firm, Leigh Day & Co, isacting for 47 lung cancer victims suing Imperial Tobacco and Gallaher, the UK's biggest cigarette manufacturers, said the US agreement would have world-wide implications.
He said lawyers had already met in Brussels earlier this month under the auspices of European cancer societies to co-ordinate legal action against the tobacco industry throughout the European Union.
Representatives from the meeting have been invited to Beijing in August to talk to lawyers in the developing world. Contacts have also been established with lawyers in Malaysia, Australia and New Zealand.
Critics say the deal lets the industry off too lightly. The American Lung Association described it as "premature and wrong". It said: "By vindicating the industry, a deal now will tell the public that all is forgiven and tobacco use is an appropriate and safe behaviour."
Democratic legislators deeply distrust the tobacco industry and said they planned to study the fine print. "You have to have a strong hand when they [the tobacco companies] try to find the holes [in the deal]," said Senator Don Wyden, Oregon Democrat. "The history of this industry is that it always finds the holes."
Democrats were also concerned that the deal placed no limits on the marketing of cigarettes overseas. Senator Wyden said: "The tobacco industry negotiators made it very clear that they want to finance the settlement in the US by addicting millions of youngsters overseas to tobacco products. I want to keep them from exporting our problems."
Dr David Kessler, a former commissioner of the Food and Drug Administration who will help shape White Rouse and Democratic sentiment towards a deal, said he had "very serious concerns" that the settlement would impede the ability of the FDA to regulate tobacco products. He warned that the deal set up "a lot of hurdles for the FDA" by requiring the agency to prove that eliminating nicotine would not create a black market for cigarettes.
23 Jun 97
Financial Times: Greenhouse gas row hits Denver summit
Western European leaders reacted angrily yesterday afterfailing to persuade the US and Japan to adopt explicit targets for the reduction of greenhouse gases, at the summit of eight heads of government in Denver, Colorado.
The European Union wanted other participants to the summit to endorse its self-imposed target to reduce carbon dioxide emissions, mainly caused by the burning of fossil fuels,to 15 per cent below their 1990 levels by 2010.
"I am frankly disappointed that not all our partners are making quantified commitments to cutting greenhouse gases," said Mr Jacques Santer, president of the European Commission. "The future of the planet is at stake."
But President Bill Clinton blocked attempts to make this commitment in the communiqué issued at the end of the summit.
Environmental issues were the main source of contention at the summit, which found broad consensus on the need to improve job creation while preventing parts of the population being excluded from the benefits of economic growth.
The leaders also called for better implementation of Bosnia's peace agreement, and urged the revival of the Middle East peace process. They pledged$300m (£182m) to cover up the damaged nuclear reactor at Chernobyl, and welcomed Russia as a full participant in almost all of the summit proceedings.
British officials promised that next year's summit in Birmingham would be more focused, and would concentrate on the promotion of employment and the international fight against organised crime, the drugs trade and the Russian mafia.
On the greenhouse gas issue, MrClinton told European leaders they were "making life difficult" for him by seeking to tie his hands on a subject sensitive in domestic US politics. But he conceded a pledge to "meaningful, realistic and equitable targets that would result in reduction of greenhouse gas emissions by 2010".
The row over greenhouse gases will cast a shadow over the United Nations environmental conference which begins in New York today.
President Jacques Chirac of France said US resistance reflected the fact that it was US industries that were the biggest contributors to the greenhouse effect. Spurred by a recent US initiative to
24 Jun 97
Daily Telegraph: Billion-dollar tobacco coup for US lawyers
LAWYERS representing the40 US states and the hundreds of individuals suing the tobacco industry stand to make billions of dollars in fees from the $368 billion (£230 billion) settlement reached on Friday between the industry and litigants.
Dozensof lawyers have secured contingency fee arrangements under which they could earn up to a quarter of their clients' awards. Mississippi trial lawyer Richard Scruggs, a key figure in suits filed by more than 20 states, admitted the fees may be "a little obscene".
John Banzhaf, a law professor at George Washington University, said yesterday: "If the attorneys get anything like what is in theircontingency fee agreements, they will get billions and billions of dollars."
One British tobacco company executive said: "Some lawyers are aware that such fees might prove inflammatory. They could score an own goal by being too greedy." He added: "Most of themought to be able to retire, so they may not be that concerned about long-term interests."
Several of the states' attorneys general havedeals which could entitle them to up to 25pc of the money their states recover. Under the settlement, the states are expected to share about $100 billion of the total payment over 25 years to recoup public funds spent treating sick smokers.
Mr Scruggs, whomade a fortune representing asbestos victims 10 years ago and owns a Lear jet, has signed deals with the states he represented for fees of up to 25pc. "I figure that if anyone is going to be paid well, I am," he said.
His partner in many of the cases, South Carolina trial lawyerRonald Motley, has similar deals in place but other lawyers acting for the states have deals entitling them to just 10pc of the winnings.
Another60 law firms are expected to earn huge fees after they filed class action suits, where several plaintiffs with similar claims join together in a single action. One such lawyer is Hugh Rodham, President Clinton's brother-in-law, who worked alongside a New Orleans trial attorney.
The fees are still subject to negotiation and will not be set until agreement is reached on the precise distribution of the settlement funds. Thedeal must be reviewed by the White House and by Congress.
Mr Motley said: "Assuming we are treated fairly, I won't blush a bit. There was nobody standing in line giving us a cheque when we brought these cases."
Charles Silver, a University of Texas law professor who advised Texan lawyers on their suit against the industry, defended the likely fees saying: "Thesettlement is the biggest ever and it has consumed hundreds of times more lawyer's time and resources than any other lawsuit. It was a big gamble."
The group of private Texas lawyersspent $15m in expenses and expects to earn 15pc of the $425m Texas stands to recover, or $64m.
Tobacco companies' share prices fell heavily in London, withBAT Industries down 21½ to 567½p, Gallaher down 18 to 282p and Imperial Tobacco 13½ lower at 393½p.
Analysts were divided on the deal's impact for British tobacco makers. Nyren Scott-Malden of BZW described the share price movements as "an over-reaction," saying the British government already gets as much tax revenue from tobacco as America does, even though six times more cigarettes are sold in America, and healthcare bills are far lower here.
Jonathan Fell from Merrill Lynch said: "This provides an opportunity for lawyers to get up on their soap-boxes and tell people the end is nigh but thelegal system in Britain is very different."
City Comment! Page 27.
25 Jun 97
Daily Telegraph: Levitt's lawyer guilty of fraud
A SENIOR solicitor was guilty of fraudulent misrepresentation when he helped fraudster Roger Levitt negotiate amulti-million pound bank loan to buy into Arsenal Football Club, the Court of Appeal ruled today.
The appeal court reversed a High Court decision thatWilliam Binks, formerly senior partner in Binks Stern, was not involved in dishonesty.
Merchant bank Henry Ansbacher lent Mr Levitt £2-5m in September 1990 after receiving a letter from Mr Binks confirming that the financier was selling stakes in Levitt Group to two insurance companies.
But the appeal court found that MrBinks, who acted for Mr Levitt in the transactions, knew that the contracts had been completed months earlier and that their security value was nil.
The court case resulted from a legal action by Henry Ansbacher against Binks Stern for the return of the loan.
Three months after theloan, the Levitt Group collapsed with debts of £34m.
In 1993 Mr Levitt faced Serious Fraud Office charges of stealing £20m from clients. He was sentenced to 180 hours of community service after pleading guilty to lesser charges.
Binks Stern was yesterdaygiven 21 days to repay the loan with interest, the sum totalling £3-8m.
Binks Stern, whose -insurers face paying the amount, said it would appeal to the House of Lords.
The firm said it was "surprised" by the ruling. It repeated the High Court's assertion that Mr Binks had made a mistake but did not act dishonestly.
Mr Binks retired from Binks Stern in 1992 aged 70.
25 Jun 97
Daily Telegraph: Mid Ocean rolls in to take remainder of Brockbank
MID OCEAN, the Bermudan insurer, yesterday made a recommended bid for the 49pc of Brockbank it does not own,valuing the Lloyd's underwriting agency at £86m.
The 696p-a-share offer rep-resents a31pc premium over the price on April 7, the day before Mid Ocean said it would take over the remainder of Brockbank. Directors and other shareholders have already irrevocably accepted the offer in respect of 27pc of Brockbank's share capital. Yesterday, Brockbank shares jumped 130 to 672 ½ p.
Mid Ocean enlarged the group with a £50m injection into Brockbank, and received a 51pc stake in return, in December 1995. That deal followed a long search by chief executive Mark Brockbank for additional capital. It signalled support for the market, coming many months before the £3-2 billion reconstruction and renewal plan was approved by Lloyd's Names.
Mr Brockbank remains chief executive of the Brockbank business.
Brockbank Underwriting is one of Lloyd's largest managing agencies,with £497m of premium income last year. It managed capacity of £536m last year.
Mr Brockbank said: "I believe this to be a good and fair offer which represents the final step in the integration of our two groups. We will be able to focus on seeking out those opportunities which will drive the further growth of our business."
25 Jun 97
Daily Telegraph: Liddell ‘names and shames'
LEGAL & General and Sedgwick Group were "named and shamed" yesterday by Helen Liddell, economic secretary to the Treasury, for "failing to understand the urgency of sorting out thepersonal pensions scandal."
Mrs Liddell singled them out for particular criticism and compared the life assurance industry's handling of the problem to that of "alcoholics in denial."
But David Prosser, chief executive of L&G, the life assurance giant with £48 billion of funds under management, said: "I am astonished by the criticism from the economic secretary and cannot understand it. We are fully committed to the pensions review, properly resourced and on target to meet theSeptember deadline."
Last month Mrs Liddell ordered24 firms to submit written reports on how they were investigating sales of personal pensions to 560,000 people nearing retirement.
These had been identified by regulatory authorities as "priority cases" for possible compensation where individuals should not have been advised to buy personal plans instead of joining or remaining in company schemes, receiving employers' contributions.
Yesterday, in reply to a Parliamentary Question from Stephen Timms (East Ham), Mrs Liddell told the Commons: "While most of the policy statements sent to me showed a businesslike sense of purpose, I regret thatthere are two which appear to misunderstand the government's determination that this matter must be resolved with dispatch." On Sedgwick, which is chaired by Sax Riley, Mrs Liddell said the company was "quite wrong to assert that the government's initiative on May 14 was in any way under researched". And she was "not convinced by the objections by the board of L&G to well-merited criticism of the industry so far".
Later Mrs Liddell added: "This is one of the worst financial scandals of this century - 18,000 people of the 600,000 priority cases have died and there is an estimated 1m or 2m people who are non-priority cases, not nearing retirement, who could also have been mis-sold personal pensions.
"Throughout this saga, one of the difficulties has been getting the companies to acknowledge that there is a problem and to stop buck-passing like alcoholics in denial.
"The only way to sort it out is to admit that there is a problem and to recognise its seriousness. I hope they have got the message that we are not joking and that if they want me to get off their shoulders then the only way for them to do that is to sort this problem out."
All the companies have been ordered to submit reports on how many individuals have been offered and accepted compensation by Thursday next week. Mrs Liddell said these would be followed by monthly public announcements of the insurers' progress.
Written submissions from the 24 life companies published yesterday varied from single sheet replies - from Royal & Sun Alliance and United Assurance - to a document of more than 60 pages from Guardian. Most were conciliatory.
David Hollas, chief general manager of Co-operative Insurance Services, regretted being unable to attend last month's meeting with Mrs Liddell because of "a long standing commitment to speak at an annual conference of the Union of Shop, Distributive and Allied Workers".
Mr Prosser said last night: "I do not know why we have been singled out but it may have been because, in our response to Mrs Liddell, we, suggested that her criticism was not justified."
The Sedgwick letter
Whilst we can understand the new Government's wish to have matters dealt with quickly, we are disappointed that the Minister did not have the opportunity to brief herself on the background prior to calling the meeting at the Treasury or, particularly, writing the follow-up letter to us.
The Legal & General letter
Your letter and this response has been seen by the Board of Legal & General Group and in the view of the Legal &General Board the criticism contained in your letter was not justified.
25 Jun 97
Daily Telegraph: Treatment of mis-seller appears a Liddell spiteful
SOMEONE ‘ad to be summonsed for the pensions mis-selling scandal, so why not pick on a company which did not grovel sufficiently to the new economic secretary? Of course, that is not how Helen Liddell put it yesterday, but her decision to pick onLegal & General seems somewhere between arbitrary and spiteful.
All the big insurance companies mis-sold pensions- the government was encouraging them so hard at the time that only the doziest failed to do so. The affair has been good for shocking headlines and statistics showing that more "victims" have died than have received compensation.
An incoming government may find it irresistible' to blame the industry, but that does not justify it.L&G has 162 people on the case, and the letter from its chairman of June 12 concludes that "the criticism contained in your letter was not justified."
Thanks to successive governments' legislation, pensions are hideously complex. They are also deathly dull, and this combination is a lethal one. Most people have more interesting things to do with their lives than become pensions experts, so it is hardly surprising that many policies are mis-sold. Even leading companies behaved badly, and are now trying hard to put things right.
The trouble is that exact re-instatement is only possible in retrospect. An employee in a final salary scheme may leave or be made redundant long before retirement, thus saving his employer a packet. Until he reaches retirement age, funding his pension entitlement is little better than guesswork. This is one reason why the companies cannot just "sort it out" as Mrs Liddell demands.
Scheme administrators, meanwhile, must cope with new legislation and the increasing mobility of workers which a modern economy needs. The administrators have no incentive to work out the complex sums required to re-instate those former members who should not have left, but without the calculation, the insurance company cannot pay up and close the file.
from the individual' as well as the pressure for a quick settlement. It is still awaiting approval for this approach, so it is a bit rich for Mrs Liddell to accuse the company of foot-dragging when it depends on the responses of others to proceed. Her actions yesterday look more like an attempt to grab the headlines than a crusade for justice.
25 Jun 97
Financial Times: Tax and trust
The readiness of Treasury economic secretary Ms Helen Liddell to take individual insurers to task over pensions mis-selling makes a welcome contrast to the approach of the Tory predecessor. When the legitimate rights and expectations of trusting future pensioners have been widely abused, tough action is appropriate. There is also a pressing need to restore confidence in the long-term end of the savings market, given that more of the burden of pension provision will in future have to fall on the private sector.
This welcome commitment to protect, the interests of savers does, however, sit oddly with the rumours that the chancellor, Mr Gordon Brown, wants to abolish the tax credit on dividends. In the words of the Labour manifesto, "save to invest is our approach, not tax and spend". Yet the abolition of the dividend tax credit would increase the income tax burden for savers on a scale that could bear comparison with the cost of pensions mis-selling.
Much, admittedly, would depend on the response of the corporate sector. If tax-exempt pension funds were deprived of the credit, companies would either be obliged to increase their contributions to keep the pension funds solvent, or increase dividends to achieve the same effect by other means. Yet the payout ratio is already exceptionally high in Britain, so that increased payments into the fund would seem the more natural avenue. A bigger share of the cost would then fall on the personal sector. Around 20 per cent of the UK stock market is still in non-institutional hands. The return on this investment would automatically shrink on any reduction of the tax credit. So, too, would the return on personal equity plans. Worst hit would be those (including holders of personal pension plans) whose pension arrangements are on a defined contribution basis. A higher level of lifetime savings would be required to deliver the same retirement income.
The Tories claimed to be a tax-reforming and tax-cutting party on the basis of frequent reductions in headline rates. Yet the overall tax burden failed to decline as a percentage of GDP during their period of office because headline rates are only half the story. The question, with Labour, is whether the promise not to raise the basic or top rate of income tax will prove similarly misleading.
If Mr Brown's first Budget seeks to increase the tax on the returns to individual savers and investors, the manifesto pledge to establish a new trust on tax with the British people will
have been turned on its head. We will have a new tax on trust.
25 Jun 97
Daily Telegraph: Minnesota leads rebels against deal on tobacco
THE$368 billion (£230 billion) tobacco settlement already under fire from health lobbyists, lawyers and politicians, could face vigorous legal challenges by opponents who claim it is unconstitutional.
Minnesota, one of the 40 states suing the tobacco industry to recoup public funds spent treating sick smokers, yesterday threatened legal action to block the settlement if it is passed into law by Congress later this year because it claims it would be unconstitutional. –
The state is opposed to the deal because its attorney general, Hubert Humphrey, considers it inadequate. He plans to proceed with the state's lawsuit against the industry, scheduled to go to trial in January.
But if Congress approves the proposed settlement later this year, it would also pass a law forcing renegade states such as Minnesota to settle.
Tom Pursell, senior legal counsel for Mr Humphrey, said: "That means the next litigation would be constitutional litigation over Congress's authority to do that."
A spokeswoman for the attorney general said lawyers are searching for any precedent for Congress passing a law forcing a state to settle a pending lawsuit but have not found one.
26 Jun 97
Financial Times: Limit's profits leap to £70m
Limit, the biggest corporate investor in Lloyd's, yesterday announced a substantial increase in profits and said it would acquire stakes in more managing agents and investment companies at the insurance market.
Mr Jonathan Agnew, Limit's chairman and tipped to succeed Sir David Rowland as the next chairman of Lloyd's at the end of the year, said the group was considering several possible deals.
The investment trust has already played a big role in the rapid consolidation that has reshaped the capital structure at Lloyd's and created nascent insurance companies out of the agencies which manage syndicates.
It spent£40m last year on the acquisition of Bankside and Janson Green, two leading managing agencies at Lloyd's, and a string of further deals is likely. "It's possible we could buy a controlling stake, but it's more likely to be a minority Interest," said Mr Agnew.
Two large managing agencies at Lloyd's remain independent - RJ Kiln and Murray Lawrence. Murray Lawrence tried last year to merge with Masthead, a listed Lloyd's investment vehicle, but the proposals foundered amid opposition from institutional investors.
Limit's results were the first to include profits from the trust's own underwriting activities at Lloyd's, which first admitted corporate capital three years ago. It reported a jump in pre-tax profits from £13m to £70.3m for the year to March 31. The figures were boosted by an underwriting profit for 1994 of £43m and a pre-tax contribution totalling £12-1m from Bankside and Janson Green. A final dividend of 4.25p and a special one of 6p makes a total for the year of 12p.
Analysts predicted pre-tax profits for this financial year of about £65m, giving a prospective earnings multiple of 8.4 to the shares, which edged 2½p higher to 134½p.
26 Jun 97
Financial Times: Asbestos ruling hits T&N shares
Shares in T&N, the engineering company, slid 16½p to 143p yesterday after aUS court ruling that appeared to create uncertainty over compensation payments to victims of asbestos-related diseases.
T&N insisted the ruling wasalready allowed for in existing provisions and insurance to settle its asbestos liabilities, but investors reasoned the company might eventually be exposed to higher-than-expected payments.
Inyesterday's judgment, the US Supreme Court ruled against an appeal by T&N and other former asbestos producers against an earlier court verdict changing an agreed procedure the Georgine settlement for channelling payments to US sufferers of asbestosis and related diseases.
From now on, victims will have to fight legal cases on aone-off basis, as opposed to settling payments as part of "class actions" involving a network of claimants.
Theoretically, this could open the company tobigger future payments, even though one adviser to T&N said the judgment could just as easily help the company by making future legal procedures more complex and slowing down the rate at which payments are made.
The asbestos issue dating from the time when T&N, as Turner & Newall, was one of the world's biggest asbestos suppliers has dogged the company over the past decade.
It has hit the share price and thwarted the company's effort to position itself as an "asbestos-free" engineering company concentrating on automotive components.
Mr Ed Wright, an analyst at Dresdner Kleinwort Benson, said the ruling going against T&N was automatically interpreted as bad news. "The company is finding it difficult to convince everyone that its existing provisions will give it sufficient cover."
Another analyst said: "The ruling puts us into anew period of uncertainty."
T&N said there were "no financial consequences" from yesterday's judgment.
In aplan announced last November, T&N set up a special balance sheet fund for liabilities up to £690m, with an insurance deal providing a further £500m of cover.
In thepast 10 years, the company has paid out about £350m to meet asbestos claims, mainly in the US.
26 Jun 97
Daily Telegraph: Asbestos settlement rejected by US court
PAST and present asbestos producers were hit yesterday whenthe US Supreme Court threw out a proposed $l-3 billion (£780m) settlement which would have resolved hundreds of thousands of personal injury claims against the industry.
Shares in T&N, which as Turner and Newall was one of the world's largest asbestos producers, fell 16½ to 143p despite the company's insistence it would suffer no adverse financial consequences because of the£323m provisions and £92m insurance it took last year. "Our provisions and insurance fully provide for the appeal being lost," it said. "There are no financial consequences not already allowed for."
Analysts said there might be a slight initial benefit to T&N's cash flow, but it would be unable to write back as much of the provisions in 20 years' time as was expected.
The judges upheld an appeal court ruling that rejected the so-calledGeorgine settlement, which covered T&N and 19 other asbestos makers, on the grounds that it did not treat fairly those who had been exposed to asbestos but had not yet fallen ill.
26 Jun 97
Daily Telegraph: US tobacco deal under fire again
THE $368 billion (£230 billion) tobacco settlement yesterday came under renewed attackfrom US health advocates, who overwhelmingly rejected the deal.
A panel of public health care groups was formed at the behest of some anti-tobacco congressmen and is headed by David Kessler, the former head of the Food & Drug Administration, and former surgeon-general Everett Koop.
The panel demanded the FDA "continue to have immediate and explicit authority to regulate" nicotine and said a provision which would only allow the FDA to cut the level of nicotine in cigarettes if it can prove such a move will not create a black market was "full of mischief".
Arguing that the rules allow the tobacco industry to side-step regulation, Dudley Hafner, head of the American Heart Association, said: "It is absolutely unacceptable."
Thefirst payment is divided according to each company's market capitalisation. BAT is capitalised at over $17 billion and RJR is valued at about $10 billion (£6-25 billion). The later annual payments will be divided according to each company's share of the US market.
Who pays what:-
26 Jun 97
Daily Telegraph: Howard's revenge on assassin Ann - Hague pact bars her from front bench
MICHAEL Howard exacted revenge on Ann Widdecombe by blocking her appointment to William Hague's front bench team.
Theformer Home Secretary promised to back Mr Hague in round two of the leadership contest on condition she was barred, it was claimed last night. "That was part of the deal," a senior Shadow Minister told The Express yesterday. "He would support William provided he left her out."
Miss Widdecombe,former Prisons Minister, wrecked Mr Howard's leadership bid with an onslaught over his sacking of jails boss Derek Lewis.
In an electrifying Commons attack last month, she claimed Mr Howard had demeaned the office of Home Secretary and was guilty of cover-ups, meddling, bullying civil servants and misleading MPs.
Mr Howard came last in the first ballot of five Tory leadership candidates and backed Mr Hague in the second and third rounds.
He had hoped to come third behind Mr Hague and Kenneth Clarke, and emerge ahead of John Redwood and Peter Lilley as the standard bearer of Right-wing Tory Euro-sceptics.
But in the vital horse-trading immediately after the first ballot, Mr Hague readily agreed to Mr Howard's demand for Miss Widdecombe's exclusion. "If she disagreed with Michael over Derek Lewis's sacking, she should have resigned at the time," said a Hague supporter in the Shadow Cabinet.
And a member of the new Tory leader's inner circle said dismissively: "I don't think William was going to offer her a job anyway."
Miss Widdecombe's omission means there are only three women among the 57 front bench appointments made by Mr Hague since his election as leader. She spoke to The Express last night about her outburst. "I had to resign from the front bench in order to do it," she said. "And if you resign from the front bench one week you don't expect to be on it the next. "I'm not surprised Michael did this. It was quite inevitable. It's also in character."
But her supporters at Westminster claim Mr Howard acted vindictively against her, as he did against Mr Lewis when he sacked him.
Miss Widdecombe has no regrets however. After Mr Howard withdrew from the second round of the leadership election, she sent Mr Lewis a message on his pager saying: "Mission accomplished!"
Rejecting the charge that she should have resigned in 1995, she said: "We were in a period of what looked like recovery. "If I had resigned to attack the Home Secretary immediately after a
successful party conference I wouldn't have been very popular. So I held my peace until after the
27 Jun 97
Financial Times: Minister discourages authorities - Health groups warned off tobacco action
Health authorities were yesterdaywarned off mounting legal actions against the tobacco industry in the wake of the multi-billion dollar settlement in the US.
MsTessa Jowell, minister for health, said the government "will be keeping a tight rein on health authorities inclined to take precipitate action" as the NHS Confederation which represents health authorities and trusts voted to establish a working group "to consider the potential contribution of the tobacco companies to the costs to the NHS of smoking related diseases".
The resolution was passed unanimously at the confederation's annual conference in Brighton in spite of Ms Jowell making it clear that "we do not want health authorities getting themselves tied up in costly legal actions". Any action that was taken would be "part of a national strategy", Ms Jowell said.
The Department of Health said that did not mean that the government was actively considering legal action in the wake of the $369bn (£224bn) settlement between the US tobacco industry and state attorneys - a deal which has still to be ratified by Congress.
The US settlement and its potential implications for the UK will, however, be considered at an international seminar on tobacco control that the government is holding next month as part of the preparatory work for its autumn white paper on the planned legislation to ban tobacco advertising and sponsorship.
TheDepartment of Health pointed out that tobacco taxation in the UK is much higher than in the US and that smokers' tax contributions already outweigh the estimated cost of smoking-related diseases to the National Health Service.
The call to investigate compensation was moved by Mr Terry Hanafin, chief executive of Croydon health authority, which has already begun to seek legal advice on whether the authority or trusts have the power to mount a legal action.
Smokingaccounted for 80 per cent of deaths from lung cancer, he said, and for 16m working days lost in sickness absence a year. But other parts of the putative US settlement were as important as the possible monetary compensation for the NHS, he said. "That settlement is not just about money. It is also about reducing the tar and nicotine content of cigarettes."
Speakers at the conference from theRoyal College of Nursing and the British Medical Association backed the confederation's move.
Mr Graham Ross, a solicitor working with US attorneys and a group of English lawyers interested in action, said that a QC's opinion suggested anaction against the companies for conspiracy could be mounted in the UK. The companies knew their product was damaging but conspired to hide that knowledge, he said.
29 Jun 97
Financial Times: Lloyd's fails to find ‘captain'
Lloyd's of London looks like it has failed in its search for a "captain of industry" as chairman to bring new blood to the centuries-old insurance market following the crippling losses of recent years.
Lloyds is likely to appoint one of two insurance .insiders after the search for an outsider failed to produce a suitable candidate.
MrJonathan Agnew, chairman of Limit, the biggest corporate Investor in Lloyd's, and Mr Max Taylor, executive director of insurance broker Willis Corroon, are the leading contenders to succeed Sir David Rowland as chairman at the end of this year.
Sir David told insurance market professionals yesterday that a decision would be made within the next few weeks. Expectations last year that a new chairman would be found from among the leading figures of British industry have diminished.
MrAgnew already sits on Lloyd's ruling council, which is responsible for taking executive decisions on policy and regulating the insurance market's internal affairs. As chairman of Limit, he represents the new breed of corporate investor which is rapidly replacing the Names, who have traditionally backed Lloyd's but whose numbers are dwindling.
He also has experience of merchant banking, having previously served as chief executive of Kleinwort Benson.
MrTaylor is an executive director of Willis Corroon, the insurance broking rival of Sedgwick. Sir David Rowland headed Sedgwick before he became chairman of Lloyd's. He is also chairman of the Lloyd's Insurance Brokers' Committee.
The new chairman will serve alongside MrRonald Sandler, the chief executive of Lloyd's who since the completion of the insurance market's recovery plan last September has taken more responsibility for day-to-day management of operations.
The chairman's role is not easy. Unlike the board structure at most companies, he presides over anuneasy alliance of factions on the ruling council comprising underwriters as well as corporate investors and Names. Decision-making is rarely straightforward and usually involves prolonged discussion.
30 Jun 97
Financial Times: America's guilty smokers a popular target
They can be seen outside any US office building: skulking in doorways, furtive of glance, speaking a body language of guilt, these are America's smokers.
Their vice is the one America most loves to hate: more than drinking, over-eating, or marital infidelity. Over the past 10 days, since the deal to combat smoking between tobacco companies and state attorneys-general, US society has spoken with one voice: smoking must be eradicated.
The ceremony to announce the deal was quintessentially American: the attorneys-general, their voices broken with emotion, promised a bright new nicotine-free future. Invoking the interests of "our children" - the mantra which seems to grace every American political action - they proclaimed victory in the holy war against smoking. The atmosphere was both pious and triumphalist. It was not the moment to declare the joys of smoking.
In such an atmosphere of universal condemnation, it is easy to forget that there are 48m Americans who smoke - 5m more than voted for Mr Bill Clinton as president.
Professor Bernard Beck, a sociologist at Northwestern University who has studied both the sociology of smoking and the crusade against it, believes that California led the way in demonising smoking. "All American culture -increasingly, all world culture -originates in southern California, and they are obsessed by air quality," he says. "Anything that goes into the air in LA hangs around."
Other Americans followed Californians in becoming "obsessed with their personal micro-environment", he says. This led to perfume bans and a brief consumer fling with products without additives - such as colour-free cola. Then came the campaign againstsecond-band smoke (smoke inhaled by non-smokers).
Second-hand smoke tipped the balance in the tobacco war: after a1993 report from the Environmental Protection Agency said such smoke killed 3,000 non-smokers a year, smokers could no longer complain that their vices were purely personal. Two years later, the Congressional Research Service said there was no evidence of "substantial health effects of passive smoking". Still, smokers remain, In the popular mind, the most serious known risk to public health.
Smoking in indoor public places has been reduced dramatically; now outdoor smoking is also being restricted. Some municipalities are taking aggressive measures against it: the village of Friendship Heights, in Maryland, tried to ban smoking on five of its seven streets (the county council overruled this). And in Norfolk, Virginia, newly hired police and firefighters are prohibited from smoking even at home (health insurance has a role to play in this ban: because heart lung ailments among police and firefighters are assumed to result from the job, the city has a financial interest in stopping smoking).
This has led to a sharp decline in smoking, from 42 per cent of adults in 1965 to 25 per cent now. But this may have been arrested: 1996 figures failed to show any decrease. And teen smoking has risen sharply: by 50 per cent among 13-year-olds, between 1991 and 1996. Smoking advocates say this proves that publicity against tobacco is counter-productive - and that the new tobacco agreement could also backfire.
But in the ranks of the silent minority, many smokers say they smoke not because of or despite publicity from both sides, but because they enjoy it.
Megan has asthma and a lung collapsed by smoking. She believes lung cancer would be no more than she deserves. Stephanie says she worries a lot about dying from tobacco-related illness. They are like most smokers: not unaware of the risks - indeed, they often overstate them - just fond of their vice.
But surprisingly, most smokers also support measures td curb smoking. Smokers who enjoy their vice, but wish they did not: the perfect target for tobacco war in a puritanical society.
3 Jul 97
Daily Telegraph: Taylor is surprise choice as new chairman of Lloyd's
THE Lloyd's of London ruling council shocked Lime Street yesterday by choosing Max Taylor, an executive director of Willis Corroon, the insurance broker, as its chairman.
The move provoked anger in thecamp of rival candidate Jonathan Agnew, who is thought to have turned down two recent job offers, including the chairmanship of the Securities and Investments Board, in the belief that he would be the next head of Lloyd's.
There had been widespread predictions that MrAgnew, the chairman of the biggest corporate investment vehicle at Lloyd's and a much higher-profile candidate, would take the society's top job.
It had been widely believed that Sir David Rowland, the current chairman, was preparing the way for Mr Agnew, who was ousted four years ago as chief executive of Kleinwort Benson, the merchant bank. Mr Taylor, 49, has been an unlimited liability name at Lloyd's since 1975. It was suggested last night that this, and MrAgnew's association with corporate capital, was a significant factor in winning the backing of traditionalists on the council. The relationship between corporate capital and traditional names has provoked angry divisions in the society.
However, Mr Taylor is also seen in some quarters as a more independent voice, since he is not currently a member of council, unlike Mr Agnew.
One insurance market insider said last night that his broking background meant that he fits Lloyd's current strategy of concentrating on customer needs, rather than the needs of its capital base, extremely well.
It has also been suggested that the chairman will be more in the background behindRon Sandler, the popular chief executive, than was the case with Sir David Rowland, who steered the society through its reconstruction and renewal.
Mr Taylor was educated at Haileybury School and joined Willis Faber as a junior aviation broker in its North American department in 1970. He joined the board ofWillis Faber in 1990, before its merger with Corroon and Black.
He was made group executive director of Willis Corroon earlier this year, with overall responsibility for the London market and global speciality business, Japan anddiscontinued underwriting activities.
The nomination by the Council of Lloyd's needs to be ratified by a ballot in the autumn. Mr Taylor will need to be elected to the council before assuming his new duties in the new year.
9 Jul 97
Times: Nolan proposes jail for abuse of public position
MINISTERS, civil servants, police, magistrates and judges could face jail or a fine if they seek advantage from their public position, Lord Nolan, the public standards watch-dog, proposed yesterday. The rule would also apply to any person on a public body or quango.
In a consultation paper published to coincide with his Report on Standards in Local Government, Lord Nolan proposed a new criminal offence called misuse of public office.
He called for debate on whether the offence should also apply to privatised companies, such as public utilities, and also to bodies such as grant maintained schools, training and entreprise councils, housing associations and further and higher education institutions.
The new offence is intended to replace the current penalty of surcharging local government members and officials, but would have a direct impact on Whitehall and 40,000 members - many volunteers - who serve on some 1,100 quangos. It also aims to deal not just with cases of serious financial irregularity but could also apply to decisions deemed unlawful or doubtful.
On a personal basis it might apply to someone who had taken a publicly-owned car for their own use, or who was involved in decisions which brought advantage to themselves, their family or their business. It might also apply to decisions taken in malice or in cases of gross negligence.
But the paper adds: "Such negligence would need to be defined to avoid conviction for a momentary lack of judgment."
Lord Nolan said yesterday he hoped the new offence would be part of a package of anti-sleaze measures. Jack Straw, the Home Secretary, has already proposed an offence of corruption with up to seven years jail for people in the public, or private sector. MPs and peers are also reviewing the whole area of Parliamentary privilege.
Lord Nolan, chairman of the Committee on Standards in Public Life, hopes the new law would not discourage people from taking positions in public life and believes it will strengthen their role.
He believes the new offence should be operated so that wrongdoers could be brought before magistrates' courts or stand trial before a judge and jury depending on the gravity of the allegations.
The district auditor is expected to carry out investigations on any financial losses, and the police would investigate any other matter. Any decision to prosecute would be taken by the Director of Public Prosecutions.
Lord Nolan said at a press conference in Westminster yesterday: "We really felt there was a serious gap in the law. Surcharge in the past was only applicable to councils and we really believe it should apply across the board."
He joked that his committee was particularly anxious that the new offence should apply to judges and said: "It will produce a much fairer law and the penalty will be tailored to the offence."
9 Jul 97
Times: Wine lovers declare vintage after winning back lost cases
WINE lovers who thought they had lost almost £2 million worth of top vintages yesterday won their claim to 5,000 remaining cases of wine after a six-year fight in the High Court.
When the long-established City company of Green's went bankrupt in April 1991 it was found that most of the highest-priced wines in storage for their customers had vanished.
Two directors of the company were subsequently jailed for theft but Green's customers, with their insurance invalidated, found that the company's liquidator was also denying their right to any of the wine left behind.
At a High Court hearing yesterday before Deputy Judge Roger Kay, QC, an action group formed by some 90 Green's customers among more than 500 who laid claim to wines the company had been storing, finally won its claim to almost 5,000 cases.
Under the terms of the settlement all Green's customers able to document their ownership of wines will have to pay £27 plus VAT per case for storage and £13.82 per case as legal costs.
The recent boom in prices for fine wine means that the remaining stock is probably worth more than the £1-25 million estimated at the last valuation a year ago, and some customers will recoup a substantial part of their losses. Jocelin Harris of the Durrington Corporation, who led the action group's fight, said: "People who thought they had lost everything now have the chance to recoup at least part of their losses."
Among the wines stolen were large numbers of top burgundies from the 1985 vintage and leading clarets of the highly successful 1982, 1983, 1985, and 1986 vintages, some of which, such as Chateau Cheval Blanc 1982 and Chateau Margaux 1983, are now worth £4,500 a case.
The wines the investors have now recovered are principally lesser growths. One investor said after the hearing: "I had £14,000 worth of wine in 114 cases with Green's and originally wrote it off as a total loss. Now I calculate that the 33 cases of wines that I will be able to reclaim may be worth £12,000."
11 Aug 97
The Times: Names who reject Lloyd's renewal plan still liable for premiums
Society of Lloyd's v Lyon
Same v Leighs
Same v Wilkinson
Before Lord Justice Saville, Lord Justice Ward and Lord Justice Phillips
(Judgment July 31)
Lloyd's names who rejected the reconstruction and renewal plan by Lloyd's for the voluntary global settlement of claims in respect of business written in or before 1992 were, nevertheless, liable to pay premiums pursuant to a reinsurance and runoff contract concluded as part of that plan.
The Court of Appeal so held in a reserved judgment dismissing the appeals of the defendant names.Geoffrey Lyon, Dennis Leighs and David Wilkinson, against decisions of Mr Justice Colman in the Commercial Court of the Queen's Bench Division on February 20 and April 24 giving summary judgment for the plaintiffs, the Society of Lloyd's, and declaring that the names were liable to pay premiums pursuant to a reinsurance and runoff contract concluded as part of the society's reconstruction and renewal plan which the names had rejected.
215 Canadian names, who had also rejected the plan, intervened in the actions, which were test cases.
MrSimon Goldblatt, QC and Mr Vincent Nelson for the names; Mr Anthony Grabiner, QC, Mr Richard Jacobs and Mr David Foxton for Lloyd's; Mr Alan Lenczner, QC of the Ontario Bar, and Mr Craig Orr for the Canadian names.
LORD JUSTICE SAVILLE, giving the judgment of the court, said that the appeals raised fundamental questions as to the efficacy of the complex scheme under which the Society of Lloyd's had set out toresolve the avalanche of litigation that had been threatening to destroy the Lloyd's market and many who traded in it.
That scheme, the reconstruction and renewal plan, involved avoluntary global settlement of claims of various descriptions made by and against names in respect of business written in or before 1992 coupled with a reinsurance and runoff contract, in the nature of a global reinsurance to close, with a group of companies formed specifically for that purpose: the Equitas contract.
Lloyd's had purported to procure that all names with actual or potential liabilities in respect of non-life businesswritten in or before 1992 were party to the Equitas contract.
If Lloyd's had succeeded in that names who had declined to take part in the reconstruction and renewal settlement were, none the less, liable to pay premiums for the reinsurance cover provided by Equitas. Equitas had assigned the right to such premiums to the society.
The Equitas contract
Each of the names had entered into a standard form agreement with the society, the general undertaking, which included an undertaking by the name to comply with the provisions of Lloyd's Acts 1871 to 1982 and any subordinate legislation made thereunder and to become a party to and perform all the terms of any agreement as might be prescribed by or under the authority of the Council of Lloyd's.
The society contended that the general undertaking had enabled the council, by the use of its statutory powers, to procure that all names were party to the Equitas contract.
Section 6(2) of the Lloyd's Act 1982 gave the council the power to make such bylaws as seemed requisite or expedient for the proper and better execution of Lloyd's Acts 1871 to 1982 and for the furtherance of the objects of the society.
Pursuant to that power, the council madeBylaw No 20 of 1983, empowering the council to appoint a substitute agent to take over the whole or any part of a member's underwriting business and to give directions to both the substitute agent and the member in relation to the underwriting business taken over.
Pursuant to that bylaw, onSeptember 3, 1996, the council appointed a substitute agent, AUA 9, a company owned and indirectly controlled by Lloyd's, to take over all non-life business written in or before 1992 for all names,
AUA 9 was directed to give effect to the reconstruction and renewal plan. Provision for that plan had been made byBylaw No 22 of 1995. More particularly, AUA 9 was directed to enter into the reinsurance and runoff contract with Equitas on behalf of each name. That AUA 9 had purported to do.
The defendants had mountedthree challenges to the scheme each of which they contender provided an independent defence to the society's claim.
1. The scope of the venture
The names contended that the scheme offended against a fundamental principle of underwriting at Lloyd's, which was that it should be carried onwithout mutualisation.
Broadly, the point made was that the Equitas contract involve the pooling of reserves held by or on behalf of individual names to meet their individual liabilities, and of premiums levied on individual names, and the use of the pool to discharge the liabilities of all the names.
At the end of the day a surplus might be shared out among the names, or some names might find themselves under residual liability to policy holders, but in neither case would the end result reflect each name's individual liability to policy holders in respect of the business written on behalf of each name. That, it was contended, offended against the prohibition on mutualisation enshrined insection 8(1) of the Lloyd's Act 1982.
However, section 8(1) was directed solely to the writing of insurance business at Lloyd's, not to contracts which the names might conclude thereafter which were ancillary to such business.
The Equitas contract was such a contract. It had been concluded to make provision for the discharge of the insurance liabilities under-taken by names in and before 1992 in due conformity with the requirements of section 8(1).
The Equitas scheme did not derogate from the principle that each name remained directly liable to policy holders in respect of the business written by that name and in, respect of that business alone.
Their lordships could not see that agreements or arrangements which involved names in making mutual provision against the risk of individual default were in conflict with or outside the scope of the venture of an insurance business in which each name accepted liability solely for his own account.
Reconstruction and renewal. and in particular the Equitas scheme, was not simply designed to provide cover against the risk of individual defaults. It had a much more fundamental object: to settle intractable litigation and toavoid the need to put the whole of Lloyd's into runoff.
In short, a primary object of the scheme, if not the primary object, had been to save Lloyd's itself, for the benefit of its members. It was hard to see how it could be argued that the scheme had not been "requisite or expedient to the proper and better execution of Lloyd's Acts 1871 to 1982 and for the furtherance of the objects of the Society".
Their lordships were in no doubt thatBylaw 22 of 1995 fell fairly and squarely within the society's powers and that the directions given to implement it were validly given.
The names alleged that they had been induced to join Lloyd's bymisrepresentations fraudulently made by the society. The society challenged that allegation, but accepted that its claim to summary judgment had to be advanced on the premise that the allegation of fraud was valid.
The names claimed that they had rescinded the contract under which they entered into the general undertaking. The society contended that rescission was not possible and that the only remedy open to the names was toclaim damages for deceit.
Some of the names who relied on rescission had purported to rescind their membership of the society after the Equitas contract was concluded, others had purported to do so before.
The act of rescission avoided the contract retroactively ah initio and could only take place provided that it was possible to restore the parties to substantially the same position that they were in before the contract was concluded and that rescission would not harm the rights of third parties.
If rescission were to have the effect contended for by the names it would prejudice third parties. It was not merely the fact that third parties would be adversely affected but the manner in which that would come about that could not be reconciled with the principles governing rescission.
The names contended that the effect of rescission was to withdraw, retroactively, the authority of AUA 9 to contract for the names so that contracts concluded by AUA 9 with Equitas at a time when AUA 9 had authority were retroactively invalidated.
Their Lordships knew of no case where rescission had invalidated a contract with a third party in that way and they did not believe that such a result could be accommodated within established legal principles.
There was a more general and equally fundamental reason why it was not open to names to rescind their general undertakings. Membership of Lloyd's was the foundation of the insurance business that had been carried on by names, and must necessarily be carried on by them until all their liabilities to policy holders were discharged.
Membership of Lloyd's was essential if the names were not to infringe the provisions of section 2(1) of the Insurance Companies Act 1982. Those forbade unauthorised persons to carry on insurance business in the United Kingdom.
Authorisation had only been granted to individuals who were members of Lloyd's. In practice, the names had only been able to conduct insurance business and would only be able to runoff that business by taking advantage of the complex structure of the Lloyd's market which enabled policy holders to transact business as if with a corporate entity rather than with a large number of individuals.
The rules and regulations of Lloyd's had enabled that business to be transacted on behalf of and with the authority of the names. It was fundamentally incompatible with the business that had been carried on fur names to withdraw, retroactively, from membership of Lloyd's.
It wasimpossible to sever the contracts under which the names became members of Lloyd's from the business that had been carried on, and the contracts that had been concluded, by virtue of that membership. Restitutio in integrum was impossible.
So far as rescission ah initio was concerned, those considerations applied just as much to names who had purported to rescind before the Equitas contract was concluded as to those who did so after that event.
Their Lordships had considered whether it was arguable that names who had purported to rescind their general undertakings before the Equitas contract was concluded thereby terminated their membership of Lloyd's so that the council had no authority over or on behalf of them thereafter.
Their lordships were not aware of any principle of law which permitted a party to terminate a partly performed contract on the ground that the conclusion of the contract was induced by fraud in circumstances where rescission of the contract was impossible.
3. Set-off etc
Clause 5.5 of the Equitas contract provided that each name should pay his premium "free and clear from any set-off, counterclaim or other deduction ... in respect of any claim against Lloyd's or any other person whatsoever…."
The question was whether that had the effect of preventing the non-accepting names from resisting payment to the society, as assignee, of the premium due from them, on the ground that, on the assumption made, the society was liable to them in damages for fraud.
It was absolutely clear that clause 5.5 did operate so as to prevent the non-accepting names from raising claims against the society in answer to a claim by the society, as assignee, for the name's premium.
The fact that the claims of the non-accepting names against the society were in fraud did not assist the names. Given theall embracing language used in the clause, the fact that, to all intents and purposes, the only claims of any relevance against the society by names that could fall outside the statutory immunity in Section 14 of the Lloyd's Act 1982 would be claims of acting in bad faith, and the fact that allegations of bad faith were being made by names before and at the time the agreement was made, everything pointed to the conclusion that the clause was intended to cover such claims.
The clause did not seek to exclude or limit liability for fraud. Its purpose was to insulate recovery of the premium from claims by those who owed the premium.
Their Lordships knew of no principle of law that should lead them to construe the words of the clause so as to exclude from its ambit any claim based or allegedly based on fraud.
The result, which would come as a bitter blow to the defendants and those in their position, was that the appeal must be dismissed.
Solicitors: Epstein Grower & Michael Freeman; Freshfields; Warner Cranston.
11 Aug 97
The Times: Distributing deceased name's estate
Stone and Another v Chataway and Another
Before Mr Justice Lindsay
[Judgment July 8]
Personal representatives of a deceased name at Lloyd's with open years, who wished to rely on Equitas,would only obtain complete freedom from risk of personal liability in respect of those years if they obtained and acted upon the sanction of the court, which would attempt a fair balance between the injustice of beneficiaries being kept out of benefit on account of unquantifiable and possibly illusory liabilities, and the risk of contingent creditors finding matured debts unmet.
Mr Justice Lindsay so held in the chancery Division in giving the plaintiffs, as executors and trustees of the late Richard Michael Yorke QC, amember of syndicates at Lloyd's until his death in 1991, liberty to distribute his estate without further retention, ant appointing Lady Carola Cecil Chataway as representative of beneficiaries under his will, ant Mr Giles Neville Clarke as representative of all persons contingently interested in the benefit of contracts of insurance to which such syndicates were parties.
Mr Christopher McCall, QC and Mrs Warnock-Smith for the plaintiffs; Miss Alexandra Mason for Lady Chataway; Mr W. R. Stewart-Smith for Mr Clarke.
MR JUSTICE UNDSAY said that the difficulties of names at Lloyd's were notorious. The executors wished to make as early distribution of the estate to beneficiaries as possible but acknowledged that there were potential claims whose size they could no more estimate than whether or when they might arise. Each Lloyd's year was, in a sense, anannual venture but a year's accounts were only calculated at the end of the third year, when claims, or the possibility of claims were likely to exist.
To achieve finality at the end of each three-year period, normal practice was for names to pay a premium to another syndicate to take over outstanding rights and liabilities: reinsurance to close ("RITC"). Years which were not closed, or had no RITC, stayed open years and a creditor of a deceased person, in priority to whose debt a legacy had been paid to his detriment, could make the executor personally liable for his loss.
Mr Clarke, another name and the representative creditor, had RITC for one of his own years from a syndicate of which Mr Yorke, whose estate now enjoyed reinsurance from Equitas, which gained final authorisation from the Department of Trade and Industry in September 1996, had been a member.
Should Equitas fail, liability would revert to the relevant names in which event a number of remedies or palliatives might suffice to head off claims by policy holders, including the implementation of a proportionate cover plan; the proposal of a scheme under section 425 of the Companies Act 1085; and recourse by policy holders to deposits required by regulatory authorities in other jurisdictions.
Beyond those, there would be strong pressure on Lloyd's to inject funds into Equitas to ensure that its obligations were met.
Mr Yorke's last year of account had been 1990. His outstanding open years were 1985 (one syndicate), 1989 (two) and 1990 (21). Calls of over £675,000 on those had been paid in full, save that one, the largest had been reinsured into Equitas.
There was unchallenged evidence that his executors were only likely to face liabilities in the event of Equitas's total failure.
Must they retain enough, indefinitely, to meet some theoretical, possible. maximum total liability (surely, unfair to beneficiaries)? Or could they now distribute, on the basis that creditors' protection via Equitas was commercially appropriate?
His Lordship reviewed the relevant provisions of the Insurance Companies Act 1982, summarised Equitas's report and accounts up to September 4, 1996,disclosing £10-8 billion of claims reserves and a surplus of assets over liabilities of £588 million after prudent provision, outlined reservations expressed thereon by Coopers & Lybrand, -and recorded unchallenged evidence from an eminent accountant to the effect that it was to be inferred that they "did not consider that there was a significant level of concern about Equitas's ability, in the foreseeable future, to continue as a going concern".
He continued that the law concerning executors' duty to retain funds against contingent liabilities had often been criticised and contradictions abounded.
In summary, the position was as follows:
1. Distribution pursuant to a court order afforded complete protection.
2. The court would enable personal representatives to set apart a reasonable sum to cover any liability which might in any reasonable probability arise by reason of a future breach of covenants in a lease held by the deceased: Dobson v Carpenter
(1850) 12 Beav 730).
3. If the possibility of some contingent debt maturing came to an executor's notice, he could retain an appropriate sum (a) pursuant to the court's direction, gaining immunity from devastavit, or (b) otherwise, whether out of the estate or by way of security from a beneficiary, but gaining no immunity.
Applying those principles, there was good reason for the court, on the facts of Mr Yorke's case, to sanction distribution to legatees without the executors requiring either any retention out of the estate, or any particular security beyond the personal security of the recipients in support of an indemnity to the executors, should debts, unsatisfied by Equitas, emerge.
On the evidence before his Lordship and approaching the question of Equitas's adequacy in a practical and businesslike way, he was entitled to hold that there was at present no reason to think Equitas likely to fail and it was right to regard it as a sufficient and proper provision.
However, although his Lordship would have wished to proffer guidance of such a nature as to obviate the costs and delay of applications to court by other names' executors, and although such executors could reasonably choose to rely on Equitas alone, it could not be wrong for them to insist upon the court's protection before distributing any vulnerable name's estate.
Solicitors: Reynolds Porter Chamberlain.
30 Aug 97
Daily Telegraph: Charman quits as Lloyd's deputy chief
JOHN Charman, deputy chairman of Lloyd's of London, has stepped down from his role as deputy chairman of the insurance organisationa year early following a series of policy disagreements with the rest of the ruling council.
Mr Charman has never made any secret of his preference for the market's beingbacked only by corporate capital, instead of the present hybrid system allowing also individual membership with unlimited personal liability. He has even tried to buy off individuals from membership of the syndicates managed by his company, Charman Underwriting Agencies.
He has alsocampaigned for an executive chairman who is a professional manager from outside Lloyd's. Traditionally the chairman has been drawn from one the major businesses working in the market, but a new post of chief executive was created, and that position has been generally filled by someone from outside Lloyd's.
Sir David Rowland, the current chairman, was previously chairman of Sedgwick, the largest broker at Lloyd's. But, despite pressure from Mr Charman, Sir David's successor starting next year is to be Max Taylor, a director of Willis Corroon, another major insurance broker.
Several senior business figures had been approached butnone had wanted the chairman's job.
Mr Charman believes a better package, including perhaps more pay, ought to have been offered to get the right person.
Thecouncil already contains six members who are not elected by the rest of the membership but nominated by the Bank of England and who are not working members of Lloyd's.
31 Aug 97
Financial Mail on Sunday: NLC hit by big losses at Lloyd's
ACCOUNTANT Ernst & Young has warned of ‘fundamental uncertainty' in the accounts of New London Capital, one of the largest companies Investing in the Lloyd's insurance market.
The warning follows a study by the accountant of NLC's involvement with Lloyd'ssyndicate 657 under the management of the A. J. Archer agency.
The syndicate has suffered nearly£20 million of losses through huge claims on employer liability policies. More losses are expected.
In its annual audit of NLC, Ernst & Young warns that significant adjustments may be necessary in provisions the group has had to make on its investment in the syndicate.
In the accounts, sent to shareholders on Friday, NLC chairman Bruce Schnitzer, 53, says group losses with syndicate 657 so far total £4.2 million and there is provision for £2.3 million more.
NLC has held talks with the Archer agency to try to recover its losses, but Archer would agree only to rebate profit commissions.
NLC has set up a committee to tackle the situation, which threatens to become a major row.
31 Aug 97
Financial Mail on Sunday: Moves to silence Guinness report
THEDepartment of Trade and Industry is being pressed by political figures to keep its final report into the 1986 Guinness scandal under wraps.
It is believed the cover-up attempt is being co-ordinated from the House of Lords on behalf of former Guinness boss Ernest Saunders and other businessmen likely to be named in it.
An official source says: ‘Approaches have been made behind the scenes. They have come from within Parliament. Those involved are too clever to approach ministers directly.'
Financial Mail revealed two weeks ago that the Guinness report could be published within weeks. The timing will be decided by President of the Board of Trade Margaret Beckett after Parliament returns.
It is expected to make fresh allegations against Saunders. It may also name businessmen whose alleged involvement was investigated by the DTI but who were not prosecuted by the Serious Fraud Office.
It may also finally clear Jacob Rothschild, the peer claimed by former Guinness finance director Olivier Roux to have been persuaded by stockbroker Cazenove to buy eight million Guinness shares.
This claim has always been denied and there has been no suggestion of wrongdoing by Lord Rothschild.
Saunders is said to be keen to prevent publication. An interim report suggested that he benefited personally from a £3 million payment during the £2.3 billion Guinness take-over of the Distillers drinks group.
He has always insisted that this allegation is totally unfounded. It is believed that his lawyers all but ruled out an attempt to prevent publication via the courts a year ago.
Saunders wanted to seek an injunction on the grounds that the DTI inspectors acted improperly during the inquiry. But they are thought to have warned that such an action was unlikely to succeed.
Saunders was jailed in 1990 for conspiracy, false accounting and theft after a court decided he had taken part in a so-called share support scheme.
Leading City figures were asked to buy Guinness shares during its take-over of Distillers. Profits were to be kept but losses would be covered by the company.
As Guinness's stock value rose, its offer to Distillers shareholders increased because the deal was based on a share exchange.
4 Oct 97
Daily Telegraph: Lloyd's offers cover over ‘rogue traders'
INSURANCE to protect banks from "rogue traders" was on offer from a syndicate at Lloyd's of London yesterday. But cover could be cancelled if approved internal controls are by-passed.
Unauthorised or concealed trading in shares, commodities, gilts, derivatives or commodities are to be covered - the sort of illicit trades that brought down Barings.
Twelve banks have filled in application forms and three have gone as far as asking for a quotation even before the policy was launched.
Stephen Burnhope of SVB Syndicates, who is underwriting the policy, thought the typical cover would be for around $250m per bank, which would pay a premium ranging from $2m to $10m.
Paul Milton of Aon Group said it was the sort of policy he and other brokers have been trying to get organised for years, but underwriters have always refused because it was reckoned too risky.
The demand for this extended cover has now become so widespread, even underwriters thought it would become economic. Mr Milton said it showed Lloyd's was still prepared to produce products unavailable anywhere else.
Mr Burnhope added that the policy "does not respond to bad management". So a bank would have to fill a form about its risk management, and SVB would also send in independent risk assessment experts, before a policy could be written.
The bank would have to follow the agreed disciplines - if the controls are bypassed as they were for Nick Leeson at Barings, the policy might be invalidated.
Mr Burnhope said it had taken more than a year of research to establish the basis of the policy.
Recent unauthorised trading
19 Oct 97
Mail on Sunday: US giant eyes Willis
AMERICAN insurance giant Marsh & McLennan is considering a possible £600 million bid for British rival Willis Corroon.
Such a move would bring further turmoil to the insurance industry which is already trying to digest the fall-out from Zurich's merger with BAT's financial services arms.
Willis is the second-largest independent British middle-man and one of the most influential brokers bringing business to Lloyd's.
It has a stock market value of £540 million and employs nearly 10,000. Marsh employs more than 27,000.
A flood of mergers in the insurance sector has led to thousands of job losses and a Marsh-Willis deal would inevitably mean further redundancies.
Marsh's move follows its acquisition of US broking group Johnson & Higgins earlier this year for £1.1 billion.
Johnson & Higgins had close business links with Marsh's latest target until Willis severed its relationship and merged with US broker Corroon & Black in 1990.
Insiders at Marsh's operations in London, which include old-established Lloyd's broker C. T. Bowring, say the latest move by the US group had been under consideration since its deal with Johnson & Higgins was tied up in March.
‘I would be surprised had they not looked at us,' said a Willis Corroon spokesman. ‘But we have thought about our strategy and we believe we can do best for our shareholders by remaining independent'
Marsh refused to comment on its latest plans.
Chairman Ian Smith is determined that his group will remain larger than his nearest rival, the Aon Corporation, which is expanding rapidly through take-overs. insurers in London say Aon is looking at another US broker, Arthur J. Gallagher, which is ranked fifth in the world.
Sedgwick, the largest independent broker in Britain, is also rumoured to be in Aon's sights.
The shake-up in the insurance market is likely to intensify after last week's news that Zurich is to buy Allied Dunbar and Eagle Star from tobacco giant BAT Industries.
That deal has sparked speculation over more international mergers involving British groups such as Commercial Union.
25 Oct 97
Daily Telegraph: Watchdog censures Pru
THE regulatory authorities disclosed that about8,000 people have died or retired while waiting for Prudential Britain's biggest insurer, to complete its review of personal pensions mis-selling.
8 Nov 97
Daily Telegraph: Nolan hints that inquiry should have called Fayed
LORD Nolan urged MPs toreform the system of parliamentary self-regulation yesterday as he acknowledged that the handling of the "cash for questions" allegations against Neil Hamilton had been unsatisfactory.
The outgoing chairman of thecommittee on standards in public life stopped short of offering advice on a shake-up of disciplinary procedures in the House, but made clear he was not happy with the way the system he recommended had worked in practice.
At a press conference to launch his final report - on reforming quangos - before handing overto Sir Patrick Neill, QC, next week, Lord Nolan took credit for helping to clean up Westminster.
However, he acknowledged that the failure of theCommons standards and privileges committee to reach a clear verdict on the ‘central charge against Mr Hamilton was "not ideal".
Thecommittee's report avoided a ruling on whether or not the MPs endorsed the finding by Sir Gordon Downey, the Parliamentary Commissioner on Standards, that there was "compelling evidence" that the former Tory MP took up to £25,000 in cash from Mohamed Fayed, the owner of Harrods. Two dissident Tory MPs wanted to call Mr Fayed to be cross-examined, but the inquiry concluded with only Mr Hamilton giving oral evidence.
Following its first serious test since being established as a result of Lord Nolan's first report in 1995, the committee is to re-examine its own role in inquiries conducted by the Parliamentary Commissioner.
Lord Nolan originally recommended a three-stage process in which Sir Gordon would assess whether there was a case to answer, a small .group of MPs would hold a hearing, and the defendant would have the right of appeal to the full committee.
In Mr Hamilton's case, Sir Gordon was directed to investigate and reach a conclusion. As a result, the MPs found their own role was constrained by the need not to undermine the authority of Sir Gordon.
Lord Nolan said: "I think the major departure was to have devolved so such responsibility to Sir Gordon." He added: "I still don't know why they set about the matter in this way, giving it to Sir Gordon initially to reach a conclusion.
"I don't know if they thought through what the result would be if they concluded, as he did, against Neil Hamilton.
"But that in essence was where we saw the most significant departure from our recommendations and it is that that seemed to leave the committee finally with a very difficult choice to make."
Lord Nolan added he would be particularly interested to know why Mr Fayed was not called.
"But I am sure this will be one of the main features of the case that will be re-examined, no doubt by the House itself initially."
Lord Nolan hailed a "big improvement" in standards as a result of the committee's work but said it was too early to tell if public confidence in politicians was restored.
On quangos, Lord Nolan suggested that significant political donations should be declared by candidates for public appointments.
8 Nov 97
Daily Telegraph: ‘Pillow talk' charge rocks Wall Street
TWO Wall Street compliance officers - those responsible for ensuring investment banking staff do not breach insider dealing rules - have themselves beencharged with separate insider trading offences in unrelated cases, it emerged last night.
Marisa Baridis, an employee in the legal department atMorgan Stanley Dean Witter Discover, was arrested on Monday. The 29-year-old law school graduate was summonsed by supervisors to an office on the bank's 38th floor, where she was met by state investigators from the Manhattan district attorney's office.
Miss Baridis's job was tomaintain the Chinese walls between brokers and investment bankers. These "walls" are rules designed to prevent brokers trading on confidential information.
But Manhattan District Attorney Robert Morgenthau alleged Miss Baridis sold information she obtained from the investment banking department to at least one person outside the firm who made "hundreds of thousands of dollars" from. it. The information concerned at least a dozen companies.
She "thenreceived a share of the profits", authorities said. Investigators declined to identify her accomplice, although Wall Street sources said he was her lover.
Miss Baridis, who was described by Mr Morgenthau as "the fox in the chicken coop", was charged with grand larceny, violating New York securities laws, receiving commercial bribes and other state crimes. She spent Monday night in a police cell but was released on Tuesday. Ms Baridis will reportedly plead not guilty but her lawyer, Lawrence Goldman, was not available for comment;
Mr Morgenthau said Miss Baridis earned a $70,000 salary. Yet she lives on smart Manhattan's Upper East Side in a $2,400-a-month apartment. Miss Baridis has worked at Morgan Stanley for seven months after hold mg a similar job at Smith Barney for four years. Spokesmen for both banks said they would co operate fully with the authorities
On Wednesday theSecurities & Exchange Commission filed a civil complaint against Alan Stricoff, a former vice-president in the compliance department at Bankers Trust Securities. He and four friends and relatives were charged with establishing an insider trading scheme that yielded $458,200.
8 Nov 97
Daily Telegraph: Swedes held over ‘missing' funds
TWO Swedish men were arrested in Stockholm yesterday in connection with allegedly missing funds from Trustor, the Swedish investment management fund, amid claims from its chairman, Guinness peer Lord Moyne, that nothing untoward had happened.
The two men, both aged 30, are being questioned about millions of crowns that have allegedly disappeared from a British bank account held by Trustor. "The investigations are continuing and it is very possible there will be more arrests," said Swedish state prosecutor Bo Skarinder.
But Lord Moyne insisted after the arrests: "I have ascertained that no cash is missing from the company. Professionals acting for myself and Lindsay Smallbone (Trustor chief executive) have established the location of Trustor's assets and funds."
Trustor shares were suspended last Friday when it became known Swedish police were investigating a reported deficit of 600m crowns ($80m) from a Barclays bank account, discovered last June.
Skarinder claimed the investigation had so far located 400m-450m crowns, but 150m crowns were still missing.
Police are still looking for a third Swedish business man.
8 Nov 97
Daily Telegraph: Three on $800m forgery charges
THREE men have been charged with using forged bonds with a face value of $800m (£470m), following an operation this week byCity of London police and the American secret services.
Jack Yu, Jonathan Hugh Stratton and William Lester will appear before City of London magistrates this morning.
The charges follow thealleged deposit of bogus American Treasury bonds in a City bank on Thursday. Police declined to identify the bank but claimed the forgeries were intended as security, to obtain further sums from finance houses unaware of their authenticity. The only Briton in the trio is Mr Hugh Stratton, 33, of Anstey, Leicestershire. Mr Yu, 45, is a Taiwanese businessman staying at the Holiday Inn, Cromwell Road, west London, and Mr Lester, 55, is an American citizen resident in Camden, north-west London.
They are charged with offences under section three of theForgery and Counter-felting Act 1981.
Frauds involving American currency are relatively common - authorities seized $6m in $150 notes in northern England earlier this year.
An American secret serviceman on secondment to City police was involved in the investigation.
8 Nov 97
Daily Telegraph: Taxman descends on major firms
THE Inland Revenue haslaunched a record number of raids on top law and accountancy firms as part of its latest crackdown on tax evasion.
Using the major fraud section of the legislation, thetaxmen raided over 80 premises and took away lorry-loads of files.
They wereconcentrating on a long series of deals over many years by large companies to sell tax liabilities to organisations which had tax credits.
As a result, millions of pounds of tax debt was cancelled and two corporations shared the savings. Revenue officers from theSpecial Compliance Office descended on five premises of accountancy firm Ernst & Young and on the home of one of its partners, Robin John. Mr John has resigned "while the inquiries continue". The taxmen's visit has triggered an extensive internal investigation at the firm.
The taxmen also removed piles of files fromtwo offices of fellow Big Six accountancy firm Coopers & Lybrand, plus some of the biggest law firms, smaller firms of accountants and many corporate clients.
Peter Wyman, tax partner at Coopers, said the Revenue had always disliked such tax arbitrage schemes but had failed to defeat them in court. It is tax planning within the law and "I don't understand where the fraud would come in", he added.
Some deals involved advance corporation tax which could not be recovered:
Mr Wyman said "it was never intended that anybody would not be able to recover their ACT so this sort of deal only makes good the system's deficiency".
Coopers had acted for the sellers of tax liabilities and had taken legal advice to the effect that the. buyers had a workable and legal scheme for cancelling them, Mr Wyman said.
But the board of Inland Revenue would have to approve such widespread raids and a judge would have to be convinced there was a prima facie case before granting the search warrants. .
The Revenue would not disclose details as a prosecution may soon follow.
8 Nov 97
Daily Telegraph: Friends rallies to Ivory & Sime
FRIENDS Provident yesterday bailed out troubled Ivory & Sime through a reverse take-over of the Edinburgh-based fund manager's asset management arm.
The merged group, to be called Friends Ivory & Sime, will have more than £22 billion in assets -£19 billion of them from Friends Provident. It will be headed up by Peter Jones, head of Friends Provident Asset Management. Under the deal, Ivory & Sime will buy Friends Provident Asset Management by issuing it with 67pc of shares in the new company. Dealing in Ivory & Sime shares was suspended yesterday at 197p.
So far, Friends Provident has received acceptances from shareholders accounting for 50pc of Ivory & Sime shares. Its largest shareholders, Caledonia Investments and Sumitomo Life will keep an interest in the new group but their shareholdings will be diluted from their current 29pc and l4½pc to 9.34pc and 4.4pc respectively.
Keith Satchell, group chief executive of Friends Provident, said that trading in Friends Ivory & Sime is likely to start in about six weeks' time. He said that he sees no problem in the mutually-owned insurer Friends Provident having a listed fund management arm adding: "We still think it is best for Friends Provident to remain mutual."
The deal came about after Ivory & Sime appointed merchant bankers DLJ Phoenix in August to advise on its future strategy.Ivory & Sime has had a miserable time in the last year, with a number of high-profile departures -including four senior fund managers in January. In February its managing director Colin Hook; who was brought in by Caledonia two years earlier to sort things out, resigned. He was succeeded by Sir David Kinloch, deputy chief executive of Caledonia Investments and executive chairman of Ivory & Sime. In March it lost the contract to manage BAA's £460m pension scheme.
Mr Satchell said that there would be no redundancies. With £22 billion under management, the new Friends Ivory & Sime will be the20th largest fund manager.
15 Nov 97
Daily Telegraph: De Lorean legal battle settled
A12-YEAR ban on public appointments for Ian Hay Davison. 66, former managing partner of Arthur Andersen, was lifted yesterday with the settlement of a legal battle between the government and the accountancy firm over the collapse of the De Lorean sports car business.
The government agreed to accept out of court damages of$35m (£20.6m) from the firm to end the lengthy legal battle and avoid running up an even bigger legal bill after claiming damages of £245m from Andersen for alleged negligence in the firm's role as De Lorean auditors.
So far the government has piled up legal bills of£15m but the total could have topped £40m if the case had gone to trial in New York.
MrHay Davison, the most senior UK manager in Andersen at the time, was placed on the public sector appointments blacklist.
But yesterdayJohn Morris, attorney-general, wrote to tell Mr Hay Davison that the "restriction" had been lifted.
Mr Hay Davison said last night: "I amdelighted that this has been settled but was it all worthwhile? The government has paid £15m to get £20m. The only people to make money out of this have been the lawyers."
The government has argued it would have pulled the plug on the project if the auditors haddisclosed concerns about alleged fraud but friends say that Mr Davison originally "blew the whistle" on De Lorean in 1979 after discovering $17.6m had gone "walkabout".
15 Nov 97
Daily Telegraph: De Lorean saga a tale of hope and illusions
The final chapter has been completed in Northern Ireland's long-running carmaking fiasco
IN JUST 108 words yesterday the government buried the stinking corpse of the De Lorean motor plant.
The joint statement, from theNorthern Ireland Department of Economic Development and Arthur Andersen, was designed to end the 19-year embarrassment over a venture which started with a willing suspension of disbelief by the British government and degenerated into a tale of deception, fraud and shattered reputations.
As usual, the only people to prosper were the lawyers. Nearly everyone else came out badly, in the sacred cause of providing a new industry for Northern Ireland.
Thetaxpayer was taken for a £77m ride from the investment in the futuristic, gull-winged, aluminium sports car. In 1978 the ridiculous figure of John De Lorean, after surgery to improve his jawline, persuaded the Labour administration headed by Lord Callaghan to pour money into a completely new car plant, making an untried type of car.
The final bill after taking account of the2,600 souls whose hopes were so cruelly raised with. short-lived jobs, and the knock-on effects among suppliers and investors, is well over £100m.
De Lorean tapped a vulnerable government to provide huge funds to finance dreams that turn into nightmares.
The Callaghan administration was given 16 days to make up its mind to back De Lorean after being told Britain was in competition with Ireland and Puerto Rico to build the revolutionary car.
It took just seven weeks for him to bamboozle the Northern Ireland Department of Commerce into providing him an initial £35m in grants and loans despite McKinsey, the management consultants, telling the government that "the chances of the project succeeding are remote".
Roy Mason, then Ulster Secretary, was forced on to political and social arguments to the Cabinet to justify the investment. It was "of the utmost political, psychological importance" that the project should get the go-ahead. "It would be a hammer blow to the IRA."
The hammer blows hit no-where near the IRA. De Lorean wheeled and dealed, tapping both the Callaghan and Thatcher administrations for more money and embroiling the late Colin Chapman and Lotus in the "misappropriation" of $17.5m put up to develop the car.
Sir Kenneth Cork, later De Lorean receiver, acted as a detective in attempting to trace the $17.5m. He said it had "gone walkabout" with $8.5m going to Mr De Lorean and $8.5m to two Lotus directors. A Detroit court. later cleared Mr De Lorean of embezzling the money.
The West Belfast plant, completed in February 1981, produced a total of 8,333 cars. It shipped 7,401 of these to America, its main target market, and dealers sold 3,347 of the 5,114 they purchased through the De Lorean distribution network.
The end came in February, 1982 after Sir Kenneth told the Thatcher government there was no case for further assistance. On one memo, asking for the government to guarantee a hank loan, Mrs Thatcher scrawled: "I take it this is the last [double underlined] help we give to this unwise project."
She later gave a seven-hour Videotaped testimony detailing her role in the De Lorean affair to support thegovernment's claim for negligence against Arthur Andersen, the car company's auditors. Other former Northern Ireland Secretaries, now peers, Roy Mason, Humphrey Atkins, James Prior and Sir Leon Brittan, former Treasury Chief Secretary and now an EC commissioner, were also taped.
The report from theall-party Commons Public Accounts Committee into the De Lorean fiasco in July, 1984 was a devastating indictment, citing Mr De Lorean as the main culprit. But the report catalogued a long list failures of Northern Ireland department officials and nominee directors over what it described as "one of the gravest cases of the misuse of public resources in many years" and a "shocking misappropriation of public and private money".
The report emerged as Mr De Lorean was in the middle of a marathon trial in Los Angeles overdrug trafficking charges. He was acquitted despite videotaped evidence of him taking delivery of a suitcase of cocaine. History repeated itself two years later when he was cleared of embezzlement charges.
Arthur Andersen was thrust into the limelight in 1985 when the government launched a claim for £245m in damages from De Lorean's former auditors,alleging the firm failed to uncover accounting irregularities and practised accounting functions "fraudulently and with gross incompetency".
The action ran into a series of road blocks. ANew York judge rejected the government's attempt to bring the action under federal racketeering laws which attract triple damages, describing the case as "naked of evidence". It was switched to the civil court last year with a hearing set for January until yesterday's settlement.
Meanwhile "born again Christian John De Lorean now 72 is alive and well and living in New Jersey So far he has not sprouted gull wings.
22 Nov 97
Daily Telegraph: Driving on through hard times
JOHN De Lorean, 72, lives on his 434-acre estate in Bedminster, New Jersey, but no longer has control of the roof over his head.
Control of the estate now lies with Merrill Lynch, the investment bank and broking house which is expected to sell the estate to recoup the $8m mortgage on it. Merrill confirmed the firm controls the estate but declined to comment further.
Mr De Lorean must sell other assets too after he was ordered by a federal judge in August to pay his former lawyer, Mayer Morganroth, over $7m in unpaid legal fees. Mr Morganroth, who said he was "hopeful" he would receive the money "quite soon", yesterday said he represented Mr De Lorean in about 40 cases, including bankruptcy proceedings of De Lorean Motor Company.
Creditors have been authorised to sell off Mr De Lorean's collection of art and furniture, estimated to be worth about $1.5m. Some industrial property in Utah owned by Mr De Lorean is also believed to be for sale.
An assistant to Mr De Lorean at his office yesterday said he was not available for comment but last year he told the New York Post:
"I'm not concerned that I have no personal worth."
Nevertheless, he has been at work on a new car project, the D2. This is a lightweight, space metal, mid-engine car which is expected to sell for between $18,000 and $30,000, depending on the size of the engine.
22 Nov 97
Daily Telegraph: Fimbra moves
CITY regulator Fimbra has expelled London Corporate Securities, a dealer in "penny shares", and fined the company £350,000 overeight charges of breaking market rules.
22 Nov 97
Daily Telegraph: Guinness study
THE government report on the scandal-ridden take-over of Distillers by Guinness in 1986 will finally be published on Thursday. The full list of people involved has not yet been revealed.
22 Nov 97
Daily Telegraph: Poor sales hit Johnson Fry
THE shares of Johnson Fry Holdings slumped 27pc to 85p yesterday after the fund manager warned that full-year profits are likely to fall "significantly below market expectations".
Group managing director Rebecca Thomas, who was appointed in September, said the group expected to incur a "substantial loss," on the back of "poor sales and margins, particularly in the second-half of the year" - these being mainly in the now defunct financial products division.
The decision to convert from a financial services group to a specialist fund manager still appears to be taking its toll of the group.
Ms Thomas said awrite-off of £800,000 on software development will contribute to the impact.
But she also said the uncertainty surrounding personal equity plans (Peps) and the planned introduction of the Individual Savings Account makes it ‘‘prudent'' to increase expenditure on the Pep administration systems.
There was some relief however, as Ms Thomas said the full-year loss will be partially buffered by an exceptional profit of £3.93m which is due from the sale of Johnson Fry's property management and insurance broking division.
Since Ms Thomas' appointment, the group has carried out a number of changes apart from closure of the financial products division which include staff reductions, which will save an estimated £750,000 a year.
However, she described the group's on-going core business as "excellent". Funds under management stood at £919m on October 31, 69pc higher than they were at the end of last year.
Individual fund performance has also. been strong with three out of the five unit trusts ranking at the top of their sectors and a new Global Growth fund has recently been launched.
23 Nov 97
Financial Mail on Sunday: Lloyd's Names in dark over insolvency fears
EQUITAS, the company set up to rescue investors in the Lloyd's insurance market, may itself need a £500 million rescue.
The warning comes in a 70-page report on the state of Lloyd's finances byleading credit rating agency Standard & Poor's, which forecasts that Equitas ‘could become insolvent at some point in the future'.
The report states that there isconsiderable uncertainty about the amount of money that Equitas has set aside to pay insurance claims arising from asbestos, pollution and health hazard risks.
Equitas was set up last year to save the Lloyd's market from ruin after it suffered losses of more than £8 billion.
But company executives, led bychairman David Newbigging, made no reference to the disturbing report at the first general meeting on November 14, leaving most of the 500 investors, or Names, who were at the meeting and who had been bailed out after being brought to the brink of ruin, unaware of its existence,
The mood was upbeat as chief executive Michael Crall told the meeting that Equitas was ‘well positioned'.
As well as the Names, the new specialist companies created to invest in Lloyd's were left in the dark about the worrying contents of the report.
Though it has been made available to the insurance market,Names have to obtain copies by request.
The influential Association of Lloyd's Members, representing more than 5,000 investors, received its copy on Thursday, nearly a week after the meeting.
The report states: ‘There is a strong possibility that the Equitas surplus will be eroded and that it could become insolvent at some point in the future.'
Standard & Poor's believes that the7,500 remaining Names and the 200-odd companies investing in the market will be called on to fund any shortfall.
Names who have left Lloyd's could also still be liable to meet insurance claims if Equitas fails, though S&P believes that policy-holders would not bother to pursue individual investors as thecost would be prohibitive.
The agency cautions that although its assessment is pessimistic, it does not believe it to be a ‘worst case' scenario, an observation that will cause alarm among Lloyd's present investors.
Edward Vale, adviser at the Association of Lloyd's Members, said: ‘I haven't had a chance to read the report yet, so we cannot comment.'
23 Nov 97
Mail on Sunday: Government officials halt £2.3 billion City scandal revelations - Gagged over Guinness
FINANCIAL Mail has been gagged asgovernment officials dither over publishing the report into one of the City's worst scandals -the £2.3 billion Guinness affair of 1986.
Although we revealed months ago that the report had been delivered to Board of Trade President Margaret Beckett, she isstill undecided over publication.
This Thursday had been set as the date, but the final decision will not be taken until tomorrow or Tuesday.
The report has been held up by a succession of legal manoeuvres, as well as representations by Ernest Saunders, the former Guinness chief executive jailed in 1990 for his part in the events surrounding the take-over of Distillers.
Late on Friday The Mall on Sunday received a fax from the Treasury Solicitor preventing the publication of any article divulging ‘or purporting to divulge' contents of the report until the report itself is published - an open-ended edict of a particularly draconian nature.
It means thatif the report is never published, its contents can never be publicly discussed. The Treasury Solicitor adds that the Secretary of State -Margaret Beckett - ‘is concerned to ensure that there is no premature publication of the report or of any of its contents. Fairness to those criticised in the report demands that they should have an opportunity of making submissions concerning publication. Their rights would be destroyed or reduced and no public interest would be served by any publication at this stage'.
However, Financial Mail understands that those criticised have had months and possibly years to make submissions.
The Treasury's case for gagging Financial Mall is severely weakened by the fact that upto 90 copies of the report have been circulating and the contents are well-known in City circles.
In August Financial Mail reported: ‘The official report into the scandal is expected to include damning fresh allegations.'
We have not seen the full report, but critics will want to read the views of inspectors David Donaldson QC and accountant Ian Watt on what they see as thecity's immorality and Saunders' complicity in that culture.
The Guinness affair raised issues about thecity's disregard of laws and regulations, reckless misuse of investors' money and contempt for truth and honesty.
Many of these practices were accepted as normal, but if there is still any doubt about what city professionals can and cannot do, city insiders will look to the report for recommendations on tightening regulation.
In the early months of 1986 Guinness was locked in a vicious battle withArgyll Group - now Safeway - for control of gin and whisky maker Distillers. Saunders extracted a deal whereby Distillers would pay Guinness's fees.
This provided the platform for the illegal scheme for Guinness to persuade investors to buy its shares, with any losses made good.
The reason Guinness did that was that its bid for Distillers was made in terms of Guinness shares. If their value dropped, so did the value of the bid and vice versa.
23 Nov 97
Mail on Sunday: Markets braced over £25bn Tokyo crisis
WORLD financial markets are set for a week of turmoil asJapan's fourth biggest stockbroker faces imminent collapse with £15 billion liabilities.
Yamaichi Securities, which employs 2,000 staff in the City, has been given until Tuesday by Japan's Ministry of finance to decide whether it wants to remain in business. Closure of the 100-year-old firm would be Japan's biggest corporate bankruptcy' since the Second World War.
Japanese markets are closed tomorrow for a bank holiday so any fallout from the crisis will first be faced in international centres including London.
Analysts expect the yen to fall against major currencies, while shares in British companies with a big presence in the Far East could also come under pressure. But American government bonds are expected to rise as investors seek a safe haven.
Yamaichi would be the third large Japanese financial firm to fail this month after a dramatic fall in Asian property, currency and stock-markets this year put severe strains on some of its financial institutions.
The Japanese central bank has promised Yamaichi special loans to protect its customers' assets, though the firm itself has so far failed to find a rescuer.
Brian Waterhouse, banking industry analyst at HSBC James Capel, said: ‘This doesn't amount to a full scale bail-out by any means.'
29 Nov 97
Daily Telegraph: Koreans urge Japan to back record $60bn financial rescue
THE SOUTH Korean finance minister, Lim Chang-yuel, flew to Tokyo for an emergency meeting with the Japanese finance minister, Hiroshi Mitsuzuka, in an attempt to persuade Japan to help fund the rescue package being negotiated with the International Monetary Fund.
As he flew out the South Korean stock market fell 5pc to 411-91, itslowest point since early 1987.
The South Korean finance ministry said: "The minister's visit is largely to ask for Japanese participation in the IMF bailout package."
Analysts continue to speculate on the size of the IMF package for Korea. The finance ministry and the Bank of Korea admit it will be in excess of the $20 billion originally suggested. Most estimates put it at $60 billion. This would make it thebiggest financial rescue ever, surpassing the $50 billion given to Mexico in 1995.
In Japan, the Nikkei index of leading shares rose by 33-06 points to 16,636-26 as investors' optimism about the banking sector improved slightly when the Bank of Japan flooded the banking sector with $29 billion of short term loans.
· Barclays Bank announced yesterday that it was closing its Japanese equities business in Tokyo with immediate effect and with the loss of 100 jobs at an estimated cost of £10m.
· The chairman of the German bank Dresdner said yesterday that it had raised risk provisions by Dm100m (£36m) because of the crisis in Asia.
29 Nov 97
Daily Telegraph: Cox seeks to make Lloyd's simple
COX Insurance is seeking more underwriting capacity from Lloyd's Names in a bid to simplify andbring down the costs of the insurance industry.
Chief executive Michael Dawson said: "We are trying to make it simple byforming an insurance company like the others. Lloyd's is typically, absurdly complicated and the traditional methods are too expensive, with the profits siphoned off by middle men.
"We want to buy out these Names and bring them all together into one single vehicle - Cox."
Total capacity acquired in the open offer and Lloyd's auction process during the six months to the end of September was £105m, bringing Cox's total holding so far for the Lloyd's 1998 year of account to £227m. This represents 47pc of Cox's managed capacity.Pre-tax profits for the six months jumped from £4m to £7.3m.
6 Dec 97
Daily Telegraph: Trail has led from Britain to Sweden and the Cayman Islands as Lord Moyne and the search for Trustor's missing millions
THE Swedish prosecutor's claims about what happened to the £48m missing at Trustor, the Swedish investment company, have surprised few.
Trustor's money, it is alleged, wasused to buy a stake in itself. This is illegal in a civil sense, but can be criminal if evidence supports embezzlement.
The money disappeared after Lord Moyne, the Guinness peer; became chairman and bought a 52pc controlling stake. Altogether Skr77Om (£59m) was taken out of Trustor's bank account in Sweden last June; Skr150m was put back a month later.
The money, it has been claimed, was moved out of Trustor's bank account in Barclays in London, and put into an account belonging to Lord Moyne by an intermediary account. From there it went into the bank account in Sweden held by the previous majority shareholder, Peroloy Norberg. Skr135m has since turned up in London, and a further Skr17m traced toLuxembourg.
Investigators believe the plan was to use the missing money to build up a string of companies with highly liquid assets across Northern Europe. One of these, the purchase of Finnish company Amer, had more than Skr2 billion in liquid assets. The deal fell through, but others are believed to have been on the cards.
If building up a network of firms with liquid assets was the plan, there would have been plenty of money. There were millions left over from the missing money after buying Lord Moyne's stake. His share cost Skr240m, less than half the Skr620m that went missing. Clearly another Skr380m has disappeared.
Two men have so far been arrested: Peter Mattsson and Thomas Jisander, both Swedes and "advisers" to Lord Moyne. Another, Joachim Posener, a convicted fraudster, is still being sought by police in connection with the allegations. It was Mr Mattsson who brought Lord Moyne to Trustor through a mutual friend. Lord Moyne said a month ago: "Recent public disclosures and personal experiences have destroyed my confidence and trust in the Swedish parties who were associated with me personally."
It is believed the plan was to build up companies with highly liquid assets.
The current theory about Lord Moyne, one that he admits to, is that he acted as a front man by acting as purchaser of the stake, in return for a fee. Despite this, he claims ignorance of the true source of the money that bought his stake. As far he knew, it had been raised by Thomas Jisander, although it only left his account after he took control of the company.
This does not hide the fact that he was slow to speak publicly and to the Swedish authorities. It also does not wipe out his signature which allegedly appears on documents connected with the transfer of Trustor's money from Sweden.
Potentially more damaging is the fact that Lord Moyne's name appears on a bank account in theCayman Islands. A loan from this account was used to hide the hole in Trustor's accounts for a couple of days until the storm from shareholders and investigators blew over.
Lord Moyne claims he knew nothing about the account but admits to agreeing the loan that came from it, instead of going to the police immediately. What happened was that money from the Cayman Islands was moved to a Trustor account in Luxembourg. The Swedes were planning to move it to London, but Lord Moyne reportedly froze it in Luxembourg.
He says he panicked once the situation started escalating. The loan was offered as an instant solution. This is the reason he gives for not going to the police.
At the end of the day, many believe that Lord Moyne was more a victim of his own bad judgment and a group of confidence tricksters rather than being guilty himself. The Swedish state prosecutor said he did not expect to ask for his arrest.
Meanwhile the remaining shareholders in Trustor have been, getting anxious. Theshares were suspended on the Swedish stock exchange for three weeks to prevent a free-fall, and 10 days ago shareholders voted to force the company into liquidation.
However, despite the problems, the company's balance sheet is now much improved. Lindsay Smallbone, Lord Moyne's longstanding adviser and former managing director, has sold two automotive companies for Skr900m, and the shares have performed well since they returned to the market.
The future of the money from the Cayman Islands that was used to stop the hole in Trustor's bank is less certain. It is currently subject to a legal battle between Trustor and the bank that lent the money, because the loan was agreed as a two-day loan but never returned. Trustor is now claiming the money belongs to its accounts.
Another problem is what status Lord Moyne now holds in relation to the company. He said he would sell his shares "at an appropriate time", but still claims to be the majority shareholder and as such plans to call his own extraordinary general meeting next week.
This conflicts with reports from Trustor and Lindsay Smallbone, however. They claim he has already sold his shares to a company in theVirgin Islands called St Crispin.
It is even further contradicted by the appearance of a second company, Netherlands-based Houdstermaatschappij Ketip. This company is also laying claim to the stake.
It says it has an Option on Lord Moyne's holding, which it was given as security, again on the loan from the Cayman Islands. Investigators are still trying to establish the true state of affairs. There is still an outside chance that an investigation might take place in Britain.Thursday's raid on a residence in Norwich by British police and officials from the Serious Fraud Office suggests there are still queries to be answered about the affair.
Whatever the final outcome, Lord Moyne, who protests his innocence, is on the record as saying he is unlikely to do business ever again.
6 Dec 97
Daily Telegraph: Police make raids in Trustor case
SWEDISH and British police investigating thedisappearance of £48m from Trustor, the Swedish investment company, have raided two homes in Norwich, it emerged yesterday. The houses were raided on Thursday by police looking for documents relating to the Trustor affair.
"We are looking for information concerning the Trustor case and perhaps concerning Mr Posener," said Bo Skarinder, the Swedish state prosecutor, yesterday. Police are looking for Joachim Posener, a former adviser to Trustor, in connection with missing money. TheSerious Fraud Office is assisting the Swedish police.
6 Dec 97
Daily Telegraph: Moyne's a Guinness
THESE are testing times forLord Moyne, the author and banker. The Swedish police keep turning up to ask him questions about Trustor, a misleadingly named investment company - he became chairman this year and now there is an £80m hole in the accounts. This has rather spoiled the launch of his Requiem For A Family Business - the business being Guinness, where he was a director for 32 years.
Lord Boyd, his cousin, boardroom colleague and fellow-member of the beerage, gave it a cousinly review in The Spectator. Nothing in this book dispels my impression that the family directors let the business go downhill, then hired a crook to put it right, and then never troubled to find out what he was doing. Led by an alcoholic chairman, they were content to draw their fees and dividends until the crook was unmasked and they hurried to disclaim him. Now at long last we have the report from the Department of Trade & Indus try. Its inspectors briefly notice Lord Moyne as the only director who wondered why Guinness was handing $100m to the devious Ivan Boesky in New York. He did not, the inspectors tell us, take the matter further. As so often happens, Guinness ceased to be a family business but the family were the last to notice.
6 Dec 97
Daily Telegraph: Broker banned
DAVID Martin, a former executive in theMinet insurance broking group, has been banned from conducting business in the Lloyd's market for conducting himself "in a dishonourable and improper manner", according to the Lloyd's regulatory board.
13 Dec 97
Daily Telegraph: Seoul crisis deepens as bank funds dwindle
A SENIOR trader described the collapse in South Korea as a ‘tragedy" yesterday as both the won and the stock market dropped further and the economic crisis worsened.
It was another day ofpanic in the markets, which saw stock prices hit a 10-year bottom and the currency fall to its lowest level, amid fears that Korea is on the verge of defaulting on some debts.
Park Young-chul, of Hyundai Securities in the capital, Seoul, said: "The market is cut loose from the normal framework. There are no rules applying to the market right now."
For the fourth day running the currency, the won, fell by the maximum 10pc allowed by trading rules and only recovered slightly with the intervention of the central bank, which "stepped in from the opening hell", according to an official. The won haslost nearly half its value against the dollar this year.
Thedramatic coming apart of the world's 13th largest economy, which has had a serious knock-on effect around the world, led to the negotiation last month of a record $57 billion (£35 billion) rescue package funded by the International Monetary Fund and various countries.
But that has done nothing to calm market nerves. On Thursday the former Asian Tiger begged the IMF to advance money ahead of schedule, a plea so far denied.
A foreign bank dealer said yesterday: "Unless a large amount of dollars from the IMF loan package flows in and quickly, nobody can stop the freefall of the local currency. I have lost all confidence in the central bank."
Thecentral bank, which has a dangerously low $10 billion remaining in foreign currency reserves, has to meet short-term debts estimated at $20 billion by the end of the year, while South Korea is due to receive only $9 billion from the IMF and other benefactors before then.
Guillaume Lejoindre, director-general of Credit Agricole Indosuez, said: "The calculation is simple. The creditor countries have something in reserve, but they can't let it fall to nothing. The money isn't there."
As the stock market fell 7pc yesterday, thefourth largest brokerage, Dongsuh Securities, went into receivership, joining 14 suspended merchant banks and eight bankrupt conglomerates in the economic graveyard.
Some analysts reckon $90 billion to 100 billion is needed to prevent the economy melting down, but contributors to the package such as America ($5 billion) and the UK ($-25 billion) are unlikely to dig deeper until South Korea's leaders pass the market reforms agreed with the IMF and stop sending mixed signals about their commitment to the programme.
Leading contenders for next Thursday's presidential election only pledged to follow IMF stringencies yesterday, with one still talking about renegotiation as soon as the situation improves.
Thesensational crash is regarded as a great humiliation for South Koreans, who had enjoyed equally spectacular growth for the past decade and more.
President Kim Young-sam has appeared twice on national television in the past week to apologise for the debacle, caused mainly by bad debts and an overvalued currency.
One local foreign exchange dealer said: "A lack of political leadership in the lame-duck government is the most serious problem that Korea faces. Who will dare to say, ‘I will assume the responsibility'?''
20 Dec 97
Daily Telegraph: Firms to settle
AT LEAST24 Wall Street firms who trade shares on the Nasdaq stock market are in talks to reach a $900m (£560m) settlement with investors who launched a class-action lawsuit in 1994. Among the firms are Merrill Lynch, Goldman Sachs, Bear Stearns and Smith Barney. The investors had alleged that market makers at the firms conspired from 1989 to 1994 to keep the trading "spreads" between the buy and sell price of 1,659 Nasdaq stocks excessively wide.
20 Dec 97
Daily Telegraph: Asian gloom sparks equities
SHARES tumbled across the world yesterday as investors were depressed by fresh gloom from Asia. They fear that South Korea could default on up to $20 billion of debts due in the next 10 days and were unnerved by news of another high profile bankruptcy in Japan.
In London, the .FTSE 100 index of leading shares fell 148-1 points to 5,020-2, the fourth biggest fall on record and the second biggest drop this year. By the time London closed, Wall Street's Dow was down more than 200 points.
Analysts fear the Asian crisis will have a worse effect on corporate earnings than they originally thought. In New York, long-term bull Ralph Acampora, director of technical research at Prudential Securities, who said the Dow would reach 10,000 next year, now reckons the index could drop to between 6,000 and 6,300 in 1998.
David McBain, equity strategist at NatWest Markets said: "A difficult international environment is setting the tone today. Over the next few weeks market trading will be reasonably rocky."
Sentiment was also hit by fears that- Kim Dae-Jung the newly elected president of South Korea, will jeopardise the country's $57 billion IMF rescue package by trying to renegotiate.
Mr Kim worked desperately yesterday to avert a default and persuade the markets he had no intention of renegotiating. He announced an emergency visit to Washington for urgent talks with Michel Camdessus, the IMF managing director.
Mr Kim also spoke to President Clinton and Ryutaro Hashimoto, the Japanese prime minister. The Bank of Japan is to provide an emergency bridging loan worth $l-3 billion.
Despite Mr Kim's efforts, the won plummeted 6pc to 1575 against the dollar and shares in Korea fell 5pc to close at 397-0.
In Tokyo, the Nikkei closed down 846-75 points at 15,314-89. Japanese banks are owed $35 billion by Koreans and a large food manufacturer, Toshoku, yesterday filed for protection from its creditors.
The yen also fell from 127-10 to 129-10 against the dollar, before the Bank of Japan intervened to stop it falling below 130.
Analysts expect more turbulence over Christmas. Trevor Greetham, global strategist at Merril Lynch said: "The Japanese government is going to have to do more to stabilise the region. The measures it has taken so far are only worth $300 a head, less than a night out in Tokyo."
20 Dec 97
Daily Telegraph: IMF warns ‘underestimated' crisis may leap continents
THE International Monetary Fund admitted last night that it had totally underestimated the seriousness of the Asian crisis. It also warned that the situation could get worse and that the crisis could spread to other areas of the world unless the countries it has been asked to help take their medicine.
Japan is singled out as the biggest casualty. Yesterday the IMF cut next year's growth forecast for Japan by 1pc and it expects the country to stagnate for the second successive year.
The IMF has shaved 0-2pc off its growth forecast for America and 0-1pc off its forecast for Europe. Growth in Britain is expected to slow next year to 2-4pc from 3-5pc this year, while average European growth will rise from 2-6pc to 2-7pc.
The fund's economists also cut their expectations for world growth in 1998 by 0-8pc to 3-5pc. They said: "It is far from clear that market turbulence has ended, and more uncertainty than usual applies to any assessment of the future course of developments".
The fund makes it clear that thecrisis in Asia could spread to Latin America and Eastern Europe. It says: "In that case their economic slowdown would be deeper and more protracted, and the spillovers to the advanced economies, would be more serious".
27 Dec 97
Daily Telegraph: Korean stock leap boosts wall Street
SHARES in New York rose yesterday after South Korea's main stock market index jumped 6-74pc as details emerged of a pledge by theIMF and 13 nations to accelerate the disbursement of $10 billion (£6-25 billion) in emergency loans.
South Korea S benchmark share index gained 23.7 points to 375.15 and theKorean won firmed 22-7pc against the US dollar to 1498, its biggest gain ever.
The $10 billion loans, which are part of the IMF-led $57 billion rescue package, will be paid early next month. Under the agreement announced late on Wednesday night, the IMF agreed to speed up $2 billion in loans to South Korea on December 30. The US, Japan and 11 other nations will advance $8 billion in emergency funds.
In return, South Korea agreed to scrap most restrictions on foreign investment in local financial markets, keep interest rates high to attract money and cap inflation, and strictly implement reforms agreed to earlier under the bail-out package. In early trading the Dow as up over 50 points but the index settled back to close 19.18 points higher at 7679.31 on a truncated trading day.
By the close of business at 1 p.m., only 156m shares had changed hands on the New York exchange a record low for the year. The long bond was up 1/8 yielding 5-9 p.c.
Japan's Nikkei index of leading stocks fell back below the psychologically important 15,000 mark with a drop of 497.5 points, or 3-3pc, to 14,802-6.
The mood in Tokyo was undermined by fears thatgovernment measures to shore up Japan's financial system would not be enough to stem a growing wave of corporate bankruptcies.
Separately, Merrill Lynch is considering breaking into retail securities in Japan byhiring 2,000 former Yamaichi Securities staff and taking over up to 50 branches.
The London market was closed for the Boxing Day holiday yesterday.
27 Dec 97
Letter from Lloyd's and Equitas to Reinsured Names
Dear Reinsured Name
We are pleased to enclose your statement of reinsurance, together with supporting schedules which show how your Equitas reinsurance premium has been calculated by Syndicate year of account. Lloyd's, who have prepared this statement, have set up a Help Desk which will deal with any questions you may have. The telephone numbers are 01634 392135 or 01634 392233 for calls within the United Kingdom and 00 44 1634 392135 or 00 44 1634 392233 for calls from outside the United Kingdom.
A Name's percentage share of any return premium which may become payable would be calculated by dividing his/her Equitas reinsurance premium by the aggregate reinsurance premium comprising all Names' reinsurance premiums and thereinsurance premiums for Centrewrite and Lioncover, adjusted for waivers of return premium rights. Your right to receive a return premium can be transmitted to your successors in title as part of your estate, but cannot be transferred or assigned in any other way.
TheReinsurance and Run-off Contract dated 3 September 1996 ("Reinsurance Contract") was recently corrected and amended in several respects with Additional Underwriting Agencies (No. 9) Limited acting as substitute agent on behalf of Reinsured Names pursuant to directions of the Council of Lloyd's. The main changes concern certain aspects of return premium rights. It was originally envisaged that Names' shares of return premium would be based on data as at the time Equitas became operational on 4 September 1996. As the quality of information available as at 31 December 1995 allowed a more accurate assessment of each Name's share, the basis for calculation was changed to that date. The Lloyd's Settlement Offer Document dated July 1996 stated that Names' return premium rights could not be assigned or transferred except as part of a Name's estate. The reason for this was to avoid creating any circumstances in which it might be argued that the Equitas reinsurance involved the issue of a security under US Securities Laws. The non-assignability provision was inadvertently not reflected in the Reinsurance Contract which has now been corrected. Finally, the date for waiver of return premium rights has been extended by a year to 31 March 1998 to enable Names who wish to waive these rights to provide written notification to this effect to Equitas. A waiver of return premium will be irrevocable.
In addition, the Reinsurance Contract has been amended to widen the circumstances in which Equitas could suspend payments to policyholders and treat these as discharged where a governmental or regulatory authority takes control of a trust fund maintained overseas. This change was made to provide for the different regulatory requirements to which such overseas deposits may be subject.
You are reminded that you should notify Equitas of any change of address. A Personal Representative of a deceased Name is not required by the regulatory authorities to provide Equitas with an up-to-date contact address, but should nevertheless do so to help communications concerning the deceased Name's Estate, including any information about return premium.
LLOYD'S STATEMENT OF REINSURANCE
This Statement of Reinsurance is issued to
as a Name whose liabilities have been reinsured by Equitas Reinsurance Limited ("Equitas") for the premium specified below in respect of underwriting participation on Lloyd's Syndicates allocated to 1992 and prior years of account:
A breakdown of the figures shown in Lines 1 and 2 above by year of account is set out in the following Schedule. The Equitas additional premium (or release for those in surplus) in line 1 is the figure shown in your Finality Statement.
If the debt credits shown in Line 3 above are different from those in your Finality Statement, this is because you also received debt credits in respect of liabilities in connection with Reconstruction and Renewal other than those in Lines 1 and 2 above.
The reinsurance is underwritten by Equitas in accordance with, and subject to the terms and conditions of, the Reinsurance and Run-off Contract dated 3 September 1998 ("Reinsurance Contract") as corrected and amended. In consideration for the Equitas reinsurance premium, Equitas has undertaken to indemnify Names by way of reinsurance of non-life liabilities arising from their underwriting participation on Lloyd's Syndicates relating to 1992 and prior years of account. Except where restricted by certain overseas trust arrangements, all the assets of Equitas are available to meet these indemnity obligations to Names.
Provisions in event at an ultimate shortfall in the assets of Equitas
The Reinsurance Contract contains provisions for theimplementation of a Proportionate Cover Plan should the assets of Equitas at any time be insufficient to meet all claims in full. In these circumstances, Names would remain liable to policyholders for any shortfall in claims affecting Syndicates on which they participated to the extent of their underwriting participation. Names would also remain so liable should Equitas enter into some form of insolvency procedure.
Provisions in event of an ultimate surplus in the assets of Equitas
The Reinsurance Contract includes a provision for payment of a return premium which would be determined by the overall Equitas results. A Name's percentage share would be calculated by dividing the Equitas reinsurance premium shown in line 4 of the statement of Reinsurance by the aggregate reinsurance premium in line 5, as adjusted for waivers of return premium rights by Names notified in writing to Equitas by 31 March 1998.
The payment of any return premium would be subject to the consent of the regulatory authorities in the United Kingdom, who would wish to see a significant margin of solvency built up before Equitas would be permitted to make any payment. For its part, in deciding whether a return premium should be paid and, if so, the amount and timing of any such payment, Equitas will also consider the need to maintain adequate reserves and an adequate margin of solvency. No return premium is expected to be paid for several years, if at all. As a practical matter, the amount of any return premium will not exceed or even approach the amount of your Equitas reinsurance premium. Any amounts outstanding in respect of a Name's Equitas reinsurance premium at the time any return premium is paid, would be offset against any return premium due to that Name in accordance with the provisions of the Reinsurance Contract.
A Name's right to receive a return premium is capable of being transmitted to the Name's successors in title as part of the estate, but is not otherwise capable of transfer or assignment.
Requirement for continuing registration with Equitas
Equitas is required by the regulatory authorities in the United Kingdom to maintain a Register of Names. Names should notify Equitas of a change of address or, if so required, provide written confirmation of address to enable Equitas to keep the Register of Names up-to-date. A Personal Representative of a deceased Name is not required by the regulatory authorities to provide Equitas with an up-to-date contact address, but should nevertheless do so to help communications concerning the deceased Name's estate, including any information about return premium.
3 Jan 98
Daily Telegraph: Court seizes Bre-X chiefs assets
A COURT in the Cayman islands has seized bank accounts and property worth millions of pounds belonging to John Felderhof, former chief geologist at Bre-X Minerals, thefraudulent gold mine in Indonesia.
"We were able to free up some living money for the next two months," said Joe Groia, Mr Felderhof's lawyer in Toronto.
The suit was brought by the Calgary office of Deloitte & Touche, the accounting firm. The Grand Court of the Cayman Islands froze bank accounts and three properties in the. Caribbean tax haven belonging to the Canadian geologist and his wife.
Mr Felderhof and his wife Ingrid have been living on a beach estate in the Caymans since the Bre-X scandal last year. MrFelderhof cashed in C$40 million (£17.6m) of Bre-X shares before the collapse of the mining venture, which cost investors more than C$6 billion. At one stage Mr Felderhof boasted the Indonesian site contained 200 million ounces of gold, which would have made it the world's richest deposit.
In the spring of last year, before the fraud was discovered, he was named Canadian Prospector of the Year.
Themine site in Indonesia was "salted" to make it look rich when it was actually worthless. The man suspected of doing the salting, Michael de Guzman, a Filipino geologist, died in a fall from a helicopter over the site last March. De Guzman was Mr Felderhof's right-hand man and ran the field office.
Mr Groia, putting the best spin on the situation, said Mr Felderhof had beencharged only with negligence for not discovering the fraud, and not with the fraud itself.
David Walsh, founder of the exploration company and a former bankrupt and stockbroker, has been sued by groups of shareholders. However, he has maintained all along that he has also been a victim and was shocked at the discovery that the gold was not there.
8 Jan 98
Times: Lloyd's investigates allegations
LLOYD'S of London is to look into allegations of misconduct surroundingMerrett Syndicate 418, the syndicate once linked to Stephen Merrett, the controversial former deputy chairman of Lloyd's.
Names in the syndicate are angered at the circumstances surrounding thereinsurance to close (RITC) of the 1993 year of account. Murray Lawrence Corporate (MLC, formerly Whittington Syndicate Management), the managing agent for the syndicate, favours reinsuring the account with Liberty Syndicate Management, which it says provided the most competitive quote.
Representations have been made to John Young, chairman of the Lloyd's Regulatory Board, asking him to examine aspects of the proposed transaction, in particular, why£33 million in provisions for "incurred but not reported" (IBNR) claims - a figure thought to be excessive - is not being repaid to names. Lloyd's said: "We are looking into the allegations that have been made."
At least 130 names have written to MIC questioning the circumstances surrounding the RITC. Richard Whatton, managing director of MLC, has written back, saying MLC is acting in the best interests of names.
Mr Whatton writes: "As run-off managers of the syndicate, we have no other agenda other than to manage its affairs in the best interests of the capital providers. We gain nothing by closing the syndicate, indeed it could be argued that it is in our interests to keep it open, thus potentially prolonging our run-off fees.
MLC says itspent 12 months trying to get syndicates to quote for the RITC. It is seeking to backdate the closure of the account to December 31 saying a failure to do so could mean losses incurred on previous years of account may not be eligible for carry forward when calculating profit commission. This potentially gives rise to an additional profit commission of £4 million which could be payable to the former agents, Merrett.
The RITC releases a total profit for the syndicate of some £28 million giving names on the 1993 year a cumulative profit of 18.8 per cent. This would have put the syndicate in the top quartile of marine syndicates for that year. MLC says it has toleave some profit in it for the reinsurer.
Names in Merrett Syndicate 418 won a key High Court case in 1995 which saw heavy criticism of Stephen Merrett. The judge said he had "serious reservations" about Mr Merrett's approach to underwriting which involved mopping up open-ended US pollution and asbestosis risks from other Lloyd's syndicates.
Mr Merrett resigned as deputy chairman of Lloyd's in 1993. A year ago heagreed to pay £1 million in damages to Merrett names and undertook never to work at Lloyd's again in return a disciplinary inquiry was dropped.
8 Jan 98
Times: Lloyd's reform call
THE Lloyd'sCorporate Capital Association (LCCA), whose members speak for 60 per cent of capacity at Lloyd's, wants reforms to the constitution, practices and cost base. It says the constitution is skewed in favour of the minority of traditional unlimited liability names, who hold five out of seven external council seats. The LCCA says the Corporation of Lloyd's cost base continues to rise when revenues are falling, endangering competitiveness, and it wants outside consultants to assist with cost reduction targets.
10 Jan 98
Daily Telegraph: Lloyd's ‘faces losses for three years'
LLOYD'S of London will plunge into a loss this year and is likely tostay in the red for about three or four years, according to market analysis company Chatset. Charles Sturge of Chatset said he expected the insurance organisation in May to declare a profit for 1995 of about £1.05 billion, down slightly on the 1994 level.
This would represent thethird year running that Lloyd's has achieved a billion pound profit. But that period covered the peak of the market, he said.
"They had it too good" and a reaction had been unavoidable. By1996 "the ball was over" and the profit plummeted to £622m, though with a three-year delay in results that will not be reported until next year.
In its forecasts, Chatset is being more sanguine than Lloyd's itself, which last year forecast £913m for 1995 and £600m for 1996. According to the analysts, there was afurther deterioration for 1997 to £450m, and the results would have been much worse but for the lack of major catastrophes.
This year all sectors are under severe pressureand Mr Sturge said: "It is a very soft market and brokers are writing their own tickets." He added that "the motor market has gone down the chute", the marine market is marginal, and aviation is susceptible to how many planes crash.
If this year produces a series of expensive catastrophes or the loss ratios turn worse, there will be aserious loss across not just Lloyd's but the whole of the world insurance market, Mr Sturge said. Even if results remained benign, Lloyd's was likely to be in loss.
He did not think the domination of Lloyd's by corporate members would change attitudes much. Underwriters tended towrite policies for tiny profits or even losses rather than lose the customer.
10 Jan 98
Daily Telegraph: HK bank is suspended by regulators
CONCERNS about the future ofPeregrine Investment Holdings, Hong Kong's only home-grown investment bank, rose yesterday after regulators suspended its stock exchange membership and confirmed they would restrict its business activities.
The action followed an announcement by Peregrine admitting it hadfailed to raise extra funds by selling a quarter of the company to Zurich Re, the Swiss insurance giant.
Hong Kong's Securities and Futures Commission said Peregrine's activities had been restricted with immediate effect "pending clarification of the position of the group". It added that action had been taken "in the interest of the investing public".
The Hong Kong Futures Exchange limited the activities of Peregrine to liquidation of its positions, while the commission restricted its activities on both securities and futures trading.
Donald Tsang, Hong Kong's financial secretary, said: "According to what I know, Peregrine is already in talks with another investor. The matter is still developing."
Traders said that althoughPeregrine's size was small, with assets of just £80m at the last count, the psychological impact of a bank in difficulties would be enormous.
Shock news of its trading suspension coincided with a 3/4-point hike in prime lending rates to 10¼pc by Hong Kong's major banks, and both are expected to have adevastating impact on the region's financial markets when they open on Monday.
TheHang Seng Index, which closed before the rate rise was announced, dropped 360 points, or 3-9pc, to a three-year low of 8,894.6. Six months ago, in the euphoria after Hong Kong's hand-over to China, it was trading close to 17,000.
Peregrine said it had failed to reach agreement with Zurich Re on. the terms of a proposal which would have given the Swiss group a 24-1pc stake in the company, making it the largest shareholder, through a US $200m issue of convertible preference shares.
When the proposal was first unveiled in November, Peregrine's shares were trading at HK$6-80. They were suspended yesterday at HK$4-30, aftertumbling 14pc on the day.
Zurich Re said: "Weagreed in principle on November 16 but, in view. of the deteriorating conditions in Far Eastern markets, an agreement could not be reached."
The collapse of the Zurich Re deal has also torpedoed Peregrine's agreement with First Chicago, the American bank which had planned to take a 2-4pc stake for $25m.
Peregrine said the Hong Kong company hoped to enter negotiations with another party to replace Zurich Re, but declined to identify potential partners. I t added thatFirst Chicago's deal was dependent on the successful outcome of negotiations with Zurich Re.
There have been concerns about Peregrine since October when Far East markets, to which it is heavily exposed, went into freefall. The investment bank was founded in 1988 by chairman Philip Tose and managing director Francis Leung.
· Consumers are unlikely to benefit from the turmoil and falling currencies in the Far East. Computers, hi-fis and cameras are made in the region so the exchange movements were expected to produce major benefits.
But the most expensive parts are theprocessing chip, made by Intel of America which sets the price, and the display, much of which comes from Japan, whose currency depreciated only l4pc against sterling.
10 Jan 98
Daily Telegraph: Crisis in Far East knocks markets
THE crisis in the Far East hit markets here and in America yesterday as investors sold shares and sought the safety of gilt-edged securities.Long bond yields fell below 6pc for the first time since 1964, the FTSE 100 index of leading stocks fell 98-8 to 5,138-3, and on Wall Street the Dow Jones Industrial Average was 201-7 lower at 7,600-85.
Markets in Asia slumped again, despite an intervention by President Clinton who telephoned President Suharto of Indonesia and told him he must implement all the terms of the IMF's $40 billion (£24 billion) rescue package.
Following the call Mr Suharto issued a statement saying he would implement all the IMF's reforms. Therupiah, which had fallen 50pc this week on fears that Mr Suharto would breech the terms of the IMF package, immediately started to rise, finally reaching 8,000 to the dollar, up from Thursday's close of 9,800.
There were rumours on the foreign exchanges that the US Federal Reserve intervened to prop up the rupiah.
The rise in the rupiah did little to calm other markets, however. · British Aerospace, which has a £200m contract to supply 16 Hawk fighters to Indonesia, was watching the situation in the Far East closely last night after the Indonesian government announced it was slashing defence expenditure by $20 billion to ensure public spending did not exceed targets set by the IMF.
16 Jan 98
Daily Mail: Cold comfort for the Lloyd's losers
WITH the Lloyd's ‘refuseniks' - as the investors who have declined to settle are known - facing bankruptcy writs after the City institutionposted losses in excess of £8 billion over four calamitous years starting in 1989, former chief executive and deputy chairman Ian Hay Davison has dropped a bombshell.
Now chairman of Sadlers Wells, chartered accountant Hay Davison, 66, is informing Lloyd's losers that the Conservative Government under Margaret Thatcher decided on ‘policy grounds' not to prosecute any underwriter responsible for the first batch of frauds in the early Eighties.
He states: ‘I was, and remain, extremely indignant and disappointed at this. During my time at Lloyd's and subsequently, I had a series of lengthy interviews with the Serious Fraud Office concerning the various frauds. Regrettably the Government decided not to prosecute any of those involved.'
A former managing partner of the world's largest firm of accountants, Arthur Andersen, Hay Davison Joined Lloyd's in 1983 and stayed for three years. He told me yesterday: ‘I was too hot to handle and royally unpopular and resigned. During my time60 people were disciplined involving a dozen incidents.' While the frauds during his tenure were separate from the losses at the end of the decade, he believes the seeds of the ‘gross criminal negligence' which led to the monumental losses were sown in his time.
Among those who escaped and have been living abroad in luxury ever since are Peter Cameron-Webb and Peter Dixon. Both fled the country in 1982 for America after being found to have siphoned off at least £40 million from their investors.
17 Jan 98
Daily Telegraph: Trade chief warns of global slump
THE head of the World Trade Organisation yesterday warned of the dangersof Far Eastern financial crises turning into a 1930s-style slump in global trade.
"While financial crises can rise and fall quickly, trade crises can have a more lasting and damaging impact," warned Renato Ruggiero, the director-general of the trade organisation.
"What must be avoided above all is a vicious circle of economic reactions and counter actions leading to wider and deeper distress."
The trade body is concerned that the collapse in Asian countries' currencies will cause other nations to devalue to remain competitive, or will encourage governments to erect trade barriers to counter the increased price of imports.
Mr Ruggiero said that unless protectionist pressures are resisted and markets kept open, no lasting confidence or stability can return.
He was speaking to the Royal Institute of International Affairs in London to mark 50 years of the multilateral trading system established by the predecessor trade body, Gatt.
His comments came as the FTSE 100 index jumped 97 to 5,263 and the Dow Jones in New York rose 92-17 to 7,785-74 after Far East markets strengthened.
Mr Ruggiero warned that the Asian crisis is thefirst major test of the new inter-dependent world economy which has developed since the end of the Cold War. "It is clear by now that the impact of this crisis reaches beyond the countries initially involved-and indeed, beyond Asia," he said.
"The current situation is bad enough - but the greater danger is that we will make policy errors in response to these events which could prolong the crisis and even extend the difficulties. Turning inward in the 1930s in response to financial crisis helped drive the world into economic depression and, ultimately, world war."
17 Jan 98
Daily Telegraph: Here's a new threat to Lloyd's endangered species - market forces will force their way in
THE members of Lloyd's of London are retiring hurt. Their numbers are down by three-quarters, and this year, for the first time, more thanhalf of Lloyd's capital belongs to the companies that are taking over from them. They don't want the companies to call the shots, though, or to have what would pass as majority rights.
That, says the Association of Lloyd's Members, might subject Lloyd's ruling council to dominant market forces and reduce its independence. My goodness, yes. Anyone would think that Lloyd's was a business, with a board, and shareholders. TheALM's chairman, Sir David Berriman, used to be a merchant banker but has gone off markets these days: "It cannot be right", he was saying last year, "to leave the capital structure and modus operandi of Lloyd's to market forces".
It was Sir David who explained to theHouse of Commons Treasury committee how he came to join Lloyd's: "I went to an agent who was associated with my then employers and assumed that they would treat me as an insider and put one on better syndicates, but lo and behold I think every one they put me on has gone wrong, which shows that even they did not know any more than the rest of the market."
He was content so long as the cheques, however small, kept coming but woke up when they stopped: "It was when the losses started flowing through that I took the attitude that I am damned if I am going to pay out this money unless I know why it is happening."
Market forces had forced their in. Now they have come round again, forLloyd's is drifting back into losses. What it needs as a business is businesslike owners who can make sure that it is run in a businesslike way. Its members need that, too, while they last.
17 Jan 98
Daily Telegraph: Five firms fail to meet mis-selling deadline
FIVE major firms involved in the mis-selling of personal pensions failed to make the deadline of December 31 for sorting out 90pc of their top priority cases, the Personal Investment Authority announced yesterday.
The five firms who did not meet the deadline are all independent financial advisers:Burns Anderson Independent, Countrywide Independent, DBS Financial, Financial Options and IFA Network. All are believed to have sorted out about 60pc-70pc of their most urgent cases.
In Parliament yesterday, Helen Liddell, for the Treasury, said: "The first deadline has now passed and most of the large firms appear to have met it. Those who have not must face the consequences. The PIA is considering the action to take. The41 firms still have a huge task ahead of them as none of them has yet resolved all their priority cases."
"For all firms -large and small - a deadline of December 31 1998 has been set for completion of that task - for some it is as early as April 30 1998. There will be no let up from the government or the regulators - until it has been achieved."
So far,only one of the five firms that missed the deadline - DBS - has been penalised for pensions mis-selling. It was fined £425,000 by the PIA in September and is unlikely to he fined again. So far, the PIA has fined 47 members a total of more than £2m over pensions mis-selling.
17 Jan 98
Daily Telegraph: Texas to get £9bn from tobacco industry
CIGARETTE makers are expected to announce they have agreed to pay the state ofTexas $14-5 billion (£9 billion) over 25 years to settle smoking –related health claims against them.
Final negotiations were complicated by a row over fees for thelawyers hired by the state. Under their agreement with Texas, they are entitled to 15pc of the settlement, or $2-18 billion.
The settlement is the third such resolution of a legal dispute between the industry and state attorneys general. Last yearFlorida settled for $11-3 billion and Mississippi for $3.4 billion.
The industry, which has also agreed to a number of marketing and sales restrictions may be eager for a settlement to prevent a damaging trial shortly before congress considers thenational $368 billion settlement agreed last year with 40 state attorneys general.
Next week, the industry is scheduled to face the state of Minnesota in court.
15 Jan 98
Daily Telegraph: Yamaichi shares strike historic low
SHARES in Yamaichi,Japan's fourth largest securities house, plunged 18-7pc yesterday to hit an historic low of 96 yen as more than 63 million shares changed hands, representing 5pc of Yamaichi's capital.
The plunge came as Standard & Poor's, the American credit ratings agency, downgraded the securities house's debt to just above junk bond status. Thestock closed at 100 yen. In January, it was trading at 500 yen.
Senior staff in London have been called into meetings over the past few days to be told that, any rumours the bank is in trouble are "totally unfounded".
In a formal statement last night Yamaichi said its financial situation was "healthy" and that it maintained prudential ratios as required in Japan to guarantee solvency.
The statement did not address the market speculation that the company was a candidate for a takeover.
The sharp fall in Yamaichi's share price prompted reports that the Japanese finance ministry may sanction the first rescue package from a foreign institution.
Several American investment banks were reported last night to be considering a bid for Yamaichi to gain control of its large Japanese retail franchise. Another name being mooted was Fuji, the Japanese bank.
It is understood that the Japanese bosses of Yamaichi's London office have declined to rule out a possible foreign owner. One insider said: "Normally they would laugh at such stories but they haven't this time."
One London based banker said: "There will never be a better time. Yamaichi is unlikely to be as cheap again and Japan's Ministry of Finance indicated it is unwilling to get involved in a bail-out."
Last week Sanyo Securities became the first broker in post-war Japan to go bankrupt, with debts of £1-8 billion.
Speculation about Yamaichi's future was heightened by the fall in Tokyo's Nikkei index of leading shares to its lowest level in two years. One analyst said the market was "in meltdown" as it fell 344-75 points to 15,082-52.
At one point the index fell below the key 15,000 level. Japanese analysts believe if the market settles below that level, the capital adequacy of several banks could be threatened. The financial sector was the most affected.
It was announced yesterday that America's Treasury Secretary, Lawrence Summers, will visit Tokyo on Monday to hold emergency talks with Japanese finance ministers Hiroshi Mitsuzuka and Eisuke Sakakibara.
Mr Sakakibara confirmed the Japanese government r cognised the gravity of the situation yesterday, saying there were signs of global deflation "which could end up in a crash." He said: "The bursting of the bubble economy and the adverse effects it had on the financial institutions is the, biggest problem the Japanese economy has flow. Nursing them back to health is a major undertaking."
The government floated its ideas yesterday for the second package of reforms to boost the economy this month. But the proposals, launching a private finance initiative and using funds from government-sponsored savings plans for a public works programme, failed to assuage investors' concerns about the economy.
Yasutoshi Nagai, an economist at Yamaichi Research Institute, said: "Prolonged uncertainty over the Japanese economy continues to depress the market. Investors are disappointed by the economic package that does not even contain tax cuts."
17 Jan 98
Daily Telegraph: Asia's turmoil puts pressure on Standard bank
STANDARD Chartered bank's credit rating was placed on review for possible downgrade by theMoody's rating agency yesterday because of its involvement in the Far East.
Three German banks,WestLB, Bayerische Landesbank and Commerzbank, were also put on "credit watch with negative implications" by the agency.
Bayerische Landesbank later issued a separate statement saying it had suspended three traders in Singapore, including three Britons. It said it had not uncovered any losses but would not comment further.
The chairman of the French bank Paribas also made a statement, saying the bank had $15-5 billion of loans to the region.
In Hong Kong, the Hang Seng index rose 6pc to 8,900. The rally was led by statements from Sino Land, a property company, that it did not face liquidity problems. The liquidator ofPeregrine, the Hong Kong investment bank which filed for liquidation on Tuesday, said that 306 of the bank's 700 employees had lost their jobs.
In Tokyo, the Nikkei shares index soared more than 900 points to 16,046 after two of the country's largest banks, Bank of Tokyo Mitsubishi and Sanwa Bank, said they would boost their liquidity by joining a government backed scheme by selling preference shares.
The yen shot up against the dollar, closing at 128-99, up from 130-49. It has improved more than three yen since Tuesday..
Shares rose in Indonesiaby 6-9pc as the market absorbed the detailed programme agreed to by president Suharto at the behest of the IMF.
In South Korea the financier George Soros is examining buying a stake in Samsung, the electronics giant.
The strengthening in the Far East was reflected on the metals markets in London:. The three-month contract for copper rose to $1,776 a tonne up from $1,686 ½ and up 4-5pc on the week. Gold also rose by $6-75 to $290 an ounce.
However the Indonesian rupiah closed at 8,950 against the US dollar, down from Thursday's close of 8,025, while the Korean won fell to 1,626 from 1,605.
17 Jan 98
Daily Telegraph: Unsafe, unsteady
STORES of value in Asia continue to leak. The latest isPeregrine, Hong Kong's investment bank, which has been run over by an Indonesian taxi company called Steady Safe. There will be any number of bankers and investors and exporters and trade creditors who will find what they thought was money in store is without value.
You might care to arrange these claims in order of merit: a brown envelope full of rupiah notes, a lien on an airliner bought by an Asian state airline on the instalment plan, a Korean bond which started life as a bank loan, a mortgage on a flat in the mid-levels in Hong Kong, the next progress payment on a Thai construction contract, a deposit in a second-tier Japanese bank, ajoint-venture with an aunt of the Suharto family, an appeal to the International Monetary Fund's better nature, a nice solid portable ingot? Quite.
18 Jan 98
Observer: Lloyd's row over ‘prosecutions ban'
FURIOUS Lloyd's Names who lost money in scandals in the insurance market have seized on the strongest evidence yet that theThatcher government intervened to stop underwriters being prosecuted for fraud.
A letter by Lloyd's former chief executive Ian Hay Davison to a Name says ministers took the decision in the late Eighties ‘on policy grounds'.
Now the Names - private individuals who provided the majority of funds for Lloyd's until three years ago - are to use the information to bolster an attempt to have their grievance heard by theEuropean Court of Human Rights. Under the Lloyd's rescue deal hammered out in 1996, Names lost their right to sue players in the insurance market. But the settlement left open the possibility that they could sue the Department of Trade and Industry.
Hay Davison's astonishing assertion comes in the letter, written last month. He is widely credited with carrying out the first effective clean-up of Lloyd's between 1983 and 1986 after the market was hit by the scandals, starting in 1982, in which unsuspecting investors were lured into syndicates carrying bad risks.
His letter says he was extremely indignant and disappointed' that the Government refused to take alleged fraudsters to court.
He had identified anddisciplined 60 people, some in senior positions at Lloyd's. They were fined and expelled.
Some senior insiders believe the Thatcher government decided not to prosecute partly because Lloyd's earned billions of pounds for the UK - a suggestion that has especially angered the Names.
Two cases that did make it to court ended in acquittals. This was widely used to suggest that cases were too complex for juries to understand.
Names believe further criminal prosecutions could have deterred alleged fraudsters in the Nineties.
One Name, Earl Alexander of Tunis, is to champion a petition to the Court of Human Rights.
He said this weekend: ‘One woman has already submitted a petition which has passed the first hurdle in the process. We believe that it has been shown to be futile to try to get redress in this country because of the [former] government's refusal to prosecute.'
The Names will also demand to know which underwriters would have been prosecuted. ‘We want to know if any of these people carried on acting for us in the market into the Nineties,' he added.
18 Jan 98
Observer: SFO probes Midlands flints over suspected ‘payment for loan' fraud
THESerious Fraud Office is investigating a suspected major international fraud involving payment for loans that never materialised.
At the centre of the Investigation aretwo Midlands companies, Commercial Guarantee and Venture Guarantee, run from Kenilworth.
Both were wound up by the Department of Trade and Industry last year along with their parent company, Venture Guarantee Group Holdings. The DTI referred the case to Warwickshire police and the SF0 subsequently took over the investigation.
The Warwickshire Fraud Squad has sent out an estimated7,000 questionnaires to individuals who had been promised or offered loans seeking information on their experiences and losses.
Commercial and Venture Guarantee had been operating since 1994. Edward Fitzpatrick, who gave his address as theBritish Virgin Islands in the Caribbean, was a director until 1996.
Fitzpatrick worked with theMiami-based Select Capital Advisors, which raises finance for smaller companies. SCA described Venture Guarantee as providing clients and opportunities.
Attempts to contact Fitzpatrick were unsuccessful. He was in London, said an employee at the Kenilworth office who denied any knowledge of the investigation.
Victims ofadvance fee frauds are usually business-men unable to borrow from banks. They are persuaded to pay up-front fees or expenses for loans. Borrowers are then told they cannot meet the conditions for the loan. The real reason often is there was no money to lend.
21 Jan 98
Times: Crackdown at Lloyd's sees rise in fines
A "ZERO tolerance" crack-down on sharp practice at Lloyd's of London led to many more members being fined, censured or expelled last year.
Formal disciplinary proceedingswere started against 21 individuals and companies, up from four in 1996. Nineteen members were found guilty of serious misconduct in 1997, with some cases continuing.
Offences ranged frombrokers taking secret profits to a motor syndicate manager taking two stolen cars when they were recovered.
Summary disciplinary proceedingswere started against 27 members when lesser offences were suspected, up from 12 in 1996. A further 65 received formal warnings for minor infringements, up from 53.
A Lloyd's report admitted: "Many of the offences investigated arose as a result of alack of understanding of accepted business practice and the requirements of civil law."
David Gittings, director of regulation, saidabout 20 per cent of members were failing to comply with expected standards of business practice. He said this figure was similar in other financial markets.
Mr Gittings said his regulation division would concentrate on protecting Lloyd's from the kind of incestuous risk-sharing and under-reserving that nearly destroyed the society in the late 1980s.
An investigation into the insuring of the Hibernia, the largest single offshore structure in the world, revealed that several underwriters were exposing investors to more risk than they had been led to expect.
The society also said there was a danger that reinsurers willonce again expose themselves to a "spiral" of unseen risks from other syndicates because they are desperate for business.
In 1997 Lloyd's introduced a prototype transaction monitoring system similar in principle to that used by the Stock Exchange to regulate share dealing. This will be further developed in 1998. The regulation of brokers will also be reviewed.
Lloyd's expects an announcement from the Government this month on its future relationship with the Financial Services Authority, the new City watchdog. Lloyd's wants to be overseen by the FSA, while still policing itself in a delegated role.
The society admitted, however, that staff turnover in the regulatory division - more than 20 per cent - had been a problem, as it had in other regulatory bodies.
Lloyd's hasadmitted making 288 mistakes in a batch of payment demands sent to names. The admission relates to ongoing court proceedings brought against several hundred names who are refusing to pay sums demanded for the society's past losses.
22 Jan 98
Daily Telegraph: Lloyd's admits Names mix-up - Lloyd's cash blunders
LLOYD'S of London admitted in the High Court yesterday that it hadmiscalculated the sums of money it has demanded from dozens of its dissident Names.
Eleven peoplewho were being pursued for alleged debts have now had the cases against them dismissed, after it emerged that they were, in fact, owed money by Lloyd's.
The development came during a hearing to determine whether Lloyd's had produced sufficient documentation detailing how it had arrived at the amounts demanded from individuals.
The court was packed with rebel Names - those who refused to accept the Lloyd's settlement in 1996 and who continue to claim that it defrauded them by hiding knowledge of its losses.
About2,000 Names rejected a recovery plan and are being pursued for millions of pounds in outstanding debts.
The current phase of the legal action is aimed at627 Names, who allegedly owe £130 million towards the premium cost of getting up Equitas, the ".lifeboat" company established to take on Lloyd's massive liabilities.
Yesterday, thecourt was presented with figures which showed that 288 errors had been made in the calculations of debts owed by 85 Names.
Christopher Stockwell, chairman of the Lloyd's Names Association, said the implications of the erroneous calculations ‘stretched to all 34,000 Names, more than 90 per cent of whom accepted the recovery plan.
But Lloyd's denied this, saying adifferent calculation method would have been used for those who signed up to the recovery plan.
Francis Hughes, 64, from Cheshire, was one of those whose case was dismissed.
He was beingsued for £4,000 - but it emerged that he is owed £64,000. "I am ecstatic," he said. "But the battle is far from over. I will be suing Lloyd's to try to recoup what has been taken from me."
Catherine Mackenzie Smith, co-chairman of theUnited Names Organisation, which represents around 100 Names, said: "Lloyd's has admitted to the court that the figures it swore before Christmas to be correct and conclusive were in fact very seriously wrong."
"If they can make 288 mistakes in this small sample, how many mistakes could there be in total?"
She added: "I am being sued for£344,000 for the Equitas premium, even though I have already willingly paid £153,000." Before the hearing, a handful of elegantly attired names and supporters gathered outside the court waving banners. They were joined by a representative of a group of American Names, dressed as the Star Wars villain Darth Vader and introducing himself as "Lloyd's of London".
One demonstrator, Sally Noel, a fashion designer from Yeovil, Somerset -who claims she is being pursued for more than£320,000 - wore a badge bearing the words: "Liars of London".
She said: ‘‘Names are being pursued beyond their graves.Thirty-two people have committed suicide. It's been torture for 12 years."
Mr Justice Tuckey, who has already had to deal with a number of courtroom outbursts, began yesterday's hearing with a warning.
"There will be no interruptions, please," he said. "No cheering, booing, hissing, clapping or anything of that kind."
The Names restricted themselves to a few murmurs of derision when Richard Jacobs, for Lloyd's, told the court that while there had been anerror in the calculation of figures, the mistake lay in the extraction of the figures rather than the data itself.
A spokesman for Lloyd's said last night: "If errors have been made then Lloyd's naturally apologises for them. We are sorry."
But the mechanics of this process are, to say the least, complex, and the situation was changing all the time between the date of the writs being issued and the date of these cases coming to court."
22 Jan 98
Daily Telegraph: Equitas pays out
EQUITAS, the Lloyd's of London run-off vehicle,paid net claims of £730m in the six months to the end of September, almost a billion more than the previous six months, and much better than expected, it said yesterday.
22 Jan 98
Daily Telegraph: Lloyd's set for external regulation
THE Treasury yesterday backed Lloyd's of London proposals that it be regulated externally.
Detailed plans for supervision by the new Financial Services Authority will be included in thissummer's Financial Services Act, Helen Liddell, the economic secretary, told the Commons yesterday.
Thefuture of Lloyd's regulation was in some doubt. Margaret Beckett, who as president of the board of trade is responsible, for insurance, said in July, Lloyd's would eventually be regulated by the new authority. But when the authority was launched in October; there was no mention of Lloyd's.
22 Jan 98
Daily Telegraph: Fears grow in Indonesia as currency hits new
FEARS thatIndonesia's economy will collapse heightened yesterday as its currency fell to another low, one sixth of its value in July.
The signing of a tougher rescue package with the International Monetary Fund last week has done nothing to restore currency traders' confidence. Therupiah touched 12,000 to the dollar before reviving slightly to 11,575.
A report by the international credit rating agency,Standard and Poor's, that Indonesian banks required £9-3 billion to see them through the coming weeks, coupled with alarm over 76-year-old President Suharto's probable choice of vice-president, have continued the rupiah's tailspin.
A foreign banker in Jakarta said: "It is hard to see where it is going to end. We are still sceptical that the government is serious about implementing all the IMF-demanded reforms, and succession to Suharto is a big issue now."
Mr Suharto has accepted the ruling party's nomination for re-election in March. But critics say his choice of number two, Bacharuddin Jusuf Habibie, research and technology minister, is associated with the mismanagement, profligate waste and misguided economics that have contributed to the country's parlous state.
Manmindar Singh, a senior economist with the Nomura Research Institute in Singapore, said Mr Habibie is linked to several projects scrapped under last week's £24-4 billion IMF package. "A lot of people are not very keen on Habibie," he said.
Analysts argue that he would be even less likely to see through the vital IMF reforms. The other contenders are all military, whence previous vice-presidents have been drawn.
A Western diplomat said: "When the country most needs someone with determination and vision, there just isn't anyone in the picture. It's very alarming."
Panic buying in Jakarta and food riots on Java island sparked by rapidly-increasing food prices have led to predictions of massive unrest in anation of 202 million.
Given a history of violence between' the army and the people, the chief of staff's repeated warning that his forces were ready to deal with any trouble quickly has an ominous ring.
22 Jan 98
Daily Telegraph: Indonesian currency reaches all-time low
THE Indonesian rupiah plummeted yesterday to its lowest ever level of 12,000 to the dollar before recovering to 11,500 as investors continued to worry that some of thecountry's big corporations will default on their debts.
Biederick Sluijs, regional economist at ABN Amro Hoare Govett, said that there weretwo reasons for the plunge, which came despite the reforms agreed by president Suharto and the IMF last week. "First, the short-term debt of Indonesian corporates, second a capital flight as wealthy Indonesians take their money out of the country." A report suggested ABN Amro was arranging a debt-clearing facility to help Indonesian companies service their $67 billion debt. ABN denied this, although it admitted to informal talks.
Elsewhere, for thesixth day running, there were rallies in some key markets. The Nikkei index in Japan rose 2pc to 16,684-42 and shares in Singapore rose 1pc.
Three-month interbank rates eased in Hong Kong from 13pc to 12pc, but theHang Seng index fell 186.90 points to 9,246.80. In South Korea, shares fell 5pc.
23 Jan 98
Lord Justice Tuckeyruled that Lloyd's must produce detailed calculations of claims against its 600-odd rebel Names by February 1. But he rejected Names' requests to check the underlying records. Names hope to show the figures are riddled with errors.
23 Jan 98
Daily Telegraph: Judge approves Lloyd's figures
A JUDGE accepted yesterday that Lloyd's of London had produced the proper records to continue its legal action to recover millions of pounds from dissident Names.
Last month, Mr Justice Tuckey found that Lloyd's had not fulfilled its obligation to provide both the calculations and the underlying data showing how it had arrived at the figures demanded from individuals.
But after a hearing at the High Court on Wednesday, when further data was produced, he found that sufficient information had now been provided to allow the case to continue next month.
The current action centres on627 Names who refused to sign up to the Lloyd's recovery plan in 1996. They allegedly owe £130 million towards the premium cost of setting up Equitas, the "life-boat" company established take on the massive liabilities of Lloyd's. On Wednesday, Lloyd's admitted that mistakes had been made in calculating the sums of money owed by 85 of the Names. The action against 11 individuals was dismissed after it emerged that they were owed money by Lloyd's.
One Name who had the action against him dismissed was Francis Hughes, a company director from Cheshire.Lloyd's originally sued him for £213,000, and was latterly pursuing him for £4,000 after recovering the bulk from his assets.
He has now been told that he has a£37,500 surplus, although other liabilities may have to be taken into account before the matter is settled.
Philip Holden, head of the financial recovery department at Lloyd's, said: "The suggestion that theerrors identified in 85 cases have any .implications for any other Names is incorrect."
23 Jan 98
Daily Telegraph: Indonesia drags currencies down
THE Indonesian rupiahappeared out of control yesterday as it hit a record low for the third consecutive day, plunging at one stage to 16,300 to the dollar before closing at around 12,000.
It has nowlost 85 per cent of its value in seven months.
Brokers said yesterday's panic was sparked by Indonesian banks trying to pay back foreign loans in rupiahs, flooding the market. The central bank reportedly intervened by selling precious dollars.
Therupiah's fall dragged other Asian currencies down and was blamed for a 4-8 per cent drop on the Jakarta Stock Exchange's main index, which closed down 22-474 points to 443-529 points.
Dealers and analysts in Jakartaexpressed fears that the banking sector could barely function with the currency at such low levels.
Commercial banks reported long queues of customers waiting to withdraw funds or exchange currencies
Alarm has gripped the markets just days afterthe $40 billion International Monetary Fund package was revised and the last of a series of foreign dignitaries attempting to reassure them left the capital. "Confidence is stabilised while these people are in town but then it's back to normal, whatever that is," said a British banker.
President Suharto has failed to convince traders that he will carry out the reforms and has unnerved them with his apparent choice of vice-president, research and technology minister Bacharuddin Jusuf Habibie.
Habibie is a man with a track record of bizarre economic theories and alleged mismanagement who would take over in the event of the death or incapacitation of the 76-year-old ruler, who is set to embark on a seventh term in office.
Finance Minister Mar'ie Muhammad said on Wednesday the government was considering how to address the private-sector debt mountain. But heruled out a debt bailout, even though such a measure helped ease problems in South Korea.
23 Jan 98
Daily Telegraph: Expats find bargains galore
AMID all the despair expatriatesliving in Jakarta are enjoying prices in what is now one of the cheapest modern cities in the world, particularly in electronics, white goods, antiques and sporting equipment.
A set of golf clubs that would cost £1,200 in the United Kingdom can be found for £400 and a 14-inch Sony television for £50.
Many shopkeepers have not adjusted their prices, preferring to sell out of stock and pack up either for good or until things improve. Others have adjusted prices up by 20 to 30 p.c. but by no more as they know locals would stay away.
Foreign companies are also eyeing local bargains. "There are corporates that are sound but are obviously struggling because of the devaluation.
"Potential buyers seem to be wait mg for more distress signals and prices to come down even further," said a dealer at a British bank.
23 Jan 98
Daily Telegraph: Asian crisis may help economy slow down
THE Asian crisis will lead tocheaper imports and falling commodity prices, helping the authorities in their battle to contain inflation in Britain, Bank of England governor Eddie George said yesterday.
Hinting that the Bank of England monetary policy committeemay be willing to postpone next month's widely expected rise in interest rates, Mr George noted that there were some signs that the British economy had started to cool.
However, he warned that theslowdown would have to happen "quite soon and quite quickly" to persuade the committee that no further action was needed. The committee next meets on February 4 and 5.
Mr George's assessment of the Asian crisis and itspotential to do damage to other countries was surprisingly bearish, and noticeably more so than that made at the end of last year by the International Monetary Fund.
"Even assuming, as I do, that we are able in fact to contain the immediate financial turmoil, there is bound to be asubstantial economic aftershock," he told a lunchtime meeting of the British-American Chamber of Commerce.
In December,the IMF responded to events in Asia by shaving ¼ point off its growth estimates for the Group of Seven leading industrial countries. Mr George said yesterday: "Most analysts would see the risks as being quite heavily on the downside."
Intriguingly, the governor said it might have beenpossible to adopt a hands-off policy towards Asia, allowing market forces in the region to take the strain of adjustment but he dismissed that as too dangerous an option. "It is clearly in our own interests as well as theirs that the Asian economies recover as quickly as possible and that we help them towards that."
It was understandable thattaxpayers resented their money being used to bail out private creditors in Asia but Mr George said banks had played a part by rolling on debts and pressure was being put on investors to play their part by holding onto their existing assets.
Claims that theAsian crisis could help curb inflation by slowing down the American and British economies were "true, up to a point" but would lead to a worsening balance of payments position and would undermine the export side of the economy.
24 Jan 98
Financial Times: Lloyd's of London - Clampdown on members' agents
Government plans to strengthen controls protecting those who provide capital to Lloyd's of London will require members' agents to seek special authorisation from the UK's new financial super-regulator. This, says the Treasury, will help toprevent any recurrence of the losses which have ruined many Names in recent times.
For years, the professionals who earn a living from advising Names - the individuals who have traditionally backed Lloyd's - have beenexempted from the rules governing financial advisers elsewhere.
The reason is that all Names used to be sole traders. They did not invest in Lloyd's but supported the insurance business it wrote by pledging funds to meet claims.
Trading with unlimited liability, they stood to lose everything if Lloyd's suffered heavy losses but, typically, enjoyed the luxury of an annual cheque for doing very little.
Thatall went wrong in the 1980s. A recruitment drive, driven by what was seen as the need to write more business to maintain returns when commercial insurance rates were tumbling, brought fresh capital to the market. Thousands of new Names joined Lloyd's, many of them unable to meet the potential call on their assets.
When a series of costly natural catastrophes struck, the entire system unravelled. Claims spiralled out of control because some under-writers had concentrated risk by reinsuring it with each other over and over again -an ill-advised practice which generated profit commission but exposed Lloyd's to inflated liability.
Some members' agents were partly to blame for recruiting Names and putting them on syndicates writing risky business - not just the ones writing the excessive reinsurance, but those exposed heavily to potential claims arising from environmental pollution.
The number of agents has fallen sharply since then, mainly because membership of Lloyd's has dwindled. This year, there are6,800 traditional Names compared with a peak of 34,000 a decade ago. Most of the capital now comes from corporate sources, first admitted to Lloyd's in 1994.
Members' agents are having to restructure and rethink. With an emerging secondary market in "capacity", or the right to support Lloyd's insurance syndicates, they can no longer offer exclusive access to the best underwriters.Fewer than 20 agents remain at Lloyd's compared with more than 100 six years ago.
Clients have different requirements. More Names are choosing to convert from unlimited to limited liability through schemes that make them shareholders in listed investment vehicles. In doing so, they become investors rather than traders. For the Treasury, this is a crucial difference.
This is not to say that members' agents do not comply with requirements that apply to other financial advisers.Anticipating change, some are registered already with Investment Management Regulatory Authority (Imro). Others have ensured their employees sit examinations set by the Personal Investment Authority.
Demand for better-quality analysis of performance by Lloyd's syndicates has resulted in regular reports by the bigger agencies. Names seeking to judge the performance of their members' agent can scrutinise the record of Members' Agent Pooling Arrangements (MAPAs), which back a wide range of syndicates.
Charges by agents are complex, involving a layered commission structure based on syndicate profitability and the amount of business backed. Few simply charge a flat fee.
Their judgment in some areas has been questioned, though. A recent inquiry by Lloyd's into the activity of agents during last year's capacity auctions revealed thatsome may have given flawed advice to Names. Lloyd's says Names were urged to reject offers from underwriting agents that were much higher than prices subsequently paid at auction.
Meanwhile, a few have begun branching out into new areas of business, offering pensions and other financial services to Names.
But, as more Names leave or convert to limited liability, the remaining members' agents will come under increasing pressure to cut costs or merge. Only the biggest will be able to afford the technology necessary to produce sophisticated analysis.
"Our role will be to analyse the market," says Christopher Hodgson of the Greenwich agency. "Given the current weak trading conditions, risk selection is going to be a value-added product. If you haven't got the quality of research, the Names will move on."
24 Jan 98
Financial Times: Government faces £1bn bill as miners win health ruling
The government faces a compensation bill approaching £1bn after British Coal yesterday lost a landmark High Court case brought by six former miners suffering from respiratory diseases caused by coal dust.
The judge, Mr Justice Turner, saidBritish Coal and its predecessor, the National Coal Board, had been negligent in not enforcing safety standards throughout the industry when the health risks to miners were well known.
In a highly critical ruling, the judge said he had found "abundant evidence which emanated from a variety of sources that officials interpreted their duties as requiring the production of coal, first, and the taking of precautions in respect of safety, second". The six former miners, who suffer from chronic bronchitis and emphysema, wereawarded initial damages of between £2,400 and £9,000. They will make further claims for loss of earnings and other damages.
The judgment will lead to thelargest compensation claim against a single employer. Some 10,000 further cases have already been prepared and thousands more are expected. With British Coal no longer in existence, the government must meet the payments from Treasury funds.
Tom Jones, a solicitor with Thompson's, one of the law firms which brought the action, said: "The whole approach of British Coal in this case has been condemned in the strongest terms. It is amongst thestrongest and most damning judgments ever handed down to a major employer." The government responded by announcing it would set up a "fast-track" negotiations procedure to handle future claims without going to court.
John Battle, the energy minister, said: "We have a duty to deal promptly with valid claims that stem from British Coal's previous activities and actions over many years."
Bleddyn Hancock, South Wales secretary of Nacods, the pit deputies' union which brought the action, said he was delighted by the ruling. He warned the government not to drag its feet over future negotiations. "This is a test of Mr Blair's principles. Are we to have more cynical delay, or an honourable settlement?" he asked.
24 Jan 98
Financial Times: Profits pitted against safety - British Coal ordered to pay former miners £1bn compensation
The High Court judgment against British Coal, that has left the government facing a compensation bill. approaching £1bn, is a serious indictment of the British mining industry's health and safety record under nationalisation.
The test cases brought by eight former miners suffering various respiratory diseases ended with the judge finding that British Coal (and the National Coal Board which preceded it) placed a higher priority or maximising the amount of coal extracted from its pits than on enforcing safety standards.
Mr Justice Turner said he had found: "Abundant evidence which emanated from a variety of sources that officials interpreted their duties as requiring the production of coal first and the taking of precautions in respect of safety second."
Glyn Jones, one of the miners who brought the test case, said: "I would much rather have my health than financial compensation – but the long struggle has been worth it if it allows thousands of other ex-miners to make a claim."
The judge ruled the industry had been negligent in not enforcing safety measures when the risks of coal dust causing respiratory diseases were well known, if not precisely understood, he said.
He also described as "plainly indefensible" British Coal's claims that the links between coal dust inhalation and respiratory diseases had not been established properly.
The judge found that British Coal had failed "to take all reasonable steps to minimise the creation and dispersion of respirable dust by the introduction and use of known and available dust suppression techniques from about 1949 to 1970 and to a lesser extent thereafter."
British Coal failed to adopt properly included encouraging the use of face masks, pneumatic picks, water sprays and proper ventilation.
The problems were particularly acute between1949 and 1970 because there was limited statutory regulation and the industry opposed the use of face-masks, believing dealing with coal dust at source was more important.
It was only in theearly 1970s, when further statutory regulation was introduced, that some improvements were made.
The judge criticised the practice, begun in thelate 1940s, of creating areas with "approved dust conditions". These were areas with set dust levels where miners already suffered from respiratory diseases could work. In practice, most areas became "approved" and British Coal made no serious effort to improve these conditions.
Mr Justice Turner said safety officials tended to "contrive to present a better picture of conditions under-ground than the reality". Measurements were frequently falsified, he said.
The judge said the test cases were only "the tip of the iceberg". His judgment has opened the way for many thousands of similar claims from former miners.
The cost to the government will be huge. The scale of the damages awarded to the six successful former miners ranged from £2,400 to £9,000 with all except one of the claims reduced because smoking contributed to the diseases.
About 10,000 further cases have already been prepared against the government and many more are expected, with miners who worked in the pitsas far back as 1954 able to make claims.
The settlement talks, the Department of Trade and Industry announced yesterday, will set up a fast-track procedure for handling claims to avoid lengthy court cases in future.
However, the legacy of the judgment will be long-lasting and expensive to the Treasury
Although it will bespread over several years both government officials and claimants' lawyers agree that the final cost to the government is certain to be many hundreds of millions of pounds.
24 Jan 98
Times: Law Report - Limit to cover of insurance clause
Yasuda Fire and Marine Insurance Company of Europe Ltd v. Lloyd's Underwriting Syndicate No. 229 and Others
Before Mr Justice Cresswell
[Judgment January 16]
Anaggregate extension clause in a whole account excess of loss agreement, which protected the reinsured for liability incurred for "losses on risks covering on an aggregate basis" did not cover an underlying professional indemnity policy which was expressed to cover on a per claim basis but which contained an aggregate limit or an aggregate deductible since it did not "cover on an aggregate basis".
Accordingly, it was not open to the reinsured to add together causally unconnected losses which it had paid under any such underlying policy and to present those losses to the reinsurer as one loss.
Mr Justice Cresswell so held in a reserved judgment in the Commercial Court of the Queen's Bench Division, in dismissing anappeal brought by Yasuda Fire and Marine Insurance Company Ltd under section 1(2) of the Arbitration Act 1979 against the interim award of Sir Michael Kerr. Mr John Butler and Mr Van Vechten Veeder, QC., dated October 15.1997 in an arbitration between Yasuda and the syndicates. The appeal was brought with the consent of the syndicates.
Mr Ian Hunter, QC., and Mr Peter Hayward for Yasuda; Mr Christopher Butcher for the syndicates.
MR JUSTICE CRESSWELL said that the syndicates reinsured Yasuda by various whole account excess of loss agreements each of which contained an aggregate extension clause. Yasuda was a participant inprofessional indemnity line slips arranged by J. H. Minet & Co Ltd. Various primary and excess policies of insurance binding upon Yasuda were issued under Minet professional indemnity (MIPI) line slips to firms of accountants and lawyers.
The issue in the appeal was whether for the purposes of determining the liability of the syndicates under the excess of loss agreements.Yasuda was entitled to add together causally unconnected losses which it had paid under any particular MIPI policy and to present those losses to the syndicates as one loss.
Yasuda' would be so entitledif the underlying MIPI policy was to be regarded as a policy "covering on an aggregate basis" within the meaning of the first paragraph of the extension clause. The arbitrators concluded that the MIPI policies were not policies "covering on an aggregate basis". with the result that Yasuda could not add together causally unconnected losses and present them as a single loss.
InDenby v. Marchant ( LRLR 301, the only reported case on the first paragraph of the aggregate extension clause, Mr Justice Waller held that the MIPI policies were policies "covering on an aggregate basis". In reaching their conclusion. the arbitrators declined to follow Mr Justice Waller in Denby, although they acknowledged at paragraph 13 of their award that it was "a reserved judgment on almost identical wording in similar factual circumstances".
The aggregate extension clause provided, inter alia: "(1) As regards liability incurred by the reinsured for losses on risks covering on an aggregate basis, if required by the reinsured, this reinsurance shall protect the reinsured excess of the amounts as provided for herein in the aggregate any one such aggregate loss up to the limit of indemnity as provided for herein in all any one such aggregate loss."
As to the first paragraph of the clause, the critical phrase "losses on risks covering on an aggregate basis" meant "losses on risks under policies and/or contracts reinsured hereby covering on an aggregate basis". Such underlying policies/contracts had to be equated with the reference in the second paragraph of the clause to "all aggregate policies or contracts coming within the scope of this protection..."
Yasuda had contended that a policy covered on an aggregate basis if the adding together of losses, whether or not causally connected had to be carried out in order to determine if and when the policy began to pay, for example where there was an aggregate deductible which first had to be exhausted, or where the policy ceased to pay, for example where there was an aggregate limit to the insurer's liability.
The syndicates contended that where an underlying policy responded on a per claim basis, the clause did not allow them to be added up to constitute one loss under the reinsurances. An aggregate deductible or an aggregate limit did not determine the basis of the cover provided irrespective of the other terms, but simply represented the monetary bands above or below which there was no cover.
His Lordship said that the risks under the MIPI policies covered on an each and every claim basis. Neither a limit nor a deductible provided a basis of cover as referred to in the first paragraph of the clause.
It was necessary to emphasise that the case was concerned with whole account reinsurances of whole range of Yasuda's book. True it was that the aggregate extension clause was limited to liability business only, but that expression plainly included product liability business and it was clear that the origins of aggregate extension clauses were found in the field of product liability.
His Lordship agreed with the arbitrators that the product liability policy quoted in Denby (at p307) was probably an example of a policy/contract covering on an aggregate basis.
Solicitors: Lovell White Durrant; Lawrence Graham.
29 Jan 98
Daily Telegraph: Mis-selling brings fine of £525,000
THEPersonal Investment Authority yesterday slapped a £525,000 fine on London & Manchester Assurance for its handling of the pension mis-selling review - the largest penalty the regulator has imposed.
In addition, London & Manchester will have topay the authority's costs of £125,000, making its total bill £650,000.
Theprevious record fine was the £450,000 imposed on Friends Provident last year. Despite the fine, shares in London & Manchester Group, which owns the insurer, rose 1½p to close at 559 ½p yesterday.
Ben Gunn, managing director of London & Manchester Assurance, (LMA) said: "We are extremely disappointed that although LMA has met its deadline for completing priority one cases, the PIA has felt it necessary to levy such a disproportionately large fine.
"These matters have been remedied and have neither delayed LMA's completion of the pensions review nor led to customers being disadvantaged. The criteria used by the PIA in reaching its decisions on levels of fines are also hard to understand."
The PIA said that a monitoring visit to LMA in January last year "identified serious concerns regarding LMA's conduct of the review".
The regulator said that LMA had admitted that before January 1997 ‘‘it failed to take all reasonable steps to carry out its reviews of past pension transfer and opt-out business in accordance with the standards and specification prescribed by the PIA".
In particular, the PIA said LMA "did not take adequate steps" to find 5,760 potential mis-selling victims and did not complete assessments on 1,500 others.
In total,LMA has just over 8,000 pension mis-selling cases compared with the Prudential's number of more than 70,000.
The insurer made its deadline for completing 90pc of its top priority cases by December 31 1997 and Mr Gunn said that it expects tosort out all its cases by the end of the year.
The PIA said that it is satisfied thatsince January 1997, "LMA has significantly increased its resources devoted to the pensions review and has taken steps to remedy these breaches".
Including London & Manchester, theauthority has imposed 47 fines totalling more than £2m relating to pensions mis-selling.
31 Jan 98
David West et. al., v. Lloyd's et. al
Second Appellate District, Division Seven, No. 8095440 in the Supreme Court of California. Respondents' decision for review denied.
31 Jan 98
Hale & Hall: Press Release
The West family and their entire legal team are gratified by the California Supreme Court's affirmation of the Appellate Court's decision in the West v. Lloyd's case. After depositions and relevant discovery have been completed, the West family look forward to a trial on the merits before a California jury.
31 Jan 98
Financial Times: Court blow for Lloyd's
The Supreme Court of California has delivered an embarrassing blow to efforts by Lloyd's of London to bring an end to the litigation which has dogged it in the USLloyd's said it had failed to overturn a ruling that three Lloyd's Names, individuals who have traditionally backed the insurance market, be allowed to sue it in the US.
31 Jan 98
Financial Times: Decision by Supreme Court of California opens way for Names to sue insurance market - Lloyd's could face trial for fraud in US
TheSupreme Court of California has delivered an embarrassing blow to efforts by Lloyd's of London to bring an end to the litigation which has dogged it in the US.
The court's decision, made in the past few days,means Lloyd's could be subjected to a full-blown fraud trial outside the UK.
Lloyd's said yesterday it hadfailed to overturn an earlier ruling by the Californian state appeals court that three Lloyd's Names, individuals who have traditionally backed it, be allowed to sue it in the US.
Lloyd's had protested against the ruling on the grounds that the three waived those rights under an agreement they signed when they became members of the market. The American Names Association, which led the campaign against Lloyd's by Names who refused to accept the 1996 settlement, said the supreme court's decision not to review the appeals ruling was a "major breakthrough". Jack Shettle, the association's east coast chairman, said: "For the first time ever, Lloyd's can be taken into court and we can present evidence and get discovery. Up to now they've been avoiding it."
Jeffrey Peterson, the association's executive director, claimed the court had also upheld Names' contention that Lloyd's had been selling securities, a ruling which would critically affect how its sales practices should be regulated in the US.
Lloyd's said this had yet to be established. In addition, it said the plaintiff's case may .be blocked. on grounds that it, had been launched too late. It said ithad exhausted all avenues of appeal in this case and was unable to take it into the US federal court system, where it had won several rulings in support of its argument and was awaiting the outcome of another appeal.
The state court's decision came as it emerged that Britain's Serious Fraud Office has examined documents said by a group of Lloyd's Names to be evidence of fraud and decided not to conduct its own investigation into the losses which the market suffered.
"There is insufficient evidence to justify a formal investigation or any criminal proceedings," an SF0 official said. Some Names, who refused to sign up for the Lloyd's recovery plan completed in 1996, have alleged the market committed fraud by recruiting new members while, concealing knowledge of the billions of pounds in losses it later suffered and the threat posed by claims related to asbestosis.
None of the allegations has been proved in court and Lloyd's said much of the alleged evidence had been rejected by independent inquiries and by the SFO. The latest attempt was launched late last year by Sir William Jaffray, another Name who, countered demands he pay debts owed to Lloyd's by filing his own writ.
31 Jan 98
Daily Telegraph: Orange fines
THESecurities & Exchange Commission has taken its first action against a Wall Street firm in connection with the 1994 bankruptcy of Orange County in California.
Credit Suisse First Bostonand two former employees will pay $870,000 (£540,000) to settle civil charges that they misled investors in a bond offering. The company and former employees did not admit or deny the allegations.
31 Jan 98
Daily Telegraph: Anti-trust pressure on BAT Industries
BAT Industries and other tobacco companies came under fresh pressure yesterday as it emerged that theDepartment of Justice has launched a criminal antitrust investigation against them.
The investigation is understood to focus onallegations of attempted price fixing by BAT subsidiary Brown & Williamson, RJR Nabisco's RJ Reynolds division and Philip Morris.
A spokesman for BAT said: "Brown & Williamson doesn't yet know what this is about but it doesn't sound terribly surprising if different companies should bid roughly the same price."
Industry sources said investigators are probing whether the three companies broke federal laws bycolluding on bids for shipments of foreign tobacco leaf.
Spokesmen for the cigarette companies and the Department of Justice declined to comment.
The anti-trust investigation comes on top of theJustice Department's existing criminal fraud investigation, which is focusing on allegations that tobacco company officials lied about whether their companies manipulated nicotine levels in cigarettes.
Separately, tobacco company executives have appeared before theHouse Commerce Committee to defend the $368 billion national settlement they signed with 40 state attorneys-general suing them to recoup billions of dollars of public funds spent treating sick smokers, plus damages.
1 Feb 98
Observer: Stock Exchange set to probe Reuters losses
THE STOCK Exchange is to investigate a delay by Reuters in announcing to the market a US criminal inquiry that has since wiped more than £1 billion off the value of its shares.
US federal prosecutors have issued five subpoenas against the company - the world's news biggest organisation – and individual executives to give evidence before a grand jury about the alleged theft of information from rival Bloomsberg.
Two of the orders were received 10 daysago by Reuters in London. A further three were served on staff at Reuters Analytics, the Connecticut firm under investigation.
But the group told the Exchange about the moves against it only last Thursday, apparently in breach of rules that require the earliest possible announcement of price-sensitive information.
When the news eventually came out,Reuters shares plunged 70p to 569p.
The federal inquiry - carried out under an industrial espionage law - comes when the group is due to hand £1-5bn to shareholders in three weeks, and is raising a £1-5bn loan from banks.
This weekend sources at Reuters said it wasfirst told on 21 January about the US inquiry. The group took extensive legal advice over the timing of the announcement.
Reuters has asked a New York law firm to conduct an internal investigation into the US allegations.
The Exchange declined to comment publicly. But one senior source said: ‘Clearly with the price movement they should have realised an announcement was needed. We were not consulted.'
Jeff Walker, deputy head of Reuters Analytics' fixed income department, is the most senior of the three US employees subpoenaed.
The operation has been key in developing Reuters' new 3000 system, which matches Bloomberg's products in providing data and analytical software to bond traders.
Bloomberg would not comment. A Reuters spokesman said: ‘Our investigations are at an early stage. We still have to receive full details from the federal prosecutors.'
1 Feb 98
Observer: Government aided cover-up at Lloyd's
ASTONISHING claims that the Thatcher government connived with Lloyd's of London to hide the extent of the insurance market's Eighties financial crisis are to be made in the High Court.
The case will mark the first time that a judge has seen two crucial letters that support claims there were changes in the auditing of accounts of Lloyd's insurance syndicates.
A Lloyd's Name, John Pascoe, who has entered an affidavit alleging deceit, argues that the letters demonstrate a significant shift in who was responsible for calculating insurance syndicates' assets and liabilities from 1982 onwards. He also asserts that Lloyd's was in breach of the law governing insurance.
Lloyd's rejects all the allegations and says the Names' evidence has already been seen by the Serious Fraud Office, which decided not to pursue the matter.
The Treasury, which took over regulation of Lloyd's from the Department of Trade and Industry last year, also rejects allegations that the audit was watered down.
Pascoe claims that in 1982, Lloyd's shifted responsibility for calculating syndicates' assets and liabilities from independent auditors to managing agents. Pascoe hopes to show that the change could not have taken place without the DTI's knowledge.
A senior source involved in the clean-up of Lloyd's supports the Names'. He told the Observer: ‘I believe the DTI did bend the rules to get Lloyd's through the solvency rules.'
And the Observer has obtained a letter from a Whitehall expert on Lloyd's, written 18 months ago, which shows the DTI was hugely relieved that none of the fraud allegations had come to anything. It says: ‘The DTI has been surprised by the number of bad points that Names took in the many recent court cases, and has been pleasantly surprised at Lloyd's successes.'
1 Feb 98
Observer: Names smell blood in curious case of Lloyd's ‘cover-up' - Fresh evidence questions DTI's role in policing the market
F OR MORE than a decade Lloyd's of London has faced a barrage of attacks from unhappy Names who believe they were misled into staking their wealth on the insurance market.
There have been claims - and many, many mutterings - that theywere the victims of a conspiracy orchestrated at the pinnacle of the British financial establishment.
At first, the Names alleged that the market professionals had been incompetent and failed to protect them from losses now estimated at £11 billion. Then they began to seek answers to their questions. Now theybelieve that they are the victims not of incompetence but of fraud.
And as reported in the Observer two weeks ago, such theories have been further fuelled by the emergence of a letter from Ian Hay Davison, the top-level accountant appointed chief executive of Lloyd's in 1983.
Hay Davisontold one Name he was disappointed that more Lloyd's agents were not prosecuted for fraud after he had instigated internal disciplinary action. And he made it clear that the then government had blocked court action ‘on policy grounds'.
Some say the then Prime Minister, Margaret Thatcher, - fearing serious damage from messy court actions and allegations of city sleaze in the run-up to the1987 election - intervened personally.
For six years, the Names' attempts to have these claims tested in the courts have failed.Tens of thousands of the investors, each facing bills for hundreds of thousands of pounds, eventually gave up in 1996. They agreed to a Lloyd's plan and exchanged their right to sue for a reduced demand to settle their accounts.
But now the battle is hotting up again. And the claim that in the early Eighties the government actually helped Lloyd's to disguise the full extent of its crisis is at last about to be aired in court.
Today the Observer can disclose evidence amassed by Names to support their case.
The Names have been dismissed as bad losers, peddling vague accusations. But things have moved on. Christopher Stockwell, head of the Lloyd's Names Association, said: ‘After years of research, the Names now know exactly what they are looking for.'
Theybelieve they already have strong evidence. Now they need information they know exists but can see only if a court forces its disclosure.
The first shots are being fired in what they hope will be the decisive assault on Lloyd's and the establishment. The Names intend to use new information, suggesting that the government colluded with a cover-up of Lloyd's true financial position, to achieve their goal - a full public airing of their allegations. And the Names plan to shift the battlefield to Europe, believing that they cannot get justice in Britain.
Does this amount to no more than wild conspiracy theories? That will be for the courts to test.
But the Observer has seen evidence that appears to support at least one important element of the Names' case. Itconcerns the role of the Department of Trade and Industry.
The DTI plays a central part in the saga of the insurance market's problems: it was the DTI's job to ensure that Lloyd's had the reserves to cover its insurance activities.
Names hint that the DTI turned a blind eye to significant changes in Lloyd's auditing standards in 1982 - changes which made it appear that the market was more financially robust than it really was.
Until now, the allegations have amounted to little more than that - allegations.
But a letter from Lloyd's auditors, headed by Neville Russell, voicing fears about the adequacy of Lloyd's cash reserves, has been submitted to the High Court in support of legal action by a Name, John Pascoe, alleging deceit. The letter came to light six years ago, but has never before been used in a legal action.
Pascoe alleges that the reply, from Lloyd's then deputy chairman Murray Lawrence, showed that the market changed the basis on which accounts were audited. Pascoe maintains thatLawrence issued new instructions to the auditors: responsibility for calculating syndicates' assets and liabilities would now rest with the syndicates' managing agents, not with the auditor. Until then, the legal responsibility lay with the auditor. This was crucial.
Lloyd's flatly denies that there was any change in the basis of audit.
It also refutes a further Pascoe allegation - that the changed basis of audit was in contravention of the Insurance Companies Act.
Names argue that the alleged weakening of the audits was not made public. But many continued to join Lloyd's, believing that the traditional, more rigorous, standards still held.
Both the Neville Russell and the Lawrence letters have been aired before: they have not been examined by a judge because the Names have been refused a judicial review of Lloyd's treatment of them, and other attempts to secure a fraud hearing have failed.
Now, for the first time, a Name is set to argue in court that there was a change in accounting standards. He - and others - are seeking more information to try to prove that such a change could not have taken place without the DTI knowledge.
Some say Margaret Thatcher herself intervened to block fraud prosecutions
The significance of the allegation can be understood only with some knowledge of the background. under the Insurance Act, Lloyd's had to submit audit certificates to the Trade and Industry Secretary for approval as evidence that the market was solvent.
So what can the DTI argue now? To deny knowledge of the change in audit standards - and, of course,Lloyd's denies that there was any change - the DTI would, on the face of it, have to admit one of two things: either it did not examine these audit certificates; or it had examined the certificates but chose not to query the change or announce the change straight away.
Pascoe - who became a Name in 1984, two years after the first signs that Lloyd's was facing huge claims relating to asbestosis - has submitted much of this in an affidavit to the High Court. It includes a detailed analysis of the legal implications of the Insurance Act, and makes two key assertions:
Evidence of the DTI's lack of challenge may tip the balance towards the Names
·Lloyd's acted in breach of audit legislation because an auditor must highlight any change in standards and show how it alters accounts; and
· the DTI failed to alert Names to the watering-down of formerly rigorous protection for underwriters.
He will argue that he was a victim of deceit.
Time and again, Names have claimed that they would have left Lloyd's had they realised the true scale of the liabilities building up. In Pascoe's case, action by the DTI in 1982 would, he says, have prevented him from joining in the first place.
The Observer has seen the minutes of a meeting between Richard Hobbs, under-secretary at the DTI, and the Lloyd's Names Association working party in 1994. The minutes - admittedly drawn up by the Names, not the DTI - say Hobbs acknowledged that ‘in attempting to resolve the problem of under-reserving [setting aside insufficient cash to meet expected liabilities] the DTI has allowed "stair stepping" - the gradual increase in reserves over a period of years'.
In other ~ the DTI allowed Lloyd's to continue trading as if all were well when in fact it faced a shortfall in its reserves.
A senior source involved in the mid-Eighties clean-up of Lloyd's has supported the Names' view that the DTI colluded to keep Lloyd's afloat. He told the Observer: ‘I believe the DTI did bend the rules to get Lloyd's through the solvency rules.'
The Names believe a proper fraud investigation - in open court and presided over by a judge - would enable them to subpoena key witnesses who have so far confined their views to confidential comments and letters.
The Observer has seen a letter from a Whitehall expert on Lloyd's, written 18 months ago when the rescue plan was close to completion. It shows the DTI was hugely relieved that none of the fraud allegations had come to anything.
The letter is explicit: ‘The DTI has been surprised by the number of bad points that Names took in the many recent court cases, and has been pleasantly surprised at Lloyd's successes.'
The letter goes on to say that if anyone had been able to prove fraud at Lloyd's, the DTI would have felt compelled to intervene'. But astonishingly, the letter adds: ‘This was not the policy of the Tory party, who were prepared to prevent a fraud trial from taking place.'
The insider added: ‘There have been no prosecutions of Lloyd's personalities and never will be. The DPP and the Attorney General would take over any prosecution and then drop it.'
A further letter, written last August by the Minister for Trade and Competitiveness in Europe, Lord Simon of Highbury, indicates that Names are unlikely to have more luck with the Labour government than they did with the Tories. Its tone is discouraging.
Lord Simon says: ‘The standards of evidence required for a criminal prosecution are high, particularly in relation to offences for which conviction would almost certainly lead to a custodial sentence.
‘It is difficult for those authorities to justify the cost of mounting criminal proceedings in cases where they believe there is absolutely no prospect of securing a prosecution.'
Names wanted a judicial review to flush out all the available information and test the allegations. This has been denied them on the grounds that Lloyd's is not a public body and ‘is not amenable' to a review. Attempts to persuade the Serious Fraud Office to act on the contents of documents uncovered in recent years have also failed. Lloyd's says no one has found sufficient evidence to warrant such a rigorous investigation.
Names argue that Lloyd's internal inquiries in the Eighties failed to bring to light crucial evidence, such as financial information used to compile syndicates' accounts. Anyway, they point out, new evidence suggesting fraud has been uncovered only since 1993.
They are still waiting to see the accounts that their bills for losses are based on. They argue that without a properly audited base figure, Lloyd's cannot legitimately claim a penny. Since the Names' whole case rests on the premise that the accounts were not properly audited, they reject their bills.
They face a Catch 22 situation: without a fraud investigation they cannot demand disclosure of crucial information. Without the crucial in-formation, the authorities have been able to deny them a judicial review. (In fact, Lloyd's may have to disclose more information: Names in the US claim they have achieved a breakthrough in persuading a Californian court to order disclosure of documents.)
The suing Names divide into more than one group. There is a band of lone litigants - about 12, including Pascoe. About 600 other Names have joined forces to fight a single action in the name of Sir William Jaffray, who is being sued by Lloyd's for his losses and has counter-claimed. The Names will use his case to test their allegations of fraud and demands for compensation.
There is afurther writ in the name of Clyne. This was served by Names who have paid all or some of the losses demanded by Lloyd's and are therefore not being sued. This alleges fraud. Lloyd's must respond by 9 February.
If Lloyd's Names espouse conspiracy theories, no one should be surprised.
In the long saga of claim and counter-claim, many coincidences have remained unexplained; many allegations have simply been ignored. This is meat and drink to conspiracy theorists.
How was it that so many of the ruling elite within Lloyd's - several of them on a task force investigating the impact of asbestosis claims - apparently managed to get rid of their asbestosis liabilities before the storm broke? Names ask why there was not a single mention of asbestos in 1,950 pages of evidence given to a committee of MPs considering the Lloyd's Bill in 1981 which focused on regulation and raised the issue of financial stability.
Much of the speculation is and will remain exactly that - speculation, unbuttressed by hard evidence. But on the particular issue of the DTI's unchallenging attitude towards Lloyd's during the
the new evidence could tip the balance. The US disclosures may, too, prove crucial. Names smell blood.
5 Feb 98
Times: Court rules against names suing Lloyd's in US
A FEDERAL appeal court in California has ruled that American investors cannot sue Lloyd's of London in the US, overturning a previous decision in favour of the names.
A rehearing by 11 judges of the Ninth Circuit Court of Appeals upheld clauses in members' contracts that said any legal action must be taken in the UK. They backed Lloyd's with an eight-to-three majority. The decision is the latest episode in a legal battle, known asAlan Richards et al versus Lloyd's, that began in May 1995. Angered by the heavy losses sustained in the late 1980s and early 1990s, several hundred US names tried to sue Lloyd's on a number of allegations - including fraud and breach of securities laws - in the Southern District Federal Court of California.
The case was thrown out when it was ruled that the case had to be tried in the UK, in accordance with provisions in Lloyd's contracts, signed by members. Three judges in the Ninth Circuit Court of Appeals heard the appeal. While agreeing in part with some of the decision, they ruled by two-to-one that Lloyd's could be sued in the US under federal securities laws and under "Rico" legislation that was designed to crack down on mobsters but is now sometimes used in matters where organised racketeering is not alleged.
This decision was then appealed to a wider panel of California judges in an en banc rehearing. They issued the latest ruling on Tuesday night.
The litigating names are now appealing to the US Supreme Court to address the matter. The Supreme Court has also been petitioned in another case involving US names.
Lloyd's said theRichards litigation involved 223 names who have refused a settlement offer accepted by 94 per cent of names world-wide.
Ron Sandler, chief executive, claimed that the decision "concludes a series of attempts by a small number of names to avoid their contractual commitments."
However, thesociety's victory in the latest round of the Richards case comes after a disappointment in another California case last week.
TheSupreme Court of California refused to hear an appeal from Lloyd's against a decision by a state level appeal court. It had said US names could sue in the US.
5 Feb 98
Times: Norwich Union sued over Lloyd's guarantees
NORWICH UNION is being sued in the High Court for helping people to underwrite at Lloyd's of London.
A writ has beenissued by 66 policyholders who suffered heavy losses as Lloyd's names and now face losing their homes.
They are among about 2,500 people who obtained guarantees from Norwich Union that allowed them to underwrite at Lloyd's. The guarantees were sold by Norwich Union before Lloyd's nearly collapsed from multibillion pound losses.
The guarantees weregenerally sold through intermediaries. They were used as proof of a name's ability to pay any debts, enabling Lloyd's to claim money from Norwich Union. Norwich Union is now seeking reimbursement from the names whose guarantees were called in.
The litigating names claim that the agreements are void. They claim thatMichael Falcon, the then Norwich Union chairman, and Allan Bridgewater, the retired chief executive, knew that Lloyd's was massively exposed to asbestosis claims and reinsurance spirals. They claim that the two executives knew through their directorships of Norwich Winterthur Reinsurance and Stronghold Insurance, two Norwich Union subsidiaries, that the Lloyd's global exposure exceeded its known capacity, and that Lloyd's had to continue recruiting new members or face collapse.
The names, suing under the banner of the Norwich Union Action Group, are also seeking damages.
A Norwich Union spokesman said the company was confident the legal claims would not succeed: "Norwich Union did not advise names on the merit of underwriting at Lloyd's. Names retained their own professional advisers for that purpose."
Norwich Union stopped issuing the property-backed policies in 1991, having been selling them since 1989. Its total exposure to Lloyd's guarantees was about £300 million.
6 Feb 98
Daily Telegraph: Lloyd's Names sue Norwich Union over mortgage losses
A GROUP of disaffected Lloyd's Names have issued a writ against Norwich Union, claiming that the life assurer shouldnot have sold them investment policies allowing them to underwrite at the insurance market.
Norwich Union said it would be defending itself vigorously against the writ; A spokesman said: "While we have not yet been served with the writ, we are familiar with these sorts of allegations and are absolutely convinced that these claims will not succeed, having taken legal advice, including that of leading counsel."
He added: "Norwich Union has sympathy for the plight that some Names now find themselves in. However, Norwich Union did not advise Names on the merits of underwriting at Lloyd's. Names retained their own professional advisers for that purpose."
Names mortgaged their properties to Norwich Union to back financial guarantees required by Lloyd's to enable them to underwrite. As Lloyd's losses mounted, the guarantees were called. Norwich Union said yesterday that itseeks repossession of houses' only when the sum underwritten is not repaid.
20 Feb 98
Daily Telegraph: Record sum for asbestos man
A man with an asbestos-related disease had his damages award increased in the A p peal Court yesterday from£440,167 to a record £749,795.
Bryan Ward,48, of Doncaster, South Yorks, blamed his lung disease on being exposed to asbestos. while working for Newalls Insulation and Cape Contracts, who admitted negligence.
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