City: Green arrow pierces Warburgs' image

CITY competitors of SG Warburg are barely able to disguise their delight with the bank's present discomfort, but it is tempered with a touch of annoyance and even jealousy. As one leading City figures comments: 'If this had happened to us, you can be sure the press would have exaggerated it out of all proportion and it would have become about 10 times worse than it actually was. But it was Warburgs, and as a result most of the press dismisses it all as no more than a storm in a tea-cup.' He was talking about the bungled attempt to place shares in Greencore, an Irish sugar company - an episode already being dubbed in the City as the 'Green Arrow affair'. Though much smaller than our own Blue Arrow escapade, it bears more than a passing resemblance.

What appears to have happened is that in an attempt to disguise the fact that the Greencore placing had been an abject failure, Davy, Ireland's leading firm of stockbrokers, decided to park a substantial proportion of the shares with associates and companies controlled by its directors. In the process, it also persuaded Warburgs, which had agreed to underwrite some of the placing, to take some of the shares on the basis of an indemnity against loss. Ergo, the bank became involved in an attempt to mislead the market. Warburg insists it was a completely innocent party, and indeed it beggars belief that London's premier merchant bank would have risked its international reputation by participating deliberately in such a wonderfully botched little cover-up. As one insider put it: 'We feel like someone standing in the bus queue who's just been ploughed into by an out-of-control driver.'

Rubbish, say rivals. At the very least, they say, Warburgs stands accused of naivety and poor judgment. After Guinness, the very idea of an indemnity should have sent alarm bells ringing.

Almost alone among the City's leading investment banks, Warburgs emerged from the cauldron of the 1980s with hardly a stain on its reputation or character. It's no wonder that so many in the City are now stirring it with such enthusiasm; the wait for Warburgs to slip up has been a long one. The Irish stock exchange will shortly be issuing a report and is widely expected to conclude that there was indeed an attempt to rig the market; what it has to say about Warburgs' involvement is anyone's guess. But as both Goldman Sachs and Salomon Brothers have discovered to their cost, the Government is extremely sensitive to financial scandal in the affairs of its privatisation advisers. Warburgs is lead adviser and global co-ordinator for the forthcoming pounds 5.5bn BT3 share offer. It would be a huge embarrassment if Warburgs was even remotely censured.