COMMENT : Treasury guilty of double standards in genco sale

Don Cruickshank, director-general of Oftel, operates the most restrictive policy of all. He refuses to talk to anyone in the City, though he does brief the press. His counterpart at Ofwat, Ian Byatt, will occassionally be tempted out to lunch but he too is ultra-cautious these days. Clare Spottiswoode, by all accounts, will still talk to anyone with gay abandon, while Professor Stephen Littlechild . . . well, he doesn't seem to want to communicate at all.

Confused? You ought to be because what this is about is the way utility watchdogs deal with the release of information affecting the companies they regulate, and it is a deeply confusing business. Much of what a regulator does or says is highly price-sensitive; there are, however, no rules on how they should conduct themselves. Regulators have had to make it up as they go along.

Sir Bryan Carsberg, the first utility regulator, was the pioneer. To begin with, he went to a lot of brokers' lunches but he never said anything price-sensitive at them, he insists. That did notstop brokers thinking he had and often the British Telecom share price would move quite sharply after one of these events. He stopped going.

Ian Byatt was hopelessly naive when he started. He actually went so far as to send out an embargoed press release on something the stock market thought highly relevant to water company share prices. There was a hell of a stink. Clare Spottiswoode encountered similar flack when she began. She became a regular feature of stock market reports; a looser tongue, it was said, was hard to find. All of them have learnt through experience. Even Stephen Littlechild, known in the City these days as the Forrest Gump of regulators (you never know what you are going to git), had sufficient nous to warn the Government ahead of his now infamous U turn on electricity prices that it could have implications for the sale of the gencos.

The Government, however, seems to be completely clueless when it comes to assessing what is and what is not inside information. It beggars belief that anyone could have thought Professor Littlechild's statement not price- sensitive for the gencos. Certainly the Treasury, which is responsible for administering the Financial Services Act, would not have given any City institution the benefit of the doubt on a matter like this. Its officials pushed long and hard for action against Mick Newmarch at the Pru in what were actually quite similar circumstances. The hapless Mr Newmarch exercised and sold share options in the Pru in full knowledge of the damning findings of an about-to-be-published Securities and Investments Board report on the mis-selling of pensions.

The gencos sale is a much worse instance of the same thing; not only were the sums involved far larger but it is not credible that anyone could believe a regulatory decision with profound direct implications for one part of the electricity industry is not going to have a severe knock-on effect with the other. The Treasury apparently thought the decision "not relevant or material" to the gencos sale. When Mr Newmarch said the same thing about the SIB report, the Treasury didn't believe him. At best the Government is guilty of monumental double standards.

In Mr Newmarch's case the suspicion was of insider dealing. Though it might look like the same thing, the Government's sin is not that. Insider dealing is something that only individuals can be guilty of; the body corporate, which includes the Treasury, is exempt.

However, it might be possible to argue the Government is guilty in spirit of an offence under the Financial Services Act. The trouble is that the Act gives the Government immunity from the relevant section. Even so, there seems little doubt the shares were sold on the basis of a misleading prospectus. For Kenneth Clarke, the Chancellor, to claim there is nothing new for an independent inquiry to investigate in all this is just plain humbug. As yet, we have had no adequate explanation or account of how the Government came to decide this was not relevant information. For the regulatory authorities to claim they can do nothing because of Crown immunity is equally ridiculous.

BZW, and possibly Kleinwort Benson too, must as advisers on the sale have been involved in the decision; if their advice is open to criticism, the Securities and Futures Association should be taking the relevant actions. The fact that it cannot do anything about the Government is neither relevant nor material.

Japan's economy is seeing break with past

There was an unnerving feel about yesterday's dip below 15,000 by the Nikkei index. For although the Bank of Japan's quarterly business survey revealed a slight improvement in the short-term outlook, all evidence points to a fundamental long-term shift in the economy - a break with the past. The Japanese economic miracle may be over, and if that is the case, Japanese companies should be no more highly valued than British or American ones.

It is often hard to come to terms with reality; Japan appears particularly bad at it. Japan's Prime Minister, Tomiichi Murayama, was quoted as saying that drastic measures were needed to deal with the stockmarket slump. "We need to take action without being shackled by past concepts," he said. A second dignitary, the former Bank of Japan governor Yasushi Mieno, warned that the country was undergoing a transformation. It was essential to make sure this did not trigger a failure of the financial system.

The package announced earlier this week to help ailing banks, labouring under bad debts worth 40 trillion yen, is hardly likely to do the trick. Indeed, it becomes progressively more difficult to see how the government can do anything on a scale big enough to make a difference. Stephen Lewis of London Bond Broking has more than 20 years' experience of watching Japanese business cycles and he concludes that the country is going through no ordinary recession.

Rather than blaming the strong yen itself for undermining exports and industrial strength, his argument is that Japan has saved and invested so much for so long that there is now just too much capital around for Japan's own good. Despite correspondingly lower returns, the Japanese savings habit is so ingrained that the surplus has begun to depress the economy. If true, this analysis points to years of slower growth than we have come to expect. The implications for share prices are grim. Manyanalysts believe the Nikkei will breach its 1992 low of 14,309 next week. That could be just the beginning.

As for the yen, a weak stock market is likely to strengthen the currency because financial institutions will need to repatriate funds to compensate for the effect on their reserves of lower share prices. In the longer run, though, a weaker economy and lower trend growth rate would bring the currency down from its extraordinary highs.