Meddling by the Treasury has its drawbacks

Bring us their heads on a plate, says the Treasury. The Stock Exchange, the Securities and Investments Board and the Securities and Futures Authority are now doing their best to oblige. Or at least that is how it looks to the more conspiratorially minded in the City.

Among the heads in jeopardy may be that of Mick Newmarch, formerly of the Prudential, and senior executives of Swiss Bank Corporation, the investment bank the others most love to hate.

We do not yet know whether this view of two high-profile cases - one concerned with the timing of a share sale, the other with purchases of options on electricity company shares - is a caricature or not. But of one thing we can be sure: the message has gone out from the Treasury that something must be done to demonstrate that regulation is now working more effectively.

In itself a little bit of regulatory aggression from the Treasury may seem no bad thing. The record has been inglorious since the beginning, when the hotchpotch of the Financial Services Act was written in the mid- 1980s. About time, you may say, that a few stable doors were bolted with horses still inside.

This is not, however, as risk free a policy as the mandarins may imagine. If evidence ever did emerge of a joint effort between Whitehall and the regulators to nail miscreants in a particular case, smart defence lawyers would run rings round the prosecution in a regulatory appeal hearing.

Swiss Bank Corporation has already shown the effectiveness of its combat training in dealings with the Stock Exchange, the Takeover Panel and the Securities and Futures Authority. Indeed, the bank's army of lawyers stopped the SFA in its tracks last week when it appeared ready to put out a critical statement on the controversial share dealings.

The bigger risk is that if the Treasury feels it necessary to meddle in the detail, it will further weaken the regulators' own standing. They have had enough trouble already establishing themselves as an independent force to be reckoned with.

Split between a statutory Securities and Investments Board and a host of self-regulatory satellites dealing with individual cases, the structure is deeply flawed, but the government is not prepared to devote parliamentary time to doing anything about it.

By interfering, the Treasury may now simply be filling a power vacuum at the centre. But that makes it even less likely that the regulators will develop the personal standing and legal muscle to challenge a company like SBC when it pushes out the boundaries. All the more urgent, then, to merge the satellite regulators into a statutory SIB that will be effective, independent and powerful enough to manage without a Treasury nanny.

A hard task for

the headhunters

Last Friday was the closing date for applications for the job of director general of Fair Trading, to succeed Sir Bryan Carsberg in May. But the choice will not be as simple as picking the best CV from those submitted by the headhunters, Saxton Bampfylde. The firm was unavailable to comment on the attributes it was looking for, but to judge from Sir Bryan's frustrations in the job, fierce independence is not likely to be among them.

Mr Heseltine is apparently against the idea of a lawyer or accountant and in favour of an industrialist to line up beside Graeme Odgers of the Monopolies Commission. That way, say cynics, the President of the Board of Trade would not have to make any decisions on referrals since the matter would not arise. The sticking point here is likely to be the salary, around £85,000. In these days of heady executive remuneration what business person worth his or her salt is going to get out of bed for that?

The utility regulators, the breed from which Sir Bryan emerged, are probably ruled out, partly because they are currently so unpopular - but perhaps also because their existing jobs are now more attractive to them than a neutered OFT. That leaves us with the possibility of some kind of academic, specialising in accountancy or economics - but grounded in the real world. Somebody like John Kay, formerly of London Business School and now of the consultancy London Economics?

Whether the pay is good enough to attract a director from the boundaries of academia and business may not be the key issue. The more serious deterrent is the widespread belief that independence is not among the qualities sought from a candidate.

Playing safe pays off

for Kleinwort Benson

Only a year ago Kleinwort Benson was still recovering from a series of past disasters. Warburg was riding high as the City's flagship. Yesterday the Kleinwort people had to work hard to keep the smirks off their faces. Their bank is shaping up to be the Lloyds Bank of the late 1990s - successful for what it does not do as much as for what it does.

Kleinwort has given volatile trading on its own account a wide berth. The billion dollar punting that made Wall Street houses seemingly unstoppable in 1993 has laid them low in 1994, but Kleinwort has fortunately avoided the problem.Market making has been run conservatively, to minimise risk. This approach stems from harsh lessons from losses at the beginning of the decade, which led to a long period of cost cutting and rationalisation.The staff numbers are beginning to tick up again, but the watchword this time is steady progress. No headlong expansion and no attempts to be all things to all people.

This modest approach even extends to hymning the praises of its American partners in 1994's global deals. The bank will continue to sell European and other equities into the US, but it will make no attempt to compete for domestic American business.

Kleinwort even suggested yesterday that the Americans, who felt the heat worst from the bond turmoil last spring, may now be facing structural decline, though that may be going a bit far. So is Kleinwort still an attractive bid target - its problems sorted out, but still affordable? Lord Rockley insists it is not looking for a suitor, and is not in talks. Linking up with a partner may still make sense, however - as long as Kleinwort handles its merger negotiations better than Warburg did.