NatWest punished over flotation flop

one of the City's largest fund managers, Mercury Asset Management (MAM), has penalised NatWest Markets because of its advisory role in one of the worst flotation flops of last year.

Last year, MAM reduced the amount of commission it paid to NatWest because of the firm's role as broker to McDonnell Information Services (MDIS), the computer software group.

MDIS was brought to the market by NatWest and Baring Brothers merchant bank at 240p a share last April. In September, its shares tumbled after a surprise profits warning, and they fell again earlier this month after a second warning.

Like other investment managers, MAM offers stockbrokers discretionary commission to help fund analysts' research. This is on top of the usual commission they pay to brokers who buy and sell shares on their behalf.

Last year, as part of its annual review of NatWest's performance, MAM took into account the MDIS debacle and reduced the commission it paid to Nat West accordingly.

MAM would not comment, but another institutional fund manager with shares in MDIS said: "We have to rely on other people doing their jobs properly, and in this case there are large question marks. The only way to hurt them is through their pockets.''

NatWest Markets declined to comment on the MDIS episode or on its relationship with MAM.

MAM's decision to reduce its commission payments to NatWest Markets is likely to be followed by other fund managers who feel unhappy about the advice they have been given by stockbrokers.

MAM, chaired by Hugh Stevenson, is gaining a reputation for being highly demanding of the services it is offered.

Last year, MAM took the unprecedented step of punishing its parent company, SG Warburg, for the way in which Warburg behaved in advising Enterprise Oil in its failed bid for Lasmo.

For one month, MAM cut the business it did with Warburg in the UK to a minimum because it was angry that the firm did not buy any of its Lasmo shares when it bought 10 per cent of the group on behalf of Enterprise Oil. Warburg decided to buy stock from ahandful of institutions thought to be hostile to the bid, rather than make the offer more widely through the market.

After a series of new issue flops last year, City institutions appear to be taking a tougher line on new issues this year. "There is a feeling," said one, "that many of last year's new issues were priced with only a little, if anything, to go for in the after-market. We will be taking a much tougher approach to forthcoming issues."

Last week, there were rumours in the City that some fund managers were preparing to boycott the forthcoming Century Inns flotation, which is being handled by NM Rothschild and Smith New Court, the advisers on the disastrous flotation of Aerostructures

Hamble, the aircraft components manufacturer.

Abbey Life, one of the shareholders in Aerostructures, which announced a profits warning just 15 weeks after coming to market, has asked to see the most significant document prepared by the accountants before the flotation. But it has still not received the information, on which it hopes to take a view as to who is to blame for the fiasco.