Daily Telegraph: Such gall

What is even worse than David Rowland's "ludicrous knighthood" is that he had the temerity insensitivity and appalling bad taste to accept it.

Times: Letter to the Editor

Sir, You reported on December 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.

Times: Explanation of delays at Lloyd's

Sir, Sir Guy Millard (Business letters, January 7) asserts that no 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.

A number 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.

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.

Mr Merrett, 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, the Merrett 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's has 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.

Mr Merrett was formerly one of Lloyd's most powerful underwriters. He joined the business built up by his father, Roy, in 1963, and became chairman of Merrett Group in 1976.

Times: Disclosure forces fall in fees. PIA rules help to cut investment costs by 3.9%

TOUGH new rules requiring insurance 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.

The regulations, 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 its second 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 a ten-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 was little 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.

Times: Lloyd's expected to top £1bn for second year

Lloyd's of 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 the 1994 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 said corporate 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.

• Lloyd's has been licensed to transact business in Japan's domestic insurance market for the first time in the deregulation of the Japanese insurance market. Sir David Rowland, chairman of Lloyd's, will officially launch Lloyd's Japan Inc. at a ceremony in Tokyo in March.

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 this for 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.

The black-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.

Profits in 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.

Daily Telegraph: Lloyd's results set to cheer

UNDERWRITING results for 1994 at Lloyd's of London are expected to be the best since 1986, itself the best for more than 20 years.

Total profit is forecast by the Lloyd's analyst at £1.18 billion, another improvement on previous estimates.

Profit forecasts 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

The 1995 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's yesterday 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.

• LLOYD'S has settled the long wrangle with Stephen Merrett, at one time head of the second largest company in the insurance organisation.

Mr Merrett 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.

His agencies are contributing £2.2m to the global settlement.

Daily Telegraph: Lloyd's Council

The ruling Council of Lloyd's has formally re-elected Sir David Rowland and John Charman as chairman and deputy chairman.

Mail: Names feel the squeeze in Lloyd's brave new world

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 for 1996 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 profits in 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 the future 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 expects Premium 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.

Daily Telegraph: Fenchurch and Lowndes Lambert in merger talks

The consolidation among insurance brokers gathered pace yesterday as Fenchurch and Lowndes Lambert, two medium-sized groups, revealed they are in merger talks.

The disclosure in a joint statement, was prompted by the Stock Exchange following a recent run-up in Fenchurch's shares.

Having hit a low of 46p in the middle of last month, they added 8½ to 66½ yesterday.

The shares 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 their businesses 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.

"Obviously, we are putting 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.

Times: A question of honour and the failure of self-regulation at Lloyd's

Sir, I am extremely 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 the Council 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 of malignant practices such as the LMX spiral/churning, gross misrepresentation, incompetence and negligence, and for these to run riot.

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 an exorbitant salary and a £400,000 bonus from Lloyd's.

Times: Lloyd's hearings resume

Lloyd's of 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.

Daily Mail: Lioncover dilemma at Lloyd's

Three months after 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 are problems persuading reinsurers to pay claims, creating a £135m shortfall.

Lloyd's chairman Sir David Rowland has overcome worse problems in his time. But the situation is symptomatic.

Legal battles continue in the US, where Names (investors) are making progress in their claim to sue in US courts instead of in Britain.

There is continuing 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.

Mail on Sunday: Hugh crackdown on Lloyd's cheats

The biggest 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.

Information collected during six inquiries has been passed to police around the country for possible action against the firms and individuals involved.

More than a dozen underwriting agents face expulsion from the market because they failed to observe best business practice when managing investors' affairs.

Some firms 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 new regulatory 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 the Securities and Futures Authority, the main regulatory body for share dealing and future trading.

He took on the role at Lloyd's just over a year ago and has initiated 27 investigations. When he arrived 36 were already in progress and have yet to be completed.

His concerns will cast 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.

Times: Lloyd's plans to implement tougher regulatory regime

Lloyd's of London has unveiled a tough new regulatory regime which will lead to speedier investigations and threatens tighter scrutiny of Lloyd's brokers.

New rules to protect 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.

Regulation of 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 Greenway MP, 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.

Goals for 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.

Daily Telegraph: Lloyd's to push for outside regulation

Lloyd's of London is likely to recommend 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 the ruling 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 a general review of City regulation. But it may be years before the new regime gets through parliament.

Last year the insurance market imposed 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 is investigating 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 of preventing 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 a computer system that will continuously monitor every transaction in the market.

Daily Telegraph: Lloyd's owes Names £60m

LLOYD'S of London admitted yesterday that it still 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 be reimbursed a total of £570m.

A fifth 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 that 600 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."

Mr Sandler, 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 has yet to receive any of the £11,900 Lloyd's owes him.

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 a landmark victory by rebel Names.

The Southern district court of New York has ruled that all Names who wrote business in the US can join a class action against Citibank.

The bank is one of the trustees holding hundreds of millions of Names' funds.

Page 23 of the Names' offer document required them to give up the right to sue Citibank and other parties connected with Lloyd's.

Many Names initially 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 a no 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 simply mean more headaches for the Names who accepted the Lloyd's offer.

Daily Telegraph: Lloyd's ‘in new threat from spiral'

The Lloyd's insurance market is at risk 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.

The claim 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.

Arbitraging is 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.

The situation 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."

Christie blames 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 for renegotiation 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 of Syndicate 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."

Daily Telegraph: Lloyd's Names face fresh cash demand

ALMOST 9,000 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 an additional £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 Names who 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.

Some 2,500 Names will be asked for an average of £7,000 each because they need to meet the dollar solvency test imposed by American regulators.

This requires 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 Names will 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's is still unsure exactly how many of the 32,100 Names who accepted its £3.2 billion rescue plan will be affected.

Its debt allocation 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's biggest supporters, Lord Mount Charles is reconsidering his participation because of delays in paying him his £34,000 surplus from the 1993 year of account.

He said 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."

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 with soft 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, with pressure 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 why Willis Corroon now leaving this area, will not fit the bill.

A potential £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 a maintained dividend, the yield is 7pc, but cover is slim and cash flow scarcely burgeoning. The shares up 2½ at 129½p, should be ignored.

Daily Telegraph: Smithlands accountant found guilty

CERTIFIED accountant David 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, was remanded 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.

Sharratt denied 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 were not heavily involved in the company's financial affairs and relied on the advice of financial experts.

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 a US judge had signalled he might cut a multi-million dollar damages award against the company by more than 30 per cent.

GKN was convicted last December of defrauding 2,500 franchisees of Meineke Discount Mufflers, its specialist US exhaust retailer, by diverting fees intended for advertising campaigns.

A jury 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 said judge 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 would recognise "releases" signed by some of Meineke's franchisees, under which they waived their right to compensation.

Lawyers acting for the franchisees, however, said they would continue to press for more than $740m in damages and would shortly file legal submissions claiming the releases were obtained fraudulently and under duress.

GKN has 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 the two sides a week to file a formula on how damages should be allocated among the Meineke franchisees.

If they fail, 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 analysts are split on the financial impact of the likely damages

Some believe 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 its net assets, as of June 30 last year, were £993m and net cash stood at £483m.

Daily Telegraph: GKN perks up as US court says claim could be cut

GKN shares jumped 22 to 935½p after the company said the level of potential damages it faced in a lawsuit brought by disgruntled US franchisees could be reduced by at least 30pc.

Last December a 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 sought increased 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 Carolina deferred 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.

The court has given both sides until next Wednesday to agree a formula for allocating damages to particular classes of plaintiff.

After that, court will make a judgment 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.

Financial Times: Court upholds Lloyd's reinsurance rescue move

Lloyd's of London yesterday won 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.

The ruling 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.

"This judgment 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 of Names 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 than 90 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, but Lloyd'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 allegations that 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 a High 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.

Mr Justice Colman, who is presiding over the case, has given Names the chance to submit evidence of fraud.

Ms Catherine 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.

Times: Lloyd's claims court victory over dissidents

LLOYD'S of London yesterday said it had won a significant court battle with dissident names over sums owing to the society.

In what was billed 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 had applied 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.

Mr Justice 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 was angrily 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 ."

On March 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.

The hearing 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 be able to pursue many other debtors who could not allege fraud.

Daily Telegraph: Court clears Lloyd's to pursue refuseniks

LLOYD'S of London won a legal 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's issued its first batch of writs in October and in December sought the judgments against British Names Dennis Leighs and David Wilkinson.

However, the Names 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

A dispute 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.

Financial Times: Binder's partners agree £53m settlement

About 150 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 the largest 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.

The partners 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 the UK government unveiled detailed plans to allow UK firms to shield partners' personal wealth from litigation stemming from the negligence of fellow partners.

"The costs 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."

Accountants had 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.

ADT alleged 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.

ADT went 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 the immediate 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.

Mr Adrian 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."

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 on institutional investors spotting any errors?

Some people in the City believe private 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 the 1,335 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: "This lone 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 is Wickes, 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."

In June 1988,1 did invest in Sound Diffusion after looking at its accounts. By December that year, the company had gone into receivership.

How was I to know that Department 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"?

Another personal experience made me cautious about the value attributed in accounts to "stocks" of products and materials.

So he asked for the stock 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 examine 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 the company'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? Have profits been boosted by "exceptional" items? If so, are the company's general trading activities showing a decline?

Or has one supplier been given preference in return for "kickbacks" to the person placing orders for over-priced goods?

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.

Daily Telegraph: Names who held out get better terms

LLOYD'S of London has been making deals with Names who refused to participate in last year's rescue plan, offering them better terms than they were offered then.

The news will enrage 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.

Mrs Noel 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 for Lloyd'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 on February 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 that most of the 1,681 refusing to do so "Won't pay" rather than "can't pay".

Lloyd's was unable to say how many Names it had done deals with after the rescue was approved in September.

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.

Hook chaired 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 than 50 action groups received payments to cover legal costs and the expenses and remuneration for their committees.

A remuneration 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.

Caledonia had 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 its recommendations 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 Laszlo spearheaded 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.

The issue 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.

The question 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 he left 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.

Daily Telegraph: Hook pay-out

Claims that Colin 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.

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.

Financial Times: It's tough to be an insurer - recovering from the latest downturn will not be easy

Full-year results 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 that premium 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, the depth 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.