Bank's Maxwell lapse: Late tycoon was banking group's chief backer for years, writes Nick Gilbert

THE BANK of England allowed the late Robert Maxwell - a man once judged unfit to run a public company - to act for several years as the chief financial backer of Robert Fraser, the City merchant banking group under its supervision. The Bank did not act to reduce Maxwell's involvement in Robert Fraser Group until March 1991 - nearly five years after he first provided it with funds and just three weeks before the disgraced tycoon revealed plans to raise nearly pounds 250m from selling shares in the Mirror Group.

Maxwell was careful to keep his shareholder voting power in Fraser - and in Guinness Mahon, Singer & Friedlander and Henry Ansbacher, where he also held stakes - below the 15 per cent level that required the Bank of England to judge formally on whether he was a 'fit and proper' person to be involved in a licensed banking institution.

But the revelation that Maxwell at one stage supplied Fraser with backing out of all proportion to his near 8 per cent shareholding raises questions over the Bank of England's attitude to any influence he might have had at the banking concern.

Via Pergamon Holdings, Maxwell took a stake in Fraser in November 1986. His son Kevin joined the board and remained on it until August 1990. As a result of the price paid for the holding, Maxwell was by far the largest single cash contributor to new equity in the year, putting up more than 40 per cent of new money with the remaining 19 shareholders putting up the balance between them.

A few weeks later, in December 1986, Maxwell put in a further pounds 1.9m, when Fraser raised pounds 3m from selling partly convertible unsecured loan stock to meet its capital requirements over the following 18 months.

Of the pounds 3.4m that Fraser raised from share and loan stock issues in the months leading up to and including Maxwell's arrival, the late tycoon provided over pounds 2m - more than 60 per cent - despite keeping his shareholding down to well under 15 per cent.

It also emerges that Maxwell was one of the few to benefit from financial involvement in Fraser over the next few years. The company never paid a penny in dividends, but Pergamon and other holders of the loan stock received between them interest payments rising from pounds 177,000 in 1987 to pounds 434,000 in 1990, the last year for which accounts are available.

In the years after the pounds 3m was raised, various deals took place involving Maxwell-related companies and Fraser, which is chaired by Lord Rippon, a former director of Maxwell Communication Corporation, the collapsed media group.

The Bank of England finally took an active interest in Fraser in 1990, when the group was in danger of going bankrupt after disastrous investments.

Shareholders, including Maxwell, were forced to take urgent action to revamp the balance sheet and inject cash to make good a pounds 12m deficit on shareholders' funds. Maxwell ended up with a much-diluted equity stake. With the Bank involved in the recapitalisation, he also surrendered his right to convert his pounds 1.9m of loans into Fraser shares, in exchange for special deferred shares that carried no votes and no dividends. The deal, which received no publicity at the time, took effect at the end of March 1991. The Mirror Group flotation, the subject of considerable hype in the City, was announced in April.

In September this year, Fraser voluntarily surrendered its banking licence and is now concentrating on property management activities.

(Photograph omitted)