Billions now, or we're all in the insurance mud

WILLIAM GLEESON'S investigation into Lloyd's of London on these pages makes it clear that the 308-year-old insurance market has reached a critical moment in its history - even by the standards of the past 20 years, when it has been through a succession of crippling disasters. After a lull in which Lloyd's dropped out of the headlines, the decisions that are to be made in the next few months will determine whether the market has a future or not.

Events are having to move rapidly, because the window of opportunity to act has narrowed frighteningly fast this year. It is no exaggeration to suggest that the market must have a convincing rescue plan in place before the end of the summer or it will face closure. And a convincing rescue plan will involve raising billions of pounds. Anything less will mean the market will limp on for another year or two before the same crisis emerges again.

Some in the market believe that the best decision would be to close Lloyd's in an orderly fashion, ring-fence outstanding claims and restart in another form. It would be traumatic. Some people would lose jobs. But most would find new ones in the insurance businesses that would spring up in Lloyd's place.

However, in the wake of the Barings dbcle, the impact of a Lloyd's closure on the City's international reputation would be hard to calculate. Every large industrial company would be approached by foreign insurers eager to point out that the Brits make promises they cannot fulfil, then, when push comes to shove, cut and run. The mud would be smeared over other City services, such as shipping, banking and stockbroking.

But the alternative could be that the agony drags on until one day the whole thing goes bust. That would really take London's reputation down the tubes.

Advisers in the firing line

THE Securities and Futures Authority's record £200,000 fine, imposed on the stockbroker Greig Middleton, will send a shudder down the spine of every broker who has been contemplating the nice little earners to be made from ushering hopeful minnows to the Alternative Investment Market (AIM), the new junior stock exchange that begins on 19 June.

The Greig Middleton fine related to the firm's sponsorship of the Second Greig Middleton Enterprise Zone Trust, over which 200 investors are suing the broker for £8m. But it casts a shadow over the whole business of giving advice which is, after all, the City of London's bread and butter.

If there were any doubt on the matter, Alan King, the SFA's director of enforcement, spelt out the implications. "It is particularly because we feel so strongly about prospectuses, particularly with the AIM coming on," he said.

When the Stock Exchange, dear old nave thing that it is, drew up the rules for AIM, it thought it could scrap most of the normal demands - that would-be entrants should be solvent, publish truthful accounts and prospectuses, and so on - and instead put the onus on advisers.

The time-honoured but long-discredited theory, which dates back at least as far as the setting up of the Department of Trade's company investigation system nearly 50 years ago, is that because the advisers' name will be at risk they will not want to be associated with failure.

More than 150 stockbrokers, accountants, solicitors and banks have asked to go on the Exchange's list of approved advisers.

The snag is that many of the sort of advisers who are likely to go grubbing around among the tiddlers are - to put it mildly - fairly flexible about protecting their name. Indeed, a broker with a reputation for cutting corners can earn kudos from a certain class of potential client.

The SFA's treatment of Greig Middleton has made it plain that there is still a tariff to be paid by those firms who are not too worried about being excluded from the City's posher dining rooms.

East London carve-up

Disgust: that is the overwhelming reaction to the news that the City's Corporation of London and Canary Wharf a few miles east - landlord to the Independent on Sunday - are getting together to carve up the east London property market.

From the point of view of tenants, actual and possible, there has been a pleasing acrimony between the two bodies of late. The Corporation's policy head, Michael Cassidy, was all but looking for someone to hold his jacket so he could bloody the nose of Sir Peter Levene, Canary Wharf's chief executive, after the BZW securities house said it was decamping eastwards from its traditional City eyrie. Mr Cassidy believed that Sir Peter was being too pushy, and adverts featuring dolly birds wittering on about the modern offices and lots of shops only served to irritate.

But that is what good, healthy competition is all about. When Canary Wharf first got on its feet, too late to prevent its creator going bust, the Corporation responded by relaxing its planning rules to keep business tenants in the Square Mile.

Now, though, the scene cuts to a smoke-filled (or coffee-drenched) room. Sir Peter and Mr Cassidy have been meeting to agree "rules of competition".

Mr Cassidy said: "I would like Sir Peter to instruct his agents not to go out of their way to attract established City occupiers."

I bet. And I am equally confident that Tesco would not like Sainsbury to go out of its way to attract customers either. Competition is meant to benefit the consumer, not provide suppliers with an easy life.

Instead, we are faced with the worst kind of anti-competitive carve-up, potentially far more damaging to the customers in question than the old pre-Big Bang Stock Exchange. The fact that the Corporation is a planning authority rather than a landlord is irrelevant as far as tenants are concerned. The Office of Fair Trading must monitor these talks to see if they produce an agreement restraining Canary Wharf and the City of London from attracting customers.

The OFT's task would then be to decide whether such an agreement should be publicly registered or - as nearly happened to the Stock Exchange - go before the Restrictive Practices Court to see if there is a public- interest issue to be settled. There is, and it should.