Christopher Walker: Bitter harvest in Merrill's garden

The English Season is alive and well and doing business. This latter no doubt explains why, at a time when austerity has swept fresh flowers from most investment-bank boardrooms, Merrill Lynch decided to sponsor the Chelsea Flower show itself. There could have been no better week for a little positive press comment: two stories on both sides of the Atlantic have had Merrill at the core. In New York the damaging affair of the analysts' emails was settled in high-profile fashion, while in London staff and client defections at Merrill's fund-management arm dominated the news. Its choice of garden this year, "The Sanctuary", seemed particularly optimistic.

Eliot Spitzer, New York's attorney general, has already appeared in this column. His cunning wheeze to impound investment analysts' internal emails on house stocks and contrast them with the public buy notes caused havoc. Mr Spitzer has now cut a deal that leaves Merrill handing over $100m (not a lot in view of the billions made from dot coms), setting up a stock de-selection committee (hardly radical) and promising to separate the issue of analysts' pay from the massive sums made advising in-house clients (difficult).

Many investors complained at the grudging admission that "inappropriate communications ... at certain points have appeared inconsistent with ... published recommendations". Calling a house-stock on the buy list a "piece of shit" must certainly fall within this definition. The point surely is that it is not the internal emails that were at fault but the external buy notes. Investors might like to make their way to Mrs Milton's intriguing "Memo Garden" at Chelsea this year and dwell on that.

The bigger issue for the industry is that any integrated house that earns vast sums from corporate business brought in by analysts who, at the same time, are issuing buy (or rarely) sell notes to clients, is going to find independence of views challenging. For institutional investors, caveat emptor may hold, but the private investor needs more rigorous protection. The Glass- Steagall Act was introduced in the US after the Wall Street crash to break down the highly integrated banks. Do we need something like that again?

The designer of the "City Girl's Haven" at Chelsea works long City hours and retreats to Provence. Carol Galley ran Merrill's London fund-management operation. Having "retired", reportedly to the South of France, with a sum somewhat larger than the fine paid in New York, she was distressed to be called back as star witness in the Unilever trial case. Unilever's pension fund, you will recall, claimed Merrill's acted negligently in handing over the fund to a recently graduated fund manager, running the portfolio in a high-risk manner, and chalking up a whopping 10.5 per cent of underperformance. Merrill's originally contested the case, but, after Ms Galley was exposed to gruelling cross-examination, decided to settle for a rumoured £70m.

No doubt Merrill's hoped that would be the end of the affair. But in past months a large number of "ordinary" fund managers have followed Carol to the exit, culminating with her chosen successor, Andreas Uttermann. His destination is not disclosed. One garden in Chelsea's city section was "High Flyers' Haven". Clients are also leaving – some £3bn worth so far. The Co-op did so in high profile, threatening (like Unilever) to sue.

When the Spitzer affair began in New York, some people observed that this was further evidence of the robust nature of US systems compared to the UK's. Now, it looks as if the real drama will be in London. But for the ordinary people who have lost their savings and pensions in the market, recompense looks elusive. Among the gardens at Chelsea this year, they will find a "Forgotten Future".