How many more rogues are under the carpet?

City & Business

IMAGINE for a moment that Toshihide Iguchi had tried to perpetrate his mindboggling fraud by stealing gold rather than government bonds. By my calculations he would have had to trouser 81 tonnes of the stuff to inflict the same damage as his fraud in bonds. Ingot by ingot, he would have had to smuggle out one-third of his bodyweight in bullion every working day for 11 years.

An unlikely fraud, you'd think and you'd be right. For a start somebody would have noticed the bulges in his suit. More to the point, someone else - even in a bank as seemingly trusting as Daiwa - would surely have checked the basement and noticed the bullion stacks were mysteriously shrinking.

I'm not being flippant. The analogy is exact. But instead of bullion, Iguichi stole and sold Daiwa's stockpile of government bonds. He got away with it because the actual bond certificates remained in safekeeping in the vaults of another bank. He simply sold the ownership rights to them, meanwhile forging Daiwa records to cover his tracks.

We don't yet know the full facts, but it seems that all Iguchi needed to keep the fraud going year after year after year was an agile brain, the letterhead of the custodian bank Banker's Trust and the sang froid of a latter-day Raffles.

The parallels with Nick Leeson are obvious. They each ran both the trading sides of their businesses and the settlement operations. Both began their frauds to cover up relatively minor trading losses. Both found their misdemeanours escalating out of control. Both found that despite the size of the losses, it was possible to deceive colleagues, bosses and the regulators.

The big question is, how widespread are such frauds? Maybe the rogue trader is not such a rare species. These are just the scandals that have come to light. How many more are brushed under the carpet by embarrassed managements?

So long, Cedric?

IT IS exactly four months since the infamous British Gas shareholders meeting at which thousands of small investors bayed for the scalp of the chief executive Cedric Brown. It was a ghastly affair for the British Gas directors, but at least they knew they could count on the support of institutional shareholders.

My graph below shows what has happened to the share price and the overall stockmarket since then. Those same institutional shareholders are now beginning to wonder whether they should have been quite so loyal to Brown and his chairman Sir Richard Giordano.

More bearish noises have been coming out of British Gas than from Yellowstone National Park. The company is locked into disastrous long-term contracts which force it to pay twice the going rate for its North Sea gas supplies. Back on shore Ofgas is working on a new pricing formula for its transportation and storage business which could slice hundreds of millions from profits.

It is all very different from nine months ago, when the company was promising real dividend growth. Sir Richard and his finance director Roy Gardner are now doing the rounds of City institutions. Meanwhile the shares continue to drop.

Some investors believe British Gas are overegging things. There are three theories: 1) they are trying to soften up the North Sea producers in order to renegotiate those diabolical contracts; 2) they are trying to soften up Ofgas to wangle a more generous formula for TransCo; 3) the conspiracy theorists' explanation is that they are paving the way for a management shuffle, setting the scene for a nice bounce in the shares when Cedric Brown is sent on his way.

British Gas hotly denies any such departure. But just this once I think the conspiracy theorists could be right.

Scotland the brave

WITH bids flooding in for Norweb, and Southern Electric announcing it is in bid talks, takeover fever in the electricity industry shows no sign of abating. Meanwhile, it is crunch week for Manweb. Its 120,000 small shareholders have till Friday to accept or reject the hostile bid from Scottish Power. Hopes of a white knight faded last week when PacifiCorp of Oregon pulled out of talks.

The choice for Manweb shareholders now is between Manweb's "scorched earth" promise of a 605p package of special dividends and other goodies plus a stake in its highly geared rump business and Scottish Power's concrete offer of 990p in cash or pounds 10 in shares and cash.

Manweb's past record is hardly a promising omen for its future as an independent company. It has lost countless customers in the competitive supply business; its electrical retailing arm was a failure; its cost record is among the worst in the industry. Scottish, by contrast, looks super-efficient. Unless a surprise counter-bid miraculously lands in the next few days, Manweb shareholders should accept the Scottish offer.

Conflict of interest

THERE are plenty of pursed lips in the City over the appointment of Elwyn Eilledge as chairman of BTR, as we report on page 3. Until June he was senior partner of Ernst & Young, BTR's auditors. Potential conflicts of interest are legion. How can he objectively negotiate audit fees with an organisation he worked for for 30 years, and that still pays him an annuity? How can he objectively assess the quality of its work, when its employees are friends and past-colleagues? How can shareholders have faith that E&Y are working 100 per cent in their interests and not for the management. How - if things went disastrously wrong and E&Y was found to be negligent - would he sue the firm, knowing that his own home might be at risk?

Both BTR and Mr Eilledge should have known better. It is probably too late to reverse the appointment. There is another solution. BTR should find itself a new firm of auditors.