Morgan funds may need more Deutsche cash

Another pounds 39m was yesterday taken out of the three beleaguered Morgan Grenfell funds, bringing the total redemptions since trading resumed on Thursday to pounds 230m.

There is concern that this is already close to the pounds 300m cash the funds have as a protection against a run.

Any further deterioration could force the parent, Deutsche Bank, to pump in more funds on top of the pounds 180m supplied last week.

Sources close to the affair denied that there was any pressure to top up the funds, but it is likely that contingency plans have been discussed in case the ceiling is breached.

Morgan Grenfell said yesterday's pounds 39m was well below the pounds 93m sold on Friday.

A spokesman claimed the tide had turned after a fall from 90,000 to 75,000 investors in the funds. He said: "As expected, the rate of redemptions has slowed significantly. There is still enough cash in the funds and we will continue to monitor the situation closely."

Experts believe that if redemptions continue even at the new lower level, some of the underlying securities would have to be sold in a hurry, and unitholders could lose out.

Andrew Beagley, head of investment funds policy at Imro, said Morgan Grenfell still had several options to counter this threat.

In the event of rapid sell-offs of units, a manager can ask the trustees for permission to raise a loan of up to 10 per cent of the fund's value, in order to meet redemptions.

Alternatively, Deutsche Bank has the option of injecting cash in the three funds by becoming a big unitholder in them, though there are regulatory difficulties to surmount if the cash is used to repay unitholders.

In a letter to unitholders, the second in four days, Morgan Grenfell said: "If, following investigations, compensation is found to be due to investors in these funds under Imro rules or any other applicable legislation then it will be paid by us.

"This will be the case whether or not investors have subsequently sold their investments in these funds."

Other unit trust managers have jumped on the problems at Morgan Grenfell and offered investors the chance to sell out of their Morgan Grenfell units and buy into their own unit trusts at no initial charge.

Meanwhile, a team of forensic accountants employed by Ernst & Young, the accountancy firm, is working round the clock to delve into a Jersey account held by Mr Young.

The account contained most of the shares in a mysterious Luxembourg firm, Russ Oil & Technology, which was cited in the injunction last week in which Morgan Grenfell froze Mr Young's assets.

The Jersey account, believed to be a "nominee" account, used by Morgan Grenfell employees for tax reasons when they receive their bonuses in shares, is perplexing investigators as confusion appears to surround the status of Russ Oil.

The company bought much of a share placing by oil exploration firm Solv- Ex, handled by the brokerage firm Fiba Nordic Securities which has also become wrapped up in the affair.

Fiba, which does not deal for private clients, believed Russ Oil was owned by Morgan Grenfell. The contents of the Jersey account stunned Morgan Grenfell.

Russ Oil & Technology may have been one of the Luxembourg firms set up by Mr Young to help hide the extent of his exposure to unlisted, risky high technology stocks in Scandinavia.

Another brokerage firm, Ice Securities, which specialises in pricing unlisted stocks, was asked by Mr Young to value the unlisted Luxembourg companies with a view to bundling them together to list them on a stock exchange.

Ice Securities said it was first hired by Morgan Grenfell on 15 July and continued to work for the asset management operation.

Peters & Peters, the solicitors representing Mr Young, said yesterday that there had been no allegations of criminality. The Serious Fraud Office had not opened a case on the affair but is aware of the inquiry and has been in contact with Imro.

The highly sensitive issue of Deutsche Bank's triple-A credit rating - one of only a handful world-wide to have this status - was highlighted when Moody's Investors Service said it was looking at the implications of the Morgan Grenfell Asset Management situation.

Linda Montag, a senior analyst at Moody's, described Morgan Grenfell as "another issue to look at". Moody's said in July that Deutsche's rating had been given a "negative outlook" because of deterioration in earnings and growing business risks as it expanded into investment banking.

But she said there was no actual review under way of Deutsche's credit rating, which would be a much more serious issue for its standing in the bond markets because a review implies pressure for a reduction.

Apart from Deutsche, Union Bank of Switzerland and Rabobank of the Netherlands are the only other banks to enjoy triple-A ratings without any kind of sovereign guarantee.