Warburg deal due within days

The £800m sale of SG Warburg's investment banking operations to Swiss Bank Corporation could be agreed as early asWednesday, writes Magnus Grimond. SBC-Warburg is already being suggested as the new name for the operation.

The two sides held a crucial meeting late yesterday - at which many of the main elements of the deal were thrashed out - and discussions will continue this afternoon.

Sir David Scholey, Warburg's chairman, led the negotiating team on the British side while the Swiss were led by Marcel Ospel, head of the international and finance division at SBC, with which Warburg will be merged if the deal goes ahead.

A source close to the negotiations said that "all things being what they should be" an announcement would be made this week, with Wednesday a "reasonable guess" as to the date.

Reports over the weekend that National Westminster Bank, whose name has already been linked with Warburg's Mercury Asset Management funds management operation, might be interested in buying the whole bank were being played down by NatWest as "rumour and speculation".

Yesterday's get-together follows two weeks of due diligence investigations by Swiss Bank during which no further skeletons are thought to have been uncovered at Warburg. Last Wednesday, the bank was forced to issue another profit warning - its third in eight months - leading analysts to the belief that the investment banking side had chalked up losses of up to £100m in the second half of the year, all but wiping out profits from the highly successful MAM.

But the negotiations with Swiss Bank were sufficiently advanced by the time of last week's warning that it would almost certainly have known about the problems.

Analysts expect that the final price will be around Warburg's net asset value, suggesting a figure in the region of £800m.

Up to now, opinion in the City has been divided on how to price Warburg. Some analysts have cited the sale of Morgan Grenfell to Deutsche Bank at twice net assets to back up arguments that it might sell for a significant premium, while others have suggested that the bank's poor recent returns could see the final price cut to below that level.

Any deal is likely to see the end of any functional independence at Warburg, with the investment banking business fully integrated into Swiss Bank's operation, headed by Mr Ospel, although the name is likely to be retained in one form or other.

It was being suggested yesterday that Swiss Bank's investment banking division may be renamed SBC-Warburg.

Job losses are expected to be fairly small. Sources said last night that forecasts of 1,000 redundancies as a result of the merger were "wildly exaggerated". But whether such reassurances can stem the haemorrhage of key staff at Warburg remains to be seen. Morale at the bank has plummeted since the collapse of merger talks last December with Morgan Stanley, the US investment bank.

The proceeds of any deal with Swiss Bank are expected to be passed back directly to shareholders in SG Warburg, along with shares in the 75 per cent-owned and separately quoted MAM.

However, speculation has grown in the course of the past week that NatWest has been keen to get in on the negotiations over Warburg. With the focus of its interest lying in the fund management operations, it could yet emerge as a "trade buyer" for MAM.

Warburg's shares firmed 15p to 842p on Friday on expectations that the Swiss Bank offer could be worth between 860p and £11 a share. Shares in MAM rose 11p to 887p, with analysts saying that any bid from a third party would need to top £10 a share to succeed.

Warburg's fortunes have declined dramatically in the course of the past year. In May 1994, it announced record profits of £297m, but it quickly ran into criticism for its handling of Enterprise Oil's failed bid for rival Lasmo. In October, it was forced to admit that turmoil in the bond markets would cut interim profits to little more than a third of the comparable period.