In the City

Caveat emptor

Jock Bruce-Gardyne

So the great bull market is over. The insti- lOtutions, drained dry by the energy and

persistence of the Government broker, have no cash left for equities, and next year all their cash flow will be absorbed by the debuts of the Royal Ordnance Factories, British Telecom, and — who knows? — British Airways.

The glamour stocks of yesterday — the GECs, the Racals and Plesseys — are now shrouded in gloom at the prospect of Nigel Lawson's axe poised over the Ministry of Defence; while Norman Fowler, driven desperate by Treasury provocation, prepares to slash the nation's drugs bill and ruin the stock market rating of Glaxo, Beecham and Fisons. About the only shares left to buy are those of Fleet Street as a cheap way into the Reuters goldmine (providing Alexander Chancellor does not succeed in having it locked up, that is).

Well, we shall see. The stock markets always aim to be some 18 months ahead, and it is not unreasonable to calculate that by 1985 the sharp profit growth phase of the recovery will be over even if Nigel Lawson is right and the recovery itself is not. A correction was no doubt overdue. But it is a long way from a glint in the Chancellor's eye to an end to the growth of defence procurement; and now that the DHSS has retained its sponsorship of the UK drugs industry (after an argument) it is perhaps unlikely to throw it to the wolves of cut-price competition in the NHS. Besides, it was only weeks ago that we were regaled with accounts of analysts from Lon- don stockbrokers being lured with offers of six-figure contracts from the US financial institutions: stories which hardly seemed to suggest that New York foresaw a long decline in London.

Still, it would not be very surprising if 1984 turned out to be a year when capital losses were rather easier to come by than they were in gilts in 1982, or in equities so far this year. Against that background, and given the speed of change in prospect in the financial community, the calls for more effective forms of protection for the private investor are not going to go away. Only last weekend, for example, we had a harrowing

tale reported in the Times of an actor who had entrusted 00,000, the proceeds of the

sale of his home, to Merill Lynch and lost the lot in double quick time. What was needed, the report concluded, was an ombudsman for the investor.

It would be hard to think of a more im- possible job. Apart from anything else, one investor's meat is another investor's poison.

If, for example, I were a lock-up investor in House of Fraser I would be screaming blue murder at the soaring cost of staging Tiny Rowland's extraordinary general meetings; but if I were in and out, and got my timing right, I would be profoundly grateful to him for whetting the market's appetite with the prospect of a nice fat price for Harrods.

Besides, what on earth would be the criterion for 'maladministration' in this context? One of last year's launches on the Unquoted Securities Market, a maker of sandwich toasters and suchlike gadgets call- ed Breville Europe, recently reported pro- fits down by more than two-thirds, so that those who bought at the placing price have seen the value of their investment shrink by more than half. The trouble, it seems, is that their market is dominated by a few large customers who can squeeze their margins. Should that have been reported in the original prospectus (certainly there was no conceivable legal obligation)? The US Securities and Exchange Commission regularly requires prospectuses to carry the warning (in bold type) that investors should keep away unless they can afford to lose every penny they put in. That does not stop them flocking — and sometimes doing very nicely thank you.

Another fashionable source of complaint is the remuneration of directors and execu- tives. Lloyds has had a drubbing for its off- shore syndicates. Marks and Sparks ran in- to a spot of bother with its housing loans to directors. Shock, horror, and cartoons have been provoked by the scale of the (taxable) earnings of members of the Sainsbury fami- ly. But if I had been an outside name on one of Mr Posgate's syndicates I would not have had much cause to grumble about the business he transacted; nor, as an investor in Marks and Sparks, would I have been minded to complain about the way that business was managed. And if I had had the nous to buy some of Sir John Sainsbury's shares when he brought them to the market I would have thought him worth his (modest) weight many times over in gold or platinum — and it is a fact of life that if a family business goes public and prospers through good management as Sainsbury's has done, the members of the family are liable to receive very large dividend cheques for the Inland Revenue to milk. If, on the other hand, I had been a shareholder of Dunlop I might have been inclined to sym- pathise with those who questioned the in- crease in Sir Campbell Fraser's remunera- tion — not because, as President of the CBI, he 'ought to set a good example' of wage restraint, but because in Dunlop's present predicament the timing did seem odd, to put it mildly. In short the labourer is, or should be, worthy of his hire: but how an ombudsman could be asked to ad- judicate on that beats me.

I am not saying that management always — and only — gets its just deserts: of course not. I remember, as a very small shareholder in the old electrical giant AEI before it was taken over and knocked into shape by Lord Weinstock, being distinctly miffed to learn of the lifestyle in the board- room of that company, and down at the chairman's country mansion, when it was annually churning out abysmal profit figures. And certainly the Inland Revenue is entitled to prick up its ears when it becomes apparent that the tax efficiency of the methods of remuneration of executives has been carried to unusual lengths, just as the Bank of England is bound to become con- cerned if the modus operandi of a city insti- tution is imperilling its international reputa- tion. But I do question whether investors really need protection against large and multiplying rewards for successful manage-

ment. Still more do I question the sense of trying to devise a system of supervision to ensure that the unwary investor and his money stick together.

If we are going to move into an environ- ment in which people are encouraged to choose their own provision for retirement,

so that they can take it with them when they move employment, instead of relying on more or less immovable occupational schemes managed by the institutions, we are going to have to face the fact that some will make some foolish choices, and be left with little but the basic state retirement pen- sion to fall back on. It is a thought to ponder on if the market goes into reverse.