Skinflint's City Diary

I noticed the name of Mr Serge Semenenko, the Wall Street banker, in something I was reading over the weekend. I met him briefly on the yacht "Shemara" which he had rented from Sir Bernard Docker in, I think, the year 1959.

Semenenko is a mysterious financier and a White Russian, and has been described as curlyhaired and vaguely dissolutelooking, with thick pouches under sad Odessa-Constantinople-Harvard Business School eyes. He used to maintain a large suite at the Pierre Hotel in New York and gave lavish parties for what used to be called — before the days of backgammon — the Beautiful People. He was born in 1903 in some appalling sink in the town of Odessa. When the Russian Revolution broke out, the family escaped to Constantinople and young Serge found himself at that fount of financial talent, the Harvard Business School. At twentyone he became a $25-a-week credit clerk for the First National Bank of Boston.

During the next forty years he rose to lead this bank from one profitable venture to another, including Warner Brothers, Hilton Hotels, Hearst Newspapers and many other glamorous enterprises. When I met Semenenko, he was a relaxed and generous host, softspoken but politely enigmatic. I thought he was retired, though a year or two later I noticed in the press that he had raised 35 million dollars for the ailing Curtis Publishing Company, owners of the Saturday Evening Post. Semenenko's bank put up 10.5 million dollars, and five other banks provided the rest. Apparently Semenenko had arranged a very good deal for himself, as the Wall Street Journal reported later:

"The six banks charged Curtis a full percentage point more than the prime interest rate . . . and the First National Bank of Boston got an additional of 1 per cent interest for acting as agent for the banks. The banks probably also profited in ways that were not announced. One source says that Curtis was required to keep heavy compensating balances that earned no interest on deposit at the banks."

Shades of the fringe and conglomerate crash in London in 1973, you may think. The Wall Street Journal goes on to record,

"the source says that Curtis also switched some $38 million of company pension funds from another bank to the Old Colony Trust Company, a First National of Boston affiliate. Institutions receive substantial fees for managing company trust funds."

I mention all this as an indication of the background to a situation that has become something of an obsession with me — the use of tax-free charitable funds in undertaking day-to-day aggressive business. United States control of financial malpractice is way ahead of London, very laudably. London bankers and the City establishment do not like their methods or systems questioned.

Anyway, back to Semenenko. He was known to donate large sums to charity and some people thought that his ready access to funds was connected with a covert relationship with charitable foundations. According to one account in the New York Times, "Mr Semenenko got some unlooked-for unfavourable publicity last year (1963) when Representative Wright Patman, Democrat of Texas, who is chairman of a Congressional sub-committee investigating tax-exempt foundations, disclosed that he had ready access to huge amounts of credit from a group of charitable foundations for dealing in the stock market and invested in shares of companies that he served as a banker . . . These foundations were all controlled by David G. Baird, a New York stockbroker and close business associate of Mr Semenenko's. Mr Semenenko was by far the most active user of credit facilities made available by the Baird foundations. In 1956, he tapped them for more than $6 million to finance the purchase of 160,000 shares of Warner Brothers stock, a deal that Mr Patman claims made him at one point Warner Brothers' second-largest shareholder. He also borrowed to buy shares in Universal Pictures, the American News Company and Olin Industries, which was later merged into Olin Matheson Chemicals. In all, Mr Semenenko's borrowings from the foundations totalled well over $20 million between 1951 and 1961, with most of the companies he served as a banker . . . Mr Semenenko . . . denies that there is anything illegal or unethical in his dealings with the foundations. He says that he did not . . . employ the foundations to gain any business advantage."

What Mr Semenenko may or may not have done with the money of a foundation that he may or may not have been instrumental in founding is not of importance to us here, but there's little question that a TV rental empire and one of this country's biggest High Street fortunes is funnelled through a series of charitable trusts and foundations. Not only is the income the trusts receive tax-free, but so also are their capital gains, resulting in the main funds of the charity growing on a compound basis and still being at the disposal of the founder for huge current funding of speculation in acquisitions.

The taxing of the investment profits of these charities is, of course, long overdue. So is the necessity for the banning of the use of nominee names which conceal true ownership. Just possibly the declaring publicly of personal income taxes in the US manner might become necessary, not so much to see how much people make as to see who's making it.

Chataway's plight

As Sir Alec Douglas-Home, Tony Barber, Gordon Campbell and now Christopher Chataway 'make their excuses and leave,' Ted Heath looks as if he's becoming the man whose best friend won't tell him. Chataway is, on the face of it, chucking up politics because he chose to spend his twenties and thirties in public life and did not take time off to build up any personal independence or the private means secured by some of his contemporaries in 'the professions and commerce. He now finds himself reduced from the generous pay packet of a middle-rank minister to a backbencher with only a slim chance of office if Mr Heath insists on keeping the party out of office by leading it.

Chataway was dismayed to see his majority collapse in the general election from 26,000 to 11,000 but, worse, another Conservative tells me, Chataway expected Mr Heath to have given him some more venturesome post in the Shadow Cabinet, so that he could build up his public image before the next general election. Anyway, Chataway has gone, leaving Mr Heath with the sly innuendo in the first few lines of his farewell article in this week's Sunday Times. A constituent that

Chataway dismisses as an oli company executive says during the election campaign, "No. not voting. You are all in it for yourselves. Look at Heath spend

ing all his time sailing and tell me how comes it that he can afford that yacht?"

Go on, Ted, why not tell Chris, so that he can afford to stay on in politics.

Benn's wedge

Lord Stokes has denied a report that British Leyland Motor Corporation is seeking government aid. He obviously fears the thin edge of Mr Benn's intervention. Another industry that is sometimes talked about in this connection is machine tools, and there Alfred Herbert Ltd, as the largest, is the most often discussed. Only a few days ago I heard a senior banker say that a year or two ago they had thought of taking 3 major stake in Alfred Herbert with a view to reducing their indebtedness and making the comPanY once more a major force in world markets. Very reluctantly, after undertaking an enquiry, theY decided to refrain from making an investment. Wh ne g kbnue tw u that union tn tthr oe rueb i we oaunldd bn no't' terference from the press an' politicians. We realised we would be accused of everything from in sensitive asset-stripping to loot1n! the company for its property. The firm will probably go on for a while appealing to the government for orders but there will be a gradual slide down-hill and whatever the present management clo it will remain unloved in the City. Then we anticipate that Mr Wedgwood Benn or someone HO, him will step in with a lot ot cpublicity,ycle ind uasstrtyheyandd h did in slide ovvt°i continue with a lot of government money being lost, but without anY attention to the fundamentals which should be a degree of Pr°tection and/or permission frorn etharte eMlisoe more." Commission t° This is a frightful indictment. i! Mr Wedgwood Benn believes in mixed economy it might be as We" if he does not go around frighten: ing such venture capital as there tb, from taking up the arduous anu aggravating risks of reorganising heavy industry.