CITY AND SUBURBAN
The race is not always to the swift, which explains how they're betting
CHRISTOPHER FI LDES
uying new issues of shares in the City is like racing in Ireland. You must not assume that the event is being staged for your benefit. Recent selling-plates have developed close-run finishes with curious results, and the subsequent form has told its own story. These were new issues where, as the last moment for applications neared, the broker and merchant bank (jockey and trainer) began to doubt whether they could find takers for all the shares on offer, or whether the market would get the impression that they could for, in this class of race, nothing succeeds like the appearance of success. Failure would mean lost bets for the underwriters, the institutions who had been paid commis- sion to take up such shares as others did not want. Trainer and jockey would go the rounds of the institutional fund managers: `Now, look, old boy, if this thing flops, it won't do any of us good, and you will be left with shares which will open a long way below the offer price. Since you'll get the shares anyway, why not apply for some? Then we can say the issue is over- subscribed, so you won't have to take up the stock you underwrote, and the mug public will pile in, which will give you the chance to pile out.' Spot these supposedly successful new issues — the share price seems to be banging its head on an invisible ceiling. What happens is that the moment it reaches that ceiling, more institutions gratefully dump their stock. Whether well connected trainers and well known jockeys should run their races like this, whether this is the way to encourage the new racegoers on whom the sport is now said to depend, whether the stewards should raise their binoculars, even if that means focus- ing them on their friends. . . . They should, if only for practice. The Financial Services Bill will make creating a false market into a criminal offence, punishable by imprisonment. On that line of form, the cells of Wood Street police station should soon house some notable inmates, with wonderful tips. Take care before backing them.
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