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Cable and telecoms giants Cable & Wireless, NYNEX Corp and Bell Canada International on Tuesday announced the formation of a major new British cable player by merging the operations of their British subsidiaries.
This brings together C&W's Mercury, British cable company Videotron, Bell Cablemedia and NYNEX CableComms.
In a related deal, Videotron is being bought by Bell Cablemedia in a complex deal which involves a $338 million equity investment in Bell Cablemedia by Cable & Wireless and values Videotron at around $1.09 billion.
Videotron, which was already 26 percent owned by Bell Cablemedia, was the target of a long-running takeover battle, with Cable & Wireless emerging as favourite.
Recent reports said German telecoms group Deutsche Telekom and International CableTel of the U.S. were also interested in taking it over.
Once the merger and the Videotron deal have been completed, Cable & Wireless will own 52.6 percent of the new company - to be called Cable & Wireless Communications - with NYNEX owning 18.5 percent and Bell Canada 14.2 percent of the shares. The remaining 15 percent will floated, C&W told Reuters.
The groups intend to list the company, which will provide integrated telecommunications, information and entertainment services, in both London and New York. This is likely to take place in about six months, C&W added.
Cable & Wireless Communications "...will provide local, national, international, data and mobile telecommunications, together with multichannel television and Internet services" to around six million franchised homes and to businesses throughout Britain, the groups said in a statement.
Richard Brown, chief executive of Cable & Wireless, said the new company would be the only company in Britain able to offer multiple services that until now people had to get from different providers.
"Cable & Wireless Communications will be the only company in the UK capable of offering a combination of telecoms, broadband, data transmission, video shopping and Internet access," Brown said in a statement.
The companies outlined a number of benefits from the new company, saying it would increase its revenues by providing a wider range of services to existing customers and increased access to a broader customer base.
It would also produce "significant cost savings" by eliminating duplication, enhancing purchasing power increasing capital expenditure efficiencies, they added.
As well as the services it will be able to offer immediately, the new company will be strategically positioned to offer new products such as interactive digital services and multi-media products "as they become available", they said.
| 2 |
British venture capital firm 3i Group Plc on Thursday reported a rise in first half net asset value (NAV) per share and revenue profits but said it had been held back by continental Europe and a strong pound.
3i's NAV for the period rose to 454 pence per share, from 426 pence in the first half last year, while profit before tax rose to 62.9 million pounds ($106 million) from 54.3 million.
"Its a pretty healthy increase. Its held back a bit by continental Europe...the markets have not been that good and there has also been the appreciation of sterling," Ewen Macpherson, 3i's chief executive said in an interview.
Macpherson said a better indication of the group's performance was its British portfolio which had performed "extremely well", reflected in an 18 percent growth in revenue.
There were still plenty of opportunities available, he said, with the sort of companies that 3i invested in doing very well.
There had also been an improvement in general business confidence in Britain, which had improved for the fourth consecutive quarter, according to 3i's latest "Enterprise Barometer" survey.
Of 327 million pounds invested by 3i during the period, 284 million was in Britain.
Macpherson said the prospect of a general election in Britain by May 1997, had resulted in a number of investment opportunities for 3i as some company founders or management teams decided to sell their corporate holdings while the tax regime remained clear.
While the European performance had an impact on the NAV figure, the investment opportunities for 3i on the continent remained good, Macpherson said. Current pricing levels for small and medium-sized European companies in which the group invests were "very attractive".
During the first half of the year, realisation of investments continued at an encouraging rate, with sales worth 122 million pounds in Britain and some 36 million pounds in continental Europe.
Macpherson said the group had "significant plans to expand in Europe" and this was reflected in its decision to open an office in the German city of Duesseldorf in January.
This regionalisation would also involve opening offices in three other German cities -- Hamburg, Munich and Stuttgart -- and the group also plans to extend its presence into the south of France.
The group said it wanted to open its first office in Southeast Asia, in Singapore, early in 1997.
Macpherson said Asia was "an exciting part of the world" for investment capital and Singapore had been chosen as it was a good communication centre from which other parts of the region could be covered.
He said the office would look at opportunities in Malaysia, the Philippines, Thailand and Indonesia but not in China. ($1=.5956 Pound)
| 2 |
European privatisations in 1997 could total a record $53 billion, with the telecommunications and utilities sectors expected to dominate activity, U.S. investment bank J.P. Morgan said in a report on Monday.
"Compared with last year, we expect a significantly higher number of IPOs (Initial Public Offerings)...Italy stands out as having the most ambitious (privatisation) programme, at close to $20 billion," said Caroline Meroz, one the survey's authors.
The report said in the run up to Economic and Monetary Union (EMU), European governments "may feel under increasing pressure to accelerate...privatisation programmes to place themselves on track to meet the Maastricht three percent deficit criterion".
Proceeds could be used to reduce government's financial debt, although they cannot be taken into account when calculating the deficit.
It said proceeds of European privatisations in 1996 totalled a record $43 billion, a 30 percent increase on the previous high in 1994, bringing the total value of the European privatisation programme so far to $230 billion.
And the total estimate for the proceeds of privatisations through to the end of the century could total $118 billion, according to the report, which was based on 53 enterprises which governments have confirmed they plan to privatise.
Meroz told Reuters that the utility sector had shown the greatest slippage on scheduled privatisations for 1996 with a completion rate of only 20 percent, but that otherwise it had been "a pretty good year".
This had been fuelled by strong European equity markets which, excluding Britain, rose by 26 percent over the year and also by "the variety of small innovative deals such as share buy-backs," Meroz said.
Such buy-backs could, Meroz said, be used by governments to dispose of residual holdings in companies during 1997.
The report said the energy sector accounted for a larger than expected portion of offerings while the privatisations of Deutsche Telekom and Italy's ENI "together accounted for 25 percent of 1996 proceeds".
Demand for future offerings should be well suppored by growing domestic interest and J.P. Morgan forecasts that foreign tranches will be closer to 40 percent than the 50 percent take-up by foreign investors expected in the past.
"The market has been able to absorb a lot of equities. We think the demand is there," Meroz said, adding there would be strong retail as well as institutional demand.
Some of the major privatisations planned for 1996 which failed to see the light of day were included in the report's 1997 estimates but the rest "may be cancelled (or possibly postponed to much later years) or may be carried out through alternative methods, such as private sales".
But a lack of mix of new ideas, both in terms of sectors and the countries the privatisations hail from, could have a dampening effect on the market in 1997, with privatised stocks seldom able to offer the upside of consumer recovery.
| 2 |
Britain's Invesco Plc Monday agreed to merge with Houston-based mutual fund company AIM Management Group Inc. in a deal valued at $1.6 billion, creating one of the world's largest investment management businesses.
The deal is the largest in U.S. fund history, industry experts said.
The combined group will be called Amvesco Plc and have around $150 billion under management. The merger will be paid for with about $1.1 billion in new stock and the rest in cash and debt, Invesco officials said.
"We are creating a prototype company for the future," Bob McCullough, Invesco's chief financial officer, said in an interview.
Invesco Chairman Charles Brady, who will lead the combined group, said it would have "the scale necessary for success as a financially strong and independent business operating in an increasingly concentrated industry."
McCullough stressed the deal was a merger of the two companies, which would focus on growing revenue but retain their individual identities.
"They're buying themselves into the U.S. money management market," said Bruce Brewington, an equity analyst at Putnam, Lovell & Thorton, an investment banking firm in San Francisco.
Martin Cross, analyst at UBS, said Invesco is buying at the top of the Wall Street market, which many experts see as overpriced. He said UBS strategists are forecasting a 15 percent downward correction in the Dow Jones industrial average next year, and if it occurs, it would leave AIM looking rather expensive.
"The deal is exquisitely timed for the AIM shareholders and conversely not so exquisitely for Invesco shareholders," Cross said.
Invesco said it would fund the deal by issuing 290 million new shares to AIM shareholders. These would be valued at about $1.1 billion. AIM shareholders will own around 45 percent of the merged company.
McCullough said another $500 million needed to fund the merger would come in the form of cash and debt.
The merger presented a chance for the two companies to use different distribution channels and approaches. McCullough said he did not forsee any culture clash between the two.
There would be no change in their differing approaches, with Invesco continuing to be a "no-load" house, selling products direct to the customer, and AIM selling its nearly three dozen funds through brokers.
McCullough said the cost of the merger was not excessive.
"There's no question that it is a lot of money, but we view this as a long-term investment for both of us," he said. The long-term commitment was underlined by the fact that almost 50 percent of the combined shares would be held by management.
Both companies were "really active managers" and would stay that way rather than moving to passive management, McCullough said, adding that Invesco's global infrastructure presented a major opportunity.
He denied the heavy exposure to the United States would hinder Invesco from making the most of opportunities in other parts of the world. "We would like nothing better than to find opportunities in Asia and Europe," he said.
The merger would enhance the group's strength in the United States and lead to cost savings, officials said.
McCullough said the merger must be approved by Invesco and AIM shareholders and other approvals were required. The deal should be completed early next year, the company said.
| 2 |
A high-profile purge at Deutsche Morgan Grenfell of any managers found to bear responsibility for failing to spot irregular dealings by former fund manager Peter Young is expected next week, banking sources said on Friday.
The investment banking arm of Deutsche Bank is due to complete a preliminary report with accountants Ernst & Young into what went wrong internally and led to the suspension of three Morgan Grenfell Asset Management (MGAM) funds last month and Young's dismissal for alleged "gross misconduct".
Trading in the three funds, which totalled around 1.4 billion pounds ($2.21 billion) and were held by around 90,000 retail investors, was temporarily suspended early in September but resumed after Deutsche stepped in with a 180 million pounds cash injection.
Young, who has had his assets frozen and his passport impounded, is currently under investigation by Britain's Serious Fraud Office, which probes major financial crime.
He has said he was not guilty of any criminal activity and is being made a scapegoat for failings.
A probe into his management of two of the funds in question, which held too high a proportion of unlisted, speculative stocks has been underway since problems emerged.
Both MGAM and investments watchdog the Investment Management Regulatory Organisation (IMRO) have undertaken their own inquiries with forensic accountants carrying out a detailed dissection of trading history of the funds.
IMRO's own investigation, which could lead to hefty punishments against the firm, will take longer to conclude.
There have been conflicting reports over what the ramifications of any sackings following the debacle would be.
As head of the asset management arm Keith Percy's position will inevitably be under review but some British newspapers have suggested key MGAM clients are opposing any action against him while others are said to be threatening to withdraw assets if he stays.
A similar quandary is reported to be exercising the minds of Deutsche Morgan Grenfell (DMG) officials in London and the Deutsche Bank hierarchy in Frankfurt.
Other key managers, including Glyn Owen, MGAM's chief European investment officer and Mike Wheatley, compliance director for the fund management business are also likely to face scrutiny because of their executive responsibilities.
Deutsche Morgan Grenfell said it could not comment on speculative newspaper reports, but the group said when problems first surfaced that it would produce a preliminary report within six weeks.
"We can't comment on any such speculation and we have always pointed out that we would announce potential management decisions after the internal investigation has been finalised," a DMG spokesman in London told Reuters.
From the beginning Deutsche has made it clear that it would take any action deemed necessary to restore confidence in its fund management business and if lapses in internal controls were found, heads would roll.
But despite difficult decisions emerging in the intervening weeks, Deutsche's resolve to give its fund management arm and by association its investment banking operation a clean bill of health, has not faltered, banking sources said.
($1=.6350 Pound)
| 2 |
British property group MEPC on Thursday announced a 14 percent increase in pretax profits for the year but said a writedown on a Los Angeles shopping mall had reduced its net asset value (NAV).
MEPC's chief executive said he was pleased with the rise in pretax profits to 140 million pounds ($227.2 million) from 122.6 million pounds the previous year, but admitted disappointment at the fall in NAV to 450 pence per share from 457 pence.
MEPC shares were 11p lower at 441-1/2p by 1218 GMT as traders said the NAV was below market expectations.
"We feel very confident about the whole of the profit statement. The only slight disappointment is on the NAV side," Tuckey said in an interview. Earnings per share rose nine percent to 22.9 pence and the total dividend stayed at 20 pence.
Tuckey said the NAV drop reflected a marginal fall in values both in Britain and elsewhere but it was less than the relevant indices. "We feel that the performance of our UK portfolio, which accounts for 70 percent of the group, is indeed where we would have expected it to be."
He pointed out the valuation date for the portfolio was August 31 and there had been activity and evidence of an improved market since then. "If we redid the valuation for December 1, we would probably get a different answer," he said.
The other factor which had brought the NAV down was the 31 million pound write-down on the valuation of MEPC's Northridge Mall. This had been equivalent to 7.5 pence per share.
"We are convinced this is a temporary write-down because the centre is still getting back on its feet after the earthquake some three years ago. We are quite confident we will get that value back in the next two to three years as the centre re-establishes itself," he said.
And he defended MEPC's decision to give a target NAV of 690 pence per share for 2001.
"We're sticking our necks out...The portfolio is very very different to what it was three years ago and what we're trying to do is give shareholders some feel of where we think the performance is going to be in five years time," Tuckey said.
Tuckey said the full impact of the change of strategy in MEPC's portfolio would take time but there would be progress towards the firm's targets each year.
He said there was a much firmer tone to the markets, particularly in Britain over the last few months. Apart from Northridge, the rest of the U.S. portfolio had performed "extremely well".
MEPC plans to keep the lion's share of its portfolio in Britain, with the remainder in the United States and Australia. It has wound down its European portfolio and has no plans to go back into continental Europe in the immediate future.
Tuckey said the group was keen to make acquisitions, with the proceeds of its European disposals, but that there was a shortage of good stock available, particularly in Britain.
While MEPC has resolved to increase the dividend paid to shareholders, Tuckey said he could not predict when it would be increased although he pointed out that dividend cover had improved to 1.15 times from 1.05 a year before.
"It depends on the forward look, on how the markets are feeling," he said. The market was competitive and good stock was hard to find but Tuckey said he welcomed the prospect of changes to the way the market functioned with more liquidity likely.
($1=.6161 Pound)
| 2 |
After several shaky starts, Britain's commercial property market looks set to build on some improvement during 1996, but property experts stress there will not be a return to the sort of boom seen during the 1980s.
"This is the "Real Thing'. That is the growing opinion among investors when they consider the recovery now underway in the UK real estate market," said David Hutchings of property consultants Healey & Baker in his 1997 outlook.
Hutchings predicts real rental growth of three percent in 1997 and possible total returns of 15-17 percent for institutional quality portfolios. This should outstrip the return on gilts and may surpass equity returns too, he adds.
But uncertainty ahead of a general election, which must be held by the end of May, means a "gradual but sustained upturn" is more likely than a market boom, he said.
Improved signs of demand, particularly for office space in central London and retail developments, especially shopping centres, have raised expectations. "The feeling is generally that this year is going to be a good one," a senior property analyst at another leading firm of advisors told Reuters.
This view is supported by a recent survey by the Confederation of British Industry (CBI) and property consultants Grimley which was also cautiously bullish. It found increased business confidence meant a third of British firms expect to raise property holdings over the next six months.
The six-monthly survey, which canvassed 645 private sector firms across the range of sectors and regions in Britain, found 32 percent of companies expect to increase property holdings, 26 percent see a reduction and 41 envisage no change.
NO DRAMATIC SURGE IN DEMAND
"We expect a steady improvement rather than a dramatic surge in property requirements. The net balance on this survey is plus six percent over the next six months," Stuart Morley, Grimley's head of research, said last week.
Sudhir Junankar of the CBI said firms expect a further pick-up in business, led by domestic demand. "With profitability set to grow faster over the next six months, the upturn in the commercial property market is becoming more firmly based."
The CBI/Grimley survey predicts such growth will be strongest in the northwest of England, followed by Northern Ireland, Greater London and Scotland.
Larger companies are expected to lead the charge with those involved in distribution, transport and communications citing expanding capacity as the main spur in giving the go-ahead to capital expenditure on property.
The survey found smaller firms, as well as those involved in metal manufacturing, chemical processing, finance and business services, said that increasing efficiency was the main factor influencing plans for investment in property.
INTERESTED INVESTORS
But companies seeking additional or new space are not the only ones likely to fuel demand for real estate during 1997. Hutchings said the recovery underway in the property market is supported by both occupational and investment demand, in contrast to a brief upsurge during 1993.
Property consultant Knight Frank predicts that prime investment yields will be little changed in December from their levels in December 1996.
It forecasts the yield on City of London offices will be unchanged at 5.5 percent, while yields on offices in the area around London's M25 motorway and provincial towns will rise from 6.25 percent to 6.5 percent and from 6.5 percent to 7.0 percent respectively. In addition to offices, investors and property companies are particularly keen on shopping centres. "The prospects for the retail sector are good," the second analyst said.
Hutchings also forsees higher rents during the year ahead, fuelled by a growing economy, a shortage of top quality supply and low interest rates. Although some occupiers will hang back until after the election, occupational demand means rents will rise "at least until new development comes forward".
Some development has already begun and Hutchings says there are now growing signs "that institutional funds will re-enter the speculative development market in 1997" although bank lending for such schemes remains tight.
This is not the case for other projects where bank loans are more readily available and competition to lend for quality developments has led to wafer-thin margins being charged by some banks, particularly German lenders.
LONDON LEADS THE WAY
While the number of cranes over the City of London -- London's traditional financial heartland -- has not mushroomed, development activity has begun to pick up and more can be expected over the next 12 months, market players said.
In London one very visible factor is the heated rivalry that has emerged between the City and Docklands, the former docks area to the east of the capital which is home to the Canary Wharf tower, London's tallest building.
Firms such as U.S. investment bank Merrill Lynch and Britain's Robert Fleming have still to decide on where to relocate, with others such as Close Brothers and Cazenove also rumoured to be in the hunt.
And in the retail sector, last year's sale of former fashion mecca Carnaby Street by Dutch property fund Wereldehave for 90 million pounds "is a testament to the strength of investors' faith in the London market", said Hutchings.
| 2 |
British fund manager Invesco announced its widely-expected merger with U.S. mutual fund company AIM Management Group on Monday, creating one of the world's largest investment management businesses.
The combined group will be called AMVESCO Plc and have around $150 billion under management. The merger values AIM at approximately $1.6 billion, Invesco said..
"We are creating a prototype company for the future," Bob McCullough, Invesco's chief financial officer, told Reuters.
But analysts were divided as to the timing of the deal although most were happy to give Invesco the benefit of the doubt as far as its claims on synergy are concerned.
"The deal is exquisitely timed for the AIM shareholders and conversely not so exquisitely for Invesco shareholders," said Martin Cross, analyst at UBS.
Cross argues that Invesco is buying at the top of the Wall Street market which many see as having some very stretched valuations. Cross said that UBS strategists are forecasting a 15 percent downward correction on the Dow Jones index next year which, if it came to pass, would leave AIM looking rather expensive.
But Phillip Gibbs at BZW was upbeat about the merger.
"It looks rather cheap, I think they've done rather nicely," Gibbs said but did add a rider on the possibility of a major correction in the US equities market.
Analysts said the price paid by Invesco was something short of what had been predicted but Cross said it was a "pretty full price but what one might expect for a premium company."
Invesco shares closed unchanged at 237.5p Invesco's chairman and chief executive Charles Brady, the man who will lead the new group, said it would have "the scale necessary for success as a financially strong and independent business operating in an increasingly concentrated industry."
Invesco said it would fund the merger with the issue of 290 million new shares to existing holders of AIM shares. These would be valued at approximately $1.1 billion. AIM shareholders will own around 45 percent of the enlarged group and be subject to restrictions on selling the shares.
McCullough said the merger, which is conditional on approval by both Invesco and AIM shareholders and other approvals, would be non-dilutive and would not have any cost savings built-in. However, there would be cost savings in the future, he said.
The merger is not expected to be completed before February.
McCullough also said the $500 million needed to fund the merger would come in the form of cash and debt, with a one-for-five rights offering on the cards. This would involve issuing roughly 50 million new shares, he said.
McCullough said the cost of the merger was not excessive. "If you look at it on the basis of funds under management, it (the cost) is less than three percent," he said.
"There's no question that it is a lot of money, but we view this as a long-term investment for both of us," he said. This long-term commitment was underlined by the fact that almost 50 percent of the combined shares would be held by management.
The merger presented an enormous number of synergies, with the two companies using different distribution channels and approaches. McCullough said he did not forsee any culture clash between the two.
There would be no change in their differing approaches, with Invesco continuing to be a "no-load" house, selling products direct to the customer, and AIM making its sales through intermediaries.
Both companies were "really active managers" and would stay that way rather than moving to passive management, McCullough said, adding that Invesco's global infrastructure presented a major opportunity.
He denied the heavy exposure to the U.S. would hinder Invesco from making the most of opportunities in other parts of the world. "We would like nothing better than to find opportunities in Asia and Europe," he said.
| 2 |
Britain's largest home loan lender, Halifax Building Society, said on Thursday it was confident of avoiding any takeover attempt when it floats on the stock market and sheds mutuality for bank status next June.
"We think we can stand on our own feet," David Gilchrist, Halifax's director of corporate affairs said.
The society, currently owned by its savers and borrowers, gave details of the timetable for conversion and flotation, which analysts have said could be worth 10 billion pounds ($16 billion).
The building society's nine million members will vote early next year on the conversion, which it is billing as the largest single extension of private share ownership in Britain.
Gilchrist said a decision to transfer its business to an existing subsidiary rather than to a company specially formed for conversion meant it would lose five-year protection against takeover but underlined its confidence.
Analysts said the consolidation of Britain's financial services market is likely to continue, which could make the large and successful Halifax a possible target.
The flotation will project the society into the top 25 companies in London's blue chip FTSE 100 stock index and Gilchrist said he was confident that shareholders would be convinced by its past performance to reject any bid attempt.
The concersion method raises the voting threshold needed for the plans to go ahead, but Gilchrist said he believed the necessary 50 percent of investing members entitled to vote would be met.
"We have no real concerns as far as the voting is concerned," he said, adding that previous building society conversions achieved approvals of over 75 percent.
"It will be a high-profile exercise, backed up by plenty of marketing," Gilchrist said.
But members eagerly expecting to find out how big a windfall they are likely to receive when they receive free shares will have to wait until January before getting any indication.
The Halifax said its members would be given full details of the conversion plans and share distribution scheme. This will tell them the number of shares they are entitled to and indicate their likely price range, based on prevailing market conditions.
Gilchrist said members would get a "broad idea" at this time, but would not be drawn on what the share hand-out was likely to be worth to the average investor.
He also declined to comment on the cost of the conversion exercise. But it seems likely to provide a boon to Britain's postal service and the printing industry as well as the financial and legal advisors working on the plans.
"The major element of cost is printing and mailing. We will be sending 75 million items of mail," he said.
Halifax members will be urged to vote "as quickly as possible" on the proposals and a special general meeting will be held in February. If members vote in favour, they will be sent details of share allocations in April or May.
Gilchrist said the Halifax had not yet done any market research on how many members would sell or retain shares.
"We are not trying to persuade people one way or another whether to hold shares or to sell the shares," he said, adding the Halifax would sound out members nearer the time.
The society will remind its members that they should have at least 100 pounds in total in their accounts on December 31 1996.
If eligible for a variable distribution of extra free shares they "may need to top up their share accounts to the November 25 1994 level by the date of the special general meeting" to qualify for the maximum number of free shares, the Halifax said. ($1=.6260 Pound)
| 2 |
Britain's investment watchdog on Thursday punished companies in the Robert Fleming group for rule breaches, with fines totalling 700,000 pounds ($1.09 million).
At the same time Hong Kong authorities secured voluntary compensation of nearly $20 million from a company jointly owned by the Jardine Matheson and Robert Fleming groups.
Britain's IMRO (the Investment Management Regulatory Organisation) handed down a 400,000 pound fine to Robert Fleming Asset Management (RFAM) and 100,000 pound penalties to three other firms in the group, while Hong Kong's SFC (Securities and Futures Commission) agreed the compensation package.
Failings exposed by the investigation were accepted by Robert Fleming Asset Management, which regretted the breaches. "We are embarrassed by it, there's no doubt about that," Paul Bateman, RFAM's chairman told Reuters in an interview.
The disciplinary action resulted from a five-month joint investigation by IMRO and the SFC into dealing procedures at Jardine Fleming Investment Management (JFIM) and related companies, with the co-operation of all the firms involved.
JFIM is a member of the Jardine Fleming group,
The probe revealed Colin Armstrong, a former senior fund manager and director of JFIM had engaged in late allocation of deals after changes in the price of the instruments traded had occurred, the SFC said.
His actions had resulted in three accounts managed by JFIM losing money and led to the group agreeing to make voluntary payments totalling $19.3 million to compensate these clients.
Armstrong made "substantial profits from trading in Japanese exchange traded options" for his own account, the SFC said. He has since cooperated With JFIM and had paid back any gains.
This has been used by JFIM as part of the compensation.
"The heart of the problem is JFIM. The weakness was their back office and procedures were not up to IMRO standards," said Bateman, adding the problem had been isolated to one fund manager, but said it had exposed systemic weakness.
With hindsight he acknowledged that these procedural and compliance monitoring problems could and should have been spotted earlier but said it was difficult to tell how much quicker it could have been dealt with, although there had been a steady increase in the management response.
Armstrong's behaviour had been an abuse of trust, but no decision had yet been made over whether it would result in court action, he added. Bateman said Armstrong had accepted the SFC termination of his registration as an investment adviser and securities dealer. ApaRt from fining the Robert Fleming subsidiaries that had delegated fund management of 1.2 billion pounds to JFIM, IMRO ended the registration of Robert Thomas, the former chief executive of JFAM and JFIM, who accepted he "bore ultimate responsibility for the compliance failures in the companies". JFAM has also had its authorisation brought to an end and the Jardine Fleming and Robert Fleming groups will offer its 10 customers
But IMRO denied the penalties were insufficient either as punishment or a deterrent against future breaches. "It always sends out a message to others when we take out a disciplinary action," an IMRO official told Reuters, adding the fines matched the scale of the breaches and the negative publicity would also have an effect.
Bateman said the Robert Fleming group would be in close contact with all of its clients, but said he did not expect any material loss from the findings and clients had so far been "understanding of the position". ($1=.6412 Pound)
| 2 |
British property company Greycoat is unlikely to crumble under pressure from rebel shareholders who want it broken up or succumb to a merger approach from smaller rival Moorfield Estates, analysts said on Monday.
"I don't think they are on the critical list in any sense or meaning of the word," one analyst said.
A proposal to sell-off Greycoat's assets is due to be put to shareholders at a special meeting on Thursday. It has been put forward by the UK Active Value Fund, which is advised by rebel shareholder Brian Myerson's Active Value Advisers.
UK Active Value Fund bought its 11 percent stake in Greycoat three years ago, rescuing it from receivership. But Myerson's relationship with the firm's management has not run smoothly.
The South African financier's challenge to the Greycoat management has also triggered a proposal by Moorfield Estates involving a share exchange offer for the larger Greycoat, which has so far dismissed the approach.
Moorfield said in a statement on Monday that it had "developed a proposal to add value for all shareholders through a strategy of more active management of the assets of Greycoat".
It said this had been presented to some of Greycoat's larger shareholders, accounting for close to 40 percent of the shares, and an approach had then been made to Greycoat's chairman.
They include merging the two companies by a share exchange and restructuring the assets of the enlarged group.
This would involve a Central London portfolio made up initially of Greycoat's main assets, Embankment Place and 123 Buckingham Palace Road, which would later be demerged.
Moorfield also intends setting up a portfolio of "investment and development property earmarked for immediate disposal to a major property company".
The remainder of the enlarged group would constitute "an investment, trading and development portfolio" and there would be a reorganisation of the management structure to reduce costs by "at least 1.5 million pounds ($2.47 million) per annum", Moorfield said.
While analysts agreed the Moorfield plan was unlikely to succeed, some said there was an opportunity for Greycoat to take over another company with higher profitability so the combined company could capitalise on Greycoat's favourable tax position.
"But they are not going to be flushed out by Thursday," a second property analyst told Reuters, adding that three or four companies had looked "very seriously" at the possibility of joining with Greycoat.
Another possibility would be a larger group such as British Land sweeping up Greycoat, although such an outcome seems remote in the short-term, analysts said.
Myerson's proposed sale of Greycoat's London property assets is seen by some as an unwise "forced sale" which would not achieve shareholder value in what is an improving market.
"Generally speaking a forced sale of their assets would not gain anything in the short term," the first analyst said, adding that with rental growth starting to show through, it made sense to hold onto Greycoat's two largest properties.
"They are vulnerable to any change in market conditions, but it would be a mistake to be forced into a corner and to sell something in a relatively short timescale. It would be totally counterproductive," he added.
But others said the time was right to sell off Greycoat's largest assets. "This is exactly the right time of the cycle (to sell," the second analyst said.
Greycoat shares closed 6.5 pence higher at 155.5 pence while Moorfield shares were unchanged at 30.5 pence. ($1=.6069 Pound)
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British yachtsman Tony Bullimore's survival for four days in the icy Southern Ocean owes much to the high-tech safety equipment available to the modern sailor.
This year's London International Boat Show was crammed with gadgets such as the Emergency Position Indicating Radio Beacon (EPIRB). It costs 700 pounds ($1,176) but proved its worth by showing Bullimore's Australian rescuers where to look for him.
Bullimore's ordeal in the upturned hull of his yacht after it capsized in a solo round-the-world race is a far cry from the "Mediterranean marina" which was the centrepiece of this year's boat show at Earl's Court in west London.
Huge "Gin Palaces" abound but the show's organisers were keen to stress "messing about in boats" is not only for the rich.
The smallest vessel on show, the aptly-named Tadpole, was six foot (two metres) long and costs 297 pounds.
Around 800 boats were on display, 20 of them bobbing gently up and down in a giant indoor marina, built specially for the show, an annual event.
The 200,000 visitors had to wear slippers over their shoes to protect the polished decks if they wanted to go on board.
The British boating sector has a turnover of some two billion pounds and the boats on show were not just for dreaming about. Orders totalling millions of pounds were placed in the first week of the show, which ended on Sunday.
TRADITIONAL VERSUS HIGH-TECH EQUIPMENT
The halls were full of the paraphernalia of boating, with stands displaying traditional brass clocks and barometers competing with the latest in high-tech satellite navigation equipment.
If the latest in pump-action lavatories, the smoothest automatic winches or a machine that turns sea-water into drinking water is what you are after, this was the place to be.
Some firms demonstrated state-of-the-art sail materials, whose development owes much to the space programme. Others showed how traditional wooden "clinker" boat-building still has a place in the late 20th century.
The sunnier side of pleasure cruising was to the fore, but, topically, there were also tales of disaster and endeavour.
Among the speakers were a couple who 23 years ago spent four months drifting in the Pacific in a tiny inflatable life-raft.
Motor boats such as the sleek Sunseekers, the latest model of which, the Predator, sells for 1.8 million pounds, dominate one area, but most of the floorspace was dedicated to sailing.
SAILING REFLECTS BRITISH APPROACH TO THE SEA
This, says Tony Beechey, executive chairman of the British Marine Industries Federation, is in keeping with the British approach to the sea and reflects recent Olympic successes.
"Britons have always been more sail-oriented than power, maybe it is something to do with the climate...but we seem to have a stronger sailboat past," he told Reuters.
John Merricks, who with Ian Walker won a silver medal at the Atlanta Olympics in the 470 dinghy class, says boats need to keep evolving if sailing is to compete with other sports, even if this means his class is dropped after the 2000 games.
"It's harder to draw people into the sport with new outdoor activities competing against it," he said. "We need new, fast, exciting and colourful classes."
Many visitors made a beeline for the 49-er, recently selected as a new Olympic class and one of a new breed of "skiffs" --lightning-quick sailing dinghies which appear to fly across the water with both helmsman and crew suspended from trapezes.
They may cost just over 10,000 pounds, but Martin Wadhams of LDC Racing Sailboats which produces the space-age looking dinghy says fitness, skill and the agility of crews are what counts.
"The major thing about the boat is it brings the true spirit of the Olympics. It is going to spawn a new era in sailing." ($1=.5950 Pound)
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Increased confidence means a third of British companies expect to raise property holdings over the next six months, according to a survey by the Confederation of British Industry (CBI) and property consultants Grimley.
"Business confidence has strengthened markedly compared with six months ago and companies expect a further pick-up in business, led by domestic demand," said Sudhir Junankar, associate director of economic analysis at the CBI.
"With profitability set to grow faster over the next six months, the upturn in the commercial property market is becoming more firmly based," he added.
The six-monthly survey, which canvassed 645 private sector firms across the range of sectors and regions in Britain, found 32 percent of companies expect to increase property holdings, 26 percent see a reduction and 41 percent do not envisage a change.
"We expect a steady improvement rather than a dramatic surge in property requirements. The net balance on this survey is plus six percent over the next six months," Stuart Morley, Grimley's head of research, said at a briefing on the survey. This, he said was the highest result of the five surveys so far.
The report singled out the distribution, metal manufacturing and chemical processing, transport and communications sectors as those likely to see the largest increases in property holdings while over the last six months the largest increases have been in the retail sector.
Larger companies are most likely to increase their property holdings, reversing a declining trend over the last six months. This, said Morley, could mark the end of the large-scale restructurings which such companies have been undergoing.
"Large companies have gone through a period of restructuring. This suggests that period has come to an end. They are now looking to expand their holdings," he said.
Morley said companies were also "noticeably more optimistic about employment prospects than they were in previous surveys", adding this was "now feeding through into increased property demand", and rents were rising fastest in the retail sector.
Retail was most active in terms of change of holdings and the survey said this should continue. "Not only did this sector see the largest net increase in property holdings over the past six months, it is also expecting the largest net increase."
Areas where growth in demand for property is expected to be greatest are the north west of the country, followed by Northern Ireland, Greater London and Scotland while holdings are expected to fall at a greater rate in the south east,
Town centres, with government encouragement, have become more attractive with 50 percent of the extra retail space in these areas rather than out-of-town.
"This shows a gradual realisation that government policies are beginning to bite, a gradual realisation of the encouragement towards town centres where more companies will be looking for space," Morley said.
Demand for office space is particularly strong in town centres, although the largest companies are still seeking out-of-town floorspace.
According to the survey the main reason for companies to spend capital on property over the next six months "is the need to expand capacity" ahead of spending to replace property or to increase efficiency.
The main constraints companies see to capital expenditure on property are inadequate net returns, difficulty in disposing of property and a shortage of suitable property, the survey found.
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Cable and telecoms giants Cable & Wireless, NYNEX Corp of the U.S. and Bell Canada International on Tuesday announced the formation of a major new British cable player by merging the operations of their British subsidiaries.
This brings together C&W's Mercury, British cable company Videotron, Bell Cablemedia and NYNEX CableComms.
In a related deal, Videotron is being bought by Bell Cablemedia in a complex deal which involves a $338 million equity investment in Bell Cablemedia by Cable & Wireless and values Videotron at around $1.09 billion.
Videotron, which was already 26 percent owned by Bell Cablemedia, was the target of a long-running takeover battle, with Cable & Wireless emerging as favourite.
Recent reports said German telecoms group Deutsche Telekom and International CableTel of the U.S. were also interested in taking it over.
Once the merger and the Videotron deal have been completed, Cable & Wireless will own 52.6 percent of the new company - to be called Cable & Wireless Communications - with NYNEX owning 18.5 percent and Bell Canada 14.2 percent of the shares. The remaining 15 percent will floated, C&W told Reuters.
The groups intend to list the company, which will provide integrated telecommunications, information and entertainment services, in both London and New York. This is likely to take place in about six months, C&W added.
Cable & Wireless Communications "...will provide local, national, international, data and mobile telecommunications, together with multichannel television and Internet services" to around six million franchised homes and to businesses throughout Britain, the groups said in a statement.
Richard Brown, chief executive of Cable & Wireless, said the new company would be the only company in Britain able to offer multiple services that until now people had to get from different providers.
"Cable & Wireless Communications will be the only company in the UK capable of offering a combination of telecoms, broadband, data transmission, video shopping and Internet access," Brown said in a statement.
The companies outlined a number of benefits from the new company, saying it would increase its revenues by providing a wider range of services to existing customers and increased access to a broader customer base.
It would also produce "significant cost savings" by eliminating duplication, enhancing purchasing power increasing capital expenditure efficiencies, they added.
As well as the services it will be able to offer immediately, the new company will be strategically positioned to offer new products such as interactive digital services and multi-media products "as they become available", they said.
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Final approval for Lloyd's of London's recovery plan edged closer Wednesday as it declared that over 90 percent of members had accepted a settlement offer aimed at securing the 300-year-old insurance market's future.
Lloyd's said it had been swamped by U.S. investors signing up for its recovery plan after a U.S. appeals court overturned a ruling that had threatened the insurance market's survival. By Wednesday afternoon, 66.7 percent of U.S. members had accepted.
"The level of acceptances speaks for itself. Members have made their views toward the reconstruction of Lloyd's abundantly clear," Lloyd's Chairman David Rowland said in a statement.
Earlier, a Lloyd's spokesman said acceptances from U.S. investors in the market, known as Names, had flooded in overnight.
Almost half of the 2,700 U.S. Names had until Tuesday night held off, with only 53 percent accepting by then.
This followed a decision by a federal appeals court in Baltimore Tuesday to overturn U.S. District Court Judge Robert Payne's ruling in Richmond, Va., Friday to allow U.S. Names more time to consider the plan.
Payne granted an injunction giving U.S. Names more time to consider the plan and ordered Lloyd's to provide further information by Sept. 23. On Tuesday, the panel of judges in Baltimore sent the case back to the lower court with orders to dismiss it.
Rowland said he acknowledged that many overseas members had deferred their acceptance in the light of the Virginia court judgment and the subsequent Baltimore ruling.
Over the last few days, evidence of support for the Lloyd's proposals among its 34,000 investors worldwide has grown. On Tuesday evening, acceptances totalled 82 percent, compared with 75 percent Saturday.
Wednesday's noon deadline for accepting the 3.2 billion pounds ($4.7 billion) recovery plan, under which Lloyd's proposes that Names pay to help reinsure billions of pounds in liabilities into a new company called Equitas, was extended to give all a chance to respond.
Rowland said Wednesday afternoon that under the circumstances it was "fair and proper" to exercise flexibility in pushing back the deadline for acceptances.
Lloyd's said that any formal, longer-term extension would be subject to a decision by its council at a Thursday meeting at which it would consider "the prospect of declaring the settlement offer acceptances unconditional."
This extension will give the market enough time to collect the convincing majority of acceptances, especially from U.S. Names, which it needs to prove its own solvency.
Lloyd's problems began in the 1980s when a destructive combination of negligent underwriting, poor investment advice and a sequence of natural disasters conspired to bring about losses of several billion pounds.
Long-standing Names were for the first time in their lives suddenly faced with the prospect of unlimited losses.
The market is due to submit figures to Britain's Department of Trade and Industry next week in an annual solvency test, and file with the U.S. Treasury and New York Insurance Department later next month.
Equitas may lift off in two weeks if all goes as planned. The recovery plan's success increasingly looks likely, but another challenge by U.S. Names has not been ruled out.
However, U.S. legal sources said overnight that while U.S. investors could in theory attempt to challenge Tuesday's order, it would be difficult to do so successfully.
Despite that, one U.S. Name, Kenneth Chiate, who is chief negotiator for a group known as the American Names Association, said he expected U.S. Names to appeal the Baltimore ruling.
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Shareholders in British property company Greycoat on Thursday left a large question-mark hanging over the future of the group, which is currently facing a break-up demand and a merger proposal from a smaller rival.
Greycoat shareholders postponed for three weeks a vote on a proposal to sell off the company's 500 million pounds ($831.5 million) portfolio in anticipation of talks with predator Moorfield Estates, run by two former Goldman Sachs property analysts.
But Greycoat said it still has to see concrete proposals from Moorfield, which wants a paper merger of the two and then a possible de-merger of Greycoat's largest property assets.
"We have yet to see any detailed proposals from Moorfield. As we keep saying we will consider those proposals once they are received. So far we have only seen one page of vague bullet points," a Greycoat spokesman told Reuters.
The rebel investment fund shareholders which put forward the break-up resolution are the UK Active Value Fund, IMP UKAV Inc and Chaddesley Investments. They control 11 percent of the shares and are advised by Brian Myerson's Active Value Advisors.
But at an extraordinary general meeting South African Myerson asked shareholders to put off a vote on their proposals for a controlled programme of disposals which he has said would significantly enhance shareholder value.
This change in strategy came after Greycoat's chairman Michael Beckett told the meeting it had asked Moorfield to come up with a "full and detailed proposal" which, if forthcoming, it would "consider carefully".
After a vote on postponement, carried by 53 million shares in favour versus about 42 million shares against, Myerson said, "It's an overwhelming vote in favour of shareholder choice. We are supportive of Moorfield in terms of its proposals. We want the board to sit down with them."
Greycoat, which specialises in London property, said last week that the break-up resolution was not in shareholders' best interests and urged them to reject it.
But news of the Moorfield approach surfaced over the weekend, adding another dimension to the uncertainty already hanging over the company and according to some analysts, holding down its share price which closed at 155-1/2p on Thursday.
Moorfield said earlier this week that it would de-merge Greycoat's largest assets, its Embankment Place and 123 Buckingham Palace Road properties, and had earmarked some of its developments for immediate sale to a large property company.
It said it plans to bring the remainder of the enlarged group's assets into an investment, trading and development portfolio and reorganise the board and management structure to reduce costs by at least 1.5 million pounds a year.
Myerson told reporters after the meeting that the British property company would now be forced to talk to Moorfield. "The (Greycoat) board will be forced to sit down and look at the Moorfield proposals," he said.
Myerson said he was delighted shareholders had voted to adjourn his original proposal and repeated that his main object was to create shareholder value.
He added the Moorfield proposals, which have so far been rejected by Greycoat as being too vague, had the backing of holders of 40 percent of Greycoat shares
Myerson said these holders had already seen Moorfield's 40-page document and expressed their support for it, adding that he was "supportive" of both the proposals and the Moorfield management.
"We are supportive of Moorfield in terms of its proposals and we want it (the board) to sit down with them...We expect Moorfield to refine its proposals over the next couple of weeks," he added. ($ = 0.601 British Pounds)
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Final approval for Lloyd's of London's recovery plan edged closer on Wednesday as it declared that over 90 percent of members had accepted a settlement offer aimed at securing the 300-year-old insurance market's future.
Lloyd's said it had been swamped by U.S. investors signing up for its recovery plan after a U.S. appeals court overturned a ruling that had threatened the insurance market's survival. By Wednesday afternoon 66.7 percent of U.S. members had accepted.
"The level of acceptances speaks for itself. Members have made their views toward the reconstruction of Lloyd's abundantly clear," Lloyd's chairman David Rowland said in a statement.
Earlier a Lloyd's spokesman said acceptances from U.S. Names, investors in the market, had flooded in overnight.
Almost half of the 2,700 U.S. Names had until last night held off. Only 53 percent had accepted by Tuesday.
This followed a Baltimore appeal court's decision late on Tuesday to overturn U.S. judge Robert Payne's ruling last Friday to allow U.S. Names more time to consider the plan.
Payne granted an injunction giving U.S. Names more time to consider the plan and ordered Lloyd's to provide further information by September 23. On Tuesday a panel of judges in Baltimore sent the case back to the Virginia district court with orders to dismiss it.
Rowland said he acknowledged many overseas members had deferred their acceptance in the light of the Virginia court judgement and the subsequent Baltimore ruling.
Over the last few days, evidence of support for the Lloyd's proposals among its 34,000 investors worldwide has grown. On Tuesday evening acceptances totalled 82 percent, compared to only 75 percent on Saturday.
Wednesday's noon deadline for accepting the recovery plan, under which Lloyd's proposes Names pay to help reinsure billions of pounds in liabilities into a new company called Equitas, was extended to give all a chance to respond.
Rowland said on Wednesday afternoon that in the circumstances it was "fair and proper" to exercise flexibility in pushing back the deadline for acceptances.
Lloyd's said that any formal, longer-term extension would be subject to a decision by its council at a Thursday meeting at which it would consider "the prospect of declaring the settlement offer acceptances unconditional."
This extension will crucially allow the market enough time to collect the convincing majority of acceptances, especially from U.S. Names, which it needs to prove its own solvency.
Lloyd's problems began in the 1980s when a destructive combination of negligent underwriting, poor investment advice and a sequence of natural disasters conspired to bring about losses of several billion pounds.
Long-standing Names were for the first time in their lives suddenly faced with the prospect of unlimited losses.
The market is due to submit figures to Britain's Department of Trade and Industry next week in an annual solvency test, and file with the U.S. Treasury and New York Insurance Department later next month.
Equitas may lift off in two weeks if all goes as planned. The recovery plan's success increasingly looks likely, but another challenge by U.S. Names has not been ruled out.
However, U.S. legal sources said overnight that, while U.S. investors could in theory attempt to challenge Tuesday's order it would be difficult to do so successfully.
Despite that, one U.S. Name and chief negotiator for an action group known as the American Names Association, Kenneth Chiate, said he expected U.S. Names to appeal the Baltimore ruling.
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Former Barings executive Ron Baker plans to bring a counter-claim in a lawsuit against him by Dutch bank ING Barings for repayment of a loan he is alleged to have received, his lawyer told Reuters on Friday.
"He (Baker) plans to bring in his own counter-claim into those proceedings and they will be heard together unless some sort of arrangement is reached beforehand," Lindsay Hill, a partner at London law firm Fox Williams said.
ING Barings last month confirmed it was suing Baker for 113,000 pounds ($185,800), representing a 100,000 pound loan allegedly given to Baker when he was at Barings, plus interest.
British merchant bank Barings collapsed in February 1995 amid losses of around $1.4 billion run up by the unauthorised derivatives trades of Singapore-based trader Nick Leeson. It was rescued by ING which formed ING Barings as its investment banking arm.
Leeson is currently serving a six-and-a-half year jail sentence in Singapore for his part in the bank's downfall.
But the saga looks set to run on for some time, with writs filed by administrators of the bank against the former auditors and subsequent third party proceedings being issued against former bosses, including Baker.
Hill said Baker would contest the ING Barings case against him and his counter-claim would be for an unpaid bonus.
"He believes that the monies that he was promised by way of bonus remain due and are outstanding so yes, they will come into the equation in terms of resolving the dispute with ING Barings," Hill said.
Baker would not be the first to attempt to force ING Barings to pay a bonus which had apparently been promised before the collapse of Barings itself and ING's takeover.
But Hill said the decision by a London industrial tribunal on Thursday to reject a claim by another former Barings executive for an allegedly unpaid bonus had no implications for Baker's case.
"It's a different case, it's for different sums of money and the circumstances are not the same," Hill said.
Mary Walz, who was global head of equity financial products at Barings Investment Bank, had her 500,000 pound claim, which she said she was told was "set in stone" by her former Barings bosses, thrown out by the tribunal.
Hill declined to say how much Baker's counter-claim would be for but said the sum was "substantial".
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Privately owned British investment bank Robert Fleming on Wednesday announced increased pre-tax profits for the first half of the year which it said underlined its ability to remain independent.
"We are committed to remaining independent. These results, our second best interim results ever, show we can remain independent," a Robert Fleming spokesman told Reuters.
Flemings has been widely talked about as a possible takeover target for a larger foreign investment bank, but has resolutely said it would retain its independence.
Flemings said its pretax profit for the first half of the year had increased by 16 percent to 92.2 million pounds ($154 million), from 79.4 million pounds a year earlier but warned it would have to cope with difficult markets in the second half.
Some analysts said the increase was not particularly impressive given market conditions but chief executive John Manser said it was "a very good start" and showed new businesses were "making a valuable contribution to profitability."
"While the outlook for the year seems promising, flat Asian markets and heightened competitive pressures in other markets are factors that we will continue to have to contend with during the next six months," Manser said in a statement.
The Flemings official said the results showed that while Flemings may have been perceived as an Asian-centric bank, it was now a much more international operation and had succeeded in bringing down its cost income ratio.
Flemings has not had an easy year so far. In July it lost investment banking head Bill Harrison who was poached by BZW, the investment banking arm of Britain's Barclays.
And in August Jardine Fleming, a joint venture with Jardine Matheson, revealed a five-month probe by British and Hong Kong regulators into irregular trades by a former senior fund manager at Jardine Fleming Investment Management.
This resulted in hefty fines and voluntary compensation of nearly $20 million to clients. Regulators also withdrew the authorisation of Jardine Fleming's London-based fund company. In September the company's chairman retired and the group created a new supervisory board.
Flemings acknowledged the problems at Jardine Fleming meant the joint venture had recorded a "marginally lower" interim result than its net interim profit of $63.9 million in 1995.
This was after taking into account provisions "arising from the regulatory issues relating to earlier years," it said. The Flemings spokesman told Reuters some clients had been lost, but new clients had also been taken on.
He described the events as a "painful experience." "But we believe we have clearly drawn a line in the sand," he added.
Any impact these problems may have had on Flemings' overall business was not, however, reflected in the interim dividend which rose to eight pence per share from seven pence.
Flemings said it had seen strong profit growth from its fund management businesses adding that its securities business had reported "a marked increase in profits aided by a strong performance by UK and continental European broking."
Its capital markets arm had helped companies raise 13.4 billion pounds of new capital while its corporate finance division had completed 43 deals during the period.
The appointment of Manser, 56, to replace Robin Fleming, 64, who will retire as chairman of Robert Fleming Holdings at the end of March 1997, means Manser would be more involved in business development and winning new business as well as strategy and relationships with major clients and shareholders.
William Garrett, 50, who was hired by Manser as a fund manager in 1970, was named as his replacement as chief executive and chairman of the group executive committee. Garrett will be responsible for the day-to-day running of the group.
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It may sound like a dull backwater but the role of compliance has again been thrust into the limelight as yet another respected financial institution was rapped by the authorities this week for breaking the rules.
Compliance officials play a key role in banking and finance, ensuring procedures to safeguard against fraud and malpractice are adhered to from the back office to the board room.
On Thursday British investment watchdog IMRO fined companies in the Robert Fleming group 700,000 pounds ($1.09 million) and Hong Kong's Securities and Futures Commission (SFC) secured voluntary compensation of nearly $20 million from a Robert Fleming and Jardine Matheson joint venture.
These punishments stemmed from compliance violations which also saw two individuals banned from the markets.
A compliance officer at a top international investment bank, who did not want to be named, told Reuters the irregular dealing leading to the probe was "as old as the hills".
And it was something the right checks and balances should have avoided. "I'm surprised that something as old as this has cropped up again. It's the sort of thing that any compliance officer worth his salt should have his eye open for," he added.
The joint IMRO and SFC investigation revealed that Colin Armstrong, a former senior fund manager at Jardine Fleming Investment Management, had made profits for his own account by the late allocation of deals, thereby depriving client accounts.
Compliance industry insiders said a number of red flags might have warned those in charge that something was amiss far earlier and thereby prevented much of the damage.
Larger-than-life characters and big earners are often left to their own devices and not investigated until too late.
Compliance officers first started appearing in London firms about 10 years ago, but the profile has changed significantly over this period, with many coming from the ranks of accountants and lawyers and seeking a career in the area.
Industry sources say top-ranking individuals can now earn as much as 100,000 pounds a year, including bonuses, which although falling short of what dealers earn, is attracting good people.
For a system of compliance with both internal and external rules and regulations to be wholly effective, the personnel involved not only need to be top notch, they must also have adequate resources and the full backing of senior management.
"The chief executive officer is personally accountable for compliance," the first source said. This means ensuring rules are not breached is not only in the interests of the firm, but also a question of self-preservation for the CEO.
In the Robert Fleming Asset Management (RFAM) probe, RFAM's former chief executive Robert Thomas accepted he "bore ultimate responsibility for the compliance failures...". As a result Thomas had his registration with IMRO ended.
In order to prevent the kind of dealing that Armstrong was engaged in, adequate separation between front and back offices, where the deals are struck and where they are processed, and strict rules on the use of personal accounts are critical.
Market sources noted similarities with Barings, where one of the main criticisms was that Nick Leeson, the trader who stacked up the losses which led to its collapse, was responsible not only for executing trades but settling or matching them as well.
This made it unlikely that any discrepancies in his trading would be uncovered in the back office, the sort of loophole regulators such as IMRO look for when they inspect firms.
Insiders said the Jardine Fleming outcome was a good result for the British watchdog, which came under fire for its handling of previous cases. "If you find a major problem you tell them. If it's a serious problem you tell them immediately, you certainly wouldn't sit on it," said one.
And while the incidence of breaches may appear to be on the rise, it can be argued that the trend shows the net is tightening. But even the best systems will not prevent mistakes.
"Even the best of us make mistakes. If you are a large firm problems do arise, if you find them then you take remedial action. There will always be fools, crooks and incompetents," the first compliance source said.
($1=.6420 Pound)
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British merchant bank Hambros, under fire from a rebel Hong Kong shareholder calling for its breakup, reported a return to first-half profit on Wednesday and said the benefits of restructuring should begin to show through.
"We have great confidence in ourselves and what we are trying to do," said Sir Chips Keswick, group chief executive.
He dismissed efforts by Hong Kong investment manager Regent Pacific Group, which holds three percent of Hambros, to break up the firm in an attempt to realise shareholder value.
"Regent is a three percent shareholder and is perfectly entitled to (its) views. We are perfectly entitled not to share them," Keswick said.
This view was supported by analysts who said the subject of Regent's shareholding and its calls for Hambros to sell its now successful Hambro Countrywide estate agency subsidiary was not raised at their meeting with the company.
Hambros reported pretax profits of 35.0 million pounds ($57.81 million) for the first half, compared with a 7.7 million pound loss for the same period in 1995.
Some analysts had forecast pretax profits of up to 45.0 million pounds based on a strong Hambro Countrywide performance. But they were disappointed by a worse-than-expected showing by Hambros' banking group.
"People are going to be downgrading their figures, they wre expecting better profits from the banking side," an analyst at one large investment bank told Reuters.
He said it was disappointing Hambros had not done better in what were essentially good markets. "Clearly the banking side is struggling to do anything. Countrywide is the star," he added.
Analysts had predicted an interim dividend of 2.5 to 3.0 pence. In the event the dividend was unchanged at 2.5 pence.
Hambros shares closed down 7.5 pence at 245 pence.
Hambros is among a dwindling list of British investment banks which are the constant subject of takeover speculation. But it has been seen as one of the less attractive targets due to recent poor performance and major provisions for bad debts.
"I wouldn't have thought (a takeover) was terribly likely," said one analyst, adding that Hambros did not have the sort of distribution or securities operation an expanding investment bank would be seeking.
Asked whether Hambros was a takeover target, Keswick said a public company was always in the firing line but he was happy with the group's direction.
While he could not talk for shareholders in the group, Keswick said he had the impression from discussions with them in the wake of the Regent Pacific move that they were supportive of changes the company had implemented.
Keswick said it was on track to replace "low margin vanilla business" with increased return per customer business. It had decided it was best to undergo major upheavals for a year rather than piecemeal changes over a longer period to achieve this.
Keswick, who forecast the benefits of the changes could take a year or two to come through, said he was pleased the group had moved back into profit, adding that the Investment Group's result had been particularly good.
But Hambros chairman Lord Hambro warned profits from this part of the business were not expected to match the first half in the rest of the year. But he expected "considerable improvement" from Hambros' subsidiaries and, despite a challenging environment for the group, prospects were good.
Lord Hambro said he would retire from his post in July 1997 and be succeeded by Keswick. "Chips will inevitably be a hands-on chairman," Michael Sorkin, deputy chairman of Hambros Bank, said.
($1=.6054 Pound)
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Following a bumper year in 1996, yet more British companies are likely to be takeover targets in 1997, but much of the merger and acquisition activity will be in the form of agreed deals, corporate financiers say.
"We certainly see the first quarter of next year being very active. There are a lot of transactions in the pipeline, a lot of activity," Rupert Faure Walker, head of corporate finance at HSBC Samuel Montagu, told Reuters.
Britain is still regarded as the European leader for takeover activity. "The markets here have always been more open than elsewhere, with not many constraints to other companies coming over here," another senior corporate financier said.
In the first nine months of 1996, 278 British companies valued at 14.4 billion pounds ($23.99 billion) were sold in cross-border deals, compared to 258 firms worth 19.1 billion pounds in the same period a year earlier.
Faure Walker said most of the deals in the pipeline were agreed rather than contested, with a number of strategic mergers reflecting industry rationalisations and cost eliminations. Others said consolidation and deconsolidation would both be driving forces behind activity in the year ahead.
ELECTION TO SET BUSINESS TEMPO
But while the outlook for the first quarter of the year looks promising for the corporate financiers who earn their fees by advising either acquirer or target, political influences are likely to colour how the market progresses, with the result of the impending general election the major force at work.
"The big thing next year is the election," said Faure Walker, adding that the election of a new goverment was likely to introduce a note of caution into the market.
This view was backed by the second corporate financier who said there could be some slowing of activity ahead of the election as companies did their best to avoid a deal being straddled across an election period.
Britain's opposition Labour party has consistently been ahead of the ruling Conservatives in the opinion polls and an election is due to be called by May.
If Labour wins, companies could take some time to adjust to the new environment and could wait until after a first Labour budget before making any significant moves. For a typical large acquisition this could result a 6-9 month period of caution, some industry players said, although others said activity was likely to continue whatever the government.
TAKEOVERS TO TAKE IN MORE SECTORS
A broader spread of takeovers, evident during 1996, is expected to run into 1997 as companies play "catch-up" after a period of caution following the recession of the early 1990s. Formerly publicly-owned utilities, including the few remaining regional electricity suppliers, will be joined by insurance brokers struggling with declining rates and a host of others.
"The inevitable reconstruction of industries will continue. The pace will quicken," the second corporate financier said.
The tendency towards agreed deals also reflected the fact that Britain's Office of Fair Trading had largely referred contested deals to the department of trade and industry (DTI) in recent months rather than agreed bids, financiers said.
REMAINING RECS SET TO FALL
In the electricity sector, the remaining privatised regional electricity companies (RECs) are viewed as likely targets for U.S. predators. Southern Electric and Yorkshire Electricity are tipped to follow recent takeover targets Northern Electric and London Electricity into U.S. hands.
With only two RECs remaining, some analysts suggest attention will now turn to the water companies, with further takeovers among them.
SMALLER FINANCIAL PLAYERS TO FEEL THE PINCH
The financial services sector is also seen as a hot-bed for further takeovers with perennials such as merchant banks Schroders, Hambros, and Robert Fleming all possible targets for larger global investment banks.
Further consolidation among small, specialist City of London and regional boutiques is also likely and Britain's dwindling club of large mutually-owned building societies could also attract attention from larger groups.
In the insurance sector Commercial Union is seen as a likely bid target or merger partner after widespread rumours suggesting talks with the financial services arm of B.A.T. It has also been linked with General Accident and Guardian Royal Exchange.
Among the insurance brokers, talk of consolidation as firms try to cut costs in the face of declining rates and overcapacity has been fuelled by recent mergers such as Lloyd Thompson and JIB. Willis Corroon and Sedgwick have long been rumoured to be possible merger or takeover candidates.
TELECOMS TO RING IN MORE CHANGES
Corporate financiers see the telecommunications and media sectors as providing significant merger activity during 1997, with Vodafone, cable group Telewest and Orange all tipped as possible targets.
There have also been suggestions that Mercury One-2-One may join Mercury Communications and that British Telecom may buy out its 40 percent partner in Cellnet. Energis, the cable company owned by National Grid, has been valued by some at 600 million pounds, while privately-owned Ionica also has long-term plans to float.
Among media companies, HTV, Yorkshire Tyne Tees and STV have all been suggested as possible targets, with Pearson an outside contender. In the growing sector of publicly quoted football clubs, Manchester United has obvious appeal.
OIL AND GAS TO REMAIN IGNITED
The demerger of British Gas into separate trading and transport firms in February has led to widespread market speculation that an oil major could be interested in buying the trading arm, to be called Centrica.
Worldwide consolidation in the oil industry is seen also affecting British firms. Smaller exploration and production firms might be eyed by the big players, all cash-rich after years of cost-cutting and keen to boost oil and gas reserves.
Other firms tipped to face takeover attempts are DIY retailer Wickes, defence to electronics group Racal, auto-components group T&N, construction group Costain and Imperial Tobacco. Energy, currently part of Hanson but due to be demerged next year, is not expected to be left uncourted for long.
Britain's drink companies are entering a period of steady, organic growth which precludes any major acquisitions. But Allied Domecq, Grand Met and Guinness have been dissuaded from pursuing the idea of demergers.
The major food companies are also looking to prune their brand portfolios to allow a more concentrated marketing push behind core brands with international appeal. This strategy will involve disposal programmes and small bolt-on acquisitions.
Bass and Guinness, Associated British Foods and Tate & Lyle are all sufficiently cash-rich to launch sizeable takeovers.
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Financial services and property group Liberty International Holdings on Thursday unveiled a move into the British pensions market in ventures involving the British Telecom Pension Scheme and pension fund management group Hermes.
Liberty is establishing its own pensions company, Liberty International Pensions, which will target both the needs of money purchase pension schemes and retail pensions.
BT Pension Scheme, which owns Hermes, is to pay five million pounds ($7.8 million) for 10 percent of the equity of Liberty International Pensions, with the rest held by Liberty.
Liberty and Hermes said in a joint statement they were also setting up a new subsidiary called Hermes Liberty International Pensions to offer specialised investment services to the British pensions industry, with Hermes as fund manager.
BT Pension Scheme is giving the Hermes Liberty joint venture "critical mass from the outset" with a 1.5 billion pound transfer of assets to the new funds, Liberty's chairman Donald Gordon said.
Gordon said Liberty was "well positioned to take advantage of the changes affecting the UK pensions industry." Hermes' expertise in investment management and track record would help it to provide quality and competitively priced pension services.
David Fischel, Liberty's managing director, said Liberty International Pensions still required approval of Britain's Department of Trade and Industry but was otherwise ready for launch.
Hermes called the joint pensions venture a meeting of minds.
"Liberty has the ability and techniques of selling pensions, it also has the systems...and the administration. We on the other hand are good at our particular core areas of investment management...we think that's a very good marriage," Alastair Ross Goobey, chief executive of Hermes, said.
Ross Goobey said Hermes had approached Liberty International only to find the group had been considering an approach to Hermes.
"It really was a meeting of minds on this. Whether it develops further from this we shall see. I think one step at a time is quite enough for us."
He said the venture would probably not be up and running until the first quarter of next year as regulatory approval first had to be obtained for the new group.
The decision by the giant British Telecom Pension Scheme to transfer assets to the new Hermes Liberty International Pensions funds would give the new venture a boost.
"I would hope it gives some people some feeling of security that BT Pension Scheme, which is after all the biggest in the country, is willing to do this," he said.
Liberty plans to sell personal pensions at its regional shopping centres, which are held through a majority-owned subsidiary Capital Shopping Centres. These have more than 150 million customer visits a year, Liberty said.
Fischel said an announcement would be made on exactly how the retail customer business would work at a future date, adding he could not give details at present. ($1=.6395 Pound)
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Britain's Halifax Building Society is confident of avoiding any takeover attempts once it sheds its mutual status and becomes a publicly quoted bank in June next year, a senior official said on Thursday.
"We think we can stand on our own feet," David Gilchrist, Halifax's director of corporate affairs said in a telephone interview following the announcement of the timetable for the planned conversion and 10 billion stg flotation.
The building society's nine million members -- its savers and borrowers -- will vote on the conversion early next year.
Gilchrist said the building society's decision to convert by transferring its business to an existing subsidiary rather than to a company specially formed for conversion meant it would lose a five-year protection against takeover.
It will also increase the voting threshold needed to give the plans the go-ahead. But he was confident that it would achieve a sufficiently high vote in favour, of at least 50 percent of all investing members entitled to vote.
"We have no real concerns as far as the voting is concerned," he said, adding that previous building society conversions achieved approvals of over 75 percent.
"It will be a high-profile exercise, backed up by plenty of marketing," Gilchrist said.
Earlier, the Halifax said its members would be given full details of the conversion plans and share distribution scheme in January 1997. This will tell them the number of shares they are entitled to receive and an indication of their likely price range, based on prevailing market conditions at the time.
Gilchrist said members would get a "broad idea" at this time, but would not be drawn on what the share hand-out was likely to be worth to the average investor.
He also declined to comment on what the cost of the conversion exercise would be, saying only that a significant element would be printing and postage costs.
"The major element of cost is printing and mailing. We will be sending 75 million items of mail," he said.
Halifax members will be urged to vote "as quickly as possible" on the proposals and a special general meeting will be held in Sheffield in February. If members vote in favour, they will be sent details of share allocations in April or May.
Gilchrist said the Halifax had not yet done any market research on how many members would sell or retain shares.
"We are not trying to persuade people one way or another whether to hold shares or to sell the shares," he said, adding the Halifax would sound out members nearer the time.
But it was working on the basis that a "large number" would have already planned to spend their windfall and had set up a share dealing system to ensure an orderly market for what will be the largest single extension of private share ownership ever in Britain, Gilchrist added.
Those who decide to sell will be offered a free-of-charge postal service for a limited period while those who keep them can chose between placing them in a nominee company or receiving a share certificate. The Halifax favours the nominee option.
The society will remind its members that they should have at least 100 stg in total in their accounts on December 31 1996.
If eligible for a variable distribution of extra free shares they "may need to top up their share accounts to the November 25 1994 level by the date of the special general meeting" to qualify for the maximum number of free shares, the Halifax said.
-- London Newsroom +44 171 542 7717
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The "Big Bang" maintained London as one of the world's financial hubs, but 10 years on the role of specialised financial "boutiques" at the heart of the City is under mounting pressure from huge integrated investment banks.
"The wonderful time that there has been for the small boutique since Big Bang is over. The days of the single violinist are past, it's time for the full orchestra," one banking source told Reuters.
The so-called Big Bang of 1986 brought about radical reforms in the way the London Stock Exchange and the British government bond market operated, principally by allowing mergers between merchant banks, brokers and stock jobbers.
It saw the demise of traditional names such as Wedd Durlacher Mordaunt and Phillips and Drew which became parts of Barclays' investment bank BZW and of UBS respectively.
And ever since the initial wave of changes investment banking giants with global aspirations have been hoovering up small players which have carved out a niche for themselves.
U.S. EXPERIENCE SETS THE PACE
In the world of corporate finance this pattern of smaller firms being swallowed up by the large players is set to mirror what has taken place in the U.S., corporate financiers say.
"I believe the world is moving away from small nimble-footed boutiques, which had a wonderful time under the Conservative government. The new world is going to be based around very big cross-border corporate finance. You need a very big broking arm behind you," one corporate financier said.
This need for broking capacity and a dwindling number of independent brokers, combined with increasing regulatory demands for capital, has shrunk the opportunities for boutiques. Even in the growing derivatives market, the amounts of capital needed to play the global markets mean small outfits are hard to sustain.
BOUTIQUES THREATENED BY EUROPE INTEGRATION
Apart from the possibility of an opposition Labour government and perhaps greater restrictions on mergers and acquisitions activity, with the need for companies to prove that a takeover is in the public interest, the other threat to corporate finance boutiques comes from European integration.
Increased bureaucracy and more rigorous European Commission demands on the companies involved in takeovers will mean even greater research capabilities and legal back-up are required by the financiers advising companies on such deals, bankers say.
"Boutiques won't be much good if you have got to take a huge team of analysts and brokers out to Brussels every time you are planning a deal," said one.
With U.S. investment banking mammoths such as Goldman Sachs and Merrill Lynch building increasing roles in corporate finance as well as their traditional broking and trading strengths, this is also putting pressure on the small corporate finance players.
HAMBRO MAGAN FALLS TO NATIONAL WESTMINSTER
A recent casualty is J Hambro Magan, which two weeks ago was sold to NatWest Markets, the investment banking arm of Britain's National Westminster Bank, for an estimated 80 million pounds ($127.3 million).
The prominent corporate finance boutique was set up by George Magan in 1988 and has been involved in some of the biggest mergers and acquisitions in Britain in recent years.
"The new world is going to be dominated by the very big boys," another banker said.
Some commentators say the future of small boutiques is not as bleak as it may appear. They see the demise of some as merely part of a cycle which will spawn new dynamic teams based around talented individuals who may decide to leave a large established firm, take clients and expertise with them, and go it alone.
"It's an on-going process. It's always postulated every time there's a rash of takeovers that boutiques are going out of fashion. But it's the same process as Big Bang. Small firms have developed since. Some have disappeared and been replaced by others," a banking analyst at one U.S. investment bank said.
In cases such as Hambro Magan, the cycle has turned full circle, with the key individuals making significant financial gains for themselves by selling a highly successful business at its peak and coming back into the folds of a larger player.
SMALL FIRMS CAN SELL PERSONALISED SERVICE
But while small firms will never compete for the truly global roles, there is still a place for the personalised localised service offered by boutiques. "There's always a demand for that type of service," he added.
Others agree that in a world where investment banks are attempting to become so-called "one-stop shops", the pressures to sell clients an entire package of products could in fact enhance the position of boutiques, whose advice is perhaps more truly independent as they don't have other axes to grind.
DRESDNER KLEINWORT BUYS LUTHY BAILLIE
Another boutique to have fallen prey to a multi-national banking player with plenty of capital behind it, sophisticated trading and broking operations and global ambitions is the bond specialist Luthy Baillie Dowsett Pethick & Co.
It was snapped up only two weeks ago by Dresdner Kleinwort Benson, the investment banking division of Germany's second largest commercial bank Dresdner Bank.
Peter Luthy, one of the founders of the 15-person bond boutique which was set up in 1990, said the firm's reliance on a market undergoing significant changes because of the interest rate environment and the constraints of size had forced it to seek embrace of a larger partner.
"We learned a hell of a lot. But our business skills are better used in a big firm. The opportunities are better in a big firm," Luthy told Reuters recently.
Such changes will not necessarily end with the small firms such as Luthy's. Banking analysts and corporate financiers alike have for some time been predicting the days are numbered for what one called the "super-boutiques".
This dwindling list of traditional British merchant banks includes Cazenoves, NM Rothschilds, Hambros, Schroders and Robert Fleming. Takeovers here are complicated in some cases by family holdings, but strategic alliances have been suggested as an acceptable alternative in order to compete globally.
"I think even the super-boutiques are going to be struggling over the next five years," the first banking source said. ($1=.6285 Pound)
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Top managers in major financial firms need to be razor-sharp if the world's increasingly complex markets are to run smoothly, however sophisticated the regulatory regime, regulators and politicians said on Thursday.
"Management needs to know its business. (It) sets the ethos of the company," Alistair Darling, spokesman on treasury affairs for Britain's opposition Labour party told a conference on financial regulation and minimising systemic risk.
Examples of where rules had been broken by so-called "rogue traders" were a clear sign of management failure, he said.
Christine Cumming, senior vice president at the Federal Reserve Bank of New York, also voiced doubts about management's current ability to deal with regulatory problems.
The health of an institution lay in its management and directors, but they were not necessarily properly armed to deal with problems when they arose, she said.
"Do we prepare directors and managers enough?" Cumming said.
Britain's often criticised regulatory system, which relies heavily on so-called "self-regulation," is also under scrutiny.
Darling said that whichever party won the next general election, due by May 1997, the British regulatory system "will be reformed." But this would not mean "tearing everything up or dramatic change," he added.
He said Labour wanted to establish a regulator with sufficient "clout reputation and stature" to deal with its international counterparts.
But it would not create a "Super-SIB," an enlarged version of the top regulator the Securities and Investments Board (SIB), as some commentators have suggested. A Labour government would also attempt to limit the number of regulations.
Darling's call for minimising the regulatory burden by making it as cost-effective as possible was echoed by most of the speakers at the conference.
Angela Knight, Britain's economic secretary to the Treasury, said the government wants to see a cost-benefit analysis applied to all regulations. If they fail to make sense on this basis then they should not be adopted, she said.
Knight also underlined the dramatic effect on the industry as a whole of the collapse of blue-blooded merchant bank Barings in February 1995 was "a more salutory lesson than any regulation" to other banks and financial institutions.
There were calls from both politicians for interchange between industry and the regulators, so that the experiences on either side of the fence could be carried across by individuals.
But while the idea of the regulators being staffed by people with first-hand industry knowledge won support from many of those attending the meeting, the question of how the pay structure could accomodate such movements was seen by some as a serious obstacle to this system spreading.
And while regulators need to keep up with rapid changes in financial instruments and the industry landscape both on a domestic and a global scale, they can never be expected to be one step ahead of the business they are monitoring.
"Regulators should respond to business realities rather than be ahead of business trends," Sir Andrew Large, chairman of the SIB told the meeting.
This would mean regulators becoming increasingly sophisticated to cope with the changing business environment and having to co-operate more and more with their counterparts in other countries.
"The next generation of supervisors will have to evaluate far more complex information and make far more complex judgements," Large said.
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The debt restructuring package hammered out between Anglo-French Channel Tunnel operator Eurotunnel and its creditors may not be able to withstand any extra financial demands resulting from last month's fire, secondary debt trading firm Klesch & Co said on Thursday.
"The recent fire onboard a Eurotunnel HGV shuttle has now raised fundamental safety concerns, with potentially dire (but as yet unquantifiable) long-term implications," Klesch & Co said in a report on the restructuring plans.
It said from an investment viewpoint the events "call into question the likely adequacy of the financial restructuring package as currently proposed" but acknowledged the immediate impact on Eurotunnel's revenues "is likely to be minor."
The report said that according to its calculations, the multi-billion pound debt restructuring hammered out between Eurotunnel and a group of 225 creditor banks, which was finally agreed in October, had only left the company with "headroom," or contingency reserve, of 600 million pounds ($990.7 million), or around 67 million pounds a year over nine years.
"Any development (such as the fire) which has the potential to impact future revenues or operating efficiency, could threaten the suffciency of a financial restructuring package."
Passenger car shuttle services resumed through the tunnel on Tuesday, three weeks after the fire closed the undersea link. The fire on a truck destroyed a freight vehicle and damaged a section of the tunnel. Thirty-four people were injured.
Rail services for passengers between Paris and London and Brussels and London resumed last week but no date has been set for a resumption of the shuttle service for trucks.
The report said that in the aftermath of the fire the Channel Tunnel Safety Authority would have to consider the design and operation of the open-lattice freight carriers.
"Should (it) decide that fundamental changes will be required to the HGV shuttles, the potential for a reduction in revenues and/or increases in costs could reduce the contingency made available by the restructuring," it added.
Klesch & Co also pointed out the fire had highlighted that Eurotunnel "consists in its entirety of a single, high profile, effectively irreplaceable, hugely expensive and vulnerable operating asset," a factor at the core of its concerns.
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Britain's largest cable operator was born on Tuesday from the merger of the British operations of cable and telecoms giants Cable & Wireless, NYNEX Corp of the U.S. and Bell Canada International.
The deal, which took only five weeks to complete, brings together C&W's Mercury, British cable company Videotron, Bell Cablemedia and NYNEX CableComms, eclipsing Telewest as Britain's biggest cable operator.
It is a landmark deal for C&W chief executive Richard Brown, appointed five months ago, and follows the collapse of merger talks earlier this year between C&W and its great rival British Telecommunications Plc.
C&W last month replaced BT in a major German alliance with diversified utility RWE that is seen as the main competitor to the dominant Deutsche Telekom as the German market is being liberalised.
Brown said the merged company, which will provide integrated telecommunications, information and entertainment services, would give C&W's telephone company Mercury access to a total of 18 million business and domestic customers.
Latest statistics show 30 percent of homes which can take cable after an extensive cable-laying drive beneath Britain's streets have opted for one or more cable service.
Brown said the move had been spawned by a common vision.
"We had a common vision of what could be done and we have done it with speed and nimbleness," he told Reuters.
The development was welcomed by the industry, battling to compete with satellite operators such as BSkyB in television services and British Telecom in telephones.
"This is clear evidence of confidence in the future of the UK cable industry," a spokesman for industry body the Cable Communications Association, said.
"The broadband fibre optic network being laid across the UK is the most advanced in the world for delivery to individual homes," he said, adding that around 6 billion pounds ($7.5 billion) had already been invested in building the network and a further six billion of investment was planned.
In a related deal, Videotron is being bought by Bell Cablemedia in a complex transaction involving a $338 million equity investment in Bell Cablemedia by Cable & Wireless. This values Videotron at around $1.09 billion.
Once the merger and the Videotron deal have been completed, Cable & Wireless will own 52.6 percent of the new company -- to be called Cable & Wireless Communications -- with NYNEX owning 18.5 percent and Bell Canada 14.2 percent of the shares.
The remaining 15 percent will floated and the groups intend to list the company in both London and New York. This is likely to take place in about six months.
C&W's Brown said he could not detail the financial aspects of the merger because of the new company's planned listing.
Cable & Wireless Communications "...will provide local, national, international, data and mobile telecommunications, together with multichannel television and Internet services".
Brown said the new company would be the only one in Britain able to offer multiple services which people had to get from different providers until now.
"Cable & Wireless Communications will be the only company in the UK capable of offering a combination of telecoms, broadband, data transmission, video shopping and Internet access."
The group aims to increase revenues by providing a wider range of services to existing customers and increased access to a broader customer base. It will also produce "significant cost savings" by eliminating duplication, enhancing purchasing power and increasing capital expenditure efficiencies.
The new company will be strategically positioned to offer new products like interactive digital services and multi-media products "as they become available", the companies said.
Stephen Pettit, executive director of European operations at C&W, told Reuters Financial Television that the deal would not lead to duplication.
"Both Mercury and the cable companies had strategies to dig up the streets and lay cables and they are looking at the same streets. This gives the chance to do it once and keep the costs down as a result," he said.
Pettit said no other players could match what he described as "a unique force" in the British market.
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Financial services and property group Liberty International vowed on Thursday to change the way the British pensions market works with the launch of a new user-friendly subsidiary.
"The market is poised for change, requiring a fresh approach, and our company will provide this by demystifying pensions for everybody - both individuals and the companies for which they work," Liberty chairman Donald Gordon said.
Liberty has set up its own pensions company, Liberty International Pensions, and will target retail pensions and money purchase pension schemes -- pensions where the benefit is linked to the amount an individual has put in.
Liberty, 69 percent owned by South Africa's Liberty Life, has enrolled the giant British Telecom Pension Scheme, which will pay five million pounds ($7.8 million) for 10 percent of the equity of Liberty International Pensions.
Liberty's Gordon said the move into the British pensions market was an extension of a worldwide shift from defined benefit -- where an individual's pension is related to his final salary -- to defined contribution principles.
This would have "a most profound influence on business practice and retirement savings in the future". In Britain there is also "an urgent and growing need for quality privatised retirement savings which require a radical change in approach and funding techniques", Gordon added.
A rapidly ageing population and low birth rate were combining to increase this need, Gordon said.
Liberty also announced it had teamed up with fund management group Hermes to form Hermes Liberty International Pensions. This will offer specialised investment services to the British pensions industry, with Hermes as fund manager.
BT Pension Scheme is giving the Hermes Liberty joint venture "critical mass from the outset" with a 1.5 billion pound transfer of assets to the new funds, Gordon said.
He said Hermes' expertise in investment management and track record would help the group to provide quality and competitively priced pension services. Hermes called the joint pensions venture a meeting of minds.
"Liberty has the ability and techniques of selling pensions, it also has the systems...and the administration. We on the other hand are good at our particular core areas of investment management...we think that's a very good marriage," Alastair Ross Goobey, chief executive of Hermes, said.
"It really was a meeting of minds on this. Whether it develops further from this we shall see. I think one step at a time is quite enough for us."
He said the venture would probably not be up and running until the first quarter of next year as regulatory approval first had to be obtained for the new group.
As well as selling pensions directly by telephone, Liberty also plans to sell personal pensions at its regional shopping centres, which are held through a majority-owned subsidiary Capital Shopping Centres. These have more than 150 million customer visits a year, Liberty said. ($1=.6395 Pound)
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Hunting so-called "fat cats" - the biggest company boardroom earners - may have become a British media obsession but the pay packets of the country's top players are under even closer scrutiny from institutional shareholders.
The latest row, between electronics giant General Electric Co and some of its major shareholders who objected to a 10 million pound ($15.61 million) five-year package for new managing director George Simpson, resulted in GEC setting tougher performance targets.
But questions remain over how much the individuals charged with running some of Britain's most, and in some cases least, successful companies deserve to be paid and have led to a reappraisal of the fundamentals of corporate governance.
Both last year's Greenbury committee on executive pay and the earlier Cadbury report on corporate governance laid down guidelines on how companies should behave. But not all the rules are compulsory and some firms have opted not to toe the line.
This has led to a more active approach by leading institutional shareholders like Norwich Union and has seen greater involvement from bodies such as the Association of British Insurers and the National Association of Pension funds.
"Institutional shareholders are paying a lot more attention to these issues, not perhaps out of choice but because of circumstances. We do think remuneration issues are important but perhaps get more publicity than they should," Anita Skipper, corporate governance manager at Norwich Union told Reuters.
Skipper said the group, which has been looking at corporate governance issues for more than a decade, does not generally give a view on the general package an executive receives, but tries to ensure a company's performance justifies the benefit.
This means close scrutiny of every aspect of the company's performance, including factors such as its return on capital, cashflow, the way it is managed and its prospects.
"It's good to see the big investing institutions flexing their muscles and taking an active interest in this way," one industry insider told Reuters.
Last week Tim Melville-Ross, director general of the Institute of Directors, rallied behind Simpson, arguing that very few people were capable of doing the job.
Melville-Ross also sat on the Greenbury panel which urged the remuneration committees - which decide directors' salaries - to take into account the wider scene, including pay and employment conditions elsewhere in the company and industry.
A row over a new executive bonus scheme at British power and water giant United Utilities in July fuelled public outrage at the million-pound packages that executive directors of monopoly utilities have managed to amass since privatisation.
Last year, chairman of Marks and Spencer Sir Richard Greenbury was given the job of attempting to impose curbs following public outrage over the pay of Cedric Brown, formerly the chief executive of British Gas.
"That was a watershed. That was what raised public awareness of the issue (of directors' pay)," Norwich Union's Skipper said.
The Greenbury committee said a number of privatised water and energy companies "have developed, perhaps unintentionally, remuneration packages which are richer than required to recruit, retain and motivate quality managers".
Skipper maintains that revealing directors' pay is a requirement of good corporate governance. "It should be there for shareholder scrutiny," she said.
But her view is not appreciated by all directors. One director of a quoted financial institution, recently told Reuters he was firmly against having his salary and pension details published not least because of the potential personal repurcussions.
His mother-in-law happens to be a shareholder and receives the company's annual report and accounts and he confided that she has since hinted she will re-write her will in favour of her other children.
($1=.6406 Pound)
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Singapore's Hotel Properties and property group Canary Wharf on Friday applied for detailed planning consent for a development aimed at injecting life into an office-dominated area of London's former docks.
"Life means people who stay here. We looked at what was lacking (in Canary Wharf) and that was life," Thio Gim Hock, executive director of HPL, told Reuters in an interview.
HPL and Canary Wharf, which is owned by an international consortium led by Paul Reichmann and including Prince Al Waleed bin Talal bin Abdulaziz al Saud of Saudi Arabia, formed an 80-20 joint venture for the residential, hotel and leisure project.
The multi-million pound scheme represents the first phase of development of an 11-acre (4.5 hectare) site adjoining the River Thames. It will be part of the landmark Canary Wharf docklands development to the east of the City financial district, home to Britain's tallest building.
The development will be the first at the massive Canary Wharf site since an agreement last year by banks to sell out to the Reichmann-led consortium. The banks had taken over the ownership when the original development company went into administration.
Despite these problems, 80 percent of the offices have now been occupied and Canary Wharf is vying with the London's traditional financial heartland as a site for large global investment banks to locate their new headquarters.
Office blocks have so far dominated the site, however, and Thio Gim Hock said he expects to start building 330 residential units, a five star hotel and sports club early in 1997. They are due to be completed by the end of 1998 or early 1999.
There is already outline planning permission from the London Docklands Development Corporation (LDDC) to develop the site and Canary Wharf's Robert John, a director of the joint venture, believes detailed permission should be granted.
An initial capitalisation of 50 million pounds ($83.95 million) will come from the partners. Further funding is expected to come from sale of apartments and bank loans, although Thio Gim Hock would not be drawn on the financing.
HPL, which has a stake in Britain's Virgin Cinemas as well as interests in hotels such as Four Seasons and residential developments, said in July the Canary Wharf scheme would cost around 250 million pounds, although the total cost is likely to be higher given the estimates for the first phase.
Designer Philippe Stark is to shape the hotel and leisure component of the new development, which will include a glass-covered "infinity" swimming pool which will give the appearance of dropping into the river Thames below.
Thio Gim Hock said Stark will "give some sex appeal to the development", which he says will have a country club atmosphere. He wants the hotel to have its own distinctive character which will be "elegant, understated and aimed at business people".
The developers also envisage opportunities for top-class restaurants with river views on the site.
He expects many of the apartments to be sold to people in Britain, but also hopes for overseas interest and foresees some buyers seeking an investment rather than a place to live. HPL's track-record in Singapore will, he said, encourage interest from the company's home patch.
"I have no doubt that a lot of them will come and buy here."
Work on the Canary Wharf project in the former London docks began in 1987 under Olympia and York, owned by the Reichmann family of Canada.
But in May 1992 Olympia and York Canary Wharf Ltd went into administration and was rescued by a group of banks that had financed the project in October 1993. ($1=.5956 Pound)
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Lloyd's insurance market on Tuesday welcomed a crucial U.S. district court ruling in its favour and said it would extend a deadline for acceptances of a 3.2 billion pound ($5.5 billion) recovery plan.
"We have decided in the circumstances we will keep the offer open," Lloyd's chairman David Rowland said after a district court in Baltimore, Maryland, overturned an injunction by U.S. Names -- as investors in the market are known -- who were unhappy with the plan.
Rowland did not say how long the deadline would be extended from noon (1100 GMT) on Wednesday, but insurance sources said it would probably be stretched for several days to allow more U.S. Names to approve the plan.
A Lloyd's spokesman said the ruling had removed the last major legal obstacle to the 300-year-old insurance market's recovery plan, aimed at ending years of turbulence triggered by huge liabilities.
Lloyd's earlier said more than 82 percent of its 34,000 worldwide members had approved the plan, but only 53 percent of the 2,700 U.S. names had given the go-ahead.
"Since we won the appeal, faxes have been flooding in from U.S. Names accepting the settlement offer," a Lloyd's spokesman said by telephone.
Lloyd's hopes the support shown by Names will be enough to declare the plan unconditional when its ruling council meets on Thursday. The plan still has to be approved by the Department of Trade and Industry.
Lloyd's problems began in the 1980s when a fatal combination of negligent underwriting, poor investment advice and a sequence of unexpected natural disasters conspired to bring about losses of several billion pounds.
Long standing Names were for the first time in their lives suddenly faced with the prospect of unlimited losses.
A spokesman for one of the three key litigating British action groups representing major loss-making Names described the successful appeal as "very good" for the recovery plan.
"I think we did better by the settlement than by going through the courts," said the spokesman for the Merrett 418 Names Association, which groups 1,932 members.
Under the proposals, Lloyd's will reinsure its massive liabilities in a new company called Equitas. It is asking investors to help fund Equitas but has offered them a compensation package to help offset their losses.
Rowland said he was delighted by the U.S. ruling, which overturned a injunction granted by a lower court to a group of U.S. Names who wanted more time to study the terms of the settlement.
"I am very pleased. I have believed for a long time that what we are doing is in the interest of the whole society," Rowland told Reuters, adding he did not want to exclude anyone from the offer.
Many of the market's pre-1993 liabilities stem from pollution and asbestosis related claims in the United States, some of them dating back even to the last century.
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Privately-owned British investment bank Robert Fleming on Wednesday announced increased pre-tax profits for the first half of the year which it said underlined its ability to remain independent.
"We are committed to remaining independent. These results, our second best interim results ever, show we can remain independent," a Robert Fleming spokesman told Reuters.
Flemings has been widely talked about as a possible takeover target for a larger foreign investment bank, but has resolutely said it would retain its independence.
Flemings said its pretax profit for the first half of the year had increased by 16 percent to 92.2 million pounds ($154 million), from 79.4 million pounds a year earlier but warned it would have to cope with difficult markets in the second half.
Some analysts said the increase was not particularly impressive given market conditions but chief executive John Manser said it was "a very good start" and showed new businesses were "making a valuable contribution to profitability."
"While the outlook for the year seems promising, flat Asian markets and heightened competitive pressures in other markets are factors that we will continue to have to contend with during the next six months," Manser said in a statement.
The Flemings official said the results showed that while Flemings may have been perceived as an Asian-centric bank, it was now a much more international operation and had succeeded in bringing down its cost income ratio.
Flemings has not had an easy year so far. In July it lost investment banking head Bill Harrison who was poached by BZW, the investment banking arm of Britain's Barclays.
And in August Jardine Fleming, a joint venture with Jardine Matheson, revealed a five-month probe by British and Hong Kong regulators into irregular trades by a former senior fund manager at Jardine Fleming Investment Management.
This resulted in hefty fines and voluntary compensation of nearly $20 million to clients. Regulators also withdrew the authorisation of Jardine Fleming's London-based fund company. In September the company's chairman retired and the group created a new supervisory board.
Flemings acknowledged the problems at Jardine Fleming meant the joint venture had recorded a "marginally lower" interim result than its net interim profit of $63.9 million in 1995.
This was after taking into account provisions "arising from the regulatory issues relating to earlier years," it said. The Flemings spokesman told Reuters some clients had been lost, but new clients had also been taken on.
He described the events as a "painful experience." "But we believe we have clearly drawn a line in the sand," he added.
Any impact these problems may have had on Flemings' overall business was not, however, reflected in the interim dividend which rose to eight pence per share from seven pence.
Flemings said it had seen strong profit growth from its fund management businesses adding that its securities business had reported "a marked increase in profits aided by a strong performance by UK and continental European broking."
Its capital markets arm had helped companies raise 13.4 billion pounds of new capital while its corporate finance division had completed 43 deals during the period.
The appointment of Manser, 56, to replace Robin Fleming, 64, who will retire as chairman of Robert Fleming Holdings at the end of March 1997, means Manser would be more involved in business development and winning new business as well as strategy and relationships with major clients and shareholders.
William Garrett, 50, who was hired by Manser as a fund manager in 1970, was named as his replacement as chief executive and chairman of the group executive committee. Garrett will be responsible for the day-to-day running of the group.
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Britain's largest cable television company was born Tuesday in the merger of the British operations of cable and telecommunications giants Cable & Wireless, NYNEX Corp. of the United States and Bell Canada International.
The deal, which took only five weeks to complete, brings together C&W's Mercury, British cable company Videotron, Bell Cablemedia and NYNEX CableComms, eclipsing Telewest as Britain's biggest cable operator.
It was a landmark deal for C&W Chief Executive Richard Brown, appointed five months ago, and follows the collapse of merger talks earlier this year between C&W and its great rival, British Telecommunications Plc.
C&W last month replaced BT in a major German alliance with diversified utility RWE that is seen as the main competitor to the dominant Deutsche Telekom as the German market is being liberalised.
Brown said the merged company, which will provide integrated telecommunications, information and entertainment services, would give C&W's Mercury telephone company access to a total of 18 million business and domestic customers.
Latest statistics show 30 percent of homes that can take cable after an extensive cable-laying drive beneath Britain's streets have opted for one or more cable service.
The development was welcomed by the industry, battling to compete with satellite operators such as BSkyB in television services and British Telecom in telephones.
"This is clear evidence of confidence in the future of the U.K. cable industry," said a spokesman for the Cable Communications Association, an industry group.
"The broadband fibre optic network being laid across the U.K. is the most advanced in the world for delivery to individual homes," he said, adding that around 6 billion pounds ($7.5 billion) had already been invested in building the network and another six billion of investment was planned.
In a related deal, Videotron is being bought by Bell Cablemedia in a complex transaction involving a $338 million equity investment in Bell Cablemedia by Cable & Wireless. This values Videotron at around $1.09 billion.
Once the merger and the Videotron deal have been completed, Cable & Wireless will own 52.6 percent of the new company -- to be called Cable & Wireless Communications -- with NYNEX owning 18.5 percent and Bell Canada 14.2 percent of the shares.
The remaining 15 percent will floated and the groups intend to list the company in both London and New York. This is likely to take place in about six months.
"Cable & Wireless Communications will be the only company in the U.K. capable of offering a combination of telecoms, broadband, data transmission, video shopping and Internet access," Brown said.
Stephen Pettit, executive director of European operations at C&W, told Reuters Financial Television that the deal would not lead to duplication.
"Both Mercury and the cable companies had strategies to dig up the streets and lay cables and they are looking at the same streets. This gives the chance to do it once and keep the costs down as a result," he said.
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UK investment capital group 3i Group Plc said on Thursday the increase in its first half net asset value (NAV) per share was healthy but had been partly held back by continental Europe and a strong pound.
"Its a pretty healthy increase. Its held back a bit by continental Europe...the markets have not been that good and there has also been the appreciation of sterling," Ewen Macpherson, 3i's chief executive told Reuters.
3i's NAV for the period rose to 454 pence per share, from 426 pence for the same period the previous year.
Macpherson said a better indication of the group's performance was its UK portfolio which had performed "extremely well", reflected in an 18 percent growth in revenue.
He said there were still plenty of opportunities available, with the sort of companies that 3i invested in doing very well. There had also been an improvement in general business confidence in the UK, which had improved for the fourth consecutive quarter according to 3i's latest survey.
"The confidence in the businesses underlying our portfolio has been so positive," he said. Of 327.3 million stg invested by 3i during the period, 284.2 million stg was in the UK.
Macpherson said the prospect of a general election in the UK, which must be held by May 1997, had resulted in a number of investment opportunities for 3i as some company founders or management teams decided to sell their holdings in a firm while there was no doubt about the tax implications.
While the European performance had an impact on the NAV figure, the investment opportunities for 3i on the continent remained good, Macpherson said, adding that current pricing levels for the small and medium-sized European companies in which the group invests were "very attractive".
During the first half of the year, 3i said, realisations on investments had continued "at an encouraging rate". It realised investments of 122.2 million stg in the UK and 35.9 million stg in continental Europe.
Macpherson said the group had "significant plans to expand in Europe" and this was reflected in its decision to open an office in Dusseldorf, Germany in January. This regionalisation would involve opening offices in Hamburg, Munich and Stuttgart.
And the group was also planning to extend its presence into the south of France, he added.
The group also announced it would open its first office in South East Asia, in Singapore, early in 1997.
Macpherson said the area was "an exciting part of the world" for investment capital and Singapore had been chosen as it was a good communication centre from which other parts of the region could be covered.
He said the office would start small, with a staff of three, and would have a maximum of "half-a-dozen" people for the first year or so and would look at opportunities in Malaysia, the Philippines, Thailand and Indonesia but not in China.
-- London Newsroom +44 171 542 7719
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The British arm of accountancy firm Coopers & Lybrand, auditors for failed British bank Barings, said on Friday it had issued third party proceedings against nine former directors and employees of the bank.
"Despite the fact that we are not responsible for the collapse of Barings, we face a substantial claim. We are perceived to have deep pockets which are available to those who have lost money while those who were really responsible for the collapse of Barings escape," Coopers said in a statement.
"We may also take additional third party proceedings against other members of Barings management in due course," it added.
Coopers & Lybrand's British firm was auditor for Barings Plc, the parent company. Barings was rescued by Dutch financial giant ING Groep after it collapsed in February 1995 under losses of around $1.4 billion run up by the unauthorised derivatives trades of Singapore-based Nick Leeson.
Leeson is currently serving a six-and-a-half year jail sentence in Singapore for his part in the bank's downfall.
Ernst & Young, administrators to the bank, later issued claims of negligence in audits against accountants Coopers & Lybrand in London and Singapore and Deloitte & Touche in Singapore.
Some commentators estimate the total amount of these writs, which have not been specified, to be around 1.0 billion pounds ($1.68 billion). A Coopers & Lybrand official in London said no amount had been specified on the writ issued against it.
A spokesman at Ernst & Young told Reuters the firm was aware of the third party writs issued by Coopers but said that it was "inappropriate to comment at this stage."
The Coopers & Lybrand official said the third party writs against the nine former Barings directors and employees had not yet been served, adding it had four months in which to do so.
The firm said in a statement that the writs had been issued in the Chancery Division of the High Court against former Baring Investment Bank head Peter Norris and former deputy chairman Andrew Tuckey as well as Ron Baker, Mary Walz, Ian Hopkins, Anthony Gamby, Geoffrey Broadhurst, James Bax and Simon Jones.
Baker's lawyer, Lindsay Hill of law firm Fox Williams, told Reuters he was surprised Coopers & Lybrand had taken the action against Baker.
"I am surprised that Coopers & Lybrand should have taken this sort of action against Mr. Baker. I think the way events have unfolded before the SFA (Securities and Futures Authority) have demonstrated that he has not been in breach of any of his obligations or duties as a director," Hill said.
He said he did not expect Coopers & Lybrand to be successful in any claim against Baker and suggested that issuing the writs had been "a tactical move intended to divert attention away from the main action."
Earlier this month Baker was cleared of most misconduct charges brought by the SFA, a British financial markets watchdog, after a hearing by an independent tribunal.
Norris, who along with Broadhurst was banned from working in the City of London by the SFA in May, could not be contacted by Reuters.
Tuckey, who was deputy chairman of Barings, was not disciplined by the SFA. In March the SFA said it "found no evidence indicating that the insolvency of the group" could be attributed to his actions.
But he had to assure the SFA he would not seek any position in an investment house which would require his registration by the SFA as a senior executive officer or as a director unless his duties were limited to giving corporate finance advice.
Gamby was reprimanded by the SFA in August. He had his registration as a director suspended for a year and was required to pay 5,000 pounds towards costs.
SFA proceedings against Walz, Hopkins and Bax have yet to be concluded, while Jones was not regulated by the watchdog. ($1=.5953 Pound)
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Members of the Transport and General Workers Union (T&G) at Tradeteam, the distribution arm of the brewing operation of Britain's Bass Plc, are to vote on strike action over proposed pay cuts, the union said on Friday.
The union said in a statement that the ballot of more than 1,000 workers at Tradeteam would start on December 9 and the result would be known on December 20.
Bass said there was no threat to the delivery of drinks to its customers in the run up to the busy Christmas period.
The T&G said the ballot was going ahead after an attempt by Tradeteam, a joint venture between Bass and NFC, to have it halted by a legal injunction failed on Friday.
"Since Bass established Tradeteam in a joint venture with Exel Logistics, management has been trying to cut wages by 100 stg per week and impose inferior working conditions in order to save 10 million stg a year," the union said.
It said Tradeteam had also rejected T&G attempts to establish national bargaining. The T&G said a Liverpool judge had refused to grant an injunction to stop the ballot.
"Bass Brewers Ltd is a very profitable company, which made over 157 million pounds profit over the last year. Their aim at Tradeteam has been to cut the wages of draymen and warehouse workers, many of whom have given over 20 years' loyal service to the company," T&G national secretary for the drinks industry Brian Revell said.
Draymen deliver beer and other drinks to pubs.
"I am pleased that the judge refused the injunction. We are prepared for a long battle with Bass until it honours its responsibilities," he added.
A spokesman for Tradeteam, which is 50.1 percent owned by NFC, denied a trade dispute existed with the union.
"There is no trade dispute with the T&G. Current settlements on pay and conditions between Tradeteam and its staff represented by the T&G have been made with full agreement of the T&G at local branch level," he told Reuters.
"To agree to national wage agreements would mean Tradeteam would be totally out of step with the rest of the industry."
He said the union had been involved throughout the consultation process. This had resulted in the current terms and conditions for staff at each of the local offices at which the T&G was represented, he added.
Bass Brewers said the decision to vote on strike action would not affect beer deliveries over Christmas.
"Obviously the strike issue is one for Tradeteam but we want to reassure customers this will not affect their beer deliveries during or before the Christmas period," Stewart Cain of Bass Brewers told Reuters.
Earlier this week brewer-to-leisure group Bass, the parent company, said it planned to spend 670 million pounds on the business next year, creating some 7,000 jobs.
It said it planned a 300 million pounds investment programme over the next year on its Bass Taverns, converting many pubs to branded concept bars.
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British property company Greycoat Plc, under fire from a group of shareholders calling for it to be broken up, said on Monday it was confident of getting the support of its institutional shareholders in rejecting the plan.
"I would be very surprised if they (Greycoat's institutional shareholders) would come down on the side of a closing down sale," Greycoat's chief executive Peter Thornton told Reuters.
Thornton said he believed the liquidation proposal by the UK Active Value Fund, which will be put to shareholders in 10-days time, was "ill-conceived and fails to secure shareholder value".
Earlier Greycoat wrote to its shareholders urging them to reject the resolution, put forward by rebel shareholder Brian Myerson, at an extraordinary general meeting on November 14.
Myerson's Active Value Advisors Ltd (AVA) advises the UK Active Value Fund and is expected to put out its own response to the statement later today.
Last month Myerson said it was time to "unlock the value of Greycoat" as the company's shares stood at a 23 percent discount to the forecast net asset value for 1997.
He said there was "considerable support" for the proposal to dispose of Greycoat's assets and enhance shareholder value.
Greycoat, which focuses on central London office developments, earlier announced a rise in interim pre-tax profits to 3.8 million stg and predicted a final dividend of 1.2 pence per share.
Thornton said the results showed the company was having a very good year, adding it was well placed to take advantage of favourable investor sentiment on the central London property market. "The whole market is moving in our direction," he said.
The share discount to net asset value had been worsened by the fact that UKAV held 10 percent of the shares and this was overhanging the market, he added.
Martin Poole, Greycoat's finance director, said the company had got its long-term debt in place, adding that its lender banks were not in any way ruffled by the current uncertainty.
"The novelty has worn off from the bank's point of view," Poole told Reuters. To get rid of the bank debt, which would be required by any liquidation plans, would cost "roughly 10 million stg", he added.
Poole said he expected good growth in the dividend in the medium term, in line with the group's policy of progressively increasing it. "There is no reason why we shouldn't continue at the higher rate of profit," he said.
While Greycoat does not intend to use further resources on development sites, it is likely to use the cash generated by the sale of its Buckingham Palace Road property for investment.
Thornton said discussions were already underway with several parties, but he stressed the company would not pay over the odds, would not compromise on what it wanted and would not buy anything in the market.
Rather than concentrating on a single asset, there would be two or three purchases or "possibly more". Greycoat had around 50 million stg to spend and this would be geared up to around 50 million stg cash and the same amount of debt, Thornton added.
-- London Newsroom ++ 44 171 542 7719
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CE Electric, the U.S. energy group, appeared poised to win its hostile bid for British regional electricity group Northern Electric Plc on Tuesday after Britain's Takeover Panel ruled against the target firm.
Late on Monday night the British company lost an appeal to the panel, which polices London's mergers and acquisitions market, to reverse an extension of the offer period for CE's 782 million pound ($1.3 billion) bid to 1300 GMT on Tuesday.
On Monday morning CE, which is controlled by CalEnergy Co Inc, said it had received acceptances totalling just over the 50 percent mark needed for victory. The offer was meant to close last Friday but was extended after an appeal by CE.
This extension was granted because CE raised concerns about the purchase of Northern Electric shares last week by its advisers British merchant bank Schroders and BZW, the investment banking arm of Barclays, and a discretionary payment of 250,000 pounds to BZW but not declared until Friday.
In its statement the panel said it had only been informed of the payment early on Friday but that while "neither element of the fee arrangement was dependent upon the success or failure of the offer", it was "material information which ought to have been made known to the executive" earlier in the week.
Northern in turn launched its own appeal against the extension of the deadline because at the time of the first deadline, CE had only gathered support totalling 49.77 percent and therefore fell short of the total needed to win.
But after a day of uncertainty on Monday, the panel said its appeal committee had "unanimously dismissed" Northern's appeal, that the latest time for acceptance of CE's offer should be extended and "any valid acceptances and withdrawals received by the latter time should be taken into account".
The panel also said the non-disclosure "may have had market consequences affecting the outcome of the bid, bearing in mind the narrow margin between success and failure in this case".
CE officials were not immediately available for comment but Northern, which has fought off CE's approach from the beginning claiming it undervalued the company, refused to throw in the towel and urged shareholders who had indicated they would accept CE's 650 pence per share offer to think again.
"It is now up to the market to decide. If shareholders do not wish this bid to succeed they should deliver withdrawals of acceptances to the Royal Bank of Scotland by 1300 on Tuesday," a spokesman for Northern Electric told Reuters after the ruling.
The spokesman said that in the event of the CE bid lapsing, Northern was willing to "attempt to reach agreement with CE Electric or any other bidder on the true value of the company".
By agreeing to effectively "collapse" a rule which says a bidder cannot come back and bid for the same company within a 12 month-period, the spokesman said Northern was opening the way for shareholders to withdraw their acceptances and reopen the debate about the value of the company.
BZW, which as a result of not declaring the discretionary fee from Northern at the appropriate time will not now be paid this part, said it had done nothing wrong.
"BZW has at all times acted in good faith and has risked its own capital in support of Northern's defence. Our fee arrangement was in no way contingent upon the purchase of Northern shares and the panel has permitted this purchase to stand," a spokesman for the firm told Reuters.
This is not the first time such uncertainty has surrounded Northern's future since it was privatised along with its 11 regional electricity company (REC) peers in 1990.
In 1994 it was the first of the cash-rich RECs to face a takeover and successfully fought off -- partly with the help of an extraordinary 560 million pound defence package -- a bid by conglomerate Trafalgar House, now owned by Norway's Kvaerner ASA.
If CE's bid goes through only two of the original RECs will remain independent, Yorkshire Electricity and Southern Electric.
"It is now up to the market," Northern said, calling for shareholders to withdraw their shares from CE's offer by 1300 GMT on Tuesday, the deadline for the hostile bid.
"In the event that this bid lapses, the board is willing...to enter into discussions with CE Electric, or any other party, with a view to reaching agreement on an improved offer for Northern Electric," the utility said in a statement.
On Monday morning, CE said it had received acceptances totalling just over the 50 percent needed for victory.
CE's offer had been due to end on Friday, when it had only gathered support totalling 49.77 percent of the total. However, the Takeover Panel extended the deadline after CE appealed, questioning the purchase of Northern Electric shares by its advisers, Schroders and BZW, and a discretionary payment of 250,000 pounds to BZW.
($1=.5973 Pound)
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Britain's Invesco Plc Monday agreed to merge with Houston-based mutual fund company AIM Management Group Inc. in a deal valued at $1.6 billion, creating one of the world's largest investment management businesses.
The combined group will be called Amvesco Plc and have around $150 billion under management. The merger will be paid for with about $1.1 billion in new stock and the rest in cash and debt, Invesco officials said.
"We are creating a prototype company for the future," Bob McCullough, Invesco's chief financial officer, said in an interview.
Invesco Chairman Charles Brady, who will lead the combined group, said it would have "the scale necessary for success as a financially strong and independent business operating in an increasingly concentrated industry."
McCullough stressed the deal was a merger of the two companies, which would focus on growing revenue but retain their individual identities.
Invesco said it would fund the deal by issuing 290 million new shares to AIM shareholders. These would be valued at about $1.1 billion. AIM shareholders will own around 45 percent of the merged company.
McCullough said another $500 million needed to fund the merger would come in the form of cash and debt.
The merger presented a chance for the two companies to use different distribution channels and approaches. McCullough said he did not forsee any culture clash between the two.
There would be no change in their differing approaches, with Invesco continuing to be a "no-load" house, selling products direct to the customer, and AIM selling its nearly three dozen funds through brokers.
McCullough said the cost of the merger was not excessive.
"There's no question that it is a lot of money, but we view this as a long-term investment for both of us," he said. The long-term commitment was underlined by the fact that almost 50 percent of the combined shares would be held by management.
Both companies were "really active managers" and would stay that way rather than moving to passive management, McCullough said, adding that Invesco's global infrastructure presented a major opportunity.
He denied the heavy exposure to the United States would hinder Invesco from making the most of opportunities in other parts of the world. "We would like nothing better than to find opportunities in Asia and Europe," he said.
The merger would enhance the group's strength in the United States and lead to cost savings, officials said.
McCullough said the merger must be approved by Invesco and AIM shareholders and other approvals were required. The deal should be completed early next year, the company said.
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Britain's Takeover Panel, after battling to defend its policing role of London's busy mergers and acquisitions market against European interference, has ended the year in the spotlight over its handling of CE Electric's bid for Northern Electric.
The non-statutory body has spent much of 1996 campaigning against a framework European Union proposal on takeover bids which it says will lead to multi-million pound lawsuits and harm London's system of takeover regulation.
But on Monday the panel's own role was under scrutiny as the outcome of a bitter bid battle between U.S. group CE and British utility Northern hung in the balance.
"What is going on at the moment is being watched pretty closely. It is a fairly unique situation," a financial services lawyer said.
Criticism of the part the panel has played stems from a 250,000 pound ($418,600) payment made by Northern to one of its advisors, BZW, the investment banking arm of British banking giant Barclays Plc.
BZW said this was a discretionary fee and denied that it was linked to its purchase last week of Northern shares, which had already been allowed by the panel. After it was told of the payment, the panel extended the deadline for acceptances.
After the official close of the offer last Friday, Northern would have remained independent as CE had only achieved the support of 49.77 percent of Northern shareholders. But following the extension, CE said on Monday it had 50.13 percent.
A source close to the discussions said it was "very unusual and maybe unique" for the panel to be in the position of deciding the fate of a company in this way.
This view was echoed by other market participants.
"This is an unndented step the panel has taken," one investment banking source told Reuters of the decision to grant an extension to the offer period at such a late stage.
Northern's fate now lies in the panel's hands. The company has said it wants to appeal against the decision and revert to the result at the original end of the offer period. Acceptances after the initial deadline require the panel's approval.
"They (the panel) now find themselves in a very difficult situation," the investment banking source added.
Any changes in the way in which the panel operates must either come from government, by bringing in legislation to establish a statutory force to regulate takeovers, or from within the body itself, market players said.
Pressure from industry participants could lead to the panel making changes itself. "They can change the "Blue Book" (the rule book regulating takeovers) at the drop of a hat," one industry source said, adding that it had so far managed the system well.
"The panel seemed to be coping well with the upturn in bid activity. The system seemed to be working pretty well," he said. Mergers and acquisitions activity has reached peak levels in recent weeks, with a number of both agreed and disputed bids.
Apart from the potential threat from the European takeover directive, there had "been no major challenges to the panel's authority over the year", he added.
Even if the ruling Conservative Party loses a general election which must be held by next May, market participants said they did not expect pressure for legislation to put the panel on a statutory footing under a Labour government.
"The general feeling is pretty much against it (legislation) and the indications so far ist change it," said one.
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British property group MEPC said on Thursday it was pleased with a rise in pretax profits for the year but admitted disappointment at a fall in its net asset value (NAV) to 450 pence per share from 457 pence.
"We feel very confident about the whole of the profit statement. The only slight disappointment is on the NAV side," James Tuckey, MEPC's chief executive, said in an interview.
Earlier MEPC announced a 14 percent increase in pretax profit for the year to 140 million stg from 122.6 million stg. Earnings per share rose nine percent to 22.9 pence.
Tuckey said the NAV fall reflected a marginal fall in values both in Britain and elsewhere but said the NAV drop was less than the relevant indices.
"We feel that the performance of our UK portfolio, which accounts for 70 percent of the group, is indeed where we would have expected it to be," he added.
He pointed out the valuation date was August 31 and there had been activity and evidence of an improvement in the market since then. "If we redid the valuation for December 1, we would probably get a different answer," he said.
Tuckey said the other factor which had brought the NAV down was a significant 31 million stg write-down on the valuation of MEPC's Northridge Mall in Los Angeles. This had been equivalent to 7.5 pence per share.
"We are convinced this is a temporary write-down because the centre is still getting back on its feet after the earthquake some three years ago. We are quite confident we will get that value back in the next two to three years as the centre re-establishes itself," Tuckey said.
"We felt that we wanted to share as much information as we could with shareholders," he added.
MEPC's decision to give a target NAV of 690 pence per share for 2001 reflected its repositioning of its portfolio.
"We're sticking our necks out...The portfolio is very very different to what it was three years ago and what we're trying to do is give shareholders some feel of where we think the performance is going to be in five years time," Tuckey said.
"We believe we need to share with our stakeholders what it is we are trying to achieve."
Tuckey said the full impact of the change of strategy in MEPC's portfolio would take time but there would be progress towards the firm's targets each year.
He said there was a much firmer tone to the markets, particularly in the UK over the last few months. Apart from Northridge, the rest of the U.S. portfolio had performed "extremely well".
MEPC plans to keep the lion's share of its portfolio in the UK, with the remainder in the U.S. and Australia. It has wound down its European portfolio and has no plans to go back into continental Europe in the immediate future.
Tuckey said the group was keen to make acquisitions, with the proceeds of its European disposals, but that there was a shortage of good stock available, particularly in the UK.
While MEPC has resolved to increase the dividend paid to shareholders, Tuckey said he could not predict when it would be increased although he pointed out that dividend cover had improved to 1.15 times from 1.05 a year before.
"It depends on the forward look, on how the markets are feeling," he said. The market was competitive and good stock was hard to find but Tuckey said he welcomed the prospect of changes to the way the market functioned with more liquidity likely.
"I think there are changes afoot and they are changes for the good because what they will allow is greater liquidity for the sector, possibly through derivatives or the property investment trusts that have been talked about," he said, adding that MEPC would be involved in any such developments.
-- London Newsroom +44 171 542 7717
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Embattled British property company Greycoat had the immediate threat of a shareholder call for its break-up removed on Thursday, but the firm still faced an unwanted merger proposal from a smaller rival.
Greycoat welcomed an overwhelming vote against the breakup resolution put forward by the UK Active Value Fund (UKAV) and chief executive Peter Thornton said he hoped the group could now get on with its normal business.
"It has cost us a lot of money and a lot of wasted effort and time. What we would like to do is get on with running a property company," Thornton said in an interview.
He was speaking after the vote by Greycoat shareholders on UKAV's call for the sale of all Greycoat's 500 million pound ($811.6 million) assets. Among Greycoat sharholders, 95 percent of those who voted, representing 55 percent of the share capital, voted against the sale.
Shares in Greycoat closed unchanged at 163.5 pence, compared with a year high of 168 pence and a low of 130 pence.
UKAV, which is advised by South African Brian Myerson's Active Value Advisers, said on Wednesday it would abstain at the reconvened extraordinary general meeting.
It argued it had already achieved one of its main aims, the sale of Greycoat's largest asset, Embankment Place, on the River Thames in central London.
It now thought a merger proposal from Moorfield Estates had "considerable merit and could better serve the interests of Greycoat shareholders".
Thornton welcomed the fact that one uncertain element surrrounding the group was over, adding Greycoat had yet to receive the answers needed about the Moorfield merger proposal.
"We still haven't received answers to our 30-odd questions," he said of the Moorfield approach, adding Greycoat was not prepared to embark on a due diligence exercise or open its books to Moorfield without more concrete details of the firm's plans.
Moorfield has suggested demerging Greycoat's largest assets, but Thornton said it had yet to convince him it had proposals that would work.
Moorfield shares were also unchanged at 30.5 pence, compared with a year high of 34 pence and a low of 24 pence.
Thornton said relations with potential purchasers had been established but there were fairly few buyers in the world able to pay more than 200 million pounds ($324.6 million).
But he said he could not quantify how much losing the opportunity of an "off market" sale might shave off the sale price. ($1=.6161 Pound)
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Privately-owned British investment bank Robert Fleming on Wednesday announced increased pre-tax profits for the first half of the year but warned it would have to contend with some difficult markets in the second half.
Flemings said its pretax profit for the first half of the year had increased by 16 percent to 92.2 million pounds ($154 million), from 79.4 million pounds a year earlier.
Some analysts said the increase was not particularly impressive given market conditions but chief executive John Manser said it was "a very good start" and showed new businesses were "making a valuable contribution to profitability".
"While the outlook for the year seems promising, flat Asian markets and heightened competitive pressures in other markets are factors that we will continue to have to contend with during the next six months," Manser said in a statement.
But one analyst, who declined to be named, said the group would have given a more precise break-down of the performance of its various arms if the results had been outstanding.
Flemings has not had an easy year so far. In July it lost investment banking head Bill Harrison who was poached by BZW, the investment banking arm of Britain's Barclays.
And in August Jardine Fleming, a joint venture with Jardine Matheson, revealed a five-month probe by British and Hong Kong regulators into irregular trades by a former senior fund manager at Jardine Fleming Investment Management.
This resulted in hefty fines and voluntary compensation of nearly $20 million to clients. Regulators also withdrew the authorisation of Jardine Fleming's London-based fund company. In September the company's chairman retired and the group created a new supervisory board.
In its interim results on Wednesday Robert Fleming acknowledged that the problems at Jardine Fleming meant the joint venture had recorded a "marginally lower" interim result than its net interim profit of $63.9 million in 1995.
This was after taking into account provisions "arising from the regulatory issues relating to earlier years", it said. But despite widespread speculation that Jardine Fleming would lose clients as a result of the scandal, it recorded a net trading profit of $82.0 million, an increase of 28 percent.
Robert Fleming said "the shortcomings which gave rise to these problems have been fully addressed", management had been strengthened and the Jardine Fleming businesses were fully compliant with "local and UK regulation and controls".
They were "being further upgraded to bring them completely in line with best international practice," it added.
Any impact these problems may have had on Flemings' overall business was not, however, reflected in the interim dividend paid by Robert Fleming, which announced an increased dividend of 8.0 pence per share, from 7.0 pence.
Flemings said it had seen strong profit growth from its fund management businesses and its securities business had reported "a marked increase in profits aided by a strong performance by UK and continental European broking".
Its capital markets arm had helped companies raise 13.4 billion pounds of new capital while its corporate finance division had completed 43 deals during the period.
It also announced that Manser will replace Robin Fleming who will retire as chairman of Robert Fleming Holdings at the end of March 1997. William Garrett was named as replacement chief executive and chairman of the group executive committee.
Other moves include Peter Jamieson becoming chairman of Robert Fleming & Co and Lawrence Banks who will join him as deputy chairman of Robert Fleming Holdings.
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Shares in Cable & Wireless (C&W) advanced on Tuesday after investors welcomed news of a deal with NYNEX of the United States and Bell Canada International to create Britain's largest cable operator.
"This was a bold strategic stroke by the (C&W) chief executive," said Chris McFadden, analyst at Merrill Lynch.
The deal, which took only five weeks to complete, brings together C&W's Mercury, British cable company Videotron, Bell Cablemedia and NYNEX CableComms, eclipsing Telewest as Britain's biggest cable operator.
It sent C&W shares soaring, peaking at 476.5 pence before easing back to close up 25.5 at 466.5 pence.
The move is a landmark deal for C&W chief executive Richard Brown, appointed five months ago, and follows the collapse of merger talks earlier this year between C&W and its great rival British Telecommunications Plc.
"The logic is irrefutable...the advantages of scope and size are undoubtedly there," said Societe Generale Strauss Turnbull analyst John Tysoe.
BT said it welcomed the consolidation in the sector and analysts said the move could strengthen the telecoms giant's calls for it to be allowed to provide cable television.
But BT's shares edged lower to close down 4.5 at 353.5 pence and analysts said the new company would give BT a run for its money.
"We had a common vision of what could be done and we have done it with speed and nimbleness," Brown told Reuters. C&W last month replaced BT in a major German alliance with diversified utility RWE that is seen as the main competitor to Deutsche Telekom's dominance as the German market is liberalised.
The new merged company, which will provide integrated telecommunications, information and entertainment services, will give C&W's telephone company Mercury access to 18 million business and domestic customers, Brown said.
The number of homes within its sights will eclipse former market leader Telewest's two million at 2.47 million but it will not be in direct competition as the companies operate in different franchises.
Telewest's shares were boosted by the news, as analysts re-evaluated the potential in the sector, gaining 12.5 pence to close at 135.5 pence.
"This is clear evidence of confidence in the future of the U.K. cable industry," a spokesman for industry body the Cable Communications Association, said.
Around six billion pounds ($7.5 billion) has already been invested in laying out cable networks and a further six billion pounds of investment is planned, the spokesman added.
In a related deal, Videotron is being bought by Bell Cablemedia in a complex transaction involving a $338 million equity investment in Bell Cablemedia by Cable & Wireless. This values Videotron at around $1.09 billion.
Once the merger and Videotron deal have been completed, Cable & Wireless will own 52.6 percent of the new company -- to be called Cable & Wireless Communications -- with NYNEX owning 18.5 percent and Bell Canada 14.2 percent.
The remaining 15 percent will be floated, which analysts said would give it some scarcity value, with listings planned in both London and New York, probably in about six months.
C&W's Brown said he could not detail the financial aspects of the merger because of the new company's planned listing.
McFadden said cost savings should be quite significant, including tax offsets, refinancing of high-yield cable television funding and possibly through staff cuts, along with eliminating duplication in laying cables.
The new group aims to increase revenues by providing a wider range of services to existing customers, offering a combination of telecoms, broadband, data transmission, video shopping and Internet access.
It could also secure more favourable terms for programming from BSkyB, the satellite broadcaster in which Rupert Murdoch's News Corp has a 40 percent stake.
BSkyB shares ended down 18 pence at 678.5 pence. ($1=.7986 Pound)
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KPMG, one of the world's big six international accounting and consultancy firms, believes investment in infrastructure and technology has put it on track to hasten revenue growth.
"We would like to be growing faster and are committed to growing faster," Jon Madonna, chairman of KPMG International told Reuters in an interview on Tuesday.
Earlier the group reported an eight percent rise in worldwide revenues for the fiscal year to September 30, 1996 to $8.1 billion, up from $7.5 billion the year before.
Madonna, who earlier this year said revenue growth in excess of 10 percent was a reasonable expectation, said KPMG had invested heavily in infrastructure and technology during the year and this would pay off in terms of further growth.
He said all sides of the business had performed well over the year but stressed that significant growth in revenues was likely to come from the consulting side of the business rather than from the traditional backbone of auditing and tax.
"If you look at where the great opportunity is, its on the consulting side," Madonna said.
While KPMG's growth rate for the year was lower than rival firm Andersen Worldwide, which last month reported a 16 percent increase in 1996 revenues to $9.4 billion, Madonna said he was not disappointed with the firm's result.
When looked at on a dollar-adjusted basis, the 1996 revenue growth was the same as for the previous year, Madonna said.
But there was still work to be done.
"I said a year ago we need to be growing faster. I just think we have got to do a lot better than that. It's a big ship and you don't turn it around in just a few days," he added.
The investment and strategic moves KPMG had made had ensured it would be in a strong position for the future. "The road we are on is the right road".
Madonna said the firm's partners were agreed that the moves it had made over the year were correct and the fact that everybody wanted faster growth confirmed the need for large-scale investments.
"We are making sizeable dollar investments in terms of infrastructure and product development." This included around $500 million a year on technology and "well in excess" of $100 million on products.
For Madonna the key is what the partnership, which employs more than 77,000 people and has more than 6,250 partners, is doing in three years' time.
The strategy which KPMG has embarked on will not be altered to achieve further revenue growth and areas such as developing new products and establishing a framework of common industries and a common infrastructure across the firm's worldwide business will continue.
Madonna, who believes there will be further consolidation among the big accountancy firms, said KPMG will also stick to growing from within rather than through large-scale acquisition.
The number of major accounting firms in the world has dropped from eight in the mid-1980s to six, with a rise in competition from other types of firms.
But Madonna does not see KPMG making any big buys.
"There will be local acquisitions and mergers down the road but I don't think anything big is on the horizon."
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Even if British media and leisure group Pearson decides to sell its interest in merchant banking group Lazards, the bank would not be under immediate threat from larger rivals, banking sources said on Monday.
Marjorie Scardino's accession last week as Pearson chief executive has prompted widespread talk that Pearson would sell its 50 percent in Lazard Partners, which owns the three Lazard houses in London, Paris and New York.
But a pre-emption agreement in cross-shareholdings between Lazards and Pearson would ensure the partnership has first refusal on its own shares if Pearson decides to sell its stake, thus preventing the family-run merchant bank from falling into the hands of larger and expanding international rivals.
"This (speculation) is prompted by the fact that Pearson has a new chief executive who will obviously want to review things," one senior corporate financier told Reuters, adding that the pre-emption agreement meant Lazards "either stays with Pearson or comes within the Lazard empire fully".
Officials at both Pearson and Lazard Brothers in London declined to comment on talk of a possible sale.
Pearson has a 50 percent stake in London's Lazard Brothers and smaller nine percent stakes in Lazard Freres in Paris and New York. Its 50 percent stake in the umbrella group Lazard Partners was negotiated during the 1980s.
Analysts suggest Lazards does not fit into Pearson's main information, education and entertainment divisions and is therefore a target for being spun off. But banking sources point out that Lazards has been a profitable venture and not a drain.
"It (Lazards) has not required any capital or management time (from Pearson)," the senior financier added.
Pearson, in its 1995 annual report and accounts, points out that its "close ties to the three Lazard investment banking houses again proved their worth in 1995".
It highlighted attributable profits of 39.9 million pounds from the group for that year. If Pearson, described by Michel David-Weill -- senior partner of Lazard Freres in Paris -- as a "great partner" to Lazards since 1919, decides to sever its ties with the merchant bank, there could also be other complications.
The Lazard group, which has successfully specialised in corporate finance advisory work as well as asset mangagment and trading activities, holds 48 million Pearson shares.
The Financial Times at the weekend quoted David-Weill as saying Lazards might decide to sell this 360 million pound ($600 million) stake to finance a buy-back of Pearson's holding.
The newspaper said David-Weill had said the Lazards holding in Pearson was equivalent in value to Pearson's Lazard stake.
Although Lazards's stake has been seen as obstacle to a takeover attempt against Pearson, it might sell its shares on the market but in discussion with the group and "not to a party which could be hostile", David-Weill told the paper.
While Scardino's role at Pearson has been the subject of close scrutiny since her appointment, Lazards have also been in the news, with suggestions of a power-struggle over who will succeed 64-year-old David-Weill.
David-Weill said last week there was no succession crisis at the bank, adding he still had time. Under the bank's statutes, he can remain at the helm for another eight years. ($1=.5974 Pound)
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British merchant bank Hambros, under fire from a rebel Hong Kong shareholder calling for its breakup, reported a return to first-half profit on Wednesday and said the benefits of restructuring should begin to show through.
"We have great confidence in ourselves and what we are trying to do," Sir Chips Keswick, the group's chief executive, said in an interview.
He dismissed efforts by Hong Kong investment manager Regent Pacific Group, which holds three percent of Hambros, to break up the firm in an attempt to realise shareholder value.
"Regent is a three percent shareholder and is perfectly entitled to (its) views. We are perfectly entitled not to share them," Keswick said.
Hambros reported pretax profits of 35.0 million pounds ($57.81 million) for the first half, compared with a 7.7 million pound loss for the same period in 1995.
Some analysts had forecast pretax profits of up to 45.0 million pounds based on a strong performance by Hambros' estate agent subsidiary Hambro Countrywide.
They also predicted an interim dividend range of between 2.5 and 3.0 pence. In the event the dividend was unchanged at 2.5 pence.
Hambros is among a dwindling list of British investment banks which are the constant subject of takeover speculation. However, it has been seen as one of the less attractive targets due to recent poor performance and major provisions for bad debts.
Bad debt provisions for the period were 5.9 million pounds compared with 23.5 million in the same period in 1995.
Asked about the possibility of Hambros becomin a takeover target for a larger international player, Keswick said a public company was always in the firing line but he was happy with the group's direction.
While he could not talk for shareholders in the group, Keswick said he had the impression from discussions with them in the wake of the Regent Pacific move that they were supportive of changes the company had implemented.
Keswick said the group was on track to replace "low margin vanilla business" with increased return per customer business. It had decided the best strategy was to undergo major upheavals for a year rather than piecemeal changes over a longer period in order to achieve this.
Keswick, who forecast the benefits of the changes could take a year or two to come through, said he was pleased the group had moved back into profit, adding that the Investment Group's result had been particularly good.
But Hambros chairman Lord Hambro warned that profits from this part of the business were not expected to match the first half in the rest of the year.
However, he expected "considerable improvement" from Hambros' subsidiaries and, despite a challenging environment for the group as a whole, prospects were good.
Lord Hambro said he would retire from his post in July 1997 and be succeeded by Keswick.
"Chips will inevitably be a hands-on chairman," Michael Sorkin, deputy chairman of Hambros Bank, said. ($1=.6054 Pound)
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Mention moneylending to most Britons and their instant reaction is "you mean loan-sharks!".
But Britain's established credit companies, which lend to people unable to borrow from the high street banks or credit card companies, say the public image of menacing debt collectors is a far cry from how they conduct their regulated business.
"We are credit collectors. A debt collector is someone who has no relationship with the customer. It's a totally different process," says Eddie Cran, chief executive of the financial services group Cattle's, which runs door-to-door moneylenders Shopacheck.
Such firms are tied closely to the wheeling and dealing of the City of London. Provident Financial, Cattle's and London Scottish Bank are all publicly quoted, profitable firms paying shareholders annual dividends.
People who borrow from them may have had minor civil court judgements against them, be unemployed or simply not want to have bank accounts or credit cards. The firms provide a service others -- except for unregulated outfits -- will not, and while it won't cost a pound of flesh, it is not cheap.
To those used to credit cards or in-store credit the rates may appear outrageously high. But credit companies point out they include major costs such as collection and insurance, are agreed in advance and do not rise if a payment is missed.
So while interest rates may be at all-time lows, these service charges mean the APRs (annualised percentage rate) can exceed 150 percent. To borrow 100 pounds ($167) over 25 weeks from Shopacheck with a five pound weekly repayment costs 25 pounds.
Shopacheck, which started in the 1930s in northeast England, has 2,800 agents. Its average loan is for six months, the average amount 150 pounds and average indebtedness 350 pounds.
STREET COLLECTING
Only a few miles from the City, but a million miles from its hefty salaries and bonuses, Kathy, a self-employed agent for Shopacheck, does her weekly door-to-door collection of debt repayments through the streets of northwest London.
The terraced suburban houses at which she stops are remarkably average. Most have front gardens, some are neatly laid out with blooming rose bushes while others are less well-kept, with tatty patches of litter-strewn grass.
Inside there are the usual consumer trappings of late 1990s British life.
Televisions, video-recorders, washing machines and microwave ovens, even the odd fish tank, are all in evidence, especially when crammed into a small council flat along with children, their toys, pets and piles of ironing.
At each house Kathy, a 37-year-old mother of three, collects sums ranging from two pounds fifty to 20 pounds.
Some customers take loans in the form of vouchers which can be spent only at certain high street shops, while others use the retail service offered by Shopacheck and buy items such as bed linen, beds or barbeques from the firm's own catalogue.
Most of her clients seem to welcome her as a friend, they expect her visits and have the money ready to hand to her. Kathy says that, after eight years, she is a treated as a long-standing family friend or agony aunt by many of them.
Only at one home does the son of the house come to the door and tell Kathy that his mother isn't in. "Fine, can you tell her I'll see her as usual next week," says Kathy.
But getting money back isn't always this easy.
Kathy admits that if a customer threatens her, she passes the problem back to the company, which says it instructs its self-employed agents not to take personal risks.
MONEYLENDERS PLUG GAP IN FINANCIAL SERVICES
"The one thing about credit is that it is easy to give but much harder to get back," says Paul Oliver, a Shopacheck regional manager who has been in the business for 27 years as customer, agent and manager.
He is not alone as a successful businessman who has made use of Britain's long-standing system of moneylending. The managing director of one British bank confided he would not be where he is today had it not been for a money lending firm.
His family could not afford to buy him a suit for an interview. He took a loan, bought the essential attire, got his first job and set himself on the path to greater things.
Oliver says nine out of 10 times business is conducted with the woman of the house and although bad debts are expected, they only reach about four percent a year, which is good going for a business the mainstream lenders won't touch because of the risk.
A recent television documentary showed some moneylenders breaking rules laid down by the Consumer Credit Act. Oliver says he deals harshly with anyone who steps outside the rules.
For Cran firms such as his are plugging a gap in Britain's financial services marketplace and he is keen to correct what he sees as "untrue perceptions" about the business. "What we are actually attempting to do is to deal with customers who cannot get credit through the mainstream lenders," Cran told Reuters.
"It (door-to-door lending) is very high cost and very personal. We have to train people to look after a number of customers," he added. A customer who fails to pay is only pursued through the courts "as a very last measure" and only in "very extreme circumstances" is an outside firm called in.
Cran says Cattle's target market is about five-and-a-half million people, around two million of whom need the discipline of an agent calling to collect every week.
But the stigma involved means Cattle's also offers Welcome, a loans service for people who have bank accounts and pay by direct debit. This "requires a very high rejection rate and an in-depth granting procedure", Cran says.
SHAREHOLDERS REAP THE DIVIDENDS
For Cattle's and its competitors credit is a lucrative business. In September it reported increased pre-tax profits for the first six months of the year of nearly 15.0 million pounds. In 1995 its shareholders received a total dividend of 6.9 pence.
In August Provident Financial, the sector's biggest player, reported first half pre-tax profits of 47.5 million pounds. It said it had seen continued growth in home collected credit and was confident of a "good result" for the year as a whole.
But for customers, things might not be so rosy. While most manage to pay back their loans, some do not. Kathy soon spots trouble. "You can see they are struggling if they start having to scrabble around for pennies," she says. ($1=.5990 Pound)
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British fund manager Invesco announced its widely-flagged merger with U.S. mutual fund company AIM Management Group on Monday, creating one of the world's largest investment management businesses.
The combined group will be called AMVESCO Plc and have around $150 billion under management. The merger values AIM at approximately $1.6 billion, Invesco said in a statement.
"We are creating a prototype company for the future," Bob McCullough, Invesco's chief financial officer, told Reuters.
Invesco's chairman and chief executive Charles Brady, the man who will lead the new group, said it would have "the scale necessary for success as a financially strong and independent business operating in an increasingly concentrated industry."
McCullough stressed the deal was a merger of two companies rather than a takeover, as it had been described in some quarters. The two would combine to focus on revenue enhancement but would retain their individual identities, he added.
"Brand awareness will continue. Both will retain their names in the market place," he said.
Invesco said it would fund the merger with the issue of 290 million new shares to existing holders of AIM shares. These would be valued at approximately $1.1 billion. AIM shareholders will own around 45 percent of the enlarged group and be subject to restrictions on selling the shares.
McCullough said the merger, which is conditional on approval by both Invesco and AIM shareholders and other approvals, would be non-dilutive and would not have any cost savings built-in. However, there would be cost savings in the future, he said.
The merger is not expected to be completed before February.
McCullough also said the $500 million needed to fund the merger would come in the form of cash and debt, with a one-for-five rights offering on the cards. This would involve issuing roughly 50 million new shares, he said.
McCullough said the cost of the merger was not excessive. "If you look at it on the basis of funds under management, it (the cost) is less than three percent," he said.
"There's no question that it is a lot of money, but we view this as a long-term investment for both of us," he said. This long-term commitment was underlined by the fact that almost 50 percent of the combined shares would be held by management.
Invesco had been approached by a number of banks offering it loans, with the debt element being placed with them. Both companies were currently "largely debt free," he said.
The merger presented an enormous number of synergies, with the two companies using different distribution channels and approaches. McCullough said he did not forsee any culture clash between the two.
There would be no change in their differing approaches, with Invesco continuing to be a "no-load" house, selling products direct to the customer, and AIM making its sales through intermediaries.
Both companies were "really active managers" and would stay that way rather than moving to passive management, McCullough said, adding that Invesco's global infrastructure presented a major opportunity.
He denied the heavy exposure to the U.S. would hinder Invesco from making the most of opportunities in other parts of the world. "We would like nothing better than to find opportunities in Asia and Europe," he said.
The merger would enhance the group's strength in the U.S., increasing the amount of its business there from between 85 and 90 percent to around 95 percent.
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Police arrested a U.S. pilot carrying a suitcase packed with at least 13.5 pounds (6.2 kg) of high grade heroin at Bogota's international airport on Sunday evening, a prosecutor said.
Bradley Dale Brandt, 40, originally of North Dakota but now living in southern California, was detained as he made his way to board one of the Colombian airline's ACES flights to Panama City, said the prosecutor, who cannot be named for security reasons.
Brandt told Reuters he had been framed and the suitcase was not his. He was to have travelled on the flight to Panama as a passenger but was wearing a commercial aviator's uniform when arrested. He declined to say exactly where in southern California he lived but his passport was issued in Los Angeles.
"I was carrying the suitcase but it was not mine. I was totally surprised when the police opened it up. The clothes inside were mine but nothing else was. I'll kill the person who switched my bag if I ever find them," Brandt said.
"I just wouldn't do a thing like that. This has put my career and my family in jeopardy. I've worked too hard just to blow it on something stupid like this," he added.
Brandt declined to say which airline he worked for. No airline insignia were visible on his uniform or his pilot's overcoat.
A police spokeswoman said the heroin was discovered when the bag Brandt was carrying was put through an x-ray machine -- one of the multiple routine checks that international passengers have to undergo when leaving Bogota.
"Brandt was arrested with a suitcase stuffed with clothes and high quality heroin," the spokeswoman said.
The prosecutor said Brandt would be interviewed further in the presence of a lawyer and an interpreter on Monday.
Earlier in the day airport police seized a Mexican passenger as he tried to board a flight to Mexico City with false-bottomed suitcases packed with 93 pounds (42 kg) of cocaine.
The U.S Drug Enforcement Administration (DEA) estimates Colombian drug cartels supply at least 80 percent of the world's cocaine. And in a report late last year, it said Colombia had edged out the Golden Triangle of southeast Asia as the No. 1 supplier of high grade heroin to the United States.
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A former German secret agent and his wife were formally charged with abduction on Wednesday after their bid to smuggle a rebel kidnap victim out of Colombia backfired at the weekend.
The charges, announced by the chief prosecutor's office, brought another twist to a brewing scandal that has set the Colombian government at odds with German diplomats and businessmen over clandestine payments to kidnappers.
Police and Colombian officials accuse Werner Mauss, 56, of being an international member of the country's National Liberation Army (ELN) guerrilla force, or a mercenary negotiating the release of abducted foreigners in return for a cut of the ransom.
In a statement issued in Bonn on Wednesday, German government official Peter Hausmann said the government was "fully informed" of the former state security agent's mission and welcomed such "unconventional methods to rescue Germans from life and death situations."
Mauss and Silvia Schroder, 36, were seized at Rionegro airport near Medellin early on Sunday as they tried to bundle a third German, Brigitte Schoene, the wife of a former BASF Chemicals executive, aboard a private charter plane bound for Venezuela. Schoene was kidnapped in mid-August by the ELN, which had demanded $6 million for her release.
In its press release, the chief prosecutor's office referred to Mauss and his wife as Juergen and Isabel Seidel -- one of their many aliases. The couple were remanded in custody.
An executive secretary of Siemens-Colombia said on Wednesday she had hired the plane that Mauss was to use for his getaway on the orders of a top industrialist formerly based in Bogota.
Security experts say Colombia -- home to Latin America's longest-running guerrilla war -- is swarming with foreign mercenaries carrying out shadowy undercover missions as kidnappings reportedly run at almost one every 2-1/2 hours.
"Many multinationals are hiring so-called security advisers for kidnap, terrorist and extortion situations but these are simply mercenaries and adventurers willing to make pacts with kidnappers and guerrillas," said private security consultant Col. Luis Enrique La Rotta.
Parliamentarian Guillermo Martinez, a retired air force officer, told Reuters he was sure dozens of foreign mercenaries like Mauss had poured into Colombia to carry out hostage rescue missions.
"Regardless of whether the Colombian authorities can or cannot control the (kidnap) situation it is totally unacceptable for foreign companies to fly in mercenaries to do this type of work," he said.
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British Petroleum Co Plc considers its Piedemonte prospect in eastern Colombia "fundamental" to its worldwide operations despite drilling problems and wrangles over the exploitation contract, a top company official said Thursday.
John Doust, executive director of BP's local subsidiary, British Petroleum Exploration (Colombia) Ltd, predicted the field, still at the test stage, could come on stream by the end of 1999.
He estimated the total cost of developing the field, estimated to contain between 600 million and one billion barrels of crude and condensates, could run to about $2.2 billion, some of which would be shared by state oil company Ecopetrol.
"The oil project currently under way in the Piedemonte is fundamental for the worldwide organisation of the BP group," Doust said in a speech to journalists.
His recognition of the strategic importance of the 287,000 hectare block, in which BP has pinpointed three promising hydrocarbon formations after exploring just 15 percent of the total area, once again raises the question how BP will push the Colombian government for sweeter contract terms.
BP, Colombia's single largest foreign investor, argues that given tough drilling conditions, the terms of its so-called sliding scale association contract with Ecopetrol makes it unprofitable to exploit the field.
Under the existing contract, Ecopetrol's share of the profits rise as production increases from 50 percent to a maximum 76 percent.
BP has been pushing for a so-called R Factor contract -- which the Colombian government has so far denied -- which would take account of investment and operating costs to ensure adequate profit margins.
"We understand the uncertainty of the (Piedemonte) issue and the nature of the debate have caused uneasiness amongst many people... Let us keep in mind that we are truly seeking to achieve a break-even point and a platform of confidence for BP so that we can operate in an internationally competitive economic position," Doust said.
Last month, Colombia's Mines and Energy Minister Rodrigo Villamizar proposed BP should hand back rights to the 85 percent of the block that is virtually unexplored with the guarantee that Ecopetrol would re-award BP half that area under R Factor conditions at a later date and contract out the remainder to other companies.
Doust said BP was "seriously considering" the proposal. It is understood, however, that BP would be loath to surrender the rights to almost 50 percent of a block with huge potential under the current offer on the table.
BP has recently been hit by allegations of indirect links to right-wing paramilitary death squads that have assassinated social leaders close to its operations in eastern Colombia.
Doust blamed the accusations on a campaign to discredit the company and repeated earlier statements that he had invited the country's chief prosecutor to carry out an in-depth investigation into the claims.
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Another member of Colombia's main oil workers' union was arrested on terrorist charges, a union leader said Sunday on the eve a meeting to set the start date for a strike that could paralyze the industry.
The capture of Edgar Riano in Huila province Saturday came after the arrest of 12 others Thursday -- 10 of them from the USO oil union.
All are accused of carrying out dynamite attacks on the country's oil pipelines and of links to the National Liberation Army (ELN), the country's second largest guerrilla force. The chief prosecutor's office was unavailable for comment on the latest detention.
USO head Hernando Hernandez said last Thursday the union would fix the "zero hour" for the start of an indefinite strike to protest the wave of arrests at an extraordinary assembly Monday. The action is also to oppose government plans for what the union sees as the creeping privatization of state-run oil company Ecopetrol, Hernandez said.
Following a merger between the 5,700-strong USO and smaller oil workers' associations, the strike could spread to the private sector, including foreign multinationals operating in Colombia.
USO leaders were due to meet Colombian Interior Minister Horacio Serpa Sunday evening to discuss the arrest of members and the planned walkout. The government seems likely to declare an oil workers' strike illegal on the grounds that it is affecting a key sector of the economy.
Mines and Energy Minister Rodrigo Villamizar said Friday that Ecopetrol had enough fuel reserves to meet demand for 19 days and said any shortfalls in domestic supply could be made up by increasing imports in the event of a USO strike.
A 24-hour stoppage by USO workers in mid-October paralyzed pumping -- 350,000 barrels a day -- along the country's two main oil pipelines for the first time ever.
In a separate incident in the oil town of Barrancabermeja, two unidentified assailants blasted local USO official Gilberto Carreno at close range with a shotgun and wounded as he left a bar Saturday morning.
USO social services secretary Gustavo Triana the motives for the attack were unclear. Members of USO, known for its fiercely nationalistic stance, have frequently been targeted by right-wing paramilitaries who accuse the union of backing the ELN.
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Colombian President Ernesto Samper decreed an economic emergency on Monday, warning that the "economic and social stability of the country" was under threat.
In a televised speech to the nation, Samper called for urgent belt-tightening measures to cut the central government's yawning fiscal deficit.
The economic emergency, the first in five years, has been decreed for 20 days but could be extended for a maximum of 90 days, presidential sources said. All measures in that period can be introduced without the approval of Congress.
Further austerity measures are scheduled to be announced on Tuesday, government sources said.
Finance Minister Jose Antonio Ocampo later announced the first series of concrete measures aimed at slashing Colombia's foreign debt by more than $800 million this year.
Wilson Borja, head of the 800,000-strong FENALTRASE public sector union, said he feared the government could use crisis powers to cut as many as 19,000 state jobs in the coming days. The union was protesting against a 13.5 percent weighted pay increase, well below annual inflation, announced last week.
"We had initially been planning to launch a stoppage around mid-February but this decree could force us to bring those plans radically forward. We could start a strike as early as next week," Borja said.
Anticipating the unions' reaction, Samper said in his televised speech: "I want to warn you once and for all. Protests and strikes will lead nowhere -- quite simply because although the government has all the goodwill in the world, it is short of money."
"If the fiscal, exchange rate and unemployment situation continue to deteriorate, the social and economic order will seriously and ostensibly worsen... The economic stability of the country will be severely affected," the decree signed by Samper and his cabinet said.
The crisis measure comes against the backdrop of a sharp economic slowdown in 1996, coupled with a steady strengthening of the country's peso currency, which has undermined export activities. The government fiscal deficit has burgeoned and hit 4.0 percent of Gross Domestic Product (GDP) in 1996 up from 0.2 percent in 1995.
In the first of the specific emergency measures, finance chief Ocampo said the planned issuance of $1.8 billion in foreign debt bonds would be reduced by about $800 million.
He announced an overall cut in the national debt programme and unveiled a new tax on private and public companies which looked abroad for fresh loans.
Ocampo said the emergency measures, coupled with income from a recent wave of power plant privatisations, would help to cut the government deficit to 2.5 percent of gross domestic product in 1997, compared to an initial forecast of 3.4 percent.
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Colombia's President Ernesto Samper announced Tuesday plans to boost revenues by broadening the tax base, and said the 1997 budget would be cut by over a trillion pesos -- a figure higher than the 900 billion pesos previously approved by Congress.
The measures are part of an emergency plan to rein in the yawning fiscal deficit.
Samper said the overall rates of income tax and the 14 percent value added tax would not be raised, but he pledged to expand the tax base and combat tax evasion.
Below-inflation wage rises for public sector workers, announced last week as part of a separate austerity law, and the merger or closure of inefficient government offices will help stem public spending, Samper said.
Earlier in the day, Finance Minister Jose Antonio Ocampo said, "Everybody would be affected by draconian measures," but so far many of the proposals put forward have not yet been fleshed out.
The economic emergency has been decreed for an initial period of 20 days and allows the president to rule by decree without consulting Congress.
"If we go on increasing the levels of public debt, we will be creating elements of instability in our fiscal system. We will be laying landmines in the path of the state's finances," Samper said in a speech at the presidential palace.
The fiscal deficit rose to 4 percent of gross domestic product (GDP) in 1996 from 0.2 percent in 1995. Ocampo said Monday that the effects of the emergency measures, coupled with income from a recent spate of power plant privatizations, could cut that shortfall to 2.5 percent of GDP this year, compared to the 3.4 percent originally forecast.
Samper said that the Expenditure Rationalization Law, which was approved at the end of last year and which included provision for a weighted 13.5 percent pay rise for public sector workers, would mean budget savings of 900 billion pesos.
He added that under the terms of the economic emergency decree, public officials had been ordered to look for ways to cut an additional 300 billion pesos from the overall national budget. This he said would lead to total savings of about 1.2 trillion pesos on a budget originally set last year at 30.3 trillion pesos.
Although Samper gave a broad outline of the crisis measures, his speech was short on specifics.
Wilson Borja, head of the main public sector union FENALTRASE, said he feared as many as 19,000 state jobs could be slashed in the cost-cutting drive.
Although Samper talked of closing government departments, he failed to spell out the impact this could have on jobs.
The president spoke of the drain imposed on central government coffers by provincial authorities, raising the specter of funding cuts to the regions, already suffering from chronic lack of resources and social injustice.
He also said he would cut the government's external consultancy services by 50 percent and reduce official trips abroad. He did not, however, give an estimate of what saving that represented.
((-- Bogota newsroom, 571 610 7944))
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Moves toward just-in-time roasting and savage cuts in coffee inventories in consumer countries will force exporters, traders and processors to resort to sophisticated financial mechanisms to offset price volatility, the head of the International Coffee Organization said.
ICO chief Celsius Lodder predicted booming growth in risk management measures such as options, futures and secondary instruments and said they would become key in influencing short and medium term coffee prices.
They will also replace more traditional methods of building up stocks, and other physical strategies, as a buffer to sudden swings in the market, he said.
Meanwhile, in some producer countries, growers may find themselves bearing an increasing responsibility for storing the crop, thereby seeing their costs pushed up.
"Risk management, similar to an insurance contract, will become an increasingly important instrument for exporters, traders and processors," Lodder said in a speech organized by Bogota's Los Andes University.
"Growers and growers' cooperatives will have to take on greater responsibilities for storing inventories. This will push up costs, reduce their cash flow and mean much of the stocks will be stored in remote areas, delaying dispatch," the coffee chief said.
Despite the grim message that shifting trends in consumer countries could force their costs up higher, Lodder did offer a ray of hope for Colombian growers, already hard hit by the strengthening peso and the high cost of credit.
Lodder highlighted the growing opportunity for niche marketing of specialist coffees in traditional markets where consumer palates are becoming more sophisticated even though the overall demand in those areas may have stagnated.
He also talked up prospects of new markets opening in the former Soviet Union and China. Colombia's President Ernesto Samper, and his official delegation, returned from the Far East at the end of last week. His itinerary included China and both he and his Foreign Minister Maria Emma Mejia were upbeat about the chance of selling the Colombian bean to the country's 1.3 billion-strong population.
During the visit to Beijing and Shanghai, Mejia calculated that if Colombia could sell one cup of coffee a day to every inhabitant of China, the Communist nation would absorb Colombia's entire annual harvest.
National Coffee Growers' Federation chief Jorge Cardenas did his own calculations and worked out that Colombia would have to double its coffee harvest if it was looking to meet Mejia's target.
In his speech, Lodder recognized the ICO's changing role and agreed it was no realistic for it to adopt interventionist strategies in a globalized free market.
"The patterns of economic and political cooperation seen in the 1960s have been replaced by a new model, perhaps more realistic and certainly different. There's no consensus for a return to intervention but the ICO is a dynamic organization and it must reflect the current situation and not be constrained by its former role," he said.
"I believe the ICO must remain flexible and look for the broadest possible consensus and build on the foundations of our cooperation with trade experts."
He added that the ICO would concentrate on looking for specific solutions to specific problems as they arose throughout the coffee sector either in production or marketing.
Meanwhile, Colombia's transport system got back to normal this week after a crippling 11-day strike by truckers, which ended with an agreement early last Friday.
There has, nevertheless, been a significant delay in coffee deliveries and Cardenas forecast that about 150,000 60-kg sacks of coffee promised for October delivery would not in fact reach buyers until November.
-- Bogota newsroom 571 610 7944.
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A former Colombian rebel leader who masterminded a 61-day takeover of an embassy in Bogota in 1980 on Wednesday urged Peruvian guerrillas holding hostages in the Japanese embassy residence in Lima to keep cool.
Rosemberg Pavon, alias "Comandante Uno" of the now defunct M-19 group, urged the Tupac Amaru Revolutionary Movement (MRTA) gunmen to avoid bloodshed.
He said the crisis in Lima, where MRTA guerrillas took up to 490 hostages in the residence on Tuesday evening, hung by a thread and one false move by the rebels or security forces could spark a bloodbath.
Pavon headed an occupation of the Dominican embassy in Bogota which began in February 1980. A 15-strong commando of the M-19 held 57 hostages, including 19 diplomats, for 61 days before mediation by Cuban leader Fidel Castro ended the crisis and the guerrillas took refuge in Cuba.
"These situations are moments of high tension, great uncertainty and intense panic. The MRTA must try to keep as calm as possible," Pavon told Reuters in a telephone interview from the southwestern city of Cali.
"At any second there could be a tragedy because the whole rebel operation hangs by a thread between success and failure," he said. "Both sides must work towards a rapid solution and keep a cold head in any negotiations."
Pavon said that the MRTA, like the M-19 which laid down its arms in 1990, was fighting for social justice.
"We shouldn't fall into the trap of generalizing the MRTA as a pro-Cuban force. Like us it is fighting for a Latin American process of democracy," Pavon said.
He said he would be ready to travel to Peru to help negotiate an end to the crisis based on his experiences of 1980.
"I would say to the Peruvians that these situations can only be resolved with patience and with the desire for dialogue," he said in a separate interview with Colombia's Caracol radio.
In 1985, M-19 guerrillas seized the Palace of Justice in Bogota and held more than 200 hostages for two days before the army stormed the building. About 100 people were killed, including rebels and judges.
"The Peruvian government must at all costs avoid any repeat of a Palace of Justice scenario. The Colombian people have still not recovered from the scars of that incident," he said.
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A powerful car bomb rocked a residential district of Medellin early on Monday, killing a woman and injuring at least 48 other people, police said.
About 120 pounds (50 kg) of dynamite packed into a minibus blew up outside the house of Juan Gomez Martinez, a regional newspaper editor, politician and former provincial governor.
The Colombian government said it suspected drug cartels were behind the massive blast. President Ernesto Samper vowed not to bow to terrorist violence from drug traffickers.
"We will not allow the specter of narco-terrorism to return to this country and intimidate us," he told reporters. "The state will combat these acts of violnce head-on."
Five unidentified gunmen, one of them a woman, opened fire on private security guards near Gomez's home before the bomb went off, Medellin police chief Gen. Alfredo Salgado said.
He said three houses were virtually destroyed and 15 others seriously damaged by the explosion.
The dead woman was identified as Lucia Cevallos de Bernal, 60, who lived near the site of the blast. Gomez was not home at the time but one of his three sons was injured.
Authorities offered a $150,000 reward for information leading to the capture of those responsible.
"This is a savage act. The first indications point to drug traffickers but I don't want to draw premature conclusions," said Defence Minister Juan Carlos Esguerra.
The attack came three days after the Colombian Congress approved a tough new law to strip Colombia's cocaine barons of their multi-billion dollar fortunes. Another bill to introduce stiffer jail terms for drug traffickers is due to come up for discussion in a special session of Congress later this week.
But it was not clear why Gomez, who is not a congressman, should have been targeted.
Gomez is a member of the opposition Conservative Party and head of the regional El Colombiano newspaper, which has its headquarters in Medellin, once home to the world's most powerful cocaine cartel.
His newspaper recently printed an interview with Carlos Castano, leader of a feared right-wing death squad, whose main target is leftist rebels and their supporters.
A few hours after the blast an unknown group calling itself the Special Anti-Paramilitary Commando issued a communique, a copy of which was obtained by Reuters, declaring war on paramilitary groups. The group claimed to be made up of ex-guerrillas who had previously laid down their arms and accused the state of sponsoring paramilitary groups.
Medellin was scarred by violence in the late 1980s and early 1990s when drug lord Pablo Escobar waged a successful war to force Colombia's Congress to ban the extradition of Colombians to the United States.
In June last year a bomb killed 28 people in the city centre. Nobody claimed responsibility for that blast.
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British Petroleum Co Plc gave a lukewarm reception Tuesday to a Colombian proposal that would see it losing almost half the oil-rich Piedemonte field in return for sweeter contract terms on much of the remainder.
The proposal, outlined by Mines and Energy Minister Rodrigo Villamizar to reporters Monday, is the latest twist in a long- running saga that has seen BP trying to boost the profit margins on its Piedemonte operations while Colombia seeks to sidestep criticism that it is allowing multinationals to call the shots.
Piedemonte, in Colombia's eastern plains is estimated to contain between 600 million and one billion barrels of crude oil and condensates.
But so far BP has only pinpointed three hydrocarbon formations -- Volcanera, Pauto and Florena -- accounting for about 15 percent of the total area, arguing that current overheads do not make it profitable to explore the rest.
If Villamizar's complex proposal were accepted, a BP spokesman said it would require the company to hand back rights to the 85 percent of the Piedemonte field that is still virtually unexplored, with the guarantee that state oil company Ecopetrol would re-award BP half that area under improved contract terms.
The spokesman for BP's Colombian subsidiary, BP Exploration Co (Colombia) Ltd, told Reuters: "This is an interesting proposal but we regret that this solution would mean losing access to what is a large proportion of the Piedemonte field."
He conceded it may be a possible way forward but indicated that it represented little more than an opening gambit in the search for a new working formula between BP, Colombia's single largest foreign investor, and Ecopetrol.
Under the so-called "sliding scale" terms of the existing Piedemonte association contract, profits are divided equally between BP and Ecopetrol while production remains below 60 million barrels. Ecopetrol's share rises as production increases, topping out at 76 percent when output hits 150 million barrels.
BP had been pressing for the entire Piedemonte contract to be renegotiated using the new-style Factor R, which takes account of investment and operating costs in individual fields to ensure adequate profit margins for foreign companies.
But those demands were rejected by Villamizar last month following a congressional debate. Villamizar's new proposal, however, would open the way for a Factor R contract to be drawn up on that area of the Piedemonte field which BP would cede and then win back. Ecopetrol would then operate the rest of field itself or contract it to other private oil companies.
Gustavo Triana, a senior official of the powerful USO oil workers' union, known for its fierce opposition to multinationals, said the union would not readily welcome any "underhand deal" that granted better terms to BP after the government had said it would not do so.
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Colombian police said on Sunday they discovered a second multimillion-dollar drug stash aboard a yacht owned by three Britons being held on cocaine smuggling charges stemming from a bust on the yacht in December.
The three men Michael Hayne, 50, of Egham, Surrey, his son Stephen Alan Hayne, 27, of Ashford, Kent, and David Maurice Shaw, 49, of Oldham, Lancashire, were arrested on Dec. 13 in the Caribbean coast port of Barranquilla and were being held on cocaine smuggling charges.
At the time, officials of the state security force DAS discovered more than 425 pounds (194 kg) of highly pure cocaine aboard their U.S.-registered boat Perla del Mar (Sea Pearl). In a more exhaustive search, conducted over the weekend, police turned up another 326 pounds (148 kg) of cocaine -- stowed away in the vessel's waste water tanks.
A DAS chief estimated the street value of the first haul at $50 million. Police declined on Sunday to speculate on the overall value of the illicit consignment.
"The drugs were coated with a mixture of burned oil and coffee, which masks the smell and makes it more difficult for sniffer dogs to detect," a Barranquilla police spokesman said.
The Britons were being held in custody in Barranquilla's El Modelo jail. They could not be contacted on Sunday.
In a phone conversation in December, Michael Hayne told Reuters the situation had been a "huge mix-up" and hoped everything would be "straightened out soon."
DAS officials said Hayne, whose passport was issued by the British Embassy in Spain, and his son had entered Colombia illegally from Venezuela. Shaw entered Colombia legally -- his passport had been issued by the British High Commission in Trinidad.
A spokeswoman for the regional prosecutor's office said the men could face between four and 12 years behind bars if convicted of the smuggling charges.
Colombian laws on drug trafficking are frequently seen as lax compared to standards in Britain and the United States.
The country's cocaine kings Gilberto and Miguel Rodriguez Orejuela, heads of the once-mighty Cali drug cartel were sentenced 10 days ago.
The brothers admitted running a vast international criminal empire for more than 20 years and arranging the shipment of almost 40 tonnes of cocaine into the United States -- thought to be just a fraction of the real amount they sent. They received jail terms that could in practice let them walk free in just five years.
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Plans are being drawn up for new peace talks between the government and leftist rebels in a bid to end Latin America's longest-running conflict, a spokesman for Colombia's Conciliation Commission said on Sunday.
Diego Vargas Uribe, a member of the semi-autonomous body of former ministers and Church representatives, said details would not be released for a few more weeks, but that all sides in the four-decade old war had been consulted about talks.
"The Conciliation Commission has carried out a consultation with different sectors about the basis for a negotiated peace. We are drawing up a document and will present that to the government and the armed groups before making it public," Uribe told Radionet radio network.
Political analysts warn that the prospect of peace is slight. The armed forces said two weeks ago they would step up their counterinsurgency campaign and Marxist rebels have escalated their attacks this year.
Spokesmen for the FARC, Colombia's largest guerrilla army set up as a pro-Soviet group in 1964, were not available for comment on Sunday. But in the latest copy of their magazine Resistencia, FARC leader Manuel Marulanda wrote: "I reiterate the will that the (FARC) has always expressed to find a political solution to the social and armed conflict."
He stressed any peace deal would have to resolve "political, social and economic inequalities" and not simply map out a timetable for the demobilization of rebel forces.
The National Liberation Army (ELN), the second largest rebel force founded by radical Roman Catholic priests in the mid-1960s, began tentative moves last year toward German governmment-brokered peace talks with President Ernesto Samper's administration.
Efforts broke down in November with the much-publicised arrest of Werner Mauss, a German private eye who was acting as a go-between in the talks.
The last peace process between the Colombian government and rebels collapsed without agreement in Mexico in 1992. The FARC accused the authorities of trying to force the guerrillas to surrender unilaterally.
Unlike Colombia's M-19 rebel group, which laid down its arms in the late 1980s, neither the FARC nor the ELN have been defeated militarily.
The FARC still holds prisoner 60 troops it captured in southern Colombia last August. In a statement on Sunday, the FARC confirmed it was holding 10 marines seized in an ambush in western Choco province in mid-January. It said the men would be held with the other 60 soldiers until terms for a handover were agreed with the government.
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Colombia's largest guerrilla army said on Wednesday it would not free 60 captive government troops unless a huge swathe of southern jungle was demilitarized.
President Ernesto Samper said on Monday he would honour his pledge to clear 5,400 square miles (14,000 sq km) of Caqueta province but rejected demands by the Revolutionary Armed Forces of Colombia (FARC) to clear three military bases in the zone.
He urged the rebels to make a goodwill gesture and release their prisoners before Christmas under terms he set last week.
The FARC decision, relayed in a communique from Mexico City, is a new hitch in the process to secure the release of the soldiers, who were captured three months ago when guerrillas overran a base in neighbouring Putumayo province.
"The FARC southern bloc maintains unchanged its original proposal (for the demilitarized zone) with the aim of offering adequate conditions to protect the lives of the 60 compatriots," the communique said.
The FARC's Aug. 30 attack on the Putumayo base, in which 27 soldiers died in addition to those taken prisoner, signalled the start of one of the bloodiest guerrilla offensives in decades.
Army commanders, already humiliated by the initial military defeat, have been loath to allow the FARC to score political points by dictating its own terms for the troop handover, military analysts said.
Samper pressured top brass into accepting a deal to clear a 5,400-square-mile (14,000 sq km) area of Caqueta for 10 days starting on Friday to make way for the troop handover, but was unlikely to be able to wring further concessions out of them, the analysts said.
The president and the military said they would not pull troops out of barracks in Montanitas, Cartagena del Chaira and Remolinos del Caguan for fear of losing grip on rampant drug trafficking operations in the region.
The FARC said the towns lie on strategic entry routes into and out of the proposed demilitarized zone.
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At least 23 people were murdered in attacks in central and northern Colombia, including an entire family hacked to death with machetes, police said on Thursday.
Unidentified axe and machete-wielding assailants killed three children, their mother and grandparents early on Thursday in San Miguel de Sema, in central Boyaca province, police chief Col. Humberto Prieto said.
"We're investigating to see if these killings are related to the death of two other relatives several years ago. Early indications suggest they were murdered for personal reasons -- a revenge attack," Prieto said.
Boyoca is known as a stronghold of right-wing paramilitary groups but Prieto said San Miguel was not affected by right-wing or leftist political violence.
In northern Sucre province, the bullet-ridden bodies of 17 peasants were found scattered in four isolated areas near the town of Tolu Viejo on Thursday morning, police said.
"We're still looking at all the facts. The province has been hard hit by subversion," said Benjamin Irragori, regional head of the state security service DAS.
He said two fronts of the Revolutionary Armed Forces of Colombia (FARC) were active in the area.
Sucre has seen a recent rash of attacks by right-wing paramilitary death squads. One television report, which quoted a police source as saying the leading suspects in the massacre were rightists, showed some of the dead with their hands tied behind their backs.
Almost 40 people died in a wave of killings, attributed to paramilitary groups, across northern Colombia two weeks ago. Last month, the country's paramilitary forces held a summit in which they pledged to step up their war against leftist guerrillas and rebel sympathisers.
In a separate attack in the city of Cucuta, in northeast Norte de Santander province, a Roman Catholic priest was gunned down by two unidentified killers on Wednesday evening, police said.
He was the third priest killed in two months -- a sign, some clergymen say, that they are increasingly caught in the crossfire of guerrilla and paramilitary violence, which has surged in recent months.
"The basic problem is not the lack of respect for priests but the total disregard for the value of human life," said Monsignor Juan Francisco Sarasti, vice president of Colombia's Episcopal Conference.
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Colombian truckers began climbing back behind the wheel early on Friday after their leaders signed a deal with the government to end their crippling 11-day old strike.
Colombian Truck Drivers' Association (ACC) head Javier Suarez said the accord granted an immediate 16 percent raise in cargo freight rates with the promise of another inflation-linked increase at the start of next year -- short of the instant 30 percent hike originally demanded.
The breakthrough in talks between the independent association, the Transport and Interior Ministries and private transport companies came late on Thursday, a day after Interior Minister Horacio Serpa threatened to use police and the military to help smash the nationwide strike by clearing road blocks and forcing truckers back to work.
"This is a partial solution to our problems but I think it will be good for our members. This doesn't mean truckers will now be making any profits but at least we won't be operating at a loss like at present," Suarez told Reuters in a telephone interview. "We have also agreed to set up a joint committee that will look at future transport policies."
Key sectors of the economy, primarily those linked to import and export, had issued stiff criticism of the transport paralysis earlier in the day but heaved a collective sigh of relief with news of the agreement.
But the lifting of the strike seems unlikely to offer an instant fix for the crisis-hit coffee sector, which has seen 250,000 60-kg sacks of coffee -- a quarter of that promised for October delivery -- delayed by the truckers' action.
Earlier in the week, private coffee exporters said many would be forced to default on this month's delivery contracts even if the stoppage ended before the weekend because of the backlog of coffee in port and in warehouses.
In addition to the raise in freight cargo rates, a joint committee of truckers, industry representatives and Transport Ministry officials will be created to look at other concerns highlighted by the drivers' association, Transport Minister Carlos Hernan Lopez said.
These include the cost of highway tolls, the price of operating licenses and associated taxes and maximum load restrictions on cargoes.
Part of Thursday night's agreement means the Transport Ministry will send a communique to transport companies ordering them to lift unilateral bans on contracting the services of drivers operating trucks more than 11 years old where these are currently in force.
Suarez said he did not think the deal hammered out would have an impact on inflation, already running above the 18 percent originally targetted at this point in the year by the government.
"Hopefully we will not see any gains in inflation or the cost of this accord being passed on to the consumers because the intermediaries, the transport companies, will be absorbing the cost of it by taking a cut in their profit margins," he said.
The overall cost of the strike is difficult to calculate but certainly runs into many million dollars. Colombia's main Pacific coast port, Buenaventura, estimated its losses at more than $20 million a day because no cargo was coming in or out.
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Two Germans, thought to be members of a Colombia leftist guerrilla group, were arrested in the northwest of the country early on Sunday as they tried to smuggle a kidnap victim out of the country, police said.
They were seized at Rionegro international airport, near Medellin, at 1 am local time (0600 GMT) as they tried to bundle a third German, Brigitte Schoene, the wife of a former BASF Chemicals director snatched on Aug. 15, on to a charter plane.
A list of 83 international guerrilla organisations together with a number of false passports were found in the bags of the two detainees -- a 54-year-old man and a 36-year-old woman -- police said.
"I would dare to say that these (German) citizens we captured are the international finance heads and advisers of the National Liberation Army (ELN)," Gen. Alfredo Salgado, head of the anti-kidnap police in nortwest Antioquia province, told reporters.
The ELN is Colombia's second largest rebel group. It is notorious for its attacks on oil infrastructure and on multi- national companies and their employees.
Gen. Salgado said the two Germans in initial questioning claimed they were carrying out an international peace mission and merely mediating the release of Schoene, seized from her home in Prados de Llanogrande, Antioquia, along with her five-year-old son and chauffeur. Both her son and the chauffeur were released hours after being snatched.
Salgado gave no details of the other guerrilla groups named in the documents seized from the couple and was unable to say if either had been linked to the German urban guerrilla groups of the 1970s.
The German Embassy in Bogota declined to comment on the arrests. Names found on the man's forged ID papers were Norbert Schroder, of Munich, and Jurgen Seidel. The woman's papers gave her name as Silvia Schroder and Isabel Seidel.
The man is also believed to have played a prominent role in the kidnap of a British, Danish and German engineer in Antioquia province earlier this year, Gov. Alvaro Uribe said. The release of the three in return for an undisclosed ransom, paid without the knowledge of the Colombian authorities, led to an angry exchange between Uribe and the German and British embassies.
In comments to reporters on Sunday, Uribe said he had spoken to Schone after her release and that she had confirmed she had been held by the ELN and complained of pyschological torture.
Colombia is the kidnap capital of the world with one person abducted every 2-1/2 hours, according to security experts. About half the kidnaps are attributed to the country's rebel armies.
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Colombia has taken the first step to lifting a constitutional ban on extradition but the country's crusading anti-drug prosecutor on Wednesday dismissed the move as virtually meaningless.
Amid threats of a repeat of the bloodbath unleashed by drug gangs against extradition in the late 1980s, a Senate panel approved draft legislation late on Tuesday to lift the prohibition on sending Colombians abroad to stand trial
But chief prosecutor Alfonso Valdivieso said the measure prohibited as much as it allowed and threatened to hog-tie the government in endless red tape. He said the legislation should be strengthened before a final vote in Congress.
"What we should be doing here is lifting the 1991 ban, which was a national disgrace. But the text approved by the Senate doesn't represent any advance," he said. "I'm not saying it's a step back but it leaves us in exactly the same position."
The draft legislation approved by an 11-8 vote by the Senate constitutional committee was also unlikely to satisfy Colombia's critics in the United States.
If the draft survives a required seven more congressional votes, it would open the door to extradition in some isolated cases. But it would not be retroactive, ensuring that the Cali cartel drug lords jailed last year, the target of a U.S. extradition request in June, will never see U.S. courts.
Furthermore, the legislation would prevent the extradition of criminals who voluntarily surrendered to Colombian justice and forbid their handover if they risked receiving stiffer sentences abroad than those they would face at home.
One of the main arguments by U.S. authorities, who have long pressed for the extradition of drug traffickers, is that Colombian justice is too lenient and convicted drug lords continue running their criminal empires from behind bars.
Drug lords led by Pablo Escobar, the late and notoriously violent leader of the Medellin cartel, waged a nationwide campaign of bombings, kidnappings and assassinations in the late 1980s and early 1990s to force the government to impose the constitutional ban on extradition passed by Congress in 1991. Memories of the thousands of people who died in that campaign of terror are still fresh.
Death threats against extradition supporters have been scrawled in the last week on walls around Cali, home to the powerful syndicate that edged out Escobar's organisation to become the world's major cocaine supplier.
A group calling itself "Colombians For Peace" issued pamphlets reminding people of the bloodbath of the 1980s because of the extradition issue. "Today that situation is once again threatening Colombia. Avoiding it depends on the government, congress and our judges," it said.
President Ernesto Samper, dogged by allegations of his own ties to drug lords, has said the extradition debate was poorly timed and insisted that priority should be given to his own proposal to introduce stiffer penalties for drug crimes.
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Colombian stocks have shaken off three years of stagnation to stage a meteoric rise in 1997, but bourse chiefs warn deep-rooted structural problems cloud the outlook for one of the world's best-performing markets so far this year.
The country's two major indices, Bogota's IBB and Medellin's IBOMED, have gained more than 22 percent in the 10 sessions of the year to Thursday, Jan. 16, grabbing international attention and sending investors reeling with surprise.
Brokers are convinced that bigger gains are still to come in the course of the year and that Colombian stocks continue to be undervalued by as much as 25 percent.
But the chairmen of the Bogota and Medellin exchanges believe the traditional "marriage" between industrialists and bankers will hamper the transformation of Colombia's markets into sophisticated, modern bourses.
"Market performance has been pretty good in the year so far and we've seen gains that nobody really dared foresee," said Luis Fernando Uribe, head of the Medellin exchange.
Bogota's IBB has gained about 22.5 percent -- despite small falls on profit-taking Wednesday and Thursday after 18 days straight gains. It rose just 11.8 percent in peso terms in 1996 -- a real-term loss when set against 21.63 percent inflation.
Medellin's IBOMED index has leapt more than 23 percent after losing 3.68 percent in nominal terms in 1996.
Trading volume is extremely thin, however. Volume on all three of the country's exchanges, including Cali's tiny Bolsa de Occidente, totalled just $2.3 billon in 1996.
Market perception that Colombian shares are well below book price, a fall in deposit rates from above 30 percent for most of 1996 to about 27 percent, and optimism that the economy is about to rebound from the sharp slowdown last year are underpinning the rally. And a new tax on fixed income papers has also put a premium on equities, many brokers say.
"Once the market caught fire everybody piled in. There was not too much differentiation between shares, which shows these are still somewhat immature markets," said market analyst Stephen Edkins.
"We're bullish about the year and think shares will rise between about 40 percent and 45 percent overall," he added. Inflation is forecast to hit 18 percent this year, which would mean real-term yields of up to 27 percent.
Edkins expected to see downward corrections of between five percent and 10 percent in the coming weeks, with new gains from the start of the second quarter as companies turn in 1996 year-end results, followed by first quarter results.
Domestic political factors, including the country's simmering guerrilla war, which some military experts predict will intensify in 1997, seem unlikely to cause concern.
"We've got this crazy equilibrium where there's quite a solid macroeconomic management and then this element of chaos," said Edkins. But amid the optimism, bourse chiefs Caballero and Uribe sounded a warning.
"The main underlying problem is that there are a lack of shares. That's a structural problem and cannot be resolved overnight," said Caballero.
"There are favorable terms for companies to raise capital in the stock market but the traditional marriage between industry and the financial sector is not going to be easy to break up," said Uribe.
Colombian entrepreneurs still prefer to contract debt with the banks rather than risk losing overall control of their businesses by issuing shares.
Of all the country's major conglomerates only the Sindicato Antioqueno has more than one of its companies quoted on the stock market -- but less than one-third of the shares are in free float, outside the direct control of the companies themselves.
((--Bogota newsroom, 571 610 7944))
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Leaders of Colombia's three largest labour federations said on Monday they would not sign a new wage and price control pact with bosses and the government, and warned 1997 could be a year of serious social unrest.
They condemned the annual social pact, first introduced by President Ernesto Samper in 1995, as a way of forging ahead with neoliberal policies at the expense of workers, and said such a model would fuel political polarisation in 1997.
"The social pact reflects neoliberal logic and aims to pay workers less in order to make industry more competitive. The pact is a corporatist tactic that does not serve the interests of the people," said Luis Eduardo Garzon, chairman of the Unitary Workers' Confederation (CUT), the country's largest labour organisation.
Following internal elections in November, left-wingers led by Communist Party members like Garzon seized overall control of the CUT from Liberal and Conservative Party moderates, who had bowed to previous government demands to sign a pact.
This year's pact agreed to a 19.5 percent wage hike for workers based on an inflation target of 17 percent. But while salaries were kept within strict limits, the cost of goods and services spiralled, pushing inflation to almost 21 percent in the first 11 months of 1996 -- a 1.5 percent drop in real wages in the year to date.
The central bank last week set a 1997 inflation target of 18 percent. The government, employers and union leaders were due to meet on Wednesday for another round of discussions on the 1997 social pact.
"The government has put the economy on a war footing to combat crime and subversion. If that continues I think there's a grave risk of further polarisation of political forces in 1997 and we will be in for a very difficult time," Garzon said.
Cervulo Bautista, of the general secretariat of the Christian Democrat-influenced General Confederation of Democratic Workers (CGTD), also warned of worsening labour relations in 1997.
"We don't want to be accused of trying to bring down Samper's governmment but if the situation doesn't change we could be calling on the working classes for a nationwide stoppage," he said.
The CUT, with 600,000 affiliates, and the CGTD, with about 300,000 members, said they would be looking for minimum wage increases of 27 percent to make up for the real term erosion of salaries this year coupled with a productivity premium.
The 200,000-strong Confederation of Colombian Workers (CTC), normally loyal to Samper's Liberal Party, said it would be looking for wage rises of close to 30 percent.
Labour Minister Orlando Obregon was confident a social pact will be signed by Jan. 1, a spokeswoman said. About 35 percent of the Colombian labour force is unionized.
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Colombia will announce cuts in coffee exports next week under the terms of a beefed up retention plan recently agreed by members of the Association of Coffee Producing Countries (ACPC), coffee czar Jorge Cardenas said on Thursday.
The head of the National Coffee Growers' Federation also said Colombia's internal coffee price would be raised in view of recent gains in international markets. He did not, however, say when the hike would take effect nor what the percentage rise would be.
In the provinces, meanwhile, coffee growers are becoming increasingly worried about potential crop damage caused by recent torrential downpours, which meteorologists say have pushed rainfall levels up to 160 percent higher than the seasonal average. Weather forecasters say the outlook for February is just as bad.
Under terms of the ACPC deal hammered out in Rio de Janeiro on Jan. 23, member nations will slash back total exports by 1.3 million bags in the first half of 1997 from the original target of 26.28 million bags set in May.
One million bags of that will be robusta but arabica- producing countries, like Colombia, agreed to rein back 300,000 bags of exports in solidarity. Cardenas declined to specify what proportion of the cut would correspond to Colombia.
"The cuts will respond to production conditions and the export situation in each individual country. We will be announcing the cuts this will imply for Colombia next week," Cardenas told Reuters.
As speculation grew this week that the federation would announce the rise in internal coffee prices at its first meeting of the year Friday, Jan. 31, private exporters complained of short supplies.
"Intermediaries and producers have increased prices to scandalous levels in anticipation of a rise in the internal coffee price. Some are just holding on and won't even sell. In some cases prices are up by as much as 10 percent," said Alvaro Ramirez of Cargill exporters.
"In view of the situation in external markets, we will of course have to raise the internal price of coffee," Cardenas said. "We will do the projections and take the decision on the basis of that," he said.
The federation cut internal coffee prices by 14,000 pesos per 125-kg load to 221,500 after a turbulent coffee growers' congress on Dec. 5. The move aimed to reduce the deficit of the Coffee Fund, an organization administered by the federation which buys all Colombian coffee at a pre-agreed support price.
The cut was achieved by withdrawing a 14,000 peso premium, paid in the form of a bond instead of cash, which had been introduced to compensate for the poor outlook for coffee in the 1996 calendar year.
The good news on the internal price front, however, is taking a back seat to the recent weather problems.
"In the southwest and Andean regions, and particularly the coffee growing region, rainfall has been as much as 160 percent higher than normal," said Leonardo Rivera, meteorologist at the national weather center IDEAM.
"These conditions will be prolonged and we're likely to see similar levels of rainfall through February," he added.
January and February are normally dry months in Colombia. But the torrential rains this year have been caused by a cooling in the surface temperature of the Pacific ocean, known as the La Nina effect -- conditions not seen for at least the last 10 years.
Coffee growers say the rains are delaying the flowering period and fear the main harvest, which normally begins in October, could either be very late or that a part could be lost entirely.
Cardenas said it was too early to predict what the impact of the weather could be on crop levels but said federation technicians were drawing up a detailed report, which they hoped to issue in mid-February.
((--Bogota newsroom, 571 610 7944))
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Colombian lawmakers bowed to intense government pressure on Thursday and put the bite back into a bill to strip drug barons of their ill-gotten gains.
If the legislation survives a congressional plenary vote -- likely to be plain sailing after a stormy passage -- it could go some way to appeasing the United States, which has threatened to slap economic sanctions on Colombia for its perceived failure to crack down on billionaire drug barons.
A conference committee hauled the asset forfeiture bill back from the brink by reversing a decision by the lower house which would have taken the teeth out of the law.
In a narrow vote on Tuesday, the House of Representatives rejected the provision, previously approved in the Senate, that would empower the government to seize drug-related assets accumulated over the last 20 years. The House ruled the law could only be retroactive to 1991, leaving much of the property amassed by the jailed Cali Cartel kingpins, estimated at more than $50 billion, untouched.
Justice Minister Carlos Medellin, who like a handful of other top ministers spent much of the day lobbying key lawmakers in the halls of Congress, was buoyed by the committee's decision.
"Now we just have to see if the plenary session of the Senate and Chamber of Representatives approves the decision. But I don't think there will be any problem," he said.
Colombia's business community also heaved a sigh of relief. It had campaigned for Congress to approve the 20-year time limit in a series of pleas over the last two days. Key export sectors of the economy are likely to be hardest hit if U.S. sanctions are imposed.
Even though the asset forfeiture law now seems to have reached high ground, the road back into the good books of the United States still promises to be rocky.
Political analysts agree there is little chance of Colombia regaining certification as a U.S. ally in the drug war, which it lost last March, even if it escapes threatened sanctions.
Other anti-drug legislation which the United States has demanded, such as stiffer sentencing and the reintroduction extradition, have been watered down or sunk in Congress in recent weeks.
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Colombia's main oil workers' union, USO, known for its fierce nationalism and opposition to multinationals, has merged with a smaller labor organization in a bid to create an industry-wide front, one of its leaders said Tuesday.
The new grouping will target workers not currently represented by any union, primarily those employed by foreign companies operating in the country, USO social security secretary Gustavo Triana said.
The merger vote took place late Monday in the oil production center of Barrancabermeja and has set alarm bells ringing in some sectors of the industry, which fear the USO's spreading influence could sour labor relations with the non-unionized workforce.
"The merger was unanimously agreed and this opens a new phase of union organization in the oil industry. We will try to enter into those sectors where there is little or no union presence," Triana said. "The multinationals have already spoken out against this grouping and we think they will show a great deal of resistance and look for ways to keep it out of their fields."
The USO has about 5,700 workers and has until now only been able to recruit within the state oil company Ecopetrol. But the merger with the small ASOPETROL, which already has a foothold in the multinationals, will pave the way to what USO chief Hernando Hernandez believes could be a 40,000-strong "super-union".
Triana said the new union would not only cover production and refinery workers but could also extend to contractors and those involved in transport and distribution operations related to the oil industry.
SINTRAOXY, which represents multinational Occidental Petroleum's workers, is expected to join USO and ASOPETROL, Triana said.
USO, formed in the 1920s, has accused foreign multinationals of undermining national sovereignty through its production and exploration contracts with Ecopetrol. It has also attacked them for exploiting Colombian workers.
For their part, some of the multinationals believe USO has ties with Colombia's leftist guerrilla movements -- a charge its leaders deny.
A foreign oil spokesman said last week: "The prospect of having to deal with a belligerent union with close ties to the guerrilla movements is far from stimulating."
Another contacted Tuesday said his company was analyzing the merger decision, saying: "It may be something we can live with. It's surprising what people who want to earn a dollar will put up with."
Last week, the USO staged a 24-hour strike which paralyzed pumping operations along Colombia's two main oil pipelines.
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The Colombian government this week may sidestep congressional stalling and use special powers to force through stiffer anti-drug laws, Justice Minister Carlos Medellin said.
In comments to local media over the weekend, he also called for the draft laws -- which include confiscating drug barons' ill-gotten gains -- to be retroactive, applying to traffickers already jailed.
The retroactivity issue has sparked controversy in parallel moves to end Colombia's constitutional ban on extradition, currently under debate in the senate.
Former justice minister Enrique Parejo believes lawmakers may welcome the decree since it would remove them from the line of fire in any violent backlash by drug traffickers.
"If we don't do something soon then it could be too late. If congress does not make headway on the confiscation (of drug traffickers' property) then I will be looking for the faculty to introduce the legal measures," Medellin told the conservative El Nuevo Siglo newspaper.
President Ernesto Samper submitted the tougher anti-drug proposals to congress in July with a firm eye on winning back U.S. certification as an ally in the drugs war, which was withdrawn in March. He has sent repeated requests to legislators to speed up debate, but sessions continue to be dogged by lengthy political wrangling and poor attendance, which has left committees without a quorum.
If the congress fails to pass the measures, the government is expected to announce a decision by Thursday to introduce the new anti-drug laws by decree. But political and legal analysts say the move could raise constitutional issues about whether the government has the right to override congress.
"The government wants to legislate by decree because it fears decertification by the United States again next year, which could spark a fresh crisis which it may not recover from," Parejo said in a telephone interview.
"It may be a relief to many congressmen who have links with drug traffickers because there are real signs that the cartels are once again preparing to unleash a new war."
In the 1980s and early 1990s, the late Pablo Escobar, head of the once-mighty Medellin drug cartel, waged a war of bombings, assassinations and kidnaps against the state in a successful bid to get extradition banned.
The specter of a similar terror campaign is again looming after a series of bombings in recents weeks, including one defused by police which had been planted by the so-called Movement for National Sovereignty in the centre of Cali.
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Colombian lawmakers met on Thursday in an 11th hour bid to rescue a bill that would strip drug barons of their fortunes and help avoid U.S. economic sanctions.
An 11-member conference committee was debating whether to override the lower house of Congress and empower the government to seize drug-related assets accumulated over the last 20 years.
In a narrow 59-57 vote late Tuesday, the House of Representatives rejected the 20-year time limit, previously approved by the Senate, ruling instead that criminal assets could only be seized if they had been amassed after 1991.
The conference committee meeting was convened under intense pressure from President Ernesto Samper and senior ministers. They condemned the lower house's decision as a "virtual amnesty" and raised fears that the United States would impose economic sanctions on Colombia in retaliation for its failure to crack down on billionaire drug lords.
The committee is widely expected to toe the government line and send the bill back to a plenary session of Congress, recommending that the 20-year time limit be reincorporated.
Colombia's business community has taken an unusually outspoken approach and been vociferous in calls to Congress to approve an asset forfeiture law with a 20-year clause.
The United States decertified Colombia as an ally in the drug war last March. Four months later, it withdrew Samper's U.S. entry visa, citing allegations that he financed his 1994 election campaign with drug cartel cash. Foreign Relations Minister Maria Emma Mejia said earlier this week there is a very real prospect of U.S. economic sanctions starting next year.
Other anti-drug legislation that the United States has demanded, such as stiffer sentencing and the reintroduction extradition, has been watered down or sunk in Congress in recent weeks.
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Thousands of demonstrators thronged Bogota's streets on Sunday calling for an end to the crime wave that has turned Colombia into the kidnap capital of the world.
A small bomb exploded minutes before the march began about 100 yards (90 metres) from where demonstrators gathered but did not cause any injuries, police said. A spokesman said the device contained just a few ounces (under 100 grams) of explosive and was probably simply intended to sow panic.
At least 1,100 people have been abducted this year -- more than half of those by warring factions in Colombia's simmering internal conflict -- according to march organisers.
National Police chief Rosso Jose Serrano, who took part in the first march of its kind in Colombia, saw it as a direct challenge to leftist guerrillas, who fill their war chests with ransoms. Scores of others clutched photos in silent tribute to their loved ones -- kidnapped by criminals.
"When you're abducted you become like the living dead -- it strips you of your soul. Today's march is a sign that civil society is saying no to kidnap," said Francisco Santos, founder of Pais Libre, an independent foundation that counsels kidnap victims' families and which organised Sunday's march.
Santos, part of the family that runs Colombia's leading newspaper, was kidnapped six years ago as part of a campaign unleashed by the late drug lord Pablo Escobar and his Medellin cartel.
In a move timed to coincide with Sunday's protest, one of Colombia's most-feared right-wing paramilitary leaders released the mothers of two guerrilla chieftains in the northwest.
The women were snatched in a wave of retaliatory kidnappings carried out by Carlos Castano's paramilitary gang in the last six months in a bid to persuade the guerrilla chief to halt its campaign of abductions.
An estimated 15,000 to 20,000 people took part in the march. Organisers put the figure at twice that.
Norberto Garcia, 62, tearfully watched the march and subsequent rally in the historic Plaza Bolivar square. Almost a year ago to the day his 14-year-old daughter Andrea disappeared on her way to school in a working-class district of the capital.
"When your child is kidnapped it is like your own life ends. It's the hardest thing for a parent to suffer," Garcia said.
Only last Wednesday, the country was rocked by the kidnap and murder of seven-year-old schoolboy Victor Alvarez in southwest Colombia. His corpse was dumped on the doorstep of his family home when his parents failed to pay common criminals a $10,000 ransom.
But in a country where even conservative estimates put the number of abductions at three a day, the tragedy of young Victor, of Popayan, was almost forgotten by Sunday.
Anti-kidnap czar Alberto Villamizar was jeered by crowds as he delivered a message from President Ernesto Samper pledging to crack down on kidnapping.
The catcalls were preceeded by chants of "Serrano will save the motherland", in support of the no-nonsense chief of National Police, who heads the fight against kidnapping and drug-trafficking.
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At least 24 soldiers and leftist rebels died in fierce fighting in three provinces of Colombia over the weekend, military sources said on Sunday.
The bloodiest clashes took place on Saturday in the conflict-torn region of Uraba, a banana-growing area in northwest Colombia where guerrillas and right-wing paramilitary groups have traditionally fought for control of lucrative contraband routes.
An army spokesman said 10 soldiers and eight Revolutionary Armed Forces of Colombia (FARC) insurgents died in battles there. Gen. Rito Alejo said intensive counterinsurgency operations continued on Sunday.
Elsewhere, in southwestern Huila province the FARC, Colombia's largest and oldest guerrilla force, dynamited a military convoy, killing four soldiers. And in firefights in northeastern Norte de Santander province, one soldier and one FARC rebel died early on Sunday, military sources said.
In the Caribbean port city of Barranquilla, four suspected rebels were injured when their clandestine bomb-making factory exploded.
The latest wave of deaths comes against the backdrop of what military experts say is the worst guerrilla violence in more than three decades of armed uprising.
The rebels unleashed their new offensive on Aug. 30 when they overran a military base in southern Colombia, killing 27 soldiers and taking at least 60 prisoner.
The FARC is still holding the troops and in its latest communique issued over the weekend repeated accusations that the army was planning to rescue the captives by force, thereby putting their lives at risk.
The rebel force said it has a leaked military document proving its allegations and added the army was planning to try the soldiers for cowardice once they were released -- claims denied by Interior Minister Horacio Serpa on Sunday.
While the current guerrilla offensive has led many defence analysts to suggest the situation has slipped out of control of the military, the government has been buoyed by news of the surrender of 110 fighters from the People's Liberation Army (EPL), Colombia's third-largest guerrilla force.
The Maoist-inspired rebels handed over their weapons to the military on Saturday in a rural zone of northern Cordoba province.
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Colombia's cocaine kings, Gilberto and Miguel Rodriguez Orejuela, were sentenced to 21 and 18 years in prison respectively on Friday, but had their terms halved for pleading guilty, bringing a swift rebuke from the United States.
Gilberto Rodriguez, who also was fined $8 million, and his brother -- fined $4.4 million -- will be eligible for extra sentence reductions for working and studying in prison.
The sentences were called "totally unacceptable" by U.S. Ambassador Myles Frechette, whose government unsuccessfully called for the extradition of the Rodriguez brothers in July.
The public prosecutor's office said it would appeal the terms, but under Colombia's lenient anti-drug laws this would add little additional jail time.
"The U.S. government and American public opinion will be shocked by these low sentences," Frechette told reporters. "These sentences are totally unacceptable," he said.
Gilberto, nicknamed the Chess Player for his cunning criminal mind, headed the powerful Cali drug cartel until his capture in June 1995.
Together with his brother Miguel, the pair masterminded a huge drug trafficking empire, supplying an estimated 80 percent of the world's cocaine and building up a multi-billion dollar fortune in the process.
U.S. officials have said repeatedly that the brothers continue to run their criminal empire from behind the walls of Bogota's La Picota prison.
That allegation, coupled with Friday's ruling by a judge in the city of Cali, could strike a fatal blow to Colombia's hopes of averting more U.S. trade sanctions in March when Washington will decide whether it should remain on a list of pariah states that have failed to cooperate in ther global fight against drugs.
A so-called "faceless" judge sentenced Gilberto Rodriguez, 57, to 21 years for drug-trafficking, conspiracy, illicit enrichment, falsification of documents and the illegal possession of weapons.
That term was immediately cut to 10-1/2 years, in return for his plea and prompt confession, and with extra reductions for working and studying in jail he will likely spend about six years in prison. With time already served in custody awaiting trial, Gilberto Rodriguez could be a free in 2002.
His brother Miguel, 53, was sentenced to 18 years, halved for his guilty plea and full confession. He will also be eligible for extra reductions.
The respected Colombian political magazine Semana recently estimated the combined fortune of the Rodriguez Orejuela brothers and two other top traffickers at $50 billion. The brothers may lose part of their fortune under the terms of the new asset forfeiture law passed by Congress in December.
The office of Prosecutor-General Alfonso Valdivieso, an anti-drug crusader and close ally of Washington, said it would use all legal resources to appeal the sentences and see that "just penalties" are eventually imposed on the Cali kingpins.
Under current legislation, the brothers faced a maximum of no more than 24 years imprisonment.
National Police chief Gen. Rosso Jose Serrano, who oversaw the arrests of the Rodriguez brothers in June and August of 1995, called Friday's sentences "a disgrace" and said they might just as well have been left free.
"I'm not going to continue jailing drug traffickers so they can get out in three years. It's a disgrace," he said.
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Colombia's military and leftist rebels are oiling their guns for 1997, a year both sides predict will see Latin America's longest-running guerrilla war finally reach boiling point.
Military experts and human rights activists warn that the simmering conflict is ready to explode as the government and the insurgents harden their positions and resort to increasingly violent strikes against each other.
"1997 will be a year of greater struggles to achieve a more dignified motherland for all," the Revolutionary Armed Forces of Colombia (FARC), the country's largest guerrilla force, said in a communique obtained by Reuters on Monday.
"We call on all those at odds with this terrorist, despotic regime to hoist high the flags of social justice and the struggle for our rights."
That struggle, blamed for many of Colombia's 25,000 murders in 1996, put more than half the country under emergency rule after the government granted special powers to combat leftist subversion midway through the year.
But the FARC and Colombia's second-largest rebel force, the National Liberation Army (ELN), have demonstrated increasing ease in destroying key infrastructure and launching devastating attacks on military strongholds.
"Preparations are under way for a longer, harder war on all sides. The guerrillas have shown their intention to step up the armed confrontation. The military line seems to be triumphing in the government. There's no desire for peace," said human rights attorney Carlos Rodriguez, member of the Colombian Commission of Jurists.
The guerrillas' growing strength was highlighted by the FARC's Aug. 30 raid on a jungle base at Las Delicias in southern Putumayo province. The guerrilla force killed 27 soldiers and is still holding 60 others prisoner -- one of the most humiliating blows dealt against the army in more than three decades of armed uprising, according to military analysts.
In an effort to regain the upper hand, the government has announced it will spend more than $900 million on defence in 1997, including the purchase of scores of Russian and U.S.-made combat helicopters -- equivalent to its total military expenditure for the last four years.
The military currently estimates the combined force of the FARC, set up as a pro-Soviet guerrilla force in 1964, and the ELN, a pro-Cuban force created by radical Roman Catholic priests in the mid-1960s, at no more than 12,000 fighters. The much smaller Maoist People's Liberation Army (EPL) was virtually decimated by a wave of desertions in the latter half of the year.
But political analyst Antonio Caballero, columnist with the influential weekly political magazine Semana, calculates the rebels' true strength at between 18,000 and 30,000.
The guerrilla forces, he says, have been able to buy ever more sophisticated weapons with money from extortion and their alleged links with the drug trade.
Meanwhile, the army's inefficiency and the crisis sparked by accusations that President Ernesto Samper financed his 1994 election campaign with drug money created a power vacuum that the rebels have stepped in to fill, Caballero said.
One Western defence attache believes at least 40 percent of Colombia is now under the de facto political and economic control of the guerrillas. He argued the conflict was not just a military problem.
"The seedbed of revolution is caused by the great social injustice which prevails. More military equipment will be of no use if there's not better coordination in the armed forces," he said.
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A leading lawmaker said on Monday that Colombia would continue to be a "paradise for drug traffickers" unless Congress voted to overturn a 5-year-old ban on the extradition of drug lords and other criminals wanted abroad.
"If we don't end the culture of impunity in Colombia then we have no right to ask for international help in the fight against drugs," said Senator Luis Guillermo Giraldo.
Giraldo, a member of the ruling Liberal party but an outspoken opponent of President Ernesto Samper, proposed legislation in August that would reactivate a 1979 extradition treaty with the United States.
The legislation faces a key hurdle in the Senate on Tuesday when a 12-member constitutional committee was set to vote on whether it should be submitted to plenary for approval or thrown out altogether.
"If we don't restore our (extradition) treaty, Colombia will continue to be a paradise for drug traffickers," Giraldo said in a telephone interview with Reuters.
In the run-up to the vote in the Senate, graffiti has appeared in Cali, home to the criminal syndicate that has dominated the world's cocaine trade, threatening those who support sending Colombians to stand trial abroad.
But growing numbers of legislators appear to be increasingly swayed by the United States' argument that extradition is a vital weapon in the drug war. Moreover, some political analysts believe it may be impossible for Colombia to regain U.S. certification as an ally in the fight against drugs, withdrawn in March, unless extradition is reintroduced.
Samper, dogged by accusations that he took drug money to finance his 1994 election campaign, said on Friday he thought Giraldo's bill was poorly timed, arguing that priority should be given to a package of tougher penalties for drug crimes currently going through Congress.
Justice Minister Carlos Medellin has spoken out in favour of renewing extradition, however, and Alfonso Valdivieso, chief prosecutor and a fervent anti-drug crusader, has even called for extradition to be made retroactive -- a proposal unlikely to please those drug traffickers who surrendered to the Colombian authorities in return for lenient treatment.
While politicians, ministers and lawyers argue the merits of the move, more than 60 percent of ordinary Colombians surveyed by RCN radio in September said they opposed extradition.
Political analysts say such opposition reflected a combination of nationalistic pride and fear that renewing extradition could unleash a new campaign of bombings, kidnappings and assassinations like those led by the late drug lord Pablo Escobar in the late 1980s and early 1990s.
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Colombia denied on Monday that its army was linked to paramilitary death squads and said the world should focus instead on the "cursed alliance" between leftist guerrillas and drug traffickers.
"Narco-guerrilla groups are heading a disinformation campaign throughout the world. ... The United States and the world must wake up to the new threat posed by the cursed alliance between drug traffickers, guerrillas and international mafias," Defence Minister Juan Carlos Esguerra said.
The comments were part of a fiery response to a report issued in Bogota by New York-based Human Rights Watch.
The organisation's report, titled "Colombia's Killer Networks," concluded, "The military has not only created paramilitary groups but allows virtually all of them to carry out political killings when it serves a common purpose, ridding the country of perceived guerrilla support."
The rights group, citing confidential defence documents, said U.S. military advisers fuelled the surge in death squads after helping restructure Colombia's gathering of military intelligence in 1990.
The organisation's legal adviser, Jamie Fellner, alleged that top army commanders Gen. Harold Bedoya and Gen. Manuel Jose Bonett were "accomplices" or tolerated such groups in a systematic "dirty war" on political dissidents.
Human Rights Watch echoed calls by London-based Amnesty International last month demanding the immediate suspension of U.S. and European military aid and arms sales to Colombia until human rights violations were curbed.
Human Rights Watch estimated that much of the $322 million in U.S. military aid to Colombia since 1989 had been handed out to counterinsurgency battalions accused of rights violations.
A U.S. State Department spokesman said in Washington on Monday there were no plans for tighter checks.
The Colombian Army was dramatically humiliated when the Revolutionary Armed Forces of Colombia overran a jungle post in southern Colombia on Aug. 30, killing 27 soldiers and taking 60 prisoners.
"These soldiers are being kept in cells reminiscent of the infamous tiger cages seen in Vietnam. Amnesty International and Human Rights Watch would do well to investigate those abuses instead of inventing new charges," Esguerra said.
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Colombia's main oil union postponed a decision to launch an indefinite strike in protest against the arrest of 11 members on terrorism charges after top-level talks with the government Sunday night, leaders said.
The 5,700-strong USO union, known for its fiercely nationalistic stance, had been due to set a start date for a crippling stoppage at a general assembly Monday. Industrial action would have begun "soon after" Monday's meeting, union head Hernando Hern ndez said last week.
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A powerful car bomb exploded in the northwest city of Medellin early on Monday, killing one woman and injuring at least 15 other people, police chief Gen. Alfredo Salgado said.
About 120 pounds (50 kg) of dynamite was packed into a minibus and detonated outside the house of Juan Gomez Martinez, a regional newspaper editor and former provincial governor.
Four unidentified gunmen opened fire on private security guards near Gomez's home before the bomb went off about 5:30 a.m. (1030 GMT), Salgado said.
The dead woman was named as Lucia Bernal, 60, the wife of a civil engineer, who lived close to the site of the blast. Gomez was not home at the time but one of his three sons, Juan Camilo, was injured.
"We don't know the motive for this attack. It is too early to say who was behind it. We don't know if it was leftist guerrillas, drug traffickers or right-wing paramilitaries. We're looking at all the possibilities," Salgado said.
Gomez, a member of the opposition Conservative Party, is head of the regional El Colombiano newspaper, which has its headquarters in the industrial city of Medellin, the main city of Antioquia province.
In recent days it has been serializing an extensive interview with Carlos Castano, leader of the country's most-feared right-wing death squad, whose main target is leftist rebels and their suspected supporters.
A few hours after the bomb blast a hitherto unknown group, calling itself the Special Anti-Paramiltary Commando, issued a communique, a copy of which was obtained by Reuters, declaring war on paramilitary groups in Antioquia.
The organisation, claiming to be made up of ex-guerrillas who had laid down their arms, accused serving state governor Alvaro Uribe, of the Liberal Party's right wing, of sponsoring the paramilitaries. Uribe lives close to the site of Monday's blast but it was not clear whether the communique and the attack on Gomez's house were linked.
Medellin has in the past seen some of the worst violence unleashed by the country's powerful drug cartels. It was the scene of multiple attacks by the notorious drug mafia led by the late Pablo Escobar in the late 1980s and early 1990s. The cocaine kingpin waged war against the state in a successful bid to force Congress to ban the extradition of Colombians to the United States.
Last week Congress approved a tough new law designed to strip drug lords of their illicit billion dollar fortunes. More measures including stiffer jail terms are due to be debated in an extended session of Congress this week.
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A leading Colombian coffee official on Wednesday played down a potential rift with Brazil over a call to expand the Association of Coffee Producing Countries' (ACPC) export retention plan.
John Naranjo, commercial manager of Colombia's national Coffee Growers' Federation said no decision would be taken on the plan, put forward by African producers earlier this month, until an emergency ACPC meeting in Brazil in January.
So far Brazilian traders have been cool in their reaction to the suggestion. One Brazilian exporter, who did not wish to be named, has even said it may be part of a bluff by Colombia which, he added, "was showing signs of not having the coffee it says it has".
Under the terms of the retention plan -- designed to reduce inventories in consumer countries, thereby increasing the bargaining power of exporters -- ACPC members agreed in May to limit green coffee exports to June 1997 to 53.5 million 60-kg sacks.
But during their December 11 visit to Colombia, Ivory Coast Commodities Minister Guy-Alain Gauza and Abel Rwendeire of Uganda called for an additional cut of 2.5 million 60-kg sacks in the first half of next year -- a call backed by Colombia.
"I don't think our suggestion is unreasonable. There's a meeting towards the end of January and at that we will take a final decision. This will give the Brazilians a little more time to understand what the Colombian proposal is," Naranjo told Reuters in a telephone interview.
Colombia is forecast to export 11.5 million 60-kg sacks in the 1996-97 coffee year, according to the National Coffee Growers' Federation head Jorge Cardenas.
It is not fully clear what impact an increase in the ACPC export retention plan would have on Colombia's exports in the first half of 1997.
"The retention will not be proportional across ACPC member nations. It is more directed at coffee quality and will affect Robusta most. We cannot say how much Colombia would have to retain until we work out the exact division in January. But of course we would have no difficulty meeting our export commitments whether this measure was finally approved or not," Naranjo said.
On the home front, meanwhile, 1997 is predicted to be a year of "profound transition and adjustments" in Colombia's embattled coffee sector, according to Armando Montenegro, head of the National Association of Financial Institutions (ANIF).
"There will be many coffee growers who quit the sector, which is in a transition from a large sector to a smaller and more competitive sector which is not easy," Montenegro said.
Throughout 1996, Colombia's coffee growers have been hard hit by the strengthening peso, their continuing battle against the coffee borer bug and high interest rates.
Those problems could worsen in 1997 after the National Coffee Growers' Federation announced on December 5 it would cut immediately the internal coffee price by 14,000 pesos per 125-kg load in a move designed to save the Coffee Fund it administers an estimated $70 million.
The fund, which guarantees to buy all Colombia's coffee crop at a fixed price, is nevertheless expected to rack up deficits of almost $400 million by next September.
The government has accepted that many coffee growers may be forced out of business and labourers will be left without work. It has said it will back a restructuring programme but has not yet announced a budget for the programme.
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Rescuers struggled on Saturday to recover scores of bodies from the wreckage of a bus that plunged down a deep ravine in the Colombian Andes.
Red Cross officials said 37 people -- all members of a single extended family -- died in the crash and just three passengers survived, including a nine-month-old baby.
The bus ran off the road and plunged into a 1,500-foot (500-metre) chasm in a remote area of Narino province on Friday morning.
More than 50 volunteers took part in the rescue, which was made difficult by the extreme mountain conditions and hampered by thick fog and intermittent rain.
Rescuers were taking at least two hours to recover each body and Red Cross spokesman Mario Arias said it could take three more days to pull all the victims out of the ravine.
"The conditions are very dangerous and rescue work had to be suspended overnight and could only begin again at first light," Arias told Reuters in a phone interview from Narino, on Colombia's southern border with Ecuador.
"Rescue workers are having to abseil or scramble down into the ravine with the aid of ropes. The situation is just atrocious. It's taking us roughly two hours to bring each body out," he added.
The accident occurred near the town of Ricaurte as the bus travelled from Cali, the country's second-largest city, to Tumaco, a small port on the Pacific coast.
Arias said one of the survivors, Ana Maria Arboleda, 16, told him the vehicle swerved off the road when the driver, who died in the crash, tried to avoid rocks that had fallen on the highway.
Arboleda, her uncle Ambrosio Arboleda, 44, and nine-month-old Brian Montenegro were flung out of the bus as it rolled into the chasm. She suffered a broken arm and a cracked rib, and her uncle was only slightly scratched, Arias said. The baby has a cracked skull and is undergoing a series of emergency operations, Arias said.
Relatives and neighbours of the dead mourned the victims in their home city of Cali.
"This a tragedy. All these people were part of the same family," neighbour Eduardo Quinceno told the NTC TV news programme. All the dead worked in a small, family-run shoe factory, according to the Red Cross.
The fatal bus crash is the second in 10 days in Narino. Fifteen people died and 18 others were injured when a local bus flipped over and dropped into a ravine on Dec. 23. The latest accident is one of the worst in recent memory.
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Thousands of demonstrators thronged Bogota's streets on Sunday calling for an end to the crime wave that has turned Colombia into the kidnap capital of the world.
At least 1,100 people have been abducted this year -- more than half of those by the warring factions in Colombia's simmering internal conflict -- according to event organisers.
National Police chief Rosso Jose Serrano, who took part in the first march of its kind in Colombia, saw it as a direct challenge to leftist guerrillas, who fill their war chests with ransoms. Scores of others clutched photos in silent tribute to their loved ones -- kidnapped by criminals.
"When you're abducted, you become like the living dead -- it strips you of your soul. Today's march is a sign that civil society is saying no to kidnap," said Francisco Santos, founder of Pais Libre, an independent foundation that counsels kidnap victims' families and which organised Sunday's march.
Santos, part of the family that runs Colombia's leading newspaper, was kidnapped six years ago as part of a campaign unleashed by the late drug lord Pablo Escobar and his Medellin cartel.
In a move timed to coincide with Sunday's protest, one of Colombia's most-feared right-wing paramilitary leaders released the mothers of two guerrilla chieftains in the northwest.
The women were snatched in a wave of retaliatory kidnappings carried out by Carlos Castano's paramilitary gang in the last six months in a bid to persuade the guerrilla chief to halt its campaign of abductions.
An estimated 15,000 to 20,000 people took part in the march. Organisers put the figure at twice that.
Norberto Garcia, 62, tearfully watched the march and subsequent rally in the historic Plaza Bolivar square. Almost a year to the day his 14-year-old daughter Andrea disappeared on her way to school in a working-class district of the capital.
"When your child is kidnapped it is like your own life ends. It's the hardest thing for a parent to suffer," Garcia said.
Only last Wednesday, the country was rocked by the kidnap and murder of seven-year-old schoolboy Victor Alvarez in southwest Colombia. His corpse was dumped on the doorstep of his family home when his parents failed to pay a $10,000 ransom.
But in a country where even conservative estimates put the number of abductions at three a day, the tragedy of young Victor, of Papayan, was almost forgotten by Sunday.
Anti-kidnap czar Alberto Villamizar was jeered by crowds as he delivered a message from President Ernesto Samper pledging to crack down on kidnapping.
The catcalls were preceded by chants of "Serrano will save the motherland", in support of the no-nonsense chief of National Police, who heads the fight against kidnapping and drug-trafficking.
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Colombia's main oil workers' union, known for its fiercely nationalistic stance and opposition to multinationals, will merge with smaller labor organizations to form an industry-wide front, its leader Hernando Hernandez said on Friday.
The 5,700-strong USO union, which currently only represents workers of the state oil company Ecopetrol, will approve the decision in a general assembly on Monday in a move that Hernandez believes could eventually pave the way to a 40,000-member "super- union".
Foreign oil companies fear the move will give the USO a foothold in their fields, mostly operated by non-unionized workers, and that the union will sour labor relations with its aggressive, left-wing stance. They also accuse the USO of ties with leftist guerrilla movements, which frequently target the oil industry -- a charge union leaders deny.
"This merger will help us maintain union solidarity in the face of detrimental government policies and enable us to present a single platform," Hernandez said. "This will put us in a better position to defend the future of our natural resources....
At Monday's meeting in the oil production center Barrancabermeja, the USO will approve a merger with the Association of Oil Industry Workers (ASOPETROL), which has a small but established presence in a number of multinational oil companies.
SINTRAOXY, made up of U.S. multinational Occidental Petroleum workers, also seems set to heed the merger call.
Hernandez said the immediate effect would be the creation of a 10,000-strong organization, adding that non-unionized oil companies would be targeted in a drive to create a union 40,000 members to represent the entire industry.
This week the USO flexed its muscles and paralyzed the country's two main oil pipelines for the first time ever.
The 24-hour strike was to combat government plans to restructure Ecopetrol, which USO fears will lead to the company's eventual privatization, and to protest against British Petroleum's demands to renegotiate an association contract with the state oil company.
A foreign oil company senior representative, who did not wish to be named, described USO's merger plans as an USO ploy to regain control after seeing its influence progressively eroded by the entry of multinationals into exploration and production.
"The merger will complicate relations with our labor force and the prospect of having to deal with a belligerent labor union with close ties to the guerrilla movements is far from stimulating," the representative said.
Hector Penuela, head of ASOPETROL, confirmed the imminent merger with USO.
A Labor Ministry spokesman said there was no bar on the merger but said those unions involved would have to formally inform the ministry to gain legal recognition.
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The Colombian authorities hailed Wednesday the U.S. pilot who was killed during an anti-drug mission over guerrilla-infested jungles of southeast Colombia as a "hero fighting the scourge of narco-trafficking."
Robert Martin, 35, of Lubbock, Texas, died when his Turbo Thrush T-65 crop dusting plane crashed in Guaviare province Tuesday. He had been fumigating illicit plantations of coca leaf, the raw material for cocaine.
Colombian Defence Minister Juan Carlos Esguerra, police chief Gen. Rosso Jose Serrano and U.S. ambassador Myles Frechette were among mourners at a religious service in Bogota to honour Martin. A lone bugler played the "Last Post" and the U.S. flag was draped over Martin's coffin.
"We're not here to bid farewell to a pilot or to a U.S. citizen. We're here to say goodbye to a hero who decided to join us in combatting one of the worst scourges known to mankind -- narco-trafficking," Serrano said.
Police said Martin, one of six U.S. civilian pilots working in Colombia under contract with the U.S. State Department, was killed on the first day of his contract. Frechette said he was the first U.S. aviator to die on such a mission.
As police cadets mounted a guard of honour for Martin and three police helicopters flew in formation overhead, Frechette pledged the fatality would not affect U.S.-Colombian cooperation in the drug war.
The question of U.S. personnel taking a direct role in drug or counterinsurgency operations is a traditionally thorny issue because of what Colombian politicians see as the possible infringement of national sovereignty.
Crop-dusting planes come under frequent attack from armed gangs and leftist guerrillas who guard the clandestine drug plantations.
Police chief Gen. Rosso Jose Serrano said Tuesday there was a heavy rebel presence in the area but said there was no indication the aircraft had come under fire. He said a full investigation was under way, adding the most likely cause of the crash was human error or mechanical failure.
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Four people were killed and at least 33 injured on Tuesday when a powerful bomb ripped through a building in Monteria, the main town of Colombia's northwest Cordoba province, police said.
The blast occurred in the afternoon at the headquarters of the Fondo Ganadero, a fund set up to promote cattle-ranching in the province. Police chief Col. Gabriel Carrero blamed the attack on leftist guerrillas.
The explosion came a day after a 120 pound (50 kg) car bomb went off in Medellin, killing a woman and injuring 48 people. Authorities blamed that attack on drug traffickers in league with leftist guerrillas.
Marxist rebels and right-wing paramilitary groups have been waging a fierce battle for years in northwest Colombia where both blasts occurred.
"Nobody has officially claimed responsibility for this (latest) attack but we know it is the work of subversives, terrorists and vandals," Monteria police chief Carrero said.
The blast in the downtown area of the small provincial town was the second explosion Monteria has suffered in the last two months. An 88 pound (40 kg) bomb, hidden in a street vendor's cart, exploded outside the town's police headquarters on Oct. 21, injuring 10 people in an attack that was blamed on the Revolutionary Armed Forces of Colombia (FARC), the country's largest guerrilla movement.
It is not yet clear whether Tuesday's bomb may be linked to a communique issued on Monday by a hitherto unknown group calling itself the Special Anti-paramilitary Commando.
The group, claiming to be made up of ex-rebels who had previously given up the armed struggle, declared war on the country's burgeoning paramilitary gangs. Human rights groups accuse cattle ranchers of backing the paramilitaries.
Defence Minister Juan Carlos Esguerra said he believed Monday's attack in Medellin was in retaliation for approval last week by Congress of a new law to strip drug lords of their illict billion-dollar fortunes.
Colombia's major cities, and particularly Medellin, was scarred by a drug-fuelled campaign of bombings, assassinations and kidnappings in the late 1980s as the late cocaine kingpin Pablo Escobar waged war on the state in a successful bid to force Congress to ban the extradition of Colombians to the United States.
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Colombia's Foreign Relations Ministry said on Thursday it would give its "fullest attention" to recent accusations that oil giant British Petroleum was linked to political killings, but denied any official investigation was underway.
In a statement, the ministry said: "The allegations made (against BP) merit the government's fullest attention. But in the absence of judicial investigations it is irresponsible to give credit to such claims."
Attempts by the Colombian government to clear BP of the allegations fuelled new controversy on Thursday. Spokesmen at the chief prosecutor's office and for the attorney general said they had opened inquiries into a series of gross human rights abuses in the eastern oil-producing provinces of Casanare and Arauca, documented in a 1995 multi-agency report.
The report, a copy of which was shown to Reuters, blamed the military and paramilitary groups for seven murders since 1991 in Casanare, the centre of BP's Colombia operations, and another 17 in Arauca, Occidental Petroleum's base.
Neither company was mentioned by name but the report blamed oil companies for generating huge social upheaval in the region, stating: "The security forces are frequently operating outside the law and abusing peasants ... Oil exploration and production has generated harmful environmental and socioeconomic impacts and has provoked crime, sales of drugs and an increase in prostitution and begging."
In a statement last week, BP said it paid a "war tax" to the government, which was partly used for the army's counterinsurgency campaign against leftist guerrillas who regularly target foreign oil companies. It also said it provided non-lethal aid to the army and denied any links to irregular, or paramilitary forces.
In recent months British newspapers, based on first-hand accounts, alleged BP was behind the wave of killings carried out by right-wing death squads and the military in Casanare and had provided photos to the army of those community leaders opposed to its oil plans.
The backing for BP, Colombia's biggest single foreign investor, in a report that also praised its social contribution to the country, came the day after the government announced it would not sweeten the terms of its oil contract, which it complained was not profitable.
"We are investigating some of these accusations of extra-judicial killings and massacres contained in the 1995 report. It is certain the chief prosecutor's office is doing the same," said a source at the attorney general's office.
In a speech on Thursday, President Ernesto Samper rejected the European Parliament's recent stiff criticism of Colombia's human rights record.
"It is not true the Colombian security forces have developed an emergency strategy, characterised by aid to paramilitary groups, extra-judicial killings, torture and disappearances," he said at an official event in Bogota.
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The Ministry of Mines and Energy will investigate drug kingpins' alleged involvement in Colombia's oil industry, a spokeswoman said on Thursday.
State oil company Ecopetrol and a foreign multinational said on Thursday they had awarded multimillion-dollar service contracts to a company now thought to have been headed by suspected drug trafficker Pastor Perafan. But they said the contracts, some dating back to 1991, had been put out to bidding and there were no grounds for suspicion.
In a congressional debate on Wednesday, Margarita Mena, a former minister of Mines and Energy, said the once-powerful Medellin drug cartel had tried to invest in Colombia's oil industry in the late 1980s as a way of laundering profits from international cocaine trafficking. She did not say which companies were involved.
A spokeswoman at the Ministry of Mines and Energy said on Thursday: "An investigation will be organized. The process is likely to be a long one. It will begin with the formation of a special commission."
The current Mines and Energy minister, Rodrigo Villamizar, is likely to launch the inquiry formally when he returns to address Congress on Oct. 22, the spokeswoman said.
Villamizar opened congressional debate on Wednesday on the possible renegotiation of association contracts between foreign oil companies and Ecopetrol.
Mena's remarks, made during the session, took him by surprise. Afterward he told reporters he had not been aware of drug cartel efforts to muscle in on the oil industry but said he was concerned.
Earlier this week, Cromos magazine reported on Ecopetrol's and Occidental's business ties with Inversismica, a seismic surveying company in which it said fugitive businessman Perafan was the majority shareholder.
The prosecutor's office issued an arrest warrant for Perafan at the start of this year. A spokesman at the office was unable to say on Thursday whether Perafan, who is reputedly worth more than $12 billion, was involved with Inversismica. According to a recent report in Colombia's influential news weekly Semana, Perafan's investments include an oil pipeline project in the former Soviet Union.
An Ecopetrol spokesman said the state oil company had awarded seven contracts to Inversismica since 1991, including one to carry out a seismic survey of the Coporo field, a new find on Colombia's eastern plains that may eventually rival the Cusiana and Piedmonte fields.
He was unable to specify the total value of the contracts but said they would have amounted to hundreds of thousands of dollars.
Occidental signed just one contract with Inversismica, worth $1,500,000, between May 1995 and last June.
"When we had doubts about this company and after consultation with the head of police and the chief prosecutor, we canceled the contract. We do not want relations with any company that may be linked to narcotrafficking," the multinational's spokesman said.
An industry insider said he did not think it likely that drug traffickers would have sought to launder money in the oil industry, saying that all transactions were strictly controlled by the government and Ecopetrol.
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At least four people were killed and scores more injured on Tuesday afternoon when a powerful bomb ripped through a building in Monteria, the main town of Colombia's northwest Cordoba province, police said.
The blast occurred at 3:15 p.m. (2015 GMT) at the headquarters of the Fondo Ganadero, a fund set up to promote cattle-ranching in the province. Police said they did not know the motive behind the attack.
The explosion came a day after a 120-pound (50-kg) car bomb went off in Medellin, killing a woman and injuring 48 people. Authorities blamed that attack on drug traffickers in league with leftist guerrillas.
Armed left and right-wing groups are waging a fierce battle in northwest Colombia where both blasts occurred.
"I cannot say yet who was responsible for this attack," provincial governor Carlos Buelvas told reporters. "Everybody must be on their guard."
He said an emergency meeting of the provincial security council, which includes the military and the police, would be called to analyse the situation.
The blast in the downtown area of the small town was the second in Monteria in the last two months. An 88 pound (40 kg) bomb, hidden in a street vendor's cart, exploded outside the town's police headquarters on Oct. 21, injuring 10 people in an attack that was blamed on the Revolutionary Armed Forces of Colombia (FARC), the largest guerrilla movement.
It is not clear whether Tuesday's bomb was linked to a communique issued Monday by a hitherto unknown group calling itself the Special Anti-paramilitary Commando.
The group, claiming to be made up of ex-rebels who had previously given up armed struggle, declared war on the country's burgeoning right-wing paramilitary gangs. Human rights groups accuse cattle ranchers of backing them.
Defence Minister Juan Carlos Esguerra said, however, that he believed Monday's attack in Medellin was retaliation for approval last week by Congress of a new law to strip drug lords of their billion-dollar fortunes.
Colombia's main cities, and particularly Medellin, were scarred by a drug-fuelled campaign of bombings, assassinations and kidnappings in the late 1980s when cocaine kingpin Pablo Escobar waged war on the state in a successful bid to ban the extradition of Colombians to the United States.
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The general who led a bloody assault on Colombia's Supreme Court to quell leftist rebels holding 300 hostages in 1985 said on Friday that an attack was an option to end the Japanese embassy residence siege in Lima.
Gen. Jesus Armando Arias said Peru's President Alberto Fujimori should not cave in to the demands of the Tupac Amaru Revolutionary Movement (MRTA) to free jailed comrades.
Elite forces from the United States, Israel or Britain could flush out the rebels with a "minimum of bloodshed" if they refused to negotiate, Arias told Reuters.
More than 100 people, mostly hostages and including 11 top judges, died in the 27-hour battle Arias led to dislodge M-19 guerrillas from Bogota's Palace of Justice in Nov. 1985.
"Training techniques have progressed rapidly and there are elite forces that have the ability to seize back the (Japanese embassy residence in Lima) with the minimum of blood and damage," Arias said in a phone interview.
"But given the strong international interests in this case the Peruvian government should try to negotiate and reach an agreement. Bowing to the MRTA's demands on releasing prisoners would, however, set a dangerous legal precedent," he said.
Arias, who now teaches at a military academy, said he still believed the assault he led was the correct tactic. "The M-19 broke in killing people right, left and centre. We could only respond in kind to that type of violence," he said.
Television images showed tanks firing 90mm shells into the courts building before smashing down the steel entrance doors remain vivid. Dynamite and automatic weapons fire reduced the interior of the building to rubble. More than 11 years later it has still not been fully reconstructed.
Another official involved in that incident, former Justice Minister Enrique Parejo, said the Colombian military ignored the government's orders and went ahead with the assault. He said Fujimori must keep a tight control on Peru's military if he wanted to avoid another bloodbath.
Five years before the Palace of Justice attack, the M-19 stormed the Dominican embassy in Bogota. It held 57 hostages, including 19 diplomats, for 61 days before Fidel Castro intervened and negotiated the rebels' safe passage to Cuba.
The M-19 leader who led the Dominican embassy siege, Rosemberg Pavon, called on the MRTA earlier this week to keep its cool and offered to act as go-between in the Lima drama.
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President Ernesto Samper sent a message of condolences to U.S. President Bill Clinton on Wednesday after a U.S. pilot was killed during an anti-drug mission in southeast Colombia.
Robert Martin, 35, died when his Turbo Thrush T-65 crop-dusting plane crashed into dense jungle in Guaviare province Tuesday while he was fumigating illicit plantations of coca leaf, the raw material for cocaine.
"In the name of the Colombian people and that of my government, I offer sincere condolences for the tragic death of Robert Martin," Samper wrote to Clinton.
"His death is added to all those others that have occurred in recent years during our bitter fight against the poison of drugs. The memory of Martin, and that of our policemen and soldiers, will give us additional motivation to continue the fight," he said.
Police said Martin, one of six civilian pilots working in Colombia under contract with the U.S. State Department, was killed on the first day of his contract.
U.S. ambassador Myles Frechette said he was the first U.S. aviator to die on such a mission.
The question of U.S. personnel taking a direct role in drug or counterinsurgency operations is a thorny issue because of what some Colombian politicians see as the possible infringement of national sovereignty.
Samper said in his letter that Martin had been "training Colombian pilots in illicit crop fumigation."
But since October such "training" functions have extended to frontline operations, including flying live missions to spray coca leaf and opium poppy plantations, State Department officials told Reuters.
Crop-dusting planes come under frequent attack from armed gangs and leftist guerrillas who guard the clandestine drug plantations.
But police chief Gen. Rosso Jose Serrano said Tuesday there was no indication Martin's plane had come under fire despite a heavy rebel presence in the area. He said the most likely cause of the crash was human error or mechanical failure.
An accident investigation was under way and Martin's body was scheduled to be flown back to the United States Wednesday afternoon. He was employed by Texas-based aviation company Dyncorp, but authorities have not said where he was from.
Colombia's U.S.-backed drug crop eradication programme is the most ambitious in Latin America. Last year the Colombians destroyed about 14,000 acres (6,500 hectares) of poppy and more than 44,500 acres (18,000 hectares) of coca leaf.
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Colombia moved a step closer to lifting its five-year ban on extradition but backlash from drug traffickers began to be felt on Wednesday as a senator fled abroad to escape death threats.
In the second of eight scheduled congressional votes late on Tuesday, the Senate approved a draft law to overturn the constitutional ban on sending criminals to stand trial in foreign courts. But proposals in Congress to introduce stiffer anti-drug laws at home, including confiscation of drug barons' properties and longer jail terms, have stagnated.
This has led to a warning from the government, eager to win back U.S. certification as an ally in the drug war, that it may bypass Congress and push through some of the measures by decree, which could trigger a constitutional crisis.
Meanwhile, signs were growing that Colombia may be on the verge of a new terror campaign, mirroring the one waged by the late Pablo Escobar, head of the Medellin drug cartel, that forced the original extradition ban in 1991.
Police last week defused a powerful bomb in a vehicle parked outside a chemical plant owned by relatives of Senator Claudia Blum in Colombia's second largest city Cali, home to the cartel said to supply 80 percent of world cocaine. In another incident, a small bomb exploded outside government offices in Bogota.
Blum and other lawmakers in the forefront of efforts to lift the extradition ban and introduce tougher anti-drug laws have received regular death threats since mid-October. In a letter to congress on Tuesday, Blum requested a leave of absence and a spokeswoman at her Bogota office said on Wednesday that she had left for the United States.
"I understand she left because of the threats she has received. Her departure was rather quick and unexpected. She has gone for an indefinite period," the spokeswoman said.
Justice Minister Carlos Medellin welcomed Tuesday's senate vote, describing it as a "clear message that all political institutions are committed to strengthening our legal system".
But chief prosecutor Alfonso Valdivieso, an anti-drug crusader and a favourite of Washington, is deeply dissatisfied with the draft law to renew extradition. Echoing calls by the United States, he believes the law must be retroactive.
Valdivieso has also charged that the extradition law, if approved in its present form, would be virtually meaningless, since it would not allow for criminals to be extradited if they faced stiffer penalties abroad than those in force in Colombia, which the United States complains are too lenient.
The current bill would dash U.S. hopes of winning the extradition of the Rodriguez Orejuela brothers, the kingpins of the Cali cartel captured last year.
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Icy relations with Washington appear to be thawing and Colombia has its eyes firmly fixed on overturning its status as an international drug pariah by this spring, diplomats and government officials say.
Colombia spent most of last year smarting at the U.S. decision to "decertify" it -- strike it off its list of allies in the drug war -- citing lax anti-narcotics laws and President Ernesto Samper's alleged ties with drug lords. That led to a cut in U.S. aid and sparked angry protests by Bogota.
But, in an about-turn from his normally hostile stance, U.S. Ambassador Myles Frechette had glowing words of praise for the Colombian government on Wednesday.
"We're very impressed by the teamwork demonstrated by the foreign relations, defence and justice ministers (in anti-drug matters). I have now sent my report and that will have to be reviewed and evaluated in Washington," he said.
His comments, at a funeral service for a U.S. civilian pilot killed on an anti-drug mission in Colombia, contrasted with his criticism of anti-drug legislation in Colombia's Congress late last year, which caused a political storm.
Now Colombian authorities are hoping the appointment of outgoing Defence Minister Juan Carlos Esguerra as ambassador to Washington, a successful drug crop eradication programme and a new law to strip cocaine kingpins of their assets will convince the United States to recertify Colombia.
"We continue showing great political willpower to combat narco-trafficking and contribute to an efficient international struggle. Colombia deserves to be recognised and re-evaluated for the fight it has been waging on drugs," Col. Leonardo Gallego, head of the police anti-narcotics division, said.
Esguerra will take up his diplomatic post on Jan. 20 and has pledged to "hammer on all the relevant doors" in a bid to win back certification and the U.S. aid that would entail.
Former Justice Minister Enrique Parejo, an anti-drug crusader who survived an assassination attempt ordered by the late drug lord Pablo Escobar in the late 1980s, told Reuters on Thursday he thought it was likely Colombia would regain certification in March, but he still questioned Bogota's commitment to fighting the drug cartels head on.
"The jailed kingpins of the Cali drug cartel continue running their criminal empires from behind bars and in the short term I don't see the political will or the operational efficiency to be able to launch a frontal assault on drug trafficking," Parejo said.
"Colombia has been pressured by the United States into toughening its stance but I think Samper is looking to do just the bare minimum to regain certification," he added.
The United States annually certifies about 30 countries based on their cooperation in the international fight against drug production and trafficking. Decertification leads to a cut in most U.S. aid not linked to the fight against drugs.
In practical terms, Colombia has not suffered greatly from the reduction in aid because most of the U.S. financial help it receives is aimed at anti-drug programmes. Colombia is due to take delivery of 18 helicopters from the United States this year, enabling police to step up its drug crop eradication programme, seen as one of the most ambitious in Latin America.
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A U.S. pilot flying his first anti-drug mission in Colombia was killed when his plane crashed in a jungle area of southeast Colombia on Tuesday, police said.
The pilot was identified by police chief Gen. Rosso Jose Serrano as Robert Martin, 35. He was flying a U.S.-registered Turbo Thrush T-65 crop-dusting plane and had been fumigating illicit plantations of coca leaf, the raw material for cocaine. His hometown was not released.
U.S. ambassador Myles Frechette confirmed the aviator's death and said he was the first U.S. pilot, sent to the country under the terms of a U.S. State Department contract with the Colombian government, to die on such a mission.
He said Martin's body had been recovered and said the cause of the accident would be fully investigated.
"The most likely cause of the crash was human error or mechanical failure. Leftist guerrillas are present in the zone but this plantation was very remote and I doubt the rebels could have shot down the plane," Serrano said.
Police said it was the first day of the pilot's contract.
The crash occurred in a remote area of Guaviare province, one of Colombia's main coca producing regions. Martin was flying one of four planes on the spraying mission and was one of six U.S. pilots assisting Colombia's drug crop eradication programme.
Illicit plantations are often guarded by heavily armed gangs and sometimes by leftist guerrillas, which the government accuses of being involved in drug trafficking. It was not clear whether the plane had come under fire.
"Unfortunately narco-terrorists frequently fire at these (crop-dusting) planes. They don't know whether Colombians or Americans are flying them," Col. Luis Carlos Ortiz, second-in- command of the Colombian anti-narcotics police, told Reuters.
The U.S. pilots were originally only permitted to train Colombian pilots. But since October the Colombian authorities gave them the green light to fly live missions to eradicate coca leaf and opium poppy plantations.
All the pilots are civilians, employed by Texas-based aviation company Dyncorp, but a State Department spokesman told Reuters that some were former U.S. servicemen. Dyncorp declined to comment on the accident.
Last year Colombia's U.S.-backed drug crop eradication programme destroyed about 14,000 acres (6,500 hectares) of poppy and more than 44,500 acres (18,000 hectares) of coca leaf.
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Colombia has taken the first step to lifting a constitutional ban on extradition but the country's crusading anti-drug prosecutor on Wednesday dismissed the move as virtually meaningless.
Amid threats of a repeat of the bloodbath unleashed by drug gangs against extradition in the late 1980s, a Senate panel approved draft legislation late on Tuesday to lift the prohibition on sending Colombians abroad to stand trial
But chief prosecutor Alfonso Valdivieso said the measure prohibited as much as it allowed and threatened to hog-tie the government in endless red tape. He said the legislation should be strengthened before a final vote in Congress.
"What we should be doing here is lifting the 1991 ban, which was a national disgrace. But the text approved by the Senate doesn't represent any advance," he said. "I'm not saying it's a step back but it leaves us in exactly the same position."
The draft legislation approved by an 11-8 vote by the Senate constitutional committee was also unlikely to satisfy Colombia's critics in the United States.
If the draft survives a required seven more congressional votes, it would open the door to extradition in some isolated cases. But it would not be retroactive, ensuring that the Cali cartel drug lords jailed last year, the target of a U.S. extradition request in June, will never see U.S. courts.
Furthermore, the legislation would prevent the extradition of criminals who voluntarily surrendered to Colombian justice and forbid their handover if they risked receiving stiffer sentences abroad than those they would face at home.
One of the main arguments by U.S. authorities, who have long pressed for the extradition of drug traffickers, is that Colombian justice is too lenient and convicted drug lords continue running their criminal empires from behind bars.
Drug lords led by Pablo Escobar, the late and notoriously violent leader of the Medellin cartel, waged a nationwide campaign of bombings, kidnappings and assassinations in the late 1980s and early 1990s to force the government to impose the constitutional ban on extradition passed by Congress in 1991. Memories of the thousands of people who died in that campaign of terror are still fresh.
Death threats against extradition supporters have been scrawled in the last week on walls around Cali, home to the powerful syndicate that edged out Escobar's organization to become the world's major cocaine supplier.
A group calling itself "Colombians For Peace" issued pamphlets reminding people of the bloodbath of the 1980s because of the extradition issue. "Today that situation is once again threatening Colombia. Avoiding it depends on the government, congress and our judges," it said.
President Ernesto Samper, dogged by allegations of his own ties to drug lords, has said the extradition debate was poorly timed and insisted that priority should be given to his own proposal to introduce stiffer penalties for drug crimes.
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When novice torero Ricardo Gomez steps into the arena and faces down a raging bull, only his fast-developing flair and a passion born of poverty lie between him and a gory end.
Art and courage fuse as the 22-year-old swirls his cape and moves with the elegance of a dancer. The rays of the afternoon sun glisten on his Suit of Lights -- the bullfighter's traditional costume. But when the going gets tough, the 120 pound (54 kg), 5 foot 5 inch (1.7 metre) baker's son knows the most important lessons to remember are those he has learned growing up on the tough streets of Bogota, the Colombian capital.
"I've got more passion than a rich person. I've had to put up with things in my life that a rich person would not have to suffer and when I get in front of a bull I have the same attitude. My daily life has given me one of the most important lessons for bullfighting," Gomez explained.
As a hand-me-down from Spanish colonialists, bullfighting -- the so-called fiesta brava -- has the image of a wealthy man's sport in Colombia. But while most of those in the stands at the capital's 15,000-capacity Santamaria bullring are from the nation's elite, the ones at the sharp end come mostly from humble origins.
Gomez is one of the rising stars of Bogota's fledgling school for bullfighters. His training programme, which he began at 16, includes pitting his wit against a contraption that resembles a shopping cart with horns. And for the last four seasons as a novice, he has cut his teeth on fighting the smaller bulls.
Like scores of other youngsters, his dream is to become a top professional -- a major league matador. His performances on two consecutive Sundays in October have drawn rave reviews from critical crowds and the specialist press. If all goes well, he may get his chance at the big time when the main season starts in December.
"I've often thought what would happen if I don't succeed in becoming a matador but I don't worry. It's something that I have to achieve -- it's as simple as that," he said in a short break from training.
Even if he does succeed in following in the footsteps of his idol Cesar Rincon -- reigning king of Colombian bullfighting -- 1,300 pounds (600 kgs) of killing machine will not be the only obstacle between him and living happily ever after. The sport's patrons are a wealthy minority who often value political and social contacts above ability, making it difficult for poorly connected youngsters to rise on merit.
In addition, every time a Colombian steps into the ring, he is fighting to get out of the ghetto that he has been cast into by a sport dominated by Spaniards.
"Colombian bullfighters have always been on unequal terms compared to the Spanish. While the Spanish were going from one big bullring to another the Colombians have to travel by bus along dusty village tracks looking for bulls to fight," said matador Alberto "El Bogotano" Ruiz, the training school's resident instructor.
When young hopefuls between the ages of 13 and 17 arrive at the school, Ruiz watches closely for a rare combination of intelligence, physical fitness, bravery and "the poor man looking for fame and the chance to live a little like the rich man." Fellow instructor Pablo Becerra separates bullfighters into those who are brave and those with great artistry. The brave ones, he says, fill seats and make millions as crowds flock to feel the fear and see if the bull finally gets its own back.
But far from the macho world portrayed in novelist Ernest Hemingway's "Death in the Afternoon" and "The Sun Also Rises," the head of Colombia's only bullfighting school does have his sensitive side. "Of course it's cruel to kill the bull but that's our job," Ruiz said. "But it's not like killing an enemy. We try to do it the best way possible. The fiesta brava is all about courage and death."
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Latin America's oldest and largest guerrilla army on Wednesday hailed a Peruvian rebel group's storming of the Japanese ambassador's residence in Lima as a "spectacular and well-planned" attack.
Marco Leon Calarca, the international spokesman, based in Mexico City, of the Revolutionary Armed Forces of Colombia (FARC), defended the actions of Peru's Tupac Amaru Revolutionary Movement (MRTA), which launched the raid on Tuesday night.
He said armed struggle was often the only way to break the bonds of poverty imposed by an oligarchic system.
The Colombian authorities say the formerly pro-Soviet FARC numbers about 12,000 fighters. Independent political analysts say it has more than 18,000. The Cuban-inspired MRTA is thought to have no more than about 2,000 insurgents.
"The MRTA attack was spectacular and well-planned, which suggests it does have popular support. The MRTA, like all peoples of the world, has every right to fight by all means for basic rights," Calarca told Reuters in a phone interview from Mexico.
"People cannot be driven into extreme poverty without putting up a fight. They must defend themselves from the aggression of neoliberalism. The oligarchy is not simply going to hand over those rights," he added.
Members of the MRTA travelled to Colombia in the mid-1980s to fight in the so-called America Battalion, which also consisted of Colombia's leftist M-19 rebel group and Ecuador's Alfaro Vive Carajo! The battalion launched a failed attempt to create rebel liberated zones in Colombia, starting with the southwestern city of Cali. The FARC never joined the battalion because of military and political differences.
The FARC was set up in 1964 by Communists who had fought with self-defence forces set up by the Liberal Party during 10 years of virtual civil war that started in 1948. The government now accuses it of living off a vast fortune gleaned from kidnapping, extortion and drug trafficking.
It launched one of its bloodiest offensives in August, when it killed 27 soldiers and captured 60 in an attack on a jungle base in southern Colombia. It still has not released those captives.
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Mexican Foreign Minister Jose Angel Gurria on Thursday criticised the United States for its policy of rewarding or punishing countries based on their measures to fight drug trafficking.
During a visit to Colombia, Gurria said the so-called certification process was a barrier to cooperation in the war on drugs and renewed calls for scrapping the system, saying decisions were often based on ulterior motives.
"The process of certification inhibits cooperation and puts the country under scrutiny in a very difficult position. I believe there are much better ways of promoting cooperation," Gurria said at a news conference. He added that "the decision is often based on criteria other than those that one would rationally take into consideration."
Last year, Colombia was struck off the United States' list of allies in the drug war. Mexico came under severe criticism but managed to get certification and escape sanctions.
Mexico has since set up a ministerial contact group to address the issue with Washington, and that has led to an improved climate between the two governments, Gurria said.
Colombia has continued to come under heavy criticism from the United States for its perceived failure to crack down hard enough on drug trafficking.
Politicians and political analysts were divided on whether Colombia would regain certification this March in the wake of of a new law to strip drug kingpins of narcotics profits.
The U.S. Drug Enforcement Administration estimates that 80 percent of the world's cocaine is supplied by Colombia while more than half that on the streets of U.S. cities has been transported through Mexico.
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