HWP circus threatens Deutsche
marketwatch.com
DAVID CALLAWAY
HWP circus threatens Deutsche
Vote sale allegations denied by both sides
By David Callaway, CBS.MarketWatch.com
Last Update: 12:08 AM ET April 25, 2002
SAN FRANCISCO (CBS.MW) - The last time Deutsche Bank's fund
management business was in such trouble its star portfolio manager,
Peter Young, showed up in a British court wearing a woman's dress, wig
and lipstick.
This time the publicity could
be far worse.
The German bank's fund
business, Deutsche Asset
Management, is the focus
of allegations by dissident
Hewlett-Packard board
member Walter Hewlett that
HWP Chief Executive Carly
Fiorina bought its vote last
month to secure victory in
its bid to complete HWP's
merger with Compaq
Computer (CPQ: news,
chart, profile).
Both Deutsche (DB: news,
chart, profile) and HWP
(HWP: news, chart, profile)
deny any deal existed, and
Hewlett's own lawyer has
even called the allegations
"circumstantial." But if true,
the conflict of interest would
make the analyst research
scandal that is currently
raging on Wall Street look
like a garden party.
That a global investment
bank would lean on its
research department to
secure favorable
recommendations on
companies it is pitching
services to is one thing.
That it would lean on its
fund management unit to
compromise its fiduciary
duties on shareholder votes
because of business incentives is another thing entirely.
Fortunately for Deutsche, if Hewlett's folks had any direct evidence that Fiorina
bought its vote they would have used it by now. But the banking giant can't be
happy that it's suddenly caught in the tar pits of the HWP-Compaq proxy battle.
Every party in this debacle will emerge tainted in some way. As I've said before,
the deal will go through, but it will end up largely confirming Walter Hewlett's
suspicions that it was a bad idea.
For Deutsche, the unwanted publicity comes just as it was hoping the collective
memory of its clients had forgotten the Peter Young affair.
It was only six years ago this summer that Deutsche got sucked into one of the
great fund scandals of the 1990s, when portfolio star Young was caught in a
series of unauthorized trades that sank three of the firm's best European funds
and ultimately cost Deutsche about $600 million in fines and reparations to
shareholders.
The unraveling of the damage that Young had caused kept the City of London,
and the entire fund industry, spellbound for weeks. Then, just as it had started to
drop off the front pages of the business press, Young showed up at his court
hearing dressed as a lady, ensuring him immortality in the British tabloids as
one of the weirdest financiers of his day. He eventually was declared unfit to
stand trial.
Deutsche has moved well past that unfortunate incident, expanding its
investment banking presence in the U.S. and painstakingly repairing the
reputation of its fund management business worldwide.
Now comes the HWP circus to threaten all that hard work.
Is it reasonable to suspect that a massive company like HWP would exert its
buying power over a client to obtain a favor in a separate matter? Happens every
day in corporate America.
Would an investment bank sell its vote on a crucial deal in exchange for a $1
million payment and fees related to a $4 billion line of credit, as Walter Hewlett
alleges? Doesn't seem so far-fetched after what we've read lately.
We'll probably never know for sure. But whether Deutsche did or didn't isn't going
to tip the balance in this case. Barring an extraordinary piece of last minute
evidence, Walter Hewlett is not going to win this week.
It will, however, serve as discussion fodder for years to come as the inevitable
case studies, books, even movies come out about this historic proxy battle, all
with their own conspiracy theories about how Carly pulled it off.
That won't be good publicity for Deutsche, but at least this time it won't involve a
dress. |
