View from City Road: Creditor banks caught in a trap

SHAREHOLDERS in WPP Group are due to vote today on a restructuring that will hand majority control of the company to its bankers. It is a well-trodden route. In restructurings as diverse as Brent Walker and Trencherwood banks have effectively been left in control of companies that have hit financial problems.

But, having been given this power, there is little evidence to show that they know what to do with it. In the case of Brent Walker the banks are having a simmering row with Ken Scobie, the chief executive they installed at the group, which has prevented the appointment of a new chairman.

At Mirror Group Newspapers, where the banks control 54.8 per cent as creditors of the Maxwell private companies, the administrator acting for the banks has ruled out a short-term sale of the company.

In both these cases the banks are caught in the trap of not making long-term decisions about what they want to do with their shareholdings. Almost inevitably the banks start from a position of having shares that are difficult to sell. They appear only to look for the exit, making a series of short- term decisions, which they roll over.

On the Continent, where banks are used to being shareholders, they make commitments to supporting management, which strengthens the companies.

Though it may not be practical to give open-ended commitments, most UK banks have expertise in their own investment management operations on how to be intelligent shareholders by, for example, pressing for well-structured boards.

Saving companies from the receivers is not enough. You have to know what to do next.