Opinion: LSE gags do more harm than good

Sir Alan Sugar was one of the first I can recall to threaten a stockbroker with legal action - after the firm published a research note about his business that he did not like.

That was years ago. The criticisms in the report were watered down but Amstrad, Sir Alan's company, probably never subsequently got the share rating that, on the basis of its profit-and-growth record, it probably deserved. So it was something of a pyrrhic victory.

Since then, suing investment banks and analysts has become much more common, though not as common as in France, where the ‘Anglo-Saxon' investment banks are a favoured target and all sorts of accusations of conspiracy and dark deeds routinely fly around courtrooms.

But again, legal action rarely helps the company, which makes this a tough one for the executives concerned. Last week, GCap Media, the business formed last year by the merger of two of the largest radio groups, GWR and Capital, was on the wrong end of a blast from Merrill Lynch.

One of its analysts forecast that GCap's profits would be so low as to threaten to breach the loan agreements between the group and its bankers. The company and chief executive are in a bind because it is scheduled to issue a trading update soon, and so the London Stock Exchange rules limited what it could say to a rather feeble comment that the report was ‘speculation'.

The trouble is that everybody knows the advertising markets for newspapers, television and radio are absolutely dire, so it is quite believable that profits at the radio group will be below even the currently reduced expectations.

The added prospect of trouble with the bankers gives this story a further uncomfortable twist, so most newspapers last week gave many column inches to Merrill Lynch's allegation, yet only one paragraph devoted to the denial. Not surprisingly, shares fell. The LSE rules are meant to protect investors, but they often do the opposite.

Firms are often restricted in what they can say. The press and analysts have no such gags, so companies have no mechanism to combat allegations they believe to be untrue. The allegation goes round the world before the truth has got its boots on. Gags protect no one. It is time we stopped pretending they do.

Anthony Hilton is City commentator on London's Evening Standard

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