Flawed judgment of Paris

INVESTMENT banking analysts have been battered enough by Eliot Spitzer's reign of terror in New York. Now the French courts have added to their woes.

The ruling that Morgan Stanley luxury goods analyst Claire Kent defamed LVMH by publishing incorrect information about the luxury goods firm will have compliance officers quaking.

It could be argued, as it was in court, that as investment bankers to Gucci, Morgan Stanley had a vested interest in denigrating LVMH. And in the cutthroat war of high fashion, stilettos are always drawn. Naturally, Morgan Stanley is outraged and intends to appeal.

The French court has ruled and awarded compensation, so it would be chutzpah for us to question the verdict.

But knowing the intense nationalism which drives French business and official policy, one has to wonder whether an American investment bank, representing rival Italian interests, could ever receive a fair hearing. Certainly, if as the court found, there were errors of fact in Morgan Stanley's analysis, then the investment bank should have no case.

But if it was only that the analyst's judgement was questioned, then there are far bigger issues at stake.

Analyst reports are part of the information flow on which markets in shares are made. The better the quality of the research, the more perfect the market.

If the French court decision means cutting back that information flow and turning analysts' reports into bland restatements of the company's trading information, then they become worse than useless.

As long as investment banks maintain strict barriers between banking and analytical work, their researchers should be free to pronounce as harshly as is justified, even if dealing with rival companies.

The Paris decision is a blow to freedom of investment comment. It should not become a precedent, which drives ground-breaking analysis underground.

Tricky Trichet

Just across the Alps, another Frenchman was doing a U-turn. Speaking in Basle, Jean-Claude Trichet, president of the European Central Bank, complained that the 'excess volatility and brutal moves' on the foreign exchange markets - where the euro has rocketed against the dollar - 'were not welcome and not appropriate'.

This was in stark contrast to Trichet's comments in Frankfurt less than a week ago when he predicted that European exporters could live with the new super euro.

His initial comments had the effect of driving the dollar down and the euro higher - which cannot be what he intended.

It will become increasingly hard for the ECB to set its face against a cut in euroland interest rates from the present 2% if the single currency remains so firm.

The monthly session of central bankers at the Bank for International Settlements in Basle must be regarded as a rehearsal for the G7 session in Florida, which takes place early next month, when finance ministers will be present.

There are serious concerns - particularly in France - that with the euro trading close to $1.28, recovery hopes in the euro area will be dashed.

Gordon Brown cannot look at the rise in the pound to $1.85 with any complacency.

It may already mean lower import prices and give a temporary fillip to corporate Britain as it seeks to boost profits. But this will be short lived.

Over the long haul it could both endanger exports and the repatriation of income by the US subsidiaries of British companies.

This will be particularly true if inadequate hedging has been put in place.

The dollar may have been steadier in the latest trading, but the currency markets are heading into crisis territory.

Paddington squash

It is not just the seasonal sales figures which have gone awry at Marks & Spencer. The group has fumbled its much-trumpeted move to Britain's first wireless HQ at Paddington Basin, too.

When it announced the shift from Baker Street in 2001, there was no question that the 3,000 head office staff could be safely quartered there. Now it has been discovered that the group has 700 too many people, partly as a result of the Lifestore and Simply Food expansion.

Chief executive Roger Holmes will have to wield the axe or accept that a rump of staff, probably from the tax and accounting departments, has to remain behind at 27 Baker Street near the old head office.

Previously, the main complaint about Paddington was the lack of parking. Now staff will be expected to camp out with laptops in the shiny new canteen.