The sheriff's shadow over Wall Street Brits

THE long arm of American lawmakers has finally reached into British boardrooms and, if you believe recent squeals, UK companies are about to revolt and quit the US stock market in droves.

The law in question is the Sarbanes-Oxley Act, introduced in the wake of the Enron and WorldCom scandals.

The Act requires board members to swear an oath that their accounts are accurate and demands that they have in place checks to assess internal financial controls on an almost constant basis.

This is, of course, US law, but the 72 British companies whose shares are listed on Wall Street are duty bound to comply. They range from banking giant HSBC to smaller firms such as computer games group Eidos.

Their complaint is simple: Sarbanes-Oxley costs a fortune to implement - £450m according to management consultant Parson - and it does nothing to improve financial security at British companies.

They have a year to comply, but already tales are emerging that some, such as Rank, are considering giving up their US listing.

BT chairman Sir Christopher Bland recently railed against Sarbanes-Oxley while others contacted by Financial Mail have complained that the act is 'onerous' and 'hugely expensive'.

In reality, few companies will abandon Wall Street. Yes, Lastminute.com is withdrawing its Nasdaq listing rather than pay an estimated £1.5m to comply. For a company with profits of only £4.6m, it is easy to see why a US listing might seem a luxury.

And German car group Porsche cited Sarbanes-Oxley this year as a reason for dropping plans to float in America.

This is not to suggest that Sarbanes-Oxley is unfair on foreign companies - if firms want to use the stock market of another country, they must be prepared to abide by local regulations.

But while most big companies with a large American shareholder base will remain, that does not mean that the Act will not alter corporate behaviour.

For example, smaller firms like Lastminute.com might well think the cost too great for the benefit derived and others may reconsider including Wall Street when they float.

That will shut down the US market as a source of capital for those who do not want to play by America's new rules.

Another unhappy side effect could be to roll back the steady progress towards truly international financial markets - at least across the Atlantic. And in the long run, that cannot be good for Wall Street.

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City analysts are unanimous that the Bank of England's Monetary Policy Committee will leave the base rate unchanged at 4.75% at its final meeting of 2004 this week.

In the summer, though, they were equally certain that rates would climb to 5.5% or beyond.

Now even highly paid analysts can make a mistake. But it might be worth questioning the current orthodoxy that borrowing rates have peaked, despite the softening housing market and the proliferation of High Street sales.

Take the views of Mike Lenhoff of broker Brewin Dolphin Securities.

He is puzzled over why the British bond and equity markets seem so sanguine about the near collapse of the US dollar from an average of $1.81 to the pound during the past 12 months, to nearly $1.94 with a 50p dollar easily within sight. Surely, Lenhoff says, this is bad news for dollar-earning British companies? So why the complacency?

Yet he reassures us with the fact that oil and other raw materials are dollar based while a large slice of revenues are denominated in the euro, which is now bestriding the currency world.

Well, yes. But there is another less comfortable deduction. That sterling is about to follow the dollar in freefall - not least because many of the American economic ailments that have brought the dollar low are, in milder form admittedly, infecting our own economy.

The US administration has a widening budget deficit. So do we. American consumers are borrowing heavily to finance a standard of living that they are not earning. So are ours.

The result is an enormous balance of payments deficit on both sides of the pond.

One sure way of closing a trade gap is depreciation of the currency - imports become more expensive while relatively cheaper exports more happily find markets.

However, more costly imports can stoke inflation and allowing the currency to depreciate does nothing to shrink excessive state borrowing and spending, which have inflationary ramifications of their own.

So there are arguments to suggest that rates might have further to rise. If so, the City can pat itself on the back for being right in the early part of the year, but take a wooden spoon for its current consensus.