Select Committee on Treasury Minutes of Evidence


Examination of Witnesses(Questions 646-659)

MR JOHN HALL, MR DAVID THOMAS, MRS LEANNE BOWDEN AND MR ROLLY CRAWFORD

TUESDAY 29 OCTOBER 2002

Chairman

  646. Welcome to the Committee. I apologise for the last session running on but it was very important and we had precise questions to put to the witnesses. I am looking at the sponsoring role and we will see who wishes to answer the question. In your role as sponsor to proposed new investment trusts, what assessment would you make of the underlying soundness of the proposal? What input would you expect to make to the proposed board of directors of the trust to satisfy them that they are taking on a sound proposition?

  (Mr Hall) I will pass this one to Mr Thomas because that is his role.
  (Mr Thomas) That is indeed my role, Chairman. I use modelling, very extensive spreadsheet modelling, to work out the alternatives in front of me as a designer, if you like. I have to work out the set of proposals which is put in front of an existing board. Our aim is to have a prospectus which is gradually written by a team of people, which enshrines those proposals. There is a very considerable amount of discussion about the content which sometimes takes three or four months to settle. Our work ends when the prospectus is agreed by the Listing Authority, when the prospectus is handed over to the managers and the board and when the money has been raised in a placing. That is the end of my real involvement.

  647. How do you set about seeking support from institutional investors for new issues for placing your sponsoring? Would you routinely seek support from other splits for a new issue of the split capital trust?

  (Mr Thomas) I have been in this sector for more than 30 years, so I know all the likely people who will want to buy high-yielding stocks of this kind. I deal only with institutional, professional people who can understand the rather difficult descriptions that I write.

  648. Does that mean that none of us can understand them then?

  (Mr Thomas) One person around, not you, sir, wrote on Sunday that they could not understand David Thomas.

  649. You are referred to in the Sundays as "Dotty". That is your affectionate name, is it not?

  (Mr Thomas) I hope so, sir.

  650. "Dotty, the champion of splits". You are the Mohammed Ali of splits, they tell you, you have been around for so long. As the champion, the Mohammed Ali, why did it all go wrong? Why did it all end in tears?

  (Mr Thomas) I am not the Mohammed Ali; I am not the architect; I am not the father. There were people long before me who started the modern split trust companies. I started in 1969, about five years after these people were working. I can give you their names. I just happen to have been around a bit longer than my competitors who have obviously started to die off.

  651. You come here this morning blameless and pure?

  (Mr Thomas) I have a job to do, Sir. I am very sorry that people have lost money which you are associating with the job I do. I am prepared to defend myself and say I do the job properly.

Mr Plaskitt

  652. I want to look at the memorandum you have submitted to us in which you go to some lengths to explain which things you are responsible for and which things you are not. When you turn to the things which Brewin Dolphin does do, you say specific roles include advising on corporate capital structure. Mr Hall, could you expand a little on that and tell us what that means?

  (Mr Hall) That is directly, Sir, the area that our corporate finance department does—that David Thomas does—in relation to investment trusts. It is obviously a small, and kept very separate, segment of our overall business.

  653. So you are advising on the structure of these capital trusts?

  (Mr Hall) Yes. David advises and is part of the team that structures the trusts for the companies, and with other advisers.

  654. So Brewin Dolphin has some hand in the structure of these split capital trusts?

  (Mr Hall) Yes.

  655. That is useful. You go on to say that you have indeed recommended investments in zeros, income shares and split capital investment trusts to investors. You have recommended them? That is correct?

  (Mr Hall) Yes.

  656. You then tell us that you deal with individual investors, and everyone's investment needs are different, and in paragraph 11 you say you work with investors depending on what their time horizon is that they set and what their risk profile is which you agree with them. Right?

  (Mr Hall) Absolutely correct, Sir.

  657. Is it the case that you have ever recommended investment in a split capital trust to a client who specified they wanted a low risk profile?

  (Mr Hall) Are we talking about a zero here or an income share, or a zero preferred stock?

  658. Let me refer you back to your memorandum. In paragraph 10 you say you have recommended investments in split capital investment trusts.

  (Mr Hall) Yes, the answer would be yes so far as zero preference shares are concerned.

  659. Some of your clients will have specified in their risk profile they wanted low risk, I assume?

  (Mr Hall) Yes, and it is zero preference shares.


 
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