The temptation of St David
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The temptation of St David

It's not often you get a morality tale in the bond markets. But when an obscure line of postal bonds grabbed the attention of traders in London, the conflict of interest that haunts all investment banks came horribly alive. One man decided that his bank's relationship mattered more than short-term gain, and he gave his traders' profits back. Was this the action of a saint, or just good business sense? Steven Irvine reports.

How the trade worked

Global co-ordinators of Italian privatization offerings (including warrants)
January 1 1993-­December 13 1996
Position Manager

Amount ($ million)

1 Istituto Mobiliare Italiano 13,629
2 Credit Suisse First Boston 9,016
3 Goldman Sachs 3,912
4 SBC Warburg 2,729
5= Banca Commerciale Italiana 1,611
5= Lehman Brothers 1,611
7 Credito Italiano 1,030
8 Morgan Stanley 639
9 Banque Paribas 329
10 Merrill Lynch 288
Source: Capital Data Bondware

It was a dilemma worthy of a parable. Would the former US treasury under-secretary round on his money-hungry bond traders and make them give their profits back? Or would he tell the client that this had simply been too good an opportunity to miss ­ and risk scuppering for years one of the firm's best sovereign relationships. In the event, David Mulford's choice may be remembered as the occasion when an investment bank finally put its money where its mouth is.

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