ABN-Amro calls for end to `grey market'

ABN-Amro, one of Europe's leading banks, has called for an end to the "grey market" in shares which have not yet been issued. This type of trading artificially fuelled demand and inflated expectations, it said.

Mr Jan Kalff, ABN-Amro chairman, made the call as he defended the Dutch bank's role in the troubled flotation of World Online, Europe's largest Internet service provider. Shares in World Online have fallen to less than one-third of their offer price since the flotation last month. They have been hit not only by the global weakness in Internet and other technology stocks but also by the disclosure that Ms Nina Brink, World Online's founder, had sold most of her stake in the company months before the flotation at a fraction of the $40 (€43.33) offer price.

Ms Brink resigned as chairman on April 13th, although she will remain a strategic adviser.

Mr Kalff said he had publicly warned before the flotation about Internet euphoria which a "lottery without losses" stoked by the expectation of instant gains based on inflated prices on the grey market. The unofficial trading took place outside the Netherlands, where it is banned. ABN-Amro Rothschild, the Dutch bank's joint venture with the Rothschild investment banking group, and Goldman Sachs, the other global co-ordinator of the World Online issue, insisted the World Online prospectus had "accurately reflected all material information and conformed with the listing rules of the Amsterdam Exchanges".

Mr Kalff said ABN-Amro had no regrets about its role in the flotation and would take part in it again under the same circumstances.

Although Goldman Sachs made the joint statement with ABN-Amro Rothschild and took part in preparing a presentation about the issue earlier this week, Mr Kalff said the US bank had decided not to appear in public to discuss the matter because of pending legal action. "We are not hiding behind legal arguments," Mr Kalff said of his bank.

He said ABN-Amro had not considered compensating investors in World Online, and both the lead advisers would "defend themselves vigorously" against any legal action. The bank declined to say what its fees were for the initial public offering, apart from describing them as "normal" for such an issue. Fees for high-profile European high technology issues have crept closer to US levels of 4 per cent to 7 per cent. If this applied to the €2.9 billion. World Online issue, fees would have exceeded €100 million and perhaps €200 million. The phrase "grey market" has a narrow official definition but embraces a range of transactions before the start of official trading. Under London Stock Exchange rules, the grey market allows institutions to take positions in a short period, usually about a week, before a listing becomes unconditional. But even the grey market has a grey market, in the form of spread betting firms.