There have been cases of competition between the commercial bank and the investment bank and confused lines of communication

There have been cases of competition between the commercial bank and the investment bank, and confused lines of communication.Moves are afoot to co-ordinate CS and CSFB more closely, and also to work towards an integrated pan-European investment banking operation that would report to Zurich directly rather than via New York.But CSFB starts with a big advantage over Continental rivals seeking global investment banking reach in that it is the only one with a significant presence in the key US market.. CS Holding management has come under increasing pressure, particularly in the light of recent consolidation in the global investment banking sector, to tackle the problems associated with its structure of relatively autonomous regional operations. "They are being the most aggressive on costs of all the big banks reporting at the moment," Ms Manton said.CS Holding said the return on equity fell to 8.7 per cent in the first half of 1995 from 8.8 per cent a year ago.The tight control on overall costs was maintained despite restructuring charges in the US-based investment banking business, Credit Suisse First Boston. Analysts were impressed by CS Holding's grip on costs, with a 1 per cent increase in staff costs and a significant 11 per cent fall in operating expenses. They probably made some mistakes."The increase in trading revenues to Sfr1.1bn largely helped to offset the 13 per cent drop in net commission income to Sfr1.7bn in the first half. The 20 per cent gain in trading is perhaps disappointing given that Credit Suisse is the biggest Swiss trading house.

JOHN EISENHAMMER Financial Editor CS Holding, one of the three Swiss banking giants and parent of Credit Suisse, reported a 3 per cent drop in underlying first-half net profit to Sfr 691m (pounds 373.5m).This was in line with analysts' expectations and the bank said it was a "good result considering 1995's slow start".First-half net profit showed a 2 per cent rise to Sfr749m thanks to the extraordinary gain from the sale of a 20 per cent stake in the derivatives business, CS Financial Products, to Swiss Re.Sarah Manton, analyst with Smith New Court, said: "These are quite good results, with no real surprises. Potential losses from a Mexican default after last December would therefore have been widely distributed through the international financial system.The IMF also said that developing nations' financial markets functioned smoothly after the latest Mexican crisis; although they suffered losses, they were back to previous levels. "There was no evidence of freezing up, despite the fact that a number of equity markets were confronted with historically large price declines and large volumes," the report said.The lesson? Developing countries must maintain the confidence of their own local investors as well as wooing the world's financiers, now that global financial liberalisation and changes in technology make it easier to move funds around.. It cautioned, however, that it is often difficult to distinguish precisely between domestic and foreign investment transactions.Despite dire warnings at the time by Mr Clinton and others - including Robert Rubin, the US Treasury Secretary, the Fed's Alan Greenspan and Michel Camdessus, the IMF managing director - the report played down the extent of the threat that the Mexican crisis posed to the stability of the international financial system.It suggested that the risk was less serious than during the 1982 debt crisis, when the potential default by Mexico and other Latin American nations threatened to put some of the world's top commercial banks out of business.Large banks' direct exposure in Mexican debt is now comparatively small while institutional investors such as mutual funds and pension funds are large holders. That, in turn, led to a withdrawal of foreign capital, threatening Mexico with insolvency and sending shock waves throughout Latin America. Most foreign investors began off-loading their peso assets only after the devaluation, the report said. PHIL DAVISON Latin America Correspondent Mexico's own wealthy elite, rather than US and other foreign investors, precipitated last December's devaluation and financial crisis by panic selling of their peso holdings, according to a report by the International Monetary Fund.The report, part of the IMF's annual survey of global capital markets, conflicted with earlier theories by President Bill Clinton, the US Federal Reserve - and even IMF officials themselves - that foreign investors, jittery over Mexico's political problems, had sparked the Mexican crisis by dumping their peso holdings."The available data shows that the pressure on Mexico's foreign exchange reserves during 1994, and in particular just prior to the devaluation (on 20 December), came not from the flight of foreign investors or from speculative position-taking by these investors, but from Mexican residents," it said.The IMF estimated that Mexicans, many of whom hold dollar bank accounts in US border towns, sold off pounds 3bn worth of stocks, bonds and pesos in December alone, representing more than two-thirds of that month's plunge in Mexico's foreign currency reserves.This capital exodus set off a downward spiral in Mexican financial markets, forcing the devaluation.

South Wales Electricity is considered vulnerable but recent takeover talk has centred on London Electricity.Comment, above. Elsewhere, bid speculation continued in the sector, with Houston Industries of the US tipped as the next predator. The latest job reductions would leave the workforce at 2,792 compared with 4,561 five years ago.Manweb's shares fell 1p to 886p yesterday on continued speculation the bid will be referred to the MMC. Mr Roberts said that Manweb had a better record of cutting distribution and supply costs than Scottish Power and had reduced its head-count ahead of forecast. We will exploit all the options available to us."One analyst believes the defence from Manweb could be delivered as a pounds 400m package, worth about pounds 4 per share including cash, preference shares and the grid shares.Manweb's defence focuses on the company's adherence to the core distribution and supply business, and its attention to costs. The figures emerge in the company's first formal defence document, which promises to "release substantial value to shareholders" in cash and the company's shares in the National Grid.Manweb declined to give figures, but some analysts expect that the package is unlikely to be as generous as the pounds 5 per share being paid by Northern Electric.John Roberts, Manweb chief executive, said: "At this stage we have no tangible detail but we have a very strong balance sheet and very high dividend cover.

MARY FAGAN Industrial Correspondent Manweb, the regional electricity company fighting a pounds 1bn bid by Scottish Power, has cut 1,000 jobs since March. In particular, there are fears that the true extent of the housing loan crisis has still to be revealed.. Mitsubishi Bank and Sanwa Bank short- and long-term debt ratings were placed on credit watch negative along with the long-term ratings of Dai-ichi Kangyo Bank, Fuji Bank and Sumitomo Bank.Japanese analysts estimate that bad loans in the financial system total some 40,000bn (pounds 275bn), while private analysts believe the real figure could be much higher. It is a reminder that bad and doubtful loans on the banks' books are still rising."Standard & Poor's yesterday placed the debt ratings of five Japanese banks on credit watch with negative implications, citing the "length and severity of the problems facing the Japanese banking sector that have heightened the industry's overall risk profile". JOHN EISENHAMMER Financial Editor The Japanese authorities' efforts to stem the erosion of confidence in the domestic finan- cial markets were dealt a severe blow yesterday by poor credit ratings for the banking industry from Moody's and Standard & Poor's.The long-awaited financial strengths ratings from Moody's Investors Service, the rating agency, amounted to a harsh assessment, according the large banks a below-par C rating, and the trust banks and regional banks low D and E ratings.This is the first time that Moody's has rated Japan's 50 leading banks, ravaged by bad loans following the bursting of the land and asset price bubbles of the early Nineties.The C rating for the leading financial institutions is lower than ratings Moody's would normally have given big commercial banks in other industrial countries.Stephen Lewis, of London Bond Briefing said: "The Moody's rating decision will tend to undo whatever good the Ministry of Finance and the Bank of Japan have achieved in allaying market concerns over Japanese bank stability.

There was no approach either direct or indirect."Investment Column, page 18. Mr Whelan said he was not aware that any attempt had been made to contact him "I am always at the end of a telephone. I do not know that we have a stopping point," he said.Arco is to meet the Department of Trade and Industry - which will have to approve any takeover - this week.The company also said it had requested a meeting with Aran through Morgan Grenfell, but had not heard from them. In 1987, less than 10 per cent of group reserves were overseas, rising to 21 per cent last year, and the UK is already one of the most important areas "We wish that trend to continue. It is a balanced package," he said.Mr Dallas said Aran fitted Arco's strategy of increasing its reserves outside the US.