DERIVATIVES LOSS DRIVES P&G TO COURT

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Advertising plays a supporting role in the lawsuit Procter & Gamble Co. filed last week against Bankers Trust Co.

P&G claims Bankers Trust failed to accurately and fully disclose information on the terms and risks of an interest rate swap in a derivatives transaction that began in 1993. As a result, P&G said it entered into a transaction against its policies that ultimately contributed to a $102 million after-tax charge to earnings for the third quarter, which ended March 31.

In the suit filed in U.S. District Court in Cincinnati, P&G claims Bankers Trust "holds itself out as possessing significant expertise in interest rate swaps and derivatives generally."

Bankers Trust positioned itself as an expert partly through advertising, the suit claims.

"The issue here is Bankers Trust's selling practices," Edwin Artzt, P&G chairman-chief executive, said in a statement. "Bankers Trust called themselves the experts and encouraged P&G to enter into a transaction we never would have accepted had it been fully and accurately presented."

The suit points to assertions in Bankers Trust's advertising.

The suit states: "Bankers Trust advertises that `no one will serve you better than Bankers Trust in your daily confrontations with risk' and that `Risk wears many disguises. Helping you see beneath its surface is the strength of Bankers Trust."'

Further, P&G cited Bankers Trust's 1993 annual report that described it as a "pre-eminent dealer of derivative contracts in markets throughout the world."

While P&G is not making advertising an issue, it is attempting to link claims in the ads by Doremus & Co., New York, to selling practices.

If P&G prevails, it might lead financial advertisers to back away from making claims that could come into question.

In response to P&G's suit, Bankers Trust said it is "confident that its actions in connection with its derivative transactions with P&G were legal, proper and appropriate. Specifically, we are confident that the nature of these transactions was disclosed fully to senior P&G officials."

The company further stated, "P&G's loss, therefore, was the result of market risks that the company knowingly took through a transaction that it understood fully and approved."

P&G is seeking $130 million in compensatory damages and unspecified punitive damages. It also asks to void and rescind the swap transaction.

Separately, the package-goods giant last week reported record sales and earnings for the quarter ended Sept. 30. Worldwide quarterly net earnings were $792 million, an 18% increase. Net sales jumped 8% to $8.2 billion.

Net earnings in the U.S. increased 12%, reflecting strength in the laundry and cleaning, paper, and food and beverage sectors. Domestic sales and unit volume rose 6%. International earnings increased 23% over the year-ago quarter.

"This was an excellent quarter," Mr. Artzt said in a statement. "The earnings improvement reflects strong worldwide unit volume growth and good cost control throughout the company."

Pat Sloan and Gary Levin contributed to this story.

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