British supermarket chain J Sainsbury has said it may take legal action against Merrill Lynch for mismanaging its pension fund, hours after the US bank paid consumer goods giant Unilever to drop a similar claim.

"We have been following the Unilever/Merrill Lynch case with great interest," said a Sainsbury's spokesman. "We will be considering our position carefully."

Merrill Lynch did not admit responsibility in the Unilever case, but lawyers warned that its decision to settle out of court is likely to encourage other dissatisfied pension funds to take legal action.

Unilever took Merrill to court eight weeks ago, arguing that the US bank's high-risk investment strategy led to lower than expected returns for the Unilever pension fund during the late 1990s.

Merrill Lynch denied the allegations, launching its own court case against Unilever in a bid to claim unpaid fees.

Unilever claim shortfall

The Anglo-Dutch consumer giant originally claimed �130m in damages, but the final settlement, agreed earlier on Wednesday, is thought to be substantially lower.

The BBC's personal finance correspondent Andrew Verity told Radio 4's Today programme that the US bank is likely to have paid "well over �50m."

Nonetheless the settlement is still an embarrassment for Merrill Lynch, especially as the case was near to a conclusion when it was suspended, he said.

More cases are likely to follow. "An amazing number of fund managers underperform....It illustrates the point that fund management is an art rather than a science," Philip Augar, former fund manager and author told the BBC's World Business Report. "I think there is room for complaints and presumably for further litigation."

Missed targets?

The case has mesmerised the City of London, not least because it has set two of the Square Mile's most powerful women against each other in the witness box.

The trustees of the Unilever pension fund claimed that Mercury Asset Management (MAM), now part of Merrill Lynch mismanaged more than �600m of pension fund assets in 1997 and 1998.

Mercury Asset Management was built up from a small fund manager to a major player by Carol Galley, nicknamed the "Ice Maiden" for her cool demeanour, before it was bought by Merrill Lynch in November 1997.

Unilever says Mercury's fund manager, Alistair Lennard, who was supervised by Ms Galley, took risks with the fund money out of line with what had been agreed.

Wendy Mayall, the chief investment officer of the Unilever pension fund, has argued in court that this led Mercury to fall behind its target, costing Unilever's pension fund millions.

'Less experienced'

During the case, Ms Galley acknowledged that Mr Lennard, who was 27 when appointed to manage the money, was "greatly less experienced" than the rest of her management team.

After 1993, there was a conscious decision within MAM to increase the risks managers took with their investments so its performance could compete with rival fund managers.

That typically meant putting more money in fewer stocks in the hope of gaining more if they rose in price, but risking more if they fell.

"However sad and sorry I am to stand here talking about a period of disappointing performance," Ms Galley told the court, "I can look back with pride on what we achieved."

During the case, Merrill argued that Unilever was fully aware of its investment strategy, but made few objections until the risks it took failed to pay off.