Personal Finance: Banks weigh in

Four times a year there is a confluence of forces that produces a subtle but significant change in our environment. One such event took place this week. I mean the meeting of the committee that determines the constituents of the FTSE 100 share index.

Membership of the FTSE is a coveted prize. If you are in there, there are natural buyers of your shares in the form of indexed funds. Consequently, the Footsie index can be a self-fulfilling prophecy. It is, after all, not just an index of the 100 largest companies. It comprises the 100 most successful shares. The meeting was bound to produce some surprises for those buying round the bottom. Two companies shot into the index - Norwich Union and Woolwich. Neither existed when the last revision of constituent companies took place.

But on this occasion the situation was complicated by two other major companies guaranteed a place. Mining group Billiton enjoys a near-pounds 5bn market capitalisation following its demerger from Gencor. Sun Life and Provincial, the insurer which includes the newly merged Axa, also gained entry with a market capitalisation of pounds 3.25bn.

The five new entries were rounded off by the more conventionally qualified Williams, worth pounds 2.8bn. The five that made way included Hanson, one of the original members of the index in 1984. Imperial Tobacco, a former Hanson company that was floated separately, also lost its place. With Tate & Lyle and Burmah Castrol also coming out, you can see how big you have to be to qualify. Loss of Footsie status also meant mild embarrassment for Mercury Asset Management.

Committee members use a formula which ensures that provided you are ranked above a certain level you are guaranteed a place. The FTSE 100 has been a great success. In 13 years it has become the bellwether for the domestic stock market. It may not have escaped your notice, however, that while one financial services business lost out, three have joined. The Footsie is becoming increasingly finance-based. Britain's largest company, HSBC, is a bank.

A reflection of corporate Britain it may be but whether it is a healthy development is another matter. It seems that if you want a slug of all that is best and biggest in Britain, it is to banks and insurance you need to look. Quite what happens when we enter a severe market downturn is another matter.

Brian Tora is chairman of the investment strategy committee at Greig Middleton. He can be contacted on 0171-655 4000.