Jeremy Warner's Outlook: Fantasy bid does for M&S what trading won't

Bank bashing - Stansted/Heathrow
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The Independent Online

So Philip Green isn't going to bid for Marks & Spencer, but an unknown South African "billionaire" is. The juxtaposition of announcements yesterday - Mr Green formally through the Stock Exchange confirming what he's been saying privately for months, and the mysterious Mark Paulsmeier who through a poorly worded press release says that he's all but ready to go with an offer of 410p a share - could scarcely be more startling.

So Philip Green isn't going to bid for Marks & Spencer, but an unknown South African "billionaire" is. The juxtaposition of announcements yesterday - Mr Green formally through the Stock Exchange confirming what he's been saying privately for months, and the mysterious Mark Paulsmeier who through a poorly worded press release says that he's all but ready to go with an offer of 410p a share - could scarcely be more startling.

Mr Green first. Following his failed bid last summer, Mr Green is heartily fed up with stock market speculation that he's about to come back for a third bite at the cherry. It was doing his head in, it was bad for his other retail interests, Bhs and Arcadia, and he's frankly got better things to do with his time. Note that the statement only binds him for six months, and that if someone takes a pop at M&S in the meantime, he reserves the right to counterbid.

In point of fact, Mr Green would be mad to bid until he's got a better idea how the latest chief executive to chain himself to the mast, Stuart Rose, is doing with his turnaround strategy, or indeed what the outlook for consumer spending might be. The time to pounce is when it becomes obvious Mr Rose is failing, so yesterday's statement costs Mr Green nothing.

As for Mr Paulsmeier, for someone who claims on his website to be "international man of the year" and founder of the "global association of billionaires and millionaires", surprisingly little is known about him. Indeed an exhaustive trawl of international contacts by some of the world's best connected investment bankers has failed to unearth any support whatsoever for his claims of unlimited funding.

There was much tut-tutting among regulators yesterday about how on earth the story came to command space attention from the national press, to which the answer must be that the press is filled with trivia, most of it designed not to inform, but to add to the general gaiety of life. In any case, I think I'm on safe ground in promising to eat my hat if Mr Paulsmeier comes up with the money. My own private equity house, Warner Worldwide Enterprises, would stand more chance of raising the funds on the terms proposed than Mr Paulsmeier. Still, his interest, however fanciful, did at least help the share price to get a little bit closer to achieving Mr Rose's goal - the 400p he turned down from Mr Green last summer. He needs all the help he can get, for the trading outlook alone doesn't support the price at this level quite yet.

Bank bashing

Record profits mean it's bank bashing time again and, true to form, Britain's bank basher in chief, the former telecoms regulator Don Cruickshank, has come back out to play. Not content with the couple of newspaper interviews he did last week, he yesterday penned a full scale broadside in the Financial Times. And he plans to build on his theme - that venal Treasury mandarins looking for lucrative jobs in the City knobbled his Government-commissioned report on the supposedly profiteering banks - in a lecture at the London Stock Exchange tomorrow night.

In launching his attack, Mr Cruickshank has all but named Sir Steve Robson, former head of the financial services division at the Treasury, as the civil servant who did most to suppress his report, this for the alleged purpose of getting a job at the Royal Bank of Scotland shortly thereafter.

The reality of how the Cruickshank report - "Competition in UK Banking" - came to be played off into the long grass is rather different. There were bits of the report, particularly its allegations of profiteering in small business banking, which may have had some merit, but its two central recommendations were never going to fly. Foolishly, the Chancellor none the less announced he would implement them. Remember, this was at the height of the Government's "rip-off" Britain campaign. It rapidly became apparent that this would be at best wholly pointless and at worst quite destructive. The promise of implementation was quietly forgotten.

The main recommendation was that a regulator, PayCom, be set up to ensure competition in the payments system. This was vehemently opposed, not so much by the Treasury as by the Bank of England, which is responsible for oversight of the system. The Bank's view was that in regulation, PayCom would only replicate what the Bank already did, while if there was a competition concern to be addressed, this would be more properly left to the Office of Fair Trading and the Competition Commission.

The second recommendation was that the then still nascent Financial Services Authority be given a statutory duty to promote competition in banking and financial services alongside its responsibility for consumer protection. Again, the FSA opposed the idea on the grounds that it would lead to "cross-eyed regulation". Indeed the idea had already been exhaustively debated in Parliament, where it was largely rejected on the grounds that to give the FSA a duty to promote competition would make the FSA too intrusive as well as interfere with its primary purpose of prudential regulation.

For instance, if the FSA had substantially lowered the regulatory barriers to entry so as to enhance competition in the banking sector, this might have opened to the floodgates to a host of fly-by-night operators, who would exploit the various protections set up for the benefit of consumers and thereby undermine them. For most industries, free markets are the best form of protection there is. In financial services, with people's savings riding on the existence of adequate safeguards, it is not that simple.

As the banks again report an embarrassment of riches, Mr Cruickshank's contention is that the one thing that might have done something about it - his report - was subverted by Treasury officials who wanted to go off to smart jobs in the City. This is vindictive paranoia. UK banking may well be over regulated, and it could certainly do with more competition. Yet it is surely better to have a highly profitable banking sector, financially capable of supporting the economy's needs, than a bust one, as they do in Japan and Germany. That was what the argument was really about, only Mr Cruickshank is too arrogant to know when he has lost it.

Stansted/Heathrow

Amazing what turns up these days on the Treasury's website courtesy of the Freedom of Information Act. It was only last Friday that a High Court judge upheld the Government's decision to site a second runway at Stansted. By yesterday morning, the confidential Treasury memorandum submitted during the course of the hearing was there on the internet for all to see.

Unlike Tony Blair, the Chancellor, Gordon Brown, was in favour of the new runway going to Heathrow and not Stansted, this on the grounds that the world's busiest international airport held greater appeal for air travellers than ending up in the middle of Essex.

No surprise, then, to discover that the Treasury document raises serious reservations about whether a second runway at Stansted can be financed. In a classic piece of mandarinese, it concludes that "we cannot state categorically that a new runway at Stansted is not financeable on a standalone basis but due to the higher degree of revenue risk BAA could choose to delay the development to allow the financing situation to improve".

In plain language, the Treasury is saying that if the runway is to be built by 2011, then it will probably have to be cross-subsidised by passengers at Heathrow and Gatwick because the low-cost airlines which use Stansted will not put up with the increased landing charges. Even though BAA has halved the estimated cost of the runway to £2bn, Stansted's biggest user Ryanair says that this is still 10 times greater than it needs to be. Yet the alternative of spreading the financial burden to British Airways passengers at Heathrow and Gatwick is guaranteed to cause equal protest.

As this runway will be the first built in south-east England for more than half a century, it is worth getting the decision right. A betting man might still put his money on Heathrow having its third runway before Stansted has a second.

jeremy.warner@independent.co.uk

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