Any survivor of Lloyd's will be a different beast

COMMENT: "The very survival of the world's most prestigious insurance market would appear to depend on pulling off a remarkable hat-trick of deals and settlements"

Time has been called wrongly so often before for Lloyd's of London that it scarcely seems possible the market has this time reached its final denouement. Should the latest bout of anguish about its chances of survival be taken any more seriously than previous ones? The answer is probably yes. Any temptation to ignore it will have been smartly knocked on the head by the revealing statement yesterday from David Rowland, chairman of Lloyd's. Bringing it out early in response to the media uproar was probably intended to calm nerves. If that was the idea, however, Mr Rowland seems to have missed the mark, for what the statement does is leave the reader in no doubt as to the severity of the plight at Lloyd's.

The very survival of the world's most prestigious insurance market, and a pillar of the City financial establishment, would appear to depend on pulling off a remarkable hat-trick of deals and settlements - settling litigation with disgruntled names; fencing off all past liabilities into a separate company; and extracting new capital from names. The fact that the Lloyd's management is confident of passing the vital solvency test this year is little reason for comfort. The figures are likely to be fudged just as they were in 1994 to allow the market to squeeze through. But with each year Lloyd's slips nearer the edge, and the 1996 solvency test, as management has now conceded, poses a real problem.

Mr Rowland's statement expressed the belief that whatever needs to be done for the 1996 solvency test to be satisfied would be done. But he offered nothing more concrete than that. There is, of course, much brinkmanship going on as Lloyd's teeters on the edge of the abyss, most obviously in the legal wranglings between Lloyd's and the hundreds of names seeking redress. But it is no less evident in the gamble by the management. If it can achieve the near-miracle of settling the litigation and capping the old liabilities, then there is a good chance of government providing some form of assistance to carry Lloyd's through its short-term difficulties.

Lloyd's is in a different league to Barings and plainly cannot be allowed to go to the wall. The effect on the standing of the City would be severe. The Government can't step in to help individual names, but it may be able to find a way of underwriting a separate company set up to cover all the old liabilities, if Lloyd's manages to get this crucial part of its survival package in place.

If Lloyd's is to continue trading, there may be no alternative to some form of discreet public assistance. But should that stage be reached, and there are still many hurdles to be cleared, it will be a very different Lloyd's that looks for a new start. Gone will be the market's tradition of individual names carrying unlimited liability. Corporate money and syndicates that act like ordinary insurance companies will rule the roost.

Breath of fresh air at the Bank

The appointment of Howard Davies as deputy governor of the Bank of England is something of a coup for the Bank's campaign for full independence. It should therefore come as no surprise that it was Mr George who apparently first approached the head of the CBI.

Unlike Rupert Pennant-Rea, who was as surprised as everyone else at his appointment in 1993 - if not at the manner and occasion of his departure - Mr Davies is a real heavyweight. We may safely assume he would not be going to the Bank if he thought it was going to stay embalmed in its present curious, semi-independent state.

At the tender age of 44, Mr Davies is the nearest thing Britain has produced to a French narque, that member of a caste of elite officials destined to glide effortlessly between the public and private sector on an ever- ascending flight path. That career has taken him from stints at the Foreign Office and the Treasury to management consultants McKinsey, and thence to the Audit Commission and the CBI. However, Mr Davies, who likes to cycle to work and backs Manchester United, will bring to the Bank not just breadth of background but a refreshing irreverence of approach and independence of mind.

Unlike so many, he has not been afraid to cross swords in public with the Treasury, criticising its negative approach and calling for it to be split into two ministries, one to control spending, the other to take a more strategic view of managing the economy. At the same time he has used his time at the CBI to push industrialists into taking a greater concern about issues like unemployment.

These qualities are urgently required if the Bank is to reform its own culture in line with the new responsibilities it wishes to assume. The Bank remains a creature of a past in which it represented the government to the City and the City to the government. It lacks any real form of regional representation. And its antiquated system of corporate governance through the Court of Directors does not match up to its new role.

In contrast with the Bundesbank and the Federal Reserve, where the heads of regional federal banks provide a counterweight to the central directorate, the non-executive directors on the Court - among whom there are no trade unionists - have no independent power base. The Governor is too powerful for his own good - hence the importance the Government has attached to finding a non-careerist deputy with real clout.

Mr Davies's appointment does something to redress the balance, but much more thoroughgoing reform is needed if the Bank is to attain and merit full independence.

Abbey ambition becomes a habit

By announcing that it wants to buy National & Provincial, Abbey National has in effect launched what everyone in the financial community thought was impossible - a hostile takeover bid for a building society. Abbey has already been rebuffed once, and this time too N&P is making clear it hasn't exactly got the hots for Abbey's advances.

Under the law, building society takeovers and mergers cannot take place without the agreement of management. By offering N&P's members "a substantial premium to net asset value" Abbey is attempting to appeal to the customers over the board's head. Peter Birch, Abbey's chief executive, has a reputation for looking after the pennies so the pounds will look after themselves. His need is great, however, and he may have to pay through the nose for N&P. Even after six years as a publicly quoted bank, Abbey needs to shore up its competitive position.

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