City & Buisness: Barclays' problem could be the City's

FIRST Marks & Spencer. Now Barclays. Has the world gone mad? Granted, the two situations are different. The boardroom battle at M&S was billed as a clash of corporate strategies when in fact it was a clash of personalities.

The battle at Barclays was billed as a clash of personalities when in fact it was a clash of corporate strategies. Resigning Barclays chief executive Martin Taylor may have fallen out with the grey suits in his boardroom. But they were only able to corner him when his strategy for dovetailing a powerful UK retail operation with the investment banking operation at Barclays Capital went bad.

Still, taken together the M&S and Barclays affairs highlight a jumpiness in the corporate community. If everything is fine again because the Footsie and Dow have rebounded to pre-Russia-collapse levels then why are the directors in two of the top 10 companies in the country at each others' throats?

Investors can relax about M&S. Deputy chairman Keith Oates, the man who challenged M&S chairman and chief executive Sir Richard Greenbury, is leaving the company. Sir Richard's chosen successor as chief executive, Peter Salsbury, has been anointed. The company is now in feather-smoothing mode. Its strategy of staking out the middle ground in UK Retail Land remains solid.

As for Barclays, investors may find excitement in the fact that Taylor's departure - along with a profit warning - makes the bank vulnerable to a takeover bid. Longer term, however, the drift at Barclays raises questions about the UK financial services sector as a whole.

The City accounts for almost 20 per cent of the nation's gross domestic product. This wealth comes from two sources: the domestic financial system and the City as a capital of international finance.

Two of the Big Four high-street banks have virtually withdrawn from the international finance sector of the City to concentrate on putting savers and borrowers together in the UK market. Lloyds-TSB did this after London's Big Bang re-regulation in 1986. NatWest did it this year after selling most of its investment bank to Bankers Trust.

Midland - which on Friday lost its brand name to its parent HSBC - has a home as a unit of HSBC Holdings, arguably the most successful bank in the world. It was thus left to Barclays to find a way for a mid-sized British bank in global terms to earn a competitive return on capital in both halves of the City.

Taylor failed to make this happen, and he has paid the price. The question is now whether Barclays will be taken over, or follow in the footsteps of Lloyds-TSB and NatWest and withdraw from international finance, or get a new chief executive who succeeds where Taylor has failed.

If Barclays follows the NatWest route, there will be virtually no British- owned financial institutions operating on the international side of the City. That could leave the UK exposed in its rapidly intensifying fight with Brussels to keep the foundation of the international side of the City - the eurobond market - exempt from new EU tax.

Brussels wants to impose a 20 per cent withholding tax on eurobonds. That would mean the end of the anonymity eurobond investors now enjoy - because bonds would have to be registered rather than negotiable as "bearer" instruments allowing anyone holding them to cash them.

The demise of the eurobond market could jeopardise an estimated 11,000 jobs in the City. The link between Barclays problems and the City's problems is not clear. But both are on the defensive. Auden's line about "the crack in the teacup leading to the land of the dead" comes to mind.

Oil in troubled waters

THEN there's the other news of the week: merger talks between Exxon and Mobil. BP's agreement this summer to pay $48.2bn (pounds 29bn) to acquire Amoco was a shock. Now we have the possibility of a large chunk of Rockefeller's original Standard Oil Trust being put back together. That's a bigger shock.

The oil industry shake-out is being driven by the depressed price of crude. On the eve of the Gulf War in 1990 former Saudi oil minister Sheikh Zaki Yamani predicted the cost of a barrel of oil could double from $40 to $80. This month, the US Energy Department predicted that the depression in Asia could halve the current price of $11.

The question is where we go from here. Everyone is taking cheap or depressed crude - the term depends on your point of view - for granted. This could be a mistake. Indonesia, a big oil producer, is threatened with anarchy. Mexico is uncertainly attempting the transition from world's oldest one- party state to quasi-legitimate democracy. In the Middle East, there is Saddam Hussein and Iran's new hostilities with Afghanistan. There is also the unresolved problem of the ailing King Fahd's succession in Saudi Arabia.

Forget the regulatory barriers standing in the way of the BP-Amoco deal and the possibility of an Exxon-Mobil deal. What if the world, already strained by the most complex economic situation since the end of the Second World War, is suddenly confronted with a war in the Middle East and skyrocketing oil prices?

Irresponsible doom mongering? Last week, a senior City investment banker explained why his firm was rebuilding its presence in Russia. Russia, he said, is potentially the world's leading petroleum producer. Chunks of its distraught energy companies, from Lukoil to Gazprom, could soon be coming up for sale one way or another. Now is the time, he thinks, to position himself for a slice of that action.

Why? Benjamin Netanyahu, the Israeli prime minister, cut short his trip to Europe on Friday to review security in Israel's south Lebanon occupation zone after seven soldiers were killed. "The Middle East bristles with arms," he said. "I know because we've been financing arms deals there ourselves." What, he wondered, would happen if Yasser Arafat were to give up on the crumbling peace accord and declare independence for Palestine?