Comment: Killer was in the price for NatWest's ambitions

'Whatever the cause of the breakdown in talks, Sir Christopher Tugendhat, chairman of Abbey National, wants no further truck with NatWest. But can he hope to keep it that way? Consolidation is the buzzword in banking these days ... there are no good public policy reasons for standing in its way'
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We may never know how far down the merger aisle National Westminster Bank and Abbey National got before deciding to call it a day. Both parties are now staying firmly tight lipped about the whole affair. But as likely as not, the killer was in the price. It usually is with NatWest, which would like to buy something big in the UK to put itself back on a par with the likes of Lloyds TSB but has always found itself balking at the high multiples demanded.

Whatever the cause of the breakdown in talks, Sir Christopher Tugendhat, chairman of Abbey National, is now making it plain that he wants no truck with NatWest and is determined to remain independent. But can he hope to keep it that way? Consolidation is the buzz word in banking these days, as with so many other industries, and in most cases there are no good public policy reasons for standing in its way.

The retail financial services industry is undergoing a revolution; nobody can complain, as they perhaps could have done five years ago, that this is a sector that lacks competition. Traditional boundaries that separated one type of financial institution from another are breaking down. Banks are becoming life assurers, life assurers are looking to become banks. Why even supermarkets want to be banks these days. New entrants, new technology, changing horizons, and a relentless, persistent downward pressure on costs, are conspiring to drive the main players into considering ever more ambitious mergers.

Five years ago, the competition authorities would have laughed NatWest out of court had it attempted to takeover Abbey National. But times have changed , and perhaps nobody would worry too much these days. That doesn't mean, however, that we ought to be taking a sympathetic view of banking consolidation of this type. The fact that NatWest should be even contemplating a merger with Abbey National is indicative of a wider failing among our leading high street banks.

Banks still on the whole have a dreadful reputation with their customers; what was once called the building societies movement still has a very good one. While the two operate in different areas of the market place, they are both in the same business of borrowing and lending. The banks have failed to get close to their customers, choosing rather to rely on inertia and monopoly to hold their position. The building societies have been much better at it. For the failed organisation to be taking over the successful one in order to protect and bolster its position in an increasingly competitive market place is something we should all be very suspicious of.

Search on for new Government sources

New Government, new sources. It seems that we on The Independent are going to have to find a few more of those after roundly getting it wrong last week in our story purporting to name all but one of the Treasury's four appointments to the Bank of England's new monetary committee. It seems that we fell victim to someone's wish list, rather than Gordon Brown's actual list, which was duly unveiled yesterday.

Of the two there's little doubt which will go down better in the City - it is the real one, rather than the imaginary. Our original list contained at least one person who might reasonably (though unfairly) be thought of as a Labour stooge - David Currie, who sits in the House of Lords as a Labour peer. No such criticism can be levelled at those actually chosen and Bank of England insiders are justifiably delighted at the outcome.

But that doesn't mean we are going to get a more "hawkish" interest rate policy than would have been advocated by our original list - one more in keeping with the Bank's old guard. Charles Goodhart is an old Bank of England hand, sound and solid as a rock with no ideological bent either way. He is also the inventor of Goodhart's law, which holds that statistics used to determine policy become useless because they are fundamentally changed by such attention.

Dr DeAnne Julius is a business economist who will incline towards the CBI's vaguely dovish view on interest rates, if in any direction at all. But she's nobody's poodle and she'll strive towards a rigid adherence to the inflation target. The same is true of Sir Alan Budd, who presumably took Kenneth Clarke's side in the previous Chancellor's battles with Eddie George over interest rates.

As for Professor Willem Buiter, he is perhaps the least well known of the four in the City. He's a Keynsian, though as is only to be expected, very much New Keynsian, and he is one of the leading economic advocates in this country of European Monetary Union. On the face of it, then, this does not look like a committee which is about to engineer a fierce and immediate upward lurch in interest rates.

Their brief, in any case, is as much to support the Government's growth and employment objectives as its inflation target. The Bank's old guard can also be expected to take a rather less hawkish view than they have. Advice given by a Bank which will never be judged by its actions is always bound to lean towards the extremes. Now that freedom has finally been won, a softer, more considered and paradoxically, and rather less detached approach should begin to creep in.

Rate rise looms after the Halifax handout

It was a day for superlatives in Halifax yesterday as Britain's biggest building society turned into its third largest bank with the stock market's most ambitious transfer of shares. Almost one in five people in Britain feels considerably wealthier than he or she did last week after the biggest money-for-nothing handout this country has ever experienced.

It is hard to see yesterday's midsummer madness turning out well. More Halifax shares changed hands yesterday than the Stock Exchange normally processes in a day for all its 3,000 companies. It was no more than a massive pounds 4bn transfer of wealth from our pension funds to our back pockets.

It is inconceivable that the ensuing consumer binge will not result in higher interest rates by the end of the year than would otherwise be the case and the 80 per cent who didn't share in the windfall will pay for the summer holidays of the lucky few through higher mortgages.

As for those long-termists who opted for a continuing interest in the Halifax rather than cash, dealings so far suggest the high water mark for Halifax shares may have been reached shortly after 8.30 yesterday morning. Having opened right at the top of expectations, it was downhill all the way until the 734.5p close, just 2p above the average price paid by the institutions in Friday's auction.

While that pays tribute to a process that achieved much better value for Halifax members than the Alliance & Leicester's early sellers enjoyed, it also suggests the market's unease at the wholly artificial valuation being put on the new bank. The amount of blue sky between what Halifax is worth and the price desperate institutions are prepared to pay to get a weighting in this financial services giant is in all likelihood a frightening one.

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