David Prosser's Outlook: Pearl almost home in race for Resolution

Rock needs age before beauty; Why house prices won't crash
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Who said insurance was boring? The three-way tussle for Resolution may have rumbled on for months, but it certainly reached an exciting finale yesterday. First, Standard Life beat a Takeover Panel deadline by minutes, securing a recommendation from Resolution for its offer and wrecking the plans of Friends Provident, which had planned a merger with the insurer. Then, less than an hour later, Pearl, which has already had two bids for Resolution rejected, launched a third offer, topping Standard. Resolution didn't withdraw its recommendation immediately, but instead suggested shareholders sat on their hands while the board considered its options.

We still don't quite have a winner, though Friends is definitely out of the race. Pearl's bid of 720p a share beats Standard's offer, worth 710p based on the Edinburgh insurer's current share price. The higher offer is also a cash bid, so has more certainty than Standard's pitch, where just over a quarter of the purchase would be paid for in shares.

On the other hand, Standard will argue that a tie-up between it and Resolution is a better strategic fit than Pearl offers. There's also an intriguing clash of personalities to consider – Clive Cowdery, Resolution's founder and chairman, is a long-standing foe of Hugh Osmond, the boss at Pearl. And, of course, it is possible that Standard's share price will rise over the next three months, taking its bid back above Pearl's – certainly this is what the Edinburgh insurer is banking on.

Pearl, though, is in the driving seat. Rather than rising, Standard's share price fell yesterday. More fundamentally, Pearl has now raised its stake in Resolution to just over 24 per cent. Standard Life needs 75 per cent of shareholders to back its bid, so Pearl wouldn't have to find much support in order to block its rival's offer.

In the absence of a rise in its shares, Standard Life thus has two options. It could offer a silly price, which even Pearl would accept, though its own shareholders might not. Or it can restructure its bid so as to require only 50 per cent backing from Resolution shareholders. But this has all sorts of difficult implications for financing. Pearl might be able to block the sale of Resolution's closed funds to Swiss Re, for example, a deal on which Standard's bid depends.

Ultimately, the biggest winners from this convoluted battle are Resolution's shareholders. Their board may be feeling sore, having had the longstanding Friends deal wrecked and then appearing a little precious in recommending Standard's offer. But investors are now likely to receive 720p a share – just two months ago, the price was down at 603p.

Rock needs age before beauty

Perhaps Sir Richard Branson's biggest business achievement has been the way in which he has engineered his reputation as a people's champion, despite displaying as hard-nosed an attitude towards running a company as any other self-respecting tycoon. For this reason, there are plenty of people, including many Northern Rock staff and customers, who hope to see the bearded one succeed with his rescue plan for the bank.

You can see the point. Much better to have friendly old Sir Richard as your boss than Chistopher Flowers, the boss of JC Flowers, the other potential buyer of Northern Rock. Mr Flowers, after all, is unknown outside the City and he runs a private equity firm – a world we all know is inhabited by a nasty bunch of greedy asset strippers.

There is, however, the small matter of getting Northern Rock back on its feet and then running it as a going concern. Sir Richard's Virgin Money has yet to provide much detail on how it will achieve these goals, but it is going to have a tough time competing with the management team unveiled by JC Flowers late on Thursday evening.

In Virgin's corner, all we know is that Northern Rock would be run by Jayne-Anne Gadhia, a former Royal Bank of Scotland executive who is now Virgin Money's chief executive. No disrespect to Ms Gadhia, but her CV looks distinctly lightweight compared to the résumés of JC Flowers' proposed directors.

Not only has it lined up Paul Myners, a former Marks & Spencer chairman, who has become one of the City's best-known figures, to chair Northern Rock, but the private equity group plans to install Richard Pym as chief executive. Mr Pym is a former chief executive of Alliance & Leicester, which dropped is building society status and became a bank around the same time as Northern Rock.

Mr Myners alone provides the JC Flowers bid with serious City credibility. Mr Pym, meanwhile, brings to the party genuine banking know-how, earned at a very similar organisation to Northern Rock. Add in ex-ABN Amro chief financial officer Hugh Scott-Barrett as the team's proposed finance director and the board looks even more convincing.

JC Flowers has also lined up a trio of impressive advisers. This includes Peter Birch, the former chief executive of Abbey National, and Sir Martin Jacomb, ex-chairman of Prudential and deputy chairman of Barclays Bank. Then there's Bob Bennett, who stood down as finance director of Northern Rock itself last year. This latter appointment may surprise some people, but it means JC Flowers will have someone on the ground from day one who has an intimate knowledge of the bank's systems – handy, since its current management team are all to quit.

Having the right people in place is only part of the deal, of course. JC Flowers still has to come up with an acceptable financial offer for the bank and to convince regulators its plans are viable. There's also the minor detail of finalising funding.

Still, a standard has been set that Sir Richard must now follow when he unveils his team next week. Northern Rock needs more than just a friendly face at its helm.

Why house prices won't crash

On the principle that even a broken watch tells the right time twice a day, those who predict a house price crash will one day be proved correct. Yet warnings of imminent doom, such as the 35 per cent market decline over the next three years forecast by housepricecrash.co.uk – no prizes for guessing its views – are wide of the mark.

There's no doubt now that the housing market is slowing down. Every recent indicator has suggested as much and the Land Registry said yesterday that annual house price inflation slowed from 9.4 per cent in August to 8.7 per cent in September. Though a little backward-looking, the Land Registry's figures are the most authoritative picture of what's going on, so the dip is worth noting. Even so, a market in which average prices are rising three times faster than retail inflation can hardly be described as on the verge of a crash. And while demand for housing continues to outstrip supply, prices will continue to rise.

That is certainly the view of the National Housing and Planning Advice Unit, set up in November following a Government-backed review of housing shortages. In its first report yesterday, the body said it believed 270,000 new houses need to be built each year in order to stabilise the ratio between average earnings and house prices.

Currently, the NHPAU says, the typical house is worth seven times the average family's income. On the Government's current housebuilding programme, this will rise to 11 times, it warns – and even if the Government meets its target of increasing new builds to 240,000 a year, the figure will still rise to nine.

We absolutely should be worried about Britain's housing market – but not about a crash. Falling affordability is a social problem for millions of families trapped in unsuitable housing, but also a bar to mobility of labour, a problem that may eventually be far more damaging to the economy than a nasty short-term shock.