Jeremy Warner's Outlook: Crosby makes the tough but wise decision

InterContinental; Unemployed Britain
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The Independent Online

Knowing when to back off is as much the mark of a top drawer chief executive as the determination and vision needed to push through controversial strategies and acquisitions, so James Crosby shouldn't be criticised too much for the decision to pull out of the bidding for Abbey National. Much better that the HBOS chief executive has had the wisdom to withdraw now from what was always going to be an exceptionally high-risk endeavour than that he allows himself to be bamboozled by the City into doing a deal he would ultimately regret.

Even so, Mr Crosby doesn't come out of the Abbey misadventure well. He may have been egged on by the City, but he didn't require much prompting in declaring HBOS a possible rival bidder for Abbey. He made all the running in promising a potentially higher offer.

A campaign of black propaganda was launched against Abbey's Spanish suitor, Banco Santander Central Hispano, and HBOS allowed a high degree of expectation to build up that it would eventually table its own bid. In the past week there have been a number of hints that the bank was perhaps getting cold feet, but they were far too subtle for anyone to get the message.

As it happens, a rival bid from HBOS was always a non starter. It is amazing that Mr Crosby allowed the charade to persist as long as it did. HBOS would never have been allowed to bid without a six to nine month Competition Commission investigation, and even then there was a high probability of the takeover eventually being blocked entirely, or so hedged around with conditions that it wouldn't have been worth proceeding. These daunting regulatory risks were compounded by the fact that the arithmetic never stacked up. HBOS shares stand on a much lower earnings multiple than Abbey. Even assuming synergies of as much as £1bn - which assumes a takeover unencumbered by regulatory conditions - the acquisition would still have been dilutive. It would have been a great deal for Abbey's shareholders, but at best a neutral one for HBOS's.

HBOS insists that it is better to have tried and failed than not to have tried at all. Here was the opportunity to bring about another big consolidating merger in the UK banking sector. It might have been considered negligent to have passed it over.

Furthermore, HBOS has at least had the opportunity of examining its nearest rival in intimate detail as a result of the limited due diligence it has been allowed to run on Abbey. That in itself must be worth something.

What it would have confirmed is that though Abbey has made progress in closing off its problem businesses, there is still a mountain to climb in reviving the brand. To Mr Crosby's mind, the risk Banco Santander is taking as an out-market player taking over a bombed-out brand in need of very substantial investment is a good deal higher than the one he would have taken had his board allowed him to go for a consolidating merger with Abbey.

Yet the trouble with trying and failing is that it invariably concentrates attention on the inadequacies of existing strategies. The HBOS plan, which is to chip away at the soft underbelly of the big high street banks in current accounts, small business banking, corporate lending, long-term savings and general insurance is fine as far as it goes, but it will take time to deliver results, and if the housing market has peaked out, then the company's core mortgage business can only go one way.

Going head to head on price and quality of service with the giants of the banking world is a noble cause with big benefits for consumers, but the payback for shareholders is a good deal less obvious. Price wars are nearly always commercial suicide. Mr Crosby insists that the strategy is already working for shareholders, and that the potential for further profitable growth is huge. If he's right, then he would indeed have been mad to pay his own lowly rated paper for Abbey's more expensive fare.


The shares are at an all time high, there's no apparent crisis on the horizon, profits and revenues are rising, and last week's strategy update was as well received as these things ever are in the City. This is not the sort of backdrop you would expect for the public execution of a FTSE 100 chief executive. Indeed it is virtually unprecedented for a CEO to be ousted in such circumstances.

Richard North behaved with dignity and honour when told by the non- executive directors of InterContinental that his services were no longer required, but it is not hard to see why he's so miffed. What more did the bastards expect of him? In his own mind, he's delivered. What has made the process more humiliating still is that he was summarily dismissed, without a successor in sight. The chairman, David Webster, must take over until a replacement is found.

What's going on here? Richard North was nobody's choice as chief executive of InterContinental when it was born out of the demerger of Six Continents some two years ago - except perhaps from that of Sir Ian Prosser, the former chairman. Mr North's appointment was widely seen as a reward for the years of loyal service he had given Sir Ian as finance director, first at Bass, then its later incarnation as Six Continents. Mr North was forced to mount a somewhat undignified charm offensive to get the City to accept him at all and, although the company's performance since then has been fine, his power base has always been shaky.

David Webster, an old warhorse of a company chairman with more campaigns of action behind him than he cares to remember, only joined the board at the time of the demerger and didn't become chairman until last January. He owes Mr North no loyalty at all. Unpleasant though it was to sack Mr North, to Mr Webster's mind this is what good corporate governance is all about. Mr North is an accountant with little experience of hotels or brand management. Bad corporate governance is when the board is forced to act under pressure from its shareholders after the company has already sunk into crisis. Good corporate governance is when the board acts of its own accord to head off what it sees as a potential problem for the future.

The strategy established by Mr North is to sell off the property assets of the group, return the money to shareholders, and then to manage the hotels under contract.

This is fine as far it goes, but it was never clear that Mr North was the man for the hard graft of operational management and brand development that now awaits. It's a rough old world, but then the pay-off and pension should go some way to sugaring the pill. Nor is this the sort of firing that trounces a reputation. Mr North shouldn't be short of alternative job offers.

Unemployed Britain

The study of statistics is a dull old discipline if ever there was one, but every now and again a set of data comes along which throws a startling new perspective on the world we live in. Everyone knows that Britain's unemployment rate is one of the lowest in Europe, a performance typically attributed to our flexible labour markets.

Yet as our story on page 44 reports, the number of people of working age who are not economically active because for one reason or another they don't want a job, can't do one or live in an area where it is not possible to get one, is at record levels. At nearly 8 million, the numbers equate to more than one in five of the working-age population. In the past, the great bulk of these economically inactive people would have been women with childcare duties, yet the latest figures show that the big growth is in economically inactive men, who are now at record levels.

Every month, the Government trumpets another fall in the unemployment figures to a new 29 year low. Scratch the surface, and there's a huge unproductive mass of the population whose existence makes a mockery of the proud boast of full employment.