Jeremy Warner's Outlook: Hedge funds are Royal Bank of Scotland's new best friends. Best not to get too close

Rijkman Groenink, the chief executive of ABN Amro, may not be the brightest spark on the banking block, but he strikes a chord with his outburst at the weekend in which he lamented that ABN, a once-proud bank, had become little more than a playground for hedge funds.

Banking, he reminded an Amsterdam court, is about people, relationships, trust, confidence and decency. To watch it all being torn apart by these modern-day speculators in the supposed interests of short-term shareholder value was to him a matter of deep regret.

He's right about this. Yet the hedge funds have still managed to claim the moral high ground in complaining that the ABN board is deliberately trying to frustrate a higher offer from a Royal Bank of Scotland-led consortium. This is a blatant infringement of shareholder rights, they claim. I beg to differ.

The alternative merger agreed with Barclays is, in fact, an excellent deal which, assuming it is well managed, stands to create a genuinely world-class bank with global reach. In the longer term, it is likely to deliver a great deal more value for ABN shareholders than the €39 (£26.63) a share in cash and paper offered by Royal Bank of Scotland.

Driven by avarice, the hedge funds are determined that the Royal Bank takeover should succeed. So much so that they might already reasonably be seen as a fourth member of the RBS consortium. The connections are strong, if coincidental, while at the recent ABN annual meeting, it seemed to be the hedge funds that were instructing the hostile questioning of the board which the consortium fronted.

As is common nowadays in bid situations, the ABN share register has already become dominated by hedge funds, many of these holdings not owned outright but held through contracts for differences. The main agitator for change is Christopher Hohn's Children's Investment Fund. Falling in behind him as leaders of the pack are Toscafund and Algebris. TCI and Algebris operate out of the same London offices.

Toscafund's chairman is Sir George Mathewson, a former chairman of Royal Bank of Scotland. Its co-founder is Martin Hughes, a former broker to Royal Bank of Scotland, and its chief operating officer is Fred Watt, who until last year was finance director at RBS. Toscafund's connections with RBS are innocent enough and there is certainly no suggestion of inappropriate behaviour, but they give the impression of some sort of self-interested and faintly distasteful clique. Again, it is perfectly reasonable to argue there's nothing wrong with the Royal Bank of Scotland being in league with the hedge funds. They both want the same thing, the one the prize of ABN and the other an offer which supposedly delivers a greater short-term cash dividend. Yet banks are not companies that can or should be carved up for their free cash flow. They are custodians of other people's money, and rightly regulators are going to have the deepest possible concern over this increasingly undignified and chaotic fight, the more so as it is a bunch of unaccountable hedge fund managers that seem to be calling all the shots.

No wonder Mr Groenink laments that his bank has become a toy for hedge funds. It seems deeply unlikely to me that hedge fund self-interest is going to produce a better long-term outcome for ABN's far-flung range of assets than the alternative merger with Barclays and sale of LaSalle to Bank of America.

Mr Groenink deserves sympathy over the attacks which have taken place on his integrity. He's backing a bid which he thinks will in the long term serve both his shareholders and his customers better. There is as yet no evidence beyond bombast that the consortium can deliver the promised knockout bid in a way that is credible financially and with regulators.

Sir Fred Goodwin, the chief executive of RBS, says he's good for the €50bn of cash his mooted bid would entail. No doubt the City would lend him the money, but would the regulators allow it, and even if they did, would Sir Fred really risk the monumental commitment fees involved? If he failed, the costs would take a mighty chunk out of his profits. In the meantime, the whole saga looks like descending into a legal quagmire, with the outcome destined to be the object of litigation for years to come.

A regrettable end indeed.

'Stupid' analysts may have last laugh

Sir Nigel Rudd has described City analysts as "stupid" for not recognising the value that could be created out of the merger of Boots and Alliance Unichem. Many of them were hostile to the merger when it was announced and had "sell" recommendations on the stock at £8 as recently as a few months back. The company last week fell to a private equity buyout for £11.39 a share.

He's not the first to mock the analysts. Lord Lawson of Blaby, a former chancellor of the exchequer, described them as "teenage scribblers". They are a lot more highly paid than they were back then, but even so the head of equity research at HSBC has described much of their work as "worthless" in an internal memo. He's plainly got a point. Genuinely independent analysis is increasingly thin on the ground, and even where there is an abundance of it, many analysts are too fixated with the next quarterly update to be able to opine properly on long-term value. Private equity seems better able to spot this value than the analysts.

Yet the jury is still very much out on Alliance Boots and though the analysts have been made to look foolish, they may eventually be proved right. Just because KKR has paid a fabulous price doesn't mean the company is actually worth that amount. The acquirers have had to rely heavily on debt leverage to pay so much. If they've got their calculations wrong, they'll end up with nothing at all and the lenders will take a bath. The last laugh could yet go to the analysts.

The rich are different from us

Congratulations to all those who have made it on to The Sunday Times Rich List. You need to be worth at least £70m these days to get into the top 1,000, and this year there are a record 68 who count themselves billionaires. A high proportion of these have made their money out of property, leading you to wonder whether they are really the wealth creators they pretend, or indeed whether they are worth as much as The Sunday Times thinks.

Most property empires are financed by the banks and are therefore mortgaged up to the hilt. Even so it is impressive stuff, especially for the Inland Revenue, which will again be left wondering how people can be so rich and yet pay so little in tax.

One of the reasons is the extraordinarily favourable tax treatment foreigners who make their money overseas get if they come and live here. They pay virtually no tax. Others construct their affairs in such a way as to limit their tax bills to a tiny proportion of their wealth.

Labour came to power 10 years ago determined to axe the tax perks of the super-rich. It was a policy soon buried in the long grass. Even an old-fashioned socialist can figure out that it is better to have the super-rich here and paying no tax than not here at all. The trickledown effect of City and foreign wealth has been phenomenal, even if it has also made desirable housing unaffordable to ordinary people.

Yet the Government has to raise the money somehow or other, and as we know, it is middle-income earners that believe themselves to be taxed most heavily. Labour is already feeling the political backlash. People are bound to feel resentful about a system of "progressive" taxation if it stops around the £50m mark, after which people become virtually tax free. The dilemma faced by governments in this regard - tax the rich and they'll simply go elsewhere - makes as good a case as any for flat, or at least flatter, rate taxes.

j.warner@independent.co.uk