Jeremy Warner's Outlook: Mervyn King fights for his job &ndash; and wins</i>

Click to follow
The Independent Online

No one who witnessed yesterday's masterful performance by Mervyn King, Governor of the Bank of England, before MPs on the Commons Treasury Committee, could help but be impressed.

He awoke to headlines calling for his head. He left with his job secure and a commitment even from those who have sought to make political capital out of the crisis in credit markets to co-operate fully in addressing the weaknesses in the law and regulation which the debacle of Northern Rock has highlighted.

A lesser intellect might have cracked under the strain. Yet despite the odd flicker of irritation and defensiveness, he survived his grilling with his integrity and reputation for measured analysis and conduct intact. MPs were left with the overwhelming impression that if anything was to blame, it was the system, not Mr King.

To the delight of those of a eurosceptic bent, he even managed to get in a dig at Brussels. It was the European directive on market abuse, he explained, which prevented him from engaging in the sort of covert rescue of Northern Rock which used to be a hallmark of Bank of England bailouts. This both obstructed attempts to organise a rescue takeover bid and meant that the Bank's agreement to act as lender of last resort had to be publicly announced, triggering the run on Northern Rock's deposits. After that, the Government guarantee became the only available option to avert disaster.

Yet for all the Governor's persuasiveness, he failed to give a convincing answer to the key question of why he didn't provide the markets at an earlier stage with the liquidity in three-month money they were looking for. To the extent he answered it at all, it was to make two points. One was to stick to the line that he didn't want to provide a free ride to undeserving cases. The other was that to have used this facility might have been to panic markets into believing something really serious was coming down the line at them. As it happens it was – Northern Rock.

Nor was there any decent explanation for the U-turn in now providing this liquidity, other than the shock of the Northern Rock debacle. The Governor defended the tripartite arrangements that exist for dealing with a crisis, as well as the split in responsibilities for market and banking oversight between the Bank of England and the Financial Services Authority, even though everyone can see that they haven't been equal to the task of dealing with a crisis of this magnitude. Still, quite a performance. Anyone who can be that convincing deserves to survive.

Qataris turn tables on Nasdaq over LSE...

The only way of making sense of the pass-the-parcel of share stakes that took place yesterday in the London Stock Exchange (LSE), Nasdaq, Borse Dubai and OMX, is in terms of the fierce regional rivalry that exists between Dubai and Qatar for the position of the Middle East's pre-eminent financial centre.

Both of them have pots of money, so can afford to pay what it takes to gain the crown, which for the time being is more about potential than reality. Still tiny by comparison with London and New York, what they lack in critical mass they make up for in ambition and access to funds. Shareholders in the LSE find themselves the happy beneficiaries of this tug-of-war.

Unless, of course, you happen to be Threadneedle Asset Management, which sold its 13.8 per cent stake to Nasdaq at only £9 a share just a year-and-a-half ago (price now, £16.87), or any of the other top-drawer City institutions who bailed out early believing the chase to be over. As we now know, it was only just beginning.

Looking equally silly is the self-styled king of shareholder activists, Christopher Hohn, who successfully managed to prevent Deutsche Börse buying the LSE at 530p a share. He even got Deutsche Börse's chief executive, Werner Seifert, fired for trying. Sometimes these hedge fund boys are not half as clever as they pretend.

You need a flow chart fully to understand the complexity of yesterday's series of transactions, so sit up and take notice. Nasdaq bows out of the battle for OMX, the Nordic exchange group, allowing Borse Dubai a free run. Borse Dubai then sells OMX back to Nasdaq in exchange for both a 20 per cent stake in Nasdaq and Nasdaq's 28 per cent stake in the London Stock Exchange. Already lost? Me too. The bottom line is that Nasdaq ends up the proud owner of OMX and Dubai as proud owner of both 20 per cent of Nasdaq (though restricted to just 5 per cent of the voting rights) and 28 per cent of the LSE. Oh, and Nasdaq gets a third of DIFX, the Dubai financial centre, as icing on the cake. Bob Greifeld, Nasdaq's chief executive, seems to have played a blinder. Or has he?

Unfortunately, he may not have banked on the determination of the Qataris, who in dramatic developments yesterday threatened to reverse the tables and steal his plan, only with the LSE at the centre of the axis rather than Nasdaq. Here's how it happened. Quatar had been in separate negotiations with Nasdaq to buy the American exchange's stake in the LSE, a plan which met with the approval of the LSE chief executive, Clara Furse.

Outrage, then, as Mr Greifeld sneakily went off and behind the backs of the Qataris sold the stake to Dubai instead. Yet it plainly doesn't pay to slight the Qataris. In retaliation, they have immediately bought 20 per cent of the LSE in the market and separately 10 per cent of OMX.

What's more, they now threaten to bid for OMX in its entirety, scuppering all Mr Greifeld's plans, and then sell it on to the LSE. As if to rub salt in the wounds, the Qataris paid £15.85 a share for their LSE stake. Nasdaq's effective selling price to Dubai was £14.14 a share. Nasdaq as a consequence seems to have short- changed itself by $200m in selling the LSE stake to Dubai.

The turning of tables is breathtaking in its audacity. The intrigue of it all is also quite priceless, and could only really have come out of the deep pockets of the Middle East. Only one problem. Does Ms Furse really want to buy OMX? Great stuff which is set to run and run. What a pity it is that Threadneedle isn't around to see it.

... and now look set to bag Sainsbury too

To the astonishment of everyone, Delta Two has persevered with its bid for J Sainsbury right through the summer credit crunch, and now finally seems within a stone's throw of success. While other private equity bids have crumbled, Delta's tilt at Sainsbury has been buttressed to a point where the board now feels comfortable about opening its books to its would-be Middle Eastern acquirers.

The devil is always in the detail; the Qatari-backed bidders have also yet to come up with a plan for satisfying pension fund trustees. This may have to involve the Qataris either underwriting the pension fund's liabilities, or making a £1bn cash injection. Yet at this stage it looks as if Delta Two has done enough to waylay the initial objections of the Sainsbury family and secure a deal.

Concern centred around two issues. First, the debt-leveraged nature of the bid, and second that Delta Two might asset-strip the business by flogging off all the freeholds, making it less competitive. On both these issues Delta Two has been able to provide some comfort. The equity element of the bid has been improved a bit. The equity component accounted by "payments in kind", which was regarded suspiciously by the board as not really equity at all, has also been sizeably reduced.

Perhaps more important, there are much better assurances that Qatari money stands behind the operation should things go wrong. Delta Two has also promised groundbreaking standards on transparency, as well as the inclusion of two independent directors on the board, both of whom are to be approved by the family. Further, commitment has been won to keep the property under common ownership. The Sainsbury family has thus established the principle that, to succeed, takeover bids need to be about more than just price and ability to fund it.

Safeguards important to the future of the business have been won. The Qataris in any case have a powerful vested interest in being seen to be good custodians. Huge gas reserves mean that the gulf state will soon have hundreds of billions of dollars to invest internationally. It would be most unwise for the Qatar Investment Authority to turn the world against it at the outset by mismanaging its first major overseas purchase.