Jeremy Warner's Outlook: Now Alliance & Leicester falls to the foreign scramble for Britain's prime corporate assets

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The banking sector seems destined to become the latest target for foreign predators seeking British prey. Even Royal Bank of Scotland, valued at a mountainous £58.5bn, doesn't seem too big a beast to hunt, such is the fevered state of imagination among traders in attempting to spot the next big one.

Possible? Well maybe, though perhaps only Citigroup would be both big and unencumbered enough in terms of its overlapping interests to mount such a monster bid. None the less, it shouldn't altogether be discounted. UK plc appears to be up for sale and, in these markets, no one's too large to remain immune, even such a stalwart of the British banking system as RBS.

Rather more credible, however, are the smaller fry, and particularly the mortgage bank Alliance & Leicester, which has been on the radar screen for bids for as long as anyone can remember. As our story on page 58 reports, A&L has already had one approach, pitched at a putative £13 a share, from Crédit Agricole of France. If this were to break cover, Banco Santander wouldn't be long in following suit. They might even bid jointly.

Abbey National has been a respectable acquisition for Santander, but of itself it is not a big enough presence in the UK market to satisfy a global player of Santander's ambition, and it was always likely that the chairman, Emilio Botin, would want to bulk up at some stage. The acquisition of Alliance & Leicester would provide rich pickings in terms of cost synergies, as well as give Santander about 20 per cent of the UK mortgage market, big enough to go head to head with HBOS.

Led by the redoubtable Sir Derek Higgs as chairman, A&L will find it hard to resist the embrace of these two foreign players. Post the takeover of Abbey National, Alliance & Leicester has looked out on limb, too small to be part of the big league of British banking and too big to act as a niche player.

Yet though the shares, driven up by takeover speculation, are already at an all time high, Sir Derek will feel duty bound to hold out for a substantial premium. A&L is already expensive relative to the sector given its limited growth prospects, but it also has scarcity value in a fast consolidating market. One thing is certain: it must be worth more to Mr Botin than it is to Crédit Agricole.

Putting the country up for sale is all very well if there are decent new businesses coming along to replace the ones that are being taken over. I see little evidence of this.

As Britain's staid old cash cows with decent market positions and reliable income streams are taken over, they are being replaced in the stock market listings by an exotic mix of foreign and often speculative mining plays, wing and a prayer internet ventures, online gaming sites and the refloated husks of one-time private equity buyouts. Few of them are any kind of a substitute for the likes of P&O, BAA, BPB and BOC. It may be that the last laugh will be on the foreign buyers, who will find in the fullness of time that they've bought a pup at the top of the market. Yet I wouldn't bank on it.

Britain's trade deficit just keeps growing

The number is a big and worrying one. Figures released yesterday record Britain's current account deficit for last year at £31.9bn, its highest level as a proportion of GDP since 1999. What's more, it accelerated in the last quarter, when it grew to 3.6 per cent of output. Time was when such a state of affairs would have prompted a run on the pound.

These days it barely seems to register at all. There are countries with much larger deficits, notably the US, but also Australia and New Zealand, which similarly just keep rolling along as if there's nothing much to worry about. Growth remains strong, and their currencies too fail to respond to the usual laws of economics, which dictate that when a country imports more than it exports, eventually there must be a currency adjustment to bring the equation back into balance.

The fact that they don't is explained by big inflows of foreign capital, which in effect finance the English speaking world's appetite for foreign goods. We see it most obviously in Britain in the present wave of foreign takeover bids. As long as this goes on, as long as Britain remains an attractive place to invest, we may not have to worry too much.

Yet there are one or two alarming features in the latest statistics. One is a quite sizeable growth in the amount of investment income leaving the country. Our own overseas earnings remain robust, but foreign companies that have bought into Britain are also in growing numbers taking their return in the form of a big, fat dividend cheque.

The other is a growing reliance on imported oil and gas as our North Sea reserves become depleted. Both these trends are counted by continued growth in exported services, particularly at the high value end of the spectrum - legal, business and financial services. Yet the negatives are growing faster than the positives.

Herb Stein, the economic adviser to the former US President Richard Nixon, was fond of remarking that economists are very good at saying something cannot go on for ever, but not so good at saying when it will stop. Thus it is that pundits as previously flawless as George Soros, Warren Buffett and Bill Gates have managed to be completely wrong about the dollar, which they thought would be laid low by America's burgeoning current account deficit. So far it hasn't been, and nor has the pound suffered from Britain's lesser version of the same thing. Yet the bigger the problem becomes, the higher the chances of it ending in a nasty road crash.

BAA: all aboard the Ferrovial bid vehicle

If there was ever any possibility of Macquarie arranging a rival consortium bid for BAA, it's now been stymied by Ferrovial's action in bringing the Australian investment bank on board as an adviser. From the outside, it's hard to judge who has out bluffed whom. By threatening to mount a counter bid, Macquarie has been able to climb aboard the Ferrovial consortium and now gets a share of any spoils in the form of a presumably handsome advisory fee. It also gets to buy out the Ferrovial interest at both Sydney and Bristol airports at a favourable price, assuming Ferrovial is successful in acquiring BAA, operator of Britain's most important airports.

On the other hand, BAA gets the certainty that no one else is going to come in and wreck its bid - always assuming that the ever active Goldman Sachs isn't conspiring away in some backroom with hitherto unsuspected parties. It also receives roughly £500m towards the cost of its bid, small beer in the context of an £8bn offer, but perhaps enough when thrown into the pot as additional equity to provide the leverage for a quite sizeable increase in the terms.

What it also demonstrates is that Ferrovial is absolutely serious in pursuing its quarry. There's no hint here of the Spanish infrastructure operating and construction company blinking. Previous speculation that Rafael del Pino, the chairman, was only looking for a suitable excuse to back out and return to Madrid seems to be wide of the mark. But is he prepared to go hostile? Anything short of £9 a share would fail to win the board's backing.

There are also still serious regulatory issues to address. Macquarie's £500m may reduce the overall level of leverage a little, but both the Government and the Civil Aviation Authority will continue to worry about the ability of such a debt-heavy bidder to finance future investment without big rises in charges.

The record at Sydney airport, where Macquarie and Ferrovial have been manning the control tower for some years now, sends out the strongest possible warning. Rightly or wrongly, they are the subject of repeated complaints about overcharging and underinvestment, to the degree that the authorities are now being forced to consider the reintroduction of price controls. Is that what we want for Heathrow, Gatwick and Stansted? I think not.

j.warner@independent.co.uk

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