Jeremy Warner's Outlook: Santander faces HBOS's Spanish inquisition

Marconi share sales; Gold bugs
Click to follow

We are still in the phoney war stage of the battle for control of Abbey National, but as James Crosby, the chief executive of HBOS, steels himself to enter the fray, the action is already at fever pitch. Santander Central Hispano (SCH) has found itself at the centre of a determined smear campaign ever since it announced its bid, and there can be little doubt where it is coming from.

We are still in the phoney war stage of the battle for control of Abbey National, but as James Crosby, the chief executive of HBOS, steels himself to enter the fray, the action is already at fever pitch. Santander Central Hispano (SCH) has found itself at the centre of a determined smear campaign ever since it announced its bid, and there can be little doubt where it is coming from.

A lavish new headquarters, five-year contracts for directors, corporate jets, a lottery style pension for the former chairman and his wife - SCH is being depicted in the British press as a rum old bank if ever there was one, and certainly not the sort of organisation British investors would want to hold shares in. It is hard to see this as anything other than a softening up exercise by HBOS for the day when it finally goes live with its own rival takeover bid.

The way things are being spun, there will be cheering in the streets of Blighty when HBOS comes riding over the horizon to rescue poor old Abbey National from the Spanish inquisition. The problem HBOS has got is that, as Britain's fifth largest bank, it is almost certain to get referred to the Competition Commission in bidding for our sixth largest. Any such merger would give HBOS an intolerable third share of the mortgage market, and probably lead to the closure of at least half of Abbey National's branches.

HBOS is confident it can eventually persuade regulators that by creating a stronger fifth force in the UK market, its bid would enhance competition, not diminish it, but its chances of doing so without a Competition Commission investigation are zero. On the face of it, SCH has no such competition hurdles to surmount, so HBOS must get itself into the position where Abbey National shareholders are prepared to forego SCH's bird in the hand for the promise of HBOS's two in the bush.

Already it is achieving some success. British institutional shareholders would much prefer paper in HBOS to that of SCH. The outbreak of scare stories about poor standards of corporate governance and lavish lifestyles at SCH makes them more nervous still about the unknown foreigner. What's more, we are all finding it difficult to figure out quite why SCH wants to acquire Abbey National at all. SCH boasts of superior management and IT skills, which will allow it dramatically to improve returns at Abbey, but you have to wonder.

The truth is that banking charges in Spain are higher than in Britain across the board, and so is the spread that separates deposit from lending rates. In the claim and counter claim of these matters, it is virtually impossible to tell whose banking sector is most efficient, but it is hard to avoid the suspicion that Britain is a rather more competitive environment than Spain.

Continental bankers have always insisted that the apparent disparity in upfront charges disguises a host of hidden means by which British banks make up the difference and rip off their customers, such as heavy penalties for unauthorised overdrafts. Even so, it is hard to see why the British market holds attractions for a bank already as profitable as SCH.

The conspiracy theory about this bid is that SCH is not buying Abbey on its own account at all, but to warehouse it on behalf of Royal Bank of Scotland Group (RBS), with whom it has a close commercial and strategic relationship, against the day when regulators might allow RBS a further consolidating merger in the UK.

This is just the Scots in Spanish clothing, goes the theory, and actually it is not as far fetched as it seems. As we now know, there were detailed discussions between SCH and RBS about the possibility that SCH might outsource Abbey's mortgage book to RBS after the takeover went through. In the end, the idea was abandoned because of the all too obvious competition issues it raised, but it is indicative of just how close these two organisations remain.

Those who have observed the relationship from the inside describe it as like a love affair. At board level, the two banks are besotted with each other. If the time and circumstances were right, and the deal could be justified on value grounds, they would tie the knot. Is that relationship sustainable once SCH owns Abbey? It is hard to see how it could be, and it certainly muddies the waters from the point of view of the competition regulators. No wonder Mr Crosby believes his time has come.

Marconi share sales

Former shareholders of Marconi, which essentially went bust two years ago leaving equity investors with virtually nothing, may or may not be heartened to learn that one of the management team in place at the time this devastating corporate road crash took place has salvaged at least something from the wreckage - a cool £5m to be precise. With indecent haste, Mike Parton, the chief executive, has cashed in the chips he received as part of an incentive plan to restore the company to financial health. Yesterday was the first day on which he was entitled to sell the shares, and with evident lack of faith in his own abilities to deliver further value, he chose to use it.

Mr Parton has worked long and hard to put Marconi back on track, and there is no doubt that he's done a pretty good job on behalf of his banking paymasters. Yet this is cold comfort to the previous generation of Marconi shareholders, many of whom found themselves forceably sold out during a share consolidation last year of the pittance they received as part of the financial restructuring. To all intents and purposes, they were wiped out by the debt-for-equity-swap Marconi embarked on. Mr Parton, on the other hand, has done extraordinarily well out of it.

Mr Parton wasn't responsible for the reckless New Economy strategy that sunk Marconi, nor was he even on the company's board at the time the key value destroying acquisitions were made. But he was put in charge of managing them and he was very much a part of the team at the helm when the ship began to take on water. For former shareholders, it is irksome, to put it mildly, that he should now hit the jackpot when they have lost so much. The New Economy always was a lottery, and remarkably, Mr Parton has emerged as one of its winners.

I've long believed Marconi shareholders might have been better served by their board had directors embarked on a timely rescue rights issue. The company's advisers assure me that this was never a viable option. The company was already too far gone by the time the severity of its problems was discovered to be rescued by fresh equity. I'm not so sure, and the remarkable recovery Marconi has enjoyed since its refinancing underpins my suspicions. We'll never know for sure, but one person at least will be counting his blessings that Marconi never went down that route - Mike Parton.

Gold bugs

Demand for gold is once more on the rise. Not from Europe or the United States, though. These regions of the world seem almost entirely to have lost their appetite. Instead the demand comes from the developing economies of the Far East, the Middle East and India. This is partly a cultural phenomenon. Gold has become unfashionable in the developed West. In emerging markets, by contrast, it remains the luxury of choice. The revival in the world economy has restored demand to near record levels.

The gold price has had a pretty good run over the last couple of years, easily outperforming shares. Yet on any long-term perspective, returns from the yellow metal have been poor. So why does it continue to attract such a strong investment following? The answer is that while the price performance may look poor in dollar terms, in many emerging markets gold remains one of the most reliable stores of wealth. It makes no sense to stick your money in a bank account, however big the rate of interest, if the bank is in danger of going bust. Likewise, it makes no sense to hold your savings in an unstable currency. Much better to buy a nice piece of jewellery.

jeremy.warner@independent.co.uk

Comments