Outlook: Alstom bail-out tests French connection with Brussels

AMP/Henderson; Football crazy
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The Independent Online

Was it really less than a month ago that Jacques Chirac stood in the gardens of the Elysée Palace and proudly told the world that under France's centre-right government "the days when the state decided everything are gone"?

Plus ça change, M. President. Today the Chirac administration is due to announce the details of the state bail-out of Alstom, the once mighty flagship of the French engineering industry. Once upon a time Alstom was synonymous with many of the achievements for which France was rightly envied: the TGV train, the luxury cruise ship, the state-of-the-art power station. Now it is a symbol of industrial decline and mismanagement on a grand scale. The shares have lost 90 per cent of their value in the last two years and the company is labouring under a debt mountain of at least €5bn.

Alstom's banks have finally lost patience and warned that, without a government-backed lifeboat, the very structure of the French financial system will be in peril. Ooh, la la. For an administration keen on privatising everything that moves and rolling back the frontiers of the state at every opportunity, it will stick in the craw for M. Chirac to have to come to Alstom's rescue. The bail-out is likely to see the French taxpayer end up with as much as 30 per cent of Alstom by underwriting half of the €600m rights issue the company is about to launch.

It all seems a far cry from those heady days back in 1998 when Alstom, formerly known as GEC-Alsthom, came to market with a price tag of £3bn. The company had been created a decade earlier by a merger of the engineering interests of Britain's pre-eminent industrial conglomerate, GEC, and those of its French counterpart Alcatel. The joint venture company was the brainchild of GEC's then managing director Arnold Weinstock, who saw it as a way of defending his empire and its famous cash pile from hostile takeover.

It was, as it turned out, all to no avail. Lord Weinstock's successors destroyed their inheritance and now the last remnant of the empire is also teetering on the brink of collapse.

Alstom's first chief executive was a Brit but he was soon airbrushed out of the picture as control passed to the French arm of the business. Five years and four profits warnings later it is on its third chief executive and about to launch its second rescue rights issue.

The company would argue that the rapid decline has not all been its fault. Siemens and General Electric, its two nearest international competitors, have been through tough times too.

But in most respects, Alstom has been the author of its own misfortune. It was only five months old when it issued its first profit warning and shed its first 15,000 jobs. Then, on the rebound from its failure to acquire Westinghouse of the US, it consummated a disastrous marriage with ABB's power generation business. The error was later compounded when Alstom bought out ABB's share in the joint venture. It was only after taking 100 per cent ownership that Alstom discovered it had been sold a pup in the shape of ABB's heavy-duty gas turbines, the GT24 and GT26. To date problems with the turbine technology have cost Alstom €4bn.

Since then, Alstom has desperately been throwing unwanted businesses overboard and hacking away at its cost base in an attempt to stay afloat. No part of the empire has escaped unscathed. Here in Britain, Alstom is to stop building trains at Washwood Heath in Birmingham after more than a century and sell off famous names such as Ruston Gas Turbines, once Lincoln's biggest industrial employer.

Brussels is breathing fire over the French government's failure to notify it of the bail-out other than through the press and is promising to take a long hard look at the deal to see whether it constitutes illegal state aid. But the French have a habit of getting their way with the European Commission. After the £3bn the UK government has bunged British Energy's way to keep the lights burning, we, for once will not be complaining about French perfidy.

AMP/Henderson

Everyone knows that the value of pensions has fallen. But it is rare in the extreme to get an insight into the workings of the fund managers who actually invest our money and thus determine how well off or otherwise we will be in retirement. The High Court action brought by Unilever against Mercury Asset Management over the mishandling of its staff pension fund turned into a fascinating battle of reputations between two high-powered City women. But it was also illuminating for the light that it shed on the arcane world of fund management and the yardsticks and standards by which the industry operates.

The same is true of the internal audit carried out at Henderson Global Investors, which, according at least to the draft report, reveals a worrying degree of laxness in the way in which the company has been managed in the past and its staff monitored.

Henderson's is not the biggest fund manager in the world but, at £90bn, the funds under management make it a decent sized player. The audit identified no fewer than 39 areas where there was cause for concern of varying degrees, ten of which were deemed serious enough to have "significant implications" for the business. The document discloses that Henderson suffered a number of high-profile mandate breaches and goes on to spell out the possible consequences, in both financial and reputational terms, if the firm's processes and compliance procedures are not tightened up.

In fairness to Henderson, the audit also throws up a long list of recommendations for remedying the deficiencies found and perhaps the company ought to be applauded for taking the issue seriously rather than brushing it under the carpet.

The draft report is the product of a review evidently carried by a new team at Henderson and it remains to be seen whether they have been over-zealous in their approach and over-critical in their conclusions.

Nevertheless, an audit such as this is the last thing Henderson's Australian parent company, AMP, needs when it is in the process of packaging up its UK business for demerger, under the umbrella of the Henderson brand. As we report on our main business page today, AMP has been through a torrid time in the last two years, largely as a result of its ill-fated foray into the UK life and savings market. The last thing its new chief executive back in Sydney, needs is another British headache.

Football crazy

A close season reminder from the Financial Services Authority that although the players may still be on the beach, transfer speculation is never far away from the quoted football clubs which employ them. The FSA is worried they might not be cognisant enough of their obligations under the UK listing rules and has therefore written to all nine listed clubs reminding them that careless transfer talk can cost shareholders money.

In reality, transfer rumours, even concerning star players like David Beckham, rarely move share prices that much. When Leeds made a 66 per cent profit by selling Rio Ferdinand to Manchester United, the shares barely budged. The FSA's outgoing chairman Sir Howard Davies is undeterred. He is already investigating Chelsea and has now clearly decided that the rest of the sector deserves close attention. Perhaps it's because he himself is a Manchester City supporter. Then again, we all have our crosses to bear.

m.harrison@independent.co.uk

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