Outlook: In an uncertain world, Lloyds shows the virtue of simplicity

Challenger sale; Charterhouse bets Â

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Bad debt provisions at Lloyds TSB rise by 48%

Alvis pays Rolls £16m for Challenger tanks

Management pips rivals to buy Coral for £860m

Peter Ellwood of Lloyds TSB has been a banker for over 30 years but even he has never seen a market to compare with this one, and that includes the crashes of '74 and '87. It is worth quoting his words in full for they are not the usual banker-speak. "The substantial turmoil surrounding the operating, regulatory and stock market environment has, in my experience, been unprecedented."

Unprecedented because, unlike the recession of the 1970s, there are no rules to guide us. Back then inflation was rampant, interest rates were accordingly set high and a lot of companies went to the wall leaving their bad debts behind them. But even so, the banks could feed in the numbers, plot their graphs and see a way forward with a reasonable degree of confidence.

This time around there are no such parameters and therefore no such certainty. Partly it is to do with the immense geopolitical uncertainties that abound. What if George Bush does invade Iraq? That would make the Latin American financial meltdown look like a sideshow indeed. Partly it is to do with the nature of the corporate failures that have occurred in the US and the corrosive effect they have had on consumer and stock market confidence. Partly it is to do with the sheer fragility of the markets, as this week's continuing wild gyrations in London and Wall Street have demonstrated again.

Throw in a welter of government-inspired reports all designed to clip the wings of the banking and savings industry and it is a wonder that any of the Big Four are still on their feet at all.But in fact Lloyds TSB has weathered the storm rather well and perhaps better than its counterparts who are more exposed to overseas markets and the corporate sector.

Its bad debt provisions may be up by 48 per cent – largely as a result of exposure to Argentina, Enron and WorldCom. But in the absence of another shock emerging from left field, Lloyds is sure that it has provisioned conservatively.

As for the life business, Scottish Widows, its solvency remains more robust than even that of Prudential. The market will have to fall another 15 per cent before Lloyds has to pump capital into the business.

It demonstrates once again how Lloyds has benefited by sticking to its knitting and concentrating on the simple virtue of being a UK retail bank, which makes 90 per cent of its profits here.

But Lloyds cannot continue to grow profits by gouging out costs indefinitely and the regulators will not allow it to buy another UK bank so it must look overseas for expansion. Mr Ellwood happily admits that it has looked in Europe and the US but until the smoke has cleared he does not need to hurry. That could take a long time yet.

Challenger sale

Making Challenger tanks seems to be about as rewarding as driving them. The wrong kind of sand clogged up the works something terrible during last year's Saif Sareea exercise in Oman. There again, Rolls-Royce could have told the Army that the Challenger has been the grit in its system for years, in fact ever since it bought Vickers in 1998.

Rolls finally found a buyer yesterday for its Challenger factory in Newcastle at a price which demonstrates that when it comes to manufacturing tanks, history is a very poor guide to the future.

The £16.2m paid by Alvis represents an earnings multiple of less than a half. Put another way, it is just a tenth of last year's sales. Rolls was certainly keen to get shot of the business but surely it wasn't that desperate.

The explanation for the bargain basement price lies in the prospects for the business. Last year marked the end of the £1.6bn Challenger contract with the MoD. Rolls had hoped to fill the void by securing a £2bn deal to supply the Challenger to the Greeks but they did not arrive in Athens bearing enough gifts.

This year sales will fall off a cliff. In addition, Alvis will have the costs of integrating Vickers Defence Systems with its own armoured vehicle production facilities which, in other words, means laying off part of the workforce

Nevertheless, the Alvis chairman Nick Prest looks to have pulled off a neat deal. He was in a buyer's market of one and now he has secured, in effect, a UK monopoly on armoured vehicles having snapped up GKN's Warrior business four years ago. If the MoD wants to stage a competition for its business in future, then it will have to look overseas for a rival bidder.

The next big order is a £2bn requirement for 1,000 lightweight, airborne armoured troop carriers to replace the Scorpion. Even if Alvis lost the prime contract it is probably assured of production work.

Then there is the Challenger itself. There are now 386 of them in service, or rather not in service because of the reliability problems that the Omani desert so cruelly exposed. That means plenty of through-life support work as the euphemism has it and maybe even a midlife upgrade if Mr Prest plays his cards right.

Charterhouse bets

In the end, the race for Coral looks to have been a photo finish between Rank, the Mecca bingo and Hard Rock cafés group, and the Coral management. And yet again, poor Mike Smith finds himself atop the wrong horse.

Mr Smith, now chief executive of Rank, has seen the UK's number three bookmaker slip through his fingers twice in four racing seasons. In 1998, he was in the saddle at Ladbroke's betting and gaming division when it bought Coral, only to have the prize snatched away at the last after a stewards' enquiry found it would put too much power in the hands of the market leader. That was an embarrassment, to say the least, since Mr Smith and his boss, Peter George, had paid out for Coral without waiting to check it would win approval from the competition authorities.

This time, Rank and its other publicly quoted rivals found the going too poor to mount a successful bid. With soft markets, Mr Smith would have had trouble convincing anyone he could raise the £860m-plus it would have taken to nose ahead of the eventual winner, the management team backed by Charterhouse Development Capital.

Coral's recent owners have proved a lucky lot. Against the odds, Ladbroke's made a £33m turn out of its brief spell of ownership despite being forced into a fire sale, while Morgan Grenfell Private Equity yesterday pocketed winnings of £470m on its £390m three-and-a-half year investment.

Charterhouse thinks it can keep up the winning streak by putting money on acquisitions, snapping up smaller chains of bookies and beefing up the group's telephone betting business. But the massive increase in value under Morgan Grenfell has not come about just because of the new enlightened betting tax regime. It has come, in the usual way of venture capital owners, through ruthless efficiencies. Coral's new owner may think it can whip this particular horse to a better result, but don't bet on it.

m.harrison@independent.co.uk