Public and private questions for the Bank

COMMENT

Rupert Pennant-Rea is not the first senior Bank of England executive to have had an extra-marital affair, and he is unlikely to be the last. Lifelong fidelity is not a qualification for a job as a public official, and there is no rule that says the deputy governor must fall on his sword if difficulties in his private life become public.

But Mr Pennant-Rea, an official appointed by the Queen on the recommendation of the Prime Minister, does now have two unfortunate distinctions that set him apart from other more discreet bankers. His problems have been plastered across the front pages of several tabloid newspapers and the stories also include allegations of breaches of Bank security procedures.

The Bank is standing by its man, though it may be significant that the statement of support came from Mr Pennant-Rea himself, rather than from his boss. He said he had "discussed the position with the Governor and we are both entirely satisfied that I remain able to function effectively as Deputy Governor." The deputy keeps his job, for the moment anyway, and the Bank's official line is that it is all an unfortunate business that will soon blow over. For the Governor himself it must seem like an old story, since he was told about it a year ago and must have decided then that the appropriate decision was to do nothing.

But after last year's political sleaze rows there must now be a significant risk that the deputy governor's private life comes back to haunt the Government, either through further revelations, through opposition attacks or both, so it is hard to be sure yet that the fuss is really over. It is harder still to judge how strenuously Eddie George, the Governor, will fight to save his deputy if the heat is turned up and the Bank comes under sustained fire.

Mr Pennant-Rea's first and most important job at the Bank has been to reorganise it. There has been some debate about whether he was simply carrying out orders or whether he picked up the Governor's outline ideas and ran with them. But the hard task of implementing the strategy, which broke the Bank into a monetary policy and a banking supervision section, and cleared out some of the bureaucratic cobwebs inside Threadneedle Street, was down to Mr Pennant-Rea.

It was not a popular role. The Bank is nothing if not proud of its traditions. Some would call it stuffy and self-satisfied. Anyone with change in mind is bound to run into flak. Critics inside the Bank say that Mr Pennant- Rea does not have the managerial experience to carry out the reorganisation. Running a small team of creative journalists, as editor of the Economist, they sniff, is not the same as sorting out a multi-faceted organisation employing thousands of people in a large number of different disciplines.

You would expect whinges from the victims of any reorganisation, of course, but in this case there does appear to be something in them. Having carried out his first important task as deputy, Mr Pennant-Rea's continuing role is to manage the Bank as chief executive to Mr George's chairman, the conventional way in which the two jobs are split.

Mr Pennant-Rea is not a professional manager and neither does he have the long experience of the organisation that an insider would have brought to the job. He was imposed on the Bank by the Government, as a condition for giving Mr George himself the top role. There is anecdotal evidence that his appointment was deeply resented at senior levels in the Bank, where the deputy's job traditionally goes to an insider.

Other things being equal, this would not matter; indeed, a willingness to cock a snook at established opinion is something entirely in his favour. Mr Pennant-Rea can surely cope as chief executive. But the real question over the affair and the publicity it has engendered is the extent to which it has weakened his authority within the Bank. After all, if some of the details of the allegations are true, a middle-ranking official might well fear the sack for the same offences.

The answer, unfortunately for Mr Pennant-Read, is that he is clearly expendable, if necessary. Others with more conventional private lives are quite capable of stepping into his shoes. If it begins to look as if the Bank's public reputation is threatened, then this could quickly become a Treasury issue as well. Mr George has spent more than two years building the Bank's credibility in monetary policy. Neither he nor the Chancellor will want to see that threatened by corrosive jokes about his deputy's behaviour in the office.

In time-honoured Bank style, the Governor is likely to resist external pressure for immediate retribution. But it would not be all that surprising if some excuse were found for Mr Pennant-Rea to leave in a few months' time. In France, so popular mythology has it, a colourful private life is not a barrier but a positive boon to advancement in public life. But this being Britain, the sad conclusion must be that the deputy governor's chances of succeeding to the top job must now be next to zero.

Fattened geese on the railway lines

In the brave new world of the privatised railways, passengers could soon find themselves riding trains owned by Japanese banks, leased through an American finance firm and run by a privately operated franchise company under a brand name such as Virgin.

These are all possibilities as a result of the sale of the three rolling- stock leasing companies, or Roscos, for which pre-qualification documents went out yesterday to interested companies. Because they will probably be owned by large banks, finance houses or train constructors, they will be able to raise finance in the international markets, wherever it is cheapest. Innovative financing could well include equity ownership of some of the rolling stock by foreign institutions, with leases held by the Roscos and sub let to the companies running the trains.

Together, the Roscos could fetch as much as Railtrack, which is to be sold in a flotation next year. There is, as usual with rail privatisation, sleight of hand in the arithmetic. The Roscos are so valuable partly because the Government has agreed that they will start life with contracts with the train operating companies of up to 10 years' duration, giving a guaranteed cash flow over the period of about £1.2bn each. That assumes substantial state subsidies for the TOCs throughout the period, of course, so that they can pay the leasing bills for their rolling stock. The Roscos are geese that have been carefully fattened, and they are likely to prove highly attractive as a result.