Standard a tough target for NatWest ambitions

COMMENT: 'If the group is indeed interested in Standard Chartered, it is going to have a tough time convincing shareholders of its merits - especially at today's sky-high price'
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Lots of people would love to buy Schroders, one of Britain's last remaining independent investment banks. Foremost among them is ABN Amro, but like all the others, it chokes when it comes to thinking about the likely cost." Your best defence is the share price," Louis de Bievre, head of investment banking at ABN Amro, has told his opposite number at Schroder's, Win Bischoff.

The same goes in double measure for Standard Chartered, which in the last few weeks has become the object of intense takeover speculation.

Once known as Britain's most accident-prone bank (show them a banana skin and Standard will slip on it, unkind souls used to say), Standard has enjoyed a new lease of life under Patrick Gillam and its share price has soared. The latest market surge, prompted by reports of an informal approach by NatWest Group, has propelled the stock deep into the frothosphere at 649p. Against a book value of around pounds 1.7bn, today's share price carries goodwill of pounds 4.6bn.

In the land of banking consolidation, the United States, recent deals have tended to be struck at little more than twice book value. NatWest itself sold out of its US retail operation just before Christmas at a lowish 1.4 times book.

Against these numbers, Standard is already horrifically overvalued at getting on for four times book. Furthermore, this is a bank whose strengths in the Asia are often overstated.

It is strong in Hong Kong, but in most countries elsewhere its grip on the market place is hardly a secure one.

Having said that, Standard is one of the few foreign operators already implanted in the world's fastest-growing regions. It offers European or American banks, mired in mature, low-growth markets, immediate access to these markets.

NatWest may never have been serious in its approach to Standard. If there have been talks, they have not yet reached the stage where the Bank of England would need to be informed.

Nonetheless, the persistence of the speculation must leave NatWest's shareholders distinctly worried. Lord Alexander and Derek Wanless are well regarded in the City where their rediscovery of tradition banking values has won them much praise.

Less impressive, however, is the number of times they appear to have been tempted by the deal, only not to deal. NatWest was cold-shouldered over Baring and Warburg; it failed to get its joint-venture with Rothschilds; it got cold feet over Gartmore. True, it has managed to buy a corporate finance boutique in New York, but only by paying over the odds.

If NatWest is indeed interested in Standard Chartered, it is going to have a tough time convincing shareholders of its merits - especially at today's sky-high price. Standard may have put the banana skins behind it, but with an open cheque book to play with, NatWest is ripe for the treatment.

Outlook for Yarrow harrowing

With yet another round of redundancies announced at Yarrow yesterday, the Clydeside yard is beginning to look distinctly anorexic. Could this be the beginning of the end for this historic yard?

Ever since the Government allowed GEC to acquire VSEL, giving Lord Weinstock two of Britain's three warship yards, unions have suspected that Yarrow's days are numbered. In theory at least, Yarrow's future is guaranteed. When it took over VSEL, GEC gave a number of assurances to the Ministry of Defence along these lines.

It is true that GEC warned, in writing, that if Yarrow failed to win a pounds 400m order for three type-23 frigates then Yarrow's survival would be in "grave doubt".

The Government is still dithering about the orders because of the implications for Vosper Thorneycroft, the rival yard. But both the GEC threat over type-23 orders and the redundancies yesterday can be read as part of the everyday lobbying whenever a defence order is up for grabs.

The key assurance GEC gave on Yarrow is more specific. Lord Weinstock wrote to the Ministry of Defence, saying Yarrow would be the yard used to build the first of the next generation of Royal Navy frigates, beyond the type-23, for which the company is developing the design.

But if the type-23 order can take so long to decide, there is clearly scope for even more delay in a brand-new design. The MoD said in its evidence to the Monopolies and Mergers Commission that it "did not regard the assurances as legally binding, or enforceable in the courts, but believed they had been given in good faith and would be honoured in all reasonable circumstances".

Reasonable is a many-faceted word. Not only does Yarrow need the type- 23 orders to keep a workforce of any size employed, but there also needs to be a much firmer commitment to the new generation of frigates. Until that happens Yarrow employees should beware the small print of the assurances.

One solution to the gold riddle

The gold price is surging. That usually signals fear of inflation. Yet at the same time, signs of recession are multiplying - the latest being the alarming fall in the number of jobs in the US in January. One obvious answer to this apparent riddle is that the markets are running scared of inflationary risks further down the road. They're worried that rate- cutting central bankers will overdo attempts to get the developed economies of the world back on the path of steady growth.

Markets can be far-sighted, but all this seems a little silly. For a start, the gold price surge bears all the hallmarks of a speculative blip. There has, in any case, been scant relationship between the price of gold and inflation in the past few years and the present flurry seems much more likely to be a reaction to the latest round of currency turbulence. While the dollar has recovered strongly from the depths to which it plunged last spring, the prior appreciation of the yen and mark took a tremendous toll first on Japan and then on Germany.

The shine has gone off being a hard-currency country. The Bank of Japan has gone to the wire to push down the yen. Judging by Hans Tietmeyer's remarks at Davos yesterday, the German Bundesbank, too, is increasingly desperate to get the mark further down against the dollar.

The trouble is investors know the dollar has been in long-term decline as the US continues to pile up external debt. The odds are therefore that the rise in the dollar is no more than a cyclical recovery against a secular fall in value. Enter gold, the traditional store of value.

The Pavlovian reaction to a rising gold price is to worry about inflation. But on this occasion, it is probably signalling the extent of the attempt now being made in hard-currency countries to avoid sliding into a recession induced by the exchange rate madness.

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