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Jason Nissé: War. What is it good for? Absolutely nothing in the Square Mile

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Sunday 01 September 2002 00:00 BST
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Were it not for the weather, the food and the absence of men urinating by the side of the road, the City would have felt quite like France last month. Over the last decade or so we have become used to a decent level of deal activity during August – the Parisians even caught the bug a couple of years ago when they decided to have an all-out banking big battle during the supposed summer break. But post-9/11, Enron and a collapse in the equity markets, August was as quiet as a Royal & SunAlliance sales office, with only an expletive-fuelled bid for Arcadia from Philip Green around to break the silence.

However, this week, everyone is back at their desks. The motor launches will be tethered by the Hamble, the Languedoc gîtes will be evacuated and the au pair will take the children to buy this year's school uniform. And so the long-awaited return of deal-doing will save the City.

Or not.

Thanks to George Bush, the resumption of hostilities within the Square Mile will be delayed because he is insisting the Western world launches hostilities against Saddam Hussein. The US may not have the support of many (or any) of his allies. But Bush, Cheney and Rumsfeld appear not to worry about that. As they quote Churchill, and become more hawkish than a falconry centre, the markets get more nervous. After all, would you launch a take-over bid with oil prices heading north of $30 (£19) a barrel and a (new) war in the Middle East apparently round the corner?

In financial terms, the prospect of war could be even more damaging than a war itself. Markets hate two things in particular – uncertainty and inertia. They do not know if the US will really attack Iraq and – if it does – what the effect will be. But also the indications from Washington are that any attack may not be until next year – so consigning us to another four or five months of waiting to see what happens.

The result of all this will be inactivity and drift. Investors will stay liquid – a depressing prospect with bank accounts offering the lowest interest rates for a couple of generations – and deals will remain undone. The recovery in stock market fortunes that many (me included) looked towards once the US corporations swore their accounts were in order will almost certainly be delayed.

Furthermore, the investment banks will now have to take another long, hard look at their cost bases. All the big houses have been shedding staff for at least a year, but had held back some reserves for an uptick. If they see no movement by October they will start to get nervous. By Christmas they will be hitting the panic button. Expect big job cuts and many of the mid-sized players reassessing whether they really need to be in expensive places like equities trading.

Bush's warmongering has garnered its critics – ranging from most of the Labour Party to the French president Jacques Chirac. After a Parisian August, the City will be joining them.

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The "retirement" of Steve Morrison from the number two position at Granada is one of the two most anticipated boardroom changes in British corporate life. (The other is the appointment of David Clementi as chairman of the Pru, which has been horribly held up by the Bank of England's succession difficulties and is still to be confirmed.)

There are three – not entirely mutually exclusive – schools of thought on Mr Morrison. One is that he was overpromoted and would have been fine if he had merely been running a TV station. Another is that he was overpromoted and would have, maybe, been better off running a whelk stall. And the third is that he was more spinned against than sinning.

Whatever the truth, he was seen as an impediment to sorting out the mess that is ITV. Granada and Carlton want to merge, but Carlton's price is that Gerry Murphy becomes chief executive of the shooting match, with Charles Allen as chairman. To complete the picture, Dawn Airey will be hired from Channel 5 to run ITV and everyone will be happy.

But the laws preventing a merger of Carlton and Granada have not been removed yet – nor will they be for some time. Mr Morrison isn't popular, but it must be remembered that he was the only member of the ITV Digital board who didn't want to bet the farm on the Football League deal. He may have been removed too soon.

j.nisse@independent.co.uk

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