Outlook: Relief for Allen as ITV banks on Sir Peter Burt

Fixed rate mortgages; Inflationary future

Sir Peter Burt could probably write what he knows about mass market TV on the back of a postage stamp, but having little or no knowledge of your industry is these days apparently no bar to being chairman of one of its major players. Indeed, it seems to be a positive prerequisite. The same was true of all the other main contenders for the chairmanship of ITV, including John Gardiner, the outgoing chairman of Tesco, and Donald Brydon, the chairman of Amersham.

Big institutional investors are said to prefer it that way because in theory it makes the chairman more independent, creates a clear line of responsibility between chairman and chief executive, and again in theory makes the chairman better able to judge the wood from the trees. Sir Peter draws from Walter Bagehot, the Nineteenth Century economist and polemicist in insisting that a non-executive chairman, like a constitutional monarch, has the right to be consulted, the right to advise and to right to warn, but essentially must confine himself to ensuring the management is doing its job, not try and do the job himself. I'm not so sure.

After a disastrous three years, ITV seems to be on the mend, but the jury is still very much out on whether Charles Allen, the chief executive, is the man to lead the company to the promised land. He was there right through the bad years as chairman of Granada, and although eventually he delivered the merger with Carlton that his shareholders desired, his reputation was permanently scarred by the fiasco of ITV Digital.

The first job of a new chairman is to decide whether he's happy with the chief executive and his strategy. On this score, Sir Peter already seems to have made up his mind. Yesterday, he said he was looking forward to working with Mr Allen and wouldn't have taken the job at all had he not been fully satisfied with him as chief executive. That will be a relief to Mr Allen, who only four months ago was looking forward to the gruesome prospect of having to answer to his old sparring partner, Michael Green. But is it what the cabal of institutional shareholders wanted when they ousted Mr Green as chairman in waiting?

Sir Peter Burt's reputation as a banker is second to none, which is presumably why Sir Brian Pitman, former chief executive of Lloyds TSB, wanted him for the job. The only obvious blemish on his record as chief executive of Bank of Scotland was a misjudged joint venture with the American TV evangelist, the Reverend Pat Robertson, which Sir Peter was forced to abandon after the Reverend in a careless moment caught on video characterised Scotland as a dark place filled with homosexuals.

Failure to acquire National Westminster Bank was a bitter disappointment to Sir Peter, the more so because he was outmanoeuvred for the prize by his old rival, Royal Bank of Scotland. After flirting with Abbey National, which fortunately for him he never went for, Sir Peter eventually agreed a merger with the Halifax to form HBOS. This wasn't a bad deal, but it was very much second best to the gloriously value enhancing treasure that NatWest would have been. It could so easily have been Sir Peter Burt, and not Fred Goodwin, who was last week announcing the biggest profit in British banking history.

Still, that's all water under the bridge, and now there's the consolation prize of ITV. Sir Peter ought to make a good chairman, but media watchers will take some convincing he's exactly what ITV needs at this crucial watershed in its development. Advertising is recovering, as is audience market share, and there are big cost cuts to come from the merger. Yet in an age of multi-Channel TV and product fragmentation, ITV needs much more to shore up its long-term future.

Cost cutting, the advertising recover and further regulatory concessions ought to keep driving earnings for a few years hence, but other than a few add on channels of recycled golden oldies, there's no convincing strategy for delivering decent levels of top line growth after that. By his own admission, Sir Peter doesn't watch a lot of TV. As a busy executive, he's never had the time. I know how he feels, yet even as a constitutional monarch, you need a feel and empathy for the country you are head of. Let's hope Sir Peter can fast develop it.

Fixed rate mortgages

It's amusing to see Alan Greenspan, chairman of the US Federal Reserve, opining that the traditional, US fixed rate mortgage "may be an expensive method of financing a home" and that "American consumers might benefit if lenders provided greater mortgage-product alternatives". Amusing because here in Britain, the Treasury has been working itself up into a lather over why mortgage lenders fail to provide the sort of mass market, fixed-rate deals they have in America, preferring instead to concentrate on variable rate mortgages and shorter-term fixes. It seems that in mortgages, as in so much else, the other man's grass is always greener.

In a speech to the Credit Union National Association in Washington, Mr Greenspan gave part of the answer as to why long-term, fixed-rate deals may not be quite as wonderful as the Treasury seems to believe. According to Mr Greenspan, homeowners in the US typically pay 0.5 to 1.2 percentage points more than they otherwise would for the benefit of knowing that their monthly mortgage payments are fixed. That didn't seem to him like such a great deal. If interest rates are falling, the American system allows for remortgaging on to lower rates but that too carries a charge. The risk that the borrower might remortgage is costed and built into the price. Each remortgaging will also typically cost several thousand dollars to transact.

According to Mr Greenspan, homeowners "might have saved tens of thousands of dollars if they had adjustable-rate mortgages rather than fixed-rate mortgages during the past decade". Professor David Miles of Imperial College is due to deliver his final, Treasury-commissioned report on the structure of the British mortgage market in time for the Budget next month, yet I fear he'll struggle to come up with much by way of policy recommendations. The truth of the matter is that the mortgage market in Britain is one of the most competitive in the world, with a plethora of different providers and products. Of course, the current range of products has yet to be tested against a prolonged period of rising interest rates, but it is surely better that homeowners manage their own interest rate risks than that the government attempts to do it for them. As Mr Greenspan rightly points out, long-term, fixed-rate mortgages are no panacea.

Inflationary future

On one thing all three of the recently published equity/gilt studies are agreed; sell government bonds. The latest of them, from Barclays Capital, is also the most alarming in its prognosis. Its compilers don't believe inflation is dead, only resting, and that the present, extraordinarily lax monetary and fiscal stance in America and Japan will eventually awaken it. It's hard to disagree.

Yet this is not what Alan Greenspan believes, nor is it really what the Bank of Japan thinks will happen. Instead they cling to the belief that so much extra capacity is being created, in the Far East and elsewhere, that growing demand can continue to be supplied without significant inflationary consequences.

The markets seem to believe them. The yield on 10-year Treasury bonds, which is as good an indicator of long-term inflationary expectations as any, remains incredibly subdued for this stage of the cycle. However, that's largely because Mr Greenspan remains so relaxed about the outlook. There's an element of chicken and egg in what the markets are doing. According to Barclays Capital, US inflation will be at 4 per cent by the end of the year, and that's assuming the Fed "gets motoring" and the Bank of Japan does the right thing. If the study is right, then government bonds are significantly overvalued.

jeremy.warner@independent.co.uk