Vanni Treves makes the best out of poor hand

BA grounded; Dangerous advice Â

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Life assurance firms on 'critical list' as shares plunge

UK airline goes under as BA cuts 7,000 jobs

Wave of selling sends global equities reeling for the third time in a week

Greenspan says US activity has 'ground to halt'

Equitable deal offers 'stability, not nirvana'

It's been an awfully long time in the making, but the basic tenets of and principles behind Equitable's compromise proposal are simple enough. Guaranteed annuity rate policyholders (GARs) will get an average 17.5 per cent added to the value of their policies in return for giving up the guarantee, while non-GARs will get 2.5 per cent in return for giving up their legal case for mis-selling. Like all compromises, yesterday's proposals are unsatisfactory for both classes of policyholder, but Vanni Treves, the chairman, is right to insist that, for the great bulk of them, the alternatives are likely to prove even less appetising.

Of the two possible other courses of action, one of them – liquidation – can be rejected out of hand. In a winding-up, which is unprecedented for a life assurance company of this size, it could take years for policyholders to get any money at all, and even then the law protects policy-holders only up to 90 per cent of the guaranteed minimum value of their policies. The other alternative is for Equitable to carry on as it is, which scarcely looks much better.

In that scenario, the GARs would have to be honoured, but they would see the value of their policies constantly devalued by the legal actions of non-GARs and the restrictive investment policy that Equitable would be obliged to adopt. Since it would be hard to bring a generic case for mis-selling, aggrieved policyholders would have to be dealt with on a case by case basis, and the whole thing would fast become a hugely costly legal nightmare. Don't forget, Equitable is a mutually owned society, so there's only a limited pot of money and all legal fees would have to come out of it. The more one class of policyholder fights the other, the less money there is to go round.

Which brings us to the question of whether Mr Treves has settled on a fair division of spoils, if the £1.31bn the society has got to share out can reasonably be called spoils. For some GARs, particularly those approaching maturity where the value of the policy is more or less already established, the sums on offer will seem inadequate. But for the many GARs who would never have exercised the guarantee anyway, because of the numerous restrictions that often surround them, the extra money is plainly a bonus.

The non-GARs are in an even odder position. They make up around 75 per cent of the value of the society's with-profits fund, which means that the great bulk of any settlement for mis-selling would have to be paid for out of their own money. The 2.5 per cent increase promised to non-GARs equates to around 30 per cent of the total available, which is more than they could earlier have hoped for, and might reasonably be thought unfair on the GARs.

The important thing, however, is that Equitable is allowed to draw a line in the sand and put this legal quagmire behind it. This set of proposals, unsatisfactory though it may prove to many, offers the best opportunity of such an outcome. Not that it will mark an end to Equitable's problems. Many policyholders have already decided to cash in the moment the compromise goes through, despite the penalties of early surrender. Equitable Life has been a terrible lesson – to the industry, to regulators, to savers, and not least the Law Lords, who by forcing Equitable to honour the GARs made a bad situation even worse – but it's time now the whole wretched mess was laid to rest.

BA grounded

It would be a brave airline executive who bet that the capacity reductions and lay-offs announced so far will see the industry through its worst crisis since the birth of modern day aviation. Rod Eddington, chief executive of British Airways, still bears the scars of the Gulf War collapse in air travel and has been around too long to fall into that trap.

So the 7,000 job losses and 10 per cent reduction in capacity that BA announced yesterday, though not as severe as some had forecast, amount to little more than a best guess, based on a combination of studying the past and sticking a finger in the air to gauge the future.

If Operation Infinite Justice means what it says and there is to be no end to President Bush's pursuit of state-sponsored terrorism, then BA and a lot of other airlines will have to tear up their calculations and go back to the drawing board again.

The ramifications for the flag-carrying full-service airlines, particularly those such as BA heavily dependent on the transatlantic market, cannot be too overstated. BA has already had to suffer the humiliation of Ryanair, which is one sixth of the size in terms of passenger numbers, surpassing it in stock market capitalisation. And there could be worse to come if Lehman Brothers is right and the market value of BA is 80p, not the 143p at which it closed last night.

Luckily for BA, it has a number of things going for it. First, it has some £1bn in free cash, making it a good deal more financially robust than many of its US counterparts. Second, it was already ahead of the curve on capacity reductions. The reason BA is only cutting seats by 10 per cent in response to last week's events while Virgin Atlantic has announced a 20 per cent reduction, is that BA has already achieved a 10 per cent cut in capacity this year as it retires 747 jumbos and introduces smaller Boeing 777s.

This is not to say that a helping hand for the UK airline industry from the Government would come amiss. The Bush administration's decision to approve a $5bn cash injection for America's airlines makes a UK rescue package all the more likely. For the industry it is a far better outcome than allowing Continental and the rest to go into Chapter 11 bankruptcy protection, from where they could easily start a transatlantic price war to match the real one that George Bush is preparing to unleash.

Dangerous advice

Paul O'Neill may have been a good chief executive of Alcoa, but as US Treasury Secretary he's turning out to be a complete buffoon. This week he's been quoted as saying that the stock market would be setting new records in the not too distant future and that the Dow would be challenging its previous highs within a year and a half.

Everyone's entitled to their view and he might even be right, but for a US Treasury Secretary to offer such a forecast, even as a way of cheering up the troops, is grossly irresponsible. If he doesn't watch it, he'll end up bringing a multi-billion pound class action crashing down on him for negligent advice.

So far, his remarks have predictably failed to produce the required "patriotic surge" on Wall Street, and by yesterday when he appeared before the Senate Banking Committee, he'd somewhat changed his tune. "The market will inevitably have its ups and downs", he sheepishly conceded, but "Americans should not react with fear that the stock market has declined but rather marvel in that it is open". He'd also changed his buy recommendation from stocks and shares to anything the at present deserted shopping malls had on offer.

One can only reflect on what a shame it is that Robert Rubin, the former US Treasury Secretary, and his equally considered and reliable deputy, Larry Summers, are not still a part of the US Administration. We'd all feel a lot more comfortable about prospects for an economic rebound in America if they were.

j.warner@independent.co.uk