91Èȱ¬

Having ploughed through many (but not all) of the 659 pages (excluding annexes) , I am left with one over-riding thought: the watchdog is desperately trying to be nice to BSkyB (to the point which some may find a bit creepy).

Almost every other sentence contains a sub-clause to the effect of "we could have been much more beastly to Sky than this" (so, for example, it considered breaking up Sky, and hasn't done so, and it contemplated forcing Sky to wholesale sport even cheaper, but decided against, and so on).

Ofcom is trying to create the impression that it is intervening in Sky's commercial freedoms to the absolute minimum necessary to correct what it perceives as the satellite broadcaster's unfair competitive advantages.

Now, I am unclear whether it is adopting this forelock-tugging tone to reinforce its legal case when Sky's appeal comes to court, or whether it thinks that the weight of public and political opinion is pro Sky and anti regulator, or whether it's just frightened of big burly Sky.

Is Ofcom being disingenuous?

BT, the acknowledged supreme master of gaming the regulatory system, implies not - in that its statement today whinges about how Ofcom could and should have cracked down harder on Sky.

Which, predictably, is not how Sky sees it. Sky is wholly unimpressed by Ofcom's analysis and rulings, irrespective of the watchdog's conciliatory tone.

Sky's line is that Ofcom's unwarranted interference will mean less money for British sport and less innovation in television.

Unsurprisingly, the Premier League reinforces Sky's complaint - it fears that the obligation on Sky to sell live sport to rivals (at a price that guarantees a profit, mind you) will reduce competitive tension next time there's an auction of TV rights.

Hmmm.

The stock market certainly doesn't perceive that the value of Sky's sports rights has diminished in any significant way: its share price has risen 3% today.

After all the posturing and the millions spent on legal fees and lobbying by all the affected media businesses, could this be much ado about not very much?

BT and Virgin will benefit from the ability to buy Sky Sports 1 and 2 at a price that delivers them a margin.

The millions who watch Freeview may be pleased that they may soon be able to watch the big games live without having to take out a Sky subscription.

And it's conceivable that a new generation of movie-on-demand services will become available via broadband sooner than would otherwise have been the case.

But is it remotely likely that Sky - which has twice as many paying subscribers as all its competitors combined - will lose its position at the top of the Pay TV premier league?

Those of us who've watched the movie of regulator versus dominating business many times over many years, know the script by heart: regulator rules; company screams blue murder about risk-taking and entrepreneurialism being trampled by wealth-destroying bureaucrats and it hires the most expensive lawyers to challenge the ruling; months or years later the definitive verdict arrives; in the meantime, the resourceful company has found a new way to reinforce its leadership.

Which is not to say that the work of regulators like Ofcom is fatuous. But simply to point out that companies such as Sky are more robust than they imply on days like today.

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• - What's this?

Ofcom believes that millions of us make decisions on which TV service to buy and also which bundle of TV, broadband and telephony to purchase on the basis of whether we can get access to live sport and first-run Hollywood movies.

Which is why it has from its control of much of the top-rate live sport and films available in the UK.

The media watchdog has today ruled that Sky has to sell its sports channels to rivals at prices that are between 10.5% and 23% below the existing wholesale prices - and wants the Competition Commission to force the Hollywood studios to sell on-demand rights to movies to companies other than Sky.

Also Ofcom is forcing Sky to offer its HD sports channels to competitors, but isn't in this case setting the price - because it recognises that Sky must be able to benefit from the innovations it has made in this form of broadcast.

For Ofcom, the goal is to increase the availability of live sport so that, for example, it can be tapped by the millions who watch Freeview and in movies to see the development of on-demand services on broadband and other platforms.

Ofcom hopes that the likes of BT and Virgin will be able to offer competitive deals for packages of broadband, telephony and TV that includes sport, in a way that provides greater choice to consumers.

For Sky, Ofcom has made an unfair attack on its commercial freedom.

It will appeal against the decision, on the basis that the regulator has been out to get it in a way that is an unfair punishment of the risks it has been taking for 20 years in making substantial investments in sports and movie rights.

PS Please see my earlier post about Ofcom and Sky.

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• - What's this?

A year and half after what many see as the world's worst ever banking crisis, banks are still being mended.

In Ireland, the government - which has already gone a long way to fixing its finances with massive spending cuts - has announced what it hopes will be the last phase of the reconstruction of its banks.

Some £72bn of property loans that have gone bad are being transferred from the banks to a new state institution, the National Asset Management Agency.

In that sense, these lamentable loans are being nationalised.

The loan transfers agreed so far will be at a painful discount of 47 per cent to face value so the banks will incur big losses on the deals - which will deplete banks' capital, the buffer against future losses.

The banks are also being forced to hold more capital in general. They'll have to raise £20bn in total.

Where from?

Well with investor confidence still weak, much of it may be contributed by the Irish taxpayer.

The state will end up with control of two building societies - the Irish Nationwide and the EBS - one bank, Anglo Irish, and possibly also Allied Irish.

Only Bank of Ireland should be able to raise the new capital it needs from the private sector.

It's a steep price for the Irish state, but the government's conviction is that recovery can only follow a frank admission of the banks' past sins.

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• - What's this?

I was recently asked by whether there was a risk that debate on financial reform would descend into party-political knockabout.

I said that I rather hoped it would, because it would be evidence of politicians believing that voters care about the arguments over how to prevent a repeat of the worst banking crisis for many decades - and that voter engagement extends beyond fury or despair over multi-million pound bonuses.

We all know that how banks behave matters more to us than how most other kinds of business behave: protecting our deposits and providing credit to businesses and households that need it, well it's hard to think of any other industry more vital to economic stability and our prosperity.

In theory, banks ought to be respected pillars of society. But time and again they find it difficult to live up to that expectation: , the competition watchdog, of the collusive behaviour of Royal Bank of Scotland will be seen by many as (sad to say) par for the course.

RBS has agreed to pay a fine of just under £29m for stitching up a cosy deal with Barclays on the pricing of loans to large professional services firms (such as solicitors and estate agents), where the duo dominate the market. Barclays escapes punishment because it blew the whistle.

Anyway, I'm sure that the new chief executive of RBS, Stephen Hester, would want you to know that he wasn't at the helm when the collusion took place.

Even so, I had thought that the slogan "collusion is us" no longer applied to British banks: perhaps I was getting ahead of myself.

That said, and on a related issue, I took a bit of comfort when (Darling, Osborne and Cable) strayed into the territory of whether the banks should be broken up.

Cable wants them dismantled. Darling said this would be fatuous, because what he described as smaller, simpler banks - like Northern Rock and Bradford & Bingley - also had to be rescued by the taxpayer in 2007 and 2008, along with the huge complex likes of Royal Bank of Scotland.

Which is, of course, absolutely true.

But it is to ignore the argument that the proportionate cost to taxpayers and to the global economy was significantly greater because of the woes of the interconnected giant institutions, from Lehman, to AIG, to UBS, to RBS, to HBOS, to Citigroup.

Also, if there had been a cap on banks' size and a ban on leveraged-based speculation by integrated universal banks - such as RBS and UBS - the impact of the closures of wholesale funding markets in the summer of 2007 and beyond would have been less severe.

There's an additional pertinent argument that the bigger the bank, the more confident it can be of being rescued by taxpayers: the directors know that if their ship goes down, the whole economy goes down, and that therefore they'll be bailed out.

Which is arguably why they feel able to take reckless risks to generate profits - and they're not prevented from doing so by creditors, who also see taxpayers as the comforting backstop. Hey presto: taxpayers (you and me) pick up the bill when the market refuses to recapitalise Royal Bank of Scotland after it suffers life-threatening losses.

Anyway, the Channel 4 audience for the chancellors' debate seemed to stay awake during the interchange on whether banks' size matters. And you've read this far into this post, so maybe the future of banking will be an issue in the general election.

The risk, of course, is that the further away we move from the moment of acutest financial and economy crisis, the less urgency attaches to the reform of the structures that contributed to that stonker of a mess.

That's why five of the world's most powerful government heads - the presidents of the US, France and South Korea, and the prime ministers of the United Kingdom and Canada - have this morning put their names to a letter that can be paraphrased as "pull your fingers out boys (and Angela Merkel); we can't afford any diminution of our collective efforts to strengthen banks and correct the fault-lines in the global economy".

The quintet are the past, current and future presidents of that new grouping of the world's economic powers, the G20. And they fear that a combination of national self-interest and post-crisis complacency may mean that the flaws in the global economy and financial system aren't properly corrected.

Lest we forget, as yet the imbalances between debtor and creditor nations have not been eliminated; and there has not been structural reform of banking. A once-in-a-generation opportunity to fix financial globalisation may yet be missed.

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• - What's this?

Here's a possible plot for episode 7 of an epic in the style of Star Wars.

The ageing democratic western Federation, weakened by decadent excessive consumption on borrowed money, sells crown-jewel assets to a reviving eastern super-power - which imperiously demonstrates where the power in the galaxy lies by arresting and imprisoning a quartet of Federation representatives on charges of corruption.

If it sounds a tad familiar, it may be because you've been reading the business wires this morning.

Overnight we had formal confirmation that for £1.2bn.

And this morning a Shanghai Court ruled that and obtaining commercial secrets. One Australian Rio staff-member and three Chinese nationals were sentenced to prison, for stretches ranging from seven to 14 years.

What do these incidents show? Well I've said before (and you'll know anyway) they are redolent of the most significant shift in power - from west to east, and more particularly from the US to China - that has been seen since the demise of the former Soviet Union two decades ago left America as a lonely economic and political titan.

Some will say that the Rio Four are being punished for little worse than doing their jobs.

Rio has today stated that's not the case. The legal process in China may not be wholly transparent, but Rio is persuaded that that the four breached its code of conduct by taking bribes and it has therefore dismissed them.

They're on their own, and won't be supported by Rio if they appeal their sentences.

Does it need pointing out that China is Rio's most important market by a country mile?

What about the industrial espionage charges? Well here is what Rio says about those:

"Rio Tinto is unable to comment on the charge regarding obtaining commercial secrets as it has not had the opportunity to consider the evidence. That part of the trial was held in closed court and no details of the case were made public until the verdicts and sentences were announced today."

Hmm.

Experts on Chinese law say the real problem here for Rio and for other companies with significant ambitions to win business in China is that what counts as an industrial secret in China would be considered unremarkable market intelligence in the UK or US.

Which takes us to the nub of the matter.

Indebted, overstretched companies like Ford are attempting to rehabilitate themselves by selling assets to the likes of China.

And almost any mainstream politician will tell you that if we're going to escape our economic malaise here in the UK and the US, we have to sell more to the Chinese and rely less on credit indirectly provided to us by China: we have to export more, consume less and reduce our indebtedness.

But China has made it absolutely clear that if we want to play on their manor, we play by their rules. And these are not rules that are necessarily consistent with western ideals of fair play and free trade (although for the avoidance of doubt, I'm not remotely suggesting that it's a fundamental western freedom to pay or receive bribes).

So just where is Obi Wan when you need him?

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• - What's this?

A cross-party committee of MPs has criticised two central planks of the Government's approach to making safe the banking system, in the wake of a banking crisis that - in Britain at least - is the worst since 1914.

The latest report from the Treasury Select Committee, called "Too Important to Fail - Too Important to Ignore", says:

"The Government has ruled out structural reforms such as narrow banking in its changes to the regulatory structure of the financial system...The debate on banking reform should remain as wide as possible. Structural reforms should not be ruled out...Given the lamentable consequences of the previous regulatory approach, the Government should be prepared to embrace radical change, rather than settling for adaptation to an existing, failed model".

The MPs are criticising the Treasury for failing to consider the option of breaking up the banks, into so-called "narrow" banks - that would look after our savings and be protected in an explicit way by the state - and more speculative banks that would not always need to be bailed out by taxpayers as and when they ran into dificulties.

To be clear, the Committee isn't saying that the banks must be broken up - but simply that it was wrong of the Chancellor, Alistair Darling, to rule out that option (especially in the wake of President Obama's announcement that he was contemplating a ban on speculative or proprietary trading by commercial banks).

In that sense, the Committee's report will be seen as embarrassing for Labour, and supportive of the Tories and the LibDems, both of which are more sympathetic to the idea of breaking up the banks.

Also, a second dimension of the report will be seen as critical of Labour, and good news for the Tories and LibDems. It says that the UK would benefit from international agreement on thorough banking reforms, but adds that "the prevarication on international agreement must not be used as an excuse to delay, or at worst, prevent reform".

The report adds:

"The UK has a very large banking system relative to GDP compared to other countries and its reform is anyway in our own self-interest, even if it is not coordinated with reforms in other countries".

Again, this view that the UK should contemplate unilateral action to make safe the banking system - even at the risk of driving offshore some City businesses which might seek to relocate to centres where regulation is less intrusive or costly - is closer to the views of the LibDems and Tories than to Labour.

The Tories have recently opened a divide with Labour by saying that they would impose a new tax on banks even if an international consensus cannot be built.

That said, the public position of the Shadow Chancellor, George Osborne, on an Obama-style break up of the banks is that he would only do this if other countries adopt the same approach.

The strongest proponent among senior financial figures of breaking up the banks - even if other countries don't - is the Governor of the Bank of England, Mervyn King.

In a way, therefore, George Osborne is giving implicit back to a unilateral dismantling of banks by the UK, in that he would want to make Mervyn King the capo di tutti capi of financial regulation and supervision.

By contrast, the chairman of the Financial Services Authority, Adair Turner, believes that the debate about breaking up the banks is a sideshow and distraction from what he perceives as the more important challenge of making sure that speculation by all banks is reined in by the imposition of punitive capital requirements.

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• - What's this?

Banking, groceries and pay TV: do they cover the main ingredients for a thriving economy and the good society?

I only ask because the longest and most expensive competition investigations have been into those business sectors.

The latest is the three-year pay-TV probe, which reaches an end - of sorts - next week, when the media watchdog, Ofcom, publishes its final conclusions and proposed remedies.

There have been thousands of pages of submissions to Ofcom in this enquiry, a fair number of them from the company directly threatened, British Sky Broadcasting (which was still lobbying Ofcom, with some 100 pages of detailed economic analysis, some five months after the consultation was formally closed).

And while we'll have to wait for the detail, there is no doubt (based on what Ofcom has already published) that Ofcom's recommendations will send British Sky Broadcasting into paroxysms of fury.

Ofcom believes that BSkyB has "market power" in the supply of channels containing live sport and first-run Hollywood movies to competitors such as Virgin and BT.

The regulator has already concluded - in its preliminary verdict published last summer - that the way BSkyB exploits this market power restricts the choice of "channels and platforms" available to consumers and may be a deterrent to the development of "new platforms".

Or to put this in English, it believes that BSkyB has an unfair hold on the supply of movies and sport, that this gives it an unfair advantage in the battle to flog not just TV but broadband and telecoms too, and that rivals therefore must be allowed to re-sell BSkyB's sport and movies at a "reasonable" price (whatever that may be).

So BSkyB will be forced to sell rival broadcasters access to its films and sport - in normal and high definition format - at keener prices than it does today.

BSkyB will scream blue murder. It will claim that the ruling is a ludicrous punishment for its putative crime of investing in the distribution of sport and movies over 20 years. And it will warn that entrepreneurs will be discouraged from taking big risks if when the dividends are being reaped they are told that they can't maximise those dividends.

It's an argument deployed by all network companies - from Microsoft through to Google - that start off small and entrepreneurial and become vast and influential, when their market power is challenged by regulators.

In response, Ofcom will claim that BSkyB would be able to make decent profits from the regulated wholesale deals with rivals. They'll be priced on a "retail minus" formula, for those who are interested in the minutiae, which broadly means there'll be a better profit margin for BSkyB than under the "cost plus" formulas which regulators normally impose when setting prices.

And Ofcom's remedies won't just apply to the movies and sport that Sky actually shows. It will also have a pop at BSkyB's ownership of the movie-on-demand rights for all the major Hollywood studios - because these are rights that it owns but does not use.

Ofcom wants to see a separation of the sale of these on-demand movie rights from the sale of standard movie subscription rights - to speed the development of proper, broadband-based on-demand movie services.

Also, Ofcom will weigh into the always-contentious arrangements for the auction of Premier League football rights.

So for BSkyB, Ofcom's tanks are not on the lawn, but are actually bulldozing through the studios.

Which is why it is better than a racing certainty that British Sky Broadcasting will appeal against the ruling.

Or to put it another way, there'll be at least another year till we know for sure whether and how the pay-TV market will change.

Even so, Ofcom's verdict is a milestone, and a politically explosive one at that.

Why the political resonance?

Well here are three facts - and you can decide whether they are related or not.

James Murdoch, the chairman of BSkyB and the presumed heir to Rupert Murdoch's News Corporation throne, has argued with some passion that Ofcom intervenes excessively in the media market and could do with neutering.

David Cameron, the leader of Her Majesty's Opposition, and a nose ahead in the race to be Britain's next prime minister, has announced an intention to scale back Ofcom and take it out of what he described as "making policy".

This is what Mr Cameron said last July: "with a Conservative Government, Ofcom as we know it will cease to exist. Its remit will be restricted to its narrow technical and enforcement roles. It will no longer play a role in making policy."

Also, News Corporation's most-widely-read newspaper, the Sun ("wot won it"), has switched allegiance from Labour to the Tories - and is currently heaping opprobrium on the government in its pages with what reads like undisguised relish.

All of which lends more than just a frisson - perhaps a better metaphor would be "earthquake" - to an investigation by Ofcom that represents the first attempt by any British regulator to argue that BSkyB as currently constituted has excessive market power and needs a bit of reining-back.

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• - What's this?

Now we have a financial measure of the mayhem in the newspaper industry: the Russian billionaire off the hands of the existing owners, the Irish newspaper group, Independent News & Media.

My reaction has been melancholy.

The Indie was the first national title to give me a job: I joined it as a City reporter in 1986, a couple of months before it was launched as a fierce competitor into a self-satisfied, semi-cartelised British newspaper industry; and I retain a strong affection for it.

But after 24 years that can be characterised as sparkling debut followed by crises so regular that they became business-as-usual, its current valuation is considerably less than zero.

The Indie is a licence to lose money: £12.4m of losses in the past year.

In fact the vendor, INM, swaggered today that its earning per share will be boosted by this deal which sees it parting with cash.

Here is the sum that makes it a good deal for INM: the cost of closing the Indie, in respect of payments to staff and to the paper's printers and distributor - notably Trinity Mirror - would have been £30m; so getting shot of it at a cost of £9.25m is a bargain.

What's gone wrong?

Well the economics of what used to be called the broadsheets have been the economics of the madhouse for as long as I can remember.

In fact it's probable that the Indie's £12.4m loss made it one of the more successful (in a profit-and-loss sense) of all the quality papers last year.

The shocking truth is that most broadsheets are run to provide a living for hacks like me and to massage the egos of the proprietors.

Over many years - and with the exception of the FT, which is in a special market, and the Telegraph - quality papers have found it close to impossible to bring revenues and costs into equilibrium, let alone generate a sustainable profit margin.

And that challenge of living within their means has been made considerably harder since the internet started providing free-on-demand news and Google began to gobble up the advertising market.

So what hope for any of the broadsheets?

Well Lebedev has in effect taken over a clean new business: there are substantial overheads in the form of wages, printing costs and distribution expenses, but no debt.

His wheeze may be to challenge the internet at its own game, by giving the Indie away (as he has already done with the Evening Standard in London)

He would maximise "eyeballs" on paper to stimulate advertising revenues.

His rivals may accuse him of unfair competition, dumping; but it's difficult to see how the competition authorities could intervene if the alternative to such a last throw of the dice for the Indie would be closure.

But in taking the road to free-subscription he would be sacrificing annual circulation revenue of £30m, so this would represent a very expensive investment in a new business model.

It will be fascinating to see whether this former KGB operative has the stomach for it.

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• - What's this?

Talking about moving the goalposts (see yesterday's note on the Treasury's new lending targets for Lloyds and Royal Bank of Scotland), there's some curious accounting in UK Financial Investment's (UKFI) latest assessment of what taxpayers have paid for their humungous stakes in Lloyds and Royal Bank of Scotland.

Yesterday, to coincide with the Budget, it produced new figures on the cost of our investment in these banks and the return to date.

The numbers are these. We paid £45.5bn in three tranches for our 84% stake in Royal Bank, or an average of 50.2p per share. And we paid £20.3bn, also in three tranches, for our 41% Lloyds holding, equivalent to 73.6p per share.

Now I don't quibble with those calculations.

They are the numbers that I regard as the important fixed points for assessing whether we are in or out of the money on our investment.

And right now, it's clear that we are showing a significant paper loss on both investments: RBS's current market price is 45.5p, so our notional loss is just over £4bn; and Lloyds' share price is 64.7p, so the notional taxpayer loss on that investment is around £2.5bn.

Now the good news is that both share prices have been rising in recent days and the capital loss on our shareholding has been diminishing.

But there's still a £6.5bn loss on the investments we made to prevent these banks from collapsing.

Here's the odd thing: Lloyds was using UKFI's latest assessment to tell journalists yesterday that taxpayers are now making a profit on their investment.

How on earth could that be? Well it's because of the curious way that UKFI has calculated the "return on investment".

In this return it includes underwriting fees from Royal Bank of Scotland of £305m and underwriting and commitment fees from Lloyds of £376m.

Which is intriguing, because these are fees due to the government for lending its balance sheet to the banks during the fund-raising period; they are not in any sense a return on the actual cash investment made by taxpayers.

And UKFI also includes as a possible return on the Lloyds investment the £2.5bn paid by the bank in shares as a fee for the implicit capital support it received from the Treasury in 2009 from the preliminary, informal phase of the Asset Protection Scheme.

But again, this is a fee for underpinning Lloyds in its darkest hour; it is not a return on the cash actually committed to the bank in the form of investment.

Anyway, for the record, if you include all these fees, the taxpayers' net "in" price for Royal Bank is 49.9p (or still a bit above the current market price) and 63.2p for Lloyds - which is just below Lloyds' market price this morning, and explains Lloyds' swagger that it is now delivering a profit for taxpayers.

But as you can probably tell, I don't think that the prices net of all those fees are the right ones for assessing whether taxpayers are in the black on their stakes.

What's more, UKFI's document also makes it clear that it will include dividends in assessing the return on the investments, as and when the banks start paying them again.

Which is fair enough. Except for one thing.

If we are going to assess the performance of our stakes in Royal Bank of Scotland and Lloyds on the basis of total share holder return (that is including dividends), then we've also got to include some measure of the opportunity cost of the investment.

Or to put it another way, I would accept a measure of taxpayers' return on the stakes that includes dividends received, if it was deflated by the return that would have been achieved by investing in other banks or in the stock market as a whole.

How likely is it that a chancellor is going to stand up and compare the investment performance of his basket of bank shares (our basket really) with the performance of the banking sector in general?

Do you think he'd fess up that he picked the wrong stocks, if the performance of Lloyds and RBS turns out to be massively worse than that of HSBC and Barclays?

That seems a bit implausible.

And the reason it's implausible is that the Treasury didn't choose to invest in Lloyds and Royal Bank of Scotland because it looked like a tasty money-making opportunity; taxpayers took those stakes to prevent the banks from collapsing and exacerbating the mess they'd already made of the economy through their reckless lending.

So although it's good news that the share prices of Royal Bank and Lloyds are rising, let's not get soft in setting the baseline for assessing whether or not we end up with a profit on these investments.

Which is why there's a strong argument that UKFI should abandon the fancy calculations and just stick to what taxpayers' actually paid for the stakes - and compare that with whatever we eventually get for the colossal holdings, as and when they're privatised.

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A Treasury condition of the unprecedented bailout of the banks in the autumn of 2008 was that they should support the economy by providing additional loans to business.

Targets were set for the semi-nationalised banks: a net increase in business lending of £16bn for Royal Bank of Scotland, and a net rise of £11bn for Lloyds.

Those of you who work in business, especially if you run a small business, probably won't need telling that RBS and Lloyds failed to hit those targets - although, in fairness to Lloyds, new figures released today show that it did at least increase net lending (by £5.7bn) which wasn't the case for RBS.

Now the excuse of the banks is that demand from creditworthy borrowers just wasn't there - which is not wholly inconsistent with the complaint of their critics which is that they have become too averse to risk and have deprived valuable businesses of essential finance.

The big fact for 2009 however was that lending to business by banks in general was weaker than it has been in living memory, which has prompted concerns that any economic recovery could be tepid for an extended period.

So what has been the response of the chancellor to the Lloyds' and RBS' failure to meet those lending targets?

Well he has moved the goalposts.

The previous targets were for net lending: they required the banks to lend more than they received from loans being repaid.

And because the banks had to provide new loans greater in value than repaid loans, they were particularly demanding targets.

The chancellor has today ditched these net lending targets and replaced them with gross lending targets.

And it is perfectly possible for a bank to meet a gross lending target, while reducing the amount of credit it is providing to the economy.

So, for example, Royal Bank of Scotland has agreed to provide gross lending of £50bn to businesses in the year from 31 March.

That sounds a substantial amount.

But if RBS's borrowers were to repay more than £50bn, RBS could hit the new target and yet be shrinking the loan finance it is providing.

And of course the same argument applies to the £44bn lending target that has been set for Lloyds.

So is it the case that the new targets are in fact soft.

Well, not on the face of it.

RBS's gross lending to business in the current year has been £41.4bn - so the £50bn for the next period looks like a rise of more than 20%.

As for Lloyds, it has lent £38bn to business this year, so its new goal is a 16% increase.

So both RBS and Lloyds will claim they are doing their bit for Britain, to recognise how much they owe all of us as taxpayers for the lifesaving support we provided.

That said, they are repeating their standard caveats.

First that they will only lend to businesses they deem to be creditworthy - and their perception of creditworthiness may still be too cautious for the tastes of some.

Second, they will insist that they can take the business horse to water, but it won't be their fault (guv') if business does not want to drink.

This issue of whether businesses borrow is not a trivial one.

If they were not to want the credit on offer at the end of a recession, it would almost certainly mean that the recovery would be insipid to the point of being barely noticeable.

Update 15:02: So what would happen if the banks fail to meet their new lending targets. This is what the budget book says:

"If the Government's judgement is that either bank has failed to meet its lending commitments for year two, or has seriously breached the behaviours set out under their SME Customer Charters, the Government will inform UK Financial Investments Ltd (UKFI), which will work with the remuneration committees of the relevant banks to determine the appropriate consequences of the breach of the year two commitments or the Customer Charters for the relevant executives."

What on earth does that mean? Well the implication is that the government would use its shareholdings in Lloyds and RBS to force pay cuts on the banks' senior executives.

Which sounds tough. Though I suspect some of you would have hoped that the pay threat was more explicit.

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• - What's this?

It's possible to learn stuff from YouTube. And that's true even when a middle-aged geezer like me watches a two-minute film by another middle-aged geezer, in this case the chancellor of the exchequer.

Right in the middle of published by the Treasury yesterday, Alistair Darling says that government can "help unlock private-sector investment so that we can get the new investment that brings jobs".

Now to anybody who has frittered away his life, as I have, as a spectator of about 30 years of Budgets, that phrase about unlocking investment means only one thing when said by a Labour chancellor: increased tax allowances for capital spending by companies, especially manufacturers.

So with considerable confidence I make the following Budget forecast: this Labour chancellor will announce generous time-limited capital allowances, viz targeted fiscal encouragement for investment.

And there's another reason why I would expect Alistair Darling to do just that: it creates clear red water between Labour and the Tories.

The point is that George Osborne, the shadow chancellor, has already announced an ambition to phase out capital allowances in order to pay for a reduction in the mainstream corporation tax rate from 28% to 25% and in the small companies' rate from 21% to 20%.

So if the chancellor goes in the other direction and actually increases investment allowances, you would have quite a contrast between Labour and the Tories.

Labour would be directing tax relief to particular sectors, such as manufacturing - on the basis that the UK needs to stimulate certain kinds of industries, especially those able to generate increased exports and close our trade deficit.

The chancellor would argue that this is particularly important after a year in which business investment has collapsed.

However the Tory position is very different: George Osborne would say that the private sector is best helped by lowering the headline rate of tax for all companies, and allowing the market to determine where capital should be invested without the alleged distortion of differential tax breaks.

Each approach has its proponents, both in an intellectual sense and in a more visceral sense - in that the abolition of all capital allowances would be quite painful for many manufacturers and smaller companies, whereas a low headline tax rate is particularly appealing to many service industries.

Now I don't suppose this argument between industrial fiscal interventionism and tax simplification will sway the votes of vast numbers of the population, but it could have quite an impact on some entrepreneurial types - whose confidence and enthusiasm is rather important to the UK's economic prospects.

UPDATE 06:35: I forgot to mention that there will - of course - be related initiatives to stimulate investment.

These include a government-funded venture capital fund, which is being dubbed the new 3i and would provide modest amounts of equity finance for smaller businesses.

It is supposed to co-invest with the private-sector in technology-based companies, such as those in life sciences, digital industries, and advanced manufacturing.

And there will be a so-called "green" investment bank.

It would take the proceeds from the looming privatisation of existing infracture projects (such as London and Continental Railways - which built the Channel Tunnel Rail Link - and the Dartford Crossing) and use those proceeds to help stimulate new greener infrastructure projects (such as offshore wave-power generation).

As I have reflected before, anti-interventionist New Labour has - at the end of its third term in office - rediscovered an enthusiasm for intervening in the market before breakfast, lunch and tea.

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• - What's this?

My disclosure that the London offices of Moore Capital were raided by officials from the Financial Services Authority and the Serious Organised Crime Agency this morning will send shock waves through the City of London and Wall Street.

Although no-one has yet been charged, a Moore Capital employee has been arrested.

And the Financial Services Authority has described its probe as its "largest-ever operation against insider dealing" - involving almost 150 investigators and policeman in a swoop on 16 addresses in London, Oxfordshire and the south-east of England.

There is no suggestion of wrong-doing by Moore or its legendary founder, Louis Bacon.

But there are few hedge funds in the world that have been going for longer or that manage more money.

It is thought to manage some $15bn of investors' money.

And Mr Bacon is said by Forbes Magazine to be worth $1.5bn.

The FSA massively increased the resources it deploys on surveillance and enforcement three years ago - and with the probe of Moore, it is showing a willingness to probe the world's most powerful financial firms.

Update 18:27

Deutsche Bank, the leading German bank with a huge City presence, has confirmed that one of its employees is under investigation by the FSA. It is co-operating with investigators.

Meanwhile a spokesman for Moore Capital tells me that its arrested employee has been put on gardening leave and that it too (naturally) is fully co-operating with the FSA.

Moore Capital's understanding is that the FSA is probing private dealings by the trader, rather than trades for the firm. If true, that would limit the reputational damage to the firm.

Update 19:00

The third financial institution raided today was the London arm of the big French bank, BNP Paribas.

For the avoidance of doubt, the FSA is investigating individuals at Moore Capital, BNP Paribas and Deutsche Bank rather than the firms themselves.

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• - What's this?

The has just put out the most tantalising statement about raids it has conducted this morning on 16 addresses in London, Oxfordshire and the south-east of England.

It describes these raids as its "largest-ever operation against insider dealing". And it has certainly put its resources where its mouth is: it has deployed 143 of its own investigators in the swoop and has collaborated with .

So, first things first: if you noticed a troop of heavy-booted policeman carrying computers and files out of your premises this morning, (please forgive my blatant solicitation).

The FSA says that six men, including "two senior City professionals at leading city institutions and one City professional at a hedge fund" have been arrested. They are suspected of involvement in "a sophisticated and long-running insider-dealing ring".

The watchdog adds that it believes these City professionals passed inside information to traders who "traded based on this information and made significant profits as a result".

What's the significance of all this?

Well, there can no longer be any doubt that the FSA is serious about cracking down on City crime, especially illicit trading in shares and securities when in possession of privileged insider knowledge.

The FSA massively increased the resources it deploys on surveillance and enforcement three years ago - including installing a powerful computer system, Sabre, which analyses trading data and identifies patterns of possible illegal dealing.

That investment in policing now appears to be paying off in a stream of investigations and prosecutions. Leading City firms will be hoping that they don't have too many bad apples within their ranks.

Update 1707: I understand that the hedge fund raided by the FSA and SOCA this morning was Moore Capital.

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• - What's this?

British banks would be legally obliged to provide a basic bank account to every UK citizen, under plans to be unveiled in tomorrow's budget.

This universal service obligation on banks, which will require new legislation, is the Treasury's latest initiative to reduce what it calls financial exclusion, or the alienation of poorer and disadvantaged individuals from financial services that most of us take for granted.

According to a recent report by the Treasury's Financial Inclusion task force, there are 1.75m adults with no access to a transactional bank account, or an account that can be used to pay bills and receive a salary or benefit payments.

A high proportion of these unbanked were retired, or below the age at which National Insurance is payable. More than 50 per cent of them are among the 20 per cent poorest in the country.

The Chancellor, Alistair Darling, is convinced that gaining access to a bank account enhances an individual's ability to find permanent employment - although the connection is not straightforwardly obvious.

Also, Labour and the Tories are vying with each other over policies to promote the provision of fast internet connections in homes. And a separate government "inclusion" taskforce, this time on Digital Inclusion, has argued that households that are offline miss out on savings of £560 per year from shopping and paying bills online.

These "online" savings are only available to those with bank accounts and debit or credit cards - so the unbanked cannot tap them.

Britain's banks are unlikely to welcome the legislation forcing them to provide a basic account to anyone with a provable residential address. They will probably see it as a bureaucratic burden and will point out that they have already made great strides to increase the availability of basic bank accounts: the number of unbanked individuals has halved since 2002.

What's more, the use of bank accounts in the UK is proportionately high by international standards.

The Government believes that banks have a duty as corporate citizens to contribute more to Britain, especially in the wake of the substantial financial support they've received from taxpayers since the onset of the Credit Crunch in 2007.

In legislating to give banks a universal obligation to provide basic accounts, the government would in a way be turning banks into public utilities: the obligation is redolent of the obligation on Royal Mail to carry letters to any part of the UK for a single tarriff.

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• - What's this?

I will admit to being puzzled by the course of the confrontation between BA's management and the airline's cabin crew.

On the basis of copious past form in the 23 years since BA was privatised, the company's executives - for all their talk of the imperative of introducing modern, flexible working practices - would be buckling by now.

They would have felt under intolerable pressure from a falling share price, which would have worried the owners, and from non-executive directors - who themselves would be feeling the heat from a government irked by the reputational contagion from such lousy industrial relations.

But there's no sign of surrender from BA's chief executive, Willie Walsh.

The non-execs are both privately and publicly standing behind his tough negotiating stance. Or at least so my enquiries indicate.

As for the share price, as three days of expensive strike draw to a close, BA's share price has fallen just a bit this morning; the fall is more-or-less in line with the general weakness of the market.

And the share price has risen during the weeks leading up to a strike that has already cost the company tens of millions of pounds - and with significant additional costs still to come.

So why are BA's non-execs showing solidarity with the execs in a way that has not always been characteristic of the company?

Is it because they with to "break" the union, Unite?

That seems unlikely - and is denied by the board members whom I've asked. In fact, they say there are great practical advantages in being able to negotiate employment issues with a single negotiator (in good times at least).

Is the rise in the share price and the resolve of non execs due to the magnitude of the costs that could be saved if BA were able to hire new cabin crew on cheaper terms and conditions than existing crew - which is an important management requirement?

Well, such savings could be substantial in the long term. But right now they look almost academic, because senior BA people tell me the current imperative is to reduce employee numbers, not recruit new staff.

So what is the big prize that keeps execs, non-execs and owners together in their battle with cabin crew and the union.

Well, to be facetious for a second, I think it is a lot to do with Spanish practices - or the imminence of the merger with the big Spanish airline, Iberia.

I am told that work is proceeding briskly to combine BA and Iberia.

But arguably it would be pointless crunching the airlines together - or so BA's management and owners would believe - if they couldn't do the traditional merger thing of eliminating duplicated overheads and improving productivity.

Now, given the highly regulated nature of the airline industry, it may be years before BA and Iberia can properly integrate their networks and secure these savings.

But BA's management would presumably want to feel that they had agreements with their own cabin crew in place that allow them to reap those savings, as and when they became available.

As for the alternative of caving in to the union in the current dispute, that would conceivably make it impossible for BA to secure the merger efficiency gains for a generation.

UPDATE 17:30 BA has just put out a Stock Exchange announcement saying that the costs so far have been £7m per strike day and that its guidance on its results for the current year has been unaffected by the dispute.

This is tough talk - and implies that the company has the financial wherewithal to absorb many more days of industrial dispute.

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• - What's this?

The Tories and the government are less far apart on the imposition of a new tax on banks than may appear at first glance - and perhaps the significance of this weekend's shift in both of their positions is that the big banks and other substantial financial risk-takers, including possibly hedge funds, need to brace themselves for the imposition of a substantial new levy.

Although David Cameron said today that he would impose such a tax come what may, whereas the Chancellor would want to wait for international agreement, the Tory leader only made his move because he became persuaded in the past few days that international agreement would probably be forthcoming.‬‪

So why would the Tories feel more comfortable imposing a unilateral tax?

Well it's because of the differing histories of the two main parties: the Tories want to dispel the idea that they won't stand up to their putative friends in the City; while Labour feels that even now it can't afford to be seen to be anti-capitalist.

There is also considerable similarity in the nature of the tax under consideration by Labour and Tories.

Both would go for something along the lines of what President Obama wants to impose in the US, which is a levy on money banks borrow from big lenders, or a charge on what's known as their wholesale funding.‬‪They would not opt for what many campaigners want, which is a tax on financial transactions, or a Tobin tax.‬‪

Also, Labour and the Tories are closer to each than to the LibDems, who favour a tax on banks' profits.‬‪

All three would say that their aim would be to discourage banks from taking dangerous risks.

That said, at a time when the deficits of most rich western countries are ballooning, the proceeds of a bank tax would also be quite useful.‬

PS Mea culpa. In the original published version of this, the final paragraph said "most rich western companies" when (of course) I meant to say "most rich western countries". Please forgive that I didn't spot and amend earlier.

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• - What's this?

David Cameron will tomorrow pledge that a Tory government would introduce a new tax on the banks, even if other countries don't move ahead with such a tax.

That marks a difference between the Tory position on a bank tax and the government's, in that the Chancellor will confirm in the budget next week that he is in favour of such a tax, but only if there is an international agreement to levy one.

However the difference between the Tories and Labour is less wide than it may appear - for two reasons.

First, with the US and Sweden having already announced such a levy, international agreement on such a tax looks much more likely than it did.

According to a senior source, the Tories have had "conversations abroad in the past week" which have convinced the Tory leader and the shadow chancellor George Osborne that they would be in "good international company" if they were to launch such a tax.

Second, the Tories are at pains to point out that if in the end other countries were not to move ahead with a bank tax, they would reduce the burden of any tax they chose to introduce here.

Like the Government, the Conservatives would not wish to levy a tax that would drive banks from the UK to countries with a more benign tax climate.

That said, the Tory leader is planning to say in a speech on Saturday that he is determined to stand up to vested interests, and that he regards the big banks as falling into that category.

He is expected to say that "a Conservative government will introduce a new bank levy to pay back tax payers for the support they gave and to protect them in the future".

He will concede that it "won't be popular in every part of the City" but will add that it is "fair and necessary".

The Chancellor, Alistair Darling, will also announce a shift in the government's position on a bank levy.

Up to now, the Treasury has been agnostic about whether any such levy should be a straight tax whose proceeds would be available for general use by government or an explicit insurance charge whose proceeds would be used to meet the costs of any future bank bailouts.

Mr Darling will make clear that he will lobby for a worldwide tax on banks, rather than some kind of insurance premium.

He hopes that the world's biggest economies will agree to such a tax at meetings in late April under the auspices of the International Monetary Fund.

The tax would be designed so that banks that take the biggest risks would pay more - because this would be a way of discouraging them from gambling and speculation.

The levy could therefore be a percentage of banks' finance from wholesale sources, which is one possible proxy of the risks they run - and the basis for a $100bn-plus tax recently announced by President Obama.

The Obama tax model is also one that the Tories have for some week indicated they like.

The Tories believe that an Obama-style tax if introduced in Britain would raise "billions of pounds".

The Treasury is also considering whether a better gauge of risks being run by banks would be their loans and investments, weighted according to risk.

It is striking however that the Treasury has moved away from supporting a tax on financial transactions, or a so-called Tobin tax.

Some will see these initiatives by western governments to raise money from banks as a populist way of reducing the surge in the amount they've borrowed since the onset of the global recession.

That said, Treasury sources insist that Mr Darling favours such a tax rather an untouchable insurance premium not because the money would be useful in reducing debt (although it would be very useful) but because he feels that if banks felt they were explicitly insured against the consequences of their actions they could end up taking even greater risks.

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There's a fascinating insight into the differing attitudes to pay of the chaps who run Barclays within the pages of its annual report published today.

The president of the bank, Bob Diamond, who made a none-too-shabby £27m from last year's sale of Barclays BGI business, is taking part in a long-term incentive scheme that is equivalent in value to £6m of remuneration this year - and could yield him shares worth £18m in 2013 if Barclays hits its targets over the coming three years.

It's worth noting that this is a chap who has pocketed several tens of millions of pounds in pay and assorted awards over the past few years.

By contrast, his boss, John Varley, Barclays chief executive, chose not to participate in this incentive scheme. Barclays annual report says that "John Varley advised the board that he wishes to decline any award".

Now Varley isn't short of a bob or three. His annual salary is £1.1m.

But, to paraphrase Harry Enfield, Diamond is worth considerably more than Varley - and yet Diamond felt it appropriate, in this climate of some scepticism about the social purpose of bankers and banking, to load up with more performance-related remuneration.

Varley led from the front. Diamond chose not to follow.

I bet that led to an interesting discussion on Barclays' remuneration committee.

The remuneration disparity raises questions about whether there really is a seamless unified culture in this huge bank, with its substantial retail and investment banking operations.

For the record, I should note that both Varley and Diamond declined to take bonuses this year. And that Barclays finance director, took part in the long term incentive scheme to the tune of £1m of present value.

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• - What's this?

Hold the front page: .

Yes, it has come to this.

A few years ago, there was widespread concern that banks were making excessive profits. Then the worst banking crisis since the 1930s meant we worried whether the likes of Royal Bank of Scotland and Lloyds would ever make a profit again.

And today - let's declare it a national holiday - , which is the first time it has said it expects to be in the black since its troubles arrived by the trainload in wagons marked "HBOS".

What will be the scale of the turnaround?

Well its accounts have become very confusing because of the impact of its controversial takeover of HBOS and assorted one-off factors.

But it says that on a "combined" (Lloyds plus HBOS) basis, pre-tax losses were £6.7bn in 2008 and £6.3bn last year.

So a profit in 2010 would be an improvement of many billions of pounds. I would imagine that analysts will shoot for something of the order of £1bn or so of profit for 2010.

Which sounds like a lot of money. But that is many billions less than it will end up generating, as and when the losses it incurs on the loans it has made fall to more normal levels.

So what's driving the recovery?

Well most important is that losses on those reckless loans it provided to companies and households during the bubble years are falling quite significantly.

In its results announced at the end of February, it disclosed a charge of £24bn for loans going bad.

This was a mindboggling sum to lose as a consequence of borrowers being unable to keep up the payments.

But the rate of loss was at least falling as 2009 progressed. In the first half of 2009, the so-called impairment charge was £13.4bn; in the second six months, it was £10.6bn.

What Lloyds said in those last results is that it expected the impairment-charge improvement rate of just over 20% every six months to be sustained into 2010 (forgive that horrid construction). But it now believes that losses on bad debts will shrink faster.

Phew.

There are two other contributors to Lloyds return to the oh-so-attractive black.

First, and as Lloyds staff anxious about losing their jobs know only too well, the bank is proving adept at generating cost reductions from its takeover of HBOS.

It had expected cost savings on an annual basis to be £1.5bn by 2011. Lloyds now expects those annual cost reductions to be £2bn (although Lloyds is paying more than expected in reorganisation charges to secure those efficiency improvements).

And then there's what it can squeeze from customers. It has been able to push up the interest rate on mortgages and other loans a bit. So its margin is expected to widen fairly significantly this year, from 1.77% to 2%.

If you are a borrower from Lloyds, you probably therefore won't take the view that its recovery is good news for everyone.

That said, a successful economy requires banks that make profits.

However we also need banks that can finance themselves from commercial sources, rather than borrowing from taxpayers. And £157bn of Lloyds' funding comes in various ways from taxpayer supported schemes, both in the UK and elsewhere.

It has a plan to wean itself off that public-sector drip by reducing the loans and investments on its books.

Whether it can shrink enough without damaging the British economy (by depriving households and businesses of valuable loans) is the big unanswered question.

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• - What's this?

Lest we forget, Lehman Bros was regarded as one of the world's most sophisticated, well-managed investment banks, just a year or so before it went belly-up.

Investors loved the stock, valuing the bank at more than $30bn as late as January 2008. Financial institutions, including the world's most lauded banks and hedge funds, lent it hundreds of billions of dollars. Regulators trusted that it had the appropriate systems to control the risks it was taking.

But it turns out that those at the top of the bank were - to an extent - flying blind about the risks being taken by Lehman. And so too, therefore, were US and British regulators.

That is the inescapable conclusion of the 400-page valuation section of the recent report on the collapse of Lehman by the examiner for the New York bankruptcy court.

That section hasn't as yet received much media attention, because it is much less sexy than the examiner's finding that Lehman shunted $50bn of assets off its published balance sheet, to exaggerate its financial strength, using the highly questionable Repo 105 technique (see my earlier note on this).

And, to be clear, the examiner does not believe that Lehman deliberately understated losses on its loans and investments in a way that could lead to substantial damages claims by creditors.

But his report tells a disturbing story of a bank with $700bn of assets and 900,000 derivative positions woefully ill-equipped to assess whether the values that its traders were putting on their deals were the correct values.

And before I quote one or two choice passages from the report, I will state the bloomin' obvious - which is that trusting the valuations of traders, whose enormous bonuses depend on whether their investment and dealing positions are showing a loss or profit, is as sensible as trusting a bunch of five-year-olds not to eat the sweeties in a chocolate factory.

Now Lehman did have a so-called Product Control Group whose job was to assess the valuations or "marks" put on assets by the assorted business desks. This is what the examiner says about the capability of the Product Control Group in respect of its checks on the prices claimed for collateralised debt obligations, those toxic bonds made out of home loans:

"The Product Control Group did not appear to have sufficient resources to price test Lehman's CDO positions comprehensively. Second, while the CDO product controllers were able to effectively verify the prices of many positions using trade data and third-party prices, they did not have the same level of quantitative sophistication as many of the desk personnel who developed models to price CDOs...
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"The effectiveness of the Product Control Group was also limited because it did not have the technical sophistication to develop complex models for pricing CDOs, as did certain of the desk personnel (commonly referred to as 'quants') they were charged with monitoring."

Or to put it another way, in the absence of reliable market prices the Product Control Group lacked the intellectual tools to challenge the prices put on CDOs by those who created them.

This is profoundly shocking, and not just for what it says about woeful risk controls at Lehman.

It calls into question the assurances given by those who run all the world's big investment banks that they have reliable techniques to control the risks taken by their employees.

The point is that the bosses of Barclays, Goldman, Morgan Stanley, JP Morgan and so on have never claimed that they personally understand each and every one of the millions of investments that are on their respective balance sheets. Nor could they ever do so. The size and complexity of their businesses would baffle an X-Men style mutant superhero with a brain the size of a planet.

But they do claim that they have highly skilled risk controllers who vet their traders' and bankers' valuations on their behalf. So the really important question raised by the Lehman report is whether these extant banks' respective risk controllers and product control groups are a cut above Lehmans'.

What was the practical consequence of the physical and intellectual under-resourcing of the team that was supposed to keep Lehman's bankers and traders on the straight and narrow?

Well, on one measure some half of Lehman's CDO portfolio was unreviewed in May 2008. Bizarre mistakes were made, such as using a lower discount rate to value tranches of CDO that were intrinsically more risky. And on one securitisation called CEAGO, the court examiner valued one tranche of bonds at 3% of the price put on them by Lehman's Product Control Group.

Here's the important point. We pay money to be passengers in planes not because we have a detailed understanding of all those complex computer and engineering systems that keep planes in the air, but because we are confident that the airlines and manufacturers have that understanding.

The corollary for banks like Lehman is that they are given licences to trade because they are trusted to keep a firm grip on the high complicated risks they are running. The examiner's report should make us ponder whether we've been a bit too trusting, not just in Lehman's case but for all those global mega investment banks.

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• - What's this?

In the autumn of 2008, during the worst global banking crisis since the 1930s, I was interviewed by French television and asked to explain the malevolent role of hedge funds in causing the mess we were in.

When I said that hedge funds were really not at the heart of the matter, the interviewer was shocked and disappointed. She was in London on a mission to tell the truth to her viewers about the malignancy of hedge funds, and her script did not allow for a different version of events.

Some would say that the European Union's determination to drive through a directive regulating hedge funds and private equity is a manifestation of the same blinkered vision.

It's not that a bit of additional regulation might not be useful. More transparency about their activities, formal limits on the amount of debt or leverage they can take on, these could be sensible safety precautions, to limit their potential to wreak damage to the financial and economic system.

But there is a strong argument that proponents of the new directive are missing the big and important points by a mile. Which means that the passionate and obsessive determination of some EU members to see the directive enacted can be seen as a bit silly (at best) - especially at a time when the real flaw in the financial system, the structure and regulation of banks, is a long way from being fixed.

There are two important points.

First, the actual harm that hedge funds and private equity may have wreaked in the creation and course of the credit crunch could probably be much better tackled not by regulating them directly, but by new restrictions on the banks that service them and take credit from them, and on the financial markets where they trade.

There are five kinds of harm that hedge funds and private equity may have caused, all of which are fixable without a directive that imposes new direct constraints on hedge funds and private equity:

1) Some financial institutions, such as Bear Stearns and Lehman Brothers, became dangerously dependent on short term credit provided by hedge funds. But that's fixable by imposing tough new requirements on such investment banks to raise much more longer-term finance that can't be withdrawn on a whim.

2) Many believe that hedge funds have destabilised banks such as HBOS and even entire economies, such as Greece, disproportionately to the fundamental weakness of such banks and economies, by their ruthless financial speculation that such banks and economies were heading for the knackers. Now, to be clear, that hypothesis is by no means proven. Some would say that in such cases hedge funds are the public-spirited early warning system (please don't shoot your computer). But if you think that it's wrong to allow the mafia to take out an insurance policy on your house that delivers the mob a profit when your house burns down, which is how some would see naked CDS shorts on bank debt or government bonds, then ban those insurance policies, prohibit naked CDS shorts. But that's product regulation, not regulation of institutions such as hedge funds.

3) Hedge funds have provided a market for some of the newfangled financial products, such as CDO squareds and cubeds, that decimated the balance sheets of banks. But if you don't like the toxic new products, regulate their development or the extent to which banks can load up their balance sheets with them.

4) Banks have suffered big losses on their loans to businesses acquired by private equity firms. But that is eminently sortable by constraining banks' ability to lend to over-indebted companies and institutions.

5) Finally, the massive rewards earned by the partners in some hedge funds and private equity firms helped to encourage the spread of a pernicious short-term bonus culture in banks. But let's be clear about this. First of all most hedge fund and private-equity partners are at least putting some of their own money at risk (although some would say nowhere near enough), which almost never happens in banks. More germanely, hedge funds and private equity surely can't be held accountable for the abuse of their remuneration system by other institutions.

And then there's the humungous final point, which is the one that the proponents of the EU directive in the French and German governments simply don't wish to acknowledge. Which is that there is a powerful argument - if you believe in capitalism - that hedge funds are in one overwhelmingly important respect a model for how the banking system should be reformed, and absolutely not a financial tumour that needs cutting out.

The fact is that hundreds of hedge funds went bust over the past couple of years. And there wasn't a single one, for all the billions of dollars of investors' money they controlled, which needed to be bailed out by taxpayers.

Why was that?

Well it was probably not because of brilliant regulation by the likes of the Financial Services Authority.

The much more compelling explanation is that they were subject to the direct engaged oversight of their investors and creditors, which limited hedge funds' ability to take unaffordable risks. It never occurred to those providing finance to hedge funds and private equity firms that the state might provide them with a safety net. So those creditors and investors made sure that those hedge funds and private equity firms only speculated what they could afford to lose.

This is the important big contrast with banks, where investors and creditors knew that if everything went wrong, taxpayers would be there to pick up the bill. Which meant that those investors and creditors had less of an incentive to prevent banks from betting not only the farm but the entire landscape.

On that view, we would want banks to become more like hedge funds, not regulate hedge funds out of existence. Or to be more precise, the investment banking bits of the likes of Barclays, Deutsche Bank or BNP Paribas should perhaps be hived off and shrunk, so that there would be no reason for taxpayers to bail any of them out if they ran into difficulties.

Some would therefore argue that if the French and German governments really want to make the financial system safe, they would start by dismantling their enormous complex universal banks. The consolidating power of these sprawling banking conglomerates may pose much more of a threat to future financial stability than hedge funds.

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• - What's this?

Something remarkable may well happen on Wednesday or Thursday, which is the announcement that a former KGB officer worth $2bn (according to Forbes) is buying a pillar of Britain's free press, the Independent.

Actually to say that Alexander Lebedev and his son Evgeny are buying the Indy doesn't quite convey what's happening.

Ownership of the paper (launched in 1986 under the slogan "It is, are you?") and its £10m-per-year losses would transfer to them, but naturally they would not actually have to hand over any cash to take on this expensive responsibility.

The deal has been expected for weeks; on-off negotiations have been going on for well over a year. And those close to the Lebedevs say they hope to unveil their plans tomorrow or the day after.

That said, it wouldn't be a great surprise if there was another delay. Last week agreement was held up over what Trinity Mirror might demand if a Lebedev-owned Indy decided to remove distribution from the Mirror publisher.

My strong sense is that momentum to complete the deal is now unstoppable - although, to resort to cliché, no deal is done till it's done.

So if the Indy completes its almost 25-year metamorphosis from a bold initiative by journalists to control their own destiny into just another's plutocrat's bijou, what does that portend?

Well, as I said in an earlier note, in mundane commercial terms it could mean that there will be no charge for some or all of the Indy's circulation: the Lebedevs already give away the Evening Standard in London, and are pleased with how that has increased the reach of the paper and has helped to push up advertising revenues.

However, abolishing the cover price would not be cheap for them: the Indy's current annual revenue from circulation is about £30m, which is a lot of money to sacrifice on a hunch that over time advertising income will rise enough to compensate.

That said, the Lebedevs will not buy the Indy and be content that it remains the smallest of the so-called quality papers.

They will want to put oomph behind circulation.

Nor are they taking a conventional view of who should run the Indy. They've approached Greg Dyke, the former director general of a rather bigger organisation, the 91Èȱ¬, to be the new editor: he hasn't said no (although that doesn't mean he'll ultimately say yes).

So the scale of the Lebedevs' ambition is unsettling other newspaper proprietors and managers.

The Russians will be braced for fearless investigative journalism from competitor titles, examining the origins of their fortune, whether their purse really is bottomless, whether Alexander Lebedev's relationship with another famous former intelligence officer, Vladimir Putin, is as fractious as it seems (fractious would be good, according to the conventional view) and whether they are committed to free expression.

Having met them, they talk an impressive talk about their access to cash and their passionate commitment to an independent press.

But I haven't conducted banker-style due diligence on them.

Whether such due diligence is strictly necessary, given that the choice for the Indy is probably their underwriting or a lingering death, is moot.

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• - What's this?

Years ago I was on a plane with the then chief executive of British Airways - and when I mentioned this to the cabin crew, they said they knew and had already spat in his drinks.

Which is as much to say that there's nothing new about British Airways' management being at loggerheads with staff.

Any strikes will be costly - in terms of lost business and the incremental expense of providing an emergency back-up service.

But many shareholders would point out that 23 years after the flag-carrying airline was privatised, BA has failed to sufficiently modernise industrial relations. They believe strike costs would be worth it if what emerges is a BA better able to adjust staffing levels to compete with its lower cost rivals.

Which explains - in part - why BA's share price has actually risen a bit since .

That said, BA's cabin crew are pretty determined to fight, largely because they fear that what's being forced on them is a Trojan horse - an opportunity for BA to bring in new staff over time who would work much more than they do for much less.

BA's chief executive says that his airline has sufficient cash to absorb the costs of a strike.

However, that may be missing the point. Strike-related losses would be trivial compared with the £900m fall in turnover that the group suffered in the first nine months of the year and a hole in its pension funds of at least £3.7bn.

BA is already more productive than it was, and actually made a small operating profit in the three months to the end of 2009.

For shareholders, the biggest risk for BA right now isn't financial bankruptcy but a collapse in the authority of management if it were to cave in.

Of course the corollary of that is that cabin crew have a pretty big incentive to fight on.

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• - What's this?

I had been meaning to write something about Sir Brian Pitman, the former chief executive of Lloyds Bank, who died last week, but have been delayed by the latest Lehman revelations.

Almost 20 years ago, when I was the Financial Times' banking editor, I saw a great deal of him. And I would argue that he was one of the four or five most important British business people of the Tory years of government from 1979 to 1997 - which is not to say anything about his politics, but just to point out that his heyday was the age characterised by the Thatcherite war on the state and a resurgence in the private sector.

He was certainly the most important British banker of his generation. And his single most important contribution was that he understood - in a way that previous leaders of the Big Four clearing banks and many of his contemporaries did not - that banks were supposed to be run for the long term benefit of their shareholders and that what customers wanted actually mattered.

This may today sound like a statement of the bloomin' obvious - even if most banks have recently rather failed to meet those basic standards. But 20 years ago they were revolutionary ideas: banks back then were run by public-school chairman and grammar-school general managers whose primary belief was that the size of a bank was what really mattered, and never mind if being big ran counter to the interests of the owners and the clients.

Together with his own public-school chairman, Sir Jeremy Morse, Pitman dared to be different in another way. Lloyds largely eschewed the glamourous businesses of stock broking and investment banking, and concentrated on serving the needs of retail customers.

Because of his obsession with what was at the time the relatively new concept of risk-adjusted return on capital, he could see how to make money for shareholders over the long term out of basic banking, but not out of wholesale speculative activities where the risks were harder to measure and control.

Only a few days ago, he gave a synopsis of what really mattered to him as a banker and business leader in his evidence to the Future of Banking Commission:

"Nobody is a greater believer in shareholder value than me... It's long term shareholder value and everything has to be structured around the long term, particularly the remuneration structure has to be around the long term. The minute you move to a huge emphasis on short term big bonuses you're going to change the behaviour. It is perfectly possible, in our case for 17 years when I was there, we were doubling the value of the company every three years for 17 years. Nearly everybody had shares in the company; messengers were worth a quarter of a million pounds when I left because we'd been successful as an organisation. But we believed it all had to start with the customer."

This relentless focus on doing one thing well and putting the customer first, rather than going for the glory of becoming a global universal bank, meant that Lloyds was for much of the late 1980s and early 1990s Britain's most successful bank by a mile - measured in respect of its profits growth and share price performance.

On his watch, accident-prone Midland was devoured by HSBC, Barclays suffered humiliating losses on property lending and made a very expensive debut in investment banking and NatWest lurched from mediocrity to eventual takeover by Royal Bank of Scotland.

Which is not to say he did everything right. Arguably it was a mistake that he stayed on as chairman after ceasing to be chief executive - because it was impossible that the new chief executive would have any real sunlight in which to flourish under his long shadow.

And he became so obsessed with growth, that when the natural growth to be squeezed out of the domestic retail market was largely exhausted, Lloyds probably became too hooked on making acquisitions, not all of which were sensible.

But if you want a measure of what he did right, HBOS would today be a nationalised basket case, if he hadn't transformed Lloyds into such a fearsome money-making machine that it has been able to absorb HBOS' mind-bogglingly huge losses (although many Lloyds shareholders would wish that his successors at the helm hadn't tested the bank's robustness with that deal).

Pitman was a player in the banking industry till the end.

He recently became chairman of Virgin Money and on 25 February, speaking to the Future of Banking Commission, Pitman made an important point about the financial and economic havoc wreaked by banks in the past few years that has not received enough attention: the chief executives of banks have the power to drive up short-term profits by pulling a lever that forces their respective banks to take more risk, to lend and invest more relative to their capital resources.

As he said, bosses of banks and other financial companies (such as insurers) have this unique ability to engineer increases in profits over the succeeding two or three years in a purely mechanistic way. It is not a power, for example, that a retailer has.

But after profits have been lifted significantly by the income stream automatically generated by lending and investing more, there is - usually - a horrible reckoning, when many of the loans and investments turn bad, as borrowers find it difficult to keep up the payment. Does that sound familiar?

Which is why Sir Brian was such a critic of a short-term bonus culture in banking that provided powerful incentives to bank bosses to pull that lever and increase the risk being taken by their banks.

He felt you needed 10 years to measure the success of a bank. And he wanted bankers to be rewarded for increasing profits and the share price over considerably more than three years.

Oh, and he also thought that banks ought to be run by bankers who understood all this. Although he was that rare banker who actually listened to customers, he was withering about "retailers" with little grasp of risk who had had taken over his industry and almost destroyed it.

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• - What's this?

$50bn is not a trivial sum to hide from investors, creditors, rating agencies and the US government.

Which is why the assertion by a US court-appointed examiner that Lehman used an accounting ruse to keep from public view some $50bn of loans and investments - and thus appear to be taking fewer risks than was really the case - is a serious charge.

To be clear, the examiner does not say that this device was responsible for Lehman's collapse. Its demise stemmed from its excessive investments in the US commercial property market and its dangerous reliance on short-term finance that could and was withdrawn.

However Lehman might well have collapsed earlier if the full extent of its loans and investments had been in the public domain.

Which is why it is at the very least highly embarrassing for Ernst & Young that the examiner says that global accounting firm is liable to claims for damages because of its alleged "failure to question and challenge improper disclosures" by Lehman.

And the examiner also says claims can be made against Dick Fuld, Lehman's erstwhile chairman, and a trio of its former chief financial officers.

Lehman's creditors and investors will be studying the examiner's report in a forensic way, to assess whether they should sue those criticised in the report.

Meanwhile there is also some unattractive publicity for the London law firm Linklaters and for the now controversial light-touch regulatory culture that existed in the UK till recently.

The examiner says that the so-called "Repo 105" programme that allowed Lehman to hide that $50bn of assets was not permitted by any US law firm.

So Lehman obtained an "opinion letter" from Linklaters in London that said the relevant deals were permissible under English law - and the relevant transactions that hid the assets were then conducted through Lehman's London operations.

There's no suggestion that this was illegal or in breach of any rules.

But some would say it is unedifying that the deals that buried the $50bn of assets were not permissible on Wall Street but could be done in London.

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• - What's this?

"Repo 105" is about to enter the lexicon of shameful accounting and financial techniques employed to hide risk from the markets.

According to Anton Valukas, the examiner appointed to investigate the collapse of Lehman Bros by a New York bankruptcy court, Lehman used Repo 105 to hide from creditors, markets, ratings agencies, regulators and even members of its own board quite how much it had borrowed relative to its capital.

Or to put it another way, the firm used Repo 105 to exaggerate its financial strength in 2008, which was when this really mattered because of widespread concerns about the robustness of many banks.

The ruse worked like this.

Lehman was highly and dangerously dependent on raising hundreds of billions of dollars of short-term finance every day, in what's known as the repo market.

This is a market used by US investment banks in which assets can be swapped for short-term loans.

But because the finance raised in this way has to be repaid within days, the assets - in an accounting sense - are never deemed in an accounting sense to have left the repo-ing banks' balance sheets.

Except that Lehman found a ruse to use the repo market to make it look as though the assets had been removed in a permanent way.

Apparently (and this is quite difficult to believe) the accounting rules allowed Lehman to report a reduction in assets if it exchanged those assets for funds at a conversion rate of 105 to 100: so if Lehman exchange assets with a value of $105 for loans at a value of $100, that $105 of assets could be removed from the balance sheet when reporting group financial results.

Astonishing.

Now according to Valukas, this ruse allowed Lehman to report that its assets were $38.6bn lower than was really the case at the end of the 2007 financial year. And the reduction increased to $49.1bn at the end of the first quarter of 2008 and $50.4bn by the middle of 2008.

Why did this matter?

Well, one of the most important measures of an investment bank's financial strength is its leverage ratio, or the ratio of its reported assets to its reported capital. The lower the ratio, the stronger a firm will appear to be: the bank will appear to have more capital relative to its loans and investments to absorb any losses on those loans and investments.

So by removing $50.4bn of assets from its reported balance sheet using Repo 105, Lehman reduced its reported leverage ratio from 13.9 to 12.1.

That may not sound a lot, but in the context of the fraught market conditions of 2008 - after Bear Stearns imploded - it could have been the difference between life and death for Lehman.

In particular, it was hugely dependent - as I've said - on raising short-term finance from the conventional repo market. And if its creditors in that market had known the true state of its leverage, they might have ceased lending to it even earlier than they did - which would have brought forward the date of Lehman's demise.

I'm slightly under the cosh now. But when time permits later in the day, I'll also look at why Valukas believes there is a case to claim damages from Lehman's chairman, Dick Fuld, three chief financial officers - Christopher O'Meara, Erin Callan and Ian Lowitt - and the firm's auditor, Ernst & Young.

For different reasons, he believes there may also be claims on JP Morgan and Citibank, for the way they demanded collateral from Lehman in its final days, and from Barclays, for the alleged improper transfer of certain assets to Barclays as part of its purchase of the rump of Lehman.

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• - What's this?

Now that the to advise them on their plans to bid for Manchester United, there can be no doubt of their serious intent.

Dawson has been one of London's most prominent corporate advisers for 25 years. And Nomura is Japan's leading investment bank, by a margin.

So what will Dawson actually do?

Well his first priority is to interview the 50 odd wealthy individuals who've indicated to the Knights that they'd provide funds for a bid - to see if money really will follow mouth.

The sums required are not trivial.

Here's the basic maths.

The Knights would probably leave the £500m of debt recently raised by Man Utd in the bond market in place - so long as bondholders can't force them to repay (which is by no means certain).

But the Knights would want to buy out the so-called payment-in-kind notes, which is debt whose interest rate is currently an eye watering 14.25%, rising to a penal 16.25% in August.

Redeeming that debt would probably cost more than £230m.

Of course the Knights' priority is to buy out the equity in the business held by the Glazer family.

The Glazers reportedly invested $495m of their own money into the business - equivalent at today's exchange rate to £330m.

Since the Glazers aren't forced sellers, they will presumably demand a hefty premium to what they paid before they even contemplate cashing in.

Let's assume that they would think about dealing if offered a 50% uplift - which is not an outrageous gain on an investment held for five years.

That would mean the Knights would have to find £500m for them.

Rounding up, that implies that the Knights need to raise £750m in total, to buy out the Glazers and pay off the cripplingly expensive payment-in-kind debt.

Would that be a walk in the park?

Not exactly.

If in the end some 50 deep-pocketed Man Utd fans can be persuaded to stump up, each would have to provide £15m.

Which is quite a lot to pay for a lifetime season ticket.

If David Beckham were to follow up on last night's sartorial gesture of support for the ousting of the Glazers with a cheque, he might not notice any serious shrinkage in his bank balance. But even in the City of London's bonus-land, there aren't that many football supporters keen to invest that kind of sum purely for the love of a club.

Of course it's theoretically possible that Nomura will be able to demonstrate that there's lots of money to be made from investing in Man Utd at an enterprise value of £1.25bn (which is the sum of the £750m take-out price and the bond debt).

However, the profitable upside is not conspicuous, given that Man Utd's annual turnover is just £278m, or less than a quarter of the putative takeover valuation.

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• - What's this?

There is a much bigger story in the Financial Service Authority's Financial Risk Outlook than the new stress test which I wrote about yesterday.

It is that the UK's banks have to find £440bn of loans and finance between now and 2012 to replace maturing debt.

There are only three places that money can come from.

The money could come from savers in the form of a growth in deposits.

And, as it happens, we have been saving a bit more in the UK.

But if the banks' stock of lending stayed flat for the next couple of years (which looks plausible if unpleasant for our economy) and we saved at the rate of the last three months of 2009, the gap between banks' loans and deposits would still be just under £400bn at the end of 2012.

According to the FSA, we would have to increase our saving in bank deposit accounts by 12% per annum to close the funding gap, which - in the FSA's words - would "imply a savings rate far in excess of conceivable levels".

Another possible funding source are markets for asset backed securities, which closed with such calamitous consequences for the global economy in the summer of 2007.

Now, banks have again started to be able to raise money by packaging up mortgages and selling them to investors in the form of bonds; these markets are back in business.

But in order to close that £440bn funding gap, our banks would have to issue new debt in the next couple of years on a scale equivalent to the boom years of 2004 to 2006.

There are two problems with this.

First, it may not be possible.

Second, it may be highly undesirable: separate research by the FSA shows that these asset-backed securities - or at least those retained on banks' balance sheets - were the source of a staggering 70% of all losses on loans and investments incurred by 10 of the world's biggest banks (including the UK's) between the summer of 2007 and March 2009.

In other words, further instability and chronic weakness in the banking system could be the consequence of closing the funding gap by resorting to the securitisation market.

Where else could the money come from?

Well there is only one other place: taxpayers.

As it happens, over £300bn of the maturing debt that the banks have to replace is the finance provided by taxpayers to prevent them from collapsing in late 2008 and early 2009.

This taxpayer finance takes the form of £134bn of state guarantees for debt issued by banks under the Credit Guarantee Scheme and a further £178bn of Treasury bills provided by the Bank of England in exchange for banks' securitised mortgages.

If this sounds complicated, just think of it as just over £300bn of loans by taxpayers to banks, which are scheduled to be repaid by 2012 or so.

Now the clear implication of the FSA's analysis of banks' £440bn financing requirement is that taxpayers would not be able to withdraw that £300bn of support in 2012 without precipitating another banking crisis, or an economic crisis, or both.

Which means that any new government has a very difficult decision to make more-or-less immediately after the general election: should that £300bn of taxpayer support be extended?

Failure to do so would have one immediate and dangerous effect: it would encourage banks to stop lending; since the less any bank lends, the less it has to borrow, the less finance it has to raise.

But if banks went on such a lending strike, the UK would inevitably be tipped back into recession.

However if a new government rolled over that £300bn of support, that £300bn borrowed by banks would increasingly look like a long-term liability of the state; and in those circumstances there would be a stronger argument that the £300bn should be added to an already-ballooning national debt.

Which could be painful.

Finally it is probably worth pointing out that one bank, Lloyds, is much more exposed to this problem than others.

It has received £157bn of taxpayer finance via the Special Liquidity Scheme and the Credit Guarantee Scheme.

Quite how it would reduce this to nil by 2012 without closing its door to new lending is somewhat intriguing.

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• - What's this?

Perhaps the biggest cultural change since the credit crunch is that the Financial Services Authority (FSA) now takes the long view of financial history and insists that banks prepare for once-in-a-century financial catastrophes - the kind of disasters that regularly happen, but only after memories have dimmed of the preceding one.

So the watchdog's latest financial risk outlook instructs bank to make sure they have sufficient capital to withstand losses generated by the following scenario:

"A further decline in GDP of 2.3% from the end of 2009 to the end of 2011, with gradual recovery thereafter. Alongside this fall in GDP, the scenario includes a rise in unemployment to a peak of 13.3% in 2012, and allows for a 'doubledip' in property prices, with house prices falling by 23% from current levels and commercial property by more than 34%."

Now, for the avoidance of doubt, the FSA is not forecasting that the UK will re-enter recession. In fact its so-called "central" projection (what it thinks most probable) is that there will be a "V" shaped recovery, with GDP growth accelerating this year, to 1.4% in 2010 and 2.2% in 2011.

This "central" projection is no more sophisticated than the mean of professional forecasts. And they have been pretty wide of the mark in recent years.

So a prudent FSA - which wants to avoid a repeat of 2008's near collapse of the banking system - has to make sure that our banks have enough of a buffer of capital to cope with a lot worse than what economists expect.

Do Britain's banks currently have enough capital to absorb additional losses generated by a second recession and further sharp falls in asset prices?

Probably. The FSA insists they hold core tier one capital - which is basically pure equity - equal to a minimum of 4% of loans and other assets weighted according to the Basel Committee's widely criticised rules.

Right now the core tier one ratios of all our biggest banks is more than twice that. Most of them have ratios greater than 10%. Lloyds has the lowest ratio of the pack at 8.1%.

Which is not to say that they are invulnerable.

The FSA, for example, believes that the sharp falls in interest rates engineered by central banks to resuscitate the global economy may be disguising rather than solving the repayment difficulties being experienced by some borrowers: for arithmetic reasons it takes longer when interest rates are at record low levels for any borrower that stops repaying to cross the arrears threshold that sets alarm bells ringing in a bank's head office and at the FSA.

All that said, if the FSA's worst fears materialise and we enter a second recession (which plainly in the light of today's weak industrial production figures is not inconceivable), we should be worrying about other things than the solvency of our banks (although those other things, such as the credit-worthiness of the government and social cohesion, aren't exactly trivial).

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• - What's this?

whether the probability that taxpayers would eventually emerge with a profit on Northern Rock implies that it was a mistake to nationalise the Rock at the start of 2008.

That conclusion can't be drawn - because over the past two years of almost £1.7bn in total were massively greater than expected by any of the possible private-sector bidders for the Rock.

All the bidders - including the Rock's own management team - seriously under-estimated the difficulties that the Rock's borrowers would face in keeping up the payments, especially on the so-called "Together" mortgages (where the combined value of a mortgage and personal loan "package" taken out by customers exceeded the value of their respective homes).

So, for example, the Rock's management team put together a bid for the bank in early 2008 based on a forecast that there would be losses of just under £200m in 2008 and then a return to profit.

In the event, the Rock has suffered losses on mortgages and loans going bad in excess of £2bn over the past couple of years - or five times more than the Rock's management and other bidders for the bank expected.

So if the Rock had been kept in the private sector, the capital of the bank would have been wiped out. And nationalisation would have been merely postponed rather than avoided.

What's more, even if there hadn't been a formal transfer of the equity to the public sector, this bank was on life support from taxpayers - with around £30bn of taxpayer loans at the peak and a formal state guarantee against losses covering its entire £100bn balance sheet.

Which means that keeping it in the private sector, in the sense of ownership of the equity, would have been something of an accounting charade

In fact, some would say that if there's eventually a profit for taxpayers from taking full control of the Rock, that would be a vindication of the decision to nationalise - for two reasons.

First, that the business would arguably have haemorrhaged more without the explicit backing of the state.

Second, and more importantly, the nationalisation of the bank has permitted an exceptionally efficient reconstruction of Northern Rock with regard to its additional capital needs.

This reconstruction involved splitting the Rock in two: as of this year, there exists a new smaller retail bank, with just £10bn of mortgages on its books and £19.5bn of retail deposits - making it one of the most prudently financed banks in the world - and an "asset manager" which holds some £50bn of older mortgages.

The retail bank, called Northern Rock, will be privatised, probably later in the year. And the asset manager will stay in the public sector.

That asset manager will no longer take deposits. So it requires less capital to underpin its assets as a cushion against possible future losses.

This is a long-winded way of saying that net new investment by taxpayers in Northern Rock since privatisation will emerge at around £1.6bn in total - which is the amount that taxpayers would have to get back to avoid making a loss on the nationalisation.

Is it conceivable that £1.6bn could be raised from the combination of the privatisation and the repayments over many years of the mortgages held by the nationalised asset manager?

Yes, that is possible - if not inevitable.

But it will be years before we know.

Which is not to say that there are no more difficult decisions on the Rock for whoever forms the next government.

The most tricky will be whether maximising proceeds from privatisation is paramount.

There are plenty of voices - especially in the Rock's North East home - calling for the new Rock to become a mutual once more, a vanguardist for a new generation of conservatively managed building societies.

The appeal of creating a new super-prudent, customer-owned savings-and-loans institution would be obvious to many - except that if the Rock were mutualised rather than sold, taxpayers would probably end up suffering a loss.

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• - What's this?

Northern Rock, the nationalised bank whose collapse is most closely associated with the onset of the credit crunch, is almost out of hospital.

In formal accounting or statutory terms, it actually made a profit in the second half of 2009.

But there were a couple of big one-off credits that flattered the bank - including a refund of £350m of supposedly penal interest rate charges levied by the Treasury, following approval of the Rock's rescue by the European Commission

In underlying terms, there was a loss of £139m from July to December last year and a loss of £383m for the year as a whole.

Which looks very good compared with the stonking loss for 2008 of £1.3bn.

Costs have been reduced by almost a third, and the confidence of depositors seems to have stopped eroding - even though the Treasury has announced that it will no longer guarantee their savings in a formal sense.

The bank has now been split in two, with some £50bn of mortgages to be retained in state hands and a small retail bank to be put up for sale, probably in the second half of the year.

There's even a fighting chance that, as and when that bank has been sold and the older mortgages have been paid off, taxpayers could end up making a profit on this most fraught of nationalisations.

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• - What's this?

There is a comprehensive account of the government's diagnosis of what went wrong with the financial system in a speech given last night at the Smith Institute by the City minister, Lord Myners.

It doesn't contain anything particularly new. But, as it happens, I don't recall any minister attempting this kind of overview.

Myners makes three substantive points:

1) Markets are a good mechanism for distributing capital, goods and services, but not a perfect one - so we must recognise that those who worship a deified perfect market are worshipping a false god;

2) It's unfortunate that wholesale and professional lenders to the likes of Royal Bank of Scotland and HBOS, and even providers of putative risk capital, were bailed out by taxpayers - because it proved that these banks could behave irresponsibly and more-or-less get away with it, thus undermining any incentive for them to behave more responsibly;

3) There has been a systemic, long-running failure of institutional investors to exercise their ownership rights over companies in a rational way, to prevent those companies - especially but not exclusively banks - from taking actions that damage the interests of owners.

To most of which - I would guess - there would be a wide degree of assent, from the leaders of the opposition parties and from many of you.

But beyond the bloomin' obvious - such as that banks must be forced to hold considerably more capital to protect against losses and to increase their stocks of genuinely liquid assets as insurance against runs - we are still a long way from consensus on the appropriate prescriptions.

On the issue, for example, of how to make sure that banks don't take crazy speculative risks now that it has been proved beyond doubt that taxpayers will bail them out, Myners makes slightly contradictory suggestions - though it's probably wrong to single him out for criticism, since these contradictions are inherent in most of the remedies suggested by assorted governments.

First he extols the virtues of living wills, or a proposed new obligation on all banks to have detailed, practical plans to hive off their retail operations in a crisis. The aim of such measures is to prove to the world that only those retail bits - which look after the vital interests of households and businesses - would be bailed out by the state in a crisis.

The hope would be that banks' more speculative activities - their investment banking operations in the main - would be seen by their creditors as inherently more risky. And that these creditors would have a powerful motive to prevent those banks taking dangerous risks.

Which is good in theory. Except that if a Goldman Sachs or a Barclays Capital went kaput today, it is inconceivable that it would not cause horrific contagion, both to other financial institutions and to the economy (if for example asset prices collapsed or the rug was pulled from under important non-financial companies).

So unless and until these investment banks can be massively shrunk in respect of size and scope, there would probably still be state protection for the more speculative activities of universal banks such as Barclays or Royal Bank of Scotland.

So Myners and the British government also favour some kind of Obama-style insurance fee to be paid by banks, such that the costs of any bailout would be met by bank and their owners, not by taxpayers.

But there's a problem with creating a blanket insurance scheme of that sort: it would provide an unwelcome new incentive to unscrupulous banks and bankers to take crazy risks in pursuit of short-term profits and bonuses; if the bankers' bets went wrong, the insurance scheme would pick up the tab.

In other words, bank insurance schemes re-import to the banking system more-or-less the same moral hazard problems as the free insurance that has been provided by taxpayers (without our assent or knowledge) to too-big-to-fail institutions such as Royal Bank and HBOS.

And, by the way, the Bank of England has demonstrated the financial benefit of that free insurance to big banks: over an extended period, they were able to borrow more cheaply than smaller banks perceived by creditors not as inherently more likely to fail, but as less likely to be bailed out by taxpayers were they to get into trouble.

As for what the former fund manager Myners has to say about how shareholders can become more diligent and wise stewards of companies, here he makes a point that was largely ignored in the recent furore over Kraft's takeover of Cadbury - which is that it is the acquirer of a company and that bidding company's owners that are more often damaged by a takeover than the target company.

Think RBS and the rump of ABN, which RBS bought in the autumn of 2007. RBS and its shareholders were seriously poisoned by the deal. ABN and its owners should forever be profoundly grateful that RBS's board put aspiration for global domination ahead of commercial common sense.

Here's the relevant nannyng point: Britain's code on takeovers and mergers was created primarily to give protection to shareholders in the biddee not the bidder.

It is designed to ensure that a biddee's shareholders are not prevented from entertaining a full and proper takeover offer by the selfishness of blocs of minority shareholders or the fear of the biddee's management that they'd be out of a job were the deal to go through.

But if in the end it is the bidder which suffers more often than not - through having paid too much in an acquisition or through having bitten of way more than can be chewed and digested - perhaps it is shareholders in the bidding company which deserve a bit more protection.

This of course will be at the forefront of the minds of the Prudential shareholders today, as they agonise over whether to support the Pru management's record-breaking $35.5bn offer to buy AIA.

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The prime minister has chosen today's International Women's Day to argue that there's a strong case for obliging private-sector companies to report annually on the progress they're making in promoting women to senior executive and non-executive position.

It is certainly striking how few women are on the boards of the FTSE 100: just one-in-ten board directors are female; which means that companies with as many as two women directors are the exception.

And, of course, female chairs and chief executives are harder to find than even women editors of newspapers or broadcasting "on-air" editors who aren't men (that's a big hello from me).

Now there is a case - which I put last July before it became fashionable to do so (see my note "Why men are to blame for the crunch") - that the absence of women from the top of banks and financial companies meant that the atmosphere of board rooms during the bubble years was heavy with testosterone; and the consequence was a culture of dangerous risk-taking in the macho pursuit of short-term profits and bonuses.

You may dispute that. But even if you do, you surely can't believe that entrepreneurial, wealth creating talents reside exclusively in the Y chromosome. So the dearth of women at the top must surely be depriving the UK of incremental income at a time when we need every penny we can squeeze to pay our way in the world.

But if companies will be forced to produce a report card on their efforts to make their senior management team look a bit more - in a gender sense - like the world rather than a dusty gentlemen's club, it's perfectly reasonable to examine Gordon Brown's record.

I don't mean in respect of the civil service or the cabinet, although both areas of government remain a long way from gender equality.

So if for example you look at the senior positions in the Department for Innovation and Skills, which is co-sponsoring today's "business must be less sexist" initiative, the secretary of state is a man, the permanent secretary is a man, there is one female minister out of ten, and there are just two women among the 11 most senior officials.

BIS's annual report card on promoting women might say "must try harder".

And, before you attempt to turn the tables back on me and the 91Èȱ¬, I should point out that almost all the senior management posts in the bit of the 91Èȱ¬ where I work, 91Èȱ¬ News, are filled by women - including the top job, Head of News, held by Helen Boaden (who - oh yes - reports to two men, the deputy director general and the director general).

However I'm more interested in how the government has exercised its clout over those bits of the private sector where it can more-or-less instruct boards to do as it says: I'm talking about the government's gender record as 100% owner of Northern Rock, 84% owner of Royal Bank of Scotland and 41% owner of Lloyds.

All of these organisations have seen the departure of their chairmen and many board members since the state took its big ownership stakes in them as part of rescuing them from collapse.

So are these three nationalised or semi-nationalised banks now run by a new generation of female bankers? Are there more women on their boards than at comparable businesses?

No and no.

The new chief executives at the Rock and RBS: men. The new chairs of the Rock, RBS and Lloyds: men. The vast majority of board members of all three organisations: men.

All three banks are playgrounds for ageing white men just like me and the prime minister. The Rock has one woman on a board of eight. RBS has one woman on a board of 12. Lloyds has one woman on a board of 14.

Which is why there are some who are bound to argue that Gordon Brown should get the gender mix in order in his own house, before preaching to the rest of the private sector.

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How much will the super-tax on bonuses raise for the Chancellor?

The FT this morning says £2.5bn gross and £1.5bn net; the net figure is the difference between the gross amount and what he would have raised from existing income tax on bonuses that would have been bigger had it not been for the super-tax.

So it's the net figure that matters. And that £1.5bn compares with a forecast of £550m made by the Treasury when it launched the one-off bonus tax in the pre-budget report last November.

Is the FT right?

Based on some calculations I did yesterday, it is plainly in the right ballpark - although the Treasury believes that it is erring on the high side.

The bigger bonus-paying UK banks - HSBC, Barclays and Royal Bank of Scotland - say they will collectively pay £668m (which implies, just to remind you, that their total bonuses to UK resident staff are £1.3bn, or just a fraction of the total bonuses they are paying).

What of the bonus tax being paid by overseas banks with employees based here for tax purposes?

Well I've spoken to executives at JP Morgan, Goldman Sachs, Morgan Stanley, Merrill Lynch, Credit Suisse, UBS and Deutsche. And I come up with an aggregate figure for them of £1.8bn.

Which would take the gross figure to within touching distance of £2.5bn - taking no account of proceeds from smaller banks.

However I don't have the information to assess how much the Treasury would have received from bonuses if it hadn't imposed the tax. We know that some banks have shrunk the bonuses they pay in the UK to reduce their liability to the 50% levy, but we don't know HMRC's original bonus pool forecast.

That said, it is blindingly obvious - as I've been saying almost since the tax was launched - that the Treasury's £550m prediction was ludicrously low.

PS It is something of an open secret in the City that British based bankers who have taken lower bonuses this year to spare the blushes and fiscal pain of their respective employers have been given unambiguous nods and winks that they'll be seen right in the next bonus round.

What a comfort!

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The government, the Tories, the Lib Dems and the European Commission all say they want it: that's to build a more competitive banking market in Britain from the devastation wreaked by the bulldozing credit crunch.

What I've learned is that first steps have been taken in this direction with the formal launch by Royal Bank of Scotland of the auction of Williams & Glyn's, the small business and retail bank it is being forced to sell by the Commission.

The sale memorandum has been sent by RBS's financial adviser, UBS, to possible purchasers. And initial bids are due in April, before the most likely date of the general election on 6 May - though completion of the disposal is unlikely till after the election.

In respect of the rehabilitation of wounded Royal Bank, the sale will not be very material. According to bankers, proceeds may be around the book value of what's being sold, or possibly even a bit less, so perhaps a billion pounds or so - which would be a drop in the ocean of RBS's 2009 operating losses of £6.2bn.

But in respect of competition in the banking industry, the deal is potentially more important.

RBS is selling a business with 318 branches, about £20bn of loans and other assets and 2% of Britain's retail banking market - which is not huge, but not irrelevant either.

Perhaps what is most important is that 70% of the assets are loans and credit provided to small and medium size businesses, which is the part of the market where - many would say - competition is particularly inadequate.

The remaining 30% is credit provided to households.

So who is going to bid?

Well the two banks that seem most enthusiastic are Santander and Sir Richard Branson's Virgin Money.

And of the two, Santander can obviously afford to pay more, because it would be able to reap sizeable cost savings from the takeover thanks to its substantial existing presence in the UK.

Virgin, however, would argue that it would increase choice and competition in Britain more than Santander would do - for the obvious reason that it isn't yet a substantial player in British banking.

What's relevant in that context is that Santander was originally on a list produced by the Commission of big banks that would not be acceptable buyers of Williams & Glyn's, because sale to them would not promote competition.

However that draft list was eventually ditched and replaced by a market share threshold for bidders: the combined market share of a bidder and Williams & Glyn's mustn't exceed 15%; and Santander just limbos under that bar.

That said, the natural buyer of Williams & Glyn's in many ways would be National Australia Bank (NAB) because its British branches in Scotland and the North East would dovetail beautifully with Williams & Glyn's in the North West and Scotland.

And if NAB enters the fray that would introduce some tension in the bidding process.

But bankers tell me that NAB may well decide to sell its UK operations, Clydesdale and Northern, possibly to Santander - which would rather stymie Royal Bank's disposal.

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Now that we've had the 2009 results from all Britain's banks, it's as well to note that the hierarchy of British banks has been shaken up quite considerably by the credit crunch and worst banking crisis in almost 100 years.

Or at least that's true in respect of their size as measured by the stock market, if not to the same extent their respective revenues and shares of the banking market.

The ranking three years ago and for most of the preceding few years saw HSBC as the biggest bank, Barclays and Royal Bank of Scotland chasing its tail, Lloyds some way behind that and Standard Chartered as the enthusiastic, fast-growing puppy.

Today HSBC isn't just the biggest British bank. Its market value of more than £120bn is more than that of all the other four added together. It's in a league of its own.

So if you're one of those who believe an executive's pay should be correlated with the size of his or her organisation, you can see why HSBC's non-execs want to give its senior directors a pay rise (although most astute owners would say that size isn't everything; return on that investment is rather more important - and there are critics of HSBC who don't believe it's managed or constructed to optimise the return).

The other super soaraway success has been , that show very little evidence of the malaise afflicting the likes of RBS and Lloyds.

How so? Well Standard Chartered has next to nothing in the way of direct exposure to over-borrowed Britain or the bloated, leveraged US.

Its heartlands are Asia, the Middle East and Africa. So in reporting a 13% rise in pre-tax profits to $5.1bn, it also disclosed that five different countries each generated more than $1bn of income for it.

And the respective operating profits of both India and Hong Kong surpassed $1bn.

Thanks to their origins in Britain's colonial past, Standard Chartered and HSBC are fortunate to be located where today's more vigorous economic activity is occurring - and aren't trapped in the inherently lower growth economies of Europe and the US.

This has a double benefit. Most obviously, as China, India and other parts of Asia have weathered the global recession far better than the old West, profits of HSBC and Standard Chartered have proved much more resilient.

But there was a second advantage, which may have been even more important. Growth was on their doorstep. So they didn't have to manufacture it by taking ill-judged risks both in the way they funded themselves and in the way they expanded their assets.

So neither Standard Chartered or HSBC became dependent on flighty wholesale markets or unreliable securitisation to raise finance for lending and investing. And neither of them loaded up with AAA collateralised debt obligations and other spurious investments - which as we now know were pretty good poison - as a way of pretending to their owners that they could grow like the best.

I would have added that these two steered clear of toppy US and UK residential and commercial property markets. But that wasn't true of HSBC, whose American sub-prime exposure was huge (though bearable, for it).

Or to put it another way, they mostly steered clear of the kind of lending and funding risks that has caused so much damage to Royal Bank, HBOS (now part of Lloyds), Lloyds itself (though it would be in better shape today if it hadn't bought HBOS) and (to a lesser though still significant extent) Barclays.

What's the final score?

Today the market value of Standard Chartered, at an almost unbelievable £32bn, is only £2bn less than Lloyds' and £5bn less than Barclays. And it is £11bn more than RBS (although that's to ignore all the "B" shares that RBS has flogged to taxpayers).

There are some lessons here. And I guess the most important one is that we'd have all been much better off - and I do mean all of us, given the taxpayer cost of bailing out the banks - if British banks with largely British operations had been more at ease with what they really are: which is privileged organisations with large market shares in a mature economy; NOT fast-growing financial services groups, motivated to grow profits in a dangerous way as fast as possible.

There's no great secret about why they took these excessive risks. Fast growth in size and profits generates fast growth in executives' pay and bonuses - at least for as long as the growth is sustained.

Which is why the argument that bankers were paid too much for doing the wrong things isn't sour grapes: it's central to any serious debate about how to put the banking system on a firmer footing.

These days, the pay issue is most relevant to Barclays, simply because it owns the biggest investment bank of all the British banks, and pay is most closely aligned to short-term performance for investment bankers.

Now what I find slightly odd in all the hullabaloo about whether Barclays and other so-called universal banks should be broken up - or whether it's healthy for the British and global economies that investment banks and retail banks should be part of a single organisation - is why shareholders haven't weighed in.

Because Barclays share price appears to be deriving almost no benefit from its ownership of one of the world's very biggest investment banks.

Here's the thing. Barclays recently announced pre-tax profits well over £5bn, ignoring the huge gain made on selling its fund management business, Barclays Global Investors.

That profit of more than £5bn compares with a huge loss at Lloyds. But Lloyds' market value is just £3bn less than Barclays'.

What's going on?

Well arguably investors are valuing both Lloyds and Barclays on the basis of their substantial enduring shares of the British retail banking market. These are annuity operations that will yield very substantial, stable profits once interest rates rise a bit and once bad debts subside.

They will be fantastic businesses again when economic conditions are more benign.

It's also plausible to say that Barclays' retail and commercial banking operations are intrinsically more valuable than Lloyds', because they remain profitable (even if profits have tumbled) and they weren't tarnished by being semi-nationalised.

If that's right, then Barclays' share price and market value is deriving very little benefit from the £2.5bn of profit generated last year by its investment bank, Barclays Capital.

So here's what Barclays owners have to ask themselves. Does Barclays own Barclays Capital for the benefit of its shareholders, or for the benefit of its highly-paid executives?

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Even as an Arsenal supporter, it's difficult not to feel the pain of Man Utd fans for the supposed devastation wreaked by the Glazers at the club they bought at the end of 2004/5 season.

Let's look at the record of shame and degradation.

Since the Glazers bought Man U, the team has won the Premier League three times (in successive seasons), they've won the League Cup three times, they've won the Champions League, and they've won the Fifa Club World Cup.

Let's not beat about the bush: the takeover has been an unmitigated disaster.

Not.

Some might say that the Glazers are entitled to ask why on earth they are detested by fans even more than most owners of clubs (and for reasons that are slightly unclear, football is the probably the last home of explicit class warfare and 1930s socialism, in that fans are rarely enamoured of proprietors).

Of course, the resonant issue about the Glazers is whether the debt they've heaped on the club - some £700m odd through the complicated corporate structure they've created - will curtail its success in the future. This was an issue I raised here back in early January (see Can Man Utd Spend?).

And there's a related question - which has gained considerable traction as a result of the diligent analysis of contractual details in Man Utd's recent £500m bond issue by the - about whether the Glazers are planning to maximise the financial squeeze on the club by draining every last penny of available cash for their own benefit.

The problem for the publicity-hating Glazers is that the principle of "beyond reasonable doubt" simply doesn't apply to their trial on the terraces. In the absence of any public statements by them, it is simply assumed that they are planning to rape the club in a financial sense and leave it destitute.

So what is the verdict of today's authoritative survey of football club finances by the accounting firm Deloitte? Well Man Utd fell from second to third in Deloitte's league table of clubs ranked by revenues.

But there is a slightly spurious element to the gap that has opened between the turnover of Man Utd versus that of Real Madrid and Barcelona - which is that (as you probably noticed) the pound has weakened considerably against the euro in the relevant period, which benefits the Spanish clubs when translating income into a common currency.

All that said, the debt-heavy financial structural of Man Utd does look unfortunate.

In the run-up to the credit crunch of 2007, leveraging up - loading up a business with debt - was the financial structure of choice for all manner of financial organisations.

As readers of this column will be only too aware, the rising leverage of banks, non-financial businesses, households and governments all made their contribution to the worst recession the UK (and the world) has seen since the 1930s.

And it has become something of cliche that we have to start saving more and get the debt down - which will become something of an imperative when central banks cease their emergency help for the global economy and start raising interest rates back to more normal levels.

So many would say that Man Utd, like the British government, would probably be advised to start making plans to reduce its indebtedness.

Which brings me to an initiative by a senior Goldman Sachs partner and one of London's most successful hedge fund managers to rally to the alleged cause of true Man Utd fans and organise a buyout of Man Utd.

This is one of those "you couldn't make it up" moments.

The heroes of the moment, Jim O'Neill of Goldman and Paul Marshall of Marshall Wace, have made colossal personal fortunes over the past few years thanks to their firms' use of leverage or debt.

There are some who believe that the likes of Goldman and Marshall Wace - even when operating on reduced leverage or borrowing ratios - still pose a threat to the stability of the global economy.

But - apparently - it's the leverage ratios of Man Utd and its stability which is rather more important.

It is also worth noting that although they've mooted a price of £1bn to acquire the club, no detail has been provided about how much of that would be funded by debt and how much by equity.

So Man Utd fans should ask to see the small print before rallying to their cause, because there would be no benefit to them of replacing one debt-heavy financial structure for another.

Also, it's incredibly early days for these buyout plans: there's been one meeting of the putative bidders and a barrage of media hysteria.

And, to state the bloomin' obvious, the Glazers don't have to sell and have shown no inclination to do so.

Man Utd is an important business for the UK, generating considerable overseas earnings and international goodwill for this country.

But the Glazers own it. And the last time I checked, the protection of property rights - even at football clubs - was a not unimportant pillar of our capitalist democracy.

PS For more on this and other aspects of football finance, tune in to our live debate at 8pm on Radio 5 Live and the 91Èȱ¬ News channel.

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Companies that expand by acquisition are what they eat.

And sometimes a company buys something so big that it changes them almost beyond recognition.

Vodafone was transformed from ambitious British upstart into the world's biggest mobile operator with its purchase of Mannesmann a decade ago.

BP was promoted to the premier league of oil companies with its acquisition of Amoco.

And, if anything, the Prudential is attempting an even more radical reconstruction of what it is, , the Asian arm of the battered, US insurance giant, AIG.

The £20bn plus transaction would more than double the size of the Pru and would make it the biggest life insurer in Asia.

The sale has been approved by the US government, which rescued AIG in the autumn of 2008, and by AIG's board: there's likely to be formal confirmation later today.

In the meantime, the Pru has requested that trading in its shares should be suspended. Which, I think, is almost without precedent for a business of the Pru's size and importance.

But the Pru takes the view that it's very hard for investors to value its shares, prior to disclosure of precisely what it is buying and how.

The price for AIA will be around $35bn or well over £20bn.

It will be financed by a rights issue of around that magnitude, which would probably be the biggest ever rights issue of new shares by a British company - and possibly one of the biggest ever rights issues by any company anywhere.

In the UK, only the emergency rescue rights issues of Royal Bank of Scotland and Lloyds have come anywhere close in respect of amount of money raised.

What's the point?

Well it would turn the venerable old Pru - a company whose history is woven into the thread of Britain's financial and industrial past - into the market leader in life insurance in Asia.

It is already number two in Asia. And the takeover of AIA would make it the clear number one, with more than 40,000 employees and hundreds of thousands of tied agents.

The Pru believes it would become the HSBC of the life insurance world - viz a company with headquarters in old-economy London, but with the bulk of assets and its prospects in new-economy China, India, South Korea, Singapore and so on.

And the point about being in that region is not just that it is growing fast. It is also that the inhabitants save vastly more than we do here in the UK, even though their living standards on the whole remain much lower than ours.

That said, there are always risks - very substantial risks - in swallowing something bigger than oneself (don't think about that too long, or you'll feel queasy).

The Pru's powers of corporate digestion - and its management - will be seriously tested.

UPDATE, 08:57: I suppose anyone looking for a silver lining for UK companies in the credit crunch that wreaked so much havoc in the City would note that Barclays and now the Pru have taken advantage of others misfortunes to pursue empire-building ambitions.

The resonant and important question - as is always the case with big takeovers - is whether those imperial ambitions are for the benefit of shareholders, the owners, or of managers, the directors.

UPDATE, 11:18: Now that the details have been published, it's quite difficult to argue that the Pru is buying AIA at a fire sale price.

At a purchase price of $35.5bn, the Pru is paying 1.69 times "embedded value" (the conventional measure of life insurers' assets) and 25 times last year's operating profits after tax of $1.4bn.

That profit figure sounds very much like "profit with inconvenient bad bits taken out" - but we'll have to wait for more detailed audited figures to assess that.

And at 25 times, the Pru would initially be making a 4% return on shareholders' money - which isn't fabulous even in the low interest rate world.

But apparently this is what decent Asian insurers cost. And, as I've said, the Pru believes this is a once-in-a-generation (or longer) opportunity.

The Pru's owners, it shareholders, have a good few weeks to evaluate whether they agree, before deciding whether to stump up their share £13bn share of the purchase price in the jumbo rights issue.

That said, the Pru knows it has the money - because the rights issue has been underwritten (which means that other financial institutions will provide the necessary cash, if the Pru's shareholders balk).

The Pru will finance the rest of the deal by borrowing more than £3bn and issuing almost £7bn of new stock to AIG.

That will give AIG a stake in the Pru of almost 11%.

As and when AIG recovers, it'll be interesting to see whether that 11% is a symbol of a fruitful partnership or a Trojan horse.

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