Fred “the Shred” Goodwin always seemed to have earned a nickname more because
the monicker elicited a neat rhyme than because it was accurate or
appropriate. Mr Goodwin’s tenure as chief executive of Royal Bank of
Scotland is better defined in terms of his abilities a dancer.
With elegance, a high degree of technical skill and, yes, plenty of gritty
determination, Fred “Astaire” Goodwin has helped to build RBS into one of
the UK’s most admirable banks. It may be the most admirable,
but he is being comprehensively outmanoeuvred by Barclays in his attempt to
sweep ABN Amro off its feet.
Perhaps Mr Goodwin came to the party too late. Barclays certainly managed to
get its name firmly written in at the top of the Dutch bank’s dance card.
Barclays and ABN have clearly decided that after just over a month of
smooching due diligence, they are unwilling to allow anyone to cut into what
they expect will develop into a fine romance.
For all that, the music has not yet stopped and the lights are yet to come up
in a way that will reveal who pairs off with who. Fred and his Spanish and
Belgian compadres appear to have stomped off in a huff, cancelling
their four-way assignation pencilled-in for yesterday afternoon. But the
mood music playing outside the dancehall suggests that Fred and his chums
have done nothing more than stop to draw breath. With the help of activist
investors, such as TCI and Citadel, who have called many of the tunes so
far, they may come strutting back.
Barclays, personified by either Marcus Agius, the chairman, or John Varley,
the chief executive, is in danger of incurring some injuries that might
recur and impede in future. But it is their moves, and their charm, that has
ABN eyelids afluttering.
To ABN, Mr Goodwin’s RBS may have looked too tall, or too broad. ABN may have
felt intimidated since Fred pitched up mob-handed, offering up several dance
partners at once. It is tricky enough doing a Highland fling without trying
a fandango with Banco Santander and drinking a strong lager brought along
from Belgium by Fortis. To ABN, it might have begun to look alarmingly like
one of those disorganised and always unmanageable hokey-cokies.
Besides, Fred made it quite clear that ABN’s pretty American cousin, LaSalle,
was the apple of his eye. One quick shufti was all that ABN could expect
before it was left, heartlessly broken, by the Scotch, Spanish and Belgian
gatecrashers. By carefully arranging for LaSalle to jive off into the sunset
with Bank of America, ABN, ably led on by Barclays, might just have left
Fred, along with his Spanish and Belgian partners, chewing on gooseberries.
Medicine that AZ had to take
AstraZeneca needed an injection of potential new products. It was never going
to be painless or pretty to watch.
Blockbuster drugs do not grow on trees. They cannot be researched and
developed to order on a regular, predictable schedule, as most of the
world’s top pharmaceutical groups from Pfizer down are, at last,
discovering. Yet the companies and their investors are hopelessly addicted
to these chemicals.
To maintain supplies, they merged into global groups to improve the odds of
new bestsellers coming on stream in a continuous pipeline, like an endless
string of gold sausages. But it needs only a few big hopes to fail to cause
panic. And failure is becoming a habit at AZ. New drugs aim to be ever
bigger earners, so they are likely to be limited to treating a handful of
causes of death in rich countries, plus the lifestyle complaints of the
affluent. Many competing hopefuls will not make it.
Analysts have been pressing AstraZeneca to spend its cash to fill up its
fast-emptying pipeline, but the chances of finding a smaller company that
would fill the gap at a less than astronomical price were slim. MedImmune
does not fit that bill exactly. In an auction with several of its rivals and
triggered by Carl Icahn, the American raider, AZ’s David Brennan offered
£7.6 billion for a company that will dilute earnings for two years.
Yesterday’s 4 per cent drop in AZ’s shares is less a comment on the deal than
a realisation that there are no easy resolutions. When blockbusters are
running out of patent protection, there tends to be neither time nor
inclination to move to a more rational and sustainable business model. Now
that AZ has satisfied its craving with the best fix available, Pfizer and
others will find themselves under greater pressure to follow suit.
Disinterest
Government hopes of introducing a range of state financial instruments
complying with Islamic law sound like a mix of hard-headed business sense
and soft-centred political correctness. On its current projections, the
Exchequer will need to borrow about £60 billion a year to cover its deficit
and redemptions of old-fashioned gilt-edged.
Tapping an estimated £125 billion in oil-enriched Islamic bank accounts could,
in theory, save money. In practice, as City Minister Ed Balls notes, it
could help to make London the main centre for trade in Islamic securities
outside the Middle East.
All sorts of supposedly immutable UK rules would have to be broken to avoid
breaking sharia. The officials who have been told to work up potential
proposals by autumn should not ignore the implications of avoiding interest
and insisting on risk-sharing for the tradition of not hypothecating taxes
as well as for some of the petty restrictions governing pensions schemes and
Isas.
In principle, raising Islamic finance looks as potentially feasible for the
state as it is for some companies. The example is to hand in the form of the
private finance initiative (PFI), a growing but shadowy part of the UK
national debt. Funding an asset and then drawing a predictable but non-fixed
income from it is the essence of PFI and Islamic finance. It could lead to a
lot more state investment being privatised.
The idea of devising premium bonds and savings certificates suitable for
devout Muslims (if not devout Calvinists) makes less sense. Pretending that
premium bonds are not a gamble or that other National Savings do not pay
interest would tax Ernie and baffle savers.
— The rain in Spain falls mainly on the plane while the reign of private
equity appears to grow ever more influential. British Airways is looking to
consolidate its 10 per cent holding in Iberia, the Spanish airline, with the
help of a capital injection from TPG, or Apax. Can public and private equity
financing models work alongside one another? If they work in the hothouse of
the airline industry, they may work well anywhere.
