Sir Fred Goodwin, who yesterday played the theme tune of Gladiator to his legion of loyal shareholders at the Royal Bank of Scotland annual meeting, has come up with a crowd-pleasing headline number. Thirty-nine euros a share for ABN Amro is sufficiently big to get a thumbs-up from even the most sceptical ABN investor.

If Sir Fred and his consortium partners, Banco Santander and Fortis, can offer a conditional €39 as their sighting shot, there must be a chance that their final offer could start with a figure four.

But that apart, the RBS consortium statement is thin. Sir Fred carries a big sword but his gladiatorial tunic is looking threadbare.

Detail on the financing of the tentative offer is one omission. RBS’s share of the €72 billion purchase price would be made through the offer of shares. So far, so good, although the slide in the RBS share price suggests some shareholders may not be thrilled. But it is how the other €48 billion will be financed that is unexplained. Santander and Fortis plan to pay cash, it seems, but simply borrowing the money would play havoc with their balance sheets. That means either quickfire asset disposals or rights issues. It would be a big ask for Fortis in particular to go to its shareholders for the kind of amount envisaged.

The structure of an offer remains opaque too. Regulators will need absolute assurance that depositors’ interests are protected thoughout the break-up, even if a market calamity were to hit at just the wrong moment. By taking on primary responsibility for ensuring regulatory requirements are met, RBS has addressed some concerns, but banking supervisors will need more reassurance. To describe the proposal as “straightforward from a regulatory perspective” is quite a claim.

Then there is the the condition that the LaSalle disposal is halted. Even if ABN wanted to reverse this, it is not clear it could. Its advisers call the contract “bullet-proof”. Only a higher offer or a veto from US regulators could derail it. The buyer, Bank of America, yesterday fired a warning shot across the bows of RBS, saying it expected the contract to be fulfilled.

One option, not entirely fanciful, is for the consortium to make its own rapid offer for LaSalle, then to get its money back by buying ABN. But the “two bids” route looks risky. The consortium would have no certainty of succeeding with the second bid even if it clinched the first. It needs the cost benefit of disembowelling the ABN centre to justify it in paying a top price for LaSalle.

Sir Fred needs a huge revolt from ABN shareholders at the annual meeting today if he is to emerge victorious.

Pension fund fears at Boots

The ink is not dry on the Alliance Boots takeover but already questions are, rightly, being asked about the pension fund.

About 70,000 present and former Boots staff rely on the fund for their retirement income. There could hardly be a more important aspect of the deal. The plan to load up the company with debt inevitably makes it a riskier proposition, with a poorer covenant. That is a choice that the prospective new Boots shareholders, led by Stefano Pessina and Kohlberg Kravis Roberts, have every right to make.

Yet they should not do so while the defined benefit pensions scheme is a single penny in deficit. Until now, the issue seemed trivial: the official shortfall was tiny and could be plugged easily. However, according to the pensions expert John Ralfe, adviser to RBC Capital Markets, the deficit is, in fact, much bigger. It appears small only because of far-from-conservative assumptions made about longevity. Bluntly, Boots has done its numbers on the assumption that its staff won’t live as long as their counterparts at Sainsbury, Tesco or Marks & Spencer.

Since Nottingham is not in an earthquake zone and no one has ever suggested that wearing white coats constitutes a health risk, there seems no reason why Boots should be so pessimistic. But bang more realistic mortality assumptions into the numbers and the deficit balloons to £500 million.

That will be unwelcome news to KKR, which is paying a top price for the company already. KKR and the trustees are locked in talks to find a compromise. It would be scandalous if the first private equity bid for a FTSE 100 company ended in pensioners being disadvantaged. It is time for the trustees to bargain hard and for KKR to be generous.

Rail tracker

Inflation is back, and so is inflation-proofing. There is great excitement in the bond markets, where the state-controlled Network Rail is planning a monumental issue of long-dated index-linked bonds. Pension funds and insurers are expected to lap these up, as they exactly match their liabilities decades into the future. There is even breathless talk of this constituting a new asset class.

The bonds carry an “unconditional guarantee” from the British Government, though thanks to very convenient European statistics rules, the £22 billion or so of Network Rail debt does not show up on Gordon Brown's deteriorating balance sheet.

For the track operator there is a satisfying symmetry about index-linking: its revenues are inflation-protected because train operators pay it fees linked to the retail prices index. Linking interest repayments to the RPI makes perfect sense.

Alas for most private companies, they enjoy no such inflation protection guarantee from their customers, so do not expect to see many follow with index-linked bond issues of their own.

Taxpayers, meanwhile, might reasonably ask why they are underwriting borrowing that is more costly than conventional gilts. The bonds are expected to pay a coupon of 15 or 20 basis points higher than the equivalent gilt. On £5 billion of index-linked debt, that equates to an extra £300 million in interest over the 30-year life of the bonds.

History will show whether the benefits of a Network Rail run at arm’s length from Government justify the extra taxes that will have to be gathered to finance it.

There hasn’t been a financial shock that seriously scared markets since Long Term Capital Management in 1998. Things that once would have panicked markets, such as the Amaranth blow-up, are now shrugged off. As the Bank of England notes in its latest financial stability review, such setbacks have no lasting impact on the growing appetite for risk. It feels like a trend that will be halted only by a major financial calamity.

patrick.hosking@thetimes.co.uk

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