JOURNALISTS are often accused of sensationalising things – but make no mistake the mayhem we are witnessing in the money markets is for real.

In the past two days I have spoken to five of Britain’s most senior bankers and they are taking the situation very seriously. They have not seen anything like it for at least 20 years and it is far bigger than the fall-out that followed the collapse of the hedge fund Long Term Capital Management in 1998.

To the man in the street, the crisis seems a long way away, and it is – for now. It is intangible, opaque and difficult to understand. But the nub of the problem is that banks are simply refusing to lend. The reason is that some $113 billion of commercial paper is about to be refinanced in the money markets and nobody knows how toxic this paper is and whether it is exposed to the slump in America’s sub-prime mortgage market.

To make matters worse, everyone has lost confidence in the agencies that put a rating on this paper.

It is possible this log jam could be sorted out within three weeks but most people I have spoken to say it will take longer than that. As we report, banks are hoarding cash. They are protecting themselves against the high possibility that insurance and pension funds – the traditional buyers of commercial paper – will stop taking it. With that major source of liquidity removed, they may have to take a higher percentage of this paper on to their own books.

If the crisis continues, it will stop banks doing what they are designed to do – keep the economy going. This could ultimately make it hard for businesses to secure long-term funding. The Bank of England is acutely aware of this and may step in with more emergency funding.

What is so odd about this is that the banks themselves are not facing huge hits from taking this paper in-house. Most of it is nontoxic. Yes, there will be some provisions, but what this is about is a lack of liquidity, the likes of which we have probably never seen before in Britain.

Size isn’t everything

SO Land Securities, Britain’s biggest property company, has called in investment banks to assess if a break-up would deliver greater value for investors.

This company doesn’t need to be broken up, it just needs clarity about what it is and where it wants to go.

At the moment the company is just big, but for no apparent reason. Size in the property industry has attractions. It is one of the reasons why local councils enter into development partnerships, because it is comfortable if their partners have the balance sheet to ride out a downturn.

Land Securities stands for financial strength and stability. It is something the company prides itself on, but that in itself is insufficient reason to exist. It also has to innovate in a way that is visible to the outside world. On that count it has failed.

The group is clearly frustrated that after converting to a tax-efficient real estate investment trust (Reit), the shares stand at a discount to net assets of nearly 25%.

There is good reason why this discount has reappeared. The property sector has enjoyed a golden period where bricks and mortar have been on steroids. Land Securities has been one of the big beneficiaries, seeing its share price rise from £8 four years ago to peak at £23.57 before drifting back to £17.49, valuing it at £8.2 billion The industry is now in for a quieter time. The drop in Land Securities’ share price reflects that. What it does own is an earnings-based business called Trillium that specialises in taking over the running of properties occupied by large companies and government agencies.

Its value is not properly reflected in Land Securities’ share price and one result of the review could be a partial demerger. But one thing is for sure. Paul Myners, the group’s chairman, will want every option explored and he will also want to see the entrepreneurial flair in the company become more evident. It was this flair that created Land Securities in the first place, thanks to the late Lord Samuel. Now it is run by hired hands and the entrepreneurial roots need watering.

Land Securities needs to justify why it exists, but to try and buck a cycle would be foolhardy. S&N battle brewing IS there something rotten in the state of Denmark? Carlsberg, the brewer, appears to be playing fast and loose with Scottish & Newcastle’s share price and the patience of the Edinburgh group is beginning to wear thin.

On the surface S&N enjoys a good commercial relationship with Carlsberg. It has a joint venture in Russia called BBH that is doing very well. But the Danish company appears to have other ideas.

Over the course of the past few months the chairman and departing chief executive of Carlsberg have made repeated comments about buying S&N and how attractive a deal would be.

Last week outgoing chief executive Nils Andersen said a deal with S&N would be very attractive and just last Friday the chairman Povl Krogsgaard-Larsen told the Danish media that his group was ready to buy BBH.

What is Carlsberg’s game? Is this clumsy public relations or a more sinister move? Either way, it is a strange way to woo a potential partner. If Carlsberg was a UK-listed company, the stock exchange would have demanded that it clarify its intentions. S&N should stand up and insist that it does so.

john.waples@sunday-times.co.uk

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