Highly entertaining, but doomed to fail. That was the initial reaction to the plan by Peter Burt and George Mathewson, the Scottish banking knights, to take control of HBOS and stop the takeover by Lloyds TSB.

That could still turn out to be true, but their campaign will go further than the first round and could garner sufficient support to force an emergency meeting. I’d take their bid more seriously, though, if they’d had access to HBOS’s books.

As it is, they are as in the dark as the rest of us about the true state of HBOS’s accounts. Under the terms of its takeover by Lloyds, HBOS needs to raise £11.5 billion. If it stays independent, in all likelihood it would need a lot more.

As a result, HBOS investors who already face the government owning 60% of the bank (prior to clawback) could see that raised to 80%. Lloyds has already identified some £10 billion of writeoffs at HBOS, and with the bank’s exposure to asset-backed securities that figure could double over the coming year.

Burt and Mathewson are reminding the bank’s investors that lurking beneath the writeoffs there remains a good business with a huge retail customer base that could be rescued without a takeover.

I would be surprised if that is the case. HBOS needs a strong balance sheet, as does Lloyds, and the combined entity stands a better chance of prospering than do two marooned independent banks.

There is enough of a debate to be aired for this attempted coup to run for a few weeks – but Burt and Mathewson will never get the 50.5% support needed to be elected as chairman and chief executive of HBOS. However, it may force Lloyds to tweak the terms.

Driving ahead

BEFORE you sit down to watch Top Gear tonight, here is a question for you car nuts. What do Land Rover, Renault, Porsche, Saab, Aston Martin, Bentley and Lexus have in common?

Give up? All of them saw their sales fall by 25% or more last month. The British car market is turning into a disaster zone, with total sales down 23% in October compared with the same month last year.

Carmakers are laying off staff and leaving their plants idle for weeks at a time, which is having a knock-on effect on suppliers. Corus said last week that it was going to halt production at two of its UK facilities – and those familiar with the nitty-gritty of steel production will know that shutting down a blast furnace is not something you do lightly.

Bad as it is here, it’s worse on the other side of the Atlantic. The titans of Detroit are living on borrowed time, with General Motors and Ford both burning through $7 billion (£4.5 billion) of cash in the last quarter. In the race to the bottom of the cliff, GM is in the lead – it has $20 billion left in reserves and needs $12 billion just to operate. Without a big cash injection, GM could be out of business sometime in the second quarter of next year.

Barack Obama is likely to come to the rescue. The American government has already come up with a veiled $25 billion subsidy plan, which will give cheap loans in return for development of new low-polluting cars – something customer demand was forcing on carmakers anyway. The next step is likely to be less opaque, with Ford boss Alan Mulally hinting last week that the government would advance a “bridge” loan.

In the minds of the Detroit bosses, the bridge leads to a happy new land where demand has returned and they can make money again. Others think it will lead to prolonged agony for companies that are past their sell-by date.

The price of not helping out would be enormous. Thanks to generous employee benefits handed out in the good times, Ford, GM and Chrysler together provide the pensions and healthcare payments for tens of millions of Americans.

The question for Gordon Brown is whether he should follow Obama’s lead and help out Britain’s car industry.

While government assistance should always be a last resort, UK carmakers can make a good case for a helping hand. Unlike the Detroit giants, British car plants are lean and mean, having come through the fire of a strong pound and fierce international competition. Supporting them would not be giving a helping hand to an antiquated, obese industry. Brown has poured billions into financial services and might well now spare a thought for manufacturing.

Private means private

A YEAR AGO the titans of private equity were summoned to explain their business in front of a committee of MPs. The government wanted the industry to justify its lack of transparency and explain how it had enjoyed such huge financial rewards.

Private equity had been one of the runaway success stories of the boom. Its leading firms had made a fortune on the back of multi-billion-pound buyouts. When the private-equity world was asked to explain itself, it typically said it was a better manager, it knew what an optimum balance sheet should look like, it understood how to cut costs and grow a company at the same time. It was an industry not short of self-confidence.

Just a few months into a severe downturn, we can now see how private equity and hedge funds rode the boom. They had not found a new paradigm, it was down to cheap money and lots of it. And what we are now witnessing is that a high percentage of these companies, while still operationally sound, just cannot survive with this debt.

As a result, over the next 12 months we will witness a wave of refinancings of distressed debt, with a high percentage coming from private equity. Cheap money was the fuel that enriched partners in private-equity firms – that and a remuneration structure that rewarded asset-stripping.

However, don’t write off private equity – with money getting cheaper, it will be back. The deals now being analysed are much more conservative. The level of borrowing has dropped considerably, and so too has the internal rate of returns.

As a result private-equity players will have to cut their fees. In the good old days, they seized an opportunity and made a lot of money. They were smart and lucky, but the new world won’t accept such largesse. And as for transparency, it hasn’t improved one iota. Just as we didn’t know what was going on in the good times, so they are covering up their disasters in the bad times.

Controlling the power

IT has been interesting to watch Centrica’s share price since the energy supplier announced its £2.2 billion deeply discounted rights issue days ago. The share price has risen to 323p, in stark contrast to financial institutions that saw their share prices crater following plans to raise cash.

The vote of confidence reinforces the assumption that the team assembled at Centrica, under Roger Carr and Sam Laidlaw, can manage a considerably bigger business. Centrica wants to use the cash to buy a stake in the future of British nuclear power. But if EDF, the French-owned utility and potential majority partner, makes the terms too onerous it will walk away. Centrica needs to find a source of more energy to balance its retail arm and it has several continental targets in its sights.

It will be reassuring to other big groups that institutions are still prepared to back strong management teams – particularly if they have a story to tell.

john.waples@sunday-times.co.uk

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