Paragon: Coming together

Christine Seib

With its bid for Alliance & Leicester (A&L) last week, Santander may have kickstarted the expected wave of consolidation among small lenders.

Today it emerged that Paragon, the mortgage provider, is in talks with an acquirer, thought to be Blackstone, the US private equity firm. Unlike Paragon, A&L has a deposit base that partly funds its lending.

But both companies are likely to continue to struggle to raise wholesale funding at rates that enable them to lend competitively, making an independent future difficult to envisage with no end in sight to the credit crunch.

Expect to see more small and medium-sized lenders consider their position as a standalone entity in the coming months, as the wholesale funding markets continue to be squeezed. Blackstone's approach also proves TPG Capital correct.

When TPG walked away from its deal with Bradford & Bingley last month, some commentators said that private equity firms would be shut out of future deals. TPG laughed this off, pointing out that when the chips were down and British lenders desperately needed cash, they would come running to the equity funds. Sure enough, just a few weeks later, TPG's intransigence is forgotten.

Severn Trent: Slippery customers

Angela Jameson

Severn Trent, the UK's second largest water company, today admitted it is concerned that cash-strapped customers may soon struggle to pay their water bills.

The company, which has more than 8 million customers, mainly in the Midlands, warned that although it had not yet experienced any serious payment problems, the issue remained a risk for the rest of the year.

Severn Trent said: "Given the current economic climate we continue to closely monitor our customer debt and cash-collection performance.

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