City Republic: Intervention is the order of the day

LONDON - The main stock markets in the US and London rose by 17% and 13.5% respectively last week, so everything's all right then is it?

As ever, the main story is the US and that story is as much Main Street as Wall Street.

When Republican treasury secretary Hank Paulson announced his $700bn bailout plan (it seems like a tiny number now) it was opposed by many Democrats because it "only" addressed the problems of the banks.

Incoming Democratic president Barack Obama has made it clear that he wants the government to be the driver of revival in the wider economy, helping Americans with their mortgages and, at a price, helping key American industries such as the car industry.

This theme has been eagerly adopted by the Labour government over here, with trade minister Lord Mandelson said to be drawing up a list of companies and industries that the Government is prepared to support. Cars will undoubtedly figure on this as well.

Today, Royal Bank of Scotland (owner of NatWest), now 58% owned by the Government after the failure of its rights issue, announced that it will now give mortgage payers in arrears six months’ grace rather than three, thereby putting pressure on other banks to do likewise.

Is Lord Mandelson really Father Christmas in disguise?

In the US, Obama’s policy is quite clearly "back to the future" -- back, that is, to the days of the Clinton administration, when ordinary Americans got richer and Wall Street richer still.

Clinton administration veterans Larry Summers and Paul Volker occupy key financial posts in the new administration and new treasury secretary Timothy Geithner, currently head of the New York Federal Reserve, was intimately involved in the bank bailout.

So on both sides of the Atlantic you have governments who, to echo former president of the board of trade Lord Heseltine, are prepared to intervene before breakfast, lunch and dinner. Markets like certainty and there hasn’t been a lot of it around for the past two years.

Many investors will worry about long-term government involvement in banks and other industries (it now looks as though troubled General Motors will be forced into a bank-style equity for finance swap) but at least they know, or think they know, that nothing really big is going to be allowed to go bust.

The London FTSE100 opened lower this morning, led by retailers, with JJB Sports the latest under the cosh, and miners after the collapse of the mega-merger between BHP Billiton and Rio Tinto.

But the new spirit of intervention should support the markets in the near term, however dire the wider economy may appear.

The wonder of Woolies

Investors are queuing up to buy Woolworths we read, with administrator Neville Kahn of Deloitte sifting through a pile of enquiries and hoping to make an announcement of the sale of the Woolworth brand and at least some of the stores by the end of the week.

Among the interested parties is Theo Paphitis, Dragon’s Den star and one-time chairman of Millwall -- he did rather better with Ryman and knicker shop La Senza.

What’s more, Woolies has been flooded by shoppers since administration was announced. Clearly all those shoppers who say they value it but never go there have been nudged into action by its imminent demise.

A bit of cash through the tills right now will indeed do wonders, not least in terms of procuring stock that has to be paid for up front.

There’s a way to go before we can say that Woolworth is a going concern though.

The thing that really did for the company was the board’s decision a few years ago to sell off its freeholds and return the money to shareholders to try to boost the share price -- it didn’t, or not for very long anyway.

This is exactly what our old friend Robert Tchenguiz and his friends at the Qatari Investment Authority wanted to do to Sainsbury’s.

It’s complete madness for a retailer to start paying rent on its massive property estate just for a one-off bonanza for shareholders.

Let’s hope this daft idea is now well and truly buried.

Ryanair discount shops for Aer Lingus

We’re all shopping in the bargain basement these days, including Ryanair’s irrepressible boss Michael O’Leary.

Ryanair is to offer just 748m euros for Irish national carrier Aer Lingus, exactly half of its last bid a couple of years ago that was knocked back on competition grounds by the European Commission.

Competition rules can be overcome in times of dire financial need, as we’ve seen with Lloyds TSB and HBOS, although the Commission is a bit stickier about them than national governments.

O’Leary has said he wants to start cheap flights to the US next year -- Aer Lingus would appear to fit into this strategy rather nicely.

Tesco joins retail’s mere mortals

For the first time in years Tesco’s Sir Terry Leahy won’t be looking forward to his quarterly appearance before the media when he announces Tesco’s latest numbers on Tuesday.

Like-for-like sales are expected to have grown by just 1.9% in the third quarter, behind Sainsbury’s of all people, the one-time market leader that Tesco thought it had slain years ago.

There are also fears that Tesco’s Britain’s biggest discounter campaign has flopped, making the brand look cheap and failing to dent the progress of Asda, Morrisons and German discounters Aldi and Lidl.

Morrisons, not so long ago written off by the City after its acquisition of Safeway, will produce its own numbers later in the week and they’ll be better.

So what’s up at Tesco?

Some analysts will says the company has been weakened by a brain drain of senior executives to other retailers as they found the path to the top blocked by the still, relatively, youthful Sir Terry.

Others will point to the presence of long-time marketing director Tim Mason on the west coast of America, where he’s struggling to establish Tesco’s Fresh & Easy chain. Mason would surely have handled the bid to take on the discounters with a bit more pizzazz.

Maybe the company has just become too big to be fast on its feet in a grocery and now clothing market that is more competitive than ever.

The board has certainly had its fair share of distractions recently, not least its "Jarndyce versus Jarndyce" ultimately fruitless legal tussle with the Guardian over its tax policies.

Sir Terry has never been one to duck a challenge, but he has a real one on his hands right now.

Stephen Foster is a former news editor of Campaign, former editor of Marketing Week and Evening Standard ad columnist. He is a partner in Editorial Partnership and writes the blog and Politics of the Media for Brand Republic.