City Republic: The man who saved the world?

LONDON - The man who saved the world? That's probably the way Gordon Brown sees it on crunch day for Britain's banks, as Sir Philip Green attempts to save the high street from an Icelandic thaw, and General Motors looks to save itself with a merger.

The Government is preparing this morning to underwrite new shares of £20bn in Royal Bank of Scotland and a total of £17bn in Halifax Bank of Scotland and Lloyds TSB.

These banks are still set to merge but on revised terms, giving more to Lloyds TSB shareholders.

Abbey, owned by Santander in Spain, says it doesn't need any money, which is a relief of sorts.

HSBC, with a strong international business, particularly in the Far East, and low exposure to the UK housing market, is staying aloof.

Barclays says it will raise its own extra funding of £6.5bn, a tall order in today's markets. But if there's a post-recapitalisation bounce in UK bank shares, then it may just get away with it.

As the most entrepreneurial of the UK banks, Barclays clearly doesn't fancy having the Government on board, not least because the banks which are taking government money are being forced to scrap cash bonuses for senior executives.

These are eye-watering sums but Bank of England governor Mervyn King, who's still hopping mad with the banks, is said to have insisted that they raise enough capital to see them through the next difficult few years.

Barclays' decision to go it alone will have raised a few eyebrows in Threadneedle Street.

RBS' Sir Fred Goodwin, the man who bought ABN Amro for £47bn, has resigned, the first high profile casualty of the credit crunch on this side of the Atlantic. He won't be the last.

At the same time Eurozone members have agreed to their own version of the Brown plan -- taking a stake in banks where recapitalisation is necessary and underwriting inter-bank lending -- while the US is also set to take stakes in banks, on top of its $700bn bailout plan.

Equally significantly, given that the root cause of the credit crunch is the US housing crisis, the US government has told big mortgage lenders Fannie Mae and Freddie Mac -- which were both taken into public ownership a month or so ago -- to start lending again.

But this time the instruction is: "No longer maximise shareholder returns."

That is, forget about making money, just stop the tide of repossessions and get the US housing market moving again.

Under the Brown recapitalisation plan, the new shares in UK banks will be offered to shareholders first, on preferential terms, with the Government acting as underwriter by taking up those that are left.

RBS, which will now be run by former British Land CEO Stephen Hester, currently a non-executive director, is initially going to the Government for £5bn and to its shareholders for £15bn.

This is the endgame for the credit crunch, for better or infinitely worse, but we'll know if a recovery is on the way if shareholders take up a reasonable portion of their entitlement.

A low take-up will mean that investors foresee more trouble ahead.

European shares rallied first thing this morning, Monday, following big gains in Hong Kong. But let's see how the bank share offers go before we call a recovery.

Sir Philip goes shopping in the sales

Cash is king in today's markets and Sir Philip Green, owner of Arcadia and BHS, has paid himself plenty of it in recent years.

Now some of it looks like being put to good use as he goes shopping in Iceland, buying the £1.87bn of Baugur debt owned by the nationalised Icelandic banks.

Not that he'll be paying £1.87bn as Baugur founder Jon Asgeir Johanneson has admitted that the debt, used to buy stakes in all sorts of UK retailers from House of Fraser to Woolworths, will be sold at "fire sale prices".

It's not yet clear how much these numerous retailers are dependent on Baugur -- some of them say they have their own banking arrangements in place -- or quite what Sir Philip has in mind for them.

Most likely he'll keep some and sell the other stakes on.

But, if the deal goes through and, you never know as some of these recapitalised banks might also be looking at a bargain basement retail investment, Sir Philip will bestride the UK high street like a veritable colossus.

A couple of years ago he wanted to spend £4 a share buying Marks & Spencer. He could now be picking up a business just as big for a fraction of the price.

General Motors desperate for a merger

General Motors, the world's biggest car maker, now valued at less than it was after the Wall Street Crash in 1929, is talking to Ford and Chrysler about a merger -- or any kind of deal.

All US car makers are on the ropes because the domestic market has collapsed as consumers seek cheaper, more fuel-efficient cars and the Americans don't make any.

The US government has loaned them $25bn to invest in greener models but that doesn't help sell all the SUVs littering the forecourts.

The biggest loser in this is private equity house Cerberus, which bought Daimler-Benz out of  Chrysler for $8bn a year ago. D-B, which makes Mercedes, must be breathing a huge sigh of relief although it still has a stake in the most unwanted of the big three US carmakers.

ITV looks for a socialist solution

To its news and current affairs responsibilities, that is.

ITV boss Michael Grade seems to have given up the ghost on the old ITV model of combining high ratings entertainment with a small element of quality news and current affairs and wants regulator Ofcom to take on the responsibility for this as the value of the analogue spectrum erodes before switch-off in 2012.

This is much the same strategy that Channel 4 has been pursuing for a couple of years now.

If Ofcom does take charge of news, by providing funding that would probably be taken from the BBC, ITV will become an unencumbered entertainment-only company and hence a more desirable takeover target.

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 www.editco.net and Politics of the Media for Brand Republic.

 

 

 

 

 

 

 

 

 

 

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