Scutineer: Double Dutch Speaks Volumes

By Martin Flanagan

RBS

575p -16.5p

BA

402.75p -1p

BOTH Royal Bank of Scotland and Barclays have demonstrated this week that they don’t need the acquisition of ABN Amro. Both want the Dutch bank big-time, though. Strong trading, particularly in the British banks’ wholesale and investment banking operations, saw RBS deliver a profit up 11 per cent at GBP 5.01 billion, and Barclays up 12 per cent at GBP 4.1bn.

But RBS management yesterday did not exactly hide their reaction to the latest off-piste verbal skiing of Rijkman Groenink, ABN’s shoot-from-the-lip-into-the-foot chief executive.

Weeks after saying there should be a level playing field for the bids for ABN from Barclays and the RBS consortium, and days after withdrawing ABN’s recommendation for the Barclays offer and saying the Dutch bank’s board was now neutral on the two bids, Groenink let the following slip to reporters this week.

“Shareholders [in consortium member Fortis] would be well- advised to vote against the takeover. If it goes ahead, the Fortis share price will fall still further.” Oh, that sort of neutrality.

You can see why the RBS chairman and chief executive, Sir Tom McKillop and Sir Fred Goodwin, respectively, might wish they could appeal to the groundsman.

This level playing field is developing divots by the day. The RBS pair told reporters yesterday that they were “bemused” by the latest development, which I think is RBS-speak for spitting blood. Groenink is effectively telling ABN’s shareholders that he and the board cannot recommend Barclays any more, but he cannot speak highly enough of it, and only wishes there were more banks like it in the world and, hopefully, we can invite it round for dinner when this short-lived unpleasantness is all over.

BRITISH Airways is obviously still smarting from its GBP 270 million transatlantic regulatory fines this week for effectively operating a cartel with Virgin Atlantic on long-haul fuel surcharges after being shopped by its collaborator to the authorities.

Not to mention being labelled the worst airline in Europe, this week. There was rather more positive news yesterday, however, with the airline announcing that quarterly operating profits to end-June jumped 28 per cent.

BA chief executive Willie Walsh will probably not be getting carried away, though.

The rise was largely due to internal factors, such as lower severance charges and pension costs rather than any trading tailwind.

Quite the reverse. BA says the weak dollar and surging fuel prices will put the brakes on full-year revenue growth at the airline.

It reined in its guidance to the market on revenue growth for 2007 to 4 per cent from an earlier 5 per cent.

BA is partly blaming customers voting with their feet and avoiding Heathrow Airport, widely criticised as overcrowded and prone to lengthy delays. Walsh has previous rapped BAA, the Spanish- owned operator of Heathrow for understaffing the airport.

All things considered, Walsh will take the good news from wherever he can find it currently. And the latest quarter’s trading, which also benefited from a more favourable tax rate, is about the only good news there is.

IN A midsummer reverie, you could almost set it to music along the lines of “Dem bones, dem bones” … “The sub-prime is connected to the credit crunch, and the credit crunch is connected to the takeovers’ crunch, and the takeovers’ crunch is linked to the equities’ crunch, hear the words of concern …”

It is estimated that concerns over the ramifications of the sub- prime lending crisis in the US means that leading banks have been left holding almost dollars 500bn in leveraged loans, many for takeovers, that have been agreed but which, in the current nervous climate, they cannot syndicate out.

Just as bookmakers sometimes like to lay off some of their risk on major gambles, so do banks on major loans. And, among the secondary players, there is reduced lender appetite for risk at the moment.

There is a block in the system. Depending which expert you talk to, this nervous logjam on loans could last a few months, until the end of the year, or the next 18 months to two years.

Pub group Mitchells & Butlers’s GBP 4.5bn property deal being put on ice due to the volatility in the debt markets is just one of the most high-profile casualties of the current lending sluggishness.

It certainly is not doing equities markets any favours, with the Footsie off a further 76 points yesterday.

(c) 2007 Scotsman, The. Provided by ProQuest Information and Learning. All rights Reserved.