Scots and Spaniards in cosy plot


A FEW weeks ago I said in this column that the best solution for Abbey National and British banking would be for it to become a virtual bank running on someone else's infrastructure. Now word reaches me of an outline deal between Royal Bank of Scotland and Banco Santander Central Hispano, which is bidding more than £8bn to take over Abbey, that goes a long way towards making this a reality.

RBS and Santander go back a long way and links between Sir George Mathewson and the Spaniards have long been close. Hence the suggested arrangement, which will mean that once Abbey is taken over its entire mortgage book and all the servicing that goes with it will be transferred to run on RBS systems.

This, naturally, would allow the Spaniards to take a huge slice of cost out of Abbey, keeping the name but getting rid of a lot of the back office, all of which makes the current price look even more of a bargain. But the Scots are also as pleased as punch because the huge slice of third-party revenue the deal generates will bring about a major improvement in the RBS cost-income ratio, add substantially to profits and give it a significant competitive advantage over its rivals.

Rival HBOS has got wind of this proposal and this explains why it is so agitated. Whether or not it would get away with a bid for Abbey remains doubtful. But it is desperate to find a way to make Santander pay more for Abbey to reduce the advantage both it and RBS will have once the outsourcing deal is struck.

This story is probably not over yet.

Farce at the FSA

I MADE a New Year resolution to try to be nice to those hard-working souls at the Financial Services Authority, but after the confusion yesterday about the outcome of the inquiry into goings-on at Collins Stewart I am not sure it is possible.

At the crack of dawn the regulator issued a Press release saying it had been conducting an investigation into various allegations against Collins Stewart.

This was already known because the probe arose out of allegations made by former employee James Middleweek which got a lot of publicity at the time. So much, in fact, that Collins Stewart launched a libel action against the Financial Times over its coverage. But despite this colourful background, the release appeared straightforward enough.

'The FSA has written to inform Collins Stewart of its conclusions and the investigation is now closed,' it said.

The broking firm immediately produced its own statement celebrating the end of the probe, and its shares, under a cloud since the original allegations were aired, rose sharply.

But then doubts began to emerge because the FSA release had a later section called 'notes to editors' containing a paragraph that did not appear, for example, in a similar release issued when it cleared Stuart Rose of doing anything naughty with Marks & Spencer shares.

The new paragraph said enforcement actions could have a number of outcomes. One was that there could be no case to answer. Another was that the FSA could find there is a case to answer and take matters further. A third option was described in the following terms: 'If matters are identified which are of concern but do not warrant public disciplinary action, it may issue a private warning to the individual or the firm.'

It has taken a long time to get to here, but the implication of this is clearly that the FSA did find matters of concern and did issue a private warning. Otherwise, why put the paragraph in the release drawing attention to the possibility? At this point it all gets very silly.

To clarify the position, the regulator was asked a simple question. Was a warning given? The FSA refused to comment, so Collins Stewart was asked and it too refused to comment.

So while the implication is clear that a warning was given, neither side would confirm or deny it so no one can be sure. And this from a body which bangs on about the need for regulatory certainty and the importance of its giving clear signals to the City.

Actually, if investors wanted to be mischievous they should accuse the FSA of market abuse and demand that it prosecutes itself. Collins Stewart's shares rose because the FSA release gave the impression everything was kosher and above board. But would they have risen so much if the market had been aware of the possibility that the FSA actually had concerns and had given a warning?

The ambiguity could be interpreted as meaning the FSA has misled the market - which constitutes market abuse. And, as it has frequently told people, that is a crime whether or not there was deliberate intention to mislead.

Scots and Spaniards in cosy plot

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