Ranking economies

Christophe, our French intern has produced some fascinating analysis comparing the performance of 15 of the most developed economies (OK he stole the numbers off the back pages of this week’s Economist). Britain is right up there in 14^th place slugging it out with Greece and just ahead of India.

Scored ranking by

1 Current acct balance as % of GDP (Rank)

2 Budget balance as % of GDP (Rank)

3 Average of long (3m bank) and long (10yr Govt bond) interest rates/yields (Rank)

Countries are scored by summing ranking in 3 categories and ranked by score

Netherlands 7.90 (2) 0.60 (3) 4.73 4.47 4.60 (5) score:10
China 10.70 (1) -0.70 (8) 3.86 4.52 4.19 (3) score:12
Germany 5.10 (4) 0.40 (5) 4.73 4.38 4.56 (4) score:13
Canada 1.60 (8) 0.60 (3) 3.97 4.40 4.19 (2) score:13
Japan 4.40 (5) -2.50 (11) 0.73 1.65 1.19 (1) score:17
Russia 6.80 (3) 3.00 (1) 10.00 6.33 8.17 (15) score:19
Austria 2.90 (6) -0.50 (7) 4.73 4.49 4.61 (7) score:20
Belgium 2.20 (7) -0.10 (6) 4.79 4.54 4.67 (9) score:22
Spain -8.80 (13) 1.70 (2) 4.73 4.50 4.62 (8) score:23
France -1.20 (9) -2.50 (11) 4.73 4.47 4.60 (5) score:25
United States -5.70 (12) -1.60 (9) 4.72 4.61 4.67 (9) score:30
Italy -2.30 (10) -2.50 (11) 4.73 4.65 4.69 (11) score:32
Greece -10.50 (15) -2.40 (10) 4.73 4.68 4.71 (12) score:37
Britain -3.30 (11) -2.70 (14) 6.28 5.07 5.68 (13) score:38
India -9.60 (14) -3.30 (15) 6.96 8.32 7.64 (15) score:44

Houli who?

According to Her Majesty’s Daily Telegraph US investment bank Houlihan Lokey Howard & Zukin (no, I’ve never heard of them either) and law firm Bingham McCutchen (likewise) have been "asked by holders of a significant principal amount of Northern Rock subordinated notes to call a conference with other noteholders to discuss recent events and form an ad-hoc committee with other tier two investors".

HMDT goes on to say that the bank's "tier two" debt investors are anticipating a sale that will see both equity and preference shareholders wiped out, and their own bonds put at risk. Well no, there will only be a sale if the equity holders and bond holders agree to sell for nothing. A default on bonds is possible, but the bond holders may do better to hold on to their paper and collect the default interest.

According to their website, in 2006, Houlihan Lokey ranked as the No. 1 M&A advisor for U.S. transactions under $1 billion. So that’s less than 500 mill. Looks like the current shareholders are going to be low-balled.

Err.. this is not investment advice etc etc.

Just when you think you've seen it all...

... your breath is taken away by [potentially libellous comments redacted].

A harmless looking IPO filing at the SEC here from Babcock & Brown Air Limited here. Babcock & Brown are a well established US/Australian investment banking boutique and I have no doubt that the particuular company, an Irish aircraft leasing company, leasing 47 mostly narrowbody commercial passenger jests, is very well run. Since their chairman is a Harvard educated lawyer (no doubt familiar with the laws of libel) I am especially certain that it is an extremely well run company, but there is a curious item under the list of company directors:

Susan M. Walton has been a member of our board of directors since June 2007. Ms. Walton is the chief executive of Hampshire & Isle of Wight Wildlife Trust (‘‘HWT’’), a leading wildlife conservation charity in England, where she is responsible for biodiversity projects in two counties and developing partnerships with key stakeholder groups. Prior to joining HWT in 2006, she served as general manager – structured finance and export credit, for Rolls-Royce Capital Limited I for over ten years. Ms. Walton was also a Principal at Babcock & Brown from 1989 to 1997 where she was responsible for producing and implementing Babcock & Brown’s annual European marketing plan. Ms. Walton is a trustee for Buglife – The Invertebrate Conservation Trust and a member of Chichester Harbour Conservancy. Ms. Walton holds a degree in Environmental Conservation from Birkbeck College, University of London.

That's right, a professional "green" who is a director of an aircraft leasing company. I have no doubt that the person's experience makes them a perfectly suitable candidate to be a director of an aircraft leasing company, but do the people of Hampshire know about this sideline? After all the Trust’s website makes the following statement regarding corporate sponsorship:

“The Trust expects its corporate supporters to demonstrate a commitment to reducing the environmental impact of their business and protecting the wildlife heritage of our two counties. The Trust can offer advice and work co-operatively with companies to help them achieve this. However the Trust will not work with, or accept membership from, corporate organisations whose activities are fundamentally in conflict with the aims of the Trust.”

This is the same Trust that objected to housebuilding in Hampshire here:

Sue Walton, chief executive of Hampshire and the Isle of Wight Wildlife Trust, added: 'This revised plan is a step too far at a time when there are huge uncertainties about water resources, waste water disposal, flood risk and rising sea levels. 'How much more evidence does the government need that we cannot keep hammering our environment?'

As we all know, the key to success in business is total sincerity. Learn how to fake that and you're made.

A shadow of its former self

We're talking about the logo on his shirt obviously.

Some better than average thinking from Jeff Randall

Ten lessons we can learn from the Rock that rolled downhill

Northern Rock has been left looking like the Lender from Lilliput. Jeff Randall, to my mind a better communicator than analyst, hits the nail on the head here.

This will only feed the sense that politics is an elite racket

If the unions let Brown scrap the right of Labour's conference to vote against the party hierarchy, they would weaken democracy
Seumas Milne
Thursday September 6, 2007

The Guardian

He would, Gordon Brown promised in June, be a listening prime minister. The Blairite era of spin and headline-chasing, the message went out, was over. In its place would be a new spirit of engagement and dialogue with a population increasingly mistrustful of government and alienated from official politics. Brown was at it again this week, highlighting the decline in voter turnout and party memberships and pledging to embrace a "new politics" of civic participation. The political system too often "ignores or neglects the new ideas that flow from outside Westminster", he declared, announcing regular citizens' juries to investigate issues of public concern, as well as an all-party conference to work out why 40% of the electorate isn't voting in general elections.
But despite all this enthusiasm for giving people more say in political decisions, Brown has other ideas when it comes to his own party. Later this month, the prime minister wants to abolish the right of Labour's conference to vote against the government on policy. After enduring a string of conference defeats in recent years - from privatisation and pensions to council housing and agency workers' rights - Brown has lost patience with such public displays of dissent. Hoping to trade on his leadership honeymoon in the run-up to a general election, the prime minister plans to end the opportunity for unions and constituency delegates to vote on so-called contemporary motions, shuffling off controversial issues to private sessions of the machine-dominated national policy forum.
Far from being an arcane issue of internal party management, the move goes to the heart of the political alienation that Brown himself has expressed such concern about. All the issues on which the conference has seen off the party hierarchy in recent years have been ones which command majority public support. If he succeeds in convincing the Labour conference in Bournemouth to ditch its vestigial rights to vote on policy - completing the transformation of Labour's conference into a purely showcase event on the Tory model - it can only reinforce the growing sense that mainstream party politics is an elite-controlled racket, closed to genuine participation from outside or below.
Some around the prime minister have been putting it about that Brown regards this latest gutting of Labour democracy and union influence as his main challenge at Bournemouth - there's even been speculation that he fancies his own Clause 4 moment, in emulation of Blair's symbolic break with Labour's ideological past. That would certainly chime with his transparent attempt this week to court the conservative press and destabilise the Tory party by comparing himself to Margaret Thatcher and recruiting Tory MPs as advisers.
Praising Thatcher as a "conviction politician" who "saw the need for change" may have seemed a clever piece of positioning, but will have scarcely reassured Labour people already alienated by Brown's commitment to corporate feather-bedding and privatisation. After all, the problem with Thatcher's government wasn't just, as Brown said on Tuesday, that "there was a large amount of unemployment which perhaps could have been dealt with", but that it broke the back of whole communities, triggered widespread riots, wiped out a fifth of Britain's manufacturing base in a couple of years, ran down public services, and redistributed heavily from the poor to the rich. Many would welcome a Labour prime minister with convictions - but not those convictions.
The most recent noises from the Brown camp, however, suggest he's not looking for confrontation over his party reform plans, circulated under the creative marketing title of "Extending and Renewing Party Democracy". The prime minister and his lieutenants argue that the current system doesn't only lead to damaging stories of splits and leadership defeats every year, but delivers nothing for those who support the rebel resolutions: ministers routinely declare they will ignore them. Far better than such outdated "resolutionary politics", they say, would be for controversial issues to be dealt with by a souped-up policy forum, where things can be settled quietly in the Labour family. Then a full policy programme can be put to a ballot of all party members.
In fact, negative coverage of leadership defeats has been modest in recent years, perhaps because it's hard to paint as outrageous positions which are shared by the majority of your readers. Brown's reforms would mean the end of Labour conference sovereignty and the transfer of all policymaking to a closed forum, the majority of whose members are effectively under party hierarchy and government control and where the union share of the votes is 16%, rather than 49%. The take-it-or-leave-it members' plebiscite would be a meaningless rubber stamp. And while ministers have long rejected conference decisions they don't like, repeated defeats have clearly helped shift government policy on, for example, social housing and the pensions-earnings link.
For the unions, which have been the motor behind recent Labour dissent, Brown's proposals would mean the final relegation of their federal role to lobbyists-cum-cash cow. At a time when working-class participation in politics has fallen more sharply than that of any other section of society, you might think a collective relationship with organisations feeding in the concerns of millions of workers from outside Westminster would be an asset to be nurtured - and exactly the kind of link a prime minister worried about political disengagement would want to strengthen. But of course real-life social organisations have interests and views of their own that can't be switched on and off like, say, citizens' juries.
Some will point out that most of Labour's internal democracy was hollowed out by Blair in the mid-1990s, and dismiss the latest changes as mere funeral obsequies. But so long as Labour remains a party of government in a first-past-the-post system, its openness to political pressure is a matter of far wider social concern. The current plan would make it less open. The trade unions, who can block these changes if they choose, have started to signal that they're ready to negotiate. There is room for compromise, but if the unions were to trade away their own right to vote at Labour's conference, they wouldn't only be undermining themselves - but the wider interests of democracy as well.

s.milne@guardian.co.uk

If it says so in The Economist... it must be true

What the credit crunch means for bonuses

“DEAR Valued Bloomberg User,” began an e-mail sent out recently by the information provider to the universe’s masters. “This is...to remind you that we can still provide complimentary access to our service should you find yourself temporarily in-between jobs.” Having the bad news broken by another firm’s computer could be a new low for an industry not known for letting people go tactfully (“Your pass stopped working today? I’m so sorry”). Happily things do not seem to be as bad as all that.

In London some jobs will probably go. The Centre for Economics and Business Research (CEBR) reckons that more than 5,000 people will be hauled in for a talk about career progression by the end of the year. For comparison, the City shed 20,000 jobs after the dotcom bubble burst and 40,000 after Black Wednesday in 1992. However, the CEBR reckons that 10,000 new jobs were created in the year to July, so any reduction would still mean a big net gain in jobs over a two-year period.

As for bonuses, one financial headhunter that specialises in finding drones rather than filling corner offices says that at least one City firm has told its managing directors (who are less senior than the title makes them sound) that a certain number of them will receive no bonus at all this year. This gloom is not widely shared: most report bonus expectations being managed rather than vaporised—provided, of course, that things get no worse.

In New York the picture is similar. Some areas that have been booming over the past year will be affected. Mergers and Acquisitions mbanking, where the pipeline of deals looks less than inspiring, leveraged loans and a few other corners of fixed income may do badly. Conversely, anyone who trades volatility, of which there has been plenty, or sells options, which should be a good business in uncertain times, will have prospered.

Even the people most at fault for the recent turmoil—the creators of the collateralised-debt obligations (CDOs) and conduits that spread subprime-mortgage debt around the financial system—may end the year with new Porsches. Headhunters on Wall Street report that some have been snapped up by hedge funds looking to extract some value from these illiquid instruments. Just as imprudent banks have been saved from their mistakes by indulgent central bankers, so CDO-makers could be rewarded for the mess that they helped to create. Vroom-vroom.

A nice diagram

From Pictet & Co via FT Alphaville

From Alphaville to Nowheresville

The following letter went out from Global Alpha, a Goldman hedge fund to their investors. My comments inserted in italics

September 18, 2007

Dear Investor,

As you are aware, August was a difficult month for many quantitative hedge funds. Global Alpha was hit particularly hard. While the fund has experienced both challenging and rewarding periods in the past, the dislocation across capital markets during the latterpart of August resulted in unprecedented stress to the fund. This deterioration in performance was particularly dramatic, though Global Alpha’s returns had been under pressure for some time before that. As a result, we are actively working to adjust our process to minimize the negative impact of future market dislocations and position the fund for positive returns going forward. We want to take this opportunity to briefly describe how we are doing this.

Translation: Run for the hills!

Historically, our investment models have used market data to apply lessons learned from the past to current economic conditions. Our investment approach has been to adopt a longer time horizon, with positions being adjusted over the course of weeks and months. Recently, market activity and volatility have indicated to us that we need to adjust our positions more quickly.

Translation: We were wrong!

Having taken a comprehensive look at the models and processes we employ, we are addressing the following issues:

Leverage and Volatility: We have traditionally viewed leverage as a means of achieving our target volatility. In addition, most of our trading has been in what are considered extremely liquid markets and, therefore, leverage has not generally been an independent constraint. We are now giving greater consideration to leverage as a separate risk factor in constructing our portfolios and we are applying new leverage constraints.

Translation: We made our performance look better by gearing up, but that has its risks and we (or rather you) got kicked in the pants when the market went against us (you).

While our factors may continue to change over time, given the current level of market volatility, we currently expect to run the portfolio at the lower end of our leverage range. We are also implementing some additional risk management measures and techniques to help us to better predict and react more quickly to highly volatile periods and adjust positions accordingly. These changes may result in us maintaining at times a lower volatility than the historical long-term target of 17%.

Translation: The market is so volatile that we don't need to gear up to reach our target volatility, but without that gearing you can kiss any super returns goodbye.

Agility: There is more money invested in quantitative strategies than we and many others appreciated. While we’ve always been aware of our key competitors and the general size of their businesses, the recent liquidity crunch has highlighted a broader proliferation in related strategies. We foresee fewer and smaller participants in the quant space, which will benefit Global Alpha investors. Our intent under these circumstances is to more aggressively limit the size of our fund to reflect this new environment and to increase our agility in times of market stress.

Translation: There are lots of people in this market and frankly, we don't look so smart so we are getting out.

Innovation: Innovative and differentiated factors are critical to the success of quantitative models. We place a premium on the development of unique and proprietary factors and will continue to devote our research capabilities to this end. We intend to increase the weight given to differentiating factors and strategies.

Translation: We'll try to think of something. Don't go away.

We appreciate your forbearance through this difficult period.

Translation: Please don't take your money away.

The quantitative investment space has historically been rewarding for investors, and we believe investment opportunities remain attractive. You should not hesitate to contact us if you have questions about our approach or any other issues.

Translation: Hey, look some you win, some you lose. Form is temporary, class is permanent. We are Goldman Sachs so we can't be wrong, am I right?

Sincerely,

Mark Carhart & Ray Iwanowski

A Liberal view of taxation

Vince Cable, the party’s Treasury spokesman, has “promised” to close the loophole that exempts non-domiciles from tax on their British homes. Under his proposals, they would also lose their status if they stayed in Britain beyond a few years. The promise is a weak one because the Lib Dems will never take office.

“The rich and well-advised exploit loopholes and end up paying 10 per cent tax rather than 40 per cent. Non-domiciles taking advantage of offshore trusts avoid capital gains tax and people avoid stamp duty by registering their house as being owned by a company,” he said.

This howver, didn’t stop the Lib Dems accepting £270,000 from Alpha Healthcare, a UK company owned by Harberry Investments a Tortola based company, run by Bhanu and Dhruv Choudrie, owners and residents of substantial properties in West London, who nevertheless claim non-domicile status with respect to the income accruing in their Tortola company. A fine example of how UK profits can be routed offshore so that UK residents can avoid tax.

So much for the Independent Bank of England

http://www.ft.com/cms/s/0/43a7b3ac-66a2-11dc-a218-0000779fd2ac.html

I suppose he who pays the piper calls the tune. Let's see how Swervin' Mervyn gets on before the Treasury Select Committee.

The great financier

The government’s bail-out of Northern Rock reminds me of the story when J.P. Morgan (the man not the bank) was a pproached by a young man who asked him if the banker would finance his business. “No”, replied the great financier, “but I will put my arm round your shoulder and walk you across the floor of the New York Stock Exchange”.

 

There is no risk and has never really been any risk to the depositors at Northern Rock.  With most of the liabilities incurred through commercial paper, the demand depositors would always have been able to withdraw their deposits.  The bank could always sell some of its prepackaged assets to make up the shortfall.  So the government’s guarantee was always meaning less.  The only reason to withdraw a deposit would have been to buy the shares after the 75% fall in three days.

 

The problem for the government is that they will now be obliged to underwrite all retail deposits.  Apart from some Clinton-esque weasel words (“It depends what you mean by ‘deposit’”), it looks as though the government are exposing themselves to substantial liabilities, which can only be met by higher taxation which would cause more mortgage defaults, bad loans, bank problems etc.

Would they have done the same for the Chelsea Building Society?

Northern Rock deposits to be guaranteed

LONDON (Reuters) - The government will guarantee all existing deposits at embattled mortgage bank Northern Rock, Chancellor Alistair Darling said on Monday.
"I can announce today that following the discussions with the Governor (of the Bank of England) and the Chairman of the FSA, should it be necessary, we, with the Bank of England would put in place arrangements that would guarantee all the existing deposits in Northern Rock during the current instability," he said in a statement.
He said he had taken the decision "in the current market circumstances and because of the importance I place on maintaining a stable banking system and public confidence in it."

Clearly going for the northern Labour vote. Will the Chancellor do the same for the Alliance and Leicester?

LONDON (Reuters) - Alliance & Leicester said on Monday it was successfully funding itself and had not sought any assistance from the Bank of England, after its shares plunged over 30 percent on fears it could face some of the problems that have battered rival mortgage lender Northern Rock .
A&L, the country's seventh-largest bank, saw its shares tumble in the last minutes of trade to close down 31.3 percent at 600 pence, its lowest level in almost 7 years.

Good news - the Saudis are buying our planes

The MOD confirmed today that Saudi Arabia is buying 72 Eurofighters. That's funny because they bought 72 last year. Is this just a reannouncement? Is it possible that somebody wants to create a headline for the 6 o'clock news to distract attention from the bank meltdown? After all, the market reacted to this story last week.

Keep on Rocking

They do these things so much more discreetly on the continent. So much so that, while all the heat and light was coming from Gosforth, nobody noticed Barclays asking the ECB for a few billion to see them through to the weekend.

French Foreign Minister talks tough

French Foreign Minister Bernard Kouchner has again raised the spectre of a conflict with Tehran, warning the world "to prepare for the worst... and the worst means war".

The Iranians responded in no certain terms (sic) viz. "Dealing with international developments in a way mostly different from the US hegemonic approach was an old tradition for Europe that considered it as a way to maintain its independence from its transatlantic ally. In the US-Europe coalition, France was, most of the time, less obedient to Washington's policies than Britain although Paris has always been a partner of Washington. The occupants of the Ellyse have become translators of the White House policies in Europe and have adopted a tone that is even harder, even more inflammatory and more illogical than that of Washington. At the international level, the new government of France has possibly preferred more tension than peace as it has now stepped on the road of creating more tensions by adopting extremist stands. The French people will never forget the present time when a person with a non-European approach has moved into the Ellyse." I can say no more.

But if the worst really comes to the worst, what will the French do about the 2 Iranian aircraft that are currently sitting on the French Civil Aviation register (F-OJHH and F-OJHI)? Don't forget: April 10th is Nuclear Technology Day in Iran.

Getting to the Soul of Northern Rock

John Redwood's reading of the situation is poor - but Guido Fawkes has called it right, but then Guido was a trader and Redwood was an investment analyst, so Guido probably understands these things better, even though he may have worn white socks.
Redwood implies that NR's problems come from the BoE leaving the discount rate too high - but if this were the case it would create systemic problems for all lenders, which apparently is not the case.
Alternatively there could be problems if there was a mismatch in the "basis" of funding (i.e. fixed vs floating), but this could happen at any time and does not appear to be the issue here.Ministers have told banks to lend prudently, but again that does not appear to be a problem especially for NR. The may have grown their loan book at fine rates of interest, but they aren't reporting serious write-offs and nobody is accusing them of imprudent lending policies - or at least no worse than any other bank.
As Guido points out, the issue is a classic case of liquidity risk. NR funded itself through the wholesale market, using short term commercial paper in particular, to a much greater extent than other banks who finance themselves with a more stable deposit base. Other banks may have very large demand deposit bases, but the sheer number of depositors ensures that they don't all their money back at once, unlike commercial paper programs which have a nasty habit of being repaid in large amounts.
If NR has problems, that is the fault of their management and to a lesser extent their regulators, but it is hardly the fault of ministers.So Guido has it right, ministers have it wrong (but with this lot you don't expect much), and to a certain extent Redwood and Fraser Nelson are wrong too.

Where are the vultures?

Northern Rock's have led the market down over the last few days. Government ministers and their mouthpieces at the BBC have said there is nothing to fear: the company has sound assets and the problem is a short term liquidity issue.

So where are the asset strippers when you need them?

Business tips from Clive Woodward

Yes, you read it right. The man who happened to be the trainer of a team that happened to feature Jonny Wilkinson in his prime thinks he can tell the business world a thing or two. Not sure what those pearls of wisdom might be but you can read about them here.

Perhaps it would be worth remembering that this was the man who was also in some way associated with Southampton as they ended many years of playing in the top division of English football.

You have nothing to fear if you have nothing to hide

A judge says here that we should all be on the national DNA database.

He reasons that it is unfair that there appears to be a racial imbalance between the representation of various ethnicities on the database, and life would be easier for the police if everybody was on the database. This misses the point. "Fairness" should be irrelevant, because DNA testing is an objective test. If the police have a DNA sample from a crime scene and a list of suspects they can eliminate or identify each of those suspects by comparing their DNA with the DNA sample.

Having a DNA database of convicted criminals could be justified on the basis that empirical evidence shows a high level of reoffending, and hence any convicted criminal might reasonably be considered a suspect.

But to extend the database to the entire population would be offensive. Why? Because assuming a possibility of a few hundred thousand to one of an individual matching a DNA sample, then in a population of 60 million there will potentially be hundreds of people matching that sample. The odds may vary from sample to sample, but who wants to be suspected of a crime just because of a statistical fluke or even operator error. Who wants to be forced to account for their innocence of a crime when there is no other basis for suspicion? If the police have another basis for their suspicion of an individual, they don't need a DNA database, they just need to match the suspects DNA with their crime scene sample.

And to extend it to tourists and other visitors is a sure way to kill off tourism, the City of London and international business.

Things are looking up for David Mills

Corporate lawyer David Mills may be going through a tough time in Italy but it seems his star may not be waning elsewhere. One of his other long term clients, ILTC, an Iranian company manages investments on behalf of the Rafsanjani family. Indeed one of former President Rafsanjani’s sons works for Finco, an ILTC subsidiary in Dubai.

Why is this such good news? Well ex-President Rafsanjani, who many have considered to be a leading power figure despite his retirement, has just been appointed as head of the Assembly of Experts. In the arcane world of post revolutionary Iranian constitution the Assembly of Experts oversees the Supreme Leader (not all that Supreme then), who in turn can overrule the President (who thus sits lower than the gods, not surprising because he was the Ken Livingstone of Tehran).

What this means for Mills and his friends are more lucrative contracts. They are big investors in Mahan Air, nominally the second airline in Iran, but the fastest growing because it has better access to foreign routes and none of the forced employment practices of Iran Air. Likewise, construction contracts and the all important access to foreign exchange for the purchase of food and commodities will flow more easily to Mr Rafsanjani's friends in the bazaar.

Things are indeed looking up for David Mills.

The party of choice?

So George Osborne has said that a Conservative government would continue Labour spending policies.
As regular readers may remember, I stood as the Conservative candidate for Grimley (or was it Grimthorpe ? anyway an episode best forgotten). Try telling those voters that Conservatives are really the same as Labour. And what about giving the voters some real choice.

Think again Mr Osborne.

Banks caught at their own game

Oh how we laughed 20 years ago whenever a bidder paid a drop dead fee on a leveraged buy out. It was truly a mug's game. Every bidder had to line up finance, which meant paying commitment fees, but there was only one winning bidder, but even then there was a good chance that the banks would pull out on due diligence, and pocket the fees. I remember Triangle, Isoceles or whatever bidding for Safeway. What fees we made without lending a penny.

Now the boot is on the other foot according to The Times here. It seems that the banks have caught a cold over TXU. Remember them? They bought Eastern Electricity and went bust a few years later when all their gas contracts wre out of the money. Now it seems that, despite losing hundreds of millions in that disaster, US banks were still happy to pony up several billion for KKR to buy the Texan utility. And why not, for all I know Henry Kravis may be a whizz with coal fired power stations. Anyway, it seems that the banks are worried that they will not be able to sell down their underwritings. The banks' solution is to pay KKR a billion to pull the deal.

Sounds like the banks and KKR were playing poker as the credit markets crumbled and the banks blinked first. Reminiscent of the fees that changed hands over RJR Nabisco (Barbarians at the Gate), only this time they are going in the other direction.