大象传媒

Will Whitehorn, Richard Branson's corporate affairs director and right hand person, knows my guilty secret: I've been in journalism an embarrassingly long time. More than 20 years ago we would drink too much robust red wine with disreputable City folk in the bustling Long Room, opposite the old floor of the Stock Exchange, he as an apprentice spin doctor, me as cub reporter.

So he'll forgive my teasing: what on earth was he thinking when saying in today's FT that there was a victory for "morality" in the launch of Ofcom's unprecedented "public interest" of a 17.9 per cent stake in ITV.

- in which Branson is the largest shareholder - still feels sore that Sky's purchase of the ITV stake stymied its hopes of taking over ITV. So I suppose morality might have been the winner yesterday if you happen to view Virgin as a saintly charitable organisations engaged in selfless sacrifice to better the world. But does that ring true with you?

That said, there's a plausible case that Sky's stake in ITV raises competition questions, such as whether it could reduce the competitive tension in auctions for sports rights, or independent TV productions, or even movies (that would be possible if ITV felt inhibited from bidding against Sky as its largest shareholder). That's an issue for the , rather than .

In theory the Sky stake in ITV could have an impact on "plurality", the number and diversity of voices available to viewers.

However the DTI's statement yesterday when referring the matter to Ofcom was strikingly short of anything that looked like an argument or evidence, apart from a cursory nod to news coverage. And there was no attempt by Alistair Darling, the Trade and Industry Secretary, to explain how a reference to Ofcom was consistent with the clause in the Communications Act allowing groups like BSkyB - whose de facto parent, , has huge British newspaper interests - to acquire up to 20 per cent of ITV.

So I have sympathy with those who say that the DTI reference to Ofcom simply buys Mr Darling a bit of time before having to make the horrendous choice for any senior Labour politician of whether to back Branson or BSkyB, which is the most important European television interests of the Murdoch family.

The battle between Sky and Virgin is a commercial struggle between two ferociously competitive businesses. They both want the biggest and most profitable slug of a media market that encompasses broadband, mobile phones, fixed line phones and TV.

Both can be seen as pioneers, as businesses that have taken huge commercial risks to bring new services to consumers. The difference between them is partly one of image.

Richard Branson has a genius for painting himself as the plucky underdog, as righteous Luke Skywalker against big bad Darth Vader - who at different times in his glittering career has taken the form of British Airways, Camelot and latterly as Rupert and James Murdoch, chair and chief executive of BSkyB.

In branding terms, he is the non pareil. Branson's global business interests are - with the exception of Virgin Media, which is listed - as private and opaque in financial terms as many businesses owned by private equity. But while private equity is everywhere decried for the secretive way it earns vast profits, Branson is feted as the entrepreneurial equivalent of Helen Mirren.

But in the Murdochs he is up against fearsome competition. It'll be his toughest ever challenge. The current spat over how much Virgin should pay to screen Sky's basic package of channels is just the start of something big and very bloody.

Murdoch v Branson: it's real, it's personal, it'll run all year, it's the best show in town, and it'll affect how millions of us communicate, receive information and are entertained.

Here's a tip. If you read stories that James Murdoch is going back to the US to run the family business, News Corporation, ignore them. He's staying at Sky till the struggle for supremacy against Virgin is settled.

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• - What's this?

Many of us have worked for companies whose management was rubbish. But we may have stuck it out either because we loved what we do or because we had no choice (there was nothing better available). Either way we were part of the fabric of that business, what held it together in spite of the incompetence of the managers.

These days there鈥檚 a common escape route from the descent to oblivion for badly managed companies like these: they are often taken over and bashed into shape after being acquired by the funds managed by private equity houses.

Following a private equity takeover, the mediocre managers may be kicked out and replaced by better ones, who would be massively motivated to improve corporate performance by being given equity or sold it on very attractive terms. These managers can make millions, sometimes tens of millions of pounds, if they boost the value of these businesses during the three to five years they are typically owned by private equity funds.

But, in many cases, the employees who鈥檝e stuck with the business through thick and thin get zilch, nothing, bupkis. In fact it鈥檚 worse than that, as Paul Myners pointed out last week: there鈥檚 an increase in job insecurity for all, while the business is being reconstructed under new ownership; and some will lose their jobs.

And you don鈥檛 need to look further than that to understand why the campaign against private equity led by the GMB trade union is resonating in the way that it is.

Now as Damon Buffini said to me when I interviewed him on Friday, in the medium to long term employees do benefit as and when a weak company is transformed by private equity into a more confident and competent one (which isn鈥檛 by any means always the case).

But the head of Europe鈥檚 largest private equity firm failed to address the root cause of so much criticism of private equity: the fruits of success at a business in private-equity hands are very unequally shared.

Executives in the companies owned by private equity often make personal fortunes. Partners in the private-equity management firms accumulate wealth running to tens of millions of pounds each. Investors in private equity funds will frequently make returns on their investments well above the norm.

However, if they鈥檙e lucky, staff at companies owned by private equity get to keep their jobs.

My experience of some private equity firms over many years is that they are so arms-length from the employees of their companies that they view employees as statistics to be manipulated, not as people engaged with them in a common endeavour.

This may explain why they so rarely award equity in bought-out businesses to all staff. They seem to regard the spreading of equity to all employees as an unnecessary expense, but this is short-termist in so many different ways.

Sharing the rewards more widely would defuse much of the recent criticism of unfair shares and it could improve business performance.

And it would only undermine the viability of the more marginal private equity deals. I鈥檝e run the numbers on several recent private-equity transactions. And there would still have been very rich pickings for the owners and managers if employees had been given equity that ended up being worth a few thousand pounds per person.

The charge that the spoils of private equity are unfairly divided isn鈥檛 going away any time soon. What should really have worried the Permiras, Apaxes and CVCs this weekend was an editorial in the main section of Saturday鈥檚 Daily Mail attacking the practices of their industry.

Private equity has come out of the ghetto of specialist financial publications and is now being reported on newspaper front pages in terms that are highly unflattering to it. Some of the harm being done to its reputation could have been avoided if the thousands of employees in bought-out firms had been treated as partners in a common endeavour and co-investors rather than as anonymous overheads to be slashed.

The private-equity quartet plotting a takeover of Sainsbury should take note.

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• - What's this?

Persuading for broadcast has been like teaching a cat to swim. The boss of Europe's largest private equity firm is allergic to being in the public eye (it is called 鈥減rivate鈥� equity, after all).

But he finally agreed yesterday - and if you click here, you can hear the full version of his responses to the many and heated criticisms of Permira and its ilk.

controls swathes of the UK high street, hotels, the AA, much of British bingoland 鈥� and plenty more overseas. It's the largest firm of its sort in Europe and is going head-to-head with the global giants, which all happen to be American.

Is that a reason to celebrate? Is private equity spearheading a reconstruction of the British economy to make it leaner meaner and more productive?

Or is the GMB trade union right that the partners of private equity firms are accumulating obscene wealth by slashing jobs and selling off crown-jewel assets?

It鈥檚 the industrial debate of our age. And it reminds me of the passions raised 20 years ago over the seemingly unstoppable rise of the acquisitive conglomerates Hanson and BTR. Just about everyone who weighed into that debate turned out to be wrong (BTR was widely regarded as superior to Hanson, when the opposite was the case; ICI was perceived to be far too important to the British economy to be allowed to fall into the hands of the supposed cowboys at Hanson, so ICI continued to be managed as an independent by a succession of pompous managers who couldn鈥檛 reverse its long term decline; and so on).

Of one thing I am clear. Buffini himself could be a wonderful role model for can-do Britain. He was brought up on a council estate by a single mum, he鈥檚 black and he was educated at state schools. Now he runs one of the most powerful financial institutions in Europe.

As I say, he could be the evangelist for a meritocratic, socially mobile UK 鈥� and one day cats might choose too to swim.

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• - What's this?

Paul Myners 鈥� former chairman of Marks & Spencer, current chairman of Land Securities 鈥� is on the advisory board of a private equity business, Engelfield Capital. So his and on the Today programme is perhaps all the more serious for the private equity industry.

He鈥檚 also about as close as any businessman to the Treasury, the Government department which for years has been cheerleading for private equity and which alone has the power to do it serious harm through making the tax system less benign for it.

The Treasury will dislike Myners鈥檚 intervention, because it remains of the view that private equity brings net benefits to the British economy. But it will find it hard to ignore his criticisms, which are that private equity is too opaque and secretive, and also that employees at businesses bought by private equity are 鈥渢he one party that is not rewarded鈥� and that generally they 鈥渟uffer an erosion of job security and a loss of benefits.鈥�

Myners will hate me saying this, but in a way his attack is predictable. Why? Because he made his fortune creating a conventional City fund management organisation, Gartmore, and he made his name as chairman of M&S fighting off a de facto private-equity takeover attempt from the billionaire Philip Green. So he can be seen as a spokesman and cheerleader for public markets, or businesses quoted on the Stock Exchange.

And the point about private equity is that it represents a serious challenge to public markets and bourses like the Exchange.

Ask almost any manager why private equity has been so successful and what you鈥檒l hear is that 鈥渋t better aligns the interests of owners and managers.鈥� Here鈥檚 Richard Lambert, director general of the CBI 鈥� the private sector lobby group 鈥� talking about it last week:

鈥淏ecause the managers of businesses backed by private equity usually have a significant equity interest in their success, the interests of managers and owners are very closely aligned.鈥�

What does this mean? It means that British managers of public companies increasingly believe that their interests are not 鈥渁ligned鈥� with traditional City investment institutions, that they feel frustrated by what they perceive as the shackles put on them when they run a listed company.

These are not shackles put on them by trade unions 鈥� even though it is trade unions led by the GMB which are to curb the growth of private equity.

The constraints which chafe on executives are those imposed by the owners of public companies, the shareholders. When managers move over to private equity, what they are trying to escape are:

1) negative stock-market reaction to investments and initiatives needed to grow profits in the long term but which may depress profits in the short term;
2) expensive requirements to publish all manner of financial, social and environmental information; and, of course,
3) limits on what they are paid.

They are making a bolt from mainstream corporate governance and from what they perceive as a lack of understanding and support from the conventional investment institutions that own listed companies.

In a way, the rise of private equity can be seen as a rejection of the shareholder-capitalism that has underpinned the US and UK economies for 150 years. And that鈥檚 quite a big deal.

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• - What's this?

Just because Barclays generates does not mean it is ripping us off, no matter how grumpy you or I might feel about what we feel is an unjustified bank charge or the length of the queue in a local branch.

An assessment of whether its profits 鈥� or those of any company 鈥� are excessive depends on an analysis of how much competition it faces and what kind of risks it is running.

So my first instinct is to say hats off to the big blue bird for a 35% jump in pre-tax profits to 拢7.14bn. Why? Because many of its businesses are global, competitive, complex and risky. So for once why not cheer on a British winner?

It鈥檚 hard to argue that there is an absence of competition or risk for its Barclays Capital unit in international investment banking, for example. As for Barclays Global Investors, that鈥檚 a jewel of a global asset management and investment services business operating in a highly competitive industry.

Surely most of the medium-size to large companies which buy services from its separate business banking division are big enough and ugly enough to take their custom elsewhere if they鈥檙e not satisfied with what Barclays offers.

As for all its international banking businesses, in the event Barclays were making excessive profits in overseas countries, well that would be an issue for the people and governments of those countries (though a reason for Barclays鈥� shareholders to celebrate).

But there is a 鈥渂ut鈥�. There are critical questions to be asked about how much profit Barclays makes from retail banking, or providing services to small businesses and individuals. This is not a market characterised by savage competition or terrifying risks. There are a handful of serious players and enormous barriers to entry.

British retail banking may not quite be a risk-free utility. But it鈥檚 not as far removed from being a utility as most of the banks like to claim.

So there is only one statistic in Barclays results that shocks me: the return it makes from UK retail banking on its so-called 鈥渁verage economic capital鈥� is a remarkable 39%, up from 35% in 2005.

That is an impressive return by any standards. It鈥檚 a performance that most hedge funds or investment banks would kill for 鈥� and surely Barclays wouldn鈥檛 argue that its UK retail banking unit is operating in a marketplace as complex and competitive as those inhabited by hedge funds or investment banks.

Admittedly it excludes the relatively poor returns it makes from Barclaycard 鈥� which appears to be in something of a mess (it made a profit of precisely nil in 2006 on the measure called 鈥渆conomic profit鈥� which takes account of the cost of capital employed).

But 39% is pretty sweet for providing millions of us with our current accounts, overdrafts, money transmission services and so on.

If all the British banks are enjoying returns anywhere near that from their domestic operations 鈥� and we鈥檒l find that out in the next couple of weeks 鈥� then it would be reasonable to ask whether excessive profits are being generated.

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• - What's this?

The (PDF link) on reforms to the UK drug pricing scheme will divide the pharmaceutical companies. The O贵罢鈥檚 conclusion that reform would release 拢500m of expenditure that could be used more effectively will concern many of them, if that 拢500m were reallocated by the NHS to non-drug treatments and services.

However some will welcome the move to what鈥檚 called a "value-based" scheme. Put simply, that would relate much more closely what the NHS pays for drugs to the revealed benefits for patients. Schemes of this sort already exist in Sweden, Australia and Canada.

In some cases, that would lead to drug companies receiving higher prices for particularly effective drugs - and would be seen by them as a strong incentive to researching new treatments, because they would have the confidence that they would be properly rewarded for those treatments.

So the OFT doesn鈥檛 believe that the UK鈥檚 world-leading position in pharmaceuticals would be put at risk by the introduction of this new purchasing system. It ought, in fact, to reward British companies like GlaxoSmithKline or AstraZeneca which set great store by their prowess in developing effective new medicines.

However the O贵罢鈥檚 shocking conclusion - and the one which some drug companies will contest - is that the NHS is paying up to ten times too much for certain medicines as measured by what could be paid for near identical medicines.

The competition watchdog highlights treatments for cholesterol, blood pressure and stomach acid as areas were some drug prices are ludicrously inflated.

The O贵罢鈥檚 most striking statement is that the current pricing system, called the Pharmaceutical Price Regulation Scheme, doesn鈥檛 ensure that 鈥渢he price of medicines reflect the health benefits they bring to patients鈥�.

It鈥檚 hard to think of a more savage indictment of the NHS.

Here鈥檚 why I鈥檓 persuaded the time for reform is probably nigh. Other countries around the world use the NHS鈥檚 pricing system as a benchmark for what they pay for drugs. But in many cases, they view the NHS prices as the maximum - and they use them as a basis for negotiating a discount.

This is not to argue that the current system is utterly hopeless. But one of its flaws is that probably relies excessively on GPs to be acutely aware of the different costs to the NHS of near-identical treatments and to prescribe the cheapest.

The OFT found that all sorts of other factors influence GP鈥檚 prescribing behaviour. So why put the onus on GPs to prescribe the cheapest drugs? It鈥檚 not what they are trained to do or instinctively drawn to do.

Surely it would be better to ensure that all the drugs available to GPs are priced at a level that property reflects their therapeutic efficacy.

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• - What's this?

Is cash-money the proverbial dead parrot and if so should we mourn its passing? There have been a couple of compelling obituaries for it recently: the in this week鈥檚 Economist and a for the wedge by Jeff Randall in the Telegraph.

As they point out, there is a clear trend of coins and the folding stuff being replaced by electrons. There鈥檚 nothing novel about credit cards and debit cards. But many other forms of electronic money are increasingly in use all over the world 鈥� and you鈥檒l be using them before long, whether you expect it or not.

These include smart cards for small payments 鈥� like the Oyster card which has been a great boon in paying for public transport in London. And the use of mobile phones to pay for small value items (which is already happening in Asia) or even to transfer money overseas.

Now in some ways we should welcome this, because it should bring down the costs of buying and selling, which should mean that we as consumers see lower prices for goods and services.

Although we like to think that buying and selling in cash is 鈥渇ree鈥�, in fact it鈥檚 pretty expensive. Just think about the costs to a store of collecting and counting all that cash, protecting it from being stolen, transporting it and so on. When you pay by electron, via a card or mobile phone, much of that cost vanishes.

And that鈥檚 why some retailers and other businesses offer discounts for electronic payment (or the premium for non-electronic payment announced recently by BT and savaged by Jeff in his column).

But there鈥檚 an aspect of the move to a world of electronic payment which I find less appealing 鈥� which is that data about the customer attaches to those bloomin鈥� electrons.

When I pay with electronic money as opposed to notes and coins, a record is created of what I, Robert Peston, choose to spend my money on. And over time, a profile can be created of my tastes and preferences.

This is the revolutionary aspect of the move to electronic money and away from anonymous cash. Over time it will change the very nature of commerce.

Now there are plenty of legitimate civil liberty concerns about the use of electronic money to track our behaviour, as the Economist points out. But I have another concern: it鈥檒l take serendipity out of commerce.

Mind you, serendipity is already on its uppers.

Tesco鈥檚 ability to give its customers what they want has been massively improved by the shopping information it collects through the Clubcards used by millions of them.

Google has for years been doing its best to kill off serendipity in advertisements with its search system that spews out ads tailored to our individual search preferences, offering us products and services that it thinks it knows will interest us because of the search terms we鈥檝e Googled.

It won鈥檛 be long before we鈥檙e also offered television ads customised for our individual viewing habits. British Sky Broadcasting is a long way down the track to launching a system that will download ads to the hard-drives of its Sky Plus boxes tailored to the revealed viewing preferences of particular customers.

Which is great for the revenues of all these businesses. In my regular meetings with the chief executives of banks, power companies, retailers and so on, they all swagger about how they are harvesting more and more information about you and me so that they can pre-empt our next purchase of a product or service with an apposite recommendation.

However as a consumer, it鈥檚 the things I never knew I might want, the genuine surprises, that frequently deliver the most satisfaction. The notion that what I can buy, what I can see on TV, what I can read in newspapers will all be customised to fit my electronic profile is distinctly unappealing.

At the thought of this thoroughly Googlized world of commerce, my instinct is to shout 鈥� a la Patrick McGoohan in the 鈥淧risoner鈥� 鈥� 鈥淚 am not simply an electronic record of viewing, shopping or searching habits, I am a 鈥︹��

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• - What's this?

The GMB trade union has been campaigning against the way that private equity finances its takeovers largely with .

But why does private equity love debt so much? Well it鈥檚 all about maximising returns in a rising market.

Here鈥檚 how the maths works. Assume for a second that you are lucky enough to have 拢1m and that you bought a whole company for 拢1m four years ago. That鈥檚 when the stock market was near its low after the last stock market bubble was pricked.

Now share prices have in general surged 95% since then. So if you sold that company today, you could expect to make a profit of 95%, or 拢950,000. Not bad, you might think.

But now let鈥檚 do it the way that private equity would do it. They would have used your 拢1m and borrowed a further 拢4m from banks and other financial institutions. That gave them 拢5m to spend, which is why they bought a bigger company for 拢5m.

Since then, if the intrinsic value of the business simply tracked what has happened to the stock market, it too would have risen 95% in value, from 拢5m to 拢9.75m.

What鈥檚 the gain on the 拢1m of your money, the return on equity? That return is calculated after the 拢4m of borrowed money is repaid. After the business has been sold and the 拢4m of debt has been paid back, 拢5.75m would be left.

Here鈥檚 why it鈥檚 time to open the Krug. Through the magic of what鈥檚 called leverage or gearing, the private-equity approach has turned your 拢1m into 拢5.75m. Instead of a 95% profit, you鈥檝e made a 475% profit.

I have simplified what goes on in a real private equity deal. In particular, I鈥檝e taken no account of the costs of paying interest on the loan, or the cash-flows and profits (or losses) generated by the company along the way, or the risks of owning and operating a company.

But the basic principle holds, that it鈥檚 hard not to make a substantial profit if you borrow money to buy an asset in a rising market. Many millions of British homeowners, who鈥檝e taken out mortgages to buy their homes, are beneficiaries of this principle.

So the apposite question for any critic of private equity is this one: are the profits they鈥檝e made simply the consequence of using debt to buy companies in benign market conditions, or do they create substantial additional wealth by actually managing these businesses in a superior way?

The answer is that a minority of good ones do a lot more than employ the simple financial engineering that I鈥檝e described. How can that be proved? Well, their returns exceed the so-called 鈥渓everaged鈥� returns of the stock market as a whole.

But that鈥檚 certainly not true of all of them 鈥� which, of course, begs the question whether they are worth the colossal fees they charge.

And with tens of billions of pounds gushing into private equity houses right now, even the better private equity firms will find it harder to identify companies capable of generating returns superior to the stock market as a whole.

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• - What's this?

A world-beating haggis factory yesterday gave me a glimpse of Britain's economic frailties.

For the past couple of days I've been in Scotland recording interviews for a documentary on the health of the Scottish private sector to be broadcast on Radio 4 towards the end of March.

This took me to , just outside Edinburgh. In disinfected white Wellington boots and hygienic hairnet, I watched skilled workers manufacture their award-winning Caledonian delicacy. It is a third-generation family business, which turns over more than 拢2m a year and supplies Selfridges, Harrods and Tesco, among others.

Their classic haggis is made to a family recipe in the traditional way: the casing is ox intestine.

But for health and safety reasons, it's becoming harder and harder to find the authentic viscera. Ever since the in Britain, domestic bovine intestines have been on the banned list. And Macsween is also prohibited from buying the stuff from any country where there has been a suspected BSE outbreak.

The result is a dwindling number of countries able to supply Macsween and a cost for the guts which is becoming steeper and steeper.

These days Jo Macsween - grand-daughter of the founder - has to go all the way to to purchase the long white intestinal strips, which look like woollen stockings, because she is simply not allowed to buy them in most wealthier and more developed countries.

I was impressed that she takes enormous pains to ensure that she is buying a healthy product. But there is something counter-intuitive about food safety rules that force her to scour far flung corners of the world in order to make this quintessentially Scottish food.

Are the rules rational? Would there really be a risk to health if locally-sourced intestine were used now that our herd is BSE free?

I am not suggesting there is anything wrong with Uruguayan innards. But I cannot help but wonder whether some of the countries where Macsween is allowed to buy intestine are only viewed as disease-free because their monitoring systems leave something to be desired.

The broad issue here is whether some consumer-protection regulation leads to irrational and sub-optimal results.
Would a delicately calibrated risk-based analysis really conclude that Uruguayan salt-preserved intestine is safer than British?

And, as another recent example, was there a meaningful risk to health from those that didn't contain the standard nut-allergy warning? Was all the waste precipitated by the product recall really necessary, or are we in the grips of an officially sanctioned national hysteria that transforms improbable outcomes into real and present dangers?

Then there's Macsween's workforce. Guess what? A fair number are Poles, who are adored by Jo Macsween.

She lauds them as well educated, meticulous, thrifty and hardworking.

By contrast her experience of local unemployed young Scots is disappointing. If out of work for any length of time, she says they are typically unenthusiastic, unreliable and unproductive. If she can avoid employing them - which she can thanks to the arrival of the Poles - then she does.

The alleged shortcomings in the way that many in the UK bring up their children, as highlighted by , may not be unrelated to the dysfunction of young unemployed adults. The story told by Macsween's haggis, cased in Uruguayan guts and made by Poles, should prompt us to ask whether our regulations, the way we bring up children and our educational system are burdens or boons in the life-or-death global economic battles ahead.

Update 10:39 AM: Just to clarify...

What I am talking about here is the unintended consequences of well-meaning regulations. Obviously in this case I am looking specifically at legal and regulatory risks related to food safety (and not health and safety at work, for example).

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• - What's this?

The private equity industry should be a little bit anxious this morning, as three candidates to be deputy leader of the Labour Party have expressed concern about how it operates.

The main concern of Alan Johnson, John Cruddas and Peter Hain appears to be job losses at companies like and which have been bought out by private equity funds.

And as I discussed yesterday, Hain is not a fan of the accumulation of vast wealth by those who work in private equity (and others among the new super-rich).

What would or could they do about all this? Well they could make it more expensive for private equity to buy businesses. The way to do that, they appear to think, would be to increase the cost of borrowing for them. And the way to do that would be to end the tax-deductability of interest payments.

They have correctly identified that private equity funds primarily use debt to finance their takeovers of businesses. But would it be technically possible to end the tax-deductability of interest only for private-equity buyouts. And if it weren't possible to ring-fence private equity deals, would it make sense to end tax-deductability of interest for all corporate borrowers? Few companies would cheer I think at the notion of paying more for borrowed money.

But there is a second issue which the Labour trio need to address. They would need to demonstrate that the cost-cutting - which includes job shedding - carried out by private equity isn't good for the British economy, however painful it may be for some employees of private-equity owned businesses.

There was a similar outcry against what were then called Leveraged Buyouts - but were essentially private equity deals - in the US in the 1980s. Remember the film and ? Well Cruddas, Hain and Johnson appear to think Gekko is alive, well and living in London's West End. And they may be right. But for all the furore about LBOs in the 1980s, there is little doubt that they helped to revive a US corporate sector that had become bloated and stodgy.

I am not a cheerleader for private equity. There are legitimate concerns about whether the pension funds upon which many of us depend have been under-invested in the better private equity funds, so have missed out on their super-normal returns, and whether those same pension funds have allowed private equity to buy some British companies too cheaply. But it is simplistic to say "private equity bad, public company good".

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• - What's this?

For three or four years now I have been wondering whether the proliferation of the super-rich would explode as a political issue, or whether we are all Blairites now, in the sense that what matters to most of us is the elimination of absolute poverty rather than the widening gap between rich and poor.

So I am fascinated by whether Peter Hain鈥檚 distinctly unBlairite remarks in yesterday鈥檚 reverberate for long. 鈥淭here鈥檚 a real problem of people on average incomes feeling there鈥檚 a sort of super rich class right at the top,鈥� said this cabinet minister and future contender for the deputy leadership of the Labour party. 鈥淭hat sort of thing creates a society where you start getting envy being promoted and a sense of real antagonism and that breeds all sorts of socially undesirable behaviour.鈥�

Anyway, let鈥檚 deconstruct his assertions. First things first: there are remarkable numbers of people in the UK (and elsewhere) accumulating personal fortunes beyond what they or their children or their children鈥檚 children could ever exhaust. Well-heeled dynasties are being created in a way that we鈥檝e not seen for a hundred years or so.

Reliable statistics are hard to come by, because so much of this wealth is transferred offshore for tax purposes. The estimated last year that there are 54 billionaires in the UK. And you needed at least 拢60m to be included in that newspaper鈥檚 list of the thousand richest in this country.

But I know quite a few others who ought to be in the rich roll call but aren鈥檛, because they don鈥檛 like flaunting what they鈥檝e got. And I could name several hundred others who have net worth of at least 拢10m.

To give some idea of what might be called the democratisation of riches, an annual survey by showed that in 2005 some 448,000 people in Britain had net financial assets of at least $1m. Extrapolating from global trends, there may also have been 4,500 in the UK with net financial assets in excess of $30m (roughly 拢15m) 鈥� although that feels to me like a bit of an understatement.

Why so many of these new plutocrats are being created is a big and complex subject, to which I will return in future commentary. But the important contributory factors include the elimination of barriers to movements of capital across borders (which makes it all-but impossible for any Government to impose penal tax rates), the business opportunities created by globalisation, the availability of cheap capital, and that we are living in an age of extraordinary innovation in financial markets (for better or worse).

I apologise if that list of causes seems opaque. But any one of those factors could generate a book-length thesis that I - at least - would find gripping.

But to return to where I started, is our brave new land of golden opportunity for the few the bad thing implied by ? Any assessment would, I think, depend on the answers to these questions:

1) Has the creation of a new super-wealthy elite fomented the crime and social unrest that Hain thinks he can see?

2) Is the super-wealthy elite a meritocracy? Or are your chances of joining it close to zero if your beginnings are distinctly humble?

3) Is the wealth being accumulated by these individuals incremental wealth for the UK? Or is it a distribution of riches from the many to the few?

My answers, which I will elucidate at a later date are:

1) The jury is out.

2) Social mobility is not perhaps what many of us would wish it to be. The riches attaching to those who work in hedge funds, private equity or the City tend still to go to those from advantaged backgrounds. However, proper entrepreneurs who create amazing new businesses are often those who surmount tremendous social and economic disadvantages.

3) There isn't a finite stock of wealth. So one man's billion isn't necessarily a billion lost to the rest of us - although in some circumstances it could be. Some (not all) of the super-wealthy create employment and income for lots of people, which should be good for all of us. However, the spoils attaching to one section of the new elite, private equity, do to a significant extent represent a socially regressive distribution of valuable assets from the millions of us with our savings in UK pension funds to the already wealthy and the largely overseas backers of private equity.

Will Peter Hain's concerns have an impact on Government policy? For that to happen, I think he would need to be able to distinguish between the billionaires whose gains are society's losses from those who create significant incremental wealth for the rest of us. And then he would have to design a tax system that penalised the supposedly "bad" billionaires while not discouraging the good ones or driving them offshore. Not easy.

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For ministers, the Royal Mail is a kind of giant testing ground for their intermittently bold plans to reconstruct the public sector.

Ministers were particularly impressed three or four years ago when Royal Mail reduced its workforce by some tens of thousands - which fired up the determination of the Treasury to reduce headcounts and costs elsewhere in the public sector, though so far without notable success.

So is that Royal Mail is closing its generous final salary scheme to new members and looking to reconfigure the scheme in a way that reduces its financial burden on the company. Difficult to see how that can be done without reducing the benefits it gives 170,000 working members - or perhaps increasing the costs for them.

As Allan Leighton, Royal Mail's chairman, said to me this morning, this is big stuff. But It's probably unavoidable when the company feels its long term viability is threatened by the 拢730m annual cost of servicing the fund.

It is conspicuous that Leighton has received backing from Alistair Darling, the trade and industry secretary, for these proposals. So a chill will be sent through the rest of the public sector, where pensions are conspicuously more generous than what's generally available in the private sector.

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The terrible thing is that I was pleased to learn overnight that has made a fairly big banking boo boo in the US. It unexpectedly announced a rise in bad debt provisions at its US mortgage business, which would lift total group loan-loss provisions by 20 per cent to about $10.5bn in total (more than 拢5bn), which ain't small potatoes.

Why should this be of any satisfaction to me? Well, there鈥檚 a slightly complacent view around in the banking industry that these days the banks are living in a risk free world, that the days of lending going horribly wrong are past. How so? Well it would be thanks to financial innovation (the ability to parcel up risk and place it out with investors in the market) and technological innovation (the ability to monitor much more precisely what鈥檚 being lent to whom).

The thing is that once upon a time I was the banking editor, at a time when almost every UK bank鈥檚 forays overseas ended in tears, and when it was almost guaranteed that if a bank could lend to a terrible prospect, it would do so. Bad debts accumulated by British banks between 1982 and 1992 were so enormous that they could have sunk a medium-size economy.

In the 15 or so years since then, banks鈥� profits have tended to rise in an almost straight line, along with the path of the global economy. And I鈥檝e watched with growing alarm as their confidence has grown and they鈥檝e become bolder and bolder in their expansion, especially their overseas expansion.

Now I鈥檓 not denying that the quality of their management and 鈥� more important 鈥� the quality of their management systems is much better than it was. And it is true that they are much better at measuring and containing risk than they were. They have become better quality businesses. But when I鈥檝e asked them 鈥� as I regularly have 鈥� whether there weren鈥檛 dangers in their becoming much larger and more complex businesses through all their acquisitions and diversifications, they鈥檝e looked at me as though I was a Neanderthal.

So, of course, this morning I鈥檓 doing the 鈥淚-told-you-so鈥� dance in the London snow. And the great thing about the HSBC鈥檚 announcement is that it鈥檚 a non-fatal warning to all banks to watch out. When a huge market 鈥� like the US housing market 鈥� turns down, even the mighty HSBC isn鈥檛 immune. And what鈥檚 particularly humiliating for HSBC, is that these seem to be old-fashioned consumer credit losses, rather than a thoroughly modern intake of toxins relating to some kind of synthetic and thoroughly opaque financial product. Let鈥檚 hope the losses are salutary for it and its peers.

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Medialand is a scary place for any company that鈥檚 more than five years old. You can see that in . Its shares slumped after it warned of poor advertising performance at its radio stations and consumer magazines (the likes of Grazia and Zoo). Its woes are the flip side of one of the phenomena of 2006/7, a significant shift in advertising revenues to the internet.

The effectiveness of internet advertising may still be in doubt. But almost every business to which I speak is devoting a significant proportion of its marketing budget to the internet. Why? Because all the other corporates are. And no marketing director ever got the sack for following the corporate fashion. Which should put the fear of oblivion into any newspaper, magazine, TV channel or radio station that hasn鈥檛 yet made a significant investment in creating a serious online presence.

And there鈥檚 another example of the tyranny of the young in . MySpace, controlled by Rupert Murdoch, may claim to be the world鈥檚 number one 鈥渓ifestyle portal鈥�. But it doesn鈥檛 have either the 拢13.5bn annual cash flows of Vodafone or Voda鈥檚 paying customers. Yet it seems to have bigger boots in commercial negotiations than Voda.

How else to explain Vodafone鈥檚 excitement that it has secured a head start on its rivals in offering a mobile version of MySpace to its customers? For a few months or so, only Voda customers will be able to gain access to MySpace Mobile, which Voda thinks will help it win lots of customers (especially younger ones) at the expense of O2, Orange and the rest.

What鈥檚 more, Voda wouldn鈥檛 have secured this exclusive relationship if it weren鈥檛 in some shape or form paying for the privilege 鈥� since without a subvention from Voda, it would have been more rational for MySpace to swell subscriber numbers by making its mobile version available to Voda and all its competitors at the same time.

The access to MySpace makes a Voda mobile less of a commodity and therefore helps Voda to compete on quality of experience, not just price. But the deal reinforces the point that mobile phone networks have become more of a basic utility than they were.

And if those fabled massive Voda cash flows aren鈥檛 to be eroded by price competition over time, it鈥檒l have to secure lots of other MySpace-style exclusive content deals 鈥� although let鈥檚 hope it doesn鈥檛 ever make the mistake of thinking it can own and manage a creative or so-called 鈥渃ontent鈥� business like MySpace.

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鈥淧olitical parties won鈥檛 be electable, and companies will not be profitable 鈥� or at least they will be less profitable - without credibility on environmental issues.鈥�

Such was the resonant claim made last night by David Miliband, at an event hosted by the creator of a greenish stock-market index.

Picture him saying it. And when you do, is he holding a juicy delicious carrot or a huge great stick with which to beat the private sector?

Or to put it another way, if you believe climate change is a real and present danger (as it happens I do 鈥� but don鈥檛 hold that against me), is David Miliband saying that the market will automatically reward those companies 鈥� like or 鈥� that are taking serious steps to reduce their carbon footprint, and the market will also create massively profitable opportunities for companies engaging in all sorts of green product/service development, from the manufacture of to the burying of CO2 under the North Sea?

In this kind of world, where customers en masse would favour businesses doing the right green thing, the only role for Government would be to give the odd pat on the back for environmental pioneers (gongs for greenery, instead of loans for peerages, perhaps).

By contrast, and it is an ideological distinction of some importance, does believe that the market is bound to fail big time, and that it鈥檚 down to Government to severely punish companies that lack 鈥渃redibility on environmental issues鈥� (his words) by imposing swingeing taxes and punitive costs from emissions trading schemes on them?

As it happens, the choice won鈥檛 be quite as stark as that. But where we end up on the spectrum between dirty great Government-imposed penalties versus delicious market-generated profits represents a world of difference in respect of the future climate (sorry for the pun) for businesses operating in the UK. And what may be a slight concern is that mid-way through this Parliament, I don鈥檛 think we can really be sure quite yet where either Labour or the Tories are, in respect of wielding a stick versus dangling a carrot.

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Dear Bill Gates

Give me back my weekend. I bought a new Windows Vista laptop 鈥� and that鈥檚 when the trouble began.

My dislike of your new user interface you can put down to the conservatism that comes with advancing years. However having loyally stuck by the galumphing, unaesthetic functionality of your operating systems over the past 15 years, while faced with ridicule from pretentious Mac-loving types, I resent your attempt at an elegance transplant.

But what really grates is that your system is incompatible with two of the vital tools of my trade. Vista refuses to load the software for my newish Olympus digital recorder. And here鈥檚 what takes the biscuit. Vista rejects my HP IPAQ handheld device 鈥� even though the software for that was created by Microsoft!

So in order to put Vista at the centre of what I do, I would have to buy hundreds of pounds of new hardware. Which may be great news for your industry, but makes me regret never having defected to Steve Jobs. Perhaps now鈥檚 the time.

The only thing that gives me any comfort is that I am apparently not alone in my Vista-stress. Over lunch yesterday with the head of a very large media company, I learned of Vista incompatibility problems with financial ramifications that might actually register in Redmond.

My conclusion? For all the expensive and much-extended gestation, Vista was not ready for commercial release. And, just so you know, I鈥檝e never once had a comparably horrible experience with the Google boys.

Yours sincerely

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Ratan Tata, chairman of Tata Group, the Indian conglomerate which has just bought Corus, made a which would have been startling if uttered by a British business leader. He said: "We all felt that to lose [the takeover bid] would go beyond the group and would be an issue of great disappointment in the country".

He was saying was that it was a matter of great national pride that an Indian business is acquiring the venerable steelmakers of the UK and the Netherlands. Or to put it another way, he is confident that the people of India are enthusiastically supportive of private sector businesses like his in their determination to conquer the world.

By contrast, British business leaders fear indifference or even ridicule if they make the case for why the success of their businesses here or abroad is good for the UK. The British way is to be anxious that if a business is doing well it must be because consumers are being ripped off, employees are being trampled or management is manipulating profits to inflate their own performance-related pay.

Now, of course, all these bad things are wreaked from time to time by British companies 鈥� and by Indian ones and US ones too. But even after Enron, Worldcom and Tyco, the default position in the US is still to give business the benefit of the doubt 鈥� though also to punish hard when that trust turns out to be misplaced. The default position in the UK, even among many professional fund managers who look after our pension funds, is to fear that most managers are 鈥渁t it鈥� in some shape or form, and either to go along for the ride by investing with nose held or slightly sneer from the sidelines.

This dour climate of opinion rather dampens the appetite for taking risks in British boardrooms. It is one of the reasons 鈥� though only one 鈥� why British companies are more risk averse than either overseas companies or private equity. So for better or ill, big British businesses like BOC and Corus are being taken over by considerably smaller ones like Linde of Germany or Tata Steel respectively.

Another great trend of our age is for business to leave the public arena for the anonymity of ownership by private equity. That鈥檚 happening all over the world. But in the UK, private equity often receives a particularly sympathetic hearing from directors of public companies, largely because they feel that the stock market is unsympathetic to any investment or reconstruction proposal that might have a depressing effect on short-term profits. And that鈥檚 why the private equity troika of CVC, KKR and Blackstone do not expect a hostile hearing as and when they actually put a financial proposal for a takeover to the board of J Sainsbury.

All that said, I am not minimising the wholly legitimate questions about whether the fruits of business success are being fairly shared right now. Nor am I arguing that Tata鈥檚 takeover of Corus is bound to be a success: in fact, there is a good chance that it overpaid in the heat of last week's auction.

But as a nation we should encourage our businesses to take risks and should cheer when those risks pay off. Otherwise those economies like India with a healthier attitude to their business stars will not only overtake us in the fast lane of economic growth but will subsequently leave us for dust.

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A Sainsbury鈥檚 director said to me a year ago, 鈥測ou watch, when it鈥檚 clear that we have turned the business around, private equity will come in with a bid鈥�. And so it鈥檚 proved 鈥� well almost, in that what we have this morning is that most modern of City announcements, viz 鈥渁n announcement of a hypothetical possibility of a takeover offer subject to enough conditions and caveats as to make the statement less valuable than the electronics used to beam it to the market.鈥�

Sainsbury is a business well into its recovery phase. And lo, this morning there鈥檚 a statement from a consortium of three private equity houses saying they are 鈥渁t the preliminary stages of assessing Sainsbury鈥�. Which slightly gives the lie to the widely held view that private equity investors take more risk than public company investors. The truth is subtler: Private equity is more comfortable with certain kinds of risk than public-company investors. What private equity is prepared to take is increased financial risk: It is prepared to massively increase the indebtedness of a business in order to up the returns.

But private equity does not much like to combine this financial risk with operational risk 鈥� and it鈥檚 therefore a comfort to it that Sainsbury under Justin King has demonstrated that Sainsbury can grow again, even if that means any takeover would be at a higher price.

However the timing of this not-quite bid approach is also linked to Lord Sainsbury鈥檚 resignation from Government last autumn. He signalled at the time that he wanted to devote his time and wealth to charitable undertakings, which implied that his substantial shareholding in the company would be available for purchase. And as if to confirm that, yesterday it was disclosed that 40 million of his shares had been sold, leaving him with a holding of just under 14%.

The troika of potential, putative, possible bidders is led by CVC Capital Partners, the UK鈥檚 number two private equity house. And it also contains Kohlberg Kravis Roberts 鈥� the world鈥檚 biggest private equity business 鈥� and Blackstone, which also ain鈥檛 no minnow. The three of them certainly have the firepower for such an undertaking. And they鈥檙e being advised by Lazard Bros and Goldman, two leading investment banks.

However, it鈥檚 relatively early days. The consortium was formed earlier this week. They appointed a public relations adviser only yesterday. And they have had no formal contact or meetings with Sainsbury鈥檚 management or board.

So will this become a proper bid? Well, the consortium didn鈥檛 have to make its announcement today. What happened was that the Times published a about a possible private equity bid for Sainsbury this morning. Sainsbury鈥檚 share price raced ahead. And the Takeover Panel told the consortium it had two choices: either disclose that a bid was possible; or close down the option of bidding. The troika decided to make a statement and press on.

That is the evidence that they are serious. On the other side, Sainsbury鈥檚 share price has raced ahead today by more than 15% to well over 500p (513.75p at the time of writing). And so the Private Equity Three will be concerned that the business has become just a bit too pricey.

My prediction is that they will come up with an indicative price for a takeover offer that鈥檚 high enough for Sainsbury鈥檚 board to at least have preliminary negotiations on a deal. Apart from anything else, they may be the only possible bidders, so this may be a once-and-forever opportunity. The reason is that the competition authorities wouldn鈥檛 allow another supermarket group to own Sainsbury. And it鈥檒l be hard 鈥� though not quite impossible 鈥� for a rival private equity consortium to be formed to make a rival offer.

If there is value in Sainsbury, where would it be? Well this story is largely about Sainsbury鈥檚 property, the value of its stores as physical assets rather than as trading shops. The broking firm, Numis, recently estimated that its freeholds are worth about 拢7.5bn, which compares with the current market value of the business as a whole of 拢8.8bn.

A year ago, Sainsbury realised some of the value in its properties by borrowing just over 拢2bn against the security of 127 stores. A private equity owner would do a great deal more of that kind of thing, to extract cash from those assets.

So for Sainsbury鈥檚 existing shareholders, this is what a decision on whether to sell out will come down to: do they want to lock in the current higher Sainsbury share price (or a bit more) by selling out to private equity; or would they stick with Sainsbury鈥檚 management and encourage them to take more financial risk, extract increased returns from the property, and pass that back to shareholders in the form of special dividends or share buybacks?

It鈥檚 quite a big moment in the history of the relationship between private equity and the owners of publicly listed companies like Sainsbury. It鈥檚 significant that CVC is in the lead for the troika. It was part of the duo (with Texas Pacific) which is widely perceived to have bought Debenhams too cheaply from the stock market and sold it back to the market too expensively. Shareholders won鈥檛 want to make the same mistake again with Sainsbury.

UPDATE 15:32 GMT: Would the private equity troika want to keep Justin King in place to run Sainsbury if they succeeded in acquiring the business? On the basis of my soundings, I think they would. Which, of course, puts him in a tricky position - if he were to run Sainsbury after a buyout he would have the opportunity to become wealthy well beyond what he can accumulate running a listed business. If he is on course to earn a few millions in his current role, private equity could offer him many times that.

On that basis, he plainly couldn鈥檛 be involved at all in adjudicating whether the private equity troika were offering shareholders enough to buy the company. He would have to stand well to one side as the Sainsbury non-executives decided whether any bid terms were generous enough.

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As author of a book about Gordon Brown, I have a nerdish knowledge of his relationship with the prime minister. And 鈥� except on one occasion in 2004 (when the PM wanted to announce an intention to resign at a later date) 鈥� the notion that the chancellor would ever deter Tony Blair from quitting is fanciful. However Gordon Brown would be nuts to want to enter 10 Downing Street just now.

Imagine becoming prime minister at the moment that the police investigation into the alleged sale of peerages was reaching some kind of climax. The thunder emanating from that black cloud is so loud that it would drown out any attempt by Brown to relaunch himself and rebrand the government.

Apart from anything else, the power of being head of the government seems to have largely shifted to him, even in the absence of the formal title: For John Reid to disclose that he discussed the problems at the Home Office with his supposed nemesis, as he did earlier this week, is a striking confirmation that Brown is PM in all but name.

In fact, given the troubled history of his relationship with Blair, what would be making Brown especially anxious right now is the thought that Blair could quit at the precise moment when it would be worst for Brown 鈥� which would be within days or weeks, rather than on the expected timetable of June or so.

That said, in his gripping interview with John Humphrys this morning, the prime minister more-or-less said he wouldn鈥檛 do that. But Blair conducted the interview as though it was a valediction. And for what it鈥檚 worth, Blair鈥檚 friends 鈥� as opposed to his 鈥渇riends鈥� 鈥� tell me they wish he鈥檇 stepped down already, for his own sake.

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Our man in Riyadh was one of two decisive influences on Robert Wardle, the director of the Serious Fraud Office, when he decided not to continue the SFO鈥檚 investigation into alleged bribes paid to Saudis by BAE Systems. That鈥檚 what Wardle told me yesterday.

Wardle spoke to Britain鈥檚 ambassador to Saudi Arabia, Sir Sherard Cowper-Coles, on three separate occasions over two or three weeks before the announcement on 14 December last year that the SFO was discontinuing its probe into commissions paid by BAE as part of the Al-Yamamah defence contract. From these conversations, Wardle was persuaded that the investigation was putting an intolerable strain on diplomatic relations between the UK and Saudi, which could threaten our national security.

It was a delicate moment in the investigation. At the time (and subsequently) the SFO believed it was close to having built a case that could be prosecuted - although the Attorney has consistently maintained that the prospects for a successful prosecution were slim to none. Indeed, thought was being given to approaching BAE with the offer of a plea-bargain.

However, after two of his conversations with Cowper-Coles, Wardle had to contend with representations from an altogether more powerful individual, the head of the British government. Wardle received a substantial dossier, compiled by 10 Downing Street in the name of the prime minister, again highlighting the supposedly dreadful damage being done to the nation by the SFO鈥檚 Saudi enquiries.

The views of Tony Blair had been obtained by the Attorney General, Lord Goldsmith, as part of what鈥檚 known as the 1951 Shawcross Convention, which is a process of obtaining ministerial views on whether a particularly sensitive prosecution could damage the public interest. This is how the then Attorney-General, Sir Hartley Shawcross, described this exercise more than half a century ago:

鈥淭he true doctrine is that it is the duty of an Attorney-General, in deciding whether or not to authorise the prosecution, to acquaint himself with all the relevant facts, including, for instance, the effect which the prosecution... would have upon public morale and order, and with any other consideration affecting public policy. In order so to inform himself, he may... consult with any of his colleagues in the Government and indeed... he would in some cases be a fool if he did not... The responsibility for the eventual decision rests with the Attorney-General, and he is not to be put, and is not put, under pressure by his colleagues in the matter.鈥�

What鈥檚 curious about the BAE case is that Shawcross Convention was employed - or so the Solicitor-General, Mike O鈥橞rien, has told the Commons - but the decision not to proceed with the case was not taken by the Attorney, as it would normally be under the Convention. Downing Street, the Attorney and Wardle himself all say that it was Wardle who made the big call and stopped the probe.

So put yourself in Wardle鈥檚 position. He was being told by the prime minister, no less, that an investigation was threatening the very security of the nation. What was Wardle supposed to do? To be clear, Wardle is not complaining about the burden of having to weigh the duties of his office to pursue possible serious crime against a wider public interest. His view is that it comes with the territory. But, in practice, how easy would it really have been to ignore the urgings of the prime minister?

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For sheer entertainment, listen to Angela Knight, newish head of the , defending the banks鈥� record on lending to individuals who subsequently run into financial difficulties on this morning鈥檚 Today programme. She is the new face and voice of Britain鈥檚 banks. And gone, at a stroke, is the dull grey caution and equivocation of the typical banker or banking spokesperson.

I chatted with her the other day and was impressed by her willingness to engage in proper debate about what the banks do well, and what they don鈥檛 do so well.

But what鈥檚 particularly refreshing is the absence of anything namby-pamby about her. This morning she described a recent report by , the online service that advises on best consumer deals on assorted services, as 鈥測et another load of rubbish out of U-Switch鈥�. And then she chuckled. Sorry Angela, do you think you could tell us what you really think?

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I don鈥檛 know Bob Greifeld, though I met him briefly at last year鈥檚 World Economic Forum, where the Nasdaq chief executive is a regular. After of the state of Nasdaq鈥檚 attempt to take over the London Stock Exchange, I鈥檓 certainly no closer to understanding him.

The FT says he has signalled his intent to eventually capture the LSE, that he may hold his 28.75 per cent stake in the Exchange for 18 months, with a view to renewing his bid then. By sharp contrast, the Daily Mail says he could sell at any time, if a better deal came along. Confused? Well, I am.

But here's the really weird stuff. The Daily Telegraph and the FT both say Nasdaq is threatening to collaborate with the eight international investment banks which are plotting to create a new pan-European share-trading platform that would be a rival to the LSE (and also to Euronext and Deutsche Boerse, inter alia). Greifeld鈥檚 message appears to be, 鈥渢hat鈥檒l teach the LSE a lesson.鈥�

But hang on a sec. If Nasdaq in partnership with the Big Eight Banks (also known as the Turquoise banks, after the moniker of their project) were to take business from the LSE, and if they were to drive down the LSE鈥檚 share price, who exactly would be hurt. Well the LSE鈥檚 shareholders for one. And who is the LSE鈥檚 biggest shareholder? Oh yes, it鈥檚 Nasdaq.

At the current share price, Nasdaq鈥檚 stake in the LSE is currently worth almost 拢800m, a tidy sum. Precisely how shrewd would if be for Nasdaq to construct a bomb to put under the LSE鈥檚 share price?

Apart from anything else, simply holding the LSE stake is expensive enough for Nasdaq. Why? Because the LSE鈥檚 dividend yield is under 2 per cent, which is significantly less than the cost of the capital deployed by Nasdaq in buying the holding. So surely Mr Greifeld wouldn鈥檛 want to add a capital loss to his carrying cost? Would his shareholders be delighted by that?

All that said, there was one clear message from all the cacophony of this morning鈥檚 Nasdaq noises. With Nasdaq talking in such detail about what would happen if its bid for the LSE were to fail in a few days time, the unmistakeable implication is that Greifeld has recognised that the bid will fail. No real news there. As I said on Radio Four鈥檚 Today Programme on Saturday (listen here), the LSE almost certainly secured its independence - at least for now - when Nasdaq decided on Friday not to improve its bid terms.

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