Takeover may be Rock's only hope

By Sean Farrell, Financial Editor
Published: 15 September 2007

Northern Rock, the once-booming mortgage bank, has a choice between stagnating or being taken over – if anyone will buy it just as the housing market slows down.

Adam Applegarth, the bank's chief executive, yesterday accepted that Northern Rock's days of rapid growth were over after it was forced to ask the Bank of England for emergency funding. The Newcastle-based lender's shares fell by 31 per cent.

"The business model will have to evolve, and it will be a different form of Northern Rock afterwards," Mr Applegarth said. Whether Northern Rock is independent or bought remains to be seen, he added.

Merrill Lynch analyst John-Paul Crutchley said: "Over the longer term we think Northern Rock will struggle to fund any new growth without the backing of a larger financial partner. We see a strategic partnership or full take-out of the business as the only viable alternatives."

Northern Rock had been seen as an unlikely candidate for takeover because its cheap cost base made it difficult to slash expenses, and because the Northern Rock Foundation charity would be due 15 per cent of the bank's shares in any takeover.

Analysts said the ideal bank to buy Northern Rock would be one with excess deposits that could be used to fund Northern Rock's lending. Alex Potter at Collins Stewart said the only two UK banks in that position are HSBC and Standard Chartered, but both are concentrating on Asia and emerging markets.

With UK banks out of the picture, the most likely candidate was said to be ING, the Dutch bank, which could use its online UK deposits to fund Northern Rock and expand its UK retail business. ING also has experience of sorting out distressed banks after buying Barings for £1 in the mid-1990s.

Colin Morton, a fund manager at Rensburg, said he sold his small holding of Northern Rock shares yesterday, adding that it was by no means certain that a buyer would come in for Northern Rock because the prospects for the UK housing market look increasingly bleak. Rightmove, the property website, said yesterday that asking prices for houses have fallen 2.6 per cent in the past month.

Northern Rock expanded at breakneck pace by borrowing in the money markets to fund the growth of its mortgage business. The freezing of those money markets amid panic caused by US sub-prime defaults has blown that strategy apart.

The bank yesterday issued its second profit warning this year, cutting its estimate for full-year profit by 20 per cent. It gave no guidance for 2008, when a large number of its fixed-interest mortgages come to an end. With the bank forced to raise prices, it will struggle to retain customers.

Mr Applegarth said the financial world had changed since early August when investors panicked after years of feasting on high returns in the debt markets. He said the market would probably never be the same for the debt that Northern Rock had once sold easily, forcing the bank to go to the Bank of England with a change of strategy.

Northern Rock was a building society until it demutualised in October 1997, resulting in a payout of shares to the society's members. The company's shares fell to £4.38 yesterday, below the £4.52 price when they were first sold on the Stock Exchange.

The news caused jitters for investors in other mortgage lenders that rely on the wholesale funding markets for their growth. Alliance & Leicester, HBOS and Bradford & Bingley shares all fell heavily.

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I'm going to cash my cheque in and put my savings elsewhere

By Mark Hawey
Published: 15 September 2007

The sign in the window of Northern Rock in Golders Green, north London, read: "Come in, let's talk". But yesterday customers wanted to do far more than that; they wanted to empty their savings accounts.

Across the country queues of worried customers formed outside Northern Rock branches in response to news that the bank, the UK's fifth largest mortgage lender, had applied to the Bank of England for emergency support after struggling to borrow money.

In Golders Green queues started forming at 8am yesterday even though the doors had yet to open for another hour. By mid-morning more than 100 customers had arrived. Some simply wanted an explanation and reassurance from the bank's staff but most said they were there to withdraw their money and close their accounts.

Andrew Gill, a retired revenue controller, was one of those in the queue yesterday. The 69-year-old said: "I'm going to cash my money in, get a cheque and put my savings into another bank. Northern Rock has lost its reputation over this. Once you lose your reputation it's hard to get back. If people up and down the country are closing accounts the company might not be in business next week so I think it's wise to get out quickly."

Northern Rock had earlier called for customers to stay calm, assuring them their money was safe and that the difficulties were as a result of temporary market conditions. Outside branches across the country that appeal was, it seems, being ignored, amid reports of customers brandishing slips showing withdrawals of £100,000.

David Shaw, 67, a retired accountant from Hendon, echoed the views of most choosing to close their accounts when he admitted: "I suppose I am being a little bit irrational, but safety comes first. I do believe Northern Rock when they say my money will be safe, but I've got a lot of money in that account and there is no point in taking an unnecessary risk."

Two bank workers appeared every so often to field questions and try to calm concerns. Every now and then customers would leave the shop clutching their cheques after emptying their accounts.

The mass of people waiting patiently on the street drew glances of confusion and questions from passers-by who were unaware of the news surrounding the bank's financial situation.

Furniture store manager Raj Jethwa, 54, has a savings account at Northern Rock. He illustrated the knock-on effect that panic emptying of accounts can have. "I saw the news and I wasn't too worried, but after seeing this I am," he said. "I'm going to go home and get my bank book and join the queue."

The only welcome relief for those in the queue came at noon when a girl from a nearby coffee shop came across the road with a tray of complimentary drinks.

She wasn't the only one attempting to serve the needs of the captive audience. Jay Purewal, a financial advisor at the nearby Alliance & Leicester, spotted an opportunity to seize customers from his bank's rivals. He handed out his business cards offering free financial advice to those who were closing their accounts.

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FTSE 100 tumbles but outlook for share prices remains uncertain

By James Daley
Published: 15 September 2007

UK stock markets predictably nose-dived as news of the emergency bail-out sent jitters across the City. As well as banks' shares falling by as much as 32 per cent, shares in some other financial services institutions took a hammering, as investors contemplated the worst case endgame for the credit crunch.

However, although fund managers conceded the outlook for equity markets remains uncertain, many insisted that the falls had created yet further buying opportunities in the market, claiming sentiment had got ahead of the reality.

Edward Bonham Carter, chief executive of Jupiter Asset Management, said he believed that although the economy may be heading for a period of lower growth, equities remained worth buying. "We believe we are facing an investment outlook that comprises lower economic growth and falling interest rates – especially in the US – which will make equities an attractive asset class. However the probability of individual shortfalls in corporate earnings will rise and therefore fund managers need to make greater distinctions between individual companies and sectors."

As long as the credit crisis prevails, however, it seems likely that markets will remain highly volatile. Ted Scott, manager of the F&C UK Growth & Income Fund said: "While I think that share prices have adjusted fully for the credit crisis, the nature and extent of the problem remains very opaque. This lack of visibility and the fear of further blow-ups will limit upside in the short term.

"I also [think] the UK and US economies will contract significantly in 2008 – although not to a recession – but the market has not discounted such a hard landing. Therefore, growth and defensive stocks should continue to out-perform."

Although the FTSE 100 finished the day more than 1 per cent lower, the US markets barely reacted to the negative UK news, suggesting investors believed the credit crunch is already sufficiently discounted into the market.

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Ronit Zilkha, Cherie's designer of choice, sees her business go bust

By Martin Hickman, Consumer Affairs Correspondent
Published: 15 September 2007

Ronit Zilkha counted Cherie Blair, Cate Blanchett and Julia Roberts among her clients and her boutiques graced some of London's smartest postcodes. But the business that appeared to be booming yesterday fell off the catwalk.

Her chain was placed in the hands of the administrators as debts ran into millions of pounds. Ms Zilkha is no longer involved in the running of the enterprise which once achieved such success.

The fall of the diminutive Israeli – whose 13 UK branches were concentrated in London and the south – has swiftly followed the departure of one of her most famous clients from Downing Street. It was in a Ronit Zilkha brown suit that Tony Blair's wife stood beside him as they swept into power in May 1997 and it was Mrs Blair's patronage with which Ronit Zilkha became most linked in the public mind.

The 42-year-old was favoured by Mrs Blair's confidante and style guru, Carole Caplin, one of whose ex-boyfriends was Ms Zilka's brother, and became one of the "Labfab" designers.

Although the connection with Mrs Blair was said to have done little to help to the business, Ms Zilkha was a favourite with many women, both in the business and entertainment worlds, who appreciated her flattering tailoring and feminine designs.

News that her business has collapsed comes at the start of London Fashion Week and at a time when many fashion retailers are experiencing hard times on the high street, following five interest rate rises and a dismal summer.

Her business, Tight Finish Ltd, owes a total of £3.5m, including £700,000 to trade creditors and other suppliers who are unlikely to get much more back than a few pence in the pound. Stock is being sold off at knock-down rates to retrieve as much money as possible.

The decline has been steep for a designer whose softer clothing proved a refreshing alternative to the stiffer, more masculine fashions during the early 1990s.

After military service in Israel and moving to London to do a fashion degree, Ms Zilka launched her first collection in 1991. Since then she built up a following among several stars, including Kate Winslet.

Her clothes were pretty, understated but with touches of glamour. Typically, they were dresses with floral prints or structured suits with brocade or other feminine touches.

She recalled in a recent interview that she always had firm views on fashion, rejecting the female military uniform during national service in Israel. "I used my Dad's instead because it had lots of buttons and I would wear different belts with it," she said.

"I wasn't in the field, I worked in the College for High Officers and was always in trouble for it, but I wouldn't conform."

As well as her flagship store in Marylebone High Street, Ms Zilka opened outlets in Mayfair, Hampstead, and Richmond in London, and concessions in House of Fraser branches in Oxford Street, Bluewater and Guildford.

In June, she opened a store in one of Edinburgh's most prestigious shopping streets, George Street. She told the press her business had really taken off after Princess Diana walked into the Marylebone store 15 years ago. "There were several customers browsing and everyone's jaw – including mine – dropped to the floor," she recalled. "When the princess left, there was a queue for the changing room she had used."

The reference was unusual because, although she had famous clients, Ms Zilka seldom courted publicity or arranged stunts. "She was never at the heart of the fashion scene," said Iain R Webb, fashion writer and professor of arts at Central St Martin's in London.

"She created a lot of occasion clothes, rather than being fixated on trends or fads or the fashion vine, as it were. She created clothes that were very girly that women wanted to wear with lots of feminine fabrics."

Her latest collection was being billed as romantic, with frills, flowers and antique lace. But, after 16 years, her style seems to have lost its appeal. Her latest audited accounts for the year to the end of August showed losses of £1m on turnover of £2.5m. The company is expected to be wound up within weeks.

In a statement, administrators David Rubin and Partners, who were appointed on August 13, said: "The Ronit Zilkha stores will continue to trade until existing stock has been exhausted and the 60 staff will be kept informed by the joint administrators."

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Housing-related stocks take a pounding amid correction fears

By Andrew Dewson
Published: 15 September 2007

Market panic over the emergency funding for Northern Rock claimed more victims as approximately £5.9bn was wiped off the share value of the UK house building, estate agency and banking sectors, not including the £846m decline in the value of Northern Rock itself.

The losses stemming from Northern Rock's woes were magnified by a leaked report from online estate agent Rightmove that showed a 2.6 per cent fall in house sale valuations between August and September.

The report is not due to be made public until Monday, but the leak encouraged sellers already spooked by Northern Rock. Rightmove shares closed the session down 5.8 per cent after a 34p fall to 550p, while Savills, the upmarket estate agency, was also in the red after posting a 16.75p loss to close at 408.75p.

Eamonn Flanagan, an analyst at broker Shore Capital, said that the crisis at Northern Rock is bound to have knock-on effects: "If lenders become unable to lend, then the domino effect will flow through into related sectors."

An already jittery house building sector was the hardest hit, with all UK house builders down more than 7 per cent. Bellway was the biggest faller as its shares crashed by more than 7.5 per cent to end the session 87p worse at 1067p. Taylor Wimpey and FTSE 100 members Barratt Developments and Persimmon were also sold heavily, and even solid interim numbers from Bovis Homes earlier in the week could not prevent selling pressure.

Not surprisingly, the biggest losers in the banking sector were mortgage banks. HBOS, the UK's largest mortgage lender, closed 32p worse at 860p while rivals Bradford & Bingley shed 27.5p to close at 329.75p. Alliance & Leicester, viewed by many analysts as the safest UK mortgage banking stock with no exposure to the sub-prime market, did not escape the bloodbath as it tanked to close 64.5p worse at 873p.

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Greenspan admits he was slow to pick up on sub-prime dangers

By David Usborne in New York
Published: 15 September 2007

It is not quite a mea culpa, but Alan Greenspan is now admitting that he was aware that the successive interest cuts under his stewardship of the Federal Reserve were encouraging an explosion in sub-prime lending but that he was slow in realising the dangers that the trend carried for the economy.

He makes the confession in an interview with the CBS current affairs programme 60 Minutes, to be broadcast in the United States tomorrow evening.

Mr Greenspan, 81, agreed to appear to help promote his long-awaited book, The Age of Turbulence, being released on Monday. Instead, his comments are likely to spark fresh criticism of his actions at the tail end of his 18-year tenure as Fed chairman, when he repeatedly lowered interest rates, glutting the market with cheap credit and encouraging lenders to offer loans to homebuyers and investors at rock-bottom adjustable rates. Their sudden spiking has triggered today's worldwide credit crisis and threatens to tip the US into recession.

His successor, Ben Bernanke, is widely expected once again to loosen monetary policy with a rate cut next Tuesday, perhaps of a quarter point or even more.

According to excerpts released by CBS, Mr Greenspan will concede that he "didn't really get it" with regard to sub-prime lending and the risks it presented until too late. He argues, however, that there was little the bank could have done, and that the policy of lowered rates was still correct.

"While I was aware of a lot of these practices going on, I had no notion of how significant they had become until very late," he tells Leslie Stahl. "I really didn't get it until very late in 2005 and 2006."

Even then, however, options were not available to him to nip it in the bud. "It was nothing to look into particularly, because we knew there were a number of such practices going on, but it's very difficult for banking regulators to deal with that," he asserts.

Nor is he sympathetic with critics, and indeed some ex-colleagues from the reserve, who now suggest that he kept American rates too low for too long. "They are mistaken," he tells the interviewer. "It was our job to unfreeze the American banking system if we wanted the economy to function. This required that we keep rates modestly low."

Mr Greenspan, who served four different presidents as chairman of the Fed before retiring last year, avoids trying to second-guess the policies of Mr Bernanke in retaining much higher lending rates until now, acknowledging that the conditions have been less favourable than earlier in the decade. "We're dealing in an environmental back there where inflation was easing," he says. "We could have acted without fear of stoking inflationary pressures. You can't do that any more."

As for Mr Bernanke, he concludes, he has, "been doing an excellent job".

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Credit crisis: Speedy resolution could leave UK unscathed

By James Daley
Published: 15 September 2007

Although Northern Rock's bail-out by the Bank of England has few direct repercussions for the British economy, the event sent out a warning that the credit crunch could last for longer than most had expected.

The short-term effects of the credit crisis look to be minimal. However, a prolonged crunch could inflict serious damage on the financial services sector – which is the biggest contributor to the UK economy. If financial institutions find they are unable to borrow to fund their growth, they will inevitably be forced to make job cuts. Any large rise in unemployment would be sure to quickly slow growth across the economy.

Although consumer sentiment remains relatively robust, it also remains possible that the fall-out from the crunch – epitomised by scenes of consumers queuing round the block to cash in their Northern Rock accounts – takes its toll on the high street.

As Howard Archer, an economist at Global Insight, explains: "News coverage of people queuing up to withdraw their savings from Northern Rock could increase general concern about the economic outlook. Any hit to confidence increases the risk that consumers will become more cautious in their spending over the coming months, and that businesses will become more inclined to downgrade their investment and employment plans.

A speedy resolution to the credit crunch, however, could leave the UK economy relatively unscathed. With manufacturing growth hitting three-year highs, unemployment still low and high-street sales buoyant, the economy is by no means on the rocks just yet.

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King faces accusation that the Old Lady was asleep at the wheel

By Sean O'Grady, Economics Editor
Published: 15 September 2007

Was the Bank of England asleep at the wheel?

Recently Jon Moulton, the chairman of Alchemy Partners, remarked to reporters that at a recent breakfast meeting with Bank of England officials "none of them knew what a 'CLO' actually was". It's a collateralised loan obligation, in case you were wondering: a debt security – i.e. a financial asset you can buy and sell that has some collateral attached to it, such as,to take a topical example, a bundle of American sub-prime mortgages.

Mr Moulton was being unfair. I've read speech after speech by Mervyn King, the Bank of England governor, his deputies, his officers and economists all thinking aloud about the huge growth in credit around the world. Attached to most of these orations are charts showing impressive research into the most arcane but vital aspects of the international financial system. I think they had one of those for CLOs, as it happens.

They knew what has been going on, and voiced their concerns. Trouble is, that was all they did and, arguably, all they ever could do. In 1998, after the Bank of England had been awarded operational independence, its supervisory functions over individual banks were transferred to the Financial Services Authority. The Bank wasn't happy but, after the collapse of the BCCI in 1991 and Barings in 1995, their reputation in these matters was no longer high.

However, there was a problem, as the Bank remained responsible for the efficient and orderly functioning of financial markets. In the words of the Memorandum of Understanding between the Bank, the FSA and the Treasury, the Bank had to "ensure the stability of the monetary system as part of its monetary policy functions" and "it is uniquely placed to do this, being responsible for monetary stability and having representation on the FSA board [through the Deputy Governor].". And, as the Northern Rock episode demonstrates, it is obliged to fulfil its historic role as a last-resort lender when needs be. So while its "macro economic" functions could be theoretically divorced form its old regulatory role, in reality the two were still linked.

Perhaps, now that it is too late, the review of financial regulation to be conducted internationally via the G7 economies will help us learn the lessons of the Northern Rock debacle. Before then, everyone will be conducting their own inquests. One thing seems clear: this debacle has not been anyone's finest hour.

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The fine distinction between lender of last resort and a bail-out

By David Prosser
Published: 15 September 2007

At first sight, the Bank of England's decision to provide emergency funding to Northern Rock directly contradicted its Governor's warning on Wednesday that he would not authorise bail-outs of banks caught up in the sub-prime crisis. Yesterday, the Bank was at pains to explain there had been no change of policy.

On Wednesday, the Bank said it would not inject emergency liquidity into the banking system, as other central banks have done in recent weeks, because doing so would encourage banks to go on taking excessive risk. It said the banks would have to accept the pain of taking sub-prime assets back on to their balance sheets.

Yesterday, the Bank said the Northern Rock situation was quite different. It was acting as lender of last resort to the mortgage bank because Northern Rock was facing liquidity – rather than solvency – problems, and, most importantly, because the failure of the bank would lead to serious economic damage. It also pointed out that Northern Rock would pay a penalty rate of interest for the funding.

The distinction is a fine one. However, a spokesman for the Bank insisted: "This is in no way a U-turn – we are not talking about a bail-out here."

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US retail sales fall adds to pressure for rates cut

By David Prosser, Deputy Business Editor
Published: 15 September 2007

The latest US retail sales data added to the pressure on Federal Reserve chairman, Ben Bernanke, to cut interest rates yesterday, providing further evidence of a slowdown in the American economy.

The US Commerce Department said retail sales rose by just 0.3 per cent during August, down from 0.5 per cent in July. The figure was lower than economists had expected, and was also artificially inflated by higher-than-expected consumer spending on new cars. Stripping out the automobile sector, US retail sales actually fell 0.4 per cent last month, the worst result since last September.

Data from the US Labor Department, showing that industrial production increased by a lower-than-expected 0.2 per cent in August, compounded nervousness about the strength of the American economy.

Stephen Gallagher, an economist with Société Gé*érale, said: "We cannot escape the sense of flagging momentum in August," though he said the strength of spending in the automobile sector suggested that consumers did not feel so insecure that they had stopped making large purchases.

The sales figures reinforced expectations that the Fed will cut rates next week, with the dollar falling sharply on world currency markets. A majority of economists expect Mr Bernanke to reduce base rates by 0.25 percentage points, though some analysts hope he will go further, with a 0.5 percentage point cut.

Helpfully, the Labor Department said yesterday that the price of imports into the US fell 0.3 per cent in August, reducing pressure on inflation and increasing the Fed's scope for rate cuts.

Fears of a slowdown in the US have been growing in recent months. "We are entering a different environment as the US consumer responds to falling house prices and the broader economy to tighter credit conditions," said Ian Kernohan, global economist at Royal London Asset Management.

Mr Kernohan said the Fed could still avert a recession if it acted quickly. "We should not underestimate the risks to the US economy, but neither should we underestimate the likely effect of lower US interest rates."

Economists pointed out that yesterday's retail sales data offered a mixed picture of consumer spending. Sales in several housing-related sectors, such as furniture, rose last month, with spending on electronics also showing an increase.

Tim Rogers, chief economist at Briefing.com, said: "The outlook certainly isn't for the consumer to crumble – clearly there are risks that weren't there even a few weeks ago, but income growth is still supporting spending."

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Barclays rules out disposals to sweeten ABN bid

By Sean Farrell, Financial Editor
Published: 15 September 2007

Barclays yesterday ruled out selling parts of ABN Amro to sweeten its offer for the Dutch bank, which lags behind a rival bid by Royal Bank of Scotland.

John Varley, Barclays' chief executive, added that the falling value of his bank's share-based bid reflected ABN's true value in turbulent markets, unlike the largely cash offer from the RBS consortium.

"The fit between Barclays and ABN Amro is a really great fit. It would not be interesting to us to take its portfolio and take bits and pieces of it," Mr Varley told shareholders at an extraordinary general meeting to approve the merger.

ABN tried to head off RBS's bid by agreeing to sell Lasalle, the US business that RBS wanted, to Bank of America for $21bn (£10.4bn). Barclays had previously not ruled out proposing a sale of other parts of ABN's business to return cash to ABN shareholders.

Mr Varley added that ABN's market value was 8 per cent below the consortium's €71bn (£48.9bn) bid, reflecting doubts about the consortium's ability to do the deal. "The stock market, which is seldom wrong about these things, is indicating at the moment that the outcome is far from certain," he told shareholders at Barclays' building in Canary Wharf, London.

Barclays has been in talks to buy ABN since February. Its agreed deal was gatecrashed by RBS, Santander of Spain and Belgium's Fortis, which want to divide up ABN's business. To win ABN, Barclays is now relying on the consortium failing to finance its bid or falling foul of regulators.

If Barclays does win the battle, it will replace its 279-year-old eagle logo with ABN Amro's green and yellow shield, Mr Varley said.

Barclays said 90 per cent of shareholders voted in favour of the deal, well above the 50 per cent needed. ABN holds a shareholders' meeting next week to discuss the rival bids. Both offers close in the first week of October.

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AB Foods buys 20 per cent stake in Jordans

By Karen Attwood
Published: 15 September 2007

Associated British Foods, which owns the Primark retail chain and food brands from Twinings to Kingsmill, has snapped up a 20 per cent stake in Jordans cereal company for an estimated £15m.

The family-owned company has its roots dating back to 1855, when the Jordans were farmers and then later millers in Biggleswade in Bedfordshire. Brothers Bill and David Jordan set up Jordans Cereals at Biggleswade in the 1970s after seeing the natural foods market take off in the US. The company makes more than 30 cereals and cereal bars and employs almost 400.

The deal fits in with AB Foods' strategy to invest in strong brands and focus more on the healthy eating market. The company would not disclose the price of the stake, but analysts believe it is worth £15m. Jordans had annual sales of £81m in the year to the end of February.

AB Foods' chief executive, George Weston, said Jordans "is a wonderful brand which is positioned well to benefit from the consumer's growing desire for natural ingredients and healthy eating".

The Jordan brothers will continue to be the majority shareholders in the business and will remain directly involved as chairman and vice-chairman.

"We have decided that now is the time to bring in a strong partner for the business that shares our commitment to the long-term future of Jordans and our commitment to producing high-quality natural foods and supporting environmental conservation," a spokesman said.

"Jordans already work with Twinings on joint promotional activity in France, and we see this as a tremendously exciting opportunity to benefit from other synergies and expertise that Associated British Foods may offer."

Earlier this week, AB Foods warned about the rising cost of food, as it said a doubling in wheat prices over the past year will force it to increase the price of a loaf.

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Segro shakes up management team

By Karen Attwood
Published: 15 September 2007

The industrial park developer Segro unveiled a shake-up ofits management structureyesterday.

The office parks owner, formerly known as Slough Estates, is to halve the number of its UK units to three. They will consist of its flagship park – the £1.4bn Slough Trading Estate – London and the regions.

John Heawood, the current head of UK property, will leave the business in July after the changes, and three new managers are being put in his place to head the new units.

The company is also planning to sell off a large chunk of its property in the UK, with reports suggesting that up to £500m of property could be sold. Segro declined to comment on the value of the property for sale but last month the chief executive, Ian Coull, said that the company plans to sell more UK properties than it develops in order to increase the proportion of revenue from continental Europe.

As part of the shake-up a business development department is being established, which will focus on major customers and market segments, and an environmental sustainability department will also be set up.

Mr Coull said the initiatives would "help us stay ahead of the game by giving us the right structure and team to exploit the opportunities across the UK and continental Europe".

Shares in the company, which became a real estate investment trust in January, fell 3 per cent, or 15p, to 493.5p yesterday. Its shares have fallen more than 30 per cent over the past six months amid general fears of a market slowdown.

Slough Trading Estate will be led by Kevin O'Connor, the London arm by Phil Redding and the remaining UK businesses by Gareth Osborn. The head of mainland Europe, Walter Hens, will become head of business development when a replacement has been found.

Segro completed the £1.5bn sale of its science parks business in California last month.

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John Lewis turns rain into strong first-half results

By Karen Attwood
Published: 14 September 2007

John Lewis, the owner of 26 department stores and the Waitrose supermarket chain, has delivered a stellar half-year performance, bucking the overall trend on the high street, where retailers have been hit by the combination of dismal summer weather and fears of a consumer slowdown.

However, its chairman, Charlie Mayfield, added his voice yesterday to a growing chorus of retail chiefs who have expressed concerns about the outlook in the run-up to the all-important Christmas period.

"Retailers are genetically programmed to be nervous about Christmas," Mr Mayfield said. "We have to take twice as much money as we are taking at the moment. But I am very confident in the product offer, and in our quality of service."

He added that it was right to be cautious. "There is uncertainty due to interest rate rises and volatility in the credit, but I don't think we are heading for a high street slump," he said. "Underlying earnings are pretty strong and not showing signs of weakness, and trading is getting stronger. It will be a bit of a battle but our partners will fight for every pound."

Earlier this week, Next and JJB Sports also warned of a tougher retail climate ahead. Mr Mayfield said that John Lewis, which is owned by its staff – who are known as partners – had been working hard "to ensure it had the right products for its customers".

Yesterday, the partnership unveiled a 51 per cent jump in half-year profits to £146m, which it said was driven by improved gross margin, efficiency and tight cost control.

Like-for-like food sales at Waitrose were up 3.2 per cent over the six months to 28 July. Sales growth slowed in the second quarter to 2 per cent, down from 4.5 per cent in the first quarter. This was in line with the market, as consumers stopped spending on barbecue and party foods during the days of endless rain. But the poor summer benefited the department stores, which enjoyed a like-for-like sales hike of 6.4 per cent. "We had a phenomenally successful July at John Lewis partly because the weather wasn't good," Mr Mayfield said.

The strong performance should go some way to ensure that staff members will all be in line for a bumper payment when the company reports full-year results. All partners share in a bonus, which last financial year amounted to about 18 per cent of salary. Mr Mayfield added that Waitrose was ahead of its competitors in terms of its organic ranges and local sourcing. Its organic range now consists of 1,700 products, and all its meat is sourced in Britain.

Although Waitrose matches its rivals on branded products, Mr Mayfield said: "Customers are prepared to pay for quality."

Richard Ratner, at Seymour Pierce, called the results a "very good performance". "Given the weather, we believe that this is a much better performance than its rivals," he added. "John Lewis will have benefited from its skewing towards 'home', as there has been a noticeable shift of spend to this area during the wet summer."

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Greenspan attempts to shore up legacy at Fed, but some blame him for credit crisis

By Stephen Foley in New York
Published: 14 September 2007

Alan Greenspan is preparing to hit the publicity trail to promote his eagerly awaited memoirs, just as the feted former chairman's tenure at the US Federal Reserve is facing a revisionist onslaught. Economists and commentators blame him for the current turmoil in the credit markets – and for the ominous signs of an economic slowdown to come.

Rather than being the victory lap of television studios he once envisaged, the interviews Mr Greenspan has planned to coincide with publication on Monday of his book, The Age Of Turbulence, will see him trying to shore up the legacy of his 18 years in charge of US monetary policy, which ended in January last year.

The timing of the book launch could hardly be more symbolic, coming just a day before the most important test of Mr Greenspan's successor, Ben Bernanke. On Tuesday, the Fed will consider an interest rate cut which may be needed to prevent the bursting of a bubble in the housing and credit markets from wrecking the rest of the US economy.

Mr Greenspan stands accused of allowing these bubbles to inflate by holding US interest rates too low for too long – a bad habit his critics say stretches back over his whole tenure, from the first few months where he cut rates sharply in the wake of the stock market crash of 1987.

"With hindsight, it is possible to see that his modus operandi was to blow one bubble after another," said Tom Schlesinger, the executive director of the Virginia-based Financial Markets Center, which analyses the Fed. "Mr Greenspan consistently argued that central banks have no legitimacy to intervene to prevent asset price bubbles, and to substitute their judgement for that of millions of market participants. But central banks have no problem whatsoever intervening when they think that product prices are inflating, or when labour markets are overheating."

Aggressive moves to cut interest rates in 1987 were credited with preventing the stock market crash from affecting the rest of the US economy, which kept on growing, but a similar move to restore confidence after the collapse of the hedge fund Long-Term Capital Management in 1998 has been blamed for having the side effect of inflating the dot.com bubble, which burst in 2000.

It was at this point that financial market traders began to talk about the "Greenspan put" – a notion that the Fed would always act to protect the markets from losses. Mr Bernanke is still having to dispel that idea, insisting that he will not cut interest rates to bail out irresponsible lenders, only to protect the real economy.

A vitriolic profile in the new business magazine Portfolio is just the latest contribution to prompt an impassioned debate over Mr Greenspan's approach to interest rate policy.

Economists are debating the extent to which his final period of interest rate cuts at the start of the decade – including a full percentage point cut after the September 11 attacks of 2001, and further reductions that took the main Fed funds rate down to just 1 per cent – was a factor in the cheap credit explosion. Wall Street's invention of exotic new debt products was another factor, as was a wall of new money coming in from emerging markets. But low interest rates certainly helped to generate not just an economic resurgence but also a speculative house price bubble and a whole industry offering mortgages to borrowers who were previously deemed uncreditworthy – and are now proving themselves so.

The discussion at this month's central banking symposium in Jackson Hole, Wyoming, was in many ways a coded assessment of Mr Greenspan's tenure, concerned as it was with the overheating and subsequent cooling of the US housing market and its relationship to monetary policy.

In his speech, John Taylor, an economist at Stanford University, suggested that the Fed Funds rate should never have been taken lower than 1.75 per cent in 2001, when the US economy began to emerge from recession, since it encouraged markets to believe that the Fed had de-emphasised its perennial fight against inflation because of fears of deflation.

"A higher funds path would have avoided much of the housing boom," Mr Taylor said.

"The reversal of the boom and thereby the resulting market turmoil would not have been as sharp."

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Northern Rock given emergency bail out by Bank

By Sean O'Grady, Economics Editor
Published: 14 September 2007

Northern Rock became the first high profile British victim last night of the crisis that has swept credit markets, after admitting that it has received a financial bail out from the Bank of England.

This is believed to be the first such rescue since the secondary banking crisis of the mid-Seventies. It is the largest banking debacle since the collapse of Barings in 1995.

Sources close to Northern Rock are keen to stress that the Newcastle-based mortgage bank had suffered a "liquidity" rather than a "solvency" crisis, and that depositors' funds were entirely safe. Nonetheless the fear must now be that Northern Rock may be the subject of an old fashioned run on the bank as worried customers withdraw money.

The Bank of England with the agreement of the Financial Services Authority and the Treasury is providing an emergency facility, at a penalty rate of interest. The Bank's move comes only two days after the Governor of the Bank of England, Mervyn King, declared "the provision of large liquidity facilities penalises those financial institutions that sat out the dance, encourages herd behaviour and increases the intensity of future crises".

However it is in line with the Governor's undertaking then that he would provide liquidity against good collateral. In this case the collateral offered is believed to be Northern Rock's mortgage book.

Of the main lenders in the UK mortgage market, Northern Rock seems peculiarly exposed to the wholesale money market to fund its business, rather than via retail savings gathered through branches and other channels. It has thus been more adversely affected than most by the seizing up of credit markets.

Indeed there have been indications of trouble to come ever since the bank issued an effective profits warning with its results at the end of June, at which point the shares fell by 10 per cent. They have been falling almost continuously ever since. It was the biggest loser in the FTSE 100 yesterday, closing down 4.9 per cent.

Even in the summer Northern Rock was forced to declare that it was suffering from a "structural mismatch between Libor [London inter-bank offered rate] and bank base rates". Since then Libor has risen much more than the Bank of England's base rate.

In the first six months of this year, Northern Rock made pre-tax profits of just under £300m, barely changed from the previous year.

However it hugely increased its share of the mortgage market, taking 18.9 per cent of all net mortgage lending against its previous peak of 14.5 per cent, in the second half of 2006. At that point, Adam Applegarth, the chief executive, said the mortgage market remained "robust" and that the group was continuing to trade strongly. Most of its book is mainstream, but it also originates subprime loans for Lehman Brothers. It is an important player in the market, with obvious signs it is having difficulty financing its activities.

Northern Rock has loans and other assets on its balance sheet of £113bn. The value of deposits placed with it by retail customers is £24bn. Formerly the Northern Rock Building Society, it demutualised in 1997.

Routinely spoken of recently as a takeover target, its best hope now may be that someone, possibly prompted by the Bank of England, now sees value in the ongoing business and brings Northern Rock's brief career as an independent quoted bank to a close.

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Sports Direct lifts Umbro stake to 9 per cent

By Karen Attwood
Published: 15 September 2007

Mike Ashley's Sports Direct has built up a 9 per cent stake in Umbro, triggering speculation that the football kit maker could be heading for a takeover bid.

Umbro told the Stock Exchange yesterday that Sports Direct, which owns Lillywhites and the Sports World chain, holds 13.2 million shares in the company, after it had built its stake up to 5 per cent earlier in the week.

Sports Direct said the move was a "strategic investment". Analysts believe that it is unlikely that Mr Ashley has an eye on the group, but is rather hoping to cash in when shares rise, possibly on the back of a takeover bid from another party.

Mr Ashley has taken advantage of a sharp fall in Umbro's share price to buy in. Its shares plunged 18 per cent last week after the company issued a profits warning, blaming poor sales of the replica England kit as the England football team failed to inspire fans.

Sports Direct's stake-building has raised eyebrows as Umbro is a major supplier to the retailer and has a deal to install Umbro Football Areas in 180 Sports Direct stores by the end of the year.

Sports Direct has also made investments in the German sports giant Adidas and the Finnish company Amer Sports, which owns the ski brands Salomon and Atomic. It also owns 29.4 per cent of Blacks Leisure and a stake in John David, the owner of JD Sports.

This week Sports Direct issued a trading update showing that sales had improved since July after a poor summer due to the weather. But analysts were unhappy with the lack of detail as the company failed to give like-for-like figures.

Philip Dorgan, an analyst at Panmure Gordon, said that he was cutting the current year's profit forecast by 44 per cent to £69m, and the following year by 55 per cent to £61m. He also downgraded his share target from 120p to 80p. The shares have plummeted since Sports Direct listed in February, ending down 6p yesterday at 126.75p.

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Customers scramble to withdraw savings from stricken bank

By Martin Hickman and Sean Farrell
Published: 15 September 2007

Shockwaves were felt throughout the country yesterday as Northern Rock customers queued to withdraw their savings from the stricken bank after news of emergency funding from the Bank of England threatened to cause a crisis of confidence in British banking.

There were frantic scenes at some of the bank's 70 branches nationwide as customers queued into the street fearing that the country's fifth largest bank might crash. Shares in Northern Rock and other leading banks slumped and other shares on the London Stock Exchange fell, as investors raced to sell up their holdings.

The Government and banking figures urged people not to panic about the state of Northern Rock, which holds deposits of £24bn from 1.5 million savers and lends to 800,000 homeowners.

A joint statement from the Treasury, the Financial Services Authority and the Bank of England declared that Northern Rock was "solvent", trading properly and had strong assets.

The bail-out of the former building society is the biggest challenge to the banking system since the Barings Bank crash triggered by Nick Leeson in 1995.

Northern Rock had to ask for the emergency facility because the recent global credit crunch had shut off its funding for new business. It has expanded its mortgage lending aggressively in recent years by raising funds in the money markets and selling its mortgages as bonds to investors. But the US sub-prime crisis caused investors to panic, closing down the market for these bonds and blowing a hole in Northern Rock's strategy.

The British Bankers' Association insisted there was no reason for alarm, saying: "Everyone should calm down and refrain from making simplistic comments in a very complex area which just cause unnecessary worry and concern."

The emergency funding was agreed with the Chancellor, Alistair Darling, and was unprecedented because the Bank agreed to provide funds to a solvent institution that could not get them elsewhere. For the Bank of England to make the move, it had to believe that the crisis at Northern Rock could damage the financial system and the economy.

Adam Applegarth, Northern Rock's chief executive, disclosed the bank had not used the emergency funding but warned that mortgage costs would rise.

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