Terry Murden: Bernanke running out of options as talk of more losses fuels recession fears

Published on Saturday 26 January 2008 15:48

A WEEK of stock market turmoil left us almost exactly where we began as equities staged a bold resurgence to reclaim all their losses.

But since the start of the year, the downturn is plain to see and the damage is being counted not just in its impact on City salaries, but on the pensions of each one of us. More than 15bn has been wiped from the value of UK company pensions this year, reversing a surplus at the end of December.

The best efforts of trustees to build in protection against sharp falls have come undone. While the proportion of funds invested in equities has been lowered in the past three years, there has been a misguided return of confidence which has now left many schemes once again exposed to shortfalls. Oil giant BP said last week that it would not put money into its scheme this year because it was in good health. Maybe it will be persuaded by recent events to revisit that argument.

The outlook is not too encouraging, despite last week's recovery in stock markets and the emergency action taken by the US Federal Reserve chairman Ben Bernanke who slashed US interest rates by 0.75% and by President George Bush who unveiled a package of tax cuts. Last Monday's crash on Wall Street, together with a 323-point loss in the FTSE-100 and huge falls elsewhere, prompted such a response and to that extent the cuts may have worked, as the markets came back. But nobody should be fooled into thinking the crisis is over.

Bernanke will decide this week whether to shave rates further as he attempts to head off recession but he may do so against further turbulence. European banks ING and Fortis are rumoured to be preparing profits warnings this week and there was speculation on Friday night that a US hedge fund was in trouble. Yesterday it emerged that even the oil-rich Middle Eastern banks may be about to announce losses due to their exposure to the US sub-prime mortgage market.

If more big losses are to be announced it may see world stock markets take another plunge and recession move another step closer, and that will leave Bernanke fully exposed with nowhere left to run.

S&N bid battle will go down to the wire

THE prospect of a third party emerging to wreck the Carlsberg-Heineken party was being heavily discounted on Friday after S&N agreed to be taken over in a 7.8bn deal, or 10bn including other liabilities. But assuming this is a done deal may be premature. As one source told me on Friday: "S&N hasn't blinked yet."

There is a two to three-week window of opportunity for a rival to nip in with a higher offer. After that the shareholder meetings and court hearings required to clear the merger will be completed, so we should know one way or another by the middle of next month whether the Americans, Belgians and even the Japanese have any intention of showing their hands.

John Dunsmore, chief executive of S&N, played a blinder – along with his inner cabinet – and squeezed out of the Danish-Dutch duo exactly what he wanted: 800p a share and full transparency on the Russian business. But there is now no constraint on a superior offer coming forth and there is a lingering sense that even more value exists in the S&N trophy room. Dunsmore told me he rates the chances of another bidder coming in as 50:50 and that with all the cards now on the table "everything is teed up for it".

Should a higher bid emerge, the S&N board would have no option but to switch its recommendation.

Nobody should underestimate the prize on offer: the biggest UK brewer and access to European beer markets and to the fast-growing Russian and Indian markets. Nothing like this will come on the market any time soon, if ever. For the likes of Anheuser-Busch, that may prove a temptation it cannot resist.

Even after raising the bid price three times, and stretching the resources of the Danes, Carlsberg and Heineken must know they have got the Scottish-based company for a good price.

But they won't go higher and, furthermore, they own only the S&N stock acquired by their advisers. With the possibility of an 820p offer emerging in the next fortnight, there is still all to play for.

Showdown for final salary schemes

THE squeeze on pensions from the fall in stock markets should focus the mind of Scottish finance minister John Swinney, who will be urged this week to scrap the final salary schemes enjoyed by the public sector.

According to a new report, they are not only costly to maintain, but they threaten economic growth. It sets the stage for another showdown.