Power of market panic

SCRUTINEER

HBOS

147.1p -34.9p

Barclays

317.75p + 9.75p

THE dominoes are falling dramatically in the financial sector, seemingly faster than the wider world can keep up. HBOS was yesterday on the brink of being swallowed up by Lloyds TSB amid extraordinary stock market volatility.

Ironically, it is almost seven years to the day that the new Halifax/Bank of Scotland giant was born in another vaguely hysterical market in the wake of the 9/11 terrorist attacks on America.

The difference in September 2001 was that the shares' switchback ride did not imply that the banking sector itself was rotten.

Now the whole banking infrastructure looks dangerously like a deck of cards.

In the wake of HBOS's bombshell takeover talks announcement, the market is asking: "Who's next? Are Barclays and RBS safe?"

Shares in US stalwart Morgan Stanley and larger rival Goldman tumbled in New York trading last night.

Both had reported better-than-expected quarterly earnings on Tuesday, but who cares about underlying trading and indeed capital strength in banks now?

HBOS was extremely well capitalised, having banked £4 billion from shareholders recently. So what, the market seemed to say yesterday.

Sentiment and widescale "shorting" of banking stocks are ruling a crazy banking roost instead.

Only a day or two ago, conventional wisdom was that Goldman and Morgan would be the only big American investment banks left standing after Lehman collapsed into bankruptcy protection and Merrill Lynch was taken over by Bank of America.

Then the US government's bailout of insurance giant AIG was supposed to draw a line under the panic (and now it is panic, not extreme anxiety).

WHAT goes around comes around. More than a decade ago Barclays thought its sprawling investment banking arm BZW (the old Barclays de Zoote Wedd) had lost its way a bit, and needed to be pruned back. A case of renewal through retrenchment.

So various bits and bobs – equities, M&A etc – were flogged off to Credit Suisse First Boston for a fairly token £100 million in the mid-1990s.

That left the renamed Barclays Capital, or BarCap as it is universally known in the City now, as largely a debt, currencies and bonds operations. It was a stripped-down chassis that down the years has proved highly profitable.

But fast-forward and the assets just chosen by Barclays to be cherry-picked from the stricken Lehman Brothers enlarge and return BarCap to areas such as equities trading and M&A work.

Barclays looks to have played a good hand of poker here. By walking away from a complete takeover of $600bn of Lehman assets, it has instead upped the ante on American regulators and bankruptcy administrators and been able to pick and choose what it wants and only take on balance sheet assets worth about £75bn.

Barclays also showed itself prepared to walk away from the ABN Amro auction last year, which was finally "won" in the middle of the credit crunch by the Royal Bank of Scotland consortium.

LATEST joke doing the City rounds. "Do you pronounce Lehman Brothers Layman or Leeman? Neither: it's pronounced dead."

MANY passengers will breathe a sigh of relief that Gatwick airport has been put up for sale by BAA. The debacle of the Terminal 5 opening at Heathrow was only the runny icing on the badly baked cake.

The publicity surrounding the service at Heathrow and Gatwick airports for many years now has been appalling. It pre-dates BAA's takeover by the Spanish group Ferrovial, but little has improved since, either.

A big part of the problem was that when the old British Airports Authority was privatised in 1987, what was effectively a sluggish, non-dynamic state-run monopoly was replaced by a sluggish, non-dynamic, stock-exchange-quoted monopoly. Where was the stimulus for BAA to provide a first-class service for passengers when you knew many air travellers had little option but to use you in practical terms?

The commercial arrangement was stitched up in the company's favour.

Competition between Heathrow and Gatwick cannot help but be good for both airports.

Film and music worth £98m to Entertainment One

SMALL BUT BEAUTIFUL

ENTERTAINMENT One's film and music portfolio – which includes television series such as Life On Mars and Spooks – is worth more than $175 million (£98m) according to an independent report.

Working out the value of its back catalogue has helped the company to replace its debt facilities with a new four-year credit facility, worth $150m.

The new credit facility will be led by JP Morgan, with Bank of America, Barclays and Toronto Dominion Bank also participating in the deal.

Entertainment One, which was listed on Aim in March 2007, has a market cap of about £110m.

The company has a music division – which trades as Kosh Records – and an entertainment division, which has expanded rapidly in the past year.

Last year, Entertainment One took over Contender Entertainment Group in the UK, which holds the DVD rights to Spooks and Life On Mars, Seville in Canada and RCV in Holland and Belgium.

This year, the company bought Blueprint Entertainment, Barna-Alper Productions and Maximum and Oasis Pictures.

Films in Entertainment One's catalogue include horror flick Saw IV.

Bryan Johnston of Bell Lawrie

ONE TO WATCH

Tribal Group

130p +3p

Scotsman says BUY

TRIBAL Group provides professional consultancy and support services to more than 2,500 public service organisations in the UK.

It has three business segments. The consulting division provides a range of management consultancy services to the public sector. The education segment provides software, managed services, school inspection services, consultancy, benchmarking, e-learning, publishing and trading. The support services operation largely operates in the public sector, providing a range of public relations, resourcing and architectural design services.

Tribal's first-half pre-tax profits rose to £9.1 million, from £6.6m a year earlier. The results statement was upbeat, citing "profit before tax and earnings significantly ahead of the corresponding period last year".

Tribal is now well-positioned as a consultancy and service provider to the UK public sector, which represents 96 per cent of the group's revenue. Of this, 48 per cent comes from education, 17 per cent from health, 14 per cent from central government, 10 per cent from housing and regeneration and 7 per cent from local government.

The effectiveness of government spending is likely to remain under close scrutiny given the government's contemporary parlous state. This can only benefit companies such as Tribal. It is ideally placed to advise on how to improve efficiencies, with little risk of public-sector budgets being cut.

The shares have held up pretty well during the turmoil of the past couple of years and there seems little reason to believe Tribal will do anything other than continue to prosper.

• The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.

Rising oil prices boost Wood Group shares as cancellation fears recede

Chrysalis takeover one step nearer

MARKET CHATTER

CHRYSALIS yesterday confirmed it had received "very tentative approaches" that may lead to a takeover offer for the music company.

In a statement, Chrysalis said: "Such discussions are at a very preliminary stage, and there can be no certainty that any offer or transaction will be made, nor the terms on which any offer or transaction would be made."

Chrysalis said the approaches were from a number of parties "suggesting a variety of collaborative transactions, including a possible offer for the company".

In April, Chrysalis ended talks with a would-be buyer – said by industry sources to be rival EMI – after rejecting a £130 million cash offer, which valued its shares at 155p.

Shares in Chrysalis closed up 14 per cent at 116.25p.

SCOTS STOCKS

OIL services companies rose as crude prices firmed in the wake of the AIG insurance group rescue and a cut in production from damage caused by Hurricane Ike.

Wood Group, the oil services company that has in recent days plunged on fears that some marginal projects may be cancelled, rose 18p, or 5.25 per cent, to 360.75p.

Meanwhile, Aberdeen-based FTSE 250 oil producer Dana Petroleum climbed 24p to 1,174p, Venture Production eased 3.7 per cent to 560.5p and Edinburgh-based Cairn Energy dropped 51p to 2,077p.

Firming oil prices caused concern among investors in the transport sector, with Stagecoach, which was recently promoted to the FTSE 100, easing 8.5p to 299.5p, while Aberdeen-based rival First Group reversed 10p to 546.5p.

On another day of volatile trading in London, Robert Wiseman Dairies rose 7.6 per cent to 345.25p in moderately heavy trading.

Wolfson Microelectronics gained 2.5p to 122p as it bought another 125,000 shares for cancellation yesterday.

On Aim, Glasgow-based Spaceandpeople, which manages advertising and promotions space in shopping centres across the UK and Germany, dropped a further 5p to 85p.