A year dominated by climbing profits, cross-border raids and crippling debts

MOST years are years of contrasts to a greater or lesser extent. As we leave 2006, that has been the case again. Interest rates rose, but so did equity prices. Takeover activity boomed, but so did corporate organic growth.

Britain's financial regulator said it was not unduly worried about the activities of hedge funds, but the Financial Services Authority warned the upsurge in private equity takeovers might lead to a major implosion.

On the economic front, the US finally stopped raising interest rates as growth slowed, while Britain and the eurozone began raising them as inflationary pressures grew.

In August, the Bank of England lifted rates a quarter point to 4.75 per cent - the first rise in two years. It followed up with another rise in November, and many pundits believe rates here will rise again early in the new year.

Over the Atlantic, the Federal Reserve finally kept rates on hold at 5.25 per cent in August after over two years of monthly rises.

The European Central Bank raised rates by a quarter-point four times this year to leave them at 3.5 per cent.

Making the cost of money dearer for both companies and consumers, however, could not stop the rise in stock markets. The FTSE 100 is currently up 11 per cent, Wall Street is about 16 per cent to the good, while Tokyo and Europe are also both comfortably in positive territory.

It was a year when a takeover plethora - spree doesn't do it justice - boomed to levels last seen at the height of the dot-com boom in 1999-2000. Overall, deals were worth 16 per cent more on the year at 2 trillion.

Undoubtedly, the biggest takeover in Scotland was Spanish power giant Iberdrola's audacious 12 billion agreed swoop on ScottishPower. It was the culmination of a stormy few years for ScottishPower, following its cut-price sale of its US Pacificorp business and the ousting of chief executive Ian Russell in 2005 to be replaced by Philip Bowman.

The latter said that, although ScottishPower had made strong trading progress in the previous 12 months, pan-European utility consolidation had changed the landscape and it "was important to operate outside just one country in Europe".

The deal still caused controversy, however, as it came amid a groundswell of opinion that while it was open season on Britain's corporates for foreign acquisitors, the latter remained largely protectionist behind lip service paid to globalisation.

Sir John Sunderland, president of the CBI, trenchantly accused countries such as France, Spain and Italy of hypocrisy. The CBI boss cited the French government engineering the merger of Suez and Gaz de France to pre-empt a rival bid for Suez from the Italian energy group Enel. The French, Sunderland said, also provided "the most sublime example" of protectionism by "proclaiming a yoghurt manufacturer, Danone, to be a national champion of strategic importance".

The Spanish government, he said, "did everything in its power to ensure Spain's energy companies remained Spanish as it thwarted the bid by German energy group E.ON for Endessa".

Meanwhile, the governor of the Bank of Italy was forced to resign after it emerged that domestic bidders were being given a clear advantage over foreign bidders in takeover battles for Italian banks.

By contrast, foreign companies spent 47bn buying UK firms in 2006, rocketing up from 21bn the year before. Apart from ScottishPower, Spanish group Ferrovial snapped up airports operator BAA, whose sites include Edinburgh, Glasgow and Aberdeen. Nippon Sheet Glass acquired Pilkington, Telefonica of Spain bought mobile phones group O2, and the London Stock Exchange is currently under siege from Nasdaq of the US. P&O Ports fell to Dubai's Maktoum family, which is also about to buy Liverpool football club.

However, there was a wide array of strong corporate earnings in Britain, showing that these acquisitions were not being made at a time of particular corporate vulnerability for UK plc.

Particularly impressive was the renaissance at Marks & Spencer under Stuart Rose, but there were also the strong trading turnarounds at supermarket giants Sainsbury and Williman Morrison.

Utilities ScottishPower and Scottish & Southern Energy raked in profits as they passed on high wholesale prices of power to consumers.

And Oil giants BP and Shell continued to ride the wave of surging oil prices, even if currently off their highs.

The major banks, including Royal Bank of Scotland and HBOS, all reported record profits for 2005 and are almost certain to have repeated the trick this year.

Pub companies largely shrugged off the imposition in March of the smoking ban in Scotland to push profits ahead, while insurers such as the Prudential, Standard Life, Scottish Widows and Aviva also drove up earnings on the back of renewed interest by customers in pensions and other long-term savings products.

Business, as always, was not just about profits and takeovers. For Edinburgh-based oil explorer BowLeven, much of 2005 was forgettable, with a failed drilling programme followed by the sudden dismissal of chief executive Philip Rhind in February. He had allegedly told colleagues he would ruin the company if they tried to get rid of him. By the end of the year signs were better, with former Cairn finance director Kevin Hart restoring City credibility, raising more than 50 million at a premium to the share price in November.

Hundreds in the Lothian building industry were left out of pocket, and dozens of projects left half-finished, after the 127 year-old Peter Walker Group collapsed in April. Only five years after a management buy-out, the company had lost control of its books, taking on an increasing volume of work to mask growing financial problems, until Bank of Scotland called in financial consultants, prompting the management to call in Blair Nimmo of KPMG.

Boardroom largesse is always with us, and one of the eye-catchers was Scots-born Charles Allen quitting the top job at embattled ITV with a payoff of 3m.

He is being replaced by the cigar-chomping flamboyant Michael Grade, also on mega-bucks, Grade having said that returning to ITV felt like coming home - slightly undermined by the fact that he said much the same thing on going to the BBC.

The amazing year for private equity was shown by a doubling to $700bn (357bn) of announced buy-out deals from 2005. The FSA, late in the year, indicated its concern at some of the dizzying levels of borrowing in private equity buy-outs as well as their opaqueness.

This was 20 times bigger than the figure ten years ago. The most active player was undoubtedly the ubiquitous Texas Pacific Group, which did 17 deals with a total value of more than $101bn.

One sector that definitely fell out of favour in 2006 was internet gaming. Investors in the sector, whose major names include PartyGaming and 888 Holdings, lost hundreds of millions of pounds after the US effectively outlawed online betting.

Lawmakers in Washington called "no more bets" when they forced through the controversial Unlawful Internet Gambling Enforcement Act on the back of an unrelated bill enhancing port security.

Since then the sector has tried to regroup, playing up its far more lucrative operations in Europe and the Far East.

Concern that the UK's debt crisis was spiralling out of control increased in 2006 with a record number of people failing to keep their heads above water. The personal debt mountain is now more than 1.3 trillion, while for the first time the number of people going insolvent during the year will top 100,000. Consumers in the UK are now responsible for a third of all unsecured debt in western Europe, with the typical Briton owing more than 3,000 - almost double that of his continental cousin.