Comment: EADS merger collapse leaves BAE vulnerable

THE collapse of the merger of BAE Systems and Airbus manufacturer EADS should come as little surprise given the enormous difficulties in finding political agreement.

The big question now concerns the future of BAE’s top brass and the company itself which needs to expand beyond a shrinking defence market and thought it had found the solution by tying up with a partner that would propel it into the wider aerospace industry.

The combination of BAE and EADS would have created a company capable of competing with Boeing. But the failure by the three governments of Britain, France and Germany to agree on share ownership of the new entity has effectively put BAE into play; if shareholders believe it has no independent future another partner will be sought or come hunting.

The failure of this deal raises fundamental issues around the broader defence strategy and industrial policy, given the thousands of skilled jobs provided in Britain by BAE.

Further questions surround the future of the firm’s chairman and chief executive Dick Olver and Ian King who tried to broker this deal.

They were unable to persuade the politicians to back them but also failed to carry the support of the company’s major shareholders. Invesco made it clear at the beginning of the week that it was unconvinced by the logic of the tie-up, a view shared by shareholders in EADS that more or less sounded the deal’s death knell. Olver and King will hope they suffer a less ignominious fate.

Big banks with two different approaches

ANTONY Jenkins has wasted no time making his first deal since taking over from Bob Diamond at the helm of Barclays, acquiring ING Direct in a move that has been noted for putting a squeeze on the banking sector at a time when the call is for greater competition.

It also provides a contrast with the strategy of his counterpart Stephen Hester at Royal Bank of Scotland.

Barclays will absorb 1.5 million customers with savings deposits of £10.9 billion and a mortgage book of £5.6bn which together add a further 10 per cent to Barclays’ customer base.

More to the point, it shifts the balance of Barclays’ portfolio from investment to retail banking, which may not be quite so lucrative but is less volatile. It is also in keeping with the political pressure for banks to return to a more consumer-focused deposit-taking role.

Hester will want to achieve similar growth in RBS’s retail banking business, but he told me in an interview this week that he has no intention of pursuing an acquisitions strategy, preferring the organic route to expansion. He said he would “rather acquire a customer because he wants to come to us”.

Perhaps in part this reflects a nervousness about acquiring companies, given the catastrophic legacy of the ABN Amro deal. Even so, the organic route will be slower and less certain.

Even local councils now recognise the crisis

BUSINESSES have long claimed they are a cash cow for governments and local authorities.

But such is the crisis on the high street that a third of Scottish local authorities are considering help for hard-pressed retailers facing big rate and rent bills. This is driven partly by self-interest. If they don’t support the shops there will be fewer of them and income will dry up.