Raise half a glass of Krug to Cruickshank

Ploughing through competition in UK banking, a report to the chancellor of the exchequer, by Don Cruickshank, things begin to look up halfway down page 220.

A sub-clause in the section on the disaggregation of returns suddenly cuts off from tackling the difficulty of measuring banks' return on equity and declares: "The author would like to offer a bottle of Krug champagne to the first reader to send an email to the review's website citing this paragraph. The usual conditions apply. Closing date March 31 2000."

The winner was an analyst at HSBC. But of course it should have been Gordon Brown, since he commissioned the tome, or maybe one of the banks themselves, since they had early sight on Sunday. Then again, by page 220, most traditional bankers were probably in need of something substantially stronger.

Take the raw, private words of one man close to the top of what we used to refer to as a member of the big four. "It's a pantomime which has been running for 15 months. I don't know why we bothered since he has just stuck with his original flawed assumptions. He has ignored all the information. In some parts, such as the £5bn on over-charging, he's made the figures up entirely. The moves on money transmission amount to nationalisation by the back door."

So, a result then, perhaps? In short, "yes" but with so many qualifications that enjoyment of the traditional sport of bank-bashing is all but lost.

The report is smart in segregating the treatment of personal customers (where new technology is boosting competition and therefore raising standards of customer care) from the treatment of small businesses and also the cartel-like control of the money transmission network (where new technology has not changed anything). And all the recommendations on tackling the financially excluded make as much sense as they always have.

Also, Mr Cruickshank has clearly had some fun poking the regulatory nest, questioning the relationship between the industry, the Bank of England and then going on to suggest keeping a formal watch on the City watchdog, the FSA.

But then we were promised something "explosive" during pre-publication briefings, and yet the reaction in the market yesterday was that bank shares went up. There is a suspicion that Mr Cruickshank prefers playing politics to solving problems and is happy to see the established end of the industry slide slowly into a bureaucratic swamp of payment systems commissioners, licences, review bodies and the like.

Perhaps Mr Brown, having missed the bubbly, will be bolder this afternoon.

Where next?


On the face of it the planned merger of the Brussels, Paris and Amsterdam bourses looks a useful step forward as the traditional exchanges seek to meet the competitive threat posed by newer exchanges like Nasdaq, Jiway and Tradepoint or electronic networks.

The three-way deal with its single platform offers cost savings across the board - though whether they turn out to be "huge" is another matter. And as the London exchange noted, mergers rather than the clumsy concept of a pan-European market structure are the best way of ensuring consolidation carries liquidity with it.

That said, however, Euronext may reinforce divisions rather than bring greater cohesion. By putting mergers back at the top of the agenda the question of governance - fudged under the existing eight exchange alliance programme - returns, as intractable as ever, to the centre of the debate.

On what basis should ownership of merged exchanges be decided? Among Brussels, Amsterdam and Paris it is not hard to work out which is going to be the dominant factor. But neither London nor Frankfurt would accept a secondary role in a full pan-European merger. Neither, though with less reason perhaps, would Paris. It could be argued that, post demutualisation, the issue will become academic as exchanges' share registers increasingly contain the same names - but that is likely to happen too slowly to have a decisive impact.

What happened yesterday is that Amsterdam and Brussels allied themselves with a stronger player; Paris gained a tactical advantage in the manoeuvring for position among the big exchanges because Euronext will give it more clout.

Greater leverage for one player, however, will make the question of control more difficult than it already is. London and Frankfurt now have to decide whether to go along with Euronext - either directly via a merger or through the existing, much looser, alliance - in the hope that the governance issue can be solved; revive the original Anglo-German alliance or go it alone. Old rivalries die hard.