MESSAGE FROM THE HEAD OF LEX : TOXIC SPILLOVER / THE FINANCIAL TIMES

Message from the Head of Lex

Toxic spillover

One year after SS Lehman Brothers ran aground, the toxic spill is still being scrubbed from the financial services landscape. The Irish government continued its efforts to decontaminate banks by paying €54bn for bad property loans while Barclays opted to set up a $12.3bn fund to isolate its poisonous assets. Looking ahead – and with one eye firmly on next year’s elections – the UK’s Tory party floated the idea of revisiting Thatcher-era privatisations by selling stakes in nationalised banks to the public as financial institutions everywhere try to wean themselves off state support.

Debt-laden governments will be unable to support banks indefinitely. The Obama administration is already seeking to raise the US’s staggering $12,100bn debt ceiling as the dollar weakens. The governor of the Bank of England even went as far as introducing the idea of negative interest rates as Sweden has done to encourage greater lending and discourage hoarding of cash. Others are still hoping for China to save the world, but it is busy saving itself by spending stimulus money to boost its western provinces. There is still much work to be done to cleanse the economic landscape.

And although Lehman Brother is no longer with us, rumours of the death of the investment bank have been exaggerated. After all, as long as Silicon Valley keeps producing puzzling deals such as Adobe’s offer for Omniture or other more sensible combinations are mooted – between Deutsche Telekom and Sprint Nextel for example – there will be fees for deal-hungry bankers.

John Casey, Lex Publisher