At last the big lenders advance

Believe it or not, we have some real competition kicking off in the business of financing homes. The moves by the Nationwide - and Halifax this morning - are a new twist in the battle among financial services providers struggling to retain customers in a mortgage market where one in three "remortgages" every seven years.

For years the big lenders have complained about fierce competition in the mortgage market; only two years ago Standard Life Bank was causing havoc with its low rates. But now we have evidence that it is beginning to hurt. Perhaps they have learned that winning customers back is harder than losing them.

The cost of cutting mortgage rates so substantially will be particularly painful for Halifax, which warned six months ago that it expected its margin on mortgages to shrink by 10% during 2001. Now the City knows precisely why.

It is possible that the stock market will punish Halifax this morning. It is important to remember, however, that it does not spell the end of profitability for Halifax or any other of the leading lenders which still have a big gap to close if they are to make their headline rates competitive with small, nimble rivals.

A generalised margin squeeze across financial products of all flavours has been factored in for some time now.

It is nonetheless bewildering that such an aggressive move by two of the industry's major players has taken so long to arrive.

Browne study


There was an unusual display of peevishness from the venerable Sir John Browne at the weekend, with the BP chief executive seemingly upset that last week, when the former oil firm delivered the biggest annual profit ever produced by a British company, his share price dropped and everyone starting demonising Big Oil for earning too much money.

Well, the executive had reason to cheer up yesterday as a 3% drop in the market capitalisation of Vodafone and a 2% gain in BP's share price left Sir John's baby at the top of the European corporate tree. Valued at £13bn, it is the biggest company in Europe.

BP, in its current form, is very much Sir John's creation. It is leanly managed, global, (relatively) well diversified; it is throwing heavy money at new energy sources, such as solar power; and it is ultra-conscious of its social and environmental responsibilities. All in all, BP is something of a model modern multi-national, which also happens to be British.

Sir John's moment of opportunity proved to be three years ago when, as the oil price spiralled lower, BP responded by leading the wave of consolidation which has since transformed the industry. In its wake, the company left a trail of empty office suites across America as bloated executives were ordered to go and spend their obscene share option packages on a beach somewhere.

As trading conditions improved (in the form of a higher oil price), profitability skipped ahead. Simple as that.

On occasions, merger and takeovers work spectacularly well. BP's example will be studied for years to come.

Red alert


As will Vodafone, that other British corporate heavyweight, which has established itself as Europe's finest in the field of telephony by being fastest off the starting blocks in the race to grab new mobile markets.

It has been warned here and elsewhere over recent months to stop doing deals and to work on integration and the delivery of the technology instead. But, markets being markets, the mood has already turned, leaving Vodafone little time in which to heed any advice.

Yesterday, analysts were making the fair observation that, if BT can be forced towards radical dismemberment by its own lack of financial foresight, then Vodafone must surely have problems of its own.

The company managed a huge back-door rights issue by buying Mannesmann complete with Orange and then selling Orange on to France Télécom. Its gearing problem is nothing like that faced by BT.

But it does have around £17bn of debt, which it plans to shrink by £7bn through the sale of its Italian fixed-line business, Infostrada, to the local electricity firm Enel. That deal is now in doubt, due to regulatory problems surrounding Enel.

Throw in the fact that someone kicked off a rumour yesterday that a radical cost-cutting plan was being hatched at the company's Newbury headquarters, amid worries that year-end profits might not meet the City's best expectations, and ... Well, it would be rash to suggest chief executive Chris Gent does not know exactly what he is doing.