Corporate contagion takes hold

Corporate contagion is spreading fast. As banks and energy companies lined up yesterday to confess their varying exposure to the Enron debacle, the main interest lay with all those who were not known to be creditors in the first place.

Common sense said Abbey National, with exposure of £115m, had to be there, although the mortgage bank had previously failed to make it on to the hit lists of those monitoring this corporate implosion. In fact, the size of the wholesale banking division at Abbey, with £108bn of assets, means it probably has a piece of every sizeable corporate bond issue over recent years.

In Europe, it was ING bank of the Netherlands which raised eyebrows yesterday. Its local rival, ABN Amro, is up to its neck in Enron paper - but then everyone already knew that. ING's $200m (£141m) exposure came out of the blue.

Just toting up the declared exposures yesterday - roughly $3bn - suggests we are possibly less than 20% into this process. The shocks over the coming days could be very nasty indeed.

Meanwhile, other potential corporate failures are creating unexpected collateral damage. ICI has been hit because Huntsman, the private American chemical concern to which ICI sold a good chunk of its bulk chemicals business, is running out of cash while it still owes the British firm about £300m. Again, no one saw this coming.

Huntsman was founded by a philanthropist, Jon Huntsman, who used to donate a huge portion of profits to charity. Maybe the company will get its just rewards in corporate heaven.

Skin care

The noose is tightening around Bioglan, the debt-laden skincare company which has gone from hero to zero in less time than it takes to squeeze a blackhead.

Creditors led by Royal Bank of Scotland had already given the firm two month-long extensions to £110m of breached banking covenants. Hours before yesterday's midnight deadline, Bioglan was given just one more week.

Staff at the Hertfordshire firm must be at their wits' end, having seen an apparently solid firm - worth £850m earlier this year - disintegrate. In many respects, the affair is a small-scale version of the Enron crash. "Aggressive accounting" has played a big part in both.

With hindsight, there was a glaring lack of financial expertise on the board - none of the executives had an accountancy qualification, and for a long period there was no finance director. Annual results tended to be opaque, with lumpy licensing deals disguising a pallid performance by the firm's drugs.

Auditor KPMG has declined to endorse the firm's most recent accounts. Since ABN Amro quit as financial adviser in the summer, Goldman Sachs has struggled to unravel the mess.

Bioglan has a promising drug delivery technique it calls Biosphere; it also has a portfolio of unexciting but widely used medicines. The prospects for survival as an individual entity are close to nil. Elan and Skyepharma have been mooted as bidders, but both are quietly distancing themselves. Investors will be keen to identify those responsible. They should start with Bioglan's underwhelming non-executives, who seem to have taken a relaxed attitude towards supervision.

Deaf Uncle Sam

With one bound, Uncle Sam was free. The message from Wall Street is that the US economy has leapt across to the other side of the V-shaped downturn that began a year ago.

Forget the fact that yesterday saw the growth figure for the third quarter revised down from minus 0.4% to minus 1.1%. Forget that the world's biggest energy company has just gone belly up. Forget that consumer confidence is cracking under job losses. The mood in the markets is that September 11 provided corporate America with the short, sharp shock it needed to repair its balance sheets, aided and abetted by big cuts in interest rates. But the breakdown of yesterday's GDP data is even more worrying than the headline contraction in the economy. In the end, stock markets are all about profits. The bottom line for Wall Street is the bottom line. And profits in the US were 4.1% of GDP in the third quarter - lower than at any time since the early 80s recession.

The truth the dealers are finding so hard to swallow is that the US economy is still suffering from overinvestment in hi-tech. Belief in the productivity miracle was so strong that firms went on a hiring spree underwritten by the boom in equity prices, leading to real annual wage growth of 4%.

Charles Dumas of Lombard Street Research thinks there may be a short-term suckers rally based on lower interest rates, cheaper energy and a couple of quarters in which stocks are rebuilt. But sooner rather than later, it will be obvious to the most stubborn bull that the sums do not add up.