Investing will become a lottery

It's hard to make the words "International Financial Reporting Standard 39" sound sexy, but they are important. Indeed, IFRS39 sent Northern Rock down almost 3% yesterday.

The damage was done by analysis by CSFB that calculated NR will have to restate its profits by 10% once the new standard comes into force next year. Alliance & Leicester and HBOS, says CSFB, could benefit by similar amounts.

You don't need to know the mind-numbing details, save to say that the analysts identified within the books of the UK mortgage banks an "amazing range" of treatments of items such as incentives to win new customers. From next year - under the grand pan-European drive for standard accounting principles - everybody will have to account for fees, incentives and so on over the life of the financial product.

That is just the easy part of IFRS39; the other half is a headache-inducing set of rules on the treatment of embedded financial instruments.

Moreover, rule number 39 sounds like one of least contentious areas of the new standards. Many accountants reckon the ones most likely to provoke shocks deal with depreciation, the capitalisation of R&D costs and the expensing of share options. The latter could depress the earnings of Britain's top 25 public companies by 5% by 2007.

There will be plenty of winners from the accounting shake-up (Vodafone, for instance, will swing from a huge reported loss to a huge profit) but the Northern Rock example suggests the market is not even close to a proper assessment of changes that come into force in six weeks' time.

Accounting standards don't alter company cash flows but, as CSFB says, the market tends to obsess about earnings, which certainly will be affected.

For the average private investor, next year may feel like playing the lottery.

Walker's woes

The woeful WH Smith has finally found a new chairman and it is Severn Trent's retiring chief executive Robert Walker who has the short straw.

He will have his work cut out.

A year into her role chief executive Kate Swann has certainly made an impact. She has transformed the stores from vaguely pleasant places to browse into retail purgatory. The fixtures are so vast it is a miracle staff and shoppers are not suffering mass claustrophobia.

She has masterminded the brainless bookworm/DVDworm TV ads and installed smiley face happy buttons at tills for shoppers to bash to register their delight at the Swann shopping experience.

The buzz is that sales are heading south and the staff are losing the will to live. As for the mess that is the product offer, the continuing squeeze exerted by the supermarkets and the specialists and the whopping pension deficit - let's not even go there. Jolly good luck Mr W.

The French way

Nicholas Sarkozy, France's departing finance and economics minister, considers himself "un homme de destin". That destiny is, in his mind, the Elysée Palace as president of the republic.

En route from Bercy, his ministerial home, he has sought to enforce a vision of industrial Europe that runs entirely counter to the liberal interpretation of globalisation-keeping a firm grip on market deregulation and buttressing the old continent's manufacturing base in the new knowledge-based economy.

As he quits Bercy to head up President Jacques Chirac's ruling party, the UMP, the ultra-ambitious Sarkozy has revealed the latest of his plans to shore up two of France's state-owned utilities.

Last week the two firms won limited liability status as sociétés anonymes (plcs) and yesterday Mr Sarkozy disclosed his much-trailed plans to boost their capital via a manoeuvre that is very, very French.

No precise figures for GdF emerged, but EdF is to be given up to €11bn (£8bn) to pursue its European expansion plans which, under the previous management of Francois Roussely, brought it highly profitable stakes in the UK and Germany, but also a disastrous hold in Argentina - and a mountain of losses and debt. If pension liabilities of €50bn are taken on the balance sheet - along with international exposure of €12bn - debt amounts to just under €90bn or four times its equity. And that doesn't take into account the scores of billions of nuclear liabilities.

So Sarkozy is eschewing the normal paths of increasing capital such as increasing prices to consumers or borrowing. Instead he plans to sell new shares next year, leaving the state with a minimum 70% stake in a part-privatisation.

The modalities of the planned sale are unclear, though Sarkozy says half will be earmarked for employees whose unions, notably the communist-controlled CGT, are deeply hostile. Will the state, as in the Alstom near-débacle, take part and underwrite the entire issue? What about foreign investors?

This bears all the hallmarks of a 'Franco-French' solution to an industrial problem that may help the government reduce its budget deficit and meet the eurozone stability pact criteria, but will almost certainly face as much scrutiny from new competition commissioner Neelie Kroes as Alstom did from her predecessor.

An interesting test-case for a Dutch liberal pledged to improve competitiveness and open up markets ...