Mendelsohn's midsummer nightmare

The pips are squeaking across the insurance sector but the noise coming from Royal & Sun Alliance is more like the screeches heard before a car crash. Or, at least, that's the way it sounds to the shareholders. For Bob Mendelsohn, the chief executive, it's all a short-term overreaction. He can't understand the share price, given the tremendous growth opportunities post-September 11, and he trots out the traditional line about nasty hedge funds shorting his stock.

Sadly, the share price indicates something more than speculative money at work. To appreciate fully the scale of Royal Sun's fall, you have to go back to 1993. Royal Insurance, as it was in its pre-merger days, was brought to its knees by the mortgage indemnity policies it wrote shortly before the property crash. It was forced into a one-for-three rights issue to raise £400m but the price then was 255p, or more than double the present one.

Mr Mendelsohn is able to point out that Royal Sun's asset value is still 292p a share, which suggests there is value within this business under the right management. But outsiders, at the moment, simply don't know what the present one is going to say next. Uniquely among UK insurers (if not European ones), Royal & Sun's provision for the World Trade Centre attack seems to go up every time it opens it mouth.

Meanwhile, the dividend policy is all over the place. The payment was cut from 26p to 16p last year and now Mr Mendelsohn won't even guarantee the same amount this time. It might be 16p, but it might not be. It all depends on events, he says. That yesterday's interim was only 4p does not bode well. Mr Mendelsohn describes his lack of precision over the dividend and his remarks about the possibility of a cash call as being part of his policy of being open and frank in uncertain times. This might be laudable if it didn't sound so much like a last resort. The hard fact is that, under Mr Mendelsohn, Royal & Sun has failed to deliver on its promises and his shareholders are no longer in a mood to give him the benefit of the doubt.

Last week, this column said it was hard to see him surviving a rights issue. After yesterday, it's impossible.

Every dog has its day


Reed Elsevier finds itself in an unusual position. The traditional dog of the media and publishing sector now radiates a pedigree usually associated with more illustrious peers. After years of playing second fiddle to the likes of Pearson, United Business Media and the like, the publisher of Computer Weekly and Flight International is now Europe's largest quoted publisher by stock market value, while its rival's share prices are plummeting.

Even more remarkably, Reed is starting to make serious money out of the internet. By migrating its key scientific and legal subscription publications on to the web it has cut costs and made its content far more accessible to users.

In the past lawyers and scientists used to fight for library magazines copies. Now they can all access any information they want by simply logging on from their desktops. Use of Reed's products has soared, allowing the group to bump up the price of content that has never been so cheap to produce.

Chief executive Crispin Davis hopes this is the model for future growth. After a radical restructuring, there are unlikely to be any major acquisitions and the focus is on increasing organic revenue. The depressed market for business to business advertising will not help in the short term but Davis and his team are confident they can deliver, whatever the market conditions. Davis is on a high and as a haven of relative safety in uncertain times it is worth logging on to.

Mixed brew


The German stock market was up by more than 3% yesterday. Two of its best known companies, chemicals group BASF and up-market carmaker BMW turned in handsome sets of figures to lighten the economic gloom. Good news for the chancellor Gerhard Schröder as he pounds the campaign trail ahead of next month's election?

Not really. Take BMW. It is based in Munich, the heartland of Mr Schröder's rival, Edmund Stoiber. Its success can only serve to underpin claims they know how to run businesses in Bavaria and that the challenger, not the chancellor, is the man to set Germany's struggling economy to rights. Nor is there more comfort in BASF. True it is rooted in Ludwigshafen on the Rhine, but it is truly international, rather than just one of Germany's big three chemicals businesses. If it is an economic bellwether, it shows what is happening to the global economy, not the one in which Mr Schröder is interested.

Sadly for the chancellor probably the most representative results from corporate Germany came from Commerzbank with the news that it was likely to miss its own (modest) profits forecast for the full year. Its gloomy experience is much of a muchness with other leading German banks.

Insurer Allianz recently abandoned its profits target because of losses at Dresdner Bank. Last month HVB, Germany's number two bank, posted a loss. These are hard times for the German economy. All Mr Schröder can hope for is that the voters will notice both Allianz and HVB are based in Bavaria.