蜜芽传媒

I鈥檓 signing off this blog for a few days. But with markets rather closer to the precipice than they鈥檝e been for years, the timing of my absence doesn鈥檛 feel ideal.

The threat, of course, is from the 鈥淟鈥� word 鈥� for leverage, you dunderhead.

It鈥檚 about that chain reaction I鈥檝e been writing and broadcasting about for many months now, from losses for lenders at the riskier end of the US housing market, the so-called sub-prime bit, through to the re-pricing of complicated financial products that are linked to this sub-prime market (those blessed CDOs and CLOs and so on), through to the confidence of investors in other borrowers and other kinds of debt.

Right now, there鈥檚 almost a buyers鈥� strike for certain sorts of bond or debt, notably the borrowings of businesses being taken over by private equity.

These takeovers, like KKR鈥檚 purchase of the retailer Boots, have been financed by the big banks in the expectation that they would be able to parcel up the loans and sell them on to other investors.

But as these banks try to sell the debt on to insurers, hedge funds, pension funds or other institutional investors, they鈥檙e being given a giant raspberry.

To be clear, these takeovers still have to happen 鈥� they鈥檝e been underwritten by the banks.

What that means is the banks now have much bigger loan-exposure to private-equity-owned companies than they had expected.

In the case of , for example, some 拢5bn of loans has been left sitting on the books of eight banks, including , , and .

That鈥檚 the so-called senior debt or better quality Boots stuff. The banks are succeeding in placing the more junior Boots debt, but only (and this is important) at a loss to themselves.

The point is that Boots is not an isolated example. There is billions and billions of pounds of other debt held by banks which they want to place and can鈥檛.

What does it all mean?

Well, when a bank is forced to keep a loan on its balance sheet, that is a drain on its capital resources and means it has less ability to lend to other companies or individuals.

And when certain instances of debt are re-priced downwards, well that can have a knock-on to the valuations of all sorts of other debt products, throwing up losses elsewhere in the financial system.

In an extreme case, banks can find their ability to lend on their own account is constrained by a shortage of capital resources. And buyers of debt manufactured by banks can lose all appetite for it because of the losses accrued on the stuff they鈥檝e already bought.

When banks can鈥檛 or won鈥檛 lend and debt-investors can鈥檛 or won鈥檛 buy debt, that鈥檚 a credit crunch, or liquidity crisis, which would have seriously harmful ramifications both for individual financial institutions and for economic activity in general.

We鈥檙e not there, yet 鈥� but the threat of it is keeping financial watchdogs awake at night.

Oh, and one other small thing.

There鈥檚 a sizeable premium in the stock-market stemming from the belief that every company is vulnerable to a private-equity takeover.

Well right now and its peers won鈥檛 get the warmest of welcomes at the big banks if they roll up and say they want to splash out tens of billions of dollars of other people鈥檚 money on buying this or that business.

So I鈥檇 predict we aren鈥檛 going to see any big new private-equity deals for a while, at least until debt markets regain their nerve and poise.

Which means that the share prices of companies thought to be vulnerable to a private-equity takeover are too high 鈥� and that in turn probably means that the stock-market as a whole may be set for some dismal days.

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• - What's this?

The press release put out by when announcing that the would be taking a stake in it was filled with statements about how much the leading British bank would be assisting this arm of the Chinese government to commercialise.

Barclays said it would help CDB to learn best practice in customer service and product development. CDB staff would be trained by the blue-eagle bank, which would also help CDB recruit top class people from around the world.

Further, Barclays鈥� managers would be seconded to CDB. And the Chinese would have access to Barclays鈥� sophisticated financial products.

Now in return for all that, Barclays gets a huge dollop of cash to pursue its ambition to buy and the tantalising prospect of incremental revenues from the enormous Asian market.

For Barclays鈥� shareholders all that may be a very good thing.

But is it good for Britain that one of our leading banks is transferring vast amounts of commercial know-how to the world鈥檚 fastest-growing and most fearsome economy?

Does it make sense for Barclays to help CDB transform itself from a non-commercial arm of a ruthless, undemocratic government into a potentially world-leading commercial bank?

And isn鈥檛 it a bit odd that there hasn鈥檛 been a squeak out of our politicians?

Indeed later today, Alistair Darling will say that this kind of investment is good for Britain 鈥� though he鈥檒l add that he wants other countries to be more open to investments from British companies.

However think for a moment about what would have happened in Washington if a part of the Chinese state had made a similar kind of investment in or ?

There would have been uproar in Congress. There would have been all sorts of claims made about China attempting to steal valuable US skills and intellectual property in an attempt to dominate the global economy.

Just extrapolate from the frenzied US congressional reaction in 2005 to an of a middling US oil company, Unocal, by the and then add a bit more shouting and screaming.

Such US hysteria would be over the top. But isn鈥檛 it possible that the UK鈥檚 sangfroid about this kind of deal is also a little short-sighted?

There鈥檚 going to be a vast torrent of money coming from the Chinese state to buy British companies in the coming months, so surely it at least makes sense to take stock and think about the implications.

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• - What's this?

It is a deal that tells you most of what you need to know about the modern financial world.

First, it confirms that the Chinese state is using its enormous financial muscle to acquire assets and knowhow abroad. A strategic stake will be taken by the in , and its shareholding will be even bigger if Barclays succeeds in buying its huge .

Second, the deal shows the enthusiasm bordering on desperation of western institutions to tap into the huge Chinese market.

Barclays hopes its new relationship with the China Development Bank will yield it hundreds of millions of pounds in extra profits from doing new business in the enormous Chinese economy.

Also, it underlines the massive financial clout of the government investment arms of cash-rich trading economies like Singapore - since Singapore's is also taking a significant stake in Barclays.

And, of course, it proves once again that takeover battles are the most competitive sport around - since Barclays hopes that its new Asian financial firepower will help it carry off ABN and trounce the rival offer from a consortium led by .

It's all high testosterone stuff.

But when the initial excitement has died down, there will be some politicians and business people who will wonder whether when China buys abroad on this scale, the balance of economic power may be shifting eastward in a way that should concern us.

UPDATE 09:00: There are likely to be two particularly fruitful areas of mutual co-operation between Barclays and the China Development Bank.

One is business in Africa, where Barclays is a leading financial institution and where Chinese interests are buying up anything and everything.

The other is in commodities: China鈥檚 appetite for commodities remains one of the most powerful economic forces in the world and Barclays Capital has a growing commodities trading business.

What鈥檚 unclear to me is whether the CDB deal provides an answer to the question of what Barclays does if 鈥� in the end 鈥� Royal Bank鈥檚 consortium walks off with ABN, or whether the blow to Barclays鈥� reputation would be even greater if it loses.

On the one hand, CDB and Temasek are making a significant investment in Barclays, irrespective of whether it wins ABN.

However, they would commit vastly more to a merged Barclays and ABN 鈥� which underlines the importance of that deal to Barclays鈥� own view of what it needs to do to secure its long-term prosperity.

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• - What's this?

Barclays is close to raising around 拢10bn from the Chinese and Singaporean Governments to help finance its attempted takeover of the giant Dutch bank, ABN.

According to banking sources, the groundbreaking deal is being negotiated overnight. If it succeeds and if Barclays acquires ABN, the Chinese state would emerge with a shareholding of around 7 per cent in the enlarged group.

A smaller stake of around 3 per cent would be taken by Temasek, the investment arm of the Singaporean government.

The Asian cash will be used to help Barclays increase its takeover for ABN to around 拢50bn.

If Barclays fails to buy ABN, the Chinese and Temasek would take smaller stakes in the British bank.

The Chinese and the Singaporeans are paying around 740p per Barclays share, above its closing market price on Friday night of 713.5p.

The deal was arranged by the leading US private equity house, Blackstone - which recently sold a 拢1.5bn stake in itself to the Chinese state.

The Chinese state has $1.2 trillion dollars of foreign exchange reserves to invest, much of which has been placed in US Treasuries or government bonds. China recently signalled it would be taking a more imaginative and aggressive approach to how it invests hundreds of millions of dollars, including buying significant holdings in overseas companies.

The deal with Barclays under negotiation would be the most ambitious manifestation to date of its new boldness as an investor.

The idea that the Chinese Government could end up with an influential stake in such an important European financial institution as the merged Barclays/ABN could prove controversial.

Some Barclays shareholders may be concerned that the Chinese are buying the shares without them being offered to existing shareholdres.

Barclays will also announce that it will buy in several billion pounds of its own shares.

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• - What's this?

Sainsbury has now received a written, conditional takeover offer from Delta Two 鈥� which has been described to me as considerably less detailed and comprehensive than the spring proposal from the private equity quartet led by CVC.

And what鈥檚 striking about this conditional bid is how similar it is to that earlier private-equity offer.

First things first. The cash offer price is 600p, not the widely touted 610p 鈥� which puts a value on the whole business of 拢10.3bn.

Second, the hard equity from the Qatar Investment Authority 鈥� Delta Two鈥檚 backer 鈥� is just 拢3.1bn. In other words, a considerable amount of the funding for this deal will be debt, just as it was in the earlier private-equity plan.

In fact Delta Two has organised debt facilities of 拢9.7bn 鈥� which on the face of it is considerable more than it needs and may suggest that the 600p price is just an opening shot.

However, I am sure Delta Two will claim that the equity element is in fact bigger than the 拢3.1bn, because it is also planning to raise 拢1.8bn through an issue of preference shares.

That said, it鈥檚 unclear if the prefs are long-term equity or redeemable capital that would rapidly be replaced by yet more debt.

Either way, it is easy to see why the two Sainsbury lords 鈥� David and John 鈥� are concerned that all the debt that would be heaped on the company could hobble the business created by their forefathers.

Nor will the two peers be reassured by another element in Delta Two's plan, namely that Sainsbury's 拢8.6bn of properties would be injected into a separate company - thereby presumably burdening the stores with incremental rents.

And it won鈥檛 just be the Sainsbury family which would be concerned about the impact on the business of substantial borrowings and the elimination of that cushion of rent-free freeholds.

The point is that the supermarket industry is being investigated by the , the competition watchdog. And, inter alia, it is looking at whether the market will remain as competitive as it has been.

So the Competition Commission will demand an assurance from Sainsbury鈥檚 executives that they could, for example, cope with a price war initiated by Tesco if they were also having to make huge interest and debt repayments.

This is not idle speculation. The Commission posed that precise question earlier this year when that private-equity takeover proposal was on the table.

So although I continue to think that Qatar will end up as owner of Sainsbury, I鈥檓 not sure it will do so on the basis of its offer as currently constructed.

If the Qatar government wants to own Sainsbury, it will probably have to borrow less and put up more of its own plentiful cash.

Update 19 Jul 17:45 A statement just put out by Delta Two confirms that its conditional offer is 600p per share, and that it put in a written offer to Sainsbury yesterday.

It says it is responding to articles in this morning鈥檚 UK press 鈥� which implies that it doesn鈥檛 listen to the 蜜芽传媒 or read our website, or it would have been aware that we were putting out all these details yesterday.

It is however a disingenuous statement, in that it makes no distinction between equity and 鈥渟ubordinated PIK shares and notes鈥� (what I referred to in shorthand yesterday as prefs).

The plain vanilla equity in this deal is, as I said yesterday, just 拢3.1bn. It also misleadingly ignores Sainsbury鈥檚 existing net debt of 拢1.4bn, which won鈥檛 miraculously disappear if it succeeds in buying the company.

So after a Delta Two takeover at the proposed price, net debt of the business would be at least 拢7.4bn and closer to 拢9bn if the subordinated PIK and notes are viewed as debt or are likely to be replaced by debt.

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• - What's this?

Most of us simply go shopping at Sainsbury.

However the prime minister of Qatar 鈥� or rather his investment vehicle Delta Two 鈥� wants to buy the whole company.

will today receive a written takeover proposal from Delta Two.

It will value J Sainsbury at 610p per share, or 拢12bn for the whole business 鈥� including Sainsbury鈥檚 existing debt (so the market cap of Sainsbury at the proposed takeout price would be 拢10.6bn).

Here鈥檚 the funny thing: although the Qataris have very deep pockets, the structure of this deal is still very much like the private-equity approach from and its partners that flopped earlier this year.

Or to put it another way, Delta Two is proposing to borrow some 拢8bn to fund this deal.

What that means is that the trustees of Sainsbury鈥檚 pension fund will again feel somewhat anxious about the proposed takeover 鈥� and are bound to insist that Delta Two put a good wodge of cash into the pension scheme.

Another obstacle is that the two Lord Sainsburys 鈥� David and John 鈥� don鈥檛 like the look of what鈥檚 on offer. They鈥檝e just been out to Sardinia to meet Paul Taylor of Delta Two and have returned reluctant to sell out to him.

However, they and close members of their family control no more than 14.5 per cent of the company (and including more distant cousins, all Sainsbury family members control 18 per cent). So they probably can鈥檛 block the deal - though they can be pretty obstructive to Delta Two, given that it will probably want to obtain control of at least 75 per cent of Sainsbury (for technical reasons it probably needs that much, given how much debt Delta would inject into the company).

So this feels to me like the final instalment in the soap opera of Sainsbury鈥檚 takeover talks.

It would be very hard for Sainsbury鈥檚 board to tell Delta Two to hop off, because the price it鈥檚 offering represents a significant premium to the 拢8.6bn value of its properties and also puts its shares on a ratio of price-to-earnings well above the industry average.

Sainsbury may soon find itself a de facto branch of the Qatari Government.

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• - What's this?

Suddenly, giving it all away is all the rage.

Just in the past month, a pair of City superstars, , have disclosed charitable donations running to hundreds of millions of pounds.

But it is a competitive field, and they are being leapfrogged by the Scottish entrepreneur, Tom Hunter, who is pledging to transfer at least a billion pounds to his - which funds educational projects in Scotland and anti-poverty initiatives in Africa.

All this largesse reflects the astonishing sums being earned by successful individuals in today's entrepreneurial Britain.

However Britain's megawealthy have until recently been far less philanthropic than their US rivals.

With the gap between rich and poor widening, some of the super-rich are concerned that they will find their wealth-creating activities curbed by politicians, if they are not seen to be making more generous charitable contributions.

Hunter also has another motivation. Since becoming rich beyond his wildest dreams in 1998 with the , he says his main reason for making yet more money is the thought that most of it will go to good causes.

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• - What's this?

Sir David Walker was to assess whether it was communicating adequately with the outside world. He knew the answer before the off 鈥� since for most partners in private equity firms the 鈥減rivate鈥� bit of their moniker is a way of life.

Walker says such secrecy is no longer appropriate. No surprise there. The Treasury has made not-very-veiled threats that if private equity firms don鈥檛 do a better job of telling their employees and other interested parties (including largely ill-informed politicians) what they鈥檙e up to, they could find themselves compelled to do so.

Also, there is a semi-respectable intellectual case for greater disclosure, which is that they now control such a big and rising share of the British economy (they are responsible for an estimated 8 per cent of UK private-sector employment) that there is a public-interest case for having clearer oversight of their activities.

Walker himself 鈥� as someone who believes that private equity spurs productivity improvements and economic growth 鈥� hopes that harvesting more robust data on private equity will turn out to be good for the firms.

He is convinced that analysis based on reliable information 鈥� which he acknowledges is in short supply 鈥� would put paid to criticisms that private equity is largely a 鈥渂ubble鈥� phenomenon created by cheap credit markets and rising share prices.

He believes that private equity will be able to demonstrate that it creates wealth to a large extent through superior operational management of companies.

That said, he does acknowledge that the capital structure of private-equity owned businesses is probably superior to that of many public companies.

Or, to put it another way, he is bemused that listed businesses haven鈥檛 followed the lead of private-equity-owned ones by borrowing more and borrowing in a more sophisticated way.

For me, therefore, the most welcome of his recommendations are those that should allow the current heated and emotional debate about private equity to be replaced by one that actually has access to proper facts.

So, for example, Walker wants private-equity firms to disclose by category the source of their equity funding 鈥� which will show that any superior returns they make are distributed largely to overseas investors, rather than to British pension funds.

He also urges that private-equity firms publish a breakdown of their returns to show what proportion of their profits comes simply from riding on the back of rising stock markets, what share comes from financial engineering and what part comes from genuine productivity and trading improvements in the businesses they own.

Another proposal is that the private-equity partnerships should publish an annual account of their respective investment philosophies and how they oversee and direct companies in their portfolios.

Finally he wants private-equity owned businesses to behave a little more like public companies by publishing proper annual reports of their financial and operational progress within four months of the year-end and shorter six-monthly statements.

Critics of the industry will say this is all motherhood and apple pie 鈥� and that Walker is merely deflecting from more important debates about how little tax private equity pays and its impact on employment.

Except that these debates are less informed than they might be, in the absence of the kind of information which Walker鈥檚 proposals should yield.

So one reasonable concern is that some private-equity firms will ignore whatever code-of-practice emerges from Walker鈥檚 review, because they will view it as burdensome and intrusive.

And although the media, politicians and trade unionists may name and shame them, these firms won鈥檛 give a stuff, so long as they continue to receive oodles of cash from their overseas backers.

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• - What's this?

Unless there鈥檚 a last minute intervention by the Treasury this morning, Metronet 鈥� the private-sector company responsible for most of the maintenance and upgrading of London鈥檚 underground network 鈥� will go into administration today.

It would be the first serious blow to Gordon Brown as Prime Minister. As Chancellor, he forced a reluctant Ken Livingstone to adopt a so-called Public Private Partnership for refurbishing and improving the Tube.

The collapse of Metronet has been triggered this morning by a decision of the PPP Arbiter 鈥� whose purpose is to ensure that this largest of Public Private Partnerships delivers value for money 鈥� to award only a fraction of the cash Metronet said it needed to keep going over the coming year.

Since Metronet has exhausted most of its borrowings and faces years of receiving less cash than it wanted for the work it is doing, its directors have almost no choice but to put the business into administration under insolvency procedures. The personal-liability risks for them of keeping the business going outside of administration protection will be giving them the heeby-jeebies, to put it mildly.

Metronet directors are meeting this morning.

To state the obvious, Metronet has been a disaster for its five shareholders, WS Atkins, Balfour Beatty, Thames Water, Bombardier and EDF 鈥� two of whom, Atkins and Balfour Beatty have disclosed that they value their investments in Metronet at zero.

The losses for Metronet鈥檚 lenders may run to hundreds of millions of pounds.

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• - What's this?

Conrad Black was brought down because he behaved like the sole proprietor of his main business, the US company Holllinger, even though it was a listed company with lots of other shareholders.

One of these shareholders, an investment firm called Tweedy Browne, became increasingly concerned at what it perceived as the profligacy of Lord Black.

Lady Black gave Tweedy Browne a bit of a clue in 2002 when she told Vogue that her "extragavance knew no bounds" and that it was "always better to have two planes, because however well one plans ahead one always finds one is on the wrong continent."

Tweedy Browne feared that Lord Black was lining his own pocket with money that more properly belonged to all shareholders.

The US authorities concurred - and so too, today, has a Chicago jury.

Lord Black is famous for having the hide of an armadillo. But even he must be mortified. This friend of world leaders, a Bilderberg man, may be heading for jail.

Still, perhaps he can take a crumb of comfort from the symbolism of his conviction.

His trial is the last of a spate against company bosses who let their greed get the better of their sense of probity during the last great stock-market boom.

As financial markets soar once again, one big question is whether the current batch of corporate titans are less corruptible than their immediate predecessors.

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• - What's this?

This is a very dangerous moment.

The wobbles in credit markets - caused by the difficulties experienced by US borrowers of lower quality or sub-prime loans - could have one of two contradictory consequences.

The many billion dollars of losses suffered by those directly or indirectly exposed to sub-prime could prompt hedge funds, private equity houses and investment banks to take a deep breath and start showing a bit more caution in their deal doing.

That would be a healthy response. And it would mean that the positive conditions in global financial markets would be sustainable for longer.

鈥楳r Markets鈥�, Anshu Jain, seems to have learned the right lesson, given his warning in this morning's FT about the dangers of excessive borrowing or leverage.

But the more powerful and primal instinct among bankers and traders is greed.

The risk is they will double up their exposure to other sectors or financial products, for fear that the party is almost over - and if they don't scoop their bonuses or "carry" now, they never will.

I wonder if any of financial advisers had the courage to warn the company that it could be making a risky bet on aluminium at the top of the market with . "Don't do it" is not a phrase often uttered by investment bankers these days.

Markets are always in a state of war between common sense and desperation. And the good guys don't always win.

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• - What's this?

Here are two big questions begged by trading statement.

Is the store group's remarkable recovery under its chief executive Stuart Rose juddering to a halt?

And have the recent rises in interest rates simply taken the edge off excessive retail-spending growth or is the UK heading for a painful consumer slowdown?

The economic climate is particularly hard to read right now. Why?

Well, the not-so-glorious summer weather has dampened sales of seasonal kit.

Also - maybe - a bit of terrorist-induced unease around the place is making many of us a little more reluctant to spend spend spend.

But such inclement conditions afflict all retailers.

What matters for M&S's owners is whether it is doing better or worse than its rivals.

The latest figures from the indicate that Marks is no longer trouncing the competition - though the nuances of who's up or down are lost in the aggregates.

What is clear is that growth in Marks's sales per unit of space, known as like-for-like sales, has been falling for more than a year.

Like-for-like sales growth was 8.2 per cent in the first three months of last year.

And in the succeeding quarters, growth fell to 6.2 per cent, then to 5.6 per cent, then 3.8 per cent and now around 2 per cent.

That is a trend.

What's more, growth was weaker at the end of the current quarter than at the beginning - so the decline is continuing.

Which is not to say that Stuart Rose's rebuilding of M&S will crumble, just like the two previous management teams' attempts to rehabilitate this most totemic of retailers.

He has reinforced the group's foundations, say analysts, in a way that his immediate predecessors failed to do.

Even if sales were actually to fall in absolute terms, Rose would probably still be a hero in the City, so long as the sales drop were greater at Next, or Debenhams, or New Look, or BHS.

But retailing is a cruel and unforgiving business. His habitual bonhomie will be tested if competitors start to make up lost ground.

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• - What's this?

Most of us would never give a moment's thought to strange financial products with names like credit default swaps or collateralised debt obligations.

But please stifle that yawn, because whether you know it or not you probably have a stake in these things 鈥� and they could have an effect on your wealth.

There are trillions and trillions of dollars of these investment products held by banks, insurance companies, pension funds and hedge funds all over the world.

And if there were suddenly a collapse in the market for them 鈥� and people who know think that's possible 鈥� well, that could be painful for all of us.

In fact there have already been over the past few weeks, which stemmed from difficulties experienced by providers of riskier mortgages 鈥� known as sub-prime loans 鈥� in the US.

A number of hedge funds have experience humungous losses on their holdings of collateralised debt obligations related to these sub-prime loans.

Now I know that will sound like Mandarin to many of you. But a credit default swap is really just an insurance contract.

They started life as a way for banks who'd lent money to a company to protect themselves against the risk of that company running into difficulties.

But over the past few years, this market has evolved away from its roots in insurance into a giant speculative market, in which investors with no loans to a company are speculating on the ability of that company to pay its debts.

What has really put rocket fuel into the CDS market has been the development of the related market in collateralised debt obligations, or CDOs.

So what on earth is a CDO? Well, they are often described as bonds, but they are not normal bonds, in that they are not direct borrowing by a government or a company.

The way to think of a CDO is as a specially prepared financial product created by chucking a load of other financial products into a melting pot.

So let's say you chuck the debt or even the credit default swaps of a bunch of companies into this cooking pot. Now out of that the master-chefs at the investment banks can prepare a variety of new financial products that match the tastes and needs of particular investors.

That might be an investment with a lower than average risk of the loan going bad. Or it might be one with a higher risk of default but a much more generous interest rate.

But here's the thing. Because they are a confection of lots of other financial products, they are fearfully difficult to analyse and to value.

And just imagine how difficult it is to put a price on the more complex CDOs, such as those manufactured purely out of other CDOs, which believe it or not are called CDOs squared.

There are also CDOs cubed and others to the power of N - just thinking about those makes me feel dizzy

Anyway, hundreds of billions of pounds worth of these things have been created and sold to professional investors.

Here's what worries central bankers and regulators, who are supposed to police the global financial markets to pre-empt a calamity.

First that the existence of the insurance contracts, the credit default swaps, is encouraging careless lending by banks, because they know that if the loans go bad someone else will pick up the tab.

Second that if there were a sudden collapse in investor confidence, for whatever reason, CDOs would be impossible to sell and their price would collapse in a dangerous way.

Third that losses incurred by investors in the event of such a price-collapse could bring down banks or other institutions vital to the smooth running of the financial system - on which we all depend.

How likely is such a market meltdown? Not huge, according to Thomas Huertas, a sort of lifeguard of the banking system at the City watchdog, the . He told me that the FSA is encouraging banks to simulate the effects of a massive markets shock 鈥� the financial equivalent, say, of a dirty bomb in London 鈥� to see whether they would survive.

While not being complacent, the FSA is confident that our major institutions are founded on strong foundations. It matters to all of us that he鈥檚 right.

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• - What's this?

Today鈥檚 trading statement from , the property agent, is fresh evidence of a decoupling between Britain鈥檚 two economies, that of the super-rich and that of the majority of Britons.

It talks about a cooling of the UK mainstream residential market, with the market for new homes in 鈥渃ertain provincial cities鈥� showing signs of 鈥渙ver-supply鈥�.

Savills says housing demand in London and the South-East remains strong, which may reinforce the determination of the hawks at the to raise interest rates this week (although the softness on the high street which I recently highlighted suggests the earlier rate rises are biting).

But what the Bank of England has almost zero influence over is what Savills calls the 鈥渟uper-prime markets鈥�, or homes selling for many many millions of pounds each. These are still soaring in value, due in large part to 鈥渋nterest from international purchasers鈥� (the Russians, the Chinese, Arabs, the non-British partners in hedge funds and private equity).

The country-hopping billionaire class is untouched by whether the Bank of England raises interest rates by 录 per cent or not. They are the human manifestation of another phenomenon which the Bank can barely influence at all 鈥� the loose international credit conditions which have led to the boom in hedge funds and private equity, whose spoils have swelled the ranks of the super-rich.

If that credit bubble were pricked, then the super-prime housing market would deflate 鈥� but then so too would the price of many other assets.

There is an asymmetry here. The economy for most Britons can and probably will slow without much of an impact on the very wealthiest. But if the wealthiest were to feel the pinch from chillier conditions in global financial markets, well then we鈥檇 all have a bad case of the sniffles, or worse.

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It is standard practice at all private-equity owned businesses to load up with debt, cut their taxable profits and therefore reduce their liability to corporation tax.

So the by and 鈥� which collectively made earnings before interest, tax, depreciation and amortisation last year of 拢430m 鈥� is par for the course.

Nor are they likely to pay any corporation tax after they are merged later this year: interest payments by the enlarged business will probably wipe out taxable profits, since it is borrowing 拢4.8bn, significantly more than the combined debt of the individual companies of 拢3.3bn.

The impact of this kind of behaviour is to reduce the Government鈥檚 receipts of corporation tax 鈥� and the trends suggest that there could be a significant undermining of corporation tax.

Here鈥檚 why.

First, private equity firms are tending to own the firms they buy for longer than hitherto.

Second, public companies are slightly aping private-equity owned firms by borrowing more to increase returns to investors.

And you can dismiss the private-equity argument that the tax liability is merely transferred to those who lend to their companies. Some of these lenders pay tax in the UK, but in a globalised financial world most don鈥檛.

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The tidal wave of private-equity takeovers of British companies shows no sign of abating, even though the cost of borrowing to finance those deals has been rising, and in spite of politicians' growing unease about how little tax is paid by the beneficiaries.

The latest household-name business poised to fall under the control of private equity is , the cable TV, mobile phone and broadband business.

, one of the world's leading private equity groups, has made a preliminary offer for Virgin 鈥� which is listed on the rather than London 鈥� of between $33 to $35 per share for Virgin, well above its closing price on Friday of $24.37 per share.

That would value Virgin at approximately 拢5.6bn. The total value of the takeover deal 鈥� including Virgin's debt of almost 拢6bn 鈥� would be around 拢11.5bn.

It would therefore be the second biggest ever takeover of a British business by private equity, after Boots.

However it is too early to say whether Carlyle will end up as the owner of Virgin Media.

Virgin's board has asked its investment bankers, , to conduct an auction of the business.

It is believed that Virgin's managers feel that the business would be in a better position to grow as a private company. They would be freed from the onerous requirement to make quarterly announcements of earnings and could be less fettered in the way they invest in the business.

, another private equity group, is believed to have put together a consortium of private equity players to make an offer for Virgin.

A banker said there was likely to be interest in Virgin from "several other private equity groups".

The largest investor in Virgin Media is Sir Richard Branson. Sources close to Sir Richard say he would like to remain a shareholder in Virgin as and when it has been taken private.

It is believed that most of the other leading Virgin shareholders would be keen to sell at somewhere around the price offered by Carlyle 鈥� though the Virgin board believes the business could be worth around $40 a share.

Following pressure from leading shareholders, in May Virgin asked Goldman to carry out detailed research on what the business is worth, or what's known as a valuation exercise.

Virgin is a substantial business. It has 9m customers and annual turnover of 拢4bn.

It is in a bitter legal dispute with following the failure of the two businesses to reach an agreement on terms for Sky to be carried on Virgin's cable channels.

In its last results, Virgin said it had 3m users of its television services, 3.4m broadband customers, 4.5m subscribers to its mobile phone service and 4.1m fixed-line telephone customers.

It is believed that Goldman will take around six weeks to whittle down the actual and potential bidders for Virgin to a definitive short list.

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