Jeremy Warner's Outlook: Bank must be open on standby lending

The Bank of England finally seemed to join the central banking crowd yesterday in admitting that it had made emergency credit facilities available to the banking system. Unfortunately it is virtually impossible to tell what the significance of the £314m loan provided might be.

Provision of this quantum of overnight money by the Bank of England is actually fairly common, and it can as easily be as much for the purpose of covering technical and operational problems as shortage of liquidity. For, instance, the Bank provided provided as much as £3.7bn of overnight funding on 29 June and £1.93bn on 2 July. Both these facilities pre-date the present liquidity squeeze and at the time were not thought worth reporting.

In some respects, the Bank's unwillingness to elaborate on yesterday's announcement is understandable, for it doesn't wish to stigmatise banks that take advantage of the facility. Banks that use the facility are not necessarily in trouble. However, in today's fevered environment it is just plain daft not to name the parties involved and if there is no reason for alarm to explain why that should be the case.

Part of the problem in the present crisis is lack of transparency - not knowing which banks and hedge fund might be running what losses. This has caused a growing reluctance to lend between banks and prompted a general seizing up of credit markets.

The Bank's inscrutability on the standing facility hardly helps matters. The inevitable result was yesterday's "hunt the miscreant bank" game in which all the obvious suspects - Northern Rock at the head of the list - were asked to rule themselves out.

So is the credit crisis, thus far most notable among American and European banks, spreading to the UK? Given the City's position as the world's pre-eminent international financial centre, it would perhaps be silly to think it wasn't.

The financial system is nowadays a global organism, and no single nation can remain immune to its mood swings. We are already seeing casualties among London based hedge funds.

A company such as Northern Rock may be exclusively a UK business, but it raises its credit in international money markets and will therefore already have been directly affected by scarcer and more expensive credit conditions. The same goes for most largish British companies.

Quite how marked the eventual effect on the real economy might be is still anyone's guess. Bond yields in the US are pointing unambiguously to a recession, though it has to be pointed out that they are not always right. Hank Paulson, the US Treasury Secretary, has already conceded that "economic growth will be less than it ordinarily would have been".

Worryingly, recent events have prompted a notable change of mood among previously sanguine observers of the US economy. Calmer souls are losing their nerve and that doesn't presage well for what is undoubtedly an exceptionally overgeared economy. These debt overhangs have inflicted serious damage in the past, most notably after the 1980s boom. It is not yet clear that policymakers can prevent a repeat performance. As Mr Paulson observed yesterday, credit is being repriced and reassessed across the capital markets. It is still to be hoped the end result after a long period of excess in financial markets will be largely cathartic.

As for share prices, if you didn't manage to get out at the top, sitting tight continues to look the best bet. Of the three pillars on which the bull market of the last four years was built, only one - abundant liquidity - has so far been removed and this may be temporary. For the time being, the others - strong economic growth and buoyant corporate profits - remain intact.

Home trusts for householders

Forget the wider imponderables of the present credit crunch, there is only one thing that the average UK dinner party really wants to know - how is all this going to affect house prices? If the US acts as a front runner for what eventually washes up on these shores, then households, depending on where you live, have some cause for concern. As one regular correspondent notes, if you want to move to Detroit or St Louis, then they might pay you to do so, but Seattle is firing on all cylinders, and like London, you'll struggle to find a bargain in Manhattan, or the better areas of Los Angeles and San Francisco. Cities which for one reason or another appeal to the international set seem for the time being to be immune.

The UK housing market might be expected to conform to this pattern as credit conditions tighten. Relative to disposable income, UK housing looks much more overvalued than the US was at its peak. Nor is this entirely explained by supply constraints and relatively high levels of immigration. If it was, you would expect rents to have risen in line with prices. They haven't.

This suggests a high degree of speculative activity which will eventually result in a shakeout. But don't expect to be able to buy your dream mansion in Hampstead for half the asking price. That's not going to happen.

Burch quits troubled Virgin Media

The unkind joke about Steve Burch is that when headhunters recruited him to sort out the UK cable industry, they got the wrong guy. There are apparently two Steve Burchs operating in the US cable industry. The hotshot they were after wasn't the Vietnam war veteran they gave the job to.

Untrue, no doubt, but equally certain is that Mr Burch was wholly out of his depth in the viciously competitive telecoms and pay TV market in to which he was parachuted. Virgin Media insists that Mr Burch resigned for family reasons. There was no question of sacking him. Well, if you say so, but this was also one of the most predicted executive departures we've seen in a long time.

Had he not jumped, he would certainly have been pushed. For a wonderful moment there, it looked as if the private equity group Carlyle was going to put him out of his misery with a highly leveraged takeover bid, but he missed his chance. The faffing by Goldman Sachs in attempting to generate an auction meant the bid was overtaken by the turmoil in the credit markets. Carlyle might eventually come back, but for the moment the offer is off the table.

In the meantime, the business continues to flounder. Virgin Media lost more than 70,000 subscribers in the last quarter as the war with Sky for customers escalated, while the influential research company Enders has challenged the wisdom of the pricing strategy being pursued by Virgin Mobile.

This has called into question the whole idea of the "quad play" brought into being when NTL acquired Virgin Media. There is also growing scepticism over the claimed benefits of combining broadband, pay TV, fixed line and mobile telephony all under one roof. Carlyle would almost certainly have sold Virgin Mobile had its bid succeeded. There have been any number of attempts to fix UK cable over the 20 years the industry has been in existence, and none of them have worked. The only consistency is that each successive failure results in a barrow load of redundancy money for the responsible CEO. Investors and bankers have been a good deal less fortunate.

Most of them have lost their shirts on this incompetently run industry. Reincarnation as Virgin Media seemed to offer good reason to think this history of failure might finally be broken, but BSkyB has again managed to outmanoeuvre the company on almost every level. Neil Berkett, the chief operating officer, has in effect been doing the job of the semi-detached Mr Burch for quite a while now already. In assuming the role of acting CEO, he gets the chance to run the whole train set. Headhunters have been appointed to look for alternatives, but given the record, we should perhaps be wary of the results.

Carlyle may well have been right to argue that the only way to redeem this industry is through the relative obscurity of private equity, where the company could have been given the time to come up with a long-term plan of action. In public markets it just seems to stagger from one crisis to the next.

j.warner@independent.co.uk

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