Crunch comes for Standard

STANDARD Life suffers from mutuals syndrome. There is an innate belief that it knows better than everyone else in the insurance industry and that its home-grown management has all the answers.

The Financial Services Authority begs to disagree. Typically Standard Life, having spent days playing down the importance of its discussion with the regulators, now acknowledges something is amiss.

What is wrong is that the FSA is toughening up its policing of the insurance industry. Following the lead of global banking regulators, it is seeking to match capital to real risks.

Unfortunately for Standard Life, the FSA believes that the Scottish insurer's internal assessment falls short.

Several factors have caught the regulator's eye. The group's greater exposure to equities than some of its rivals and the volatility of the share market have to be taken into account, even though global share values have been rising.

More seriously the regulator has concerns about Standard Life's promises of final bonuses, which could be interpreted as guarantees. It also believes that the magic circle of mutual ownership, which limits the forms of fundraising available, may raise special problems.

The FSA is, of course, especially wary of mutuals. The Equitable Life experience taught it a lesson and now Standard and its confident chief executive Iain Lumsden are paying the price.

Standard Life is not Equitable or Barings, but like them it has an inability to tap into equity capital.

For some years now Standard has stood out against the rebels who have been driving it towards a stock market float in the hope of reaping big bonuses from the capital redistribution. If tougher solvency requirements gobble up reserves, there may be little left for the carpetbaggers.

Yet paradoxically, conversion may be the most attractive option - giving the insurer and its 2.6 million members maximum flexibility.

Rates on hold

There can be no surprise that interest rates in London and Frankfurt have been pegged at current levels for the next month. The lack of fresh economic data together with the dollar's slide against the pound and euro made a ' hold' decision all but inevitable.

What is surprising is the optimism of Jean- Claude Trichet, president of the European Central Bank, who insisted that despite the euro's strength at $1.27, export growth from euroland will continue because of the dynamism of the world economy.

Trichet's remarks led to another surge in the euro, because it seemed to rule out any cut in ECB interest rates.

More relevant to homeowners and other borrowers in Britain are the implications of the firm pound on the future cost of funds here. Close followers of the deliberations of the Bank of England recognise that currency movements play an important role in fixing interest rates.

The pound fell 7% against the currencies of Britain's major trading partners in the first five months of last year. But it has now recouped almost all of those losses, rising 5% in the final months of 2003 and a further 1% since the turn of the year.

Markets have been signalling sharp British rate rises this year from the present 3.75% to 4.75%. But the case for steep rises in UK rates is retreating. All the signs are that the new Consumer Price Index measure of inflation - which excludes house prices - is well within the government's target.

The pound will continue to press down on imported prices. And the last thing that exporters need, as industry comes out of recession, is the fatal combination-of a strong pound and rising interest rates.

Nevertheless, there remain serious worries. The money markets face serious competition for funds from the government, the household sector and now manufacturing. So the question in Britain is not whether rates will rise in 2004. That is certain. The real issue is where the peak will be with the optimists now seeing it at 4.25%, rather than higher.

Media magic

Sometimes the media industry is incredibly self-indulgent. At magazine group Emap, Tim Schoonmaker, chief executive of Emap Performance, is resigning after 20 years to go it alone.

In his new consulting role his first client will be - you guessed it - Emap as it develops its digital interests.

Market research group Taylor Nelson Sofres has recruited Andy Boland to be its new finance director. Yes, this is the same Boland who passed Go, collecting an £800,000 payoff, before leaving his previous employer Cordiant last October. Isn't life splendid?