Madrid casts shadow on BA

THE Madrid terror attack and its electoral aftermath have cast a nasty pall over financial markets on both sides of the Atlantic.

Having helped dispatch one coalition leader, Jose Maria Aznar, at the ballot box, Al-Qaeda must fancy its chances of seeing President Bush and eventually Tony Blair toppled too - hence the jitters in the City and on Wall Street.

British Airways finds its shares in the line of fire, tumbling again by 19 1/2p to 269p after a big fall last week. This is slightly curious given that the Madrid attack was on railways rather than airlines.

Moreover, despite all the security fuss surrounding its now permanently-axed Washington flight BA 223, the carrier's transatlantic routes - which account for 40% of turnover - are fairly well booked at present.

Investors in BA have had a bumpy ride in recent years, with security after 9/11 and Sars among the main difficulties. But perhaps the greatest challenge has been the bear market and the dearth of mergers and acquisitions.

The pick-up in activity over recent months has seen the firstclass and business seats, where BA makes its big bucks, overflowing again.

The market appears to have picked up a whiff of trouble from last week's investors' day, when people came away with the impression that BA was facing a new costs black hole of £400m.

This seems to have been a misreading of already known cost pressures, including the £130m to be pumped into the pension fund, pay increases, higher landing charges and some £50m extra for jet fuel because of surging oil prices.

BA is seeking to deal with this by pressing on with cost reductions beyond its 'future size and shape' strategy which took £785m out, mainly from the labour bill.

Now it is seeking to remove a further £450m. One way of doing this is to reduce the pensions burden.

It wants to persuade the unions to raise contributions to final salary pension schemes from 5% to 8% or recognise that their pension will not be quite as much as hoped.

This is among the reasons for the strike threats from its workforce.

What ought to be most reassuring to investors - barring a new security crisis across the Atlantic - is that revenues are estimated to rise by 2% to 3% over the next year, reversing a period of decline.

In addition, debt levels have fallen to £4.5bn at the end of the last year from a peak of £6.6bn. The belief is that these numbers could be down to £3bn by the end of 2004.

But as everyone who has lived through the turmoil in the skies over the last few years will know, when it comes to the global airlines there are no guarantees.

CSFB Sants

THE Financial Services Authority is in danger of starting to look like a tough American-style regulator, instead of a paper tiger and chief executive John Tiner is taking a leaf out of Eliot Spitzer's book.

By all accounts he sought to frighten the bosses of the split capital trusts to death by regaling them with e-mail evidence of collusion in the scandal in the belief that this would encourage them to pony up compensation.

But this is not all. Callum McCarthy, the FSA chair, and Tiner have reached into the heart of the City to find themselves an abuse-buster. Hector Sants joins from Credit Suisse First Boston as managing director of wholesale and institutional markets.

In this newly-created post he will be poacher-turned-gamekeeper in the tradition of Joseph Kennedy, the first chairman of the Securities and Exchange Commission. The FSA is keen to point out that Sants, who will be taking a huge pay cut to become an enforcer, was well removed from the scandals that rocked CSFB in recent years including James Archer and the Flaming Ferraris, three of whom were banned from City trading for market abuse.

CSFB was also the subject of the FSA's biggest individual fine over a derivative trader's efforts to mislead the Japanese tax authorities. In the US it has been in the dock as the main financial adviser to Enron on some of its biggest deals.

Still it is better that the FSA has regulators who have seen the City from the inside.

The Penrose report on Equitable Life, published a week ago, exposed in full the hapless 'light touch' regulation regime operated by the Department of Trade and Industry, the government actuary's department et al.

Sants will not be alone in hailing from a firm which had more than its share of snafus. After, all John Tiner is an escapee from the late lamented Arthur Andersen.