Myners faces tough choices

CANARY Wharf has never seen anything like it. In quick succession two of the nation's best-known shopkeepers, Stuart Rose and Philip Green, made the lengthy journey across London from the West End to Docklands to be grilled by the enforcers from the Financial Services Authority, with high-powered lawyers in attendance.

The FSA deserves full marks for the speed and openness with which it is going about its probe.

It plainly recognises that the flow of disclosures about share dealings in Marks & Spencer, ahead of Philip Green's initial offer on May 27, are becoming a huge distraction to the business.

They are also sullying the reputation of the City at a time when equity investment is not exactly the flavour of the month.

It is not so surprising that Rose was grilled for two hours by the FSA. Given what is already known about his frenetic behaviour from March onwards, as he began to take a keen interest in what was going on at Britain's favourite retailer, there was a great deal of ground to cover.

Green was inside for an hour and a half, and will no doubt have been questioned about the activities of some of his business associates, although he personally holds no M&S stock.

The continuing focus on Rose, at a time when he is preparing a new strategy designed to lift M&S out of the doldrums, must be a source of worry for interim chairman Paul Myners, who took control in the wake of the ousting of Luc Vandevelde and Roger Holmes. As we report today, Myners' commitment to Rose is unwavering.

Myners is one of the most respected figures in the City and Whitehall. He was part of the Company Law Review Committee, led a major investigation into the fund management industry, and is chairman of the Guardian Media Group.

He is better qualified than most financial notables to understand the reputational damage to Rose that could be caused by a lengthy FSA inquiry (they are never quick). It could also be damaging to M&S's defence and recovery.

At some point soon Myners may have to make some tough choices as to whether he puts his loyalty to Rose above the interests of the broader body of M&S investors.

King's rest

HOME owners look as if they may have taken a breather in July after the recent relentless rise in mortgage costs.

Bank of England Governor Mervyn King told a Lords committee: 'We have raised interest rates to a more normal, sustainable level.'

He argued that the full-point rise since last November was part of a 'rational strategy' to ensure inflation came in on target over time.

The first fruits of the Bank of England's efforts to rein in inflation and the housing market are now being seen.

The rise in the Nationwide's house price index fell back to 0.9% in June from 1.7% in May, although the annual rate is still a frisky 19.1%.

The Governor sought to make it clear that the housing market was not the only factor which drove the Bank to raise rates four times since November to 4.5%.

The Bank is influenced by the lack of spare capacity in the British economy, which King fears could drive prices higher.

He rejected the idea that the nation is facing a new price surge but acknowledged 'a potential modest pick-up in inflation'.

He does, however, expect interest rates to continue to rise. 'I think it is pretty clear that the interest rate cycle has turned,' he says.

This is likely to be confirmed today when the Federal Reserve pronounces on American rates. Despite the Nationwide figures, it is not absolutely clear that the housing bubble is spent.

The latest figures for mortgage approvals in May show a 25% rise on the same month last year. Consumer borrowing climbed by £1.6bn but the pace of increase is slowing.

Mortgage equity withdrawal, one of the factors supporting household spending, is easing off.

Despite this, the withdrawal numbers for the first quarter of the year were firm and will exceed the £16.2bn of cash taken out in the final quarter of 2003.

King may still have some remedial work ahead before he finally knocks the borrowing boom on the head.

Barking louder

THE timing of FSA chairman Callum McCarthy's London speech on enforcement today could not be better, given the events surrounding M&S shares.

Since McCarthy took over at the FSA nine months ago, he has moved with refreshing speed to clean up the City, focusing on misselling, financial promotions and market abuse. The number of cases on the books has risen by 50%, 100% and 66% respectively.

Finally, the City watchdog is barking loudly.