Robin hovers over water

FINANCIER Robin Saunders will be watching developments at water group AWG like a hawk. The company, which last month turned down a £900m approach from the petite blonde, a top dealmaker at German bank WestLB, has suddenly parted with its chief executive.

This follows a catalogue of errors by the hapless former boss, including the disastrous £260m takeover of Morrison Construction two and a half years ago, which depleted his credit with major shareholders.

AWG's board evidently believes that the company did not have a hope of defending itself against Saunders with Mellor still at the helm.

One intriguing question is whether AWG will press ahead with the lawsuit Mellor launched against Morrison founder Sir Fraser Morrison. It seems likely that Mellor himself would be a key witness.

In an equally intriguing twist, Sir Fraser's brother, Gordon Morrison, is part of the Saunders bidding team and will be given a management role if she succeeds.

Saunders' main interest is in the boring but stable cashflows from the water business. She can package the income from customers' water bills and sell it on to big investors. The Morrison brothers might eventually manage to reincarnate their old family firm by winning back control of the property and housebuilding side.

Regulator Ofwat should subject any proposals from Saunders to close scrutiny, to ensure that customers' interests are protected and that she does not attempt to wring out too much capital.

But AWG will find it tough to mount a credible defence. The vicious bear market has stripped such companies of their pretensions to growth and battered their share prices. They are wide open to being snapped up cheaply and run for cash by Saunders and the private equity brigade. In the current environment, shareholders are often grateful to be offered an exit.

AWG shares now stand at 520p, almost 25% higher than when Saunders made her first move. She has made it clear that this is not her last word. As any ornithologist will tell you, robins look cute - but in reality they are highly aggressive.

Housing stand-off

HAS the long housing market boom finally peaked? Council of Mortgage Lenders figures showed a crisis of confidence among first-time buyers, who have turned reluctant to take out monstrously large mortgages.

That follows evidence from the Royal Institution of Chartered Surveyors that prices dropped for the first time in two years last month, and that the fall was the largest for eight years. Retail sales volumes also fell in February, taking the annual growth rate down from 4.3% to 3.2%, amid evidence that formerly spendthrift consumers are trying to pay back or at least consolidate their debts.

The dips on the housing market are still modest, largely because stubborn sellers are refusing to reduce their prices. Employment is high, interest rates are low, and unless these change there seems little chance of seeing a repeat of the wave of forced sales that characterised the early Nineties housing bust. What we have now, especially in housing 'hotspots', is a stand-off between sellers and buyers.

Estate agents, like the retailers, are hoping that the old optimism will come back if there is a quick resolution to the Iraq conflict. But consumers are concerned about the underlying economy, not just the war.

The CBI's industrial trends survey showed a sharp increase in pessimism sweeping the manufacturing sector. Chancellor Gordon Brown, whose grip on the public finances has been shaken by stock market falls, looks likely to miss his deficit target this tax year. Public sector net borrowing hit £18.1bn for the first 11 months of the fiscal year, and some analysts say Brown may run £3bn over his £20bn target. Next year could be much worse, particularly if the war goes on longer than expected.

German woes

OUR insurance companies are not the only ones in trouble. Allianz, Europe's largest insurer, has announced plans to raise £3.4bn of new capital after running up a record £800m loss last year.

The group is reducing its hefty reciprocal shareholdings with reinsurer Munich Re, in the hope of damping down both groups' share price volatility. This did not shield Allianz, which owns City investment bank Dresdner Kleinwort Wasserstein and UK insurer Cornhill, from a humiliating credit downgrade at the hands of rating agency Standard & Poor's.

The once mighty German financial system, with its internecine system of cross-stakeholdings, is in deep distress.