- Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own. -

Is the crisis over yet?

In the last 3 months, the Dow and the FTSE have each risen by about 25 percent, the Standard & Poor's 500 by a third. House prices appear to be stabilising in the UK. Stress-tested and backed by seemingly unlimited government funding, the banks are lending again (if only to each other), so that 1-month libor is down to only 0.3 percent.

In the Far East, the Chinese economy may be growing again, and even Japan may have pulled out of its nosedive. The oil price has recovered from its lows.

Is there any reason to doubt that the worst is past?

No reason whatever, except the following (in ascending order of gravity):

1. As unemployment increases, defaults on credit card debt are certain to rise, reducing the banks’ ability and willingness to lend to consumers.

2. Even if the residential property market has stabilised, commercial property prices appear to be in free fall, leading to further contraction in the construction sector, more bad debts and knock-on effects on employment and investment in the broader economy.

3. The consensus view is that bank stress tests, in the U.S. at least, were based on optimistic assumptions about the depth and duration of the real estate slump.

4. In order to spare U.S. and UK taxpayers, the bailout burden has been piled on to the bond markets, which have so far proved willing to finance the massive increase in the national debt of the two countries at a cost of only 3.75 percent on 10-year Government debt in UK and 3.5 percent in U.S., which is remarkable considering that both countries appear to be heading for a debt-to-GDP ratio of 100 percent or more.

However, in addition to the recent threat by S&P to downgrade UK gilts, the spread on credit default swaps is an even clearer warning: it costs 86 b.p. to insure against a British government default, and 44 b.p. for the U.S. (compared to only about 40 b.p. for France, Germany or Japan). Outright default by Britain or the U.S. is, in my view, highly improbable.

By far the most likely outcome in the medium term is inflation, or default by stealth. This is how Britain paid the bill for World War Two and the U.S. for Vietnam. So far, however, the bond markets appear to trust the politicians to come up with a plan to pay off these debts. But they will not wait forever.

At some point, they could well take fright and try to dump UK or U.S. government debt, forcing yields up to cripplingly high levels, with disastrous consequences for the real economy.

5. Who are these bondholders anyway? A significant proportion are institutions or governments of countries which, unlike Britain and the U.S., save rather than consume, and hence have balance of payments surpluses, notably the Gulf States, Japan and, most important, China. How long will their patience last? They are locked into their massive accumulation of dollar assets, unable to exit without realising enormous capital losses. But if they decide to stop throwing good money after bad, the outcome could be a dramatic rise in interest rates and a calamitous fall in the value of the Dollar, a final convulsion in this long devastating crisis.

None of these disasters is inevitable. But if you think the worst is over, ask yourself: why is the price of gold - traditionally seen as a safe haven in times of economic turmoil - rising again?

- Professor David Bailey works at the Coventry University Business School and has written extensively on globalisation, economic restructuring and industrial policy, with particular reference to the auto industry. The opinions expressed are his own. -

GM declared itself bankrupt on Monday in one of the largest bankruptcies in U.S. history, in an attempt to seek protection from creditors.

The firm has stacked up over $80 billion of losses in the last four years, also swallowing some $20 billion in cash from the Obama administration. It is likely to need another $30 billion before emerging from Chapter 11 substantially slimmed down and free of debts.

A bankruptcy judge will decide who gets what assets. It's not clear whether during Chapter 11 the firm will continue to function and assemble cars.

It used to be said that "whatever's good for GM is good for the U.S. economy". Whilst GM is no longer the world's biggest carmaker, by some estimates it still accounts for 1 percent of the U.S. economy. The bankruptcy is not only hugely symbolic of the fate of the ailing U.S. car industry, but is of huge importance for all the workers, suppliers, dealers and creditors caught up in its travails.

Republicans have begun to criticise the U.S. president's handling of the GM affair, but it is difficult to see what else the U.S. president could have done.

Obama had to give GM time to come up with a credible plan, and I have always thought that the firm would need up to $50 billion of government support to get through the downturn and restructuring.

Under the proposed plan, the U.S. government would get a stake of over 70 percent in GM in return for another $30 billion of state cash, with the United Auto Workers union taking 17.5 percent initially, with the union accepting shares in GM instead of cash owed by the firm for retired employees healthcare cover.

A majority of GM's bondholders have accepted the offer to swap their $27 billion in debt for an initial stake of 10 percent with the option of buying 15 percent more later. Their agreement to do this should help in speeding GM's progress through Chapter 11 and avoid expensive legal battles.

Whilst a minority group of bondholders are holding out for a better deal, in reality this restructuring is the only game in town.

Hopefully, the new GM that emerges from Chapter 11 will be leaner, fitter and free of debts. It will include the firm's best models and R&D and will scrap brands like Pontiac, Hummer and Saturn.

By 2012, the new GM will comprise the Chevrolet, Cadillac and Buick brands, plus its GMC truck brand. Of particular importance, its forthcoming electric Chevvy Volt car will be part of the new firm.

"GM-Lite" will cut the number of assembly sites across North America, including Canada, to 33 within three years, from 47 at the end of last year.

Eventually, the goal is to float the new firm on the New York Stock Exchange. It will shed some 20,000 or more workers in the U.S., and has also told over a thousand dealers in the U.S. that they are at risk of losing their franchise. GM plans to lose 2,300 from its 6,000-strong network.

In a deal with the UAW which saves the firm $1 billion a year, rules on breaks, vacation and overtime have been changed, retiree benefits have been cut, and the UAW has agreed not to strike until September 2015 at the earliest.

GM will never be the biggest manufacturer again, but Chapter 11 is anyway about restructuring the firm, erasing the debts, cutting costs and reorienting the firm towards more environmentally friendly cars.

A viable car company may yet emerge from the ashes of the old GM, thanks to an interventionist U.S. government which is investing heavily in new green technologies.

The situation here in the UK is rather different. An efficient and world class car industry is struggling given the impact of recession and credit crunch, and the British government has largely been a spectator as GM Europe has been sold off.

That in turn could have a very significant impact on jobs at Vauxhall here in the UK.

-- Neil Collins is a Reuters columnist. The views expressed are his own --

Standard & Poor's could have chosen a better day to kick the British economy, by placing the UK onto "negative outlook", the usual precursor to a downgrade of S&P's rating of an issuer's debt.

The move came minutes before the Debt Management Office closed its massive auction of 5 billion pounds of 2014 stock, and minutes after the release of figures showing the Public Sector Net Borrowing Requirement leaping to 8.5 billion pounds in April, a sum which not long ago would have been considered high for a whole year.

Economist Howard Archer at Global Insight immediately called the figure "dire, starting the new fiscal year off as it is highly likely to continue."

S&P, meanwhile, now fears that the net general government debt burden "could approach 100 percent of GDP and remain near that level in the medium term."

It's hard to describe the UK public finances as anything other than a disaster area. The forecasts made in last month's Budget looked optimistic within days, and even these require the DMO to borrow 220 billion pounds this financial year, or almost a billion pounds every working day.

Yet while the DMO soaks up cash, the Bank of England is desperately creating it. Its "quantitative easing" programme has been in full swing this week, buying in 1.326 billion pounds of a stock which looks very like the one that the DMO was issuing just one day later.

The experts will tell you that because the life of the new stock is not quite five years, it falls outside the Bank's five to 25-year target zone for QE, and is therefore qualitatively different. This is pure mumbo-jumbo. Essentially what is happening is one arm of the government is creating money for another arm of the government to borrow.

The traders can hardly believe their luck, selling expensively to the Bank and buying cheaply from the DMO.

This waste of taxpayers' money would be bad enough, but the real damage is the false sense of security this round-tripping produces. Britain is in real danger of falling into a debt trap, where the cost of borrowing spirals up with the amount the government has to raise.

As the rating agency's reality check concludes: "A government debt burden [of nearly 100 percent of GDP] if sustained, would in S&P's view be incompatible with an AAA rating."

Loss of that rating would lead to a higher cost of government borrowing, damaging the chances of avoiding the trap.

Were the Labour administration not in total funk, it might seize on this report to admit that its spending plans are not sustainable. Capital projects, like the NHS IT scheme, ID cards, Crossrail, aircraft carriers, the Eurofighter and much else will have to go, and the next government will have to impose real cuts in the core spending of education, health and welfare.

S&P's warning shot shows that the phony war is over, and the real pain lies ahead.

- Cori Crider represents 30 Guantánamo prisoners as an attorney with legal charity Reprieve. The opinions expressed are her own. -

You would be hard-pressed to find a kid more thrilled on Barack Obama’s first day in office than Mohammed el Gharani. On January 21, had you been standing at the right corner of Guantanamo Bay, you could have heard him whoop for joy when the U.S. President made history—so we thought—by closing the prison where el Gharani grew up.

It is four months since that decision. The president gave a speech, "clarifying" his plans for Guantanamo on Thursday. But I fear we will all look back on May 21, 2009, as the day real history was made—The Day President Obama Un-Closed Guantanamo.

In many ways the die seems already cast. The President revived the military commissions last week, a move that risks stretching the prison’s life out for months. Just two prisoners have left Guantanamo since January. One, Binyam Mohamed, had humiliated the U.S. and the UK over his torture; the other, Lakhdar Boumediene, had been ordered released by a federal judge.

It is unclear what the administration is waiting for in Mohammed el Gharani’s case. He was found innocent in court, just like Boumediene, and he has a country to go to. He could climb on a plane to Chad tomorrow, were the administration simply to wake up and do what it has been ordered to do.

In this, el Gharani is luckier than many—namely, Guantanamo’s sixty refugees, who require the U.S. or a goodwilled third country to save them from torture at home. For these men, the administration’s dithering spells disaster. For while the government frittered away the global goodwill that would have helped them house refugees in January, the right regrouped.

Now, talking heads and demagogues have found a new target in Gitmo for scaremongering— a group of innocent Muslim refugees from China called the Uighurs. After rumors swirled that a couple of Uighurs might be released into the U.S., members of the right published libellous statements saying they were tied to al Qaeda. (Even the Bush administration conceded the Uighurs were not the enemy.)

Republicans in Congress have vowed to fight “putting terrorists in American towns” to the bitter end. On the heels of this panic, even the Democrats yanked from a bill funding to close Guantanamo. Yet nearly every country in Europe has made clear: if the US takes no refugees, Europe will take no refugees.

Up to now, the Obama administration has kept silent before this storm of falsehoods, though it well knows it could doom the closure of Guantanamo. We know of no other options the US has pursued for the refugees, aside from Europe and the US. Rumors of Middle Eastern havens have not, apparently, been pursued. Those options closed by inaction, what is left? Filling cells in Bagram, perhaps, or worse still, returning men to Tunisia, China, or Uzbekistan. These no longer seem beyond possibility.

The xenophobia we have seen on the U.S. airwaves and on the Hill this week reflect the worst of America. El Gharani knows a lot about such racism; as a black boy in Medina, local schools shut him out; and as a teen in Guantanamo, he bore the brunt of abuse because he was both dark-skinned and Muslim.

We at Reprieve have watched Mohammed el Gharani grow up in prison. It is high time he left. And while it is not too late for President Obama to let him go, and take a strong stand on these issues, he has lost precious time. Today we heard moral equivocation from the lips of the very man who lambasted Guantanamo repeatedly on the campaign trail.

*This post was updated after the speech President Obama made on Thursday.

Rob Sisson is president of Republicans for Environmental Protection. All opinions expressed are his own.

(Politico) News flash: Republicans believe in protecting the environment. And we believe in playing it straight with the facts.

There are plenty of us green Republicans out here, including leaders like Utah Gov. Jon Huntsman — President Barack Obama’s nominee to be ambassador to China — Sen. Susan Collins of Maine and Rep. Mark Kirk of Illinois, to name a few.

As Huntsman said last year, “If we’re going to survive as a party, we need to focus on the environment.”

But protecting the environment isn’t just political expediency; it’s core philosophy. We don’t think it’s a coincidence that “conservative” and “conservationist” sound so much alike. And we don’t think it’s a coincidence that many of our landmark environmental bills — the Clean Air Act, the Endangered Species Act and the Clean Air Act amendments of 1990 — were signed into law by Republican presidents.

It was President Ronald Reagan who negotiated the 1987 international treaty to safeguard the Earth’s protective ozone layer by phasing out the use of chlorofluorocarbons.

That’s why it is so frustrating when my fellow Republicans today play games around one of the most important environmental issues of our time.

Climate change is real, it’s caused by humans, and it will create serious risks for our nation’s security, economy and quality of life — and sooner than we think. That’s the unmistakable message from scientists who have devoted their professional lives to understanding how human activities affect climate. One of them is Dr. Katharine Hayhoe, a climate research scientist at Texas Tech and a devout evangelical Christian.

She is co-author of a forthcoming report that will document the stunning effects climate change will have throughout the United States — such as the climate of my own state of Michigan becoming like what North Texas experiences today. I’m not kidding — look at the report, from the U.S. Climate Change Science Program, when it comes out shortly.

This is serious business and deserves a serious debate. Some Republicans — Reps. Mary Bono Mack of California and Bob Inglis of South Carolina come to mind — are thoughtfully engaged, but many on our side of the aisle have chosen politics over prudence. That’s why I reluctantly have to call out those Republicans who continue to spread the false claim that capping greenhouse gas pollution will — supposedly — cost American families $3,100 every year.

The National Republican Congressional Committee started playing this game in March. It claimed this bloated cost figure was based on an MIT study.

But the author of the study — who surely ought to know — said the NRCC was way off base. Here’s what the author, professor John Reilly, said about the NRCC claim: “It’s just wrong. It’s wrong in so many ways it’s hard to begin.”

In letters to House GOP leader John Boehner, Reilly asked the NRCC to stop using this false number. He said that a correct estimate of the costs was far below NRCC’s number, which was based on a sloppy analysis that was riddled with errors a freshman economics major would have caught in a heartbeat. Reilly also pointed out that his study analyzed a generic cap-and-trade bill without any cost mitigation provisions.

The House is now looking at a very different bill to fight global warming pollution. What do we know about what that bill would cost?

A recent EPA study estimates the cost at $98 to $140 per year for each household. Even with the legislation, however, total household spending would still increase nearly 20 percent by 2020.

The economy will be bigger in 10 years than it is today, which climate legislation critics often fail to point out. We can afford to invest in energy efficiency upgrades, develop more renewable energy and take other important steps to stabilize the climate that we all depend upon.

So to my fellow Republicans, I say: Act like real conservatives. Be honest about the science and about the facts. Take responsibility for fixing a real problem. And let the world know that today’s Republicans want to be remembered the way we recall President Theodore Roosevelt — as people of honor who stood up to conserve the world we live in for our kids and grandkids.

(c) Capitol News Company, LLC 2009

-- Clive Stafford Smith is the director of Reprieve, the UK legal action charity that uses the law to enforce the human rights of prisoners. The opinions expressed are his own. -

Samantha Orobator, a 20 year old British woman, is languishing in the Phonthong Prison in Laos, on a capital charge of carrying a pound and a half of drugs in her luggage. Under the languid Laotian legal system, she would normally have waited two years or more for a trial. However, the Laotians accelerated the schedule, announcing late on Thursday that the trial would be held this Monday. They omitted a few of the niceties: She faced the firing squad without a lawyer.

Anna Morris, our Reprieve barrister from London, was scheduled to meet with her on Tuesday, which may have contributed to the chosen trial date. Criticizing the Lao People’s Revolutionary Party is a criminal offense. Perhaps calling for a fair trial is considered too close to the line; the government reneged on its promise, made before Anna flew 9,344 kilometres (5,806 miles) from London to Laos, to allow three days of legal visits.

Controversy envelopes Samantha. She has been in prison since August 6, 2008, and yet she is due to give birth on September 6, 2009. Khenthong Nuanthasing, the Lao government spokesman, spoke to the BBC Tuesday morning. When asked whether Samantha became pregnant in the prison, he replied: “That’s impossible. A man or guard cannot act in that way *** she was pregnant when she was arrested in August.”

One might be sceptical at this. It would mean her gestation period was at least 13 months which, while plausible were she a blue whale, is not what we expect of human beings. Later Mr Nuanthasing changed his version of events, indicating that she might have been pregnant when she was arrested, but that she lost the first baby while in prison.

How she became pregnant is one pressing issue, but perhaps of most immediate concern is her health and the health of her unborn child. If she has already had one miscarriage in the prison, then Samantha must add it to one she suffered in 2006, when she was beaten by her boyfriend with a bicycle chain.

The Laotians announced Tuesday that they would not execute a pregnant woman, but they planned to plough forward with her trial within the next week, when she faces life in prison. Her prospects are dim. The U.S. State Department, in its 2008 report on Laos, notes that all judges have to be party members, and that a trial such as Samantha’s will be a foregone conclusion, stating quaintly that “judges usually decided guilt or innocence in advance…”

It is sobering to think that her child is already sixteen times more likely to die simply because Samantha will give birth in Laos rather than London. In Phonthong prison, the odds must be far worse. The State Department reports the total absence of meaningful medical care, and finds “[c]redible reports” that “some foreign prisoners were treated particularly harshly.”

Add to this the stress of a trial while five months pregnant, with a local lawyer who neither speaks the language nor prepares for trial, and the probability of another miscarriage mounts exponentially.

Samantha deserves to be judged only on a proper defense. But the one person who is indubitably innocent is her unborn child. The threat facing this child is an inhuman shame.

For more information about Samantha and how to help her, see www.reprieve.org.uk, or contact Reprieve, PO Box 52742, London EC4P 4WS. Tel: 020 7353 4640.

– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

The U.S. venture capital industry is desperate to repair the market for initial public stock offerings, but reviving the goose that once laid hundreds of golden eggs may not get very far.

The National Venture Capital Association (NVCA) this week set out its comprehensive plan to revive the IPO market and the heady investment returns that once fueled the tightly knit venture capital industry’s success.

From October through March, there were no venture-backed IPOs in the United States — the first time on record of no venture IPO activity for two consecutive quarters.

The NVCA plan is entitled “The 4-Pillar Plan to Restore Liquidity to the U.S. Venture Capital Industry.” Institutions at every step in the process that turns bright business ideas into publicly traded companies come in for criticism for the decline of the IPO market.

But start-up entrepreneurs and their venture capital backers largely have themselves to blame for why public markets have become gun-shy about buying into IPOs.

There is now a noticeable dearth of entrepreneurs building companies with differentiated strategies and sustainable business models. Hot start-ups are now far more often built to be sold to established firms. And when good ideas emerge, VCs flood the market with a slew of copycats, making it hard for true pioneers to succeed.

Some of the hottest start-up sectors — the Internet, and cleantech — continue to ignore the need for a demonstrating a clear track record of sustained profits and defensible barriers to entry by competitors.

The exceptions where this entirely fair generalisation is wrong deserve to become the next successful IPOs.

Look no further than the hottest companies in Silicon Valley — social network site Facebook and text messaging service Twitter — the subject of widespread media speculation that they and their venture backers may seek to stage high-profile IPOs next year.

Both companies’ strategies have been to build huge audiences and only later to figure out how to generate revenue, profit and a sustainable business model. Fattening up and selling the companies themselves may be the business strategy.

Big banks have all too often worked against the long-term success of IPO companies by reserving the hottest shares for favoured clients, many of whom were hedge funds or short-sellers — whose objective was in quickly flipping or selling out.

Regulators intent on preventing the next Enron, Worldcom or Parmalat by breaking down the cosy relations between bankers and research analysts have meant that many small and mid-sized companies receive little analyst coverage once public.

On the receiving end of IPOs, committed buyers are in short-supply. Many investment managers that once bought IPOs by the bushel now run funds too large to make the effort to trade small companies. New funds devoted to technology, cleantech, and other emerging business sectors need to be formed to take up the slack.

With their plan, venture capitalists are looking to counter criticism they can work against the interest of public investors when they sell off ownership stakes too quickly after companies in which they have invested hold IPOs.

One NVCA proposal calls for VCs to consider accepting longer lockups on their holdings once their portfolio investments go public. This measure could go some way to restore confidence that venture capitalists can behave as patient investors.

The VCs want regulators to reduce burdensome compliance requirements that cripple the ability of small companies to raise public financing and asks for one-time only low capital gains tax rates to jump start the IPO market, perhaps in exchange for investors agreeing to longer-term holding periods.

Nonetheless, the IPO market is a cyclical one that has every sign of springing back to life once the current financial crisis subsides. In just the past few weeks, a trickle of successful new stock offerings has encouraged renewed speculation that the window for IPOs may open more broadly in 2010.

Reform or no, the IPO drought is bound to recover simply because the lack of supply eventually breeds pent up demand for new issues.

This is born out by data. After the decline in IPO activity earlier this decade following the Internet stock boom of the 1990s, 2007 marked the best year of IPO activity since 1996, outside the bubble years. And 2008 was on track to be even stronger for IPOs until the financial crisis hit home.

This crisis is itself creating conditions for another class of IPO darlings, but whatever transpires is likely to be a far cry from the IPO Golden Age for which VCs yearn.

(Editing by David Evans)

– Margaret Doyle is a Reuters columnist. The opinions expressed are her own –

It’s tough on Ukraine, but European banks should pull out. It may not be the only Eastern European economy giving its western bankers a headache but that country’s political chaos and weak corporate governance outweigh the prospects of a return to growth.

Hungarians and Romanians, the bulk of whose loans are in foreign currencies, have seen their debts rise as their own currencies fall. And Sweden’s SEB and Swedbank have taken a pasting in their neighbouring Baltic states.

Austria’s Erste Bank managed to make a profit in the Czech Republic, Slovakia, Croatia, Serbia, Hungary and even Romania, (where it lifted bad loan provisions five-fold), albeit at a lower level than last year.

However, like the Swedes, it came a cropper in Ukraine.

The EU and the International Monetary Fund (IMF) have stepped in to the rot, but Ukraine is still floundering.

Its economy is expected to shrink by 10 percent this year and its politics are in chaos. Within the ruling elite, poisonous personal rivalries have prevented agreement on the basic economic reforms that the IMF is demanding before it writes more cheques.

The downturn is hurting the western banks: Erste, Swedbank and SEB all lost money there in the first quarter. Both the Swedes have written down all their remaining goodwill there.

All three are pulling in their horns. Erste has laid off 300 local staff. SEB has ditched its expansion plans. Swedbank concedes that short term growth in Ukraine will be curtailed, although a cheerful message on its website says it hopes “to capture the possibility for long-term growth.”

They should all capture the certainty offered by a near-term exit. Ukraine represents a tiny proportion of all three banks’ assets. The recovery, when it comes, will have only a marginal effect on profits, but in the meantime the country offers plenty of scope for management hassle.

Banks are generally slow to pull out of countries because of the political backlash. They will be accused of abandoning Ukraine when it most needs western support, but that only matters if a bank expects to set up there again. Unfortunately, Ukraine will remain the wild east for some years to come.

-- Neil Collins is a Reuters columnist. The opinions expressed are his own --

Here's a novelty -- an awkward process that this British government has actually got right. Labour has played a fine game of grandmother's footsteps in its realization of the inevitability of new nuclear power stations, and this week has clinched the sale of two sites for them.

The auction process, pioneered by Labour with the sale of radio spectrum for mobile phones, has once again raised much more than most observers expected.

Germany's RWE and Eon are now the proud owners of land at Wylfa (on Anglesey, an island off a remote corner of Wales) and Oldbury (Gloucester, England).

Considering the relentless opposition from the tree-huggers, wind farm fans and believers in bad science, the UK government has managed the shift from "Nuclear power? No thanks" to economic reality rather well.

Having been forced to step in and rescue British Energy, the nuclear generator that dared not speak its name, it engineered the sale of the state's holding to EDF of France last year before the capital markets seized up.

Now all the German owners of these little bits of Britain have to do is find the tens of billions of pounds needed to build the power stations. Let's hope they can get them up and running before Britain's lights start to dim, some time towards the end of the next decade.

-- Neil Collins is a Reuters columnist. The opinions expressed are his own --

It's hardly surprising that the shareholders in 3i, the listed private equity group, are deeply unhappy at the prospect of having to return 700 million pounds of the 1.75 billion pounds of capital they have received from the company in recent years.

The board has got itself into a hole. That paid-out capital, plus a further 400 million pounds in share buy-backs, was largely financed with borrowed money, and those debts are now coming up for repayment.

A 550 million euro convertible bond launched in August 2003 was designed to provide fresh equity, but it had to be rolled into a 430 million pound convertible bond, and the conversion terms are now pie in the sky. That bond falls due in 2011.

Were 3i an industrial company, it could blame hard times; were it a bank, it would already have abandoned any pretence that a rights issue was anything less than a rescue. It's neither. It's a sort of glorified investment company, valued in normal times by reference to its net asset value per share.

Analysts at Cazenove calculate the current NAV at 521 pence, against the credit-crunched market price of 330 pence. The brokers suggest a one-for-one issue at 175 pence, which would raise 738 million pounds before expenses.

It's almost impossible for an investment company to issue new shares at a significant discount to NAV. It's highly dilutive to shareholders, and begs the question: if the assets are really that valuable, why not sell some to raise the cash?

Until 3i has a convincing answer to that question, it will struggle to get out of the hole it's dug itself.