Now is the time for banks to go bargain hunting

THE whirlwind that has blown through the markets has been of such ferocity that each time any of the big guns wheels out a statement we all fear the worst.

But the storm that threatened to create carnage, particularly in the banking sector, has turned a little milder. Barclays managed to cling on to the wreckage and Lloyds TSB escaped largely intact. Both added to the losses from the credit fall-out, but neither suffered any irreparable damage.

With another crucial week of banking results ahead, together with figures from some key housebuilders, a few black clouds remain overhead, but by next weekend we could at least be in a better position to assess prospects for the remainder of the year. The results from the banks are particularly telling as each has a unique take on the sector. Barclays emerged in a better than expected condition but ended the year as the loser in the battle for ABN Amro, regarded as regrettable by its chief executive John Varley who saw it as a transformational deal. It also left the bank without the partner it clearly sought, and with values now at rock bottom it may be persuaded that another merger would be desirable.

Lloyds TSB's greater reliance on the domestic market and on personal banking left it better able to withstand the credit crunch. Arguably, it is in an even stronger position than its rivals to go hunting for bargains, and City speculation suggests it could make a tilt for Alliance & Leicester, one of the former mortgage banks that were always expected to be mopped up once the banking sector tightened.

Of course, had things taken a different turn last summer, Lloyds TSB chief executive Eric Daniels would have been briefing on his acquisition of Northern Rock. While he has never confirmed the bank's interest, a merger of the two could have worked and would have averted a crisis that swept through the entire financial markets, and saved a few reputations in the process. Analysts say that whatever else the Rock's management did wrong, they did run a bank with a good reputation for product innovation and efficiency, and its higher dependency on funding itself from the wholesale markets would have been counterbalanced by Lloyds' reliance on depositors.

With the Rock now in the custody of the taxpayer, Lloyds will be forced to look elsewhere and there are some who believe Alliance & Leicester may prompt an auction, with HBOS also a potential bidder.

This week will see the Scottish-based bank confirm that its mortgage net lending (new mortgages, minus those who leave) is back on target after a choppy year that saw it lose retail boss Benny Higgins and attract a few snipers ready to take potshots at chief executive Andy Hornby. Like Barclays, Lloyds TSB and Royal Bank, it is also likely to increase its dividend as a two-fingered signal to the sector's detractors that they are not yet down and out, but Hornby still has to prove he can live up to his star billing.

RBS boss Sir Fred Goodwin, as the victor in the ABN battle, will be put to the test this week when he will be desperate to focus on the opportunities now opening up in emerging markets while his critics question him on the bank's capital ratios and the need to raise money.

The situation at RBS is not dissimilar to that faced by Lloyds TSB a few years ago, except market conditions are much worse for Goodwin. Nevertheless, he issued a confident pre-close statement in December and it will be no surprise if he is in a similar mood on Thursday.

Nobody in the sector is pretending that the outlook is rosy, and all will admit that 2008 will be a tough year. But the return to boring banking, as one insider described it last week, will help bring some re-evaluation of risk that can only be a good thing.

CBI's fighting talk on Holyrood powers

CBI Scotland is once again throwing a few punches after a period of shadow boxing with the SNP Government at Holyrood.

Relations between the two have been surprisingly cordial following their years of trading insults, so a return to form would be no surprise.

The spark for this dispute is the constitutional review. As reported in our news section, director Iain McMillan says it should focus not only on what powers could be transferred from Westminster, but which could be returned to London.

So far, only Gordon Brown has described the review as a two-way street, but McMillan now lends business support to the notion of giving back some authority, notably planning in relation to energy policy, food standards and climate change.

McMillan says he is not picking a fight with the SNP. But if the switch would enable the UK Government to overrule Scottish objections to nuclear power stations, it's hardly an invitation to a picnic.