Jeremy Warner's Outlook: Mittal is forced to compromise to secure the Arcelor prize. Corus needs to respond fast

More by luck than judgement, the Arcelor board has ended up with a remarkably good deal from Mittal Steel. Joseph Kinsch, the chairman, would like you to believe that the company's agreed deal with the Russian steel magnate, Alexey Mordashov, was all part of a cunning plan to extract the best possible terms from Lakshmi Mittal, but the reality is a more humiliating one.

Instead all he did was alienate his own shareholders with a merger agreement which gave so much away to the Russians that it made Mr Mittal's demands look modest by comparison. After that, Mittal's ultimate victory became inevitable.

Yet in the end, Mr Mittal has been forced to concede more than he would have wished in his efforts to win Arcelor over. It can only be assumed that he knows the prize to be so much worth having that almost any price was worth paying. As it is, Arcelor shareholders end up with more than half the equity as well as a big slug of cash.

The Arcelor hierarchy also remain firmly in the driving seat, though this will presumably change as soon as the chairman and chief executive retire next year. It's impossible to imagine that after fighting a takeover battle as prolonged and bitter as this, Mr Mittal is going to remain a passive investor with regard to his 43 per cent stake. He won't, and within a few years, Arcelor will be run the Mittal way.

For Mr Mittal, this is the crowning glory of an extraordinary career. Finally he sits atop the world's largest steel company, and the only one, moreover, with truly global reach in terms of its production and markets. Others, including Britain's Corus, will need to scramble to catch up.

FSA's negligence in approving Rosneft

If the price is right, investors will buy just about anything. Whether the sponsors of the Rosneft IPO have priced the stock to go I'll leave to others to judge - the fact that the shares are being more aggressively priced than those of Lukoil, Rosneft's closest Russian equivalent, suggests a possibly unwarranted degree of optimism among the bankers.

Yet the moral case for boycott is a powerful one. This is not because Rosneft is Russian, and therefore subject to a less robust form of commercial law than we are used to here in the West, but rather it is because Rosneft is largely based on assets only very recently stolen by the Russian state from the jailed oligarch Mikhail Khodorkovsky.

Not that Mr Khodorkovsky himself acquired these assets in the cleanest of circumstances. So murky are they, that even today it is impossible to get to the bottom of. In itself, the way in which Russian natural resources assets were given away to a small number of well-connected individuals during the Yeltsin years remains a scandal of monumental proportions.

Yet the only reason Mr Khodorkovsky finds himself behind bars with his assets sequestrated, and not the plethora of other oligarchs who profited in exactly the same way, is that he dared to think Russia might have thrown off enough of its totalitarian past to allow him to mount a political challenge to the ruling president, Vladimir Putin.

This was brave, but unwise, and he has ever since been paying the price. It is one thing for international investors to legitimise this gross infringement of human rights. It is quite another for our very own Financial Services Authority to give it the official stamp of approval by passing the prospectus for listing purposes.

The risk factors are spelt out clearly enough in yesterday's prospectus, right down to the four law suits in Russia, the US and Britain the company already faces from aggrieved investors in Yukos, the company which once held the stolen assets. Yet merely making investors aware of the risks doesn't excuse the FSA's action in allowing this exercise in state-sanctioned theft to float on the London Stock Exchange.

We have reached a stage of such perverse attachment to the idea of open, free market capitalism in the City that these days almost anything goes. Let caveat emptor be our only guiding principle, the FSA seems to be saying in the way it regulates the wholesale financial markets. Would Robert Mugabe like to float a few assets here? Sure, investors know the risks, so that's their lookout. Next stop for the City's fee-hungry investment bankers, Kim Jong-il of North Korea. After Rosneft, anything's possible.

With its famously light touch approach to regulation, London has prospered as an international financial centre. Indeed, I've often written that in many respects, the FSA gets the balance about right. But a line has to be drawn somewhere, and you might have thought attempting to float sequestrated assets would be seen as just such a sticking point.

Yet the FSA has become so star struck by the City's success on the international stage that in wholesale markets it has fallen victim to what the Americans call regulatory capture, where basically the regulator becomes the creature of industry practitioners.

Contrast this with the stultifying and completely counter productive approach adopted in the name of consumer protection by the FSA in retail financial services. The very lifeblood of this industry is being squeezed out of it by bureaucracy, red tape and heavy-handed point of sales and solvency regulation. It's no wonder no one saves any more. In contrast to wholesale markets, where anything goes, the FSA has attempted to de-risk retail investment to such a degree that it's no longer worth the candle.

No end yet in sight for US rate rises

Ben Bernanke has already earned himself an unfortunate reputation for mixed messages in the six months he's been chairman of the US Federal Reserve, but we can presumably expect a fairly unambiguous analysis from him when as head of the Fed's Open Markets Committee he raises interest rates again this Thursday. He could easily justify the full half point given the way US inflation is leaping ahead of the Fed's self-proclaimed "comfort" zone right now.

Despite nearly two years of progressive tightening, the Fed hasn't yet managed to put the lid on rising inflation and inflationary expectations. If Mr Bernanke blinks now, he'll be seen as soft on the very thing he's meant to control. All his instincts will be telling him to be as hawkish as possible.

Of course, he won't raise by a half point, because that would cause meltdown in the markets, but, given the recent data, it is equally impossible to believe he'll be signalling the end of the present tightening cycle with the expected quarter-point rise. Even two months ago, investors could reasonably have looked forward to just such an outcome. Not any longer. There is a growing band of economists who believe the tightening won't end until rates reach 6 per cent. They may well be right.

Yet I still find the reaction of world stock markets to the apparently orchestrated tightening of policy in the US, Europe and the Far East a faintly curious one. It is not as if this came out of a clear blue sky. Central bankers have been signalling the end of the era of easy money for ages now. Until a month ago, stock markets chose to ignore them. Now they obsess about them, to the extent that many now talk openly of recession.

In fact, an extreme economic downturn is still extraordinarily unlikely. Much more likely is that the present correction in markets is a bout of mid-cycle jitters of the type you would expect after three or four years of outstanding growth in the world economy.

In a recent speech, Mervyn King, the Governor the Bank of England, suggested that central bankers might have been too accommodative in the aftermath of 9/11. Some of that giveaway might now need to be clawed back. This is generally how business cycles die, not of natural causes, but killed off by the anti-inflationary zeal of central bankers.

Yet the trick is to calm the business cycle, not to kill it off entirely, and there is still good reason to believe that this is what central bankers are succeeding in doing. If that's the case, then Western stock markets may already be oversold. Unwise to buy just yet, though. Investors can expect little mercy if Mr Bernanke is in outspoken mood on Thursday.

j.warner@independent.co.uk