Outlook: Pell to the rescue as Harley gets the Abbey National bullet

Ian Harley's path to yesterday's ignominious exit as chief executive of Abbey National was a long and painful one. It started from the moment he was appointed as successor to Peter Birch four years ago. Mr Birch was something of a hero in the City. He pioneered de-mutualisation by making Abbey the first big building society to convert, and he presided over a fabulous subsequent appreciation in the share price. He was always going to be a hard act to follow. The succession was bitterly fought and Mr Harley never did succeed in stamping his authority on a board that became riddled with jealousies and intrigue. Nor did he ever succeed in articulating a credible strategy for the bank. If he had one at all, it never convinced the City.

Of course, many chief executives survive for years without a strategy. What started the skids under Mr Harley was the bid by Lloyds TSB. Mr Harley opposed the bid on the grounds not of shareholder value but of public interest, or at least that's how it was perceived in the City, and eventually the takeover was blocked by the competition authorities. The City came to believe it had been deprived of terms that look spectacular by comparison with today's lacklustre share price.

In fact Mr Harley's position wasn't quite what it seemed. He took the view that since there was virtually no chance of the competition authorities allowing the bid, it wasn't worth incurring substantial fees by agreeing terms and attempting to secure acceptance. This was especially the case since Lloyds only wanted to buy Abbey National to close it down. The effect on morale of publicly backing the bid would therefore have been catastrophic. What was the point of damaging the business in pursuit of something that wasn't going to happen anyway? Unfortunately for Mr Harley, the subtleties of this argument were entirely lost on the City, and for him the episode became a serious black mark.

Still, he might have survived but for what's been a disastrous year since then. Wholesale banking has been virtually wiped out by what's been happening in corporate America, the life and investment business has been trounced by the plunging stock market and has as a consequence had to be recapitalised, and margins have been squeezed by an intensely competitive mortgage market. A profits warning less than two months after the company had said everything was fine created the impression of management asleep at the wheel.

Did Mr Harley do anything right? Who knows, but the indictment just cited is damning. Given all that's happened, many will find his estimated £1m pay-off hard to stomach, but then that's the price of failure for you. The fact that no immediate successor was announced yesterday presumably means that neither of the two possible internal candidates for the job are going to get it. Abbey needs a new strategy and a new approach if it is to survive as an independent bank, and it seems unlikely it will be found internally.

Hot favourite for the job is bound to be Gordon Pell, head of retail banking and wealth management at Royal Bank of Scotland Group. Mr Pell would say his present job is much bigger than what most FTSE 100 chief executives do, but the suspicion is that he protests too much and would welcome the opportunity to get out from Fred Goodwin's shadow at RBS. Abbey's got problems, both strategically and operationally. But it's not a basket case, and with the right vision it could become an inventive mid-sized player. Abbey has apparently not yet got round to appointing headhunters. Perhaps it won't need to.

Cookson rescue rights

Cookson, a company once worth close to £2bn, has got itself into a terrible mess. A maker of printed circuit boards and ceramics, it was completely reshaped in the boom times of the late 1990s by Stephen Howard, the chief executive. Some divisions were sold, but the main activity was acquisition making. Now, like so many other companies, Cookson is suffering from the hangover of the takeover binge of the night before.

The deals were done with debt rather than equity and borrowings ballooned to £750m. Though interest rates are low, they can never be low enough when your business isn't making any money. With both sales and margins under pressure, Cookson has little choice but to bite the bullet with a rescue rights issue. It came with a discount of 50 per cent. With the dramatic fall in the share price yesterday, much of that discount has been eroded already. Cookson has abandoned its dividend to conserve cash too.

The equity issue is not underwritten, so if the price falls much further, it's curtains. Cookson may have saved on the underwriting fees, but the City suits are still set to pick up an astonishing £13.5m for the self-evident advice that the company needs more money. Next time Mr Howard should pick up the phone to The Independent and we'll tell him for free. Cookson says the figure is so high because it is marketing its offer in the United States, where you have to be flanked by several lawyers before you do so much as wipe your nose. Even so, it seems an almighty figure given ICI's £808m rights issue earlier this year was fully underwritten for £11.5m.

Normally when there's a rescue rights, the guy responsible is forced to go. Not apparently in this case. We are surely likely to see more bumper rights issues this year as corporate balance sheets come under increasing strain. BT was the first out of the blocks last year with its blockbuster £5.9bn fund-raising, followed by ICI in February. Other potential candidates must include the life insurers, with Royal & SunAlliance and Aviva (the old CGNU) the prime suspects.

Short selling

David Prosser's campaign against stock lending for the purpose of short selling isn't meeting with much support elsewhere in the City. Others adopt the view either that the Legal & General chief executive is exaggerating the nature of the problem or that short selling is in any case a fundamental human right and shouldn't be interfered with.

This is nonsense. In all bear markets, short selling is a problem and in this particular one it is a serious one that demands action. No one who invests in a pension or other long-term savings product does so with the intention that the stock he's buying should be lent out to hedge funds and other speculators whose whole purpose is bent on trouncing the value of those investments as much as they can. In most instances, the investment clients do not even know it is happening and would be horrified if they did.

What's going on is an almost criminal mismatch of investment purposes. What makes it worse still is that some managers view stock lending as an important additional revenue stream even though they know it is against the interests of ordinary clients with long-term investments. Some of them will have their own hedge fund operations, adding yet another conflict of interest to an activity already bristling with them. The whole thing is a disgrace, and the City's refusal to acknowledge a disreputable trade reflects badly on its integrity.

For too long practitioners have been able to rely on the complexity of short selling activity to obfuscate its effects and purpose. At the very least, new rules need to be introduced to make short selling transparent. Fund managers should also be required to seek specific clearance from pension fund trustees to indulge in the practice of stock lending.

jeremy.warner@independent.co.uk