Terry Murden: Politicians can only look on helpless as the bloodbath continues

ANYONE with any lingering optimism that the credit crisis was bottoming out will have had all remaining confidence shaken out of them over the past few days.

It was not helped by the scandalous reaction of Bear Stearns' chief executive Alan Schwartz to speculation that the bank was in trouble. "There is absolutely no truth in the rumours," he said on Monday. By Friday morning he was having those words rammed back down his throat.

A quick injection of funds from the Federal Reserve and JP Morgan may have come too late to prevent Bear Stearns becoming America's Northern Rock and a sale in part or whole, or even liquidation, now faces the bank. There remains a possibility that one or other of America's other big financial institutions – Lehman Brothers is also a cause for concern – will bite the Wall Street dust.

Last month we questioned whether Fed chairman Ben Bernanke's cuts in interest rates would be enough to ward off the crisis. Last week, he and other central bankers mounted another rescue attempt but the response of the markets was notably dismissive.

Here, Alistair Darling's rather feeble first Budget did little to restore confidence. It was said repeatedly that the Chancellor had little room for manoeuvre, but opportunities always exist for those with bold ideas and the courage to pursue them. Darling gives the impression that he is merely looking after the shop while the owner is out to lunch.

In truth, politicians on both sides of the Atlantic are looking increasingly helpless. Like the boy with his finger in the dyke, they cannot hold back the tide. The credit crisis was caused by a massive fault in the markets and in the banking sector in particular, and it will be corrected by the markets and banks through a process that is certain to see more casualties.

It will also open up further opportunities for those with stronger balance sheets. Already one broker, Terry Smith at Collins Stewart, is looking to take advantage of the impending bloodbath. It has £70m of cash available for acquisitions and with valuations in many companies more than halved in the past year the likelihood of a spending spree cannot be discounted. That in itself may help to restore some faith in the financial system.

Scottish & Southern fuelled by bid rumours

SHARES in Scottish & Southern Energy leapt on Thursday on rumours that German utility RWE, owner of nPower, will launch a bid for the Perth-based company. Just a day earlier, RWE was linked with a bid for British Energy and some were speculating that investors were merely flocking to utilities as a defensive stock in the wake of more turmoil in the American financial markets.

But it was inevitable that SSE would come under the spotlight as its independence looks increasingly at odds with what is going on around it. An obstacle for RWE is that the Scottish company has always been regarded as the best-run utility in the UK with a low cost base and good margins. It would be testing any potential suitor to prove it could find further efficiencies.

But further consolidation seems to be the name of the game. It was thought that ScottishPower's fall to Spanish giant Iberdrola would settle into a fruitful partnership but the Bilbao-based company is dogged by rumours of a bid from Edf of France and the Spanish construction firm ACS. Yesterday it was suggested that the French and Spanish prime ministers have been discussing a compromise whereby Edf would buy a 15-18% stake in Iberdrola in exchange for control of some of France's nuclear power stations.

Nuclear is likely to become one of the big prizes in the European energy sector with the prospect of the UK Government selling its 35.2% stake in British Energy, the UK's biggest power generator and owner of almost all the UK's nuclear plants.

RWE is among those that have been sounded out about their interest in the stake, worth about £2bn. It is likely that the holding will be carved up as the Government could not sell its entire stake to one buyer without triggering a bid for British Energy, an outcome the Government is thought to be keen to avoid.

There has been talk of energy companies forging joint ventures to build the next generation of nuclear plants. One source close to Scottish & Southern Energy confirmed that it was involved in those discussions. One way or another, it will find a European partner.