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The most striking number in for the past year was the Β£3bn it spent on fuel, which was 44.5% higher than in the previous year.

So for all the talk from Willie Walsh, BA's chief executive, that "the global downturn makes this the harshest trading environment we have ever faced", without the Β£900m jump in fuel costs the airline would have been very comfortably in profit: operating profits would have been around Β£700m.

In fact the evidence of BA's revenues is not of a cataclysmic global recession. Passenger revenues rose 3.1% to Β£7.8bn and cargo revenues were 9.4% higher at Β£673m. Which is not boom boom, but nor is it financial disaster at 30,000 feet.

What actually caused BA's worst ever loss of Β£401m before tax and the suspension of the dividend was a lamentable rise in costs: engineering and "other" aircraft costs increased by Β£59m or 13.1%; landing fees were 14.2% or Β£75m higher. Even staff costs rose a bit.

So it's difficult to avoid the impression that at least part of BA's agony, its descent in just 12 months from record profits to record losses, was of its own making - though plainly there's a limit to what it can do to hedge itself against the near-collapse in the value of sterling (which pushes up the cost of fuel) and against the volatility in the dollar oil price.

The better news is that BA expects to pay rather less for fuel this year.

Also it's cutting costs: staff are being offered the option of temporary or permanent part-time working and unpaid leave; the company is negotiating "productivity changes" with trade unions; there'll be no management bonuses (surely BA didn't contemplate paying bonuses in this climate?).

Walsh sees no end in sight to the sharp decline in demand for air travel. At the end of the year, therefore, BA moved to cutting prices rather than squeezing more revenue out of individual customers.

However it's the uncertainties that overwhelm and the company has decided not to issue any guidance on what its results might look like in the coming year.

And if you're looking for reasons to be fearful about the outlook for BA, there's this resonant statement pertaining to the hole in its pension funds: "if the financial markets deteriorate further, our pension deficit may increase, impacting balance sheet liabilities, which may in turn affect our ability to raise additional funds".

It's not clear how big the hole in this pension fund is right now. The analyst John Ralfe thinks it could be around Β£3bn.

What is clear is that the quantum of BA's debt and the value of its net assets are moving in opposite directions at a worryingly fast rate.

Net borrowings rose by more than Β£1bn last year, to Β£2.4bn, dwarfing shareholders' equity of Β£1.6bn (which fell by an alarming 46%).

At a time when - as Walsh says - the economic flying conditions are as bad as they've ever been, those liabilities are a heavy burden to be carrying in the hold.

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• - What's this?

So by one of the agencies widely regarded as having exaggerated the safety and quality of all manner of investment products that turned out to be toxic.

However the right response is not to laugh.

Standard & Poor's, like Moody's and Fitch, still has tremendous clout - not least because even the Bank of England still uses their ratings of creditworthiness to determine which assets and securities it will take from banks.

First things first. No reason to panic.

There may have been a bit of weakness in sterling and UK government bonds or gilts this morning. But nothing cataclysmic.

And, strikingly, the Debt Management Office has this morning completed the biggest ever auction of gilts in history. And it sold the lot very comfortably indeed, with far more bids than it needed.

So we ain't bust yet.

Also, S&P has not said that the UK will definitely lose its triple-A rating, its rare and precious badge that we are good for our IOU's in all seasons.

Putting British sovereign debt on negative outlook is not as bad as being assessed for possible downgrade, which almost always leads to a downgrade.

Apparently, a negative outlook is followed by downgrade in about a third of cases.

And some would say that S&P is stating the bloomin' obvious, that public sector debt is patently rising too fast - and that we can't assess the long term health of the economy, or the ability of the government to meet its financial obligations, till we know the taxation and debt plans of the next government.

S&P is thus in slightly different language repeating what , that the UK needs a bolder plan to stem the rise in the national debt.

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• - What's this?

Companies don't come much bigger, grander or more putatively proper than Royal Dutch Shell.

So it is profoundly shocking that Shell's shareholders should yesterday have voted against the substantial remuneration paid to its directors.

Under governance rules, the vote is advisory only: it is non-binding. But it is a public-relations disaster for Shell.

It is a warning to every company that shareholders will not tolerate discretionary pay awards when performance targets are flunked.

What angered Shell's owners is that the oil giant gave top executives substantial numbers of shares under a long-term incentive plan plus bonus shares relating to another plan, even though the company missed an important target for the period 2006-8.

This discretionary award is worth Β£1.2m to the chief executive, Jeroen van der Veer, on top of pay and other bonuses worth around Β£4.5m.

Nice work.

Now, here are two striking facts.

First: back in 2005, Shell explicitly told shareholders that its remuneration committee reserved the right to make discretionary awards as and when the company only narrowly missed targets. If there was a stormy campaign of protest in response, I certainly didn't notice.

And perhaps more importantly: this is the second successive year that Shell has made this kind of discretionary award after flunking the target. However, 12 months ago, shareholders gave their overwhelming approval to the company's remuneration practices.

So what's changed in 12 months?

Surely, you don't need telling.

Global recession is leading to job losses and pay cuts for millions and millions of people.

Against that background, the feather-bedding of top executives who don't hit their targets is widely seen as intolerable.

And what's slightly odd is that the non-executives on Shell's remuneration committee, the grandees who made the discretionary award to Shell's top execs, seem to have been unaware of the public mood.

Some would argue that they may be dangerously out of touch. Although to be fair to them, they are no more out of touch than our own MPs, who initially showed so little sensitivity to the outrage sparked by the way they've been systematically milking their allowances.

The importance of the shareholder rebellion at Shell is that it is an extreme manifestation of a clear trend, which is that professional investment managers - who look after our savings - are intent on making their feelings known when they see executives rewarded for performance they see as inadequate.

So, for example, sizeable minorities of shareholders recently voted against the compensation practices at BP, Pearson and Xstrata.

And at Royal Bank of Scotland, a record-breaking 80% of shareholders voted against what it paid its top team - which was really just a scream of frustration about the doubling of the pension entitlement for Sir Fred Goodwin, the former chief executive widely blamed for hobbling the bank.

You might mutter about stable doors and horses - and you might note that these professional investment managers were hopeless at reining in corporate excess during the bubble years.

That said, the Shell vote is today reverberating in the boardroom of every big company. What the directors of substantial businesses can hear and feel is a great clanking and juddering as the gravy train of executive remuneration hits the buffers.

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• - What's this?

The most colossal amount of lending capacity has been taken out of the banking system.

That is another way of saying that . D'oh!

But for all the damage that the collapse of some banks and the shrinkage of others has caused to the global economy, there is an attractive consequence for shareholders in those banks that are still standing.

You can already see it in investment banking, where the few remaining independent investment banks and the investment banking arms of Barclays and Royal Bank of Scotland among others have been coining it since the start of the year.

Whether it's underwriting and distributing issues of bonds and equities, or trading in currencies and fixed interest, it's boom time again for those firms lucky enough to be alive.

And for banks more widely, including retail banks, the reduction in capacity means a reduction in competition.

So the margins that banks earn on lending - the gap between what they pay for their funds and what they charge to borrowers - has widened very considerably.

Actually, that's not quite true yet for those banks disproportionately dependent on special taxpayer-supported funding and asset insurance from central banks and finance ministries.

Finance provided by taxpayers tends to be pricier, which most would say is only fair: we wouldn't want the banks to make a habit of coming to us with the begging bowl.

So the likes of Royal Bank and Lloyds aren't yet coining it.

Also, of course, any widening in margins they achieve this year may look irrelevant when bad debts on conventional lending to households and businesses are rising so fast.

To put it another way, since Royal Bank and Lloyds will make massive losses this year, you may think that I'm bonkers to be extolling their intrinsic profitability.

But make no mistake: these are giant money-making machines with enormous and rising market shares in a relatively closed retail banking market called the UK.

If you thought that they were monsters before the credit crunch - and many did - you ain't seen nothing yet.

They face far less competition than they did a couple of years ago: the American and Irish banks have reduced their presence in the UK; the Icelandic banks, former building societies and newly created specialist lenders have crumbled and most extant mutual building societies simply can't raise sufficient deposits to pose much of a threat.

Yes, the mighty Tesco is coming in and promising to be a formidable competitor. But the sensible way of seeing Tesco's ambitions is as proof of the huge profits to be made in a market where the balance of power has shifted decisively from the consumer (that's you and me) to supplier.

Against that backdrop, the claims of Lloyds that represented a once-in-a-generation opportunity don't look exaggerated.

Lloyds' shareholders will argue that they've paid far too big a price for this opportunity: HBOS's losses on its reckless loans hobbled Lloyds and led to it being semi-nationalised.

But there will come a moment when it has absorbed all the losses generated by imprudent loans and investments made in the bubble years.

At that point, Lloyds will be a gargantuan collector of our earnings and savings.

So if you believe that wholesale sources of funding are unlikely to gush again for years, if ever, Lloyds will have a mind-boggling competitive advantage: disproportionate power in banking will reside with those, like Lloyds, able to hoover up precious cash from households and small businesses, for recycling into loans.

Perhaps, therefore, Sir Victor Blank - jumping from Lloyds before being defenestrated (see yesterday's Picks) - will, in two or three years, be able to blow a raspberry at his critics.

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• - What's this?

Sir Victor Blank is to step down as chairman of Lloyds Banking Group.

The bank's board is meeting this morning to confirm the arrangements for his departure and a statement is expected later today.

This is expected to day that Sir Victor will have handed over to a successor by next year's annual meeting, so in about a year.

Sir Victor, together with Lloyds' chief executive, Eric Daniels, has faced considerable criticism from some Lloyds' shareholders .

HBOS made a loss in 2008 of almost Β£11bn and the two banks together are also expected to be in loss this year.

Quite apart from the perception that buying HBOS weakened Lloyds, the other reason some shareholders are upset with Sir Victor and Mr Daniels is that the financial troubles at HBOS meant that Lloyds as HBOS's new owner needed greater investment from taxpayers than would otherwise have been the case.

The Treasury, on behalf of taxpayers, owns 43% of Lloyds.

Sir Victor was more vulnerable to pressure from shareholders because he is up for re-election at the annual general meeting on 5 June, whereas Eric Daniels is not.

Lloyds' directors do not believe that Sir Victor would have been ousted by shareholders at the forthcoming annual meeting (but see below on this).

That said, they feared there would have been a substantial and embarrassing protest vote.

Speculation about Sir Victor's future would not have ended, directors concluded, which would have complicated the process of rebuilding the weakened bank.

UK Financial Investments, which manages the stake in Lloyds on behalf of the Treasury, was acutely aware of other shareholders' conviction that there had to be a change at the top of Lloyds.

It is understood that UKFI feels it was better that the chief executive, Eric Daniels, should retain his job, because it rates his managerial ability and feels there is a global shortage of decent banking executives.

However, shareholders hold Mr Daniels jointly responsible for the takeover of HBOS. His long-term future will depend on whether he can demonstrate that HBOS can be transformed from a millstone into a significant contributor of additional profits.

UPDATE 10:53: I've been trying to get to the bottom of which way UKFI would have voted at the annual meeting on whether Sir Victor should remain as chairman.

And I am now persuaded that UKFI would have voted its 43% (that's taxpayers' 43%) against him staying on.

In which case, Sir Victor could not possibly have survived as chairman. And if directors really believed that he would have won the vote, which is what I was told earlier, they were bonkers.

In other words, Sir Victor has jumped before he was pushed.

What's fascinating is that UKFI seems to be behaving more independently of the Treasury and government than many thought was possible.

I am sure that UKFI would say that it's behaving in accordance with its official mandate, which is to take decisions purely on the basis of what's most likely to increase the value of the bank shares it owns.

The important background to all this is that the prime minister was intimately involved in promoting and supporting Lloyds' acquisition of HBOS.

Sir Victor and Mr Daniels did him a favour by doing the deal, because the alternative would have been full 100% nationalisation of HBOS.

Of course, that's not why they bought HBOS. Their motive was that they believed that the creation of a super-sized retail bank would lead to bigger profits.

It's the mounting evidence that such profits, if they exist, are a long way off which has so infuriated Lloyds' shareholders.

That said, the takeover was controversial from the very start. And many would say that Gordon Brown was indebted to Sir Victor for seeing it through.

In that context, it's striking that UKFI - an arm of the government, albeit one that claims not to be a political pawn - should have been prepared to vote against the re-election of Sir Victor.

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• - What's this?

A committee of MPs today that gave inappropriate and excessive rewards to hundreds of powerful people.

And before you ask, you wag, they were not holding a mirror up to themselves.

The Treasury Select Committee was - of course - lambasting the City's bonus culture, which it says led to "reckless and excessive risk-taking".

On this occasion, the MPs are only voicing what many British people have thought for months.

But, strikingly, the Labour-controlled committee does not conclude that the payment of substantial bonuses to top banking executives should be prohibited altogether - not even in the big banks, RBS and Lloyds, where we as taxpayers have huge stakes.

The MPs say: "we believe that there is a strong case for curbing or stopping bonus payments for staff on higher salaries" at Lloyds and RBS.

But in the end they conclude that would not be a good idea because "unduly strict restrictions on bonuses to such staff would result in the banks struggling to recruit and retain talented staff" - which would "be to the detriment of the taxpayer as a major shareholder in both institutions".

If you work at RBS and Lloyds, you should probably send the MPs a thank-you card, not least because the expenses antics of their colleagues in the Commons means that it may once again be safe for you to divulge at parties what you do for a living.

All that said, the MPs have not come down in favour of the status quo when it comes to bankers' pay.

They do want a ban on bonuses being paid to bankers until its clear that the profits generated by those bankers are real and sustainable - which was not the case with many of the notionally colossal profits generated in 2006 and 2007 from trading in toxic investments, such as collateralised debt obligations.

And they urge thorough reform of the "governance" system that sets bankers' pay:
• more involvement of staff and shareholders in setting remuneration for top bankers;
• much more "transparency" about what bankers are paid (so publication not just of the remuneration of those on boards but also of senior bankers below board level);
• and possible overhaul of the role of remuneration consultants, who are accused of making a pernicious contribution to the "upward ratchet of pay of senior executives in the banking sector".

As for the City watchdog, the Financial Services Authority, well the MPs say they're concerned at its "apparent complacency" about the links between the bonus culture and the banking crisis.

The MPs say: "The FSA was extremely slow of the mark in recognising the risk that inappropriate remuneration practices within the banking system could pose to financial stability".

The FSA is miffed by the attack - or at least it is in a press release, though its head honchos are not standing up to be counted on this today.

However, in fairness to the FSA, it did signal many months ago - and before other regulators - that it would impose costly higher capital requirements on banks that fail to adopt a more prudent approach to pay.

It's just that for whatever reason, neither its chairman, Lord Turner, or its chief executive, Hector Sants, have chosen to fulminate from the pulpit on the putative evils of the demon bonus.

There are also a couple of ad hominem attacks. The MPs fear that the former regulator and erstwhile banker, Sir David Walker, may not be the "ideal person to take on the task of reviewing corporate governance arrangements in the banking system" - which is what Sir David is doing for the Treasury.

The insinuation is that Sir David is too much of an insider to shake up the system in the way that's warranted.

And there's a wrist-slapping for Lord Myners, the City minister and erstwhile big cheese in the fund management industry.

The MPs say he could and should have done more to prevent Sir Fred Goodwin receiving that notorious Β£16.6m pension pot - that screaming manifestation of payments for grotesque failure in the banking industry - on leaving Royal Bank of Scotland last autumn.

Myners always thought of himself as something of a scourge of the financial industry's establishment. So he'll be harrumphing this morning at the MPs' charge that his "City background and naivete as to the public perception of these matters may have led him to place too much trust in the RBS board".

But he probably feels less chastened than would have been the case only a week ago. Because that resonant phrase, "naivete as to the public perception of these matters", is a devastating criticism that would stick to many MPs in relation to their allowances - and probably undermines the moral force of their indictments of others.

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• - What's this?

Here's an odd thing about .

It was privatised 25 years ago. But whenever BT gets its tail up and tries to go global - whenever it leaves these shores in a multinational kind of way - something seems to go horribly wrong.

Bad stuff happened at the turn of the millennium during the height of new tech and dotcom mania, when BT borrowed far too much on a takeover spree that was supposed to transform it into a worldwide colossus.

The hubristic reward in 2001 was eye-watering losses that took BT to the very brink of collapse.

Which is why, for me, BT's woes of the past few months feel familiar.

Although this time, thank goodness, BT's self-inflicted wounds aren't life threatening.

The charge it's taking of almost Β£1.6bn to sort out its global services division tips the whole company into loss - of Β£134m before tax in the year to 31 March.

But the company in the round generates buckets of cash, even when the economy is ailing.

Also, in this first ever recession of the broadband era, it's striking that BT is still signing up new broadband customers.

In other words, the parts of BT familiar to millions of British people - supplying telephony and broadband services to individuals, smaller companies and re-sellers of various sorts - are proving resilient.

What's gone wrong at - which manages IT and communications for giant organisations like Reuters, the NHS and Microsoft - is that costs have spiralled out of control.

One NHS contract has been particularly horrid - and is responsible for a huge chunk of a Β£1.3bn one-off debit for sorting out loss-making contracts.

This mess was not how it was supposed to be for , just a year into his tenure as chief executive.

However when I interviewed him this morning, he resisted the temptation to dump on his predecessor, Ben Verwaayen.

That said, Vervaayen hasn't bequeathed him the easiest of legacies.

There's a massive hole in a Β£33bn pension fund - though we don't yet know the precise size of the deficit, because the hasn't given its imprimatur to the official actuarial measure of the gap between liabilities and assets.

Even so, BT has received official sanction from the Regulator for the first phase of its pension-fund remedy: annual payments into the fund for three years of Β£525m.

These hefty cash costs are in part responsible for the mullering of the dividend payment - slashed by 59% (which of course has the paradoxical effect of inflicting pain on pension funds, like BT's own, which own BT shares).

For all the "challenges" he's inherited, Livingston has no intention of backing away from a plan to reinforce BT's position as the pre-eminent British broadband business.

He's accelerating plans to lay superfast fibre cables - which will provide uber broadband to 40% of the population (the other 60% can't be connected without help from the government and regulator, Livingston says).

So Livingston is not all about cost control and cuts.

That said, he is a grim-ish reaper. Some 15,000 BT jobs have gone in the past year and .

Livingston told me his ambition is to protect the jobs of permanent BT staff as much as he can, so contract workers and agency workers will be shed by preference, where possible.

Which may be the fair approach for this very British business to take. But it's no comfort to thousand of contract and agency workers facing the imminent hardship of unemployment.

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• - What's this?

Under section 292 of the Income Tax (Earnings and Pensions) Act 2003, MPs granted themselves exemption from tax on their overnight expenses.

The legislation says:

1) No liability to income tax arises in respect of any overnight expenses allowance paid to a Member of the House of Commons in accordance with a resolution of that House.

2) "Overnight expenses allowance" means an allowance expressed to be in respect of additional expenses necessarily incurred by the Member in staying overnight away from the Member's only or main residence, for the purpose of performing parliamentary duties - a) in the London area, as defined in such a resolution, or b) in the Member's constituency.

In the fiscal year 2007/8, the maximum that any MP could claim for overnight accommodation away from home was Β£23,083. And in that year, some 390 MPs claimed Β£20,000 or more.

Remember that under section 292, this is tax free. So the Β£23,083 is the equivalent of Β£38,471.67 of taxable income: it's a pretty hefty allowance.

But what strikes me as interesting is the definition in the Act of the "overnight expenses allowance" as "additional expenses NECESSARILY incurred...in staying overnight" (the caps, of course, are mine).

Now perhaps I'm wrong, but it seems to me this legislation should oblige Her Majesty's Revenue and Customs to take quite a close interest in the Daily Telegraph's revelations about how MPs actually spent their allowance.

One of the reasons the Telegraph's disclosures have generated a bit of surprise around the place is that a goodly number of MPs' claims for reimbursement have been in respect of expenditures that seem somewhat marginal, rather than strictly necessary, in relation to overnight accommodation.

But if that is the case, surely the relevant payments to MPs would then be liable to income tax at the 40 per cent top rate.

Or to put it another way, there may be something of a fiscal incentive for MPs to repay monies received in respect of the more exotic expenses claims - because if they weren't to do so, they might find themselves facing a tax bill.

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• - What's this?

A quintet of famous British companies reporting this morning paint a vivid picture of the global recession.

It confirms what we know: the past few months have been pretty horrible; but there are signs in some nooks and crannies (not all) of an incipient recovery.

The horrible big number comes from the property giant, : a loss for the year to 31 March of Β£5.2bn. Ouch.

But here's the better news.

Land Secs has raised Β£756m of new equity from shareholders. Among the trends that reassure me at the moment is the willingness of investors to recapitalise substantial viable businesses by supporting rights issues and taking new shares in placings.

And although Land Secs says vacancy rates in its buildings will continue to rise and rental income will continue to fall, it is hopeful that "investment property pricing may reach a turning point ahead of the rental markets".

There are already signs of buying interest, it says, in well-let prime properties, because of the "yield gap" between property and gilts or cash on deposit.

Which is just one manifestation of the colossal amount of cash that investors are ready to invest, and are beginning to invest, as their appetite for risk improves.

Another very scary number came from , owner of the eponymous national tabloid and regional newspapers. For the 17 weeks ending 26 April 2009, its advertising revenue fell 30% - with regionals suffering an eyewatering 36% drop.

The rate of fall moderated a bit in the latter couple of months for the regionals, but accelerated slightly for the nationals.

Rather better news, however, is that circulation revenues fell "only" 4%.

Which highlights the sterling job that consumers are doing in continuing to spend, while businesses are slashing their expenditure.

has been a beneficiary: it has been able to of 5.7% for the year to 21 March and "underlying" profit before tax up 11.3% to Β£543m.

Just think how awful our recession would have been if British households hadn't spent a chunk of the wonga handed them by the Bank of England through cuts in what they pay on their mortgages and personal loans.

That said, some would say its disturbing that households aren't yet saving more to reduce their record levels of indebtedness (equivalent to around 170% of disposable income) - since that presages potentially sharp cutbacks in spending and rises in saving, as and when interest rates rise and when individuals have the confidence to make slightly more risky investments.

Even so, reported a bit of growth in the first three months of the year in its UK savings business.

Finally strong profits growth from tells the other great story of our time: the resilience of public sector expenditure in the UK and across the world, as the Keynesian counterweight to shrinking private-sector demand.

Because Compass has a big business providing catering and food services in schools and hospitals.

But, of course, with public-sector debt rising to levels regarded as unsustainable by many in the UK and the US, today's public expenditure resilience may well be followed - in a year or two - by slash and burn.

Which simply says that if a turn in the economy isn't too far off, the recovery may be somewhat anaemic (at best).

And for many business, finding profits will continue to be something of a challenge.

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• - What's this?

I know I've said that funding conditions in financial markets have been improving, that the risk of another cataclysmic banking crisis has diminished very significantly and that the rate of contraction of our economy appears to be slowing down, but...

That "but" means it's not going to be all plain sailing from now on.

Take the mutually owned building societies.

These relatively uncomplicated lending institutions, which don't pay dividends to shareholders, have weathered the financial storms of the past 21 months better than large, complex commercial banks - largely because they were less reliant on flighty wholesale funding and because they made fewer crass loans and investments.

But they have two serious vulnerabilities (neither of which should come as a revelation to you):

• they are "monoline" businesses, almost totally dependent on the health of the British housing market;

• as mutuals, their ability to raise capital in a hurry to absorb losses is limited.

So with the slump in the housing market in its 18th month and as growing numbers of mortgage borrowers are having trouble keeping up the payments, it has become highly likely that a few more societies will have to be rescued - either through shotgun mergers with the biggest societies (a big hello to Nationwide) and/or with financial support from taxpayers.

A tiny number could be broken up, to protect depositors, under the new so-called Special Resolution Regime administered by the Bank of England.

Strikingly the Treasury signalled in the budget that it wants the mutual sector to thrive.

So we may see something of a taxpayer bailout of societies deemed fundamentally viable - even though no society, apart from Nationwide, can be deemed a lynch pin of the financial system, or too big to fail.

The trigger for a gloomier assessment of the societies' prospects was a downgrade last month by the agency Moody's of the credit ratings (a measure of financial health) of seven societies to below the top "A" grade.

The tarnished societies, in order of size, were Yorkshire, Chelsea, Skipton, West Bromwich, Principality, Newcastle and Norwich & Peterborough.

For clarity, there's no reason to assume that any of the Moody's seven is facing imminent difficulties. But the loss of their "A" badges has made it harder and pricier for them to attract and retain finance from institutions.

It may seem extraordinary to many that credit rating agencies like Moody's still have tremendous influence on the fate of banks and building societies: if the agencies hadn't awarded impeccable AAA grades to investments made out of subprime loans that turned out to be toxic, the global financial mess wouldn't have been quite so acute.

However even the Bank of England and the Treasury continue to defer to the agencies' judgements.

One of the reasons a few societies are in a spot of bother is that only those with the highest credit ratings can take advantage of two kinds of support provided by taxpayers (the Bank of England's Special Liquidity Scheme and new state guarantees for asset-backed securities).

To add municipal insult to central bank injury, a number of local councils (having been humiliated by their losses on deposits in Icelandic banks) have decided they will not place deposits in societies other than the very biggest and soundest - which means that some societies are losing a valuable source of finance.

Although it may seem odd that the Bank of England and Treasury don't exercise their own independent judgement to determine whether individual societies are worthy of help - or at least haven't decided to ignore Moody's by relying instead on the assessments of the Financial Services Authority - it would be silly to blame the woes of the societies on Moody's.

House prices are still falling (though just possibly the turn may not be too many months away, if recent data, including , is a guide). A number of societies are bound to incur losses this year.

Understandably, the FSA is in the process of verifying whether all societies - not just the Moody's seven - have the capital to cope with further strains in the housing market and whether they have sufficient access to finance to withstand a prolonged drought of wholesale funding.

Societies unable to demonstrate they can absorb potential future losses comfortably will not be allowed by the FSA to retain their independence - unless the Treasury were to invest in them on taxpayers' behalf (not impossible).

As for those with adequate capital but inadequate access to deposits and wholesale finance, their future hinges on whether the Treasury and Bank of England relax their conditions for providing taxpayer loans and guarantees.

To be clear, this is an eminently manageable problem. And I see no reason why retail depositors in societies should fear they'll lose a penny, though part of the challenge for societies is that the same comfort can't be given to providers of wholesale funds.

Here's the measure of the challenge.

The seven societies which lost their Moody's "A" have Β£71bn of mortgages and other assets on their balance sheets in aggregate. Which means that if you were to lump all of them together, the combined balance sheet would be 30% smaller than Northern Rock's was in 2007, when its funding dried up.

As important, the seven are reliant on money from wholesale sources to fund about a quarter of the value of their assets. Which means they are much less dependent on wholesale funding than the Rock was in its pomp.

In other words, this isn't a story of some great looming financial crisis.

It's really about what kind of financial services industry we want for the years to come.

Do we want diversity (to use the politically correct clichΓ©), an industry where the biggest banks are kept on their toes by competition from mutual tiddlers?

In which case, taxpayers' money should be deployed to keep the most viable societies alive through this severe crisis in the housing market.

Or would we be content to save and borrow exclusively with giant banks and new retailing interlopers (such as Tesco)?

My guess is that there would be some sadness if yet more societies with roots in local communities were to vanish.

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• - What's this?

Here's today's riddle: which financial black hole could be transformed into a mountain of gold simply by moving the ownership of the black hole from one part of the public sector to another?

The answer is Royal Mail's pension fund.

Here's the Alice-in-Wonderland financial engineering.

Royal Mail is a plc with a single shareholder, viz HMG. And our somewhat battered postal service has a massive pension fund that's burdened with a huge and troubling shortfall between assets and liabilities.

Because Royal Mail can't afford to fill the deficit in the fund, the government has proposed to take responsibility for all its liabilities as of 16 December last year (as part of wider plans to rehabilitate Royal Mail that include a highly contentious sale of a stake to the private sector).

Under this pension rescue plan, the government would also inherit Royal Mail's assets.

These are the numbers.

Royal Mail's assets - at 16 December - have a value today of just over Β£20bn. But its liabilities are worth around Β£30bn.

So for poor, beleaguered Royal Mail, there's a gap between the assets and liabilities - a de facto and crippling debt - of around Β£9bn.

Horrid. And you can understand why Royal Mail's executives are desperate to be shot of this financial millstone.

But a millstone for Royal Mail looks altogether more glistening and shiny to ministers - because of what happens to these assets and liabilities when they are transferred to the government?

The assets can be sold, to reduce the official national debt by around Β£20bn. Which wouldn't at a stroke sort out the UK's overstretched public finances, but would be jolly useful.

And the government has indeed said it would sell these assets over a few years to "protect value for money for the tax payer".

So by taking control of Royal Mail's pension fund, it eliminates one black hole (Royal Mail's) and shrinks another (the national debt).

But hang on a sec, you are surely saying. What about those Β£30bn of liabilities to Royal Mail's current and future pensioners? Isn't that a burden of a hideous and lethal kind?

Do we as taxpayers really want to become directly responsible for all that (as opposed to our indirect responsibility, as of this moment)?

Well, the logic of ministers appears to be that we won't notice we've taken on this burden, because the government's commitment to pay pensions to public-sector workers in unfunded pay-as-you-go schemes - which is what the Royal Mail one will become - is not part of the national debt.

That said, the government's Actuary's Department estimated that the total liability of unfunded public service occupational pension schemes as at 31 March 2006 was Β£650bn - or about 50% of GDP in that year.

The liability will be rather bigger now.

So there are two ways of looking at the conversion of the Royal Mail fund into an unfunded pay-as-you go scheme: as a rounding error, almost irrelevant, in the context of the extant public-sector pension liabilities; or as evidence that ministers don't have the beginning of an idea how to curb the growth of an incredibly expensive set of pension promises.

Little wonder that John Ralfe, the pensions analyst, describes what's happening to the Royal Mail pension scheme as a colossal fiddle.

Some of you may think he could use stronger language.

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for the first three months of the year are a Jekyll-and-Hyde tale of very good and appallingly bad.

The positive stuff is that it generated record income for the first three months of the year of Β£9.7bn - due in large part to astonishingly strong results from investment banking.

And, in spite of its notorious crisis of last year, it retained customers and even added some new ones.

But the billions in extra revenue were wiped out by losses on loans and investments that have gone bad - there were some Β£5.7bn of these losses in total.

So overall the group made a pre-tax loss of Β£44m and a post tax loss of Β£857m - which was a bit less than City analysts expected - though that probably represents pain delayed rather than avoided altogether.

Royal Bank expects to be in loss for the year as a whole, just as it was last year.

Even so, as for other big banks, there is evidence that RBS is on a path to recovery.

Which matters to most of us, because taxpayers own 70% of Royal Bank and we need it to recover if we're ever to sell our stake in it for a profit.

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7 May 2009: it's an important date.

Important, because it may well be the day we could relax a bit and be confident that our biggest banks are on the road to recovery - that the risk of any of them going belly-up has diminished very significantly.

Which is not to say that the days of easy money for banks are back, or that rational pricing has returned to money markets (though these markets are a bit less dysfunctional than they were).

The recession is taking its toll: excessively indebted households and companies are experiencing growing difficulties in making payments on loans.

So Lloyds Banking Group will make a humiliating loss this year.

But Lloyds also confirmed today that it has more than enough capital to absorb that loss.

It can withstand more-or-less any shock, other than the kind of economic Armageddon which would give us rather bigger things to worry about than the health of Lloyds.

And at Barclays? Well, that bank is actually growing profits again - thanks to a boom in investment banking and the business of raising finance for big companies - which more than compensates for increasing losses on loans that are going bad.

In a global banking industry what's probably more important is that the US authorities are today - in a very public way - .

A small number, including Bank of America and Citigroup, will be instructed to raise tens of billions of additional capital.

Others will be pronounced in pretty good shape.

And what matters most is that (at long last) we're probably through the initial phase of the global economic shock - which was all about the seizing up of financial markets, the contraction of the banking system and the collapse of individual banks.

What we have to contend with now is the consequence of that almost unprecedented systemic financial meltdown: recession.

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If turkeys don't vote for Christmas, you wouldn't expect British bankers and City of London executives to demand costly new rules from Brussels, or higher tax rates or that their banks should be dismantled.

So in a way it's unremarkable that a committee of City grandees chaired by the former chairman of Citigroup Sir Win Bischoff wants the UK government to take a leading role in shaping new EU rules, and is opposed to the idea of forcing banks to slim down and specialise.

Also, they insist that the tax system should be stable and predictable.

If there's any kind of controversy about the proposals, I guess it will stem in part from the following excerpt, which is one of the committee's arguments against breaking up banking conglomerates: "The provision of housing finance for individuals or pensions for tomorrow, or of insurance against potential risks for businesses or finance at cost effective rates for their expansion might require the synergies of the combined models."

Hmmm.

On housing finance, think subprime and collateralised debt obligations - and ask yourself whether innovation by banking conglomerates has added or detracted from human welfare in recent years.

Here's the thing. The committee was set up by the Chancellor, Alistair Darling. And there's therefore an implication that he endorses what they want.

Which matters. Since it demonstrates that he disagrees with the governor of the Bank of England - who says there is a case for breaking up banks into separate retail and investment operations

And it might suggest Mr Darling concedes that recently the UK hasn't perhaps done enough to shape EU financial proposals, especially those seeking to constrain hedge funds and private equity firms.

But what on earth does it imply about Mr Darling's attitude to tax - since it was only last month that he announced an increase in the top rate of tax and a reduction in relief on pension contributions for high earners, or measures seen in the City as damaging the competitiveness of their industry.

As for what kind of Christmas banks can expect this year, well it's all looking a lot less gloomy than they would have expected a few months ago.

Their shares have trebled and quadrupled over the past few weeks.

Statements today by Barclays and Lloyds indicate that banks should be over the worst.

In the case of both, recession-generated losses on lending to vulnerable companies and individuals are rising - as is inevitable.

But in the case of Lloyds, it has more than enough capital and insurance protection from taxpayers to cope (even though losses generated by corporate lending by HBOS, which it bought in those fraught and controversial circumstances, are still rising in a wince-making way).

Lloyds' core tier one capital ratio is a super-strong 14.5%, which should be enough to withstand anything but economic Armageddon.

For Barclays - as for a number of global banks in investment banking and wholesale banking - it's difficult to see in its figures that the global economy is in a spot of bother.

Its pre-tax profits have risen 15% to Β£1.4bn in the first three months of the year, even though the contribution from retail and commercial banking has fallen 45%.

However, the early months of this year have been a boom time for investment banks and for banks that help the very biggest companies to raise money.

Barclays has done trebly well, having had the gumption to buy Lehman's US operations for next to nothing last autumn (after the US investment bank collapsed with such damaging consequences for almost everyone on the planet).

The profit of Barclays' investment banking and investment management operations rose a staggering 189% to Β£1.1bn.

Crikey.

Any minute now we'll start to hear complaints not that our banks are almost bust, but that they're making far too much.

Actually, we're not there yet.

But in another year or two - after the removal of excess capacity, a widening of margins and a fall in loan losses - banking will again be a very very profitable business.

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The Business Department has made an offer to Jaguar Land Rover that it rather hopes will be refused.

Last Friday it said it would provide the carmaker with a guarantee for a short term loan of Β£175m from the European Investment Bank.

What was described by officials as the government's "final offer" has been designed to help the carmaker fill a hole in its finances between now and the end of the year, to help it over the credit-crunch hump (so to speak).

Separate from that, the Government is also considering providing much more substantial longer term financial help, so long as Jaguar furnishes it with a business plan that makes sense.

But here's the thing.

Because Jaguar is owned by the giant Indian conglomerate, Tata, ministers are not persuaded it really needs the money.

So it has imposed very onerous terms on the short term money - such as a 15 per cent fee, a requirement that the government appoint a new chairman, and influence over Jag's employment and investment plans.

Broadly what ministers are saying to Tata is: "we think you have deep enough pockets to support Jaguar Land Rover on your own; but we may be wrong, so we're going to make you pay an arm and a leg to test you".

Some may think it's odd that after six months of negotiations, there's still apparently very little trust between the government and Tata.

And if Tata doesn't take the loan on these terms - and tonight I'm told it's minded to reject the offer - the hard-balling ministers may feel vindicated.

Except that Tata may choose to conserve cash by sacking a fair number of Jaguar's 14,500 employees and significantly reducing more than Β£500m of annual investment in research and technology that's pretty valuable to the UK.

Which would make the controversial loan rather pricier - for the nation.

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Something of importance has been lost in the fraught political row over whether Gordon Brown will press on with the part-privatisation of Royal Mail - which is what on earth will happen to a service that touches all our lives and employs 180,000 people?

Just to remind you, Royal Mail is in a frightful state.

It needs hundreds of millions of pounds of investment, to modernise archaic sorting offices.

The recession plus online competition are combining to reduce mail volumes by between eight and 9% - which in a full year would knock well over Β£600m off revenues.

And an imminent revaluation of an enormous pension fund is likely to assess the net deficit at around Β£9bn, probably a British record and a millstone humungous enough to sink almost any business.

Now in those circumstances any money raised by selling a minority stake in Royal Mail would be a drop in the ocean.

Or to put it another way, part-privatisation is a mild balm rather than a cure for Royal Mail's financial woes.

So it's easy to see why the trade unions see the disposal of part of Royal Mail as irrelevant at best and pernicious at worst.

Also it's possible to argue from a capitalist perspective that it would be bonkers to sell a stake right now, when market conditions are lousy.

But the prime minister and Peter Mandelson, the secretary of state for business, view it differently. Without the introduction of the private sector as co-owner and manager, they fear that further financial support from the public sector for Royal Mail would be throwing good money after bad.

Nor is the government flush with cash right now. In these straitened circumstances any funds being offered by the private sector represent a stunningly attractive bird in the hand.

Against that backdrop, the business department has presented the stake sale as part of a package that also includes a new regulatory approach and a reduction of the pension-fund burden on the postal service: Mandelson has said that Royal Mail can't have one or two elements alone.

Which has apocalyptic implications. It means there's apparently a choice between part-privatisation of Royal Mail and its bankruptcy.

Not that it would ever come to that. It's counter-intuitive to expect that the sole shareholder in this strangest of public limited companies, the government, would let Royal Mail collapse into administration.

However Royal Mail has not a scintilla of doubt that it can't afford the Β£830m a year (and probably rising) of contributions it's obliged to make to the pension fund.

So the board of Royal Mail would be absolutely distraught if abandoning the share sale also meant curtains for the government's proposal to take on responsibility for the pension fund's liabilities and assets as of December 16 last year (which was designed to relieve Royal Mail of Β£280m of cash payments into the fund).

As for a plan to transfer regulation from Postcomm to Ofcom, Royal Mail also thinks that's essential, on the basis that Ofcom may be less likely to view Royal Mail as a beastly monopoly deserving of crippling price controls.

But if Brown and Mandelson went for the U-turn, if they were to abandon the stake sale but pressed on with alleviating the pension burden and changing regulators, that could be seen as an admission of failure in respect of a structure for Royal Mail created only a few years ago by, well, more-or-less the same mob.

Not nice.

What's striking for me is that senior members of the Tory frontbench tell me they're keen to see the part-privatisation take place (and also see Nick Robinson's note on this).

The Tory leader and shadow chancellor rather like the idea that at least part of the serious financial risk associated with Royal Mail would be laid off to an outside investor. And if there's public opprobrium attached to that sale, how nice for a possible future Conservative government that it would be directed today at Brown and Mandelson.

So if Gordon Brown wants help legislating for part-privatisation against the objections of his recalcitrant, writhing backbenchers, the Tories will probably be delighted to supply it,

Gordon Brown won't like the notion that by selling a chunk of Royal Mail, he'll be alienating many of his own MPs and supporters, while doing a terrific favour for George Osborne and David Cameron.

But he won't relish the prospect of abandoning a symbolic part of his industrial strategy.

If he backs away from part-privatisation, it'll be seen by many as further proof that New Labour is being buried on his watch by a reinvigorated old Labour.

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The 10% fall in passenger numbers going through Heathrow, Gatwick and Stansted during the first three months of this year is one of those numbers - like the halving of Japanese exports - that shouts about the depth of the recession.

That sort of plunge in numbers flying has happened before for . There was a 9.9% drop in passenger traffic during the three months that followed the September 11 terrorist outrages.

But the plunge in 2001 was fairly short-lived. By contrast, this year's fall follows a 7.1% dip in passengers for the previous three months.

That said, BAA hopes - and believes - that it's over the worst.

Its optimism is based on its analysis that the underlying passenger decline between January and March was "just" 7.2%, adjusting for the impact of a later Easter and a colder winter.

BAA, which is owned by the Spanish group , also draws attention to the smaller fall at Heathrow (which it estimates at less than 4% in underlying terms), than at Gatwick and Stansted - since Gatwick and Stansted are being sold on the orders of the Competition Commission.

The debt-encumbered business rather needs this "glass-half-full" analysis to be true, since it only just hit the forecast it made last October for EBITDA, or earnings before interest, tax, depreciation and amortisation (the most common proxy for cash flow).

In its supplementary prospectus dated October 1, BAA forecast that adjusted EBITDA for the whole year to March 31 (not just the three months) would be no more than 5% below Β£1,015m, or at least Β£964m. In the event, adjusted EBITDA was Β£968m.

Phew.

If earnings had been less than half of a percentage point lower, it would have missed the target. That half percent has no statistical significance but means the world in psychological terms.

How did it scrape by?

Well, it squeezed costs. And thanks to a regulator that allowed BAA to levy increased charges on airlines for using Heathrow and Gatwick, what BBA calls "aeronautical income" rose almost a third.

Ain't it great having a de facto monopoly?

Also, the smaller numbers who flew forgot there's a recession and splurged a good deal more: there was a small increase in BAA's retail income.

But for me, the most interesting part of BAA's results announcement is a phrase that the company has highlighted in bold (presumably so that its creditors don't miss it).

In flagging up a review by the Department for Transport of how it's regulated, the airports group says it expects to be subject to a new licensing regime that would impose a "new duty on the regulator to ensure that licence holders can finance their activities".

So it would risk losing its licence to operate Heathrow if it was perceived to be too financially stretched.

The point is that BAA has an eyewatering Β£11.4bn of borrowings - or a hefty 11 times EBITDA - including just over Β£1bn that are classified as "current" (or repayable within a year").

In other words, BAA's tender parts are still in the vice-like grip of its lenders.

Still, it had a miraculous escape from bankruptcy last year: some Β£9.1bn of debt was due for repayment within a year, as of March 31 2008.

That, of course, necessitated the mother of all refinancings. It rather defies belief that BAA pulled off the refinancing, in the worst financial-market conditions within living memory.

But that doesn't mean it can relax. Although the recession means that its income is subject to the most painful squeeze in living memory, its lenders are unlikely to be especially tolerant or forgiving if BAA lets them down.

It matters, in that context, that in the next few weeks it achieves a decent price for Gatwick and that prospective purchasers aren't put off by the 14.6% fall in first-quarter passenger numbers - since the proceeds of that forced disposal will be used in their entirety to pay a portion off the "Refinancing Facility".

So BAA is unlikely to revert to being a dull, steady-as-she-goes utility any time soon.

And although it's understandable that for many business people and politicians the big question is whether Heathrow should be allowed a third runway, that looks almost an academic issue compared with BAA's operating and financial challenges.

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Bankers have made "an astonishing mess of the financial system".

So say the MPs on the Treasury Select Committee - and you'd walk quite a distance, across continents, before you would find many who'd disagree with that verdict.

But the committee's latest report in its investigation of the financial crisis spreads the blame more widely, saying that governments, regulators and central bankers all share responsibility for "sustaining the illusion that banking growth and profitability would continue for the future".

What an expensive illusion that turned out to be.

So what, for the MPs, is the way to prevent a repetition of this debacle and to make the best of our recovery from it?

Well, that's work in progress. But the committee does have a few recommendations.

For me, the most interesting relates to mutual building societies.

The committee believes the building societies have operated a "safer business model" than most commercial banks (with the as the conspicuous exception).

But if building societies, or mutuals, are not just an example of solid Victorian values but are also our financial future, it's a concern for MPs that establishing new building societies appears to be much harder than it was when the Ecology Building Society was started in 1981.

In that context, they also say it's unfair and troublesome that building societies are forced to shoulder a disproportionate share of the costs of the - which is the fund that compensates depositors for some of their losses when banks go belly up.

The MPs call on the FSA to review the societies' heavy contribution to the compensation scheme "with urgency".

Among their other recommendations are that the government take steps to improve competition within the banking industry, because they feel that the benefits of competition were sacrificed in initiatives to prevent banks from collapsing (this is a big hello to ministers' decision to allow a mega retail bank to be created when ).

Also, the committee is not persuaded that the rescued banks have yet done enough to reverse the squeeze on lending to small businesses, in spite of their promises to do so. And the MPs fear that when banks do lend to vulnerable smaller businesses, they're charging too much in the form of fees (as opposed to interest).

The committee is particularly concerned that UK Financial Investments, the body charged with managing taxpayers' stakes in Lloyds Banking Group and Royal Bank of Scotland, isn't sufficiently arm's length from the Treasury, or insufficiently precise about its ambitions. UKFI should, say the MPs, be put on a proper statutory basis.

However, if I was surprised by one element of the report it was that MPs felt that retail customers like you and me stand a proper chance of evaluating when banks are taking silly and undue risks, even though recent events have proved that the most financially sophisticated central bankers, regulators and investors in the world were for years ignorant of the banks' complex and crazy investing and lending activities.

No matter that the FSA wasn't bright enough to see that RBS and HBOS were galloping towards the cliff edge, the MPs believe that the government should abandon its 100% protection of retail deposits - which is the current de facto reality - and make it clear that the formal Β£50,000 limit on deposit protection is not just a theoretical limit.

Why? Well the fear that depositors' money was at risk would "reintroduce the depositor's obligation to consider matters other than the bald interest rate in choosing where to locate their investments and thus ensure that the banks had a disincentive to be reckless".

Hmmm.

Most, I think, would say it's a lovely idea that consumers could have enough relevant information to judge when and whether Mega Bank Inc is investing sensibly or gambling recklessly - but is it remotely realistic in an era of financial globalisation, even if the regulators start to do their jobs properly?

Which brings us neatly to the contentious point of the moment, which is whether the big "universal" banks - such as Royal Bank and Barclays - should be cleaved or broken in two. This would mean that the likes of RBS would be split into a putatively safe and simple retail bank and into a supposedly riskier investment bank playing in the global casino.

The argument is that such a division of banking activities would make it easier for regulators to protect the deposits which matter - that's our deposits by the way, those of retail savers.

I've bored on about this a good deal in recent notes, and will bore on a bit more over the next fortnight, when the chancellor confirms in a White Paper that he's not minded to dismantle the big banks in this way.

The MPs however are showing due deference to the governor of the Bank of England, whose instinct - they say - is that "a separation of retail from investment banking functions is 'very attractive'".

They won't dismiss his view "lightly". But nor do they sign up for it.

Which is probably not unreasonable, because there would be serious economic implications from breaking up the banks.

So however numbed you are by debate on the arcana of banking regulation, a bit more deliberation probably wouldn't hurt.

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