Tough luck, you little old lady waiting for your Lloyds Banking dividend. You won’t be getting it, because the money is needed instead for our national emergency. We’re sure you understand, and will not mind joining the queue for social security, or selling your shares at a loss as your contribution to overcoming the country’s difficulties.

This absurd caricature serves to illustrate a central problem with big banks: do they belong to the shareholders, or can the Prudential Regulation Authority just tell them they cannot pay their owners, even if they believe they can afford to do so? The PRA must ensure that banks are sound, but if anything, Britain’s big banks are over-capitalised. They are miles away from the level which might justify the authorities vetoing a payment.

It is a racing certainty that the bad debts from the loans they are currently being told to make will make craters in their capital ratios, but even with revenues under sustained pressure, the UK banks could quadruple their provisions and still stay inside the rules. Besides, the declared dividends would make very little impact on their capital position. So does the PRA see such dire straits ahead that they must conserve every penny?

In the conventional model, should a bank see trouble ahead, the shareholders are in the front line to fill the hole – but not quite like this. This diktat means that the equity capital markets are effectively closed to banks – why should shareholders put up fresh capital when the authorities can decide the balance sheet fails some new test they have just made up?

As BofA analysts conclude: “We believe that a pre-emptive cut in dividends undermines confidence in the regulatory capital framework that has been built since the financial crisis.” Banking is the ultimate expression of confidence, and the dividend ban implies that the PRA does not have confidence in its own prudential regulations. Worse still is the precedent this sets. Will the insurance companies be obliged to follow, or can any government agency now demand suspension of any company’s dividend with the money used instead for some greater good?

With luck, it will not come to this, but the damage to London banking has already been done. You may not like them (nobody does) but this ban is extreme gesture politics. Such gestures are always expensive in the end.

Don’t be DafT, Grant

Grant Shapps wants to hear from you. At least, he says he does, but since he is living in his own little bubble at the Department for Transport (DafT), it’s unlikely that he’ll pay you any attention. Last week, when we had rather more pressing concerns, he slipped out a 76-page work of fantasy entitled Decarbonising Transport, another of those documents which give the current minister a nice warm glow from some far future sunlit upland, without the slightest hint of how we get there.

By 2050, in Shappsland, we have mostly ditched the car in favour of “a convenient, cost-effective and coherent public transport network”. We cheerfully go about, knowing that “clean, place-based solutions will meet the needs of local people.” All vehicles will be zero emission, “our goods will be delivered through an integrated, efficient and sustainable delivery system” and Britain will be the envy of the world.

No wonder Mr Shapps is smiling. He must have found it well-nigh impossible to keep a straight face for his picture. Nobody has any credible route to this happy place, other than those who think the current lockdown is good for us as a taste of a post-hydrocarbon future.

We have been here before, many times. Andrew English dug out a fine example from John “Two-Jags” Prescott: “We have had to make hard choices on how to combat congestion and pollution while persuading people to use their cars a little less – and public transport a little more,” he wrote in a transport White Paper in 1998.

The Shapps version purports to be a serious look forward to transport nirvana, but is nothing of the sort. There is no mention anywhere of hydrogen as a possible energy intermediary (except on trains), electric bikes or scooters, ride-sharing or how the buses will magically reverse the long-term decline in their use outside London. The car, of course, is cast as principal villain.

It would all be quite a good joke to keep us entertained during our confinement were it not for the dire straits the car industry is already in. Production has almost stopped, Ford’s debt has been downgraded to junk, and European manufacturers are gasping for government help. That is before the little matter of the rules on CO2 emissions per car tighten again, to a level which nobody seriously thinks the manufacturers can meet, with the prospect of near-bankrupting fines if they fail.

Even pre-Shapps, the UK had found its own way to turn the screw further. We had been urged to buy diesel cars, because they get more miles per barrel of oil, but diesel is now dirty, and from next year only new ones will be allowed into London without a stiff penalty. Other cities are threatening to follow suit.

Then there is the modern version of hire purchase. Personal contract plans cover nine of every 10 new cars sold to private buyers, typically enabling the “buyer” to take the car back to the dealer after three years and walk away. If instead he elects to keep paying, he gets a shiny new motor.

Even before coronavirus, this process was running out of road. Now showrooms have closed, while car use is brutally curtailed. Shares in dealerships have collapsed. To many, the rollover is an expendable luxury, threatening a car crash of slumping second-hand prices and bank debt defaults.

So there’s much for Mr Shapps to do, if he can drag his eyes down from his utopian vision. Does this government want a car-making industry in Britain? How do subsidised electric cars replace the £29bn a year in fuel duty paid by conventional cars? Answers on a postcard to Transport Decarbonisation Plan, Great Minster House, 33 Horseferry Rd, London, SW1P 4DR. Do not expect a constructive reply.


We are all shareholders in Shell, one way or another. Staple holding of pension plans, income funds and buy-and-forget investors, Royal Dutch Shell provides nearly 7pc of the total dividends paid from London’s listed companies. It has paid out reliably for over half a century, and even managed a small increase in 2014.

A cut is unthinkable, surely. Last week’s update from the management, explaining the strategy to cope with oil at $25 a barrel conspicuously failed to mention the dividend. Rather, we were invited to consider the efficiency savings, cancelled projects and postponed share buyback programme.

Ah yes, the buyback programme. The first $15bn of a proposed purchase of $25bn of its own shares is now completed at prices (as Shell did not say) more than twice today’s. If ever there was a purblind programme to just keep buying until the money was all gone, this is surely it. Now the collapse of the oil price means the company is no longer earning the money to pay the dividend.

Shell can easily find the $15bn cost by borrowing. Indeed, the analysts at Berenberg reckon that it would take two years of low oil prices and unchanged payout before the debt started to get painfully high. The more interesting question is whether this is the best course for the business.

A dividend that is not earned is essentially a repayment of capital, however disguised, and beyond a certain point continuing to pay it by borrowing is seen as a mark of weakness, not strength. The perception of a weak balance sheet has been close to catastrophic for companies in this month’s market meltdown.

Besides, failure to pay a dividend does not leave shareholders poorer, since the money is not lost, but stays in their company. The Shell share price has taken a terrible beating as the environmental fringe painted oil companies as evil, the clash of egos in Saudi Arabia and Russia poleaxed the oil price, and now coronavirus has dealt a blow to demand.

At £13 Shell shares (historically) yield 12 per cent, a signal that either the share price is wrong or the payout is not sustainable. Of course, OPEC peace may break out before we all drown in crude oil, and the virus will eventually be defeated. Until then, Shell would be well advised to suspend the next dividend payment. The directors might award themselves pay cuts to show they share the pain. Oh, and please, no more buybacks. You are paid to run the business, not to double-guess the stock market.

A rare chance to shine for the FCA

You should have had a letter from your broker, fund manager or whatever bearing the bad news that your portfolio has fallen in value by more than 10 per cent (some of us have had two). The senders enjoyed sending the letters out about as much as you enjoyed receiving them, with the added bonus to them that printing and stuffing envelopes is impossible to do from home.

This may not be the principal reason why so many of us voted to leave the European Union (remember?) but this pointless, and perhaps dangerous, piece of bureaucratic nonsense is a direct result of MIFIDII, that near-incomprehensible valedictory shot from Brussels targetted at the City of London.

One day, maybe, the Financially Supine Authority will notice the misery this directive is causing, and do something to ease it. Today would not be too soon, given the clear and present danger from the virus. Simon Ray of Cyan Wealth Solutions has written the FCA a stinging letter asking for relief from this potentially fatal requirement.

It’s all in the sacred name of consumer protection, like the four documents totalling 56 pages that a new client of brokers Rathbones is obliged to complete. The gems include: Why are your investing? followed by “Please do not leave this question blank.” No wonder so many give up and leave their money in the bank, earning nothing.


Fair weather friends

So farewell, Amigo, it has not been nice knowing you. Thus Shore Capital, throwing in the towel on coverage of this borderline immoral and now almost worthless lender.  Amigo’s founder, James Benamor, describes the company’s decline since he quit last year as a “slow motion suicide“, but for him at least, it’s a relatively painless one.

He has £278m in his pocket from the flotation at 275p a share less than two years ago, and still owns 61 per cent of the business. At today’s 14.5p he could buy the rest for less than £20m, although he does not appear to be rushing to do so. It’s worth reminding ourselves of the advisers who said Amigo was worth £1.3bn just a few short months ago. Step forward JP Morgan Cazenove, RBC Capital Markets and Macquarie Capital. Or more likely, don’t.

If you like my column tell your friends on the Shell board, or at JP Morgan, or anywhere, and invite them to go to and sign up to receive the columns by email.

Remember buybacks? That process of paying some shareholders to go away at the expense of those who remain. They were sold on the argument that they made the balance sheet more “efficient”, by replacing expensive equity with cheaper debt, but that was just PR spin. Their real attraction was the fees paid to the banks and the magical impact on earnings per share, and hence the CEO’s bonus.

Now their real cost is only too painfully apparent. Shares in companies where there is the slightest doubt about the balance sheet have been put to the sword. Other companies are scrambling to draw down credit lines before the banks cancel them. Still others are warning that they may not be able to go on without state aid.

Owners of bars, cafes, clubs, theatres and shops can only hope they will get it before the money runs out, but the most pitiful begging bowls are those held out by the airline industry. Both airports and airlines are warning of disaster without government help, as business dries up, but the more interesting question is: disaster for whom?

Grounded planes are very bad news for the staff who will lose their jobs (Izabella Kaminska points out that many of the 90,000 employed in the industry in the UK could be quickly retrained to work for the NHS) but there is no case for state aid to keep the companies going. The pain should fall first on the shareholders, and when they are bust, the banks which lent the money.

The industry runs on high-octane debt, often with just a sliver of equity to skim the rewards during the boom times. The farcical “rescue”  of Flybe rather demonstrated how little money the rescuers were prepared to risk. The owners of Heathrow have taken borrowing to such an extreme that they cannot afford to build another runway, even if they got permission to do so.

Tim Wu at the New York Times has a brutal analysis of American Airlines, one of the US flyers now pleading for help. Since emerging from bankruptcy in 2013, AA has generated $17.5bn of net revenue, paying out $15bn in buybacks, borrowing $30bn for the actual planes. Today, the business is worth $6.5bn. The mugs left holding the stock have paid the others handsomely to go away.

In the event of financial failure, the airports and planes will still be there, and there is never a shortage of risk capital for starting another airline. “Whatever it takes” is a fine slogan, but the money hose should not be turned onto this industry. They are already crying crocodile tears.

No, you can’t have your money back

Property is a British obsession. After this week, it may be rather less of one, as a string of property funds slammed the door, preventing withdrawals and trapping £15bn of assets, probably for many months.

These are so-called open-ended funds, offering the promise of instant withdrawal to any holder who wants it – until the gates are shut. So-called closed-ended funds have investors’ capital permanently, and wannabe sellers must find another investor to buy, just like any other share. So: an open-ended fund is one that can close on you without warning, while an closed-ended fund is always open, although you may not like the price you are offered.

The justification the industry supplies for closing is that it is impossible to value the assets in today’s febrile markets. This is true, up to a point, but in many cases it’s more that the fund managers can’t stomach the prices those markets offer them

To get some idea of how far out of whack the valuations are, look at Land Securities, the UK’s biggest closed-ended property company. In November it valued its portfolio at £13 a share, and the price touched £10 in January. It is £6 now.

The closed open-ended funds may think they have £15bn of assets between them, but the implication is that they may not be worth much more than half that in today’s markets. Like the rest of us, the managers cannot bear too much reality, so they closed the funds. No suggestion that they will waive their fees, though.

A good man gone

David Prosser, who died this week,  was the man who saved Legal & General from the fate that has befallen Aviva. As CEO for 15 years until 2006, he witnessed the merger orgy which saw Commercial Union, General Accident and Norwich Union shoved together into a sprawling conglomerate whose problems persist today. L&G, smaller than any of them before they merged, resisted the urge, and is now worth more than Aviva (although both shares have plunged in the collapse).

In 1999 National Westminster Bank’s weak management fell for the line that “bancassurance”, combining banking, life assurance and fund management was the future, and bid for L&G on terms that Sir David was unable to resist. The move so shocked Peter Burt at the Bank of Scotland that he launched a reverse takeover bid for NatWest, on condition that the L&G bid was dropped. This in turn triggered a (successful) counterbid from Royal Bank of Scotland, thus allowing Fred Goodwin to launch his ill-fated attempt to conquer the world.

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That went pretty well, didn’t it? Bank Rate cut to almost zero, followed by a chancellor promising to hose money at everything in sight, and it’s back to business as usual. The word collapse is overused for share prices, but when the FTSE100 falls 10.87 per cent in a single day, it is le mot juste, a half-trillion-pound raspberry to the UK’s policymakers.

Still, never mind. Mark Carney explains that he still has the equivalent of another 2.5 per cent of shot labelled “monetary easing” in his locker, if anyone knows what he means. At least we are to be spared negative interest rates, a move which would have us panic buying those plastic £20 notes and storing them alongside the tins of spam.

It has been said often enough that viruses do not respond to interest rates, and in the real world outside the professional money markets, the cost of borrowing is immune to cuts in Bank Rate, a connection that has been broken ever since the last crash. We are long past the point where cutting interest rates makes us feel better, or awakens animal spirits. So what precisely is our soon-to-be-ex governor hoping to achieve?

Mr Carney is not going to be there long enough to tell us. But he was the Bank governor who gave us “forward guidance”, useful mostly because we could listen to it and bet on the opposite happening. So we must all hope that Andrew Bailey, promoted to governor despite his patchy record at the Financial Conduct Authority, will say less and make better decisions. Since he is the continuity candidate, that may be too much to ask.


Stone me

Ah, there’s nothing like a bit of nostalgia to liven up a Budget speech. Of all those wonderful infrastructure schemes that Rishi Sunak dusted off and re-announced, there is none to compare with the Stonehenge tunnel. It has been about to be built almost as long as the stones themselves have been standing, and the thought that it might actually happen has divided us like nothing since Brexit.

Here is Tom Holland writing in Unherd: “The most grotesque act of desecration ever contemplated by a British government, the driving of a great gash of concrete and tarmac through our most significant, our most sacred prehistoric landscape.” You can tell he’s not wildly in favour.

Like other dusty projects, this one is a leftover from George Osborne’s fantasy list when as chancellor he claimed that “we are the builders” and promised the Northern Powerhouse all those years ago. The only novelty is the price tag for the road, now £2bn.

Stonehenge is a wonder, without doubt, but you can only gawp from a safe distance from the stones unless you pay £154 to get among them. For many of us, Stonehenge is best experienced from a slow-moving vehicle eastbound on the A303, where the site magically slides into view and out again. A tunnel would quite spoil that.

Dead but still twitching

He’s such a card, that Matthew Roberts. While the world was collapsing around our heads this week, here was the CEO of shopping centre owner Intu Properties kicking off his results statement with “Our five year strategy”, following up with “the store is not dying, it is evolving”. Well, yes, evolving in the sense that worms eat dead bodies, at least as far as Intu is concerned.

It has been plain for many months that this company cannot survive, yet in the Pollyanna mode pioneered by his predecessor, Mr Roberts seems to think that a £2bn loss, with creditors bearing down on every side, leaves him with “a range of options including alternative capital structures and asset disposals.”

So cheer up and look to “Intu’s fundemental strengths.” Those strengths took the shares to 840p in 2006. The price today: 4.25p. Last February, with the shares down to 119p, I wrote that “this is not the moment to get into the mutt called Intu” . Whatever Mr Roberts may say, the shares are close to worthless. Still, always look on the bright side, rather as his predecessor did in the face of reality. We await the accounts to see how much the benighted shareholders are being forced to pay them for their purblind optimism.


The general tone of the coverage of the acquittal of three Barclays executives last week was: the greedy fat cats got off. Nobody senior has gone to gaol for the billions of taxpayers’ money burned to keep the banking system afloat 12 long years ago, and now that Roger Jenkins, Richard Boath and Tom Kalaris are free, nobody will.

It is, without doubt, an outrage, and the bungled prosecution by the Serious Fraud Office has rightly put its own future in doubt. The SFO’s case hinged on proving a connection between the Qataris putting up billions and the millions in fees/commissions paid. In effect, a kickback to individuals in return for a country’s cash.

But what if the jury got it right? The payments were indeed life-changing, but the bank’s lawyers were kept informed, greed is not a crime, and the sums needed to save Barclays were measured in billions of dollars. The best source material for what really happened is in Philip Augar’s brilliant book The Bank that Lived a Little, with its blow-by-blow account of Barclays’ desperate attempt to avoid the UK government rescue that every other big bank had to accept.

Above all, it depicts John Varley, the CEO at the time, as one of the good guys in a bank not over-endowed with them. He was acquitted by the Court of Appeal last year, so we can consider the little matter of the British billions which Barclays would surely have needed without the Qataris. Rather than lumping him with the ranks of despised bankers, his conduct merits a knighthood for services to the UK taxpayer.

Please do nothing, Mr Carney

Central bankers have no more idea than the rest of us how the coronavirus plague will develop, but they are under pressure everywhere to do something, anything, to give the impression they can help. So: something must be done, this is something, so it must be done. This week we endured the usual banker’s blarney from Carney (yes, he’s still there) and across the world administered bank rates are being cut.

The Bank of England has resisted so far, but it would not take many UK cases before the Monetary Policy Committee will feel compelled to act, even though it would achieve nothing. In the real world, the price the consumer must pay to borrow money parted company with Bank Rate long ago.

The exception here is the cost of mortgages, where the ring-fencing rules for bank capital are driving a dangerous price war. RBS, for example, will lend 80 per cent of value, fixed at 1.41 per cent for 22 months. There is no profit there for the bank, nor any margin for the borrower if he suddenly has to pay a more normal rate in January 2022. A cut in Bank Rate would make things even worse.

In short, the great experiment with nearly-free money and central bank purchases of government debt is reaching the end of its useful life. Something more radical is needed, and coronavirus offers our rookie chancellor the opportunity to try it next week.

The absurdly-named winter fuel allowance (please don’t use it to buy coal) is simple to understand, cheap to administer and is mostly spent quickly. It is painfully clear that consumer demand is faltering as we hunker down and avoid going out. A one-off payment into every UK adult’s bank account just when things looked grim would cheer us up no end. It would also guarantee Rishi Sunak some positive headlines. I commend it to the House.

We’re only advising

The most bizarre story of the week is the case of the loan promise that never was, to oil minnow Lekoil, which is prospecting offshore Nigeria. Thinking the Qataris (them again) had committed to a $184m loan, the company paid $450,000 to a Bahamas-based outfit called Seawave Invest. Unfortunately, there was no loan commitment, and the cash is AWOL.

Two minutes’-worth of due diligence throws up Seawave’s curious website, which contains no names, spelling errors, and a sad little statement saying that it can’t say anything. The FT has named Norton Rose Fulbright and Control Risks as Lekoil’s advisers, and they are saying even less than Seawave.

Lekoil is understandably hacked off with its advisers, and the newly beefed-up board is on the warpath. The directors would like to know what they did for their fees. So would we all.


Does Mark Cutifani know what he’s got himself into? Next week the boss of Anglo American will learn whether enough shareholders in Sirius Minerals are prepared to accept defeat for a venture where their hearts ruled their heads. The proposal to mine an untried product and transport it 20 miles under the Yorkshire moors and on to a waiting world always looked like a dream. Actually doing it has turned into a financial nightmare.

Mr Cutifani knows lots about mining, and last week’s results from Anglo showed a business in rude health. Post-tax profits of over £3.5bn put the £405m offer for Sirius into context. It’s clear that Anglo could pay more than 5.5p a share, and Henry Steel of Odey Asset Management is trying to bully him into paying 7p. That should be easy to resist, and would make precious little difference to the individual shareholders who paid multiples of that amount.

Therein lies Mr Cutifani’s problem. Anglo is proposing to rescue the project from near-certain bankruptcy, but some individuals who have lost almost all their investment still think Anglo is stealing a valuable long-term asset, and will vote against the deal. It is structured as a scheme of arrangement, which requires over 50 per cent of voting shareholders to approve, as well as a 75 per cent majority of shares voted.

The 50 per cent hurdle helped sink Unilever’s shameful flit to The Netherlands, and it could sink Anglo’s rescue too. Even if the small shareholders do not hold out, Mr Cutifani is as likely to be viewed as a robber baron as a local hero. Of course, if the deal is voted down, the project falls into the hands of its creditors. After negotiating terms with them, Anglo might pick the whole thing up for the equivalent of, say, minus 5.5p a share.

Careless to go cashless

You may not have noticed, but there’s less demand for cash nowadays. You can’t use it on London transport or Tesco’s store in High Holborn. London’s cabbies, reconciled to living without tips as part of their fight against Uber, take cards. Free cash machines are becoming rarer, with 13 per cent of them closing last year. From 28 per cent of UK consumer spending in 2018, the proportion of cash is expected to fall to just 10 per cent by 2030.

Should we care? Well, yes, quite a lot. Cash cannot be hacked, a valuable property for those struggling with the technology of the escalating war between banks and fraudsters. Cash is never out of order, or suffering from a power cut. It is anonymous, away from the prying eyes of the state. Now the £20 note is plastic, a substantial supply would resist the moth and rust that doth corrupt paper ones – and it will be a good few years before the design changes again.

You will have noticed that the banks don’t really want your money nowadays, and any interest on current accounts is nominal. Indeed, they are itching to start charging, as their interest margins are crunched by today’s near-zero interest rates. If Lloyds, with a monopolistic market share acquired only because of the credit crisis, were to break ranks, the others would quickly follow.

On the other hand, cash is also a friend of the drug dealer and those Luddite fraudsters or bank robbers who have not learned to go electronic, but it also gives the government the financial firepower to combat them. Consider: each note in circulation is a free, indefinite bonus for the state. The US has issued $5tn-worth of $100 dollar bills, and $4tn-worth of them are held outside the country – a semi-permanent interest-free loan from the rest of the world.

The pound has long since given up any pretensions to an international medium of exchange or store of value, but it’s a different story at home. So resist electronic money: Save our cash by saving cash!

With amigos like these…

Reality is at last dawning among the clients of Amigo Holdings, the border-line immoral, border-line usurious lender built on putting your mate’s credit on the line. In an update this week the finance director admitted to “a cautious approach to complaints provisioning as we manage the evolving regulatory environment”. It seems more people are working out what the word “guarantee” means.

James Benamor, founder and majority shareholder, put the whole shooting match up for sale a month ago, and does not appear to have been killed in the rush. The shares, which he sold at 275p each (realising £278m) less than two years ago have shrugged off the possibility of a buyer and carried on down, to 49p, valuing the whole business at less than he took out.

Perhaps Mr Benamor might turn for help to his amigos in the sale (JP Morgan Cazenove, RBC and Macquarie) to repair a little of the damage they have done to the credibility of the UK’s new issue market.