Whatever Brazil’s president Dilma Rousseff may claim, the Samarco dam busting is not really comparable to BP’s catastrophe in the Gulf of Mexico. The loss of life is as tragic, and the misery is widespread, but the clean-up will be cheaper and much easier. However, BP’s experience does give BHP’s chief executive Andrew Mackenzie the opportunity to signal real contrition following the disaster.

BP was eventually forced to suspend dividend payments, not because it couldn’t find the money, but because the sight of rations being dished out to shareholders as usual was just too politically toxic. Had the company acted quickly to stop payments, some of the fury visited on BP from President Obama downwards might have been assuaged.

BHP is  joint owner with Brazil’s Vale of the Samarco iron ore mine, and Mr Mackenzie was commendably quick onto the scene, even though there is little a CEO can do on the ground. He can, though, suspend dividend payments until the worst effects of the mud torrent have been countered.

It so happens that Mr Mackenzie is in a spot of bother on the payout anyway. He has promised “progressive” dividends, but it’s quite clear that at today’s metal prices, BHP is not going to earn the current level of distribution, let alone show progress. He’s far from alone here. Very few mners are making enough to support last year’s dividend, and many of his fellow CEOs would be grateful for the cover that a cut would give them to follow.

At £9, a seven-year low, BHP shares yield 9 per cent, pricing in a dividend cut. Besides, shareholders are not really worse off if dividends are not paid, since the money remains in the company, which becomes (theoretically) worth that much more. Like the visits by the CEO, passing the payment is gesture politics, but both send out the same message that the disaster is being taken  seriously.

Banking’s challenge: get the money back

In today’s parlance, HBoS wouild be called a “challenger bank”.As the 500-page report into its collapse observes, this cross between a big building society and a small Scottish clearer was, “until quite near to its failure…widely regarded as a success story.” Just as Northern Rock had a powerful impact on the mortgage market, HBOS rewrote the rules on commercial lending,  but both ignored the first rule of banking. Any fool can lend money. Lending it profitably to those who will pay it back is much harder.

None of the HBOS three, as Dennis Stevenson, James Crosby and Andy Hornby will now inevitably be dubbed, was a banker. The combine was only seven years old when it failed, brought down when the wholesale money market, on which it was so desperately dependent, snapped shut. If those at the top ever understood that this was a possibility, they did nothing about it.

The regulatory pressure today is to separate the “casino” banking from the less glamorous business of taking in deposits and lending money to good risks. Across the banking sector, this separation may indeed make it less likely that the taxpayer will pay for the next crisis. However, as HBOS has shown all too starkly, it’s perfectly possible to go bust without going anywhere near the casino.

A toxic parcel from DX

It was Friday the 13th, and DX Group had some bad news to deliver. Remember those cheerful results and the bumped-up dividend on September 21? Well, things haven’t gone exactly to plan. We told you the parcels business was “challenging” but it seems we’re failing to meet it. We can’t find the HGV drivers for our parcels, and the divi will have to be bumped down again.

Last week it was Mail UK’s turn. Competition in parcel delivery is intense,.even after last year’s Christmas Eve demise of City Link, but the market’s KO of DX is almost as shocking. The shares, 81p at 10.42am on November 13, were 23p by the close. At 20.5p now the price says the forecast cut dividend of 2.5p won’t be delivered. Numis’s analyst has cut his target from 110p (sic) to 33p and his recommendation from buy to hold. Eternal optimists, these analysts.

This is my FT column from Saturday.

Dave Lewis is not a happy man. The task of reviving Tesco is proving more Sisyphean than he could have imagined when he left the comparative comfort of Unilever in July last year. He has showed his frustration, moaning about the tax burden that today’s shopkeepers have to bear. Profits and property values are down, but business rates are up “dramatically.” Why, they are now 2.3 times the corporation tax bill, and three times the OECD average. Don’t even get him started on next year’s increases in the national living wage.

This catalog of woes does fall somewhat short of a three-hanky tearjerker. The rates are much higher than Tesco’s corporation tax bill because its profits have plunged while the rate of corporation tax has been cut. Prices for big sheds are down since Tesco was forced to abandon its strategy of trying to buy every site.

There is plenty wrong with business rates and their domestic cousin, council tax, but Mr Lewis should not expect much sympathy when he says that retailers contribute £8bn, or a quarter of the rates total. There is no evidence that we’re short of shops as a result. They open and close all the time, in one of the most dynamic sectors of the economy. The Germans may be carpet-bombing us with Aldis and Lidls, but their impact is hardly comparable to, say, that of imports on Britain’s steel industry.

If the competitors make Mr Lewis’s life hard, that’s too bad. They will have to pay the national average wage too, so he must make better use of his staff to compete. He was on better ground in complaining about the apprenticeship levy, equivalent to Tesco’s total training budget. However, with Tesco shares almost back down to their post-crisis nadir, you have to wonder whether he is starting to seek excuses for failure.

A right to refuse

If things were not so bad, you might think the bankers to Lonmin were having a laugh. Shares in this African platinum miner have plunged into the 99 per cent club, and after holders were softened up to expect a $400m rights issue, they are now being offered 46 shares for every one they own, at just 1p each.

With the old shares at 10p, valuing the company at £54m, it’s not so much a rights issue as a complete recapitalisation, and before shell-shocked holders vote on Thursday, they should consider whether this really is their least worst option. Many are reluctant holders in the first place, having been given the shares when Glencore was unable to find a buyer for its stake, and two resolutions require 75 per cent majority votes to pass.

Nobody doubts that Lonmin needs the money, but this extreme rights issue looks more like a device to help the bondholders than a long-term solution. Rejection would force more of the pain onto the lenders (and the South African government) and might produce something slightly less gruesome for the shareholders. Sadly, Lonmin is doomed unless there’s a speedy turnaround in precious metal prices – and there are better ways to bet $400m on that happening.

Money in those old brands

Lonmin aside, there is life after corporate near-death. Last week saw some remarkably nourishing results from Premier Foods, the owner of brands your children have never heard of. In March last year the maker of Ambrosia creamed rice, Bisto and dozens of other gastronomic blasts from the past, staggered out of financial intensive care having eaten £1.1bn in a rescue rights, placing and refinancing.

The share price then halved, and even now they cost little more than two-thirds of the 60p rights price. Premier’s problems stem from the confection of debt which financed the purchase of all those second-division brands, and now it’s set to fall “significantly.” Gavin Darby, the long-suffering CEO, sounds positively chipper and is sending Mr Kipling to conquer America. Darren Shirley at Shore Capital thinks he might even succeed, although he’s “not counting any chickens.” Perhaps he should start. At 41p a share, the rewards from backing these old brands seem to outweigh the risks.




 You would hardly think so as you survey the wreckage of your holding, but Standard Chartered has been a nice little earner for the City’s fee-harvesters in the last decade, and last week’s £3.3bn rights issue will yield another bumper crop. The two-for-seven call is Stan’s third in seven years, and in return for back-stopping a grand total of £8.5bn, fees will have added up to £180m.
Put like that, the price of around 2 per cent seems almost reasonable, but it disguises the way the underwriters of each issue, who are supposed to bear the risk of being left with unwanted stock, have effectively transferred that risk to the existing shareholders.
Before this week’s announcement, Standard Chartered’s market capitalisation was £18.1bn, with the shares at 715p. The new shares are offered at 465p each, the price to which the old ones must fall before the underwriters risk losing any money. At that price, the market capitalisation would be £15.2bn – including the the £3.3bn of new shares.
It’s possible that Stan’s price will collapse by a more than third in the next four weeks, but if you think that’s going to happen, you should sell every share you own and buy a FTSE100 put with the proceeds. In practice, these terms are a tax on the shareholders, although not on all of them. The biggest, Temasek of Singapore, will take up its 15.8 per cent entitlement, and has gallantly promised to join the underwriting gravy train.
The driver of the train is, as usual, JP Morgan, with Bank of America displacing Goldman Sachs and UBS from the previous issues. Fortunately for them all, there is no sign of anything as vulgar as an outbreak of price competition to disturb this cartel. Bill Winters, formerly of Morgan but now facing the gruesome task of getting Standard Chartered back on the rails, should be proud of his old boys.
Going green with carbon dioxide
There is more oil and gas around than we can possibly use. Having been told for decades that we would run out, it comes as something of a surprise to see BP predicting that there will be more reserves available in 2050 than there are today.
 The advances that have given us fracking, enhanced recovery and deep-water drilling are enough to keep us warm and moving, even before new techniques emerge. Of course, as the oil industry has discovered the hard way, all forecasting is difficult, and if BP’s 35-year predictions turn out hopelessly wrong, the company will not rush to remind us.
However, this is good news for oil consumers (us) and plentiful hydrocarbons make replacing them less urgent. The push for renewables has been driven by worries about “peak oil” on the one hand, and the perils of more carbon dioxide on the other. So if peak oil turns out to mean peak demand, rather than peak supply, this is something of a setback for the wind farmers.
And what if adding CO2 to the atmosphere helps the world rather than threatening to destroy it? This is even more heretical than claiming that we’ve plenty of oil, but Patrick Moore, formerly of Greenpeace and now a thorn in their side, argues that we need more CO2 in the atmosphere, not less, if the earth’s vegetation (which would starve without it) is to thrive. He has been roundly abused by those who claim that the science is “settled”, but it is not, any more than $100 oil was a floor rather than a ceiling.
Sustainable until my share options mature

Dividends matter. They matter more than growth over the long term, and as the City saw goes, capital may keep you warm at night, but you can eat and drink income. Yet like other income, dividends must be earned first, as those running some of Britain ‘s biggest companies seem to have forgotten.

Consider the dividends declared by the five largest constituents of the FTSE100: HSBC, Royal Dutch Shell, BP, GlaxoSmithKline and BAT. Did you spot the odd one out? The only company earning a payout which looks truly sustainable is the one whose customers are, let’s say, the least sustainable.

Of the others, HSBC’s third-quarter statement disclosed “reported” profits up 32 per cent and “adjusted” profits down by 14 per cent, while BP admitted to a $5.8bn loss along with an “underlying” $1.3bn profit. Shell’s third-quarter loss was $7.4bn. Glaxo did at least make a profit, but despite its cheerful presentation this week, it’s doubtful whether it can earn the dividend the board has pledged to maintain.

To claim a dividend is “sustainable” or even “progressive” should mean being earned as far as the management can see, not just until the executive share options mature three years hence. In the last crisis, much of the British banking industry sank beneath the waves with its dividend nailed proudly to the mast. This year’s crisis is mostly in oilers and miners, and the lesson seems to have been forgotten. We shareholders like the prospect of a running return, but if the money is not earned, who is fooling whom?

The curse of the successful CEO
 An uneasy feeling comes over us National Grid shareholders, as Steve Holliday reveals he is to step down as CEO in March. That will be nine years after he stepped up, during which time the shares have returned 136 per cent, impressive indeed for a low-risk utility. However, the return owes something to a re-rating, and the risks seem to be increasing, as the results of our fruit’n’nut energy policy threaten to become apparent if we have a harsh winter. There’s also the old adage about what happens next after a long-serving, successful CEO decides it’s time…
This is my FT column from Saturday. The second piece wasn’t considered PC enough to run…

When the brilliant Bob Monkhouse told friends he wanted to be a comedian, they laughed. “Well,” as he put it later, “they’re not laughing now.” When the pension funds and insurance companies eagerly snapped up 55-year UK government debt paying 3.5 per cent two years ago, some of us laughed at this triumph of hope over experience. Well, we’re not laughing now. That stock has risen by 30 per cent, and as if to make the point, HMG has this week sold a slug of fresh 50-year debt paying just 2.5 per cent. If it seemed cheap money last time, it looks almost free now.

Whether or not this is the new normal, the price of the issue highlights the bizarre spectacle of a government able to borrow cheaply for half a century while desperately bribing the Chinese into putting up capital for British domestic projects. As all the world knows, the £25bn Hinkley Point nuclear power station is a grade one white elephant, but if it were to be financed at 2.5 per cent, it might even turn a profit inside the next 50 years. Instead, there’s a stealth government guarantee the pay for its output – at the equivalent to $150 a barrel oil, reckons Deutsche Bank – to disguise the fact that the taxpayer is bearing the same liability as with the bond issue.

There are hundreds of relatively small infrastructure projects that produce an excellent return to the state when long-term capital costs it 2.5 per cent: road widening, rail junction upgrades, hospital and school extensions, internet access, flood controls, combined cycle gas plants…the list goes on. Instead the government is pretending that it will balance the books (it won’t), kowtowing to the Chinese to find the capital for nuclear power, and wasting billions on vainglorious projects like HS2. It’s no laughing matter, as Mr Monkhouse might have said.

Freedom from banks, one day

More bad news for the banks. The Competition and Markets Authority has sensibly decided that it would be madness to outlaw free banking. As the banks keep telling us, it’s not free, but shockingly expensive, costing customers £8bn a year according to the TSB. Odd that. It certainly looks free to those who stay in credit and don’t incur any charges.

No bank is obliged to offer free-in-credit banking, any more than coffee shops are obliged to offer free wi-fi, but they all know what would happen if one broke ranks and charged. The banks argue that ending this free banking would lead to lower charges on services like overdrafts which currently subsidise it, but if you believe that, you’re obviously not a banker.

A more serious grouse, from the “challenger” banks which are trying to prise us away from the “too big to fail” banks is their exclusion from the payments system. The big boys argue that since they set it up, they should decide who is in the club, but this looks thin considering how many have had to be rescued by one sovereign state or another, and the value of their implicit guarantee from the taxpayer.

Eventually, technology will make much of the argument academic. Paypal and Apple Pay are nibbling at money transmission, while a blockchain – a sort of diffused recording and self-checking mechanism for every payment made – would make the clearing system redundant. Until then, stay out of the red – and stay free.

That’s what I call a deep mine

And now, a rights issue where everyone will have to earn the fees. Lonmin is a sad shadow of the platinum miner it once was, and this week softened up the market with plans to raise $400m in new equity. With the shares at 30p, the company has an existing market value of £170m, so there will be plenty who will say that it can’t be done, despite the support of the South African state pension fund. For what it’s worth, an issue of four-for-one at 11.5p each would just about do it. Once upon a time, Lonmin shares cost £40 apiece and the stock was in the FTSE 100. The principal fee-gatherers are Greenhill, JP Morgan and HSBC. Best of luck, boys.

This is my FT column from Saturday

Would you like £44 for £39.55? Or how about £12 for £10.80? These are not illegal scams, but the differences between the offer prices from AB Inbev for SAB Miller and Royal Dutch Shell’s for BG. Both deals are agreed. Simply buy the shares in the target companies and wait. With the time value of money almost zero at today’s interest rates, it looks like something for nothing.

Well, not quite. The deal to create the world’s dominant purveyor of alcoholic fizzy drinks may be agreed, but getting to consumation will not be straightforward. Competition authorities everywhere will want potentially expensive promises of good behaviour from this behemoth.

As an indication of the potential for making money, the AB share price rather gives the game away. Rather than wilting at the prospect of piling on tens of billions of dollars of debt, it has gone up, on the argument that the big funds will use their SAB cash to buy AB shares to stay exposed to the sector.

Shell’s takeover of BG offers no such scope for world domination, and the regulatory hurdles look much lower. BG shareholders are offered a mix of shares and cash, but the sums are hardly beyond the wit of the arbitragers who make a living selling one stock to buy the other in a takeover. Yet the value gap persists, and they show little sign of wanting to fill it.

One plausible explanation is the burnt fingers from the failure of Pfizer’s bid for AstraZeneca. That deal had seemed to be following the pattern set by Kraft’s siege of Cadbury when it all fell apart. AZ remains independent, and the arbs have singed fingers.

SAB may have a year or more in purgatory, with bits being carved off along the way, but Shell’s chief executive would have to go if his BG deal falls through. This takeover looks uncomfortably like a rights issue without the rights being offered to us shareholders, but with the whole sector depressed on fears of the end of the oil age, BG looks a cheap way in for those who disagree.

You can call me Al

As two familiar names disappear from the FTSE100 index, one of the replacements will be a company with no UK business, whose shares trade infrequently, and then only in penny-packets. Al Noor Hospitals wants to “combine” with Mediclinic, though it’s rather along the lines of a female praying mantis combining with her mate after copulation by eating him.

Mediclinic shareholders would end up with over 84 per cent of the enlarged group, while Al Noor holders can take cash. The precise details are important only to the two healthcare businesses, rival NMC Health, and their fee-gathering advisers. For those of us who have never heard of either company, the more interesting question is the impact on the index.

The combine would be worth around £6bn, well into FTSE100 territory. There are shades here of the last mining boom, where companies with no business in Britain appeared in London’s leading index. They have since mostly disappeared, but not before the tracker funds had been obliged to buy them. Tracking is even bigger business today, guaranteeing forced buyers for whatever gets into the index. Al Medi (or whatever) may end up as a fine business. Alternatively, as with those miners, it may merely make beating the index that much easier.

Not as safe as houses

You make a product where demand is rising, where the government rigs the market in your favour, and which is in chronic short supply. You are, of course, a housebuilder. Last week it was the turn of Bellway to show off: sales, margins, profits and plots available to build on – all strongly up. The dividend is raised by nearly a half. What’s not to like?

House prices may be high, but not compared to the prices for the builders, reckons Robin Hardy of Shore Capital. Shares in Bellway, for example, have risen fourfold in four years. Valuations are pinned on “unsustainable profit levels”. Put another way, they’re priced for perfection, something which, in the real world, never quite arrives.

This is my FT column from Saturday (with the cut joke restored).

The Investment Association’s members manage money for clients around the world “helping them to achieve their financial goals.” Had Daniel Godfrey considered this rubric more carefully, he might have wondered whose financial goals the association is helping to achieve. It seems he thought they were those of the clients, and so last week he became the association’s former CEO.

It’s only three months since it published a pompous statement of principles, starting with “always put our clients’ interests first and ahead of our own.” Perhaps Mr Godfrey really believed this, and felt it reasonable to suggest that the fees paid for taking care of clients’ money might be somewhat on the high side.Those fees certainly produce some handsome returns, although not to the clients. At M&G, for example, Richard Woolnough was paid £15m last year, while Martin Gilbert at Aberdeen Asset Management received £4.7m. These rewards do rather take the sting out of any criticism of pay in the companies whose shares the managers control.

Fund management has been a fine gravy train, with its bewildering and opaque charges. The Financial Conduct Authority’s Retail Distribution Review let daylight in on the true cost of the industry’s diligent caring, and fees are under pressure. Mr Godfrey welcomed the RDR for putting the clients’ interests first, and his paymasters didn’t much care for it. Before his swift departure, Schroders and M&G had decided to quit the association.

Encouraging a better balance of rewards between the owners of the money and its managers is not what this trade body is about. Had he restricted himself to pious platitudes about saving more (through their funds, natch), lobbying for tax breaks or moaning about compliance costs, Mr Godfrey would still be there. As his successor will find, this is really still the investment managers’ association..

Time to end this French farce

Banking’s biggest boondoggle took place last weekend in darkest Peru. The annual meetings of the World Bank and International Monetary Fund in Lima discuss such exciting topics as What’s next for the world economy? (we don’t know) and today’s hot fashion, infrastructure (we want more of it, and for someone else to pay).

More interesting is the political manoevring over the top jobs, as Christine Lagarde’s current term at the IMF expires in July. The original deal was for an American to head the bank, and a European to head the Fund. Over the years, the French have managed to snaffle this post, even parachuting Ms Lagarde in when her predecessor was caught with his trousers down.

Despite her many qualities, the IMF has not distinguished itself in the great euro drama and the botched bailouts of Greece. It’s had plenty of experience with economic rescues, but seemed reluctant to challenge the European Central Bank – perhaps it was all too close to home for the managing director.

Last week 31 (count ’em) of the international great and good wrote to the FT suggesting that the IMF scour the world, rather than just France, for her successor. Oddly enough, there were no French signatories on the list. Zut Alors!

Hard to improve on this

Buy shares in Melrose today, and the company will give you most of your money back.The latest iteration of chairman Jock Miller’s “buy, improve, sell” philosophy promises a payback of between £2bn and £2.5bn. Considering that the current market value of Melrose is £2.7bn, you’d be buying shares in a big company to end up with shares in a small company.

It’s not quite like that, of course. Mr Miller and his merry men follow the mantra strictly and successfully. This particular capital return follows the sale of a German metering manufacturer bought just three years ago. It’s hardly the sort of investment you’d expect to produce a 33 per cent internal rate of return,  and even by previous standards, it’s outstanding.

Calculating how well Melrose shareholders have done is complicated by these capital repayments, but Mr Miller now has a big fan base. He makes the payments, but don’t expect to keep the money – when the next suitable candidate for treatment appears, he may ask for it back again.

This is my FT column from Saturday. Fishing yesterday got in the way of earlier publication…

Two small sea trout, since you asked.


Quite why anyone should want to seek global domination of the alcoholic fizzy drinks market is a question whose answer is obvious only to the army of bankers, lawyers and PR consultants who stand to gain life-changing sums if AB Inbev manages to spend £65bn buying SABMiller. This week the awful prospect looms that their dream of riches could all fall apart.

The tension is being cranked up by the Takeover Panel’s “put up or shut up” rule which imposes a deadline on “indicative” bids. Kraft’s siege of Cadbury had stretched the (then) existing bid timetable to its limit, wrecking Cadbury’s share register and delivering the company to the bidder at what quickly proved to be a bargain price. The takeover rules, crafted over the years to balance the interests of bidder and target, were deemed to have failed to hold that balance.

The result was new, improved PUSU, and for Inbev that’s Wednesday, the regulation 28 days after the clock started. The whole affair has been a whirlwind. Aside from the two big block holders in SAB, shareholders have barely had time to think, let alone to decide whether their board is really putting their interests first. It’s widely assumed that the Panel will grant an extension if necessary, but it can do so only if the target company consents, and so far SAB’s board isn’t playing.

Failure to ask for more time before 5pm on Wednesday would force InBev to go hostile or go away. Since the proposed offer is worth £42.15 a share, compared to under £30 before the bid news leaked, this is about as high-stakes a poker game as we’ll ever see. A hostile bid would generate bad blood across the world, so with SAB shares at around £36.80, almost exactly halfway between the two prices, there’s a value swing of nearly £10bn each way hanging on the outcome.

The parasite army of fee-gatherers can only hope that InBev grits its corporate teeth and raises the proposed offer before Wednesday, causing the SAB board to see that while £42.15 is derisory, £43 (say) is a jolly fine price. Even so, it’s clear that the existing PUSU rule has pushed the battle advantage dramatically towards the defence. Bids should be decided after calm consideration, and communication with the target’s shareholders. This one won’t be.



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