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.


Pensions are complex, costly and long-term. Individual Savings Accounts are simple, cheap and short-term. So you can see why the National Association of Pension Funds reckons a shift to ISA-style taxation would be a bad idea. The existential threat to their club is obvious.

The Centre for Policy Studies proposed that we steer out of the shark-infested shoals of the rules on pensions to the calm waters of ISAs by scrapping the tax relief on contributions. Since this relief is worth £30bn a year, it’s no wonder the chancellor paid attention. He’s called for submissions, and the NAPF has responded by trying to hit him where it hurts. Far from bringing him more revenue, it argues that a switch would cost the exchequer money.

This is a neat piece of lobbying. Pension contributions  have long been a routine tax avoidance device for the better paid, who get most of the relief thanks to their higher income tax rates. More fool them, implies the NAPF. It’s a “myth” that higher rate taxpayers do better, because they pay more income tax when they retire.

This may be mathematically demonstrable, but presupposes that the affluent elderly consume their pension pot. It is hard to keep up with the recent rule changes here, but a personal pension fund is currently a fine way to pass assets on to the next generation. Myth or not,  “the game is up for higher-rate tax relief,” reckons Tom McPhail at Hargreaves Lansdown.

The NAPF claims to represent schemes providing pensions for 17m people. In practice, it’s a trade body for the managers of the 1,300 schemes. Of course, fund managers also charge for managing ISAs, but the transparency makes it easier to see them at it, and the money isn’t locked away for decades in impenetrable vaults of jargon and tax rules. ISAs are surely the future. Pensions really are past it.

Papering over the (runway) cracks

This week promises to be an exciting one in the London airports hot air business. This valuable industry has provided gainful, and not too stressful, employment for thousands over the years, and if all their reports were laid end to end, they’d form a new runway at Heathrow.

To add to the pile, here comes the “statement of principle” from Gatwick and the pair of Heathrow schemes, detailing exactly what each wants to do, and how they’d do it. By December, having chewed this paperwork, the government promises to make a decision.

However, those in the airports hot air business need not fear for their next consultancy. The decision is not whether and where to build,  but a decision on what to do next after considering the report from the Airports Commission. Howard Davies, its former chairman, may have a new job at Royal Bank of Scotland, but that didn’t stop him slapping down the Gatwick Airport boys last month.

They seem to be losing the battle, but it’s probably a phoney war like all the other runway scraps. All the leading candidates for next year’s London Mayor say they are opposed to Heathrow expansion, so the political price of approval looks too high. Thus does one of the very few multi-billion pound infrastructure projects that makes economic sense get postponed indefinitely.

Snouts in the trough

By some recent standards, the backers of the Peppa Pig rights issue have been positively restrained in taxing the shareholders of the pig’s distributors, Entertainment One. Chunky offers like this four-for-nine issue often come to fund “transformational” deals, usually shorthand for expensive forays into poorly understood business models.

In this case the £195m net proceeds are to add ownership of the piggy to the existing distribution, the sort of sensible deal that can clearly add value, which perhaps explains the relatively lower cost of the fund-raising. Even so, in return for the risk that the share price will collapse from 272p last Wednesday to below 150p on October 18, the promoters and underwriters share £7m. So far, the price has slumped all the way to 260p. So only another 110p downside for the risk-takers, then. Oink oink.

This is my FT column from last Saturday.

Shares in BHP Billiton yield 7.8 per cent. Royal Dutch Shell returns 7.9 per cent. Both companies have pledged to keep paying, or even increase, their dividends. Total of France has gone further, with the finance director describing its dividend as the “cornerstone of everything we are doing”. Its shares yield over 7 per cent.

In a world that’s desperate for income, why are the shares in these big, solid resources companies so depressed? It’s obvious that their profits are down, as yesterday’s shortage becomes today’s glut. Projects which looked fine at $100 a barrel or $80 a tonne for iron ore are not worth doing at half price.

Managements are shelving spending while attacking the bloated cost base left over from the boom. Yet under the cosh from shareholders, they seem to have forgotten that dividends should be paid out of earnings. Today they cannot see even the near-term future for commodity prices, let alone make plausible profit projections for 2016.

A dividend yield is only worth the name if the payout is sustainable for many years ahead, and these yields say it’s not. Of course the market has been wrong many times before, and today’s prices may represent a splendid buying opportunity – but don’t believe those payments are anything other than a clandestine return of capital.

Rights and wrong targets

The Iinvestment Association was frightfully upset. “A serious and unnecessary breach of the principles” it harrumphed, “an action which fell short of the standards expected by institutional investors.” The target of all this displeasure is, inevitably, Glencore, the stumbling commodities trader.

At its annual meeting in May, Glencore pledged to stick with the rules about offering new shares to existing shareholders, the so-called pre-emption rights. It then won permission to issue 10 per cent to outsiders, standard practice to finance smaller acquisitions.This month, Glencore’s management finally woke up to the credit precipice in front of it and instead used the 10 per cent to raise £1.6bn in a “cash box” issue.

The senior execs all subscribed to maintain their stakes – perhaps remembering how much they sold at 530p a share on flotation just three years ago – but many other shareholders were shut out. Glencore and its advisors decided that a rights issue was too difficult, given the rising sense of panic over the company’s finances.

More to the point, institutional greed and an informal cartel have effectively destroyed the rights issue as an attractive way to raise finance, because the underwriters insist on a massive discount on the new shares as well as a fee. Last week, for example, BBA Aviation paid underwriters for a rights issue at a 53 per cent discount.

The trade bodies would do better to examine the cost of deals like this than to bleat about the Glencore placing. Mind you, they now look like harrumphing chumps. Those shares, placed at 125p, can be bought for 101p.

The £24bn cost of saving face

Never underestimate how far politicians will go to avoid looking foolish. In the case of the Chancellor, it’s as far as the uttermost parts of China, in a sucking-up process that promises us the world’s most expensive electricity.

Hardly anyone without a vested interest thinks Hinkley Point C is a good idea. In desperation, the government has had to offer the Chinese a £2bn guarantee and EDF a fixed price rich enough to pay the bonuses of the next generation of derivatives traders.

If EDF actually completes – the two reactors it’s building are not encouraging precedents – the juice from Hinkley will cost twice today’s wholesale price – while Peter Atherton at Jefferies calculates the capital cost at £6.9m per megawatt compared to £0.5m for gas.

Amber Rudd’s golden opportunity to blame her Lib-Dem predecessors as energy secretaries and scrap it has long gone. Now she is obliged to defend the indefensible. Next month, pegged to the visit of the Chinese president, the project’s finance is to be signed off, and even Xi Jinping will struggle to keep an inscrutible face. If we ever learn the true impact of this £24bn monster on our electricity bills, just consider it a contribution to the Amber Rudd memorial fund.

This is my FT column from last Saturday

Margrethe Vestager has done her sums and found that four into three doesn’t go. The EU anti-trust chief was talking Danish at the time, but the maths is the same in English, and London’s telecoms analysts were almost in tears this week at the prospect of two megadeals falling through.

The one that’s clearly at risk is the takeover of O2 by 3, which would push 3 from fourth to third (of three) in UK mobile. However,  Ms Vestager’s ruling that three operators is too few in Denmark hardly helps that other stirring of Britain’s alphabet soup of operators, BT’s purchase of EE..

The operators all claim that mergers lead to more investment and better service, with the cost savings from economies of scale as a handy by-product. How could we possibly think that cutting the number might lead to less competition?

Unfortunately for the operators’ bluster, the analysts’ reactions rather gave the game away. James Britton at Nomura was quick to abandon his more bullish stance on the sector, arguing that “market repair and consolidation have been compromised”,  while Paul Marsch at Berenberg argued that “this development is likely to undermine investors’ confidence in the sector.”

That confidence flows from the simple belief that a market of three operators means higher prices than a market of four. It must less competitive, as Ms Vestager has noticed. The UK’s domestic equivalent, the Competition and Markets Authority, is considering whether to ask her for authority to rule on O2, and has already called in the BT deal.

Mobile and fixed-line telephony is rapidly converging, and a takeover of EE by BT would recreate something that looks uneasily like the original British Telecom, with all that famous old-fashioned service. EE, itself the product of the anti-competitive merger of Orange and T-Mobile, shocked us with the truth this week.

We EE subscribers already suffer its broadband customer service, but now the company has actually admitted that it’s not quite as good as it should be, even proposing to spend money improving it. Until this actually happens, the thought of adding EE to BT’s monopoly of copper wires, Openreach, is enough to sink the heart of anyone who depends on broadband.

Almost over for Candover

Candover Investments stands as a terrible warning to anyone who thinks private equity is a simple matter of buying a business, piling up debt, and then selling it on. Six years ago, Candover was valued at over £400m. It won a takeover scrap for an oil services group, Expro International, and spread the shares across its PE funds.

It has been a financial disaster. Expro has effectively sunk Candover, with the shares just outside the 90 per cent club. The latest results revealed a 32 per cent fall in net asset value as Expro was written down again. To avoid death by failure to repay debt, Candover has issued 13 per cent pay-in-kind five-year bonds.

Yet all may not be lost. At 212p, the shares are 42 per cent below the last published net asset value, or 20 per cent below JP Morgan’s rather more robust estimate, while an orderly liquidation is releasing cash. The CEO, the appropriately-named Malcolm Fallen, may yet make money on the shares he bought for 228p apiece earlier this month.

When is a plastic bag not a…

Only a fortnight to go before the plastic bag tax causes misery at the checkouts. So what, exactly, is a plastic bag? I’m glad you asked. The Single Use Carrier Bags Charges (England) Order 2015 runs to four parts, 19 paragraphs and seven schedules, drawn to exclude other plastic bags like those containing fairground goldfish (except you can’t do that any more) and bags to carry unwrapped blades (except that you’re taking a chance carrying them at all).

Failure by supermarkets to charge 5p per bag (as defined) risks a penalty notice, opening an exciting new career opportunity as a SUCB inspector. It’s true that the sky hasn’t fallen in other parts of the UK, where carrier bag use has slumped. So instead of re-using them for the rubbish, we’ll be buying rolls of new ones and pretending we’re helping the environment.

This is my FT column from Saturday

Builder’s estimate n. A sum of money approximately half the final cost.

Official estimate n. A sum of money that is constantly raised to enable a government to declare that a project is “within budget”. (the 2012 London Olympics was within budget after the budget was quadrupled).

This baleful process is already well under way with the white elephant on wheels that is HS2, the project that should get you to Birmingham more quickly provided you don’t want anywhere in between. The official estimate of £50bn (track and stations only) is already looking slightly Olympic.

It was supposed to include a spanking new Euston station as soon as 2026 but the new official estimate is just before the 12th of Never, in 2033. For good measure HS2 Limited, the company in charge of this boondoggle, has rolled forward the £2.25bn estimate for the station by another £250m, before minor items like compulsory purchase of land and compensation.

In the finest British tradition of infrastructure projects, HS2 ignores Network Rail’s wish list, to expand the existing station for Crossrail 2, the beefed-up successor to the Hackney-Chelsea tube line that never was. Like HS2 itself, Crossrail 2 looks like something nice to put into future Budgets, there to be cut when the next government funding crisis arrives.

Even when these projects actually do get built, we seem to make a right horlicks of them. Who else but the British could build one Eurostar terminal, and then replace it with another, starting out for the south coast by heading north?

It’s my company, so there

It’s hard to avoid a grudging admiration for Mike Ashley. Whether it’s at Newcastle United or running Sports Direct, it’s clear that he couldn’t care what the fans or the shareholders think. A year ago the company told the analysts all about current trading. Last week, despite a so-called “capital markets day” it was just “Everything’s fine, and don’t expect to learn anything new.”

If Mr Ashley was upset by the splendidly-named Ashley Hamilton Claxton, in charge of political correctness at Royal London, there was no sign of it at Wednesday’s annual meeting. Ms Hamilton Claxton may have lost confidence in the board, but the revolting shareholders were as easily seen off as most of SD’s competitors.

Mr Ashley doesn’t bother with dividends, has a hobby of playing with derivatives in the likes of Debenhams, and has shop staff on the dreaded zero-hours contracts. However, he also heads a fantastic business. Had you bought the shares at the nadir of the City’s sulk with him following the flotation in 2007, you would have multiplied your money 20 times.

Doing things his way includes a profit-related incentive scheme that has delivered five-figure bonuses to shop-floor staff. SD’s latest move which caused the fuss, easing the targets for the current scheme,  effectively transfers some of the value from shareholders to employees. Ms Hamilton Claxton  may not be the only one he rubs up the wrong way, but Royal London speaks for 0.18 per cent of the SD equity. Mr Ashley controls 55 per cent. And it’s his own money.

Here’s why they hire professionals

Last February, JP Morgan Cazenove and Numis Securities floated HSS Hire for private equity group Exponent (“we can unlock value and drive growth”) helped by Solid Solutions (“the leading experts in managing retail offers”). The offer, at 210p at share, raised £103m for this plant hire company, before the advisers shared £13.5m in fees.

Today, those buyers must wish they hadn’t. JP Morgan Securities sold 5m shares in March, and in May HSS (“you’re better equipped”) issued a cheerful update reporting trading in line with expectations. Just a month on, the tune had changed, with trading “marginally below” expectations, and the shares took a nasty lurch.

Last month saw another profit warning, accompanied by a promise to focus “exclusively on customer delivery and collection”. Well, that’s a comfort. With the shares now down to 60p each, 70 per cent down in seven months, the bemused holders might have expected any competent management of a plant hire business to have focused on little else.

On Monday the Bank of England dished out £38bn to the holders of 4.75 per cent UK Treasury 2015 stock as it matured. It paid almost half of that to itself, before plunging into the market to buy more government debt with the cash. Welcome to the Alice-through-the-looking-glass world of Quantatitive Easing.

The cash is recycled because the Bank has set its own rules for managing this monster programme, and with QE set at £375bn, it has pledged to keep buying to replace maturing issues. There’s been much speculation about what this forced buyer will go for – the experts at Bond Vigilantes plump for the 5 per cent 2025 and 6 per cent 2028.

They also describe the net result of the redemption and reinvestment as an increase in monetary easing. Who knows? The Bank is reinvesting because that’s what it said it would do, but it’s impossible to say whether the move merely maintains the status quo or does, indeed, make monetary conditions easier just when central bankers are muttering about raising interest rates.

This recycling probably has less impact on the economy than the £26bn (and counting) in compensation payments for mis-sold payment protection insurance. Unlike the Bank’s purchases, this cash goes directly to people who are likely to spend it, in a sort of QE for the masses. Many of the payments are at the taxpayer’s expense, thanks to our shareholdings in Lloyds and Royal Bank of Scotland.

The question of exactly who pays for QE is harder to answer. Buying on this scale must distort the market – indeed, it’s designed to – and there’s the question of the status of government debt bought in by the Bank, which itself is owned by the state. It’s a circular transaction. One day the scrip with £375bn written on it will end up, metaphorically, firing the Bank’s central heating boiler, and in our financial wonderland, a chancellor will claim to have reduced the national debt by a third at a stroke.

ASOS: great business, silly price

Much fluttering in the retail dovecotes last week as Nick Robertson, the founder of ASOS, stepped back, if not down. It’s 15 years since he had the inspired idea of copying the clothes the stars wore and selling them on the internet – hence As Seen On Screen.

Any dismay at his move was tempered by the promotion of his deputy, Nick Beighton. ASOS has been a fairytale stock, from its initial listing on Aim at 20p in 2001 to a peak of over £60 at the start of last year.That may make the current price of £30 look cheap, but it’s still over 50 times this year’s likely earnings.

Internet shopping is a crowded space nowadays, international expansion has defeated some of the best UK retailers in the past, and the departure of a long-serving CEO is nearly always a sell signal. ASOS may be a great business, but it’s surely not a great investment at this price.

Bribed with our own money

We just can’t resist a bargain. The pensioner bonds which National Savings & Investments offered as a pre-election bribe to the over-65s attracted 1.1m of us, lured by the promise of 2.8 per cent for one year or 4 per cent for three. These rates were so obviously out of line with the market that buyers were restricted to a maximum of £10,000 of each issue, but even so, 13bn silver pounds poured in.

It’s also why the bonds were excluded from the “value indicator” which tries to measure how well or badly NS&I is doing. Rather like selling pound coins for 95p each, shifting a lot of them hardly counts as adding value.

The rates on pensioner bonds are pre-tax, so buyers liable for higher rate income tax – as many buyers of the maximum amount surely are – would earn just £168 for one year, or £240 annually for locking up £10,000 for four years.

The higher £50,000 limit on premium bonds also helped NS&I to draw in a net £5.4bn in the quarter to June, saving £22m measured against other ways to finance government spending. These bonds pay 1.35 per cent annually – in prizes – so it seems we like a gamble almost as much as a bargain.

This is my FT column from last Saturday (with apologies for late publication)



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