Please don’t call it a (drinks) can of worms. Never mind that the proposed £4.3bn takeover of Rexam by Ball of the US would give the combine 69 per cent of the market for soft drinks cans in Europe, the proponents keep saying they don’t expect too much grief from the regulators.

Now they’ve got some, as EU competition commissioner Margrethe Vestager  launched a proper investigation, seeking an explanation as to why such a market share is anything other than an effective monopoly. Ms Vestager has more than soft drinks on her plate; she also has to pick the bones out of Hutchison Whampoa’s proposal to add O2 to its UK mobile business, 3.

So far, she’s talking a good game. She claims that prices tend to rise where the number of mobile competitors is cut from four to three, although it’s not obvious why a deal which would do just that in the UK should be decided in Brussels. The telecos complain that only the merged businesses can afford the massive cost of the next generation of investment, and are happily playing the “national champiuon ” card.

The canmakers, meanwhile, point to all those wonderful economies of scale available from putting competitors together. And look at our big, ugly customers, they add: the likes of Coca-Cola and Heineken are already much bigger than we are.

This is a familiar refrain, and is why the rules are there in the first place. Market dominance breeds complacency and contempt for the customer, while competition breeds innovation and lower prices. Ms Vestager has just thumped EDF for E1.4bn for getting illegal tax breaks. Next she must decide whether the cans can or the telephones connect. If she’s as serious about competition, then the answer should be no.

Dividends keep rolling in

Terribly risky things, shares. Prices can plummet, dividends can go down as well as up. Actually, they hardly go down at all. The banking crisis and BP’s disaster in the gulf of Mexico added up to a catastrophic combination for shareholders, as banks and oils had provided more than a third of the total dividends in the year before.

The shock that overwhelmed the banks was so unexpected (to them) that some were reduced to seeking state aid in between declaring their 2007 dividend and paying it. From the peak payment of £68.5bn in 2008,. distribution from all quoted UK companies wilted to £58.7bn two years later.

Both the banks and BP are still convalescing, but dividends elsewhere more than made up the shortfall, and by 2011 the £69.7bn total had already passed the 2008 peak. They have gone on rising ever since, and by 2014 they had almost doubled from the trough in just six years. This week Capita dividend monitor’s numbers show another record in the second quarter, up by 13.2 per cent.

This picture is somewhat confused by the payment of special dividends, which reached a record last year, and by changed timing of payments like Barclays’ £642m final. Cash-raising and new issues swell the size of total dividend payments, while buy-backs and takeovers reduce them. Neither does anything for the income from a portfolio. Nevertheless, the message is clear: a ten-year bond will give you a tiny return and your money back a decade hence. A sensible portfolio of UK shares will give you a higher starting yield, rising income and a growing asset.

Now that’s what I call an insurance policy

Good news: the price of the ultimate insurance policy is coming down. Indeed, it’s not much more than half the price it was at its peak. Once you’ve bought it, there’s nothing more to pay, and none of that endless renewal bumpf which somehow can’t find enough space to tell you what it cost last time. The ultimate insurance policy won’t pay out for trivial events like the house burning down or writing off the new motor. It’s not like that. It will be there if, literally, all else fails. It is, of course, gold – not a certificate or an account, but the actual heavy metal, preferably in handy chunks like, say, sovereigns, perhaps buried in the back garden…


By the time William Milne retired in 2005 from the Strathclyde fire brigade after 30 years, aged 50, his pension promise from his employer was worth over £444,000. We know this because he elected to take £111,038 as a tax-free lump sum, and 25 per cent was the maximum allowed.

We now know that his proper entitlement was about £25,000 more. This month the pensions ombudsman ruled that the Government Actuary’s Department was guilty of “maladministration” in his and thousands of similar cases. The 41-page determination is largely incomprehensible to ordinary mortals, and we must hope that the GAD is better at following it than in getting Mr Milne’s sums right in the first place.

The treasury estimates that the GAD’s bungling over rights for policemen and firefighters will cost us £860m. This is painful enough, but it’s not even a rounding error in the great public sector pensions liability. Firemen contribute between 11 per cent and 13 per cent of salary, which in Mr Milne’s case rose to £40,000. However, even over 30 years his contributions amount to a small fraction of half a million pounds. The taxpayer is finding most of the money.

In the private sector, pensions are being reformed rapidly, as the true cost of promises threatened the solvency of viable businesses. Indeed, after the latest changes, it’s possible that pensions, the ultimate long-term savings, may not have much of a useful life left. In the public sector, most attempts at similar reforms have been thwarted, and cases like this one highlight how much is at stake.

Fighting fires requires occasional great bravery, but statistically it’s not a particularly hazardous occupation, and nowadays retiring at 50 looks an absurd anachronism. Good luck to Mr Milne for winning the great pensions lottery – now with a cherry on top – but let’s not pretend it’s anything else.

Drax it! The government’s ratted again

Neil Woodford is in a bit of a strop. His fund is a big shareholder in Drax, the power station that’s going green (about the gills). Today’s Green Drax uses wood chips grown and processed in north America, shipped across the Atlantic, and stored in high-tech domes lest they explode before use.

This process costs three times as much as burning the coal from beneath its cooling towers, and requires a massive bung from the taxpayer to break even. The renewables subsidy regime is a legacy of Ed Davey, an impressively useless Energy Secretary in the last administration (another legacy is the wafer-thin margin of generating capacity this winter) and now his Tory successor is putting the brakes on it.

The transformation of Drax, as Mr Woodford points out, was a high-risk project, and he reckons the Budget has pulled the rug from underneath its finances. Drax shares had already halved, and have plunged by almost another third since last week. The move to scrap the Climate Change Levy, he argues, undermines the confidence of investors in government-backed projects.

He’s right, up to a point. The harder question is whether this project which some of us said nearly two years ago was far too expensive and the very palest shade of green, should have been allowed to grind on regardless of cost or late understanding of mistakes. Drax and Mr Woodford bet on continuing subsidy and lost.

Opening up Openreach

If you can get your home internet to work, take a look at the snappily-entitled Strategic Review of Digital Communication: Discussion document, where Ofcom muses about breaking up BT. At present, nearly all internet providers use the wires owned by Openreach, so switching provider is unlikely to improve your user experience. This shadowy body – its “contact us” page essentially says “don’t even try” – is owned by BT, supposedly at arm’s-length.

Breaking off the arm is one possibility, which would bring the business into the daylight and expose its effective monopoly. that’s unlikely to happen, but even by asking the question, Ofcom is headed in the right direction. Meanwhile, it might urge rejection of BT’s latest piece of empire-building, its proposed takeover of EE, a mobile monster built from the ill-advised merger of Orange and T-Mobile. It’s already too big.

This is my FT column from Saturday


Rolls-Royce’s aero engineering may be second to none  (though ominously more expensive than the competition, it would seem) but its financial engineering has developed a nasty design fault. Last February, despite a third profit warning, Rolls launched a new £1bn share buy-back programme for no better reason than “to reduce the issued share capital of the company”.

By May 8, it had spent half the money, paying over £10 a share. Morgan Stanley had been handed this nice little earner, a programme that was “non-discretionary” and “irrevocable”, at least until it was revoked by new CEO Warren East the day after his arrival this week. A fourth profit warning saw the shares slump to 750p, there are worries about cash, and the programme has been “discontinued”.

Apart from Morgan Stanley and the brokers trading Rolls shares, only those (former) shareholders who sold at one-third above today’s price have benefitted from this foolish policy. Making aero-engines is a difficult, capital-intensive, long-term business. Judging whether shares in your company are cheap or dear is another skill entirely. Let’s hope the new boss has grasped that Rolls’ world-class expertise doesn’t extend to financial engineering. Otherwise, one more buyback and he’ll need a rights issue.


You cannot be Sirius!

The York Potash website is a thing of beauty. Lovely landscapes, smiley people, offering employment and tax revenue, all to meet the “global food security challenge”. The planners have decided to tolerate a modest blot on the landscape in the North York Moors, unlike their colleagues across the Pennines, anxious to keep Blackpool’s lovely environs frack-free.

After five years of charm offensive, freshly armed with planning permission, the project’s problems really start now. The mile-deep deposit may indeed be the world’s biggest, but it needs a 24-mile, 6m diameter tunnel to get the stuff to Teeside. David Hargreaves, a rare combination of grizzled mining engineer and City minerals analyst, estimates at least 12 sequential underground conveyor belts, £2bn and a decade to build.

It would also add significantly to world output and unfortunately for Sirius Minerals, the company that owns the project, others have noticed the “global food security challenge”. New potash mines are planned all over the place. As we have seen with iron ore, this is a recipe for price collapse.

Since the potash cartel between the Russians and Canadians broke up three years ago, the price has halved. After the initial euphoria that followed the permission, the size of the task has sunk in and Sirius shares have just sunk. Even so, at 21p the company is capitalised at almost £500m, including the warrants. This is a very high price for hope. Plenty of Yorkshire locals are holders, but like those of us who bought Eurotunnel all those long years ago, they are surely doomed to dilution and disappointment. Nice website, though.


More sendings-off than the premier league

Just what is it about Barclays Bank and its management? The chief executive is fired for trying to do the right thing and a desperate board turns to an old hand who is obliged to become chairman and CEO. No, not this week’s ousting of “Saint” Antony Jenkins, but the similarly dramatic departure of CEO Martin Taylor in 1998.

The Barclays bureaucracy had resented his attack on their complacent ways. After firing him they thrashed around before alighting on Sir Peter Middleton, former permanent secretary at the treasury, the recently retired chairman of the bank’s BZW subsidiary. Once he arrived Andrew Buxton, Barclays chairman, didn’t last long. Rather as John Macfarlane has done this week, Sir Peter became both chairman and CEO.

More recently, we’ve had the Bob Diamond show which led to Mr Jenkins’ elevation. Once again, the conflict between the vanilla commercial bank and the swashbucklers of the investment bank had ended in tears. Like his predecessors, Mr Macfarlane promises to deal with Barclays’ stifling bureaucracy (can there really be 375 management committees?). As his statement put it: “I have experienced good results in dealing with these matters elsewhere.” So he has. This time it could be a more even fight with the old guard. Best of luck, Mac.

This is my FT column from Saturday




South32 is the trendy new name for Billiton, the ragbag of mines that BHP has decided it no longer wants. Turning the usual logic of mergers on its head, BHP argued that a simpler structure would help costs and gave the businesses away to its shareholders in May. They have been able to curb their enthusiasm, and since they unwrapped their unrequested present, the price has gone south by 15 per cent.

Something similar has happened at Lonmin, an accident-prone remnant of Tiny Rowland’s African empire. Its biggest shareholder, Glencore, failed to find a buyer at ever-reducing prices and gave the holding to its shareholders. To say that Lonmin has been an investment disaster rather understates things. After touching £40 in 2007, the share price is 108p now.

As with South32, it’s uncomfortably clear why nobody bought it, and why giving it away was the last resort. Fellow miner Rio Tinto may do better with its Aussie coal business, a rounding error on its vast balance sheet, now that Mick Davis (late of Xtrata) is proving that hope springs eternal in a miner’s breast. He wants to make a contrarian bet and buy it.

Encouragement came this week from Deutsche Bank with a 175-page potboiler. After much time and effort,  the bank’s analysts conclude that mining stocks are cheap. Mind you, they thought Lonmin was worth 310p last time they looked.

It’s possible that manganese (South32), platinum (Lonmin) and coal prices have bottomed. Investors dream of mining companies run by cost-conscious executives who dig holes only for profit, and who understand that there are few bargains in takeovers. Those execs should have, written in big, friendly letters above their desks, the first law of commodities: today’s shortage is tomorrow’s glut. They might even find their stocks back in fashion.

Beware, heavy plant crossing

It’s been quite a week in the perennially-exciting world of plant hire. Shares in both HSS and Speedy fell off the back of the low loader as they warned of performance “marginally below” expectations (HSS) or “slower than expected” (Speedy). It’s no wonder traders were taken by surprise. Construction is booming, market leader Ashtead has posted recond profits, and it’s barely a month since HSS said things were going swimmingly (“in line with expectations”, in the jargon) with good volume growth.

Indeed, it’s only five months since the shares were floated through Cazenove and Numis by its private equity owners, Exponent. As is the usual way with offers from such sellers, most of the proceeds were needed to pay down debt. Even before this week’s shocker, the shares were below the 210p offer price. They’re one-third off now.

This may not be a special offer worth pursuing. Plant hire is like leasing, a business which has been almost as disastrous as banking for investors over the years. The tax regulations encourage taking on more debt, demand is fickle, and competition is fierce. Avoiding the shares is a good rule.

Railway not working? Build another one!

My old friend Stephen “Bozo” Byers got one thing right at the Department of Transport: he created Network Rail as a not-for-profit company, and it’s succeeded magnificently. Nearly two-thirds of its revenue comes from taxpayers, while his absurd pretence that its debt wasn’t on the public books was abandoned in 2013.

His other idea, that 30-50 “public members” would hold the board to account is also being quietly dropped. Now, after months of denial, the latest transport secretary has finally admitted that the track upgrade programme is a fantasy. It will twice as long for half as much improvement as budgeted.

Yet demonstrating, Greek style, that a good politician can believe two contradictory things at once, there is no suggestion that Patrick McLoughlin might abandon HS2 and try to make what we’ve already got work better. The official forecasts for this £50bn vanity project have been comprehensively demolished by Clive Hollick’s Lords committee, and to add insult to financial injury,  HS2 is poaching the company’s scarce talent to bolster its own expertise. Surely thay can’t prefer working in London to Notwork Rail’s glittering palace in Milton Keynes?

This is my FT column from Saturday


For what it’s worth, this is an excellent summary of my views on Greece. Joseph Stiglitz in The Guardian today.

There’s nothing your average arbitrageur likes better than a big, juicy takeover bid. It offers him the chance to buy one side, sell the other and pocket the difference. Takeovers don’t come any bigger or juicier than Royal Dutch Shell’s £55bn offer for BG Group, yet he doesn’t seem to want to play.

The Shell price dropped on the news, and has carried on falling since. The BG price jumped, but for almost four months, the gap between the value of the offer and the BG price has remained almost constant at around 10 per cent. In other words, there’s £5.5bn of value to be picked up between now and the deal’s closure.

It’s not that simple, of course. Regulatory hurdles abound. China, a big importer of LNG, BG’s speciality, is a complete unknown. Completion is many months away, and Shell’s yield is nearly 5 per cent more than BG’s. A quarter of the bid is in cash, which is either a handy slice of insurance or a dilution of value, depending on your view of the oil price.

The analysts at Deutsche Bank are baffled by the missing arbs, but reckon the £17bn that has been wiped off Shell’s market value since the bid is overdone, and that as the LNG projects come on stream, a “cash wall” is coming, to support a 6.4 per cent dividend yield. Their preferred route in is via BG, the risks notwithstanding. So come on, you arbs…

Plenty of nagging doubts

Oh, goody,  another book on the banking crisis. Ivan Fallon’s Black Horse Ride would be better entitled Black Horse Down, as it chronicles how Lloyds TSB stumbled to its knees and is only now trying to get up again.

The drama of the near-collapse of HBoS, following the Bank of England’s refusal to underwrite a Lloyds rescue of Northern Rock, has been pretty well picked over, although the narrative can still shock. If the Financial Conduct Authority’s warts-and-all report is ever published, we may learn a little more, but it’s unlikely to help those Lloyds shareholders still dreaming of compensation.

This book certainly doesn’t. It reasserts how Lloyds was obliged to do the prime minister’s bidding, with chairman Sir Victor Blank and his chief executive Eric Daniels faced with Hobson’s choice. Mr Fallon is more interesting when it comes to documenting the febrile, almost manic atmosphere before the collapse. Almost every bank chief executive wanted to merge, provided he could be in charge afterwards. Lloyds, for all its undeniable prudence in the face of provocation from the deal-makers, was in there with the rest of them.

It’s dispiriting stuff. Customers, merely fodder for the empire-builders in the mine’s-bigger-than-yours contest, get barely a mention. As we have learnt subsequently, hardly a thought was given to whether it was possible to run such vast, international empires.

Banks are always under siege from those who live by dealmaking, because their size means that a tiny slice of the price translates into millions for the promoters. Some deals can help customers and shareholders, but it’s almost accidental if they do. Lloyds has ended up with a UK market share beyond anything it could have dreamed possible before the crisis, but it may have cost Sir Victor the chance to become Lord Blank (of Cheque) however sympathetically he’s portrayed here. It’s a jolly good ride, though.

A Chinese burn from the treasury

The Private Finance Initiative has not been one of the outstanding political inventions of the century. Conceived as a way of making the public sector more efficient by applying private sector methods to projects, it has turned into a magnificent moneyspinner for the financial engineers. PFI financing totals £57bn, and the vehicles are sliced, diced, bought and sold almost daily.

Prices are seldom disclosed, perhaps to avoid revealing just how lucrative the deals have been. In 2012 the treasury found that many were “tarnished by waste, inflexibility and lack of transparency”, but of course it’s all different now. Indeed, PFI has been judged such a triumph that the chancellor is sending a delegation to show the Chinese how it’s done. That should hold their economy back a bit.

This is my FT column from Saturday



Dear readers (both of you)

I’m sorry about the underlined format on this post. I don’t know how it happened, and I can’t remove it (yes, I’ve tried toggling the “underline” icon). The process had also wiped out all the links in the copy..


Funny stuff, liquidity. Traders make it and  investors mostly don’t need it. For all the talk of deep two-way markets, liquidity essentially means that there’s someone there to buy when you want to sell, and across a wide range of markets, it’s drying up.

Even the most liquid securities market in the world, that in US Treasuries, isn’t as deep as it used to be. As for the next tier down, the US regulator is worried enough about corporate debt to call a meeting of the banks and asset managers to see what can be done about it.

One proposal is to allow big sales to stay hidden, to allow a trader who takes on the risk more time to work the order. The London stock market, meanwhile, is going the other way, insisting on more transparency rather than less. At present, the broker’s commission covers eveything, but from 2017, the Markets in Financial Instruments directive (Mifid 2) insists that research costs are  unbundled and shown separately.

The big investors who drive the market’s volume may decide that they’d rather not pay for the research, thanks. For the brokers, sell-side research is like advertising – you know half of it is wasted, but you don’t know which half. As with advertising, much of the output is duplicated or commoditised, while original investment ideas are quickly copied. Real added value from an individual analyst is hard to measure.

Transparency is a fine ideal for efficient markets, but there’s a real danger here that brokers’ research will disappear from all but the most heavily-traded stocks. Today’s sell-side research outside the FTSE 100 is already patchy, and beyond the FTSE 250 is almost unknown. The company-funded work from the likes of Edison may draw attention to the company, but is backward-looking and a poor substitute for independent analysis.

Sell-side analysts are there to drum up business, but their insight gives their work value well beyond an instant buy, sell or hold recommendation. Without it, liquidity will go on shrinking. So far, this doesn’t seem to have bothered the authors of the bulldozer that is Mifid2. Its current draft threatens significant damage to London’s markets, and it’s getting very late in the day to stop it.

 Interference on the line

Sir Charles Dunstone is not a happy bunny. He’s noticed the tsunami of mergers and rumours of mergers in telecoms, none of which appear to involve Carphone Warehouse or TalkTalk, the two businesses he built. However, that’s not why he’s concerned. He fears that tf the number of mobile networks shrinks to three (it was five not long ago) one of which is owned by BT, then the dismal state of competition in telecoms will get worse.

Well, he would say that, wouldn’t he, given the clinical way a major competitor, Phones4U, was cut off by the networks. One day they might decide to dispense entirely with the middlemen, which doubtless encouraged him into his own merger to form Dixons Carphone. The proposed consolidations in both fixed line and mobile brings that day closer, as competition dwindles.

All is not yet lost. Margrethe Vestager, the EU competition commissioner, is making combative noises about markets shrinking from four players to three as she decides whether Hutchison Whampoa’s 3 network can do just that in Britain by buying O2. The UK authorities are reviewing BT’s bid to buy EE. BT is responding with talk of creating a UK “digital champion” in telecoms. Ah, those were the days, when good old British Telecom was our national champion…

Time to make a splash

Is Yanis Varoufakis approaching his singing in the bath moment? In 1992, the chancellor whose name escapes me was so happy at Britain’s exit from the Exchange Rate Mechanism that he burst into ablutionary song. After five years of misery and economic squeeze trying to live with the wrong exchange rate, humiliation and devaluation heralded 25 years of continuous growth. Greece has endured more than its five years, misery is widespread and there’s hardly a stuffed olive left to squeeze. Humiliation and devaluation is imminent, so come on Yanis: “Oh we do like to be beside the (Greek) seaside….

This is my FT column from Saturday


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