They’re a thorough lot at the Competition and Markets Authority. They want to know what £1 plus 99p makes, with Poundland’s bid for 99p Stores, since around 80 of the cheaper stores are conveniently close to the others. Put the pair together, and Poundland might raise prices, although not, presumably, to £1.99.

To which Poundland’s response should be: other retailers are available, even though they may charge more for that essential Febreze Fabric Refresh Spray (375ml). Perhaps the CMA has to be seen to be doing something for the consumer, since when it comes to the rather more signficiant matter of the collapsing competition in telecoms, the regulators are strangely acquiescent.

Not long ago there were five main UK mobile operators. Then Orange and T-Mobile merged, with scarely a murmur from anyone, into the ridiculously-named EE.Now O2 is being bought by Three (O3?), while BT is gobbling EE (BEET?). Vodafone is the odd name out (so far). The good news for the bewildered consumer is that less choice means less homework, and the boss of Three says it intends to compete aggressively. BT, fresh from raising its costs with the deal to offer “free” football, has warned shareholders that mobile charges could be cut.

The bad news is that these two combinations mean less competition, or as the analysts at Jeffries put it: “Consolidation clearly enhances pricing prospects for UK mobile.” Indeed. The O3 combo is being looked at the European Commission, which promises many months of jolly tough negotiation followed by capitulation by the regulator.

BEET is set to be a domestic affair. The CMA has been gathering ammo from the likes of Vodafone and Talk Talk to help it decide what to do. The best guess is for more regulation of BT’s wholesale business, following the current belief across the political spectrum that regulation works better than competition. In practice, it spells yet more complexity in a big, important industry which is evolving rapidly. No wonder the CMA likes the look of adjudicating on a couple of simple retailers.

It’s gold, man, not iron

Jealous rivals to Goldman Sachs who like to use the bank’s “Conviction Buy/Sell” list as a fine contra-indicator have a splendid opportunity. Goldman is shockingly bearish on iron ore, seeing the price slumping to $33 a tonne by 2017. At that price all but the lowest-cost producers will have given up the unequal struggle, since the five biggest will be capable of delivering the entire world demand.

Rio Tinto, BHP, Vale, Anglo American and Fortescue Metals may still be standing, but they will be in pretty poor shape. Some may continue to pay dividends, says Goldman, but the market won’t be fooled if they’re not being earned, and they won’t support the share prices.

It’s certainly true that the producers have been purblind to the obvious signs of slowing demand from China. Investment cuts have been trivial, and “it’ll be interesting to see how the companies respond to protect their [credit] ratings without annoying equity investors”, as a note from Citigroup contends. It sees “the end of the iron age”, with all the gains from the super-cycle squandered in over-production. That would be really bad news for us shareholders – except that those “conviction sell” notes sometimes really do work as contra-indicators.

Just my interpretation

If your idea of an exciting opportunity is to work as a treasury regulatory interpretations manager, then you’re in luck. Headhunters Robert Walters say a “global investment bank” wants one, and is prepared to pay six figures. Of course you’ll need to know what LCR, NFSR and US 5G stand for, but the giveaway is in the job title.

Today’s rules need an ology in compliance to guide the boys who generate the fees, but “interpretations” can range from “What on earth does this mean?” to “How can I claim that what I’m going to do anyway complies?” Here, as a hypothetical example is Al Noor Hospitals, where a broker may have been left with stock from a placing this week. The stock is now xd, so where does the dividend cash go? See, a really exciting opportunity…

This is my FT column from Saturday

Ben van Beurden is incredibly excited. He’s also being bold, visionary and transformational. He’s not quite walking on water yet, but he hopes to be walking on oil, figuratively speaking, as he takes Royal Dutch Shell to the top of the big oil premier league. We are all shareholders in Shell, either directly or indirectly, and when it has swallowed BG Group, it will be responsible for one pound in every nine of total dividends paid by UK companies.

This is uncomfortable, at best. The key to dividends is not this year’s payment, nor even next year’s, but whether the business is capable of sustaining (let alone increasing) the amount of cash it can distribute to the shareholders annually. For an oil company, one of the key metrics of sustainability is whether its reserves are rising or falling. In Shell’s case they are falling, and BG’s Australian gas and Brazilian deepwater oil will reverse that trend.

The logic of buying BG has fuelled fantasy M&A for decades. The operational fit is almost painfully good, in that the duplication of  skilled geologists promises job losses in a market where almost everyone is already cutting back. The price of being bold and visionary will be a loss of diversity of skills in the UK, and the price which Mr van Buerden is prepared to pay for BG leaves him no choice but to hammer down on costs. He’s also trying to offload $30bn of assets into a depressed market. Good luck with that.

Asset sales and cost cuts will not be enough to sustain the dividend after this deal. It requires a rebound in the oil price, since those mouth-watering Brazilian reserves are barely profitable at $50 a barrel. At $90, the boss would look like a true visionary, but in truth Mr van Buerden has little more idea of what will happen than anyone else – BP’s 2014 annual oil bible completely missed the price impact of shale.

Deals which are described in the glowing terms being applied to this one seldom produce the glittering gains anticipated in the incredibly exciting moment of the drama. The Shell share price has lost 10 per cent, or £17bn, this week because its dividend looks rather less sustainable than it did last Saturday.

Lost in the woods

John Prescott was in no doubt. “Absolute bloody rubbish”  was his response to the evidence that the “£60,000 homes” built on his initiative as deputy prime minister were falling apart just seven years after they had been built. The Oxley Woods development in Milton Keynes is architect designed, award-winning and seemingly popular with the residents despite its local nickname of Legoland. There’s just one snag – the snags.

Every new house needs snagging, but the small print of the 2014 annual report from the builders, Taylor Wimpey, reveals provisions of £12.4m last year, much of which is for Oxley Woods’ 122-home development. Cladding panels have fallen off, allowing the weather in, triggering wet and dry rot. Everyone is blaming everyone else, from architects Rogers Stirk Harbour to various contractors. Legal action is looming.

This will be wearily familiar to anyone with a building dispute, but it’s more tragedy than farce. All parties tried to build something interesting and innovative at a price which wasn’t beyond the dreams of half the population. If you wonder why housebuilders prefer to pepper the countryside with little boxes made of ticky-tacky, Oxley Woods provides some of the answer.

Speak up or lose out

The countdown to the election is under way. No,.not that one, but the annual meeting of Alliance Trust, which promises a real beano in Dundee on April 29, as the directors try to repel boarders from Elliott Advisors. Alliance has quite successfully painted them as pirates intent on pillage or worse, even though the trust’s own defences look decidely wobbly. ShareSoc, which champions the sort of individual investors who are Alliance shareholders, describes Elliott’s tactics as “perfectly reasonable”. However, we have yet to hear from the marauders’ nominees for the board, Anthony Brooke, Peter Chambers and Rory Macnamara. The Alliance board doesn’t really deserve to win, but unless we do hear, the trio deserves to lose.

This is my FT column from Saturday

Britain’s big grocers would never wage a full-out price war because, as Justin King pointed out, Mutually Assured Destruction is, well, MAD. Now he’s gone and there’s something close to war on the shelves. Last month alone, for example, the supermarket he used to run, Sainsbury’s, chopped 3 per cent off its prices, as measured by The Grocer magazine.

The reasons for this escalation of hostilities are familiar enough. The recession did for so many shops that Aldi and Lidl, having been marginal in the UK grocery business for many years, were presented with attractive sites just when shoppers were desperate to economise. Having discovered they could swap choice and comfort for lower prices and breezeblocks, they have proved highly resistant to returning to old loyalties.

The position today is described by the analysts at BESI as “a race to the bottom”, with food prices relative to retail prices at their weakest for a decade. It’s against this baleful background that Dave Lewis must decide his strategy for Tesco. Essentially, this comes down to finding capital by selling off a significant business, – say that in Thailand or Dunnhumby, its Clubcard information hub – or asking shareholders to subscribe for more shares.

The BESI boys believe that a relatively modest £2bn rights issue would allow Tesco to keep control of both. Technology ia driiving up the value of Dunnhumby’s vast database, while Thailand produces enviable cash flow in a market with attractive margins. Selling them would make Tesco less valuable in the long term.

The shares have already recovered to the point where they are pricing in better times, despite the lack of any prospect of them arriving soon. Mr Lewis comes from Unilever, a business where taking the long view is ingrained in the culture. His honeymoon will be short. He should fund Tesco for the long view while he can.


Easter quiz

Rory Cullinan left Royal Bank of Scotland because

a) He was exposed in The Sun Snapchatting his daughter about being in a boring meeting

b) He was photographed wearing a truly horrible brown spotty tie

c) He fell out with his colleagues after a month running the investment bank

d) He couldn’t stand the idea of playing the mad axeman at the Rapidly Shrinking Bank

Banks take holidays because

a) Their computers need a rest

b) To show us why we don’t need those branches

The best April Fool was

a) 103 (mostly) wealthy people complained about Labour’s tax plans

b) Royal Mint’s £5 coin offer for £5 (with free P&P)

c) The world’s best stock market performer in Q1 was Venezuela


Alternative liquid asset class

Phew, that’s a relief. The 2014 clarets will not be the vintage of the century, unlike the ’05s, ’09s and ’10s. Nobody really knows, of course, but noises from this week’s primeur-fest in Bordeaux suggest that the hype will give way to pressure for price cuts. Many trade buyers are stuffed with the last three years-worth, bought dearly and definitely not wines of the century.

The London merchants were sufficiently confident of their market clout to write an open letter in January suggesting that 2014 prices might look more like those in, say, 2008. Since they wrote, the euro has fallen further, offering scope for both sides to claim victory at lower dollar prices.

Today’s wine-making technology has effectively eliminated really poor vintages, and with it some of the guesswork for the buyers. The prices of even the top growths are looking soggy. An earlier wine of the century, Lafite Rothschild 2005, has nearly halved, according to Bordeaux Index. These wines are mostly bought by those trying to impress, with their employer’s money, or to sell on. Fortunately for the rest of us, the general standard of claret is far higher than it used to be, even if (sterling) prices are unlikely to fall back to 2008 levels.

This is my Financial Times column from Saturday (with apologies for late publication. I blame the incomprehensible iPad navigation.)

Alliance Trust Savings is a fine product. You pick the shares (or funds) for your SIPP or ISA, and trade at a competitive price. No matter how much your fund grows (or shrinks) the fee remains the same. It’s a refreshing change from the percentage skim levied by almost all ATS’s competitors.

There’s one snag. It’s losing money for its parent, Alliance Trust, and as any fule kno, there’s no future in a loss-making business. ATS was started about the same time as Hargreaves Lansdown, which is now valued by the market at £5.7bn. By contrast, the accumulated losses at ATS and Alliance Trust Investments add up to £50m.

We shareholders and ATS customers are invited to take the long view. This sounds suitable for an institution founded in 1888, if the performance of the parent investment trust was good enough. Unfortunately, it’s not, which is why Elliott Advisors has accumulated an interest of 12 per cent (7 per cent of which comes from derivatives) despite a half-hearted share buyback programme. It’s proposing three directors at next month’s annual meeting, and promises a scrap.

Neither side can claim the high ground. Elliott’s plans are opaque, and its choice of candidates looks disingenuous. Alliance has responded in apocalyptic tones, that Elliott “threatens the very existence of the company” and – shock, horror – is short-termist. This is close to hysteria. Alliance is not a national treasure. It’s a commercial business, and Elliott has found enough sellers to accumulate 5 per cent despite the double-digit discount to asset value.

If Elliot’s plans roughly amount to: Do something, or else, then the board’s response is effectively: How dare you. Alliance looks complacent, while costs are rising, long term performance is mediocre at best, and its diversifications don’t seem to be paying off. It can fulminate about its own due process  for appointing directors, but the process has succeeded only in ticking the gender diversity box.

With 28m shares, Elliott is in too deep to pack up and leave. Besides, the Alliance board deserves the kick up the backside that its largest voting shareholder is intent on delivering. The board has enough residual goodwill to win the vote next month, but a little humility, an acknowledgment that Elliott has the same rights as the longest-holding shareholder, and a look at the obvious areas for compromise would be in everyone’s interests.

Keystone cops it

Gulf Keystone Petroleum, the self-styled “operator of the world class Shaikan field in the Kurdistan Region of Iraq” and a favourite with more excitable investors, has a spot of bother with its 13 per cent dollar notes due for repayment in two years’ time.What was billed as a technical change to the covenants now looks “like a hard sell” according to brokers SP Angel.

Too true, if the price of the notes is any guide. This has collapsed from $95 to $67, so a buyer should make 50 per cent on his money in two years, earning nearly 20 per cent in interest in the meantime. Except the price is saying that he won’t. Indeed, it increasingly looks as though whatever value is left in this jam-tomorrow company is draining to the holders of the distressed debt, who are unlikely to spare much thought for the shareholders. The shares at 37p are already in the 90 per cent club. They’re still too high.

Shoot yourself, then you’ll be sorry

A group of Tesco shareholders would like £4bn to compensate them for the loss the supermarket giant has caused them by its pollyanna view of profits. They’ve employed solicitors, citing a “permanent destruction of value” and reckon 50p a share is the least that they should get. The loss, sobs John Bradley of Tesco Shareholder Claims, has “hit pension funds and investors across the UK and beyond.”

It’s unlikely that he’s thinking of Warren Buffett here, although this sort of action is more common in the land that sometimes seems populated entirely by lawyers and litigants. So who’s going to pay the £4bn? There will be some D&O insurance for the (mostly former) directors, but it’s an almost impossible case to prove and won’t stretch anywhere near that far. That leaves Tesco itself, a company owned by its shareholders. Oh, wait a minute…

This is my FT column from Saturday

George Osborne rather fancies the Internet of Things, that techie dream to connect up “everything from urban transport to medical devices to household appliances. So should – to use a ridiculous example – someone have two kitchens, they will be able to control both fridges from the same mobile phone.” Oh dear. We can all see the point of 4G, but what was good for a laugh at Ed Miliband’s expense this week may provide cover for another vast IT project whose benefits are illusory.

You may have heard of smart meters, devices which read your electricity and gas usage automatically. You probably haven’t heard that it will cost £11bn to instal over 100m gas and electric meters with associated displays and transmitters throughout the country. This money, unless some future Chancellor axes the project, will be almost entirely wasted. In a careful analysis for the Institute of Directors, Dan Lewis concludes that the energy savings are trivial, the technology is unproven and consumers will pay both financially and in their privacy.

Mr Lewis is far too polite to describe smart meters as another government IT project which is doomed to disaster, but it bears all the hallmarks. These schemes gather their own momentum, and too many contracts, companies and departmental careers become committed to them to call a halt.

Smart meters will read your consumption and transmit the data continuously. This will supposedly make us more aware of how much our energy is costing, so we’ll wake at 2am to turn on the washing machine. Economy 7 electricity already does that, but its popularity is actually declining. As Mr Lewis argues, the IT is likely to be obsolete before the roll-out is complete, replaced by an app or a simple camera pointed at an old-fashioned meter .

The meters, as envisaged, won’t turn on the dishwasher when spot electricity falls below the price you’ve set, so they are really not that smart. The smart thing to do is to scrap the whole, ill-starred project. There are other uses for £11bn.

Focus? That’ll be $738m, please

Ah, focus. That’s the buzzword at new-look, not-quite-so-plump BHP as it invites the shareholders to approve the spin-out of South32, a business which a more sentimental board might have named “Billiton”. BHP’s management has been so terribly distracted by SouthBilliton’s manganese, nickel and aluminium mining that it’s been quite unable to focus on iron ore, copper and oil.

Separation is frightfully expensive – even costlier than putting the two together 14 years ago, and turns the usual merger logic about saving on head offices, diversity of risk, economies of scale etc on its head. The best that BHP can do is to claim that the tax on the deal is less than it would be if the bits it no longer wants were simply sold off. This might suggest that nobody was prepared to pay up under today’s conditions.

Those conditions are grim. Iron ore now costs less than $55 a tonne, its lowest for six years, and is in increasing global oversupply. BHP is still making money at that price, but margins are shrinking, and the divorce will cost $738m. This is the proceeds of 13.5m tonnes of Pilbara’s finest red stuff, so in order to focus, BHP is giving away a tenth of this year’s production at the expense of its shareholders. Cui bono?, you ask. Silly question. The investment banks which put BHP together with Billiton, of course…

 Euro, and I’ll steer across the Channel

A year ago a euro cost about 84p. This weekend you can pick them up for a little over 72p, and nobody has a good word to say for a stateless currency with a whirring printing press and which may be about to lose a less important limb. Such is the overwhelming consensus that the price is going only one way that a reversal cannot be far away. You can already buy a perfectly decent champagne across the Channel for a tenner and change. Ship enough to challenge the car’s supension, and you’ll get the ferry price thrown in. Time for a grand day out and a little investment in an alternative asset class…

This is my FT column from Saturday (with apologies to both readers for the delay)

I promise this short video will change the way you view the world (or your money back).



Ooh look, a new home for the cash you’ve received from last week’s redemption of War Loan, finally paid back just two years short of its century. As if to mark the occasion, the UK government sold another slice of a bond with a fixed repayment date, a mere 53 years away. The terms show why it was worth doing. Instead of the 3.5 per cent coupon on War Loan, this slice of the 2068 gilt yields just 2.62 per cent, the lowest-ever return on a long-dated UK bond.

Buyers are desperate for any sort of return. They must pay the Swiss government for the privilege of lending to it for ten years, and negative-yield bonds are the world’s fastest growing asset class. In that context, 2.62 per cent looks better than minus nothing. Yet War Loan remains a cautionary tale about the long-term perils of believing in paper money.

Inflation has eroded its capital value to the point where the purchasing power of £100 in 1917 requires £4000 now. Buying War Loan 53 years ago would have doubled your money in cash terms, but inflation would have destroyed nine-tenths of its value.

The history of the stock since its coupon was cut from 5 per cent to 3.5 per cent in 1932 shows how long these market cycles are. The price fell continuously from 1942 to 1976 (at its low point the stock price of £16.80 matched the 16.8 per cent yield) before a 39-year bull market, culminating in a 2.62 per cent yield on a 53-year gilt.

Now we’ve got here, there are pkenty of explanations:a chronic surplus of savings, quantitative easing from the central banks, technology which allows ever-falling costs of production, the entry of billions of workers from emerging countries into the world’s markets.

These forces may be enough to sustain low rates and negative bond returns for a year or three. They are unlikely to do so for the next half century. The buyers of the UK government’s latest offering must either hope that, against all history, they do, or that there’s a bigger fool who will buy the stock off them on an even lower yield.

Were George Osborne to show some lateral thinking, he could market this stock as irresistably cheap money for long-term projects. Even the wretched HS2 could surely show a better internal rate of return than 2.62 per cent  It might even get finished before the bond was due for repayment.

No social use without profit

“Some financial activities which proliferated over the last 10 years were socially useless, and some parts of the system were swollen beyond their optimal size.” Thus “Red” Adair Turner in 2009, as chairman of the now-defunct Financial Services Authority.

OakNorth, the bank whose board he’s now joined, is neither swollen nor socially useless, at least according to its rather out-of-date website. It’s very small, and wants to lend to very small businesses. SMEs, as the category is called, are everyone’s favourite good cause. They are more dynamic, are the giants of tomorrow, provide fresh employment, etc etc. Nowadays they are also in danger of being killed in the rush to lend them money  This business is harder than it looks. As one senior banker remarked, the last time SMEs were hot: “We’ve got plenty of these customers we’d be happy for others to have.” Socially useful is one thing. Profitably socially useful is quite another.

Business as usual

It’s that time of year again, where readers of the 488 pages of expensively produced report and accounts turn straight to the remuneration report (25 pages). Very little changes. Bankers still believe that normal pay scales are for little people, and that £513,000 is fair reward for a non-exec chairman of HSBC’s US subsidiary.

Across the road in Canary Wharf, Barclays directors signal what they think of their shareholders’ views. Sir John Sunderland is still chairman of the remuneration committee, a year after the bank said he would step down following the previous year’s revolt over higher pay for lower profits. Not before awarding the newish chief  executive a £1.1m bonus, Sir John is finally going next month, after an influential group of shareholders demanded his immediate resignation. Barclays is not thanking them for the reminder.

This is my FT column from Saturday


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