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

If the crises of the past seem less ghastly than those of the present, it’s because we know what happened next. The world did not come to an end; rather, it carried on getting richer. Last week saw the neat co-incidence of the 60th annual Barclays Equity Gilt study and the FTSE100 index finally topping its 1999 peak. The one shows that shares have been a fine long-term investment, while the other shows up the shortcomings of an index which is more of a reflection of investment fashion than sustainable value.

The study draws the charts since 1899. The Great Depression, World War 2, the collapse in 1974 and the banking crisis of 2007 are mere blips on the smooth upward progress of shares. More realistically, £100 invested in 1990 would have turned into £750 now, including reinvested dividends. Even after inflation, that’s almost a quadrupling of value. Government stocks, despite their extraordinary run, returned only marginally more. Index-linked gilts and cash are miles behind. The difference is the dividends. While the returns on government stocks dwindle each year the price goes up, dividends on shares have risen, albeit erratically, almost every year since 1945.

The Barclays study has ballooned into a 200-page monster, complete with analyses of the oil market (lower for longer) and global demographics. It concludes that the changing ratio between savers and spenders as the population ages should spell the end of the savings glut, which “seems quite inconsistent with market pricing of very low or negative 5-year and even 10-year forward interest rates.”

Not only do these rates make it ruinously expensive for companies to try and match their pension liabilities, they make it dangerous as well. To describe the 1.74 per cent yield on a 10-year gilt as “risk-free”, as the actuaries routinely do, is patent nonsense. The Barclays study highlights the real risk – that capital which could be employed productively is forcibly lent to the government, at the expense of growth and those future dividends.

Bad apples go cherry-picking

It was a simple scam. The broker would buy stock in the morning, “names later, old boy.” If it rose it went into his account, if it fell it was booked to a client. It was so obviously abuse that even in the bad old days before the Financial Services Authority it was outlawed. So it’s shocking to find a variant of the scam at Aviva right up to 2013. The FSA’s successor calls this cherry-picking. Others might use something stronger, and now it’s come to light, Aviva has been fined and paid £132m to disadvantaged policyholders in compension. Some cherry.

As usual in such cases, the top brass at Aviva are shocked that its “three lines of defence” of risk management should have failed to catch an abuse which had gone on for eight years. Lessons learned, rules tightened, systems reviewed, etc, etc. Aviva Investors has £240bn under management and is about to add a further £100bn by taking over Friends Life. Integrating life offices is notoriously tricky, and Aviva has proved over the years that the gains are often illusory. And integrating the fund management side is supposed to be the easy bit.

Sofa, so good. But who for?

Up to 60 per cent off! Limited time only! Reduced from £1bn to £585m! This is DFS, the sofa retailer whose products last longer than its previous life as a public company. So round it comes again, this time with an ambition to get sat on across the world, rather than just Britain. Upholstered with the addition of a couple of smaller rivals, the mid-point price of next week’s offer values it at nine times last year’s EBITDA.

It’s a great business model. Customers pay before the product is even made, and the ever-changing sale items encourage them to take the plunge while their choice is half price. Yet Advent, its private equity owners, is trimming its holding from a three-seater 89 per cent to a two-seater 50 per cent, while the directors are also selling. Sofa sales need constant plumping up with shouty advertising, and are notoriously cyclical. Even at the new cut price, this offer looks like one to sit out.

This is my FT column from Saturday

“Corporate responsibility” is one of those essential phrases for the modern plc. It’s employed to demonstrate that the business is not merely some rapacious money-making machine, bulldozering everything in its path, but a caring, sharing organisation that, like the old dope pedlar, is just trying to do well by doing good.

Fund management businesses are not immune, since the Companies Act obliges them to comply, even if nobody quite knows what the expression means in this context. Here, for example, is Henderson Global Investors: “Responsible investment is the term Henderson uses to cover our work on environmental, social and corporate governance issues.”

This fine phrase isn’t going down too well in Winchester, where a Henderson associate company plans to develop a run-down slice of the city centre, and quite a few of the natives are revolting. This week the £165m project ground to a halt in the high court when Mrs Justice Lang ruled that the city council had acted unlawfully in accepting Henderson’s proposed changes, which degraded the scheme. Whether or not the development would enhance the ancient city – a shopaganza designed by a single architectural practice on a five-acre site near the cathedral doesn’t sound promising – the reputational risk to Henderson is substantial.

The profitable part of the fund management business is garnering the savings of thousands of individuals. They are spoilt for choice of manager, and after what looks like a display of greed with this scheme, it’s safe to say that few of the wealthier residents of Winchester will be looking to invest in Henderson funds.

This little local difficulty may not set the ripples spreading widely enough to cause the brand significant damage. It is, at least, a demonstration of how things are connected. It’s also Henderson’s chance to show a little corporate responsibility.

 It’s cash, but not in the bank

About those Swiss francs you’ve got (perfectly legitimately, of course). You really don’t want to deposit them or buy government bonds only to be charged for the privilege, so what do you do? Take them out in cash, put them into a fireproof safe deposit box or three, and trust that neither moth nor rust doth corrupt.

As bond yields turn negative, this strategy will become more popular, and not just in Switzerland. The bondwatchers at Bond Vigilantes have been trying to work out what it means as money crosses the “zero bound” into negative rates. For a start, the narrow money supply will rise (as it did, for different reasons, during the banking crisis) but since the cash won’t appear on the banks’ balance sheets, it’s neither spent nor available to borrowers.

The further below the zero bound that bond prices go, the bigger the incentive to simply hoard cash this way, and the less the banks have to lend, thus exacerbating the deflationary effect the authorities are trying to counter. As the vigilantes say: “In the extreme, you could even develop markets in exchange traded derivatives issues that are linked to cash held in a depository”. These derivatives could, presumably, be sold for cash, inventing a whole new proxy banking system. The cash, of course, would go into a fireproof safe deposit box…

The 1p coin should cop it

Find a penny, pick it up, and all day long you’ll have… a bad back. Perhaps that’s why these copper-coated steel slivers can lay undisturbed for days on pavements, or perhaps it’s because the coin has so little value that it’s not worth the bother of stooping. Its principal use is to keep shop assistants honest, as we wait for our receipt and change. Many of the 11.278bn minted pennies lurk unwanted down sofas and in drawers.

Now those shoppers who preferred to save a penny are to be denied the choice as Poundland prepares to swallow 99p Stores for a rather chunkier £55m. There have been calls for the deal to go to the competition authorities, but that does look rather silly. Other retailers are available, if not of Valentine’s Day fluffy red handcuffs (only, er, £1). If the authorities want to get involved, they might instead ask whether inflation has finally done for the 1p. It’s time to scrap it.


This is my FT column from Saturday (with apologies for late posting. Sheer incompetence)

You might have thought that £47bn would be enough to keep 300,000 increasingly elderly BT pensioners in the style which the company had promised. At £150,000 each, it’s much more than most workers could hope to accumulate in their pension pots. You would, of course, be wrong. BT’s actuaries have decided that it’s £7bn short of what’s needed to meet the company’s promises.

Despite the money BT has shovelled into the scheme, the shortfall is almost twice what it was the last time the actuaries looked, three years ago. They’ve agreed a 16-year plan for payment, but it’s just as well BT is in rather better shape than it was in 2001, when it sold off its mobile phone business. Indeed, it’s doing well enough to splash out £12.5bn (though not much in cash) to buy the ridiculously-named EE, an even bigger mobile phone business than the one it sold.

That £7bn deficit figure – eight years of dividends at the current rate – is entirely the work of the actuaries. It’s almost impossible for outsiders to follow their maths, so the pension fund trusteees must accept it, remembering that they could be personally liable to 300,000 pensioners if they don’t.

The collapse in bond prices means that the “present value” of the promises is much greater than it was when the actuaries last looked, even though the pensioners are older. Given the way things are going, as bond yields turn negative, the deficit might get even bigger. This is the madhouse of actuarial mathematics.

Imagine, instead, if each beneficiary had his own pension pot. The latest reforms would allow him to choose what to do with his (average) £150,000 of savings, with that extra £7 billion over the next 16 years shared between the survivors. They would be freed of the demands of the actuaries, while BT’s shareholders would be freed of the possibility of a still more costly calculation next time around. BT’s management could concentrate on convincing the customers that bigger really does mean better. Well, we can all dream.

Can pay, won’t pay

Do you want to pay for your bank account? Neither do 62 per cent of those surveyed by PwC. An even greater proportion spotted that there’s no such thing as a free lunch, but until the bill arrives, are happy to keep eating.

They don’t expect the bill to come to them, and for the majority, they’re right. The cost of free banking is borne by those who can’t stay in the black, or those who buy things from their bank, like payment protection insurance. The argument from the banks currently runs: if we charged you for current accounts in credit, then we wouldn’t have to sting you for everything else we’re trying to sell.

This is ingenious, even if it lacks credibility, given how PPI has exposed their real-life behaviour. If it’s so compelling, then we’d happily pay for current accounts in return for cheap loans, attractive deposit rates or useful insurance. Those banks which have tried it have not been killed in the rush.

PwC’s Steve Davies suggests a different approach. He argues that free banking stifles innovation and ensures that the so-called challenger banks will never make an impact. He suggests that the banking regulator might intervene. Best of luck with that. “Regulator forces consumers to pay” is a career-threatening headline. Given the choice, 62 per cent would rather not. What were the other 38 per cent thinking?

How green was my Spar

The saga of the Brent Spar is one of Greenpeace’s more disgraceful episodes. It boarded the oil storage tank as it was being towed out for dumping in the ocean, providing irresistible tv news footage and forcing Shell to bring it back to be broken up onshore. Last week the company embarked on dismantling the Brent Delta platform, which the subsequent rules oblige it to deal with the same wasteful way.

Thus was a golden opportunity for conservation lost to a political stunt. Controlled dumping of surplus unstallations would have created a marine sanctuary, allowing Atlantic fish to escape the monster nets of the trawlers.Now there are hardly enough fish left to bother.

This is my FT column from Saturday



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