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had been handed this nice little earner, a programme that was “non-discretionary” and “irrevocable”, at least until it was revoked by new CEO Warren East the day after his arrival this week.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

 

 

 

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