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Saturday was Pensions Awareness Day, which was a relief to many, since they will now assume they can be unaware for the other 364 days of 2018. In fact, “unaware” just about describes the general knowledge of the subject, even among those who have followed the official advice and put more money into their pensions.

They are probably unaware that one of the core holdings in their fund is about to be snitched and replaced by something less attractive. This week the directors of Unilever published their formal plans to take this important Anglo-Dutch business to the Netherlands.

In the six months since the less-than-ecstatic reception of the original announcement, their minds are completely unchanged. Disguised as “simplification” their intention is to take Unilever away from beastly Brexitland to The Netherlands, land of extra protection from takeovers, fewer irritants from an intrusive press and where the CEO can retire in a blaze of patriotism.

Unilever will drop out of London’s top index, and shareholders must take on trust that their dividends will not be damaged. The Dutch (coalition) government has pledged to remove the 15 per cent withholding tax from 2020, but its majority is tiny and already there are mutterings about “tax breaks for foreigners.” It would have made more sense for Unilever to wait until the legislation had passed, but that would have spoiled the timing for the current CEO’s retirement next year.

Still, all is not lost. The scheme needs a 75 per cent voting majority of plc shareholders, and if enough of us decline to take one for the team and the greater glory of the Unilever directors, it might fail. It will only do so if the fund managers who control most shares nowadays understand how their customers are being disadvantaged, and are prepared to do something about it. Pressure from the customers to vote against the scheme will concentrate the mind.

Even if the scheme passes, this episode has not enhanced the reputation of a company which has painstakingly built an image as a socially-responsible organisation which looks to the long term for all its stakeholders.

It seems this caring, sharing attitude does not extend to the plc shareholders. Perhaps the projected start of trading in the replacement shares on Christmas Eve is a subtle Dutch joke. Like the pensioners, we are not aware of it.

Just a minute

Things are grim at Just Group, provider of annuities for those expecting short lives, but better known for its lifetime mortgages. These allow ageing homeowners to cash in on their property gains with loans where the interest is not paid, but rolls up with the debt.

This latter business is relatively new, and pricing the risk that the house will be worth less than the accumulated debt at the homeowner’s death is exercising the Prudential Regulation Authority. It will want more capital from the lenders, and Just has already sacrificed its half-time dividend in anticipation, warning of a capital raise to follow.

The shares have halved in four months, and at 74p are discounting a thumping rights issue to appease the PRA. Only then can the market price the risk that the mortgaged property will fetch less in 20 years’ time than its value today. It does not seem remotely likely. At this price, Just shares are discounting housing Armageddon.

Down with the KIDs

“Past performance is no guide to the future” is the familiar little disclaimer accompanying information on pooled fund investments. It has been there for decades, but now potential buyers find it has a new friend which, in effect, says the opposite.

The Key Information Document is a fine demonstration of a baleful European Commission directive producing the opposite effect to that intended. For reasons lost in the mists of committee rooms, KIDs oblige funds to project past returns into the future. So the Association of Investment Companies finds that one in 10 investment company KIDs imply gains of 20 per cent a year in “moderate” market conditions, while over half produce between zero and 10 per cent even in “unfavourable” markets.

These are such laughably optimistic projections that seasoned investors will simply ignore them. For the rest of us, the best response is to follow the latest advice from the AIC: “Burn before reading.” No kidding.

This is my FT column from Saturday


Never buy a share in an initial public offering. No, honestly, however glittering the prospects or competitively priced the stock, those who are selling know more about it than you do. They may even believe themselves when they explain what a cracking company it is, how fast the market is growing, and what a wonderful bunch of people they have working for them.

Yet time and again, something arrives to spoil this vista of sunlit uplands. This week’s broken ankle is Footasylum, a small but frightfully modern retailer of shoes which is now even smaller. Floated last November at 164p, the shares popped to 240p before the profit warnings started. With the CEO now on an unfortunately-timed maternity leave, they are 33p.

A rather larger example is Amigo Holdings, whose customers must find creditworthy people to guarantee very expensive (50 per cent APR) loans. A hard word, “guarantee”, where you hope the guarantor understands he is liable for the whole debt should the borrower default. In June the backers took out £326m when the shares were priced at 275p, valuing the business at £1.3bn. They popped to 310p, but this week the founder and majority shareholder left the board and everyone puzzled. The shares fell to 232p.

The next candidate on the financial services merry-go-round is Funding Circle, another whizzy new-tech lender, this time to small businesses. This is expected to be valued at £1.5bn on its forthcoming flotation, with the current owners selling over £100m of shares.

Then there is Aston Martin, which at least boasts a physical product. However, investors would be advised not to look under the bonnet, since the engine seems woefully underpowered to cope with any sort of financial incline. The private equity vendors are dreaming of a £5bn valuation for a highly geared business with a decidedly unroadworthy past.

Fortunately, the ordinary Aston enthusiast is not being given the chance to get into this sale, any more than he could contemplate buying the 1961 DB4GT Zagato two-seat coupe which fetched £10m in July. The car might be a better long-term bet than the shares.

We’ve bought them enough yachts

Steve Morgan is among the most successful housebuilders in Britain. Redrow, the company he founded and still heads, has seen its share price multiply by five times since the panic that followed the banking crash. Almost four out of every 10 homes Redrow sells is through the UK government’s Help to Buy, so it is hardly a surprise that Mr Morgan would rather like to keep it after its current sunset date of 2021.

The scheme may have marginally increased the number of houses built, but it has certainly increased builders’ margins, since a house sold under HtB commands a premium of up to 10 per cent. There is growing evidence of buyers gaming the system to trade up,  while the cost to the borrower rises dramatically after five years. If the value of the now nearly-new property has not risen during that time, getting a conventional mortgage will prove challenging..

HtB was Chancellor George Osborne’s idea, but like so much else in his Budgets, was an economically illiterate crowd-pleaser. It stimulated demand for housing when the underlying problem was, and is, a shortage of supply. It is expensive for the taxpayer, too. Help to Buy Builders’ Yachts has worked brilliantly for them, and the scheme should be allowed to sink quietly beneath the waves in three years’ time.


Taking the long view

Only 98 years to go before Argentina’s 100-year bond matures. It seemed barely credible at the time that the country which turned default to an art form could persuade investors to lend until 2116. In the previous 100 years, Argentina had endured six debt crises (1930, 1955, 1976, 1989, 2001 and 2014 if you’re counting) but a yield of 7.9 per cent dazzled them at a moment when investors had to pay to hold German sovereign debt.

The buyers have had 15.8 per cent back in interest payments, which is some consolation for seeing the price wilt to today’s $70, where the yield is 10.2 per cent. With domestic interest rates raised last week to 60 per cent, and dollar liabilities at 45 per cent of national output, another capital reconstruction is a racing certainty. Either that, or another invasion of the Falkland Islands.

This is my FT column from Saturday

Any day now, barring a last-minute rush of common sense to their heads, the directors of Unilever will publish the details of their plans to take the company’s domicile to the Netherlands, eliminating the listed UK arm of this long-established Anglo-Dutch business.

The directors would like us to view this move as a mere technical tidying-up operation, but to win approval requires a 75 per cent majority of the plc shareholders who vote, which rather gives the game away.

Shares in the UK plc are to be swapped for new shares in the Dutch top company, which will have its primary listing in Rotterdam (Rotterdam!). As a result, Unilever will no longer qualify for inclusion in the FTSE100 index. It will be no more a British company than are the UK businesses of Nestle or Ford.

Viewed that way, this proposal is uncomfortably like Kraft’s takeover of Cadbury, or for those with longer memories, Nestle’s of Rowntree. Rather than a mere tidying-up operation, it is a power grab from a Dutch-dominated board, which can see the chance of eliminating the Anglo from the structure which has served shareholders well for so long.

At first sight, the decision to simplify the share structure looks inherently reasonable. A single class of capital allows new shares to be issued more easily for purchases, although the existing structure does not seem to have been a barrier to an aggressive share buy-back policy this year. There would also be a tiny gain in bureaucratic efficiency.

Doubtless the Unilever board can point to years of discussions on reform of the share structure, but to many this plan looks like a nervous response to last year’s unwanted takeover approach. For a company that considered itself too large and well-run to be the subject of a bid, this was a nasty surprise.

Were Unilever to be entirely Dutch the local rules, which make a contested takeover very difficult, would provide protection against future intruders.

The loss of a major component of Britain’s top index is a blow to the City. It will lead to forced selling from index funds and those with a UK mandate, while the lack of a long-term guarantee that UK holders of the Dutch shares will not be taxed more heavily on their dividends is a real cost to plc shareholders for which there is no compensation.

Although the politics may make it too sensitive to mention in the documentation, it would be naive to suppose that the B-word has not helped to push the board along. Given the indifference of trackers and the pusillaminity of most fund managers, it is likely that the 75 per cent threshold would be reached at the vote next month.

However, a substantial minority cast against would tarnish Paul Polman’s reputation as a successful CEO, although he may feel that hardly matters if on his retirement next year he can boast that he has brought the company home with him.

Sorry, Wonga number

When one gravy train hits the buffers, jump on the next one. Thus, as the money express that is PPI compensation claims finally nears its £40bn terminus, the claims management industry (please don’t call us ambulance chasers) is climbing aboard the dodgy loans business.

This is unlikely to be as lucrative, because the numbers are smaller and the big banks are mostly not involved, but claims for compensation have already driven payday lender Wonga over the brink. The door has been opened to the chasers by Wonga’s fine in 2014 for unfair debt-collection practices, and their telephone tactics are likely to follow the PPI model. Like Tom Lehrer’s Old Dope Pedlar, their claim to be doing well by doing good is not a pretty sight.


Here we go again

If you were wondering where us humans will find work when the robots take over, then stay in your seat at the end of Oli Parker’s fine follow-up to Mama Mia! and stop worrying. The cast of thousands you have just seen on screen is backed up by a similar number off-screen, as the credits roll interminably. Oh, and the few customers still in their seats when they finally finish are rewarded with quite a good joke.



Any chief executive knows what to do when the going gets tough: get together with your nearest competitor. A merger both reduces the competition and allows you to put the bite on your suppliers. This is why the UK has the Competition and Markets Authority, and why mergers which give one company more than 25 per cent of any market are generally not allowed.

So the first rule for wannabe mergerers is to try and define your market share to get below the magic 25 per cent. J Sainsbury and Asda admit that between them they have 31 per cent of the UK grocery market as generally defined. But wait: add Marks & Spencer, Wilko, B&M Bargains and Boots and it shrinks to just 26 per cent according to industry observers Kantar. Thrown in Mr Patel on the corner, and Bingo! your lawyers can argue that the true figure is under 25 per cent.

The pair is now trying to sell this specious maths to the CMA, to disguise Sainsda and Tesco sharing 58 per cent of the largest and most important market in Britain. The scope for this duopoly to beat up suppliers while gouging the customers was quickly demonstrated by the jump in Sainsbury’s share price on news of the deal.

This burst of enthusiasm may be misplaced. Mere size will hardly blunt the impact of Aldi and Lidl, the duo which has upset the comfortable world of the big four grocers, while the history of defensive mergers like this one is not encouraging.

Since Standard Life merged with Aberdeen Asset Management, shares in Staberdeen have wilted, and currently stand close to a six-year low. Since the boards of Janus and Henderson decided that a mere £150bn under management each left them “sub-scale” and merged into Janus Henderson, Andrew Formica, one of the co-CEOs, has gone with a $12m going-away present, while the shares have gone on falling.

As Nicholas Johnson argued persuasively in the FT last week, scale is no protection against the forces of disruption. Staberdeen and Januson have failed to deal with the pressure on investment fees and the rise of tracker funds, while Sainsbury and Asda have yet to find an answer to the Lidldi threat, let alone their next nightmare, the arrival of Amazon in food retailing.

By contrast Asda’s parent, Walmart, is already having to live with Amazon back home. It is fighting back by thinking positively, with same-day delivery and robot-driven click-and-collect. Given the record of the UK competition authorities, the grocers may reckon they can bulldoze this deal through, but today’s CMA might just ignore the smokescreen of store disposals and the specious nonsense about lower prices, to block this dismal defensive merger.

Just an impaired life

They know all about impaired life at Just Group. Shortly after the private equity backers of the two businesses in the group floated them, chancellor George Osborne scrapped the rule requiring compulsory annuity purchases. The impaired prospects for selling annuities to smokers and the chronically ill almost halved the share price to 140p.

The business has since been reset to concentrate on equity release mortgages, but as was discussed here last week, today’s rates look better for the borrowers than they do for the lenders. The Prudential Regulation Authority appears to agree, and last month signalled tougher rules ahead for providers.

Just how tough was spelled out this week by brokers Credit Suisse, calculating that £400m, or half the market capitalisation, might be needed to comply. The shares fell again, to a new low of 92p. An impaired life, indeed.

Cop it

The UK’s copper coins are not only almost worthless, they are hardly even coppers, with only a thin coating on the steel to cover their blushes. For some time, their main use has been to keep shop assistants honest, as customers waited for the change from £1.99, thus ensuring that the sale was legit. Now card transactions and inflation have made even that pointless. As a pair of Bank of England researchers concluded this week, it is time the penny coin went the way of the groat and the farthing. A death sentence for the irritating 2p piece would be little more than a mercy killing, too.



Two seemingly unconnected statistics have surprised us on the beaches this summer. Inheritance tax receipts hit a new high last year, and at £5.2bn have more than doubled in seven years. New home loans fell slightly, but remortgages are rising strongly, especially “lifetime mortgages”, a product that turns a conventional mortgage inside out.

Rather than redeem the loan over time, the borrower pays nothing until he dies or goes ga-ga, at which point the advance and the compounded interest are paid off from the sale of the home. The up-front cash can be used for anything – a world cruise, a matching pair of Lamborghinis, or a pad in Tuscany. It can even be given away to the undeserving offspring, although you need to live another seven years to escape IHT entirely.

Which is where our two statistics connect. For most elderly people, the home is their only significant asset, its value swept to giddy heights by the great house price inflation. They have convinced themselves that this is the result of their hard work rather than luck, which is why chancellor George Osborne paid them a shameless bribe to allow a couple to pass on a £1m home tax-free. Never mind that the first thing their children will do on their death is to sell it.

The lifetime mortgage changes this dynamic. The accruing liability on the mortgage eats away at the probate value, while allowing our elderly homeowner to do something more interesting than run out of money while sitting in a valuable asset.

The vital variable here is the rate of interest, fixed for your lifetime. Only the desperate would pay 7 per cent, where the liability quadruples in 20 years, while 5 per cent doubles in 14 years. Things start getting interesting at under 4 per cent. At 3.58 per cent, the keenest rate today for a 65-year-old man according to brokers Key Solutions, a £100,000 advance becomes just £211,000 after 20 years. Even the UK government has to pay 1.71 per cent for 20 year money.

The past is no guide to the future, as we are constantly told, but a sensible share portfolio is highly likely to produce a long-term return of more than 3.58 per cent, even after tax. Whether the providers of this capital are being prudent enough is another matter, but for anyone seeking to diversify assets away from bricks and mortar and avoid some IHT, a lifetime mortgage now, before interest rates rise, is an opportunity which may not last.


Crystal balls in the oil market

There was hollow laughter in the citadels of Big Oil last week, following a passionate piece in the FT demanding that the companies publish their assumptions about the long-term price of their principal product. A review from fund managers Sarasin concluded that they are being too optimistic, and that permanently lower prices would leave them in big trouble.

Well, who’d have thought it? When we have cheap, abundant renewable energy, the oil age will come to an end, the billions sunk into expensive exploration and production will have to be written off, causing wailing and gnashing of teeth from creditors and shareholders alike.

Except that this is a green fantasy. Big oil has recently proved it can survive a price crash, and even the frontier projects are now budgetted to work financially at less than $40 a barrel, or not much more than half today’s price.

Besides, forecasting oil prices is a mug’s game. Global politics can upset the most sophisticated forecasts from the International Energy Agency and the companies in an instant. If the Sarasinians really believe that the price will collapse, stranding those frontier assets, they can sell the oil stocks in their clients’ portfolios and buy puts on forward crude prices. Best of luck explaining that.

Are Esure this is right?

“Bain & Co is a leading management consultancy with significant insurance expertise in digital and customer-centricity.” Thus Citicorp’s analysts’ reaction to the £1.2bn takeover of Esure, Sir Peter Wood’s insurance company. The business model of car and home insurance companies has been to spend heavily on advertising, offer low initial premiums, and penalise loyalty. Perhaps Bain intends to change all this, applying its “customer-centricity” approach. From a management consultancy? Running private equity?









It’s safe to say that Barclays has not been the most rewarding investment of the new millennium. Once upon a time, the shares cost over £7. They can be picked up today for 190p each. With the Serious Fraud Office now seeking to reinstate criminal charges over the bank’s infamous Qatar fund-raising, and fresh action from local councils over Libor-rigging, only a brave investor would go knife-catching with this stock.

In his brutally frank chairman’s statement with the 2017 accounts, John McFarlane spelled out just where the last six years’ profit had gone: £15.1bn in litigation and conduct charges, £2.4bn in bank levies, £10.1bn in losses from “non-core”, a £2.5bn write-off from the sell down of Barclays Africa. Add in £7.1bn of taxes, and the profits from running the business are just about wiped out.

Mr McFarlane reckons it adds up to £35.6bn. Philip Augar, the City’s premier historian, has entitled his Barclays opus The Bank that Lived a Little. On his arithmetic, the cost of living adds up to £37.2bn over the six years. As Mr McFarlane concludes: “Clearly, shareholders would prefer we declared higher dividends, but it should be remembered over the same period, we paid £5bn in dividends” which the bank failed to earn, as he did not add.

Built to resist a siege

What would it take to shift the two Daves from the top at Hammerson? Their last strategy fell apart in ridicule at the sight of them turning from “irrevocable” support to “withdrawal of recommendation” for the absurd deal to buy Intu Properties. Well, if you don’t like our principles, we have others, and here they are.

They have caught a bad dose of McKinseyitis, in 63 pages of “enhanced strategy”. This Brave New Hammerson wants to flog off the sort of shopping centres that Intu owns. Well, best of luck with that after Intu this week wrote £650m off the value of its portfolio. The Daves also plan a token buyback of shares, to cut capital investment, promise to be more efficient, and to boldly go overseas.

This string of exciting initiatives left the share price almost unmoved, still £1 short of the 635p proposal from Klépierre, and miles away from the company’s Pollyanna 790p estimate of net asset value – apparently unchanged, despite taking a 10 per cent haircut on a couple of small property sales.

The market’s ennui is hardly surprising. The desire for foreign adventures looks like the time-honoured distraction from problems at home. The only idea that betrays some serious thought is the proposal to turn those worn-out shopping centres into flats. With a little imagination, clever architects could make something quite agreeable, relieving a little of the pressure for new homes on greenfield land.

Otherwise, the justification for the rewards to chairman David Tyler (£334,000 last year) and CEO David Atkins (£1,996,000) is hard to discern. And the central puzzle remains: what is Hammerson for, exactly?

A little summer reading

In her deckchair before she takes her seat on the executive committee of troubled accountants KPMG, Mary O’Connor might treat herself some light reading in the form of Bean Counters, a forensic analysis of the business by Private Eye journalist Richard Brooks.

If Ms O’Connor had any delusions about the task facing her, Mr Brooks will surely dispel them. As the number of world-scale accounting firms has shrunk to just four, so their power has grown as they moved seamlessly from dull old auditing into the endlessly profitable world of consulting.

Their particular genius has been to claim the ethical high ground to ward off suggestions about conflicts of interest as consultants. As auditors they have managed to slough off responsibility for financial disasters even when, as in KPMG’s case most recently with Carillion, the disaster has followed within weeks of signing off a clean set of accounts. The inevitable response to failure has been to call in accountants from another big four firm.

KPMG’s woes suggest that the accounting industry’s days of making out like bandits while staying in the shadows may be over. The appointment of Ms O’Connor, lawyer, former regulator at the Financial Services Authority and with a recent background in global risk management suggests that the accountants, at KPMG at least, may have noticed.

Last year’s annual report from Greene King portrayed a business in rude health: record results, further outperformance in view, and a proud boast of a dividend that had grown at 8.6 per cent compound over half a century.

Yet despite this cheer from Britain’s biggest pub company, the shares had drooped to a four-year low. As this column pointed out then, the £774m acquisition of Spirit Pub Co in 2014 had soured the beer, despite the landlord’s protestations.

It has taken another year for the real cost to emerge. Greene King’s management had failed to see that the private equity vendors had (surprise) skimped investment in the pubs. The shares are down a further fifth, and the analysts at Berenberg are calling them a value trap.

In other words, they look very cheap, but Greene King is not generating enough cash to pay down its debt. The brokers conclude: “We struggle to see sense in the business continuing to pay £103m of dividends per annum when it will only generate free cash flow of £50m-60m.”

A cut in the dividend after so long would be a bad blow, but a payout that is not earned is not really a dividend at all. The episode is a sad reminder of how much damage one poorly-judged acquisition can do.

A lesson in how to cook the books

When it comes to accounting sleight-of-hand, no fraudster can hold a candle to the UK government. It’s unlikely that even Enron, high practitioners of the art, could have got away with the financial framework HMG has invented for student loans.

The Office for Budget Responsibility is brutally frank in its latest analysis of this mechanism for turning debt write-offs into positive sums in the national accounts, entitling it “Student loans and fiscal illusions.” The numbers are pretty big: around £100bn, or 4.9 per cent of GNP, yet the real cost is invisible. The House of Lords Economic Affairs Committee last month described the loans as “the pyramid of fiscal illusions in the treatment of student finance.”

Here’s how it works. The loan accrues interest (at RPI plus 3 per cent) which the government counts as income, even though none is received. The inevitable loss of capital (and accrued income) is not accounted for until the loan is written off, decades hence. The 2017/18 cohort, for example, produce an “income” of around £1bn a year until 2050. When the remaining loans are written off, there’s a whacking £25bn charge over the next three years.

This is just for one year’s loans. As the OBR says: “This pyramid of fiscal illusions means that the deficit will always be flattered despite the system…costing significant amounts after the interest cost of financing the loans is included.”

That’s not all. The government has started selling off the loan book, at less than 50 per cent of face value. Conveniently, this is called a “holding loss” which does not affect the deficit. The OBR concludes: “This means that the deficit will be flattered by the build-up of never-to-repaid interest on the loans that are sold, but will never be hit by the write-offs that follow…creating a perverse incentive for the government to sell loans.”

It’s brilliant, really. The more the state lends, the better the books look, with a kicker from the loan sales. The OBR, the Lords and everyone else can complain, but HM Treasury isn’t listening. Why should they?



Put out more flags

Michael Donnelly, an analyst at brokers Panmure Gordon, is concerned about the financial health of Equiniti, the business best known for looking after share registers. He’s found 15 (count ’em) “red flags” ranging from “recurring ‘exceptional charges'” and “collapsing cash generation” to share sales by directors.

His analysis knocked a further 10 per cent off the shares, to 210p, after a terrible year’s performance. He reckons they are worth 163p, about the price the company floated at three years ago.

Sell recommendations are rare, because they are of little interest to non-shareholders, while the company will scour the work for errors. Panmure has pre-empted this by publishing Equiniti’s responses, which are at least more constructive than reaching for the lawyers. Mr Donnelly can hardly expect a Christmas card, but if he concentrates management minds, they should be grateful to him.

This is my FT column from Saturday