Archives for category: Uncategorized

A bank called LBGT, oh sorry, CYBG, is considering asking its shareholders what they think of the pay of its top executives. Since everyone knows what the answer would be, only a select band of shareholders is being asked their views.

This band will not include individual shareholders, some of whom have watched their shares sink from 350p to 200p in the last year. Rather, the soundings will be taken among those with clout rather than with their own cash on the line, which of course means the institutional shareholders.

The bank, which is changing its name to the less confusing Virgin Money, is keen to avoid a re-run of last year’s annual meeting, when one-third of the shares were voted against the package for CEO David Duffy, the one shareholders had approved the previous year.

The plan now is to get the big holders onside, doubtless by telling moving tales of how hard it is to get bankers out of bed for the sort of salaries ordinary mortals receive.

It might strike a blow for sanity here to imagine that the shareholders being consulted would insist that a decent salary might be enough without 20 pages of targets and incentives. Fat chance.

The fund managers being consulted are themselves beneficiaries of obese remuneration packages, few of which are subject to public scrutiny. They only vote against excessive pay when the corporate governance police tell them to. They will rubber-stamp Mr Duffy’s bonus plans, and if he puts in a duff performance he will get paid handsomely to go away.

Tax me when I’m dead

Like the Commissioners for the Reduction of the National debt, the Office of Tax Simplification was set up with the opposite in mind. The relentless trend to more complex taxation has gathered pace since George Osborne (him again) set it up in 2010, and no more so than in the sensitive area of inheritance tax.

Now the office has made a valiant attempt to make tax marginally less taxing. Its director, the respected accountant Bill Dodwell, proposes cutting from seven years to five the time that you must survive for a gift to escape IHT. Currently, if you die within three years, the gift remains part of your estate.

Rather like a cut in the top rate of income tax, this would be popular with those who are already affluent. At each end of the wealth scale, there would be no impact, since only about one estate in 20 pays IHT, while with a little effort, the rich can avoid it entirely.

Mr Osborne had added to the complexity by introducing special rules to pass houses on to descendants, even though in most cases the first thing the offspring do is sell the parental home and divvy up the proceeds.

Mr Dodwell has found that the IHT allowances are “confusing and poorly understood”, many with limits unchanged for 30 years, and with some (but not all) Aim-listed companies somehow treated as unlisted, and thus eligible for relief. He is right: there is no doubt that the whole tax is an arbitrary mess. The chances of meaningful reform? Close to a zero rate.

We can all learn from Tim

Whatever you may think of Tim Martin’s views on Brexit, it is clear that he runs Britain’s most successful pub chain, J D Wetherspoon. He devoted most of this week’s update to Why We Must Leave, only adding, almost as an afterthought, that trading expectations for this year remain unchanged, despite a fall in profits in the first half year.

Considering that both Youngs and Greene King admit to finding the going tough, this is rather impressive. The analysts from Barclays think they know why: “Some companies may be tempted to ‘enjoy’ operational gearing benefits from strong sales growth, but Wetherspoon appear relaxed about generating a year of weaker profits  if it is for the long-term good of the business.”

In other words, look after the customers and look after the staff, and it will eventually pay off for the shareholders. Since 2012, most of the company’s profits have been reinvested in the business, and Wetherspoon shares have multiplied by 3.7 times. Perhaps more companies might try copying this novel approach.

This is the unBowdlerised version of my FT column from Saturday



Harder than it looks, this banking business. The big ones may be ugly, inefficient and often venal organisations, but taking them on in the lending game is proving much more difficult than investors assumed when they rushed in last year.

Now it is the turn of Funding Circle to come out with its hands up. Fewer businesses want its loans, and we’re toughening lending criteria anyway, so there. Oh, and Brexit, which a few weeks ago was considered almost irrelevant, turns out to matter after all. Who knew? The shares, sold for 440p apiece last September, have shrivelled to 130p.

This is an increasingly familiar descent from hype to reality. Metro Bank was caught classifying loans as less risky than the rules dictated. The shares have slumped from £21 in January to today’s 560p, despite a £120m bung from the British taxpayer. Expansion plans which relied on cheap capital now look hopelessly optimistic.

Shares in Amigo Holdings, the lender that lets your credit-worthy mate wear the risk for you (and still charges nearly 50 per cent interest) are down by a third in a month. As for the late and unlamented Lendy, such an irritating name was inviting trouble.

These companies, and their fellow “challenger” banks all claimed to be serving various classes of borrower better than the big boys, dazzling investors with tales of how technology would magic away the costs as they disrupted the market. There was more than a hint of hubris in each one, suggesting that they were somehow able to do well by doing good, like Tom Lehrer’s Old Dope Pedlar.

The big banks are far from perfect, and their treatment of small business borrowers, in particular, is often somewhere between indifference and contempt, rather than trying to support tomorrow’s wealth generators. The challengers are needed to fill in the gaps, but they are finding out that anyone can lend money. Getting it back is rather harder.

That overpriced motor, again

You can hardly blame the vendors of Aston Martin Lagonda for trying to maximise the price for last September’s public offering, even if it meant sidelining the best analysts in the sector, thanks to their banks being involved.

The company had been a serial financial failure, the accounts showed capitalised spending on an heroic scale, and governance was not exactly textbook. Despite uncomfortably high debts, all the proceeds went to the existing shareholders. The £19 flotation price (itself cut from earlier estimates) has never been seen again.

The real puzzle is why so many supposedly savvy investors were prepared to pay up. Invesco and Baillie Gifford were at the top of a long list of managers happy to commit other people’s capital to what was clearly the wrong price for a second-hand motor.

Now, with nearly half the value gone in nine months, the company’s controlling shareholder has decided to buy a few back at £10 a share. Of course, it has been a pretty miserable year for all investors in the motor trade, as the scale of capital spending needed for electric cars becomes apparent, but it cannot be much fun for  the fund managers to be so forcibly reminded of their elementary blunder last autumn.

Not another job for George

Nobody can accuse George Osborne of having low self-esteem. The man who gave us Help to Buy Builders Yachts, successfully stalled the London housing market by meddling with stamp duty, made tax more taxing and was summarily fired as chancellor by Theresa May, now fancies a crack at running the International Monetary Fund.

He might have to give up one of his other jobs to fit it in, but perhaps he is bored with the title of editor of London’s free newspaper. Across town, the IMF job will also look attractive to the governor of the Bank of England. Mark Carney’s extended term ends in December, and before this week’s surprise selection of Christine Lagarde to run the European Central Bank, there seemed no place for him to go.

The IMF job is sufficiently prestigious for all but the biggest egos, and the opening is a demonstration of the old adage that when one door shuts, another one slams in your face.

This is my FT column from Saturday




The headlines are grim. The motor trade is gasping for air, foreign investment into the UK is plunging, the shops are struggling, nobody is buying London offices, and there are a couple of nasty little liquidity crises at Woodford (equities) and H2O (bonds).

You cannot get more than 1.5 per cent lending to the UK government no matter how long you are prepared to tie up your money. Index-linked stocks are only available at a guaranteed loss in real terms, giving a fresh meaning to the term protection money.

A recession, surely, is just around the corner. Yet those forward indicators of trouble, the price of shares, seem oblivious. The FTSE all-share index is only 9 per cent short of its peak, and has recovered strongly since last December’s panic.

The historic yield of 4.14 per cent may overstate the forward return, given the clutch of big names like BT, Vodafone, and Centrica which have been paying more than they can afford, but the boost from lower sterling will compensate for at least some of the cuts. The Brexit effect has beaten down ratings compared to other equity markets.

The yield comparison with government bonds is stark, and probably not much help, since the bonds’ usefulness as an indicator of conditions has been destroyed by a decade of central banks’ quantitative easing. Meanwhile, the private equity specialists, with billions to invest, are finding finding plenty of value in the UK’s public markets, helped by a currency that looks too cheap. When words and figures do not agree, it is advisable to trust the figures. For all the doom’n’gloom, the figures for British stocks look really quite good.


Nobody’s in charge of the printing press

This is “an orderly succession process” at De La Rue, banknote and security printers: last month the CEO quit with a profit warning, and now we learn that the chairman is going, along with the senior independent director. To be fair, they are all hanging around until their replacements have been found, but it does rather beg the question of what a disorderly succession process might look like.

It would also be less concerning had the shares not fallen by two-thirds in six years. The succession process may be orderly, but other processes are not, as a bad-tempered results call last month demonstrated. This was of a piece with the petulant reaction last year to losing the contract to print new blue post-Brexit passports – not a good look for a company wanting to print for other countries.

The latest setback is the failure of Venezuela to pay its currency printing bill, prompting wags to urge the company to run off a few extra bolivars – rather as the Venezuelan government is already doing.

For De la Rue, the prospect is for more disruption. Banknote printing has turned into a commodity business, and just when it looked as though printing clever, fake-proof, hologrammed documents was a promising way forward, along comes the e-ticket to threaten the whole idea of anything physical.

The company is reorganising, and how. It needs a chairman, CEO and a pair of non-executive directors. There will surely never be a better moment to launch a bid for the business.

Who’s the guv’nor (part II)

The Queen appoints the governor of the Bank of England, on the advice of the prime minister. Unlike many other government appointments, this one requires time to learn how to do it, and with Mark Carney due to go at the end of the year, time is getting short.

That, though, is the least of it. Should Theresa May put forward a name to the Queen next week, she might be reminded how short her remaining tenure is, and surely this is better left for the new PM? Well, obviously, but the problem then becomes: Who wants the job?

The chances of a swift general election and a Corbyn government with John McDonnell pulling the economics strings have not diminished.  Perhaps the best hope for conventional applicants is to risk getting fired (with a payoff) for a left-leaning replacement. Either that, or Mr Carney gets yet another extension. After all, he has nowhere obvious to go next year.

This is my FT column from Saturday

Andrew Bailey is the bookies’ favourite to take over from Mark Carney as governor of the Bank of England. After spending most of his career there before becoming chief executive of the Financial Conduct Authority three years ago, he is almost the inside candidate.

But, oh dear, the FCA on his watch is beginning to look too accident-prone for his promotion. Last week he wrote a rambling eight-page letter to Nicky Morgan, who chairs the treasury committee, in response to her enquiry into the FCA’s handling of the Woodford affair. At the end of a treatise on open-ended funds, he concludes that he has started an investigation and “cannot comment any further.”

Woodford is a knotty problem, but it is only the latest to show the FCA in a poor light. It failed to stop the scam at London Capital & Finance until it had sucked in £236m of investors’ money, much of which is now gone. Its report into the the GRG scandal at Royal Bank of Scotland, which found that nobody was to blame, is a scandal in itself.

On pension transfers, the financial advisers it is supposed to regulate are clearly gaming the system. Its own survey has found that nearly 70 per cent of those seeking advice on their defined benefit pensions had been advised to transfer out, despite it being unsuitable for the vast majority of customers.

Like the other scandals, this has provoked hand-wringing at the FCA. We might even get another investigation. What we should not get is promotion for the CEO. That would look like a reward for failure.

A landlord’s lament

The British love property. For many of those who own their home, their first instinct on having money to invest is to buy another, or failing that, to buy into a property fund. That instinct has served us well, but the cracks are now starting to show.

The central pillar that has underpinned retail property is the upwards only rent review. This device reassured long-term lenders because the rent could never fall, while the tenant could not escape the lease liability and was forced to bear the pain in a downturn.

This supposedly fireproof structure has been cracked open by the company voluntary arrangement. Originally designed as an alternative to liquidation, the CVA is a violent rebalancing of power between landlord and tenant. The brutal scheme that Philip Green successfully imposed on the landlords of Arcadia indicates that the CVA is now an established device to force cuts in rents.

Nowhere is this more apparent than in the crumbling share prices of Intu and Hammerson, the ugly sisters of the quoted property world. The market does not believe the book value of their assets, and fears that covenant breaches on their debts are coming.

Share prices, as always, are forward indicators. Investors in open-ended property funds, another manifestation of the British faith in real estate, have yet to feel the force of the ecommerce earthquake. When they do, they may find the exits are crowded or even, as with the Woodford funds in a different context, as closed as the shops on the high street.

Fly me to the moon

You have to be impressed at Heathow’s vision of a virtual runway on a fantasy airport, beautifully presented in four phases, all the way out to 2050. In the history of Heathrow’s expansion, 31 years is merely a minor delay in take-off, and like Theresa May’s zero carbon time bomb for the same date, is for future generations to execute.

Unlike her fantasy, the Heathrow version has been carefully planned, with four stages (a new runway over the M25 in under seven years!) and lots of pretty pictures in the presentation. There is rather less detail about actually paying for the £30bn project. The aspiration to keep landing charges anywhere near today’s chart-topping price looks like an early casualty.

We are world class at design and consulting, and the City is always gagging to invent lucrative ways to finance vanity projects. The actual construction, not so much. Think Carillion, Galliford Try, Kier…Perhaps it is just as well that Heathrow’s third runway remains a fantasy.

This is my FT column from Saturday



Liquidity: always there, except when you need it. This could be the unwritten motto of the fund management industry, unwritten lest it scare the horses so much that the punters keep their money wasting away in the bank.

Until last month, most savers had more interesting things to do than try and grasp the difference between an open-ended investment fund and a closed-ended investment trust. Now they know that an open-ended fund may be closed without notice, while a closed-ended trust remains open, even if you don’t much like the price you are offered.

The combination of Companies Act discipline under an independent board of directors, lower fees and votes for shareholders should give trusts an unassailable competitive advantage over funds. Yet the funds have run away with the money, with £1.2tn under management today against the trusts’ £180bn, thanks to the incentive of higher fees to the managers and their intermediaries, and widespread ignorance about buying shares.

The argument in favour of funds, that they allow investment or withdrawal of large sums without moving the price, has backfired dramatically, with the Woodford affair exposing the illusion of their liquidity. His woes were compounded by the difficulty of establishing a value for the underlying investments, and hence the right price for units in the fund.

This is a potentially lethal combination, which will drive more investors into trackers, those funds which buy after a share price has gone up, and sell when it has fallen. It is not a pretty prospect.

Water companies: brown not green

The English water companies have a problem. They have tested the limits of privatisation, and found them to be a rather murky, unhealthy colour. They have squandered their “green dowry”, extracting equity capital and replacing it with £51bn of debt, while pouring brown stuff into Britain’s rivers. Hence the popular support for Labour’s policy of renationalisation at a price which reflects bad behaviour rather than current share values.

The failings are not universal, but as an FT analysis showed starkly last week, they are widespread, with Thames Water the principal villain of the piece. More accurately, it is those previous owners who extracted the cash, and the new management has at least signalled that some will have to be put back, with its three-year suspension of dividends.

This has to be just the start. Talking about the billions invested rather than extracted will not wash when more water is lost in leaks than is used by domestic customers. The humdrum business of fixing the industry’s 17,684 licensed emergency sewer overflows so they overflow only in real emergencies is a better investment than the showpiece Thames super-sewer, which the Thames Water balance sheet is now too weak to finance.

Unless the water companies can convince us that past behaviour is no guide to future performance, increasing environmental awareness will force much harsher regulations, even without a Labour government.

Where are the customers’ yachts?

Help to Buy was George Osborne’s economically illiterate policy response as chancellor to a supply shortage in housing. Predictably, the boost to supply was overwhelmed by the surge in demand, allowing builders to raise prices, in some cases by enough to double the profit margins of the industry’s oligopoly.

Now the National Audit Office has found that 63 per cent of the buyers could have managed without the government bung. Given the builders’ admission that buyers using HTB paid a premium over other purchasers of similar houses, that figure is probably an underestimate.

This scheme is the crack cocaine of the housing market. Each time it has been due to end, the government has flunked going cold turkey, with the latest extension pushing it out to 2023, by which time £25bn will have been lent. In theory, the state should get the money back as the properties are remortgaged, but as the NAO delicately puts it, there is “significant market risk” of negative equity, in addition to the opportunity cost of tying up that £25bn.

Of the crowd-pleasing and damaging economic policy choices in the treasury under Mr Osborne, few were as obviously misguided as this one: Help to Buy Builders’ Yachts indeed.

I am a director of Finsbury Growth & Income Trust. This is my FT column from Saturday



Here are some numbers: 52, 90, 125. They are the totals, in billions of dollars, from Royal Dutch Shell’s strategy update last week, of the dividends and buybacks that the company has paid and expects to pay in each five year period up to 2025. The market greeted this extraordinary forecast with indifference.

Oil companies are almost as unfashionable as tobacco, as growing environmental hysteria is increasing pressure on funds to dump them. As a result, their share prices are under pressure, and Shell yields about 6 per cent on a (dollar) dividend which the CEO says he intends to raise.

You would hardly notice it from the excitement about renewable energy, but oil powers the world’s economy and will continue to do so well beyond 2025. Globally, it matters not whether Theresa May’s last act is to indulge the fantasies of the Committee on Climate Change and saddle Britain with an obligation to hit net zero carbon emissions by 2050.

It matters hugely for the UK. In a rare burst of honesty on this subject this week, Philip Hammond released some shocking treasury calculations. To hit the zero target would cost £1tn, forcing cuts in health and education spending while wiping out swathes of British industry.

The UK already has an impossible obligation in the shape of the Climate Change Act. Mr Hammond points out that we are not on track to meet that, adding that an “ambitious policy response” is needed for the 2050 target to have any credibility. He is too polite, or nervous, to say that the policy would have to persuade us to become poorer in the belief that we were saving the planet.

In fact, what the UK does makes almost no difference to global CO2 emissions, or to the price of oil. Shell’s ambitious new targets are based on $60 a barrel, but forecasting the oil price is a game to make experts look foolish. There will be dramatic swings between glut and shortage, but you can be (reasonably) sure of Shell (dividend).


Saving them from themselves

It is hard to blame the customers of London Capital & Finance for reaching for their lawyers to try and retrieve the £236m they invested with the collapsed firm. The returns being offered by the “mini-bonds” looked too good to be true. Sure enough, they were, but now, as is the modern way, someone other than the 11,500 greedy buyers must be found to pay the bill.

Their most promising avenue is the Financial Services Compensation Scheme, which this week decided it had found a possible route to force the rest of the financial services industry to cough up. Backpedalling from its original view that the bonds fell outside the scheme, it now says: “One increasingly important aspect is the need to consider the different ways investors dealt with the firm”.

This is the legal equivalent of “more research is needed”, and the bills will quickly mount. There are shades, here, of Barlow Clowes, a fraudulent firm which also collapsed after claiming to produce a high return from low-risk investments. In his diaries Alan Clark recalled Margaret Thatcher agonising over whether to compensate the investors.

“Yes,” he said. “They were greedy but small. It’s the big greedy ones who should be punished.” It’s likely that LCF investors will eventually be bailed out, after expensive legal shot and shell from both sides. If as much effort was put into bringing the firm’s promoters to justice, there would be less chance of the next scandal occurring.

John in Wonderland

John McDonnell, Labour’s soft-voiced executioner, admitted to The Times last week that he sometimes cries. He is not shedding tears for the owners of Britain’s privatised utilities, which he would repurchase at a knock-down price should he be given the chance.

His eyes will not moisten at the thought of those earning over £80,000 paying more income tax, nor for shareholders facing the prospect of seeing a tythe of their property gradually confiscated by the state. Unlike his boss, he is deadly serious, and can overcome his lachrymose tendency:

.“‘I weep for you,’ the walrus said./ ‘I deeply sympathise.’/

With sobs and tears he sorted out/Those of the largest size.”

This is my FT column from Saturday

If they are apart, then weld them together. If they are together, split them apart. Another gut-wrenching U-turn is in prospect at Aviva, as the new CEO presents his strategy to investors in the perennially-disappointing insurance company.

Maurice Tulloch’s wizard wheeze is to split the business into life and non-life, reversing the attempt of his predecessor to  persuade the disparate parts of the empire to work together. Neither strategy has done anything for the shares, now at a price they first reached over a quarter of a century ago, about when Mr Tulloch joined.

As an insider, he should know where the bodies are buried. As an appointment, the absence of forward planning was painfully exposed in the five month gap after Mark Wilson was axed. As a business, Aviva seems impervious to any attempt to improve it.

The blame lies with the directors, as stockbroker Philip Meadowcroft, that thorn in their side, pointed out again at last week’s annual meeting. The competition has made serious money out of home and motor insurance – Peter Wood made two fortunes with Direct Line and Esure – by taking Aviva’s lunch. Its life assurance side has proved beyond reasonable doubt that ramming life offices together is a sure-fire way to destroy value.

While Aviva’s two sides have little in common, the solvency rules exact a penalty which could swamp any gains should Mr Tulloch want to separate them completely. Yet it surely cannot be as bad a business as chairman Adrian Montague (six years on the board) and senior independent director Glyn Barker (seven years) make it look.

Sir Adrian has many other commitments. Mr Barker may have more time now that Interserve, the company he chaired, has failed, but he remains chairman of solicitors Irwin Mitchell, prosecutors of whiplash claims. Mr Meadowcroft’s question about conflict of interest last week remained unanswered.

Pulling Aviva from its slough of despond is going to need more than a promoted lifer as CEO. It needs a board which can find a strategy in two businesses, savings and insurance, which are not going to disappear. It has not got one now.

Still melting down

If you go down to your local shopping centre today, you’re sure of a big surprise: empty shops. The pain being felt by the tenants is spreading, as the seemingly fireproof upwards-only rent review is being consumed by the advance of the Company Voluntary Arrangement.

The CVA spells falling revenue and a less predictable future. Buyers demand a higher yield from this smaller income, with a double impact on capital values. Nowhere is this more acute than for shareholders in Hammerson and Intu, the unlovely twins of the malls, as their share prices shrink. No names from Marcus Phayre-Mudge, BMO’s head of property, but he blames “the almost universal poor balance sheet management from listed companies.”

It could get worse. Two US private equity groups have admitted that they are in breach of their loan covenants on UK shopping centres, while Philip Green’s Arcadia is trying to strong-arm landlords into cutting rents to keep at least some of his stores open.

As always, there are investors looking for the bottom of the market, and some believe that a deal with Arcadia would ring the bell. Property is so embedded in the British psyche that they could be right, but on every sensible yardstick there are too many shops for the internet age, and some spectacular collapses are likely before a new balance emerges.

In paper money we trust

Something for an incoming Corbyn government worried about capital flight: declare that holding foreign currency is a grave sin. This policy is getting a run in Pakistan, where the currency is sagging under the weight of a balance of payments crisis.

Maulana Tahir Ashrafi, head of the Pakistan Ulema Council, a network of Sunni Muslim clerics, describes those who keep their savings in dollars rather than rupees as sinful, and has declared a fatwa against the “hoarders.” All paper currency is a matter of faith, but in man rather than God. Unlike religion, it is relative rather than absolute.

This is my FT column from Saturday