There was quite a fuss last week about Mark Wilson, the Aviva CEO who was “let go”, with the usual unhelpful explanations. A couple of poor judgments – trying to bamboozle preference shareholders and joining the board of rival Blackrock – did not help, but both would have been forgiven had the shares not been such a disappointing investment.

From their Scottish fastness, the directors of Aviva’s competitor Standard Life Aberdeen could only be grateful that attention in the sector was elsewhere. For compared to the performance of their pantomime horse, Aviva shares have positively sparkled.

We had expected that the joint CEO roles for Keith Skeoch and Martin Gilbert would soon justify the “Staberdeen” moniker, but the partnership has endured. Unfortunately, the share price has not.

From 420p at the time of the merger last year, it has slumped to 280p, where the yield is a distress-signalling 7.2 per cent. The £11bn combined market value of Standard Life and Aberdeen Asset Management immediately before the merger has turned into £8.5bn today, an impressive destruction of value from a business that specialises in managing money.

There has been plenty of activity: the boring old life assurance business has been sold, while the mandate for managing the £109bn Lloyds Banking investment portfolio has somehow slipped through the joint CEOs’ fingers. Other investors are also taking their money out.

A share buy-back programme launched in August, at prices which would make any self-respecting fund manager blush today, has failed to stop the rot. The blame for this shambles should be shared three ways, and it now appears that Standard Life’s long-serving, ineffectual chairman Gerry Grimstone will be tidying his office (the pastime he lists in Who’s Who) for the last time soon.

As is traditional, a possible successor was leaked to the Sunday Times to see how the name would play. To describe former HSBC chairman Douglas Flint as “a very credible candidate” is something of an understatement. “If he wants it, they should bloody take him” is nearer the mark, from someone close to the process. Next week would not be too soon for him to start.

We’re all doomed (again)

It’s sometimes said that the British economy is like the bumble bee. An examination of its aerodynamics suggests that it can’t fly, yet it does. The bumbling British public sector, reckons the International Monetary Fund, also has almost the worst balance sheet in the world, with liabilities exceeding assets by £2tn, thanks mostly to the cost of rescuing the banks a decade ago.

They are a cheerful lot at the IMF, and this week their dire warning-o-meter was turned up to 11: growth is reliant on increasingly unsustainable policies, and with momentum ebbing away, a cliff edge looms if borrowing costs rise. The forecast for UK growth has been cut back. It could all be pretty grim.

It could indeed, but forecasting is not really the IMF’s forte, while pessimism is. Every growth forecast since 2009 for the UK economy has undershot the actual result, often by a significant margin. The warning of misery ahead is widely reported, but is really no more likely to be right than that of the average bank economist.

It’s not only the IMF which finds misery gets more coverage. In 2007, the WWF estimated that the world had five years to avoid catastrophic climate change. In 2011 the International Energy Agency gave us five years. By last year the United Nations’ tame expert reckoned we had only three. Now the grand-daddy of the doomsters, the Intergovernmental Panel on Climate Change, reckons we have 12 years to mend our sinful ways. At least the trend is encouraging.

Downhill all the way

Yet more demonstrations that the prudent investor should never buy a share until the company has been listed for over a year, because the vendors and their bank salesmen inevitably know much more about prospects than you can. Funding Circle was priced at 440p and is now 382p. Aston Martin is behaving like the financial equivalent of the mythical Rolls-Royce Canardly. The issue price was £19 and is now just over £15, after a brutally forensic analysis from brokers Jefferies, which concludes that having rolled downhill, the Aston price can ‘ardly get up again (sorry).

This is my FT column from Saturday



We rejoice at a sinner that repenteth. The humiliation of the Unilever directors would have been far less had they been paying attention here in April, when their ill-judged “simplification” scheme was first criticised, or here in June with the question for plc shareholders: “Is this proposal really in my interests, or just those of the board?”

The suspicion that Unilever was trying to bounce the plc shareholders into considering this far-reaching move as a routine matter was there from the start, in the original press release, entitled “Building the Unilever of the Future.” After burbling on about how British Unilever’s businesses were, moving head office and domicile to Rotterdam was mentioned, almost casually, in the sixth paragraph.

The response to early criticism of the proposal was similarly dismissive. Fund managers who met the company reported a dialogue of the deaf. What looked to them as a demand that their clients take one for the team was viewed by Unilever as a small minority trying to thwart the best interests of the company.

There was no question of changing the proposal, merely the repeated assertion that a big majority of Unilever plc shareholders were in favour, even though none of the biggest names was endorsing it publicly. The argument focussed on whether New Unilever could be retained in the FTSE100 index, but this always looked something of a red herring. The company lobbied hard to persuade FTSE to bend its rules, even though Newnilever would have been no more a British company than, say Nestle.

The underlying suspicion, which Unilever denies, was that the curious move by a major international business to a secondary financial centre was really a consequence of Brexit and the wish of the board to put the control of the business into Dutch hands. Contested takeovers of Dutch companies are also even harder than they are in London.

However, once the formal “simplification” document was published last month, retreat was always going to become much more difficult. How much more was provided by a single, somewhat ambiguous paragraph in the 120-page document. This revealed that in addition to the 75 per cent majority of shares cast to allow the scheme to proceed, a majority of shareholders voting in favour was needed before the court would approve the capital reorganisation.

In theory, this gave a holder of a single share the same voting power as Blackrock, Unilever’s biggest shareholder. This was a formidable, perhaps insuperable, hurdle, since many individual holders would vote against such a scheme out of sentiment. In practice, few of them would have been able to do so.

Today’s investors hold their shares through platforms or brokers who use nominee accounts for convenience, cost and security. There are thousands of owners of such a widely-held stock, but there may be only one nominee for the platform on the shareholders’ register. Unilever was proposing to treat a single nominee as a single shareholder, making a mockery of the court’s requirement.

This was sure to cause trouble at the shareholders’ meeting had it gone ahead, but at least this episode has highlighted how the convenience of nominee holdings has effectively disenfranchised the majority of individual shareholders. Small shareholders are already an endangered species, and unless the rules are changed, will become even more scarce.

As for the Unilever directors, their lack of proper preparation for an intelligent simplification of the capital structure of the business has been exposed, along with their refusal to respond to outside criticism. They have now saved themselves the embarrassment of seeing their scheme defeated, which would surely have led to departures. They should consider themselves fortunate.

This is my extra FT column from Saturday


If there is one thing worse for a journo than being wrong, it’s being proved right in the interval between writing and publishing. This is my FT column, submitted last Thursday evening, for Saturday. On Friday morning Unilever abandoned its ill-judged plan…

The column that actually appeared will be the next post.


Unilever directors are in a corner, as October 26, the date for the meeting, draws nigh. The list of refuseniks for Unilever’s “simplification” proposal grows steadily, with holders of around 12 per cent of the plc shares now indicating that they will vote against the plan.

Other institutional holders, too shy or feeble to come out, can now shelter behind the advice from pension consultants PIRC that they should follow suit. Even if many of them simply abstain, the proposal requires a 75 per cent majority of votes to pass, so there is a real possibility that it will fail.

The other vote, which requires over 50 per cent of shareholders by number in favour, presents a different problem. Individuals holding shares through platforms and nominee holdings are effectively disenfranchised. Unilever’s shameful response is to suggest we pay up to switch to an old-fashioned paper certificate, presumably switching back again after the vote.

This is nonsense, and typical of the board’s cloth-eared approach to dissent. Revolting plc shareholders are viewed as an irresponsible minority who threaten the interests of the company. Rather than try and understand their concerns, Unilever has merely parroted that the votes will pass. They may still do so, but only at considerable damage to its enviable reputation. Far better to abandon this plan and find a solution that is genuinely in all shareholders’ interests.


Dancing like it’s 2008

History doesn’t repeat, but it does rhyme. Jim Leaviss of Bond Vigilantes has dug out his missives in the months before Lehman imploded in 2008, and found some ominous similarities. The market was obsessing about oil prices, then on their way to $140 a barrel, while the European Central Bank was tightening monetary policy.

All that’s needed for a hat-trick today, says Mr Leaviss, is a “credit accident”, and for good measure, he notes that the biggest difference between then and now is the level of debt. Globally, borrowing by governments and companies is far higher today, which is hardly reassuring.

A default somewhere, anywhere, could be the “credit accident” that triggers a panic. That looks most likely in a developing country with a weak currency. Measured in Turkish lira, for example, the oil price has doubled since March.

Oil traders are betting heavily on supply shortages over the coming months, following plunging output in Venezuela and US sanctions against Iran. As John Kemp at Reuters observes: “The recent rise confirms closely to the traditional boom-bust pattern. Oil prices are not inherently self-stabilising and display strongly non-linear and cyclical behaviour.”

The developed world gets more bang for each buck spent on oil than it did a decade ago, but a spike in prices remains a distinct possibility. It is hard to see how its malign consequences could be avoided.


There are more holes in Labour’s scheme to give shares to employees than there were in the plot of Bodyguard, and among the many raspberries blown at both, the mood was summed up by The Daily Mash: “The scheme would mean that employees now had a personal stake in the success of employers who they constantly cheat and steal from, and has been greeted with widespread revulsion.”

This is satire, as we must point out nowadays for fear of offending someone, but it highlights the essential absurdity of John McDonnell’s proposal to bung £500 to the workers and raise another tax on business. The less entertaining response from the CBI’s Carolyn Fairbairn, suggesting this could “crack the foundations of British business”, merely reflects the authentic voice of the big companies who are mostly cutting jobs, not creating them.

Mr McDonnell’s proposal is more a cry of pain than a policy. In the last decade, as he reminds us, the living standards of the many have barely risen. Meanwhile, the (very) few at the top have shrugged off the impact of the banking crisis and made fortunes.

The impression that there is a revolving door at the top of FTSE companies was reinforced this week by Anglo American’s promotion of Anne Stevens, whose shabby deal at the top of GKN netted her £2.5m for a few weeks’ work. When £1m is little more than a rounding error for CEOs, almost regardless of how well or badly they actually do, resentment is widespread. It is little wonder that proposals like these are popular, however irrational they may be.

Ms Fairbairn agrees with Labour that we all want “to engage and motivate employees, deliver for customers and share prosperity”. It is self-evident that prosperity is being concentrated at the top rather than shared.  If she has any intelligent suggestions to change this, we would like to know.

Life after Brexit? Simple, says Simon

Simon Wolfson tells it like it is. Not for him the pollyanna style of most CEOs, whistling to stay cheerful through grim numbers. The boss of Next lays out everything in an exhaustive and exhausting detail (75 pages this time), the bad news alongside the good.

Along with the results, he offered a forensic analysis of the cost of Brexit to Next, concluding that without a deal, the price of socks would go up by a few pennies. It would be comforting to believe that the UK government had done similar careful work across the economy, but it’s probably wishful thinking since there is no sign of it.

Yet here’s the thing. For all Lord Wolfson’s full and frank disclosure in a sector that is endlessly picked over by analysts, surveys and forecasters, the Next results still managed to surprise, producing a 9 per cent jump in the share price of this £7.5bn company. So much for efficient market theory…

Getting out the vote

No, honestly, we’re not panicking. Everything is on track. We always intended to take full page advertisements pleading for support from shareholders for “simplification”. This is Unilever, of course. Yet as the date for the meeting approaches, things look far from simple. The 75 per cent majority of shares needed for approval is increasingly uncertain, while the bare majority of shareholders in favour needed for the Court meeting that follows is highly problematical.

Only a dwindling minority of shareholders are now on the register in their own name. The rest are in nominee accounts, so is this treated as one shareholder or many? There is no clear answer. Hargreaves Lansdown and Alliance Trust Savings will aggregate the votes of their clients for the 75 per cent vote, but will be a single shareholder for the Court meeting. AJ Bell, by contrast, says it has found a way to allow each holder on its books to be treated as a single shareholder in the Court vote.

Either way, the Unilever directors are finally realising that they have a problem, as the full-page ads and the unconvincing performance from CFO Graeme Pitkethly on the BBC indicate. The fact remains that shareholders in Unilever plc are being invited to take one for the team. They should make sure they can vote to decline to do so.

This is my FT column from Saturday



Your Unilever vote matters after all

You are a small shareholder in Unilever. You do not much care for the corporate flit to The Netherlands, but think that voting your 100 shares against the move is pointless given that there are 1,190,520,545 other shares available to vote.

You are wrong. The “simplification” proposal requires a 75 per cent majority of Unilever plc shares voting for the resolution to pass, and it also needs a majority of voting shareholders to approve. In other words, your holding will count the same as an institutional holding, and if enough small shareholders vote No, the proposal will fail, even if the 75 per cent majority is reached.

This appears to be the key paragraph in the 120 page document: [Simplification is conditional on] “the approval of the UK scheme by a majority in number of plc shareholders, present and voting, whether in person or by proxy, at the plc Court Meeting or any adjournment thereof, representing not less than 75 per cent. in value of the plc shares (including plc shares represented by plc ADSs) that are subject to the UK scheme voted by such shareholders.”

In other words, the votes of real shareholders are important, and may even be crucial. The meeting, on 26 October, promises to be much more interesting than the Unilever directors expected.

Nest egg’s flown to America

The pension fund, so the textbooks explain, allows the long-term savings of today’s workers to be invested in businesses, providing more jobs and generating tomorrow’s profits. The dividends then pay for the pensions of the retired workers.

While most people grasp this, when it comes to where their money goes, few have a clue. The National Employment Savings Trust is the default home for pension contributions under auto-enrolment, and as the minimum contributions ratchet up, the cash is pouring in, over £3bn from nearly 7m members and their employers.

So where’s it gone? To America, every one of the 10 largest holdings in Nest’s flagship fund, with Apple, Microsoft and Amazon the top three. Since these technology giants are widely assumed to be the future, this may seem reasonable on a 40-year view, although they have little to do with providing the UK jobs of tomorrow.

Then there is Exxon Mobil, 7th in Nest’s portfolio, an altogether different prospect. The millennials whose savings are going into Nest claim to be “socially aware” and many have convinced themselves that oil is either evil or over, or both.

Cambridge staff and students, for example, are agitating for the university’s £3.3bn endowment fund to dump its holdings in fossil fuels. Instead, CIO Nick Cavalla and three senior investment managers have dumped them, arguing privately that the protests were making their job impossible.

Investment management is as much art as science, as Richard Oldfield elegantly summarised in his memoir, Simple But Not Easy.  The Cambridge artists had returned 13.8 per cent compound for the five years to June 2017, a performance that would be tough for their successors to match even without the revolting students.

Of course, if Big Oil is really blind to the future that the Cambridge Zero Carbon Society can so clearly see, then the replacement fund managers might decide to throw out BP, a highly liquid share with a solid balance sheet, yielding 5 1/2 per cent on a freshly-raised dividend, for something better. Best of luck finding it

The students and dons may feel better for their virtue signalling, but they are likely to be poorer. Besides, protesting is so much more fun than rational argument.

Tesco Jacks up the ante

The last time two of Tesco’s principal competitors agreed to merge, Britain’s biggest grocer so bamboozled the competition authorities that Morrisons nearly wrecked itself on the shambles that was Safeway. Everyone, it seems, has learned from experience. Tesco has not launched a spoiling counter-bid for Sainsbury or Asda, instead turning its attention to the growing threat from Lidl and Aldi, with this week’s launch of Jack’s, a blatant Lidldi lookalike.

Meanwhile the Competition  and Markets Authority has launched a full review of the Sainsda proposal, and may even be brave enough to stop what looks like a blatantly anti-competitive deal. Whether it works or not, Tesco’s move is a pro-active response. Sainsda, by contrast, looks like a counsel of despair.

This is my FT column from Saturday

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