Archive for September, 2009

Are the Tories reading this blog?

Posted in Banking on September 14, 2009 by Tom Leatherbarrow


Today’s FT front page story that George Osborne is considering selling a tranche of shares in Lloyds TSB and RBS to retail investors in a re-run of the 1980s privatisations echoes an idea put forward in this blog a few weeks ago (See “What next for the banks?” August 25th) and prompts the question: are the Tories reading this blog for policy ideas?

Whilst I don’t have an answer to that question (if you are could you also consider capping my council tax?) this is certainly populist politics from the party that is probably going to be our next Government and once again leaves Labour trailing in its wake, just as it did over MP’s expenses.

However, there is another good reason to consider a strong retail investor presence on the shareholder register. One of the main reasons behind the deliberate targeting of millions of small investors with the 1980s privatisations was in order to make it more difficult for a future Labour Government to renationalise.

Once they become private companies again our banks will be prey to global M&A activity and the possibility of foreign takeover. My personal view is that it is vitally important we retain a strong banking system populated by British-owned banks, not sub-branches of some enormous global banking institution.

Normally, any predator would only have to persuade a dozen or so institutional investors of the value of a deal but with a strong retail investor presence the logistics of persuading shareholders to accept an offer becomes that much more difficult and high profile within in the media.

At the moment, this is just being floated by Central Office but I suspect it will find its way into the Tory manifesto as Mr Cameron certainly knows a popular policy idea when he sees it.

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Down in Flames

Posted in business on September 11, 2009 by Tom Leatherbarrow


I’ve been reading (selectively, it’s 850 pages) the DTI Report on the demise of MG Rover over lunch. There are some absolute crackers in it which will make for uncomfortable reading across the Midlands today.

There’s the email from a lawyer at a firm not too far away from where I sit, sent on the day after the completion of the deal with BMW. “Congratulations and thanks to everyone for a great job in completing Phoenix within an impossible timetable – even if we don’t know what we have bought or what any of the agreements say!!” So much for due diligence.

Or there’s the fact that one of the Phoenix 4 was having a ‘relationship’ with a Chinese consultant, employed to advise on the Shanghai Automotive partnership, who was paid £1.7 million over 15 months. My mother has a name for that sort of relationship.

Or there’s the lovely little anecdote of an attempt by the Phoenix 4 to pilfer the monies from an escrow account at MG Rover subsidiary, Powertrain, which amounted to a mere £25 million.

Or there is the mysterious transfer of XPart, the parts subsidiary of MG Rover, to Phoenix Venture Holdings for just £2 in 2002. It was later sold to CAT for £31.6 million.

Overall, the impression gained from the report is of four individuals with careers going nowhere (since when does a former Bromsgrove accountant qualify to be a finance director of a volume car firm) who got lucky, saw their chance to make a lot of money and took it. Today’s statement from the Phoenix 4, which attempts to blame the Government for not baling out MG Rover in its death throes, is one of the most blatant attempts to deflect blame I have read in some time.

The real irony is that, with deals like the XPart one, Phoenix asset stripped MG Rover of some of its most valuable business streams, which is of course exactly what Alchemy Partners were accused of planning.

End of the PLC?

Posted in business on September 9, 2009 by Tom Leatherbarrow


Excellent article today in The Times by Charlie Mayfield, Chairman of the John Lewis Partnership, which asks some serious questions about the future of the PLC as the best model for business in the UK. It can be found HERE.

Mayfield characterises the PLC model as being prone to short-termism, elitist, in that it usually excludes the means of production, namely the actual workers, from the ownership structure and only interested in management teams that can deliver double digit growth year on year, or else.

In all honesty, there’s not a lot I can disagree with here. My own time in the City was characterised by deepening disillusionment with the obsession for capital growth over income stocks, the need for “excitement”, which usually meant M&A activity, and an almost total disregard for the retail investor, otherwise known as you and me. All of this led very sound companies offering a good dividend year on year to be downgraded or just plain ignored by analysts with the result that management teams often resorted to desperate M&A activity to engender some interest in their stock. The JD Sports acquisition of First Sport would be a classic case in point, which nearly brought down the entire company.

While I don’t think it’s the end of the PLC, I do think the UK economy could benefit from some diversity. Again, Germany could be a good model, where major companies like BMW, Vaillant, Schaeffler etal remain private, family owned concerns existing alongside the likes of Siemens which is listed in Frankfurt and New York.

Worth a read.

The Pendulum Swings

Posted in Banking on September 4, 2009 by Tom Leatherbarrow


I would like to write a blog about something other than News International or bankers but the opportunities for comment just keep coming thick and fast.

Yesterday’s pre-emptive strike letter, in advance of the G20 summit, from Europe’s Big Three (Brown, Sarkozy and Merkel) which threatens curbs on banker pay and bonuses will have sent a chill through the City of London. Lord Adair Turner, Chairman of the Financial Services Authority and a former banker made similar noises last week but was roundly derided as being out of touch and barking mad, but it now appears that our political leaders are thinking along much the same lines.

Turner suggested that much of our investment bank activities, such as credit derivatives trading, was “socially useless” and “trading for trading’s sake” in order to gain commission, before proposing a version of the Tobin tax to try and curb excess profits and, in turn, bonuses. The City was quick to respond with its usual defences. “If you do this all the equity capital markets activity, derivatives trading and arbitrage will flee to Frankfurt” followed by the inevitable “we make an enormous contribution to the UK economy.”

They clearly had not read Turner’s remarks properly because what he actually proposed was international not solely UK regulation and that is exactly what the Big Three are proposing to the rest of the G20. How will the banker’s respond? Well, if they go ahead with another round of inflated bonuses in a few month’s time you suspect that they will be just making it worse for themselves. On Channel 4 News last night Christine Lagarde (right)the French Finance Minister, was asked by Jon Snow if she thought the bankers would still take the money. “They better hadn’t” was her reply. It’s been a long time since our bankers were talked to like that.

The pendulum has now decisively swung back towards regulation and away from the laissez faire Anglo Saxon approach pioneered by Thatcher, Reagan, Blair and Clinton. The key issue now is whether the Obama Administration will get on board. There will certainly be intense pressure from the likes of Goldman Sachs to repudiate what will be billed as ‘European’ and ‘French inspired’ regulations. The next few weeks should be fascinating.

Murdoch opens a second front

Posted in Media on September 2, 2009 by Tom Leatherbarrow

They’re either very worried at News International or very brazen. James Murdoch’s Media Guardian lecture in Edinburgh which received blanket coverage over the weekend is a second front in the attack on ‘free news’ which his father started last month. It can be found HERE

His usual targets list will come as no surprise to anybody, namely OFCOM and, of course, the BBC who are now accused of ‘dumping’ free journalism onto the market. It feels to me like an attempt to corral the rest of the media industry into supporting the News International payment for content policy which his Dad recently announced. Of course, this can only work if he gets everyone else on side and there is no ‘free news’ for anyone to access – hence the attack on the Beeb. Apparently, similar moves by the major news organisations in the States to produce an industry standard payment policy are also underway, albeit in their early stages.

Couple of points. Firstly, is the idea of different media organisations banding together to invoke a payment-only system anti-competitive? I’d be interested to know what OFCOM think.

Secondly, what do they intend to do about websites such as The Huffington Post which is way out in front of most traditional media outlets in its coverage of American politics, but has virtually no journalistic overhead and a low cost base? (Apparently the journalists all write for free in return for generating their own journalistic ‘brand’ and readership following which then buys their inevitable books).

Overall, I think Murdoch makes some good points, but I can’t help feeling that the big winner if he gets his way will be guess who? That’s right, News International.