Archive for the business Category

Speak for England, Margaret!

Posted in Banking, business, Politics with tags , , , on March 12, 2015 by Tom Leatherbarrow

Public Accounts Committee chair Margaret HodgeMargaret Hodge has been accused of being rude. She was. Margaret Hodge has been accused of being bullying. Possibly. Margaret Hodge has been accused of losing her rag. Definitely, and I envy her.

In an age of carefully choreographed media appearances, this week’s grilling of HSBC bosses at the Public Accounts Committee translated into a tour-de-force performance by its chair, the Labour MP for Dagenham.

If you haven’t seen Rona Fairhead, chair of the audit committee at HSBC, squirm when asked why she hadn’t quite grasped the fact that the bank’s Swiss business might, just might, possibly, potentially, be used for tax evasion, you can watch it here.

As Simon Jenkins comments in today’s Guardian, even a child knows that Switzerland is a tax haven. Apparently this little fact had escaped Rona.

Why do I envy Margaret Hodge? Because I recently closed down two HSBC accounts. I’d had enough of the money laundering, manipulation of LIBOR, playing around in the North American Mezzanine Credit Default Swap market, bonuses – I could go on but you get the point.

I marched into my local branch in Bromsgrove intent on giving the stuffed shirt who runs the place a piece of my mind when he, surely, would  ask me why I was deserting the sinking ship?

Only he didn’t ask. He directed me to a chair and then went off to check whether I had any money in either of the accounts or whether my salary was paid into them. I know this because I got out of my chair and looked over his shoulder.

When he found out that my salary was paid into another bank, he didn’t bother asking. He just turned on his heels leaving me with a colleague to cut up my cards.

So, I never got my Margaret Hodge moment and to add insult to injury a week later I got an automatically generated postcard from Head Office which said “It’s sad to say goodbye”.

No it wasn’t and well done Margaret.

New Troubleshooter is a welcome antidote to The Apprentice

Posted in business on April 11, 2014 by Tom Leatherbarrow

New Troubleshooter

At last a watchable programme about business.

Last night’s New Troubleshooter with Lord Digby Jones shooting from the hip was the best bit of business TV since … umm … well the last Troubleshooter series in the mid-1980s probably!

Now admittedly the standard isn’t high. Leader of the pack in recent years has been The Apprentice which portrays business as some sort of primeval, dog eat dog, survival of the fittest examination, involving haring round London in Black Cabs and performing idiotic tasks at Waterloo Station.

If these people are, to use the late David Halberstam’s phrase coined for the whizz-kids of the Kennedy Administration, the ‘Best and the Brightest’, then we really are in trouble.

Instead, last night, we had talk of balance sheets, cash statements and working capital. Sounds boring? Well actually, it was quite compelling.

When His Lordship asked the young Finance Controller for the cash flow implications of increasing the stock levels in the business and the poor chap had to admit that he didn’t have a clue, my wife shifted uncomfortably in her seat. The attempts at convincing the MD of the need for some demand forecasting had me rolling my eyes.

I’m old enough to remember the original Troubleshooter with the late Sir John Harvey Jones, former CEO of ICI. He too proved that business can make good television.

I vividly remember him walking into the stockroom of a small brewery which was jammed to the rafters with bottles of beer.

“What’s going on?” he asked. The MD looked to the floor. “We’ve not been able to sell it at current prices,” he admitted.

Sir John turned to him and said: “Sell it for whatever you can get. You need to turn this lot into cash. When I next come in here I want to see this place empty.” That’s where I first learned that lack of cash can pull a business under just as quickly as lack of sales.

Last night wasn’t perfect. I’d liked to have found out whether the company did ever produce a forecast and the results of their intellectual property application in regard to their new branding.

But, it was a much-needed start. Let’s hope the BBC sees fit to commission a second series

NSA leaks could put a slow burn under Silicon Valley business plans

Posted in business, Politics with tags , , , on July 15, 2013 by Tom Leatherbarrow

facebook_google_apple_logosYou could be excused for struggling to keep up with NSA leaks story which has been running for the past month or so.

If, like me, you are only now catching up with this, here is the story so far in a very abridged form. Edward Snowden the former US National Security Agency operative has revealed to the world that the NSA has been collecting, in bulk, meta data from search providers such as Google and Yahoo and also Facebook, Hotmail and anything else they can get their hands on, from Americans and non-Americans for years.

We also know, courtesy of the Guardian, that Skype has been compromised as has Outlook, whose encryption was unlocked even before official launch. The scale of the operation is staggering and is global – the French and Germans in particular are furious.

How have they got away with this? That is a good question, particularly in light of the Fourth Amendment to the Constitution which asserts the rights of people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizure.

Whilst the Founding Fathers may not have had the internet as a primary focus of their concerns for individual liberty it is clear that, in the modern world, search and seizure of information has as much to do with meta data as it does with paper.

The diplomatic implications are enormous, as are the potential implications for the big technology companies like Microsoft and Google who have been handing over the information (although they claim it has been under duress).

Web users are fickle and can quickly switch their allegiances to new social media or search providers with the click of a button. In fact, we might already have a clue to what the ‘Silent Majority’ of web users think of the ‘co-operation’ that has been offered to the NSA.

Zero tracking site DuckDuckGo for example, which pledges not to track or store data about its users went from serving 1.7 million searches per day at the start of June to three million within a fortnight.

The nightmare for the big players, Google in particular, is that the revelations accelerate the fragmentation of search which is already occurring in the States. The April 2013 ComScore results suggest Google lost 0.6% market share during the previous year to its rivals, which may not sound like a lot, but does demonstrate a clear trend and could potentially be worth billions in lost revenue.

It is too early to say what long-term effect these leaks will have on web users but, if the future is zero tracking, there are a lot of technology companies out there that will have to radically rethink their business plans.

Tumblr: Yahoo paid how much?

Posted in business with tags , on May 30, 2013 by Tom Leatherbarrow

yahoo-tumblr_2565560bI’ve had a little bit of time this morning to sit down and actually analyse the Yahoo deal for Tumblr which was announced last week.

I warn you, if you are expecting enlightenment on whether Tumblr can re-energise the Yahoo brand you need to go elsewhere. I haven’t a clue.

Equally, if you want my pearls of wisdom on the Tumblr demographic and whether it can deliver a younger generation to an ageing Yahoo customer base – you need to move along.

Same with online advertising and whether Tumblr will lose its followers if Yahoo tries to bombard them with ad’s. Please ask someone else, preferably someone from the WPR digital team.

However, I am qualified to examine the financials and they are eye-watering.  For a paltry $13 million revenue (that’s revenue not profit) Yahoo have paid $1.1 billion.  That is a multiple of 84 times revenue!

The move has been described as a “bold bet” by Yahoo Chief Executive Marissa Mayer.  Well yes that is one way of describing it, another would be lunacy.

Talk about betting the farm, Marissa has bet the tractor, the animals and re-mortgaged her parents’ home along with it.

What has been clear from the Tech’ Boom onwards, of which I was a part (where are you now, is that these companies are incredibly difficult to put a price on. Buyers are buying potential which, all too often, fails to materialise.

Martin Sorrell describes the digital age as anarchy. He’s right and this deal looks like a desperate act to try and bring order to an anarchic world, which ultimately will fail.

PS: I have spoken to those in the know on our digital team and they tell me that there is a good case for saying that Tumblr has had its day (already)! One fears that this isn’t going to end well for Marissa.

Oil price fixing: the real story is the impact on business

Posted in business with tags , , , , on May 17, 2013 by Tom Leatherbarrow

Price at the pump

The news that both Shell and BP were raided earlier this week in a price fixing probe has been greeted with hysterical headlines about the cost to consumers. The Daily Mirror screaming “They’re bleeding us dry” probably being the best example from yesterday’s front pages.

However, the ‘price at the pump’ is something of a distraction in this case. Yes, motorists have had their pockets picked, but I doubt that price fixing has had a dramatic impact on consumer behaviour.

Ten years ago I was doing 30,000 miles a year at 80p a litre, but my behaviour has not changed now that the price has risen to £1.40 a litre. I’m still doing the same sort of mileage.

All of this could lead the oil companies to argue, if any case comes to court, that this is a victimless crime. They’d be wrong.

The real issue here is potentially the impact on business. Let’s take the road haulage industry for example. Typically, the industry operates on very slim margins, in fact I remember one former client of mine existing on an operating margin of circa 2-2.5%.

That leaves no room for error let alone coping with the potential effects of price fixing. What’s more, all too often at least a portion of any increase in fuel prices cannot be passed onto customers – it just has to be absorbed.

And that’s just one example. What about courier companies, service industries with large car fleets and even your average white van man. The damage to business if this is proven is incalculable.

Of course this absorbing of cost increases by business has a knock on effect on wages and investment. I’ve seen figures this week which suggest that new product development is at historic lows in the UK. Real incomes for employees have not risen in ten years.

I was genuinely shocked at the rigging of LIBOR in London, the benchmark interest rate from which all other interest rates, globally, are taken. I don’t know whether I’m just becoming punch drunk from all of this but the news of the oil price fixing didn’t hit me in the same way.

The truth of the matter is, the pendulum has to be swung back towards greater regulation which might help “real businesses that actually make stuff” as one former Chief Executive client of mine told me a while ago.

The best way to start is for the Serious Fraud Office to prosecute some people.

You can’t prove anything with statistics!

Posted in business with tags , , on March 15, 2013 by Tom Leatherbarrow

manufacturingThe Office for National Statistics manufacturing figures released earlier this week make for dire reading, but I wonder whether there are others in the UK’s manufacturing base who are as confused as I am.

I am not for one moment saying it is easy out there, but the 1.5 per cent drop in output paints a picture of doom and gloom above and beyond what I am seeing and hearing.

Traditionally, with a drop of that magnitude the smaller players are the ones to suffer first.  But whenever I have been to visit smaller engineering subcontractors in recent months the usual response to my question about business conditions has been “busier than ever” or “flat out”.

Bigger manufacturers are going equally as well and in conversation a senior manager at one last week it was clear that frustration with the statistical acronyms, be it ONS, EEF or CBI is close to boiling over.

In fact, he made a very interesting point, namely that his sales performance used to closely track the Purchasing Manager’s Index (PMI), but that in recent years there has been a noticeable divergence.  In other words, as the PMI has gone south his sales performance has been remarkably robust.

Why is this?  I’m no statistician, but I do wonder whether the official statistics are at the same time too generic and too heavily weighted towards manufacturers supplying under-performing sectors, like construction, and insufficiently weighted towards high growth sectors like aerospace.

Perhaps, in the same way that champagne has been dropped from the Retail Price Index, one or two of the more glass half-empty purchasing managers need to be shunted off into retirement.

So the banks won’t lend, is it time to nationalise?

Posted in Banking, business with tags , , , on March 5, 2013 by Tom Leatherbarrow

Bank lendingYesterday’s figures from the Bank of England about UK bank lending to business are shocking.

In the final quarter of 2012, despite a new government scheme, called the Funding for Lending Scheme which has given them £14 billion to encourage loans, our banks have actually managed to lend less than before.

In other words, the scheme had the opposite effect to what was intended and British business remains starved of investment cash.

Chief culprits are, incredibly, the state-owned banks, namely RBS and Lloyds HBOS.  Lloyds, which is 40%-owned by the taxpayer, cut back its lending by more than £3bn during the last quarter of 2012.  RBS reduced lending by £1.6bn.

Where has the money gone?  To rebuild bank balance sheets decimated over four years ago at the height of the financial crisis is the answer.

We have now had the sight of two successive Chancellors of the Exchequer (Darling and Osborne) and a Business Secretary (Cable) imploring our banks to lend to business.  All appeals fall on deaf ears.

What is the answer?  As Lord Lawson of Blaby, former Conservative Chancellor of the Exchequer, said recently in an article in the FT, the way forward would appear to be to turn RBS into a national business bank of the type that has been running in Germany for years.

Should we be worried about bankers voting with their feet and going abroad chasing their bonuses which would be lost with nationalisation?  Not according to Lord Lawson.  “These are not particularly impressive individuals,” he said of young bankers in the City.  ”They’re all of them easily replaced, particularly in today’s labour market.”

Amen to that!

When it comes to financial credibility, the joke is on the ratings agencies!

Posted in business with tags , , , , , , on February 26, 2013 by Tom Leatherbarrow

Ratings agenciesThe extraordinary thing about the loss of our ‘cherished’ AAA credit rating is not that the Chancellor hitched his economic credibility to it in the first place.  Actually, that is fairly incredible but it isn’t the most incredible.

Neither is the most incredible thing the fact that acres and acres of newsprint have been devoted to this ‘disaster’.  Nor is it the fact that almost everybody (including Ed Balls), quietly agrees that it is not going to make a blind bit of difference to our ability to raise money in the capital markets.

No, the most incredible thing is that anybody is even remotely listening to Moody’s in the first place or for that matter their competitors namely Standards & Poors and Fitch’s.

In fact, when I heard that the AAA rating had been removed I laughed!

Why?  Because the main culprits for the financial meltdown in 2008 are as follows.  Firstly the global investment banks who played Russian roulette with the weapons of mass destruction now known as CDOs (credit default obligations).

Secondly, the major accountancy firms who declared the investment banks to be solvent, despite the fact that they had no way of knowing the potential liabilities of banks holding the CDOs.

Thirdly, the politicians who with a combination of either light touch regulation or total disregard for regulatory norms let the banks run amok.

Finally, the credit ratings agencies who gave credibility to the slicing, dicing and securitisation of dodgy mortgages in what became known as the mezzanine CDO market by giving them AAA ratings despite not having a clue what was in them.

In fact, by all accounts the conversations between the ratings agencies and the banks went something like this.

Banker:  “You know that stack of securitised mortgages you gave AAA ratings to a few months ago?”

Ratings agency:  “Yeah”

Banker:  “This one’s exactly the same”

Ratings agency: “OK then, you can have another AAA.”

No research, no questions, just throwing AAA ratings around like confetti.

The fact that these same people now pass judgement on the British economy is risible to say the least.

The ‘Big Four’ must sound the retreat

Posted in business with tags , , , , , , , on February 25, 2013 by Tom Leatherbarrow

big-four-breakup-more-cracks-370x229Good business stories are like buses, nothing for ages and then two come along at once.  Friday was just such a day.  In the morning we had the Competition Commission laying into the Big 4 accountancy firms and by the evening we had lost our AAA credit rating.

I’ll start with the Competition Commission though, before moving onto the downgrade tomorrow.

Certainly the Commission’s report should make for uncomfortable reading on the partner floors of the big firms.  You would think that phrases like “high prices, low quality”, “insufficiently independent” and “cosy relationship between auditors and senior management” would ring alarm bells.

We are talking about the Big Four here though, who promptly declared that there was no conflict of interest in management teams appointing auditors (PWC) and that the market is competitive (Ernst & Young).

In fact, PWC went as far to say that the Commission had grossly under-estimated the role of the Audit Committee in protecting shareholders’ interests.  Perhaps, but the problem is that there is much money to be made from selling other services alongside an audit to the executive management teams.  The danger is that those services, such as tax advice, become so lucrative that auditors potentially become constrained in their criticism which fatally undermines the audit process.

This is not a new concern.  Robert Bruce, who wrote the Audit column in The Times for many years, used to say that an audit should be no more comfortable for a management team than the pulling of teeth.  I know from my own experience that there used to be a client services manager within one of the Big Four here in Birmingham whose job it was to ring up clients post-audit and ask “how was it for you?”

Where do we go from here?  If I was advising the Big Four I would urge them to go along with the Commission’s proposals which seem reasonable.  The Commission is arguing for mandatory tendering and rotation of audit firms.  You could certainly argue it should go much further and insist on no reappointment for at least six years which would allow some of the second tier firms to get a piece of the FTSE 350 action.

The Commission is also recommending the prohibition of ‘Big 4 only’ clauses in loan documentation.  Again, this is not unreasonable and should help introduce further competition.

Personally, I would also introduce a rule that no former auditor should be eligible for appointment to a company’s board for at least five years following his departure from an accountancy practice.  This should ensure that the gravy train comes to a crashing halt.

My advice to the accountancy profession would be to accept that change is required, that major mistakes have been made, such as Ernst & Young declaring Lehman Brothers to be solvent, and that the market is uncompetitive.

The danger for the Big Four if they continue their belligerent approach is that the Commission’s ultimate proposals will be far more draconian.  What’s more it will play into the hands of the European Union which already has them in its sights!

Jessops and HMV tell us nothing about the state of the high street

Posted in business with tags , , on January 16, 2013 by Tom Leatherbarrow

HMV financial troublesThe collapses of Jessops and HMV have been followed by the usual outpourings about the decline of the High Street and the relentless onward march of online trading.

I think it is important though to take a step back and look at both in perspective.  This is going to sound harsh, but both of these businesses were incredibly outdated and both had conspicuously failed to embrace digital when they should have done.  Their demise has nothing to do with any recession.  The writing has been on the wall for quite some time.  Nobody can say this has been a surprise.

The danger is that these collapses, along with Comet, get lumped into “Death on the High Street” headlines when the truth is far more subtle.

For every disaster like the closing of a JJB there is a brilliant success story in the shape of JD Sports, who have just recorded another record Christmas trading period for its sports fascias, in which like for like sales for the seven week period ended 5 January were up 3.2 per cent.  Crucially, margin in the core UK and Ireland sports and fashion fascias has strengthened and is now close to last year’s levels cumulatively.

My own view is that the collapse of both Jessops and HMV is a continuation of the culling of the weak that started with the collapse of Lehman Brothers and triggered the financial crisis in October 2008.

The truth is that if you know your customer, buy well, maintain your margins (which means not going into sale in early December), embrace digital where possible (and not run scared from it), it is possible to not only compete but thrive.