Business News

Jim Armitage: FirstGroup's board has missed the bus. All change please

2019-06-25 15:43:33 admin

It’s easy for City veterans to get misty-eyed over FirstGroup. A star in Margaret Thatcher’s privatisation firmament, it was among the first companies to take over council bus routes, before leading the pack on winning rail franchises. 

But the Department for Transport’s move to load unbearable long-term risks onto rail franchise operators, coupled with reduced local authority spending on buses, has hurt everyone in the sector. 

First has not dealt with the challenge well. While better firms screwed down overheads and pulled out of UK trains, First has been flatfooted. It now has lower bus margins than some peers and still throws good money after bad in rail.

Rich though its history may be, its future looks poor. 

Coast Capital invested a few years back, first trying in vain to advise the board, and now pushing to change it. Its advice makes sense: First should clean up and sell its £3.5 billion US school bus operations over the next nine months, paying down debt and plugging the pension deficit. It should stop bidding for rail contracts and focus on turning around its core UK bus business.

First’s board has come up with an alternative. Sell the UK bus business, possibly in bits, sell Greyhound in the US but retain the remaining school bus operations there, making them the company’s core focus — despite First having no US bus experts on the board. It is continuing bidding for rail franchises.

It’s a plan, but too late and too woolly; the product of a board that watched as National Express beat its share price by 40% since 2017.

Many shareholders voted to kick out directors today. They were right to do so. This once great business deserves better.

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Woodford urged by watchdog to hand over fees he has taken from investors

2019-06-25 15:43:24 admin

NEIL Woodford should hand back the £1.4 million in fees he has taken from investors since shutting his flagship fund three weeks ago, the City watchdog’s chief Andrew Bailey said today.

Bailey, chief executive of the Financial Conduct Authority, said Woodford should make “a gesture” to those trapped in his Equity Income Fund.

“As a sign to his investors it would be a good thing to do,” he told a Treasury committee probing the now-notorious affair. 

Woodford gets £100,000 in fees each day, and may need the cash as he sells down investments to pay investors demanding money back.

In what was widely seen as an audition to be the next Governor of the Bank of England, Bailey insisted the regulator had been on top of the situation.

The once-£10 billion Woodford Equity Income fund was suspended, locking many thousands of customers out of their savings.

It had fallen in value to less than £4 billion amid growing concerns about unlisted holdings in the fund that were hard to sell. 

That left Woodford selling shares in big stocks to pay for redemptions, increasing the portion of illiquid stocks in a fund regarded by customers as a low-risk vehicle.

Nicky Morgan MP, the chair, suggested the FCA was slow to act. She said: “The market could see how many days it would take to liquidate the fund. Is that not a marker for the FCA?”

Bailey, pictured, said the FCA was aware the fund was losing money consistently. 

He said: “We were alert to the fact that this was a fund that was shrinking. Until right near the end, before the suspension, the outflow looked manageable.”

The Woodford fund, managed by the famed stockpicker, was one of the most popular among small investors.

Bailey was also challenged over the FCA’s handling of London Capital & Finance, a scandal that saw £267 million of funds placed in high-risk schemes. 

Morgan said the FCA seemed slow to move, asking: “Doesn’t anyone at the FCA actually read the newspapers? If you are monitoring on a daily basis, how is it not clear that some red flags are sent?”

Bailey insisted that the FCA has been on the ball and that in some cases, funds aren’t obliged to alert the watchdog to moves they have made for up to a year. 

But Morgan said: “Doesn’t the regulator have the requirement to be more proactive?”

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Anthony Hilton: Barring ailing firms from the index would boost investors

2019-06-25 15:43:15 admin

Sir John Kingman, one-time senior Treasury mandarin until losing out as permanent secretary to Tom Scholar a few years ago, is now ensconced as chairman of Legal & General. 

One of his sidelines, courtesy of the Government, was to undertake an independent review of the Financial Reporting Council, to see whether that body was fit for purpose. 

The FRC has been roundly criticised in the recent past for the scandals of Carillion and BHS among others.

Some thought it was trying to do too much and could not cope; alternatively perhaps it was trying to do too little or lacked the necessary resources. Whichever, Kingman would get to the bottom of it.

His report duly arrived this year, and it did not disappoint. None of the principals have said Kingman’s report was the reason for their discomfiture but Stephen Haddrill, the chief executive, decided it was time for him to resign, which he is in the process of doing. 

Sir Win Bischoff, the chairman, has not offered to resign, or not publicly at any rate, but he will no doubt be off too as soon as there is a ready replacement. Even if Kingman’s report wasn’t the main thing, it meant it was the right time for them to go. But then what happens? Government seems only fixated with Brexit and its aftermath, and it seems likely it will not have much time for the FRC. The report may simply gather dust.

The FRC also looked this spring at the Stewardship Code, the document which talks about shareholder engagement  with companies, to see whether it could be made more effective.

The Institute of Business Ethics thinks it could, but it would require one of Kingman’s recommendations to make it happen. 

Recommendations 47 to 50 of Kingman would give the FRC powers to intervene in troubled companies. This would include the right to commission and publish independent reports, to review dividend policy and to require the replacement of the auditor. 

Some might say shareholders should do this themselves, but they have consistently over the years failed to do so effectively. For example some institutional investors were perfectly aware of the difficulties facing Carillion, the outsourcer which went bust. Accordingly active investors such as Aberdeen Standard sold out of Carillion.

But passive investors, including the likes of Legal & General, were also perfectly aware of the problems and actively engaged but could not use the power precisely because of the growing prevalence of passive investment, where investors are locked in and cannot sell even if they wanted to. 

The more pension fund money goes into passive funds, the more beneficiaries are at risk through this inability to sell out. And it is already around 30%.

This is a major problem but Peter Montagnon of the Institute of Business Ethics has a solution. It believes an effective sanction against companies that persistently and wilfully display poor governance should be that they should be excluded from the index. 

Then everybody, including passive funds, would be free to sell. 

The index providers would be told that it was no longer safe to compel passive funds to hold the company.

Montagnon has been in and around corporate governance for years at the Association of British Insurers, the Financial Reporting Council and now the IBE, so he knows what the problems are.

Of course, exclusion from the index would lead at once to a serious loss of value for the companies, but the point is that the sanction would be a deterrent. 

Boards would know as soon as the FRC appeared that there would be real trouble if they did not respond and this would be a huge incentive on them to right wrongs, especially if the initial intervention by the FRC, or its successor was on a confidential basis. 

The problem of having to hold shares, whether or not they want to, is a growing issue for trackers as they capture an ever-larger share of equity. The IBE’s comments are one way of addressing this. They deserve to be listened to.

All this, however, depends on implementation of the Kingman proposals. 

Meanwhile, investors who are largely focused on passive funds should be clear that, though they cannot sell, they will use their rights to vote against director re-election.

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Bitcoin price inflates again as buyers wade in to head it surging past $11,000

2019-06-24 15:38:39 admin

CRYPTOCURRENCIES were back in the spotlight today after a surge of buying in Asia sent bitcoin and rivals soaring.

Bitcoin hit its highest since March 2018, surging past $11,000 per digital coin. It is up more than 170% this year.

Around $30 billion (£23.5 billion) was added to the value of cryptocurrencies over the past two days, with buyers in India flagged as particularly busy.

Analysts say Facebook’s recent move to launch its own cryptocurrency project, dubbed Libra, has given renewed credibility to an industry that looked as if it had lost its way.

Last year Bitcoin crashed from a high of $20,000 to just above $3000.

Other cryptocurrencies, Ethereum, XRP and Litecoin, also rocketed over the weekend, before easing slightly this morning.

Craig Erlam of trading firm Oanda said: “The publicity that the [Libra] launch has once again brought to the space combined with the legitimacy it offers has understandably excited the community and we’ve seen before that you don’t get a normal response when this happens. Whether it actually endorses something like Bitcoin or not is perhaps not that important right now, particularly to those that have never lost the faith.”

Some think the latest rally could be even more shortlived than previous surges. Neil Wilson of said: “Bitcoin is sparkling again but beware… breakdown’s coming up round the bend. Investors are ignoring what happened the last time we saw parabolic rises like this. Is it different this time? No, but people have short memories. 

“Facebook’s Libra white paper may have stoked renewed interest in cryptos at a time when the buzz had already returned.”

In recent times big-name bankers, initially sceptical of bitcoin, have started exploring ways to make money from the trend. JPMorgan, led by Jamie Dimon, is in favour of blockchain, the technology that makes bitcoin trading possible, but has been critical of the currency itself.

Goldman Sachs has been working on a derivative of bitcoin for clients who want to trade it.

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MySale put up for sale as Sir Philip Green backed online store falters

2019-06-24 15:38:27 admin

MYSALE, the online retailer backed by Sir Philip Green, put itself on the block today as it admitted to “challenging” trading conditions, especially in its home market of Australia.

A strategic review aimed at “maximising value for its stakeholders” will “consider all types of corporate activity”, said a statement.

That could include raising capital, selling part or all of the business or delisting the shares from AIM.

The shares, at 72p a year ago, plummeted more than 40% today, down 2.9p at 3.8p. That values the firm at less than £6 million. It listed in 2014 at 226p a share, making it worth £340 million.

Backers hoped MySale could replicate the runaway success of Instead it has been buffeted by changes to Australian tax regulation.

Sports Direct founder Mike Ashley also had an interest in MySale, but ditched his near 5% stake recently after a disagreement with Green, according to reports. Green is thought to still hold 22% of the business.

MySale was open about the extent of its difficulties. The statement said: “The group continues to operate within its existing banking facilities… However, given the market challenges that the group continues to face and the reduction in financial performance, it is possible that additional funding may be required in the short term to support the restructuring and cost reduction initiatives being undertaken.”

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