Jim Armitage: Forget the holidays, I'm banking on a summer of thrills

Jim Armitage: Forget the holidays, I'm banking on a summer of thrills

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The quiet holiday weeks are finally upon us, but the banking world will remain a cauldron of gossip, speculation and the occasional real news story.

The usual quarterly results are coming up, but more intriguing will be publication of the Financial Conduct Authority’s probe into RBS’s Global Restructuring Group (mis)handling distressed companies. 

You’ll recall that this was the scandal in which SMEs who got into a cash squeeze during the financial crisis were put into special measures by RBS often ending in a brutal march to the administrators. 

Having been accused of sitting on the results of previous inquiries, it’s unthinkable the FCA watchdog won’t have stern actions in mind. In its armoury will be enforcement actions and fines, or it may choose to go after senior individuals. Expect an ugly announcement in the coming days.

Another real event — also on RBS’s watch — could be the US ratification of the $4.9 billion (£3.8 billion) fine the bank has agreed to pay the Department of Justice over the sale of toxic mortgage-related products before the financial crisis.

This rubber stamping by the US authorities is one of the two keys that will unlock the return of dividends to RBS’s long-suffering shareholders. The other is passing this year’s regulatory stress tests, which seems a foregone conclusion. 

As for the more speculative stuff, Barclays’ strategy under Jes Staley will continue to be sniped at through the summer months. Activist investor Edward Bramson is winning fans in the City for his push to exit less profitable areas of investment banking and focus on the the UK commercial and retail bank. 

That would be typical Londonshort-termism to sacrifice the last proper European investment bank to the behemoths on Wall Street. But I feel like I’m in the minority. 

Expect to hear more gossip about Deutsche Bank scrapping investment banking. High-ups there are beginning to talk openly about resuming the idea of a merger with Commerzbank. Such a deal would bring big savings to the two banks’ German retail operations, but be hugely complex and take years to do. 

Then there’s the one question all the senior bankers are asking lately: is it true that Lloyds’ Antonio Horta-Osorio has been having tête-à-têtes with Standard Chartered’s Bill Winters? And what are they  discussing; the weather? Surely not.

Same old game of musical chairs

A pity to see Lloyd’s insurer Beazley switching one Big Four auditor for another today. 

New rules to break up cosy relations between auditors and the companies they watch over mean businesses have to change audit firms every few years.  

As well as bringing fresh eyes on the accounts, the idea was to give smaller auditors chance to pitch for the work. However, corporates are spurning the smaller firms, so the Big Four oligopoly remains.  

FTSE 100 giants say second-tier BDO or Grant Thornton can’t handle the size and complexity of their businesses. Beazley, with profits of just £58 million last year, can’t make that argument. 

Source Article from https://www.standard.co.uk/business/jim-armitage-forget-the-holidays-i-m-banking-on-a-summer-of-thrills-a3892531.html

July 20, 2018 |

Economics can be 'aggressive', says Silvana Tenreyro, Monetary Policy Committee's lone woman voice

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It takes a bout of hyperinflation to teach a lesson in the harsh realities of economics. When the Bank of England’s rate-setter Silvana Tenreyro was a young girl growing up in Tucuman, a poor region of Argentina, political and economic crises were part of everyday life. At one point, inflation was running at 5000% a year.

“The distortions were so blatant,” she recalls, sitting in her office on a sweltering day in the Bank’s Threadneedle Street headquarters. “Just as a kid, you knew that if you had any bill in your hand you run to the supermarkets to stock your chocolates.

“That kind of behaviour was present in every business, any company in Argentina at the time was more concerned about hedging themselves against inflation than actually producing or investing in any productive activity. You needed more accountants than engineers and it was reflected in the lack of long-term investment.”

More painfully still, the 44-year-old economist was just three years old when her grandfather was abducted; he was one of the estimated 30,000 “desaparecidos” kidnapped, tortured and killed by the military junta which seized power in a coup d’état in 1976 and ruled until 1983. Her memories of him — a university professor and a pianist as well as a politician — are dim, but it started an “endless search with no closure really,” she adds in her accented English.

The hardships of the country’s throes — runs on the peso and debt defaults  — fostered Tenreyro’s interest in economics from an early age. At Harvard, after her undergraduate degree at Tucuman, she helped to set up a public policy think-tank with fellow Argentine expat students which is still going.

“I was very aware of the inequities and hardships people had to go through in that part of the country,” she says. “The question of how you stop poverty and improve living standards was very pressing.”

Her original plan was to work on public policy and eventually return to Argentina. But studying for her PhD under Robert Barro and Ken Rogoff — two of the world’s foremost economists — she was drawn to research, specialising in areas such as currency unions. Barro also introduced her to her husband, an Italian academic, and they’ve lived in London for more than a decade since she joined the London School of Economics as an assistant professor in 2004. She has Argentine, Italian and UK citizenship.

Despite her research interests, the idea of “applying the knowledge” in public policy lingered and an opportunity cropped up by chance in 2012. After giving a talk to a group of African alumni she was invited to the Mauritian embassy, where she met the country’s finance minister and ended up with a seat on its version of the monetary policy committee.

With two young children she hesitated, but she wanted the challenge, and it was a period when Europe’s struggles spelt difficulties for Mauritius’s tourism-based economy. It was her cautious approach there that had her marked out as a “dove” when she joined the Bank of England last year.

She was paid 967,965 Mauritian rupees for her work in 2013 — around £21,000 (along with the added bonus of the weather) — whereas in Threadneedle Street she’s on the £151,179 salary earned by the MPC’s external members. 

A year into her spell, the central bank has also been under fire for a lack of diversity. Tenreyro herself is the only woman on the MPC, and the newest member, Jonathan Haskel, was chosen ahead of four other women on the shortlist. An irate Treasury Select Committee chairman Nicky Morgan has warned that MPs could start blocking appointments if things do not improve. 

The Bank has a target of 35% female participation in senior management positions by 2020, and Tenreyro sees a “real commitment” to improve. But she adds that Morgan is “right to complain”. “I think diversity is very important for committees, decisions, because it brings a deeper perspective that enriches the decision-making process. To keep in mind, the appointments are not made by the Bank, they are made by the Treasury, so sometimes I am surprised in the press when they seem to blame the Bank.” 

As someone who recently chaired the Royal Economic Society’s women’s committee, she’s in favour of quotas as “the only way to go forward and change the equilibrium” — although not necessarily for very small committees like the MPC. As only 14% of economics professors are women we need to be more proactive, she argues, and create more role models.

“There’s a problem with identification if you are a young girl deciding what to do with your life: football is not going to come into your mind, because you don’t see women footballers on the front page of the newspaper, so you don’t relate.

“You don’t see many female economists in senior positions. [Christine] Lagarde and Janet Yellen have helped with that but we have to do more.  Once you get past those two, there is not a lot.”

Part of the problem is the tenure system which gives academics jobs for life to pursue research; having children can make tenure more difficult to achieve for women academics and often presents them with a “stark choice”.

“It’s a period in which the clock is ticking and if you want to have children the choice is binding.” But women can also be put off by the macho nature of the economic debate. “There are issues with the way in which economists interact, while not being offensive might be challenging for women, at least I found it hard when I was starting in my career. The type of discussion was very aggressive, and that was a way of criticising each other that was very unnatural. You could see how male dominance played a role and might have put off many women. I for one, I thought, ‘I can’t engage in this type of interaction, it is too aggressive’.” Things have improved but “you have to develop very thick skin to be in academia”.

The darker side of this was uncovered last year by Harvard economist Alice Wu. She studied the anonymous posts on the Econjobrumors site and found the top 30 words used in discussions of women included “slut”, “hot”, “horny” and “prostitute”.

Tenreyro doesn’t think the profession is quite that bad, but “when you open the door to anonymity you have some completely unrepresentative people making comments that can be offensive”. She adds: “I never experienced direct sexism but I know other women have had different experiences.”

On the Bank’s present policy stance, Tenreyro keeps her cards much closer to her chest. She’s never voted against the majority on the MPC, which causes one City economist to sniff that as an external member “she’s supposed to be a dissenter, a differing view”. She said in June that the timing of future rate rises was an “open question”. Is it any less or more open now?

“In May and June I thought it was prudent to wait a bit to confirm that the soft patch was due to the weather, and not a sign of something more fundamental going on with demand. My vote there was a vote of caution … The PMIs [activity surveys] on output were positive and confirm in some sense the assessment that we had in our central forecast that the soft patch was snow-related.”

Her tone suggests she might be ready to join the hawks and raise rates for only the second time in 11 years in a fortnight’s time, but she dead-bats that one as well. “I will watch very closely the data we have in the coming weeks and I don’t want to say more than that.”

There’s also the impact of Brexit to consider, which she opposed before joining the MPC. Not to mention a possible trade war. 

The nightmare scenario is “everyone jumping in, you will see pressure on inflation together with a negative effect on output and that, of course, will present a very challenging trade-off for monetary policy”. 

We don’t have long to wait until she shows her hand.

Source Article from https://www.standard.co.uk/business/silvana-tenreyro-economics-can-be-aggressive-a3892286.html

July 20, 2018 |

Tax bonanza and austerity hands Philip Hammond £7 billion extra to spend

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Chancellor Philip Hammond could have billions more to play with in the Autumn Budget after figures revealed the public finances in their best shape for over a decade, experts said today.

Growing tax receipts and a tight rein on spending saw a surprise £800 million fall in the UK deficit in June to £5.4 billion, confounding expectations for a small rise.

In the three months of the financial year so far, UK borrowing is running £5.4 billion below last year at £16.8 billion, the lowest since 2007, and on target to dramatically undershoot the Office for Budget Responsibility’s (OBR) £37.1 billion full-year target. 

Capital Economics’ Andrew Wishart said: “If sustained, the fall in the deficit would see borrowing undershoot the OBR’s forecast by £7 billion or so. The upshot is that the OBR should allow the Chancellor a bit more room for manoeuvre in its autumn forecast.”

Chancellor Philip Hammond could have billions more to play with in the Autumn Budget after figures revealed the public finances in their best shape for over a decade, experts said on Friday.

Growing tax receipts and a tight rein on spending saw a surprise £800 million fall in the UK deficit in June to £5.4 billion, confounding expectations for a small rise.

In the three months of the financial year so far, UK borrowing is running £5.4 billion below last year at £16.8 billion, the lowest since 2007, and on target to dramatically undershoot the Office for Budget Responsibility’s (OBR) £37.1 billion full-year target. 

Capital Economics’ Andrew Wishart said: “If sustained, the fall in the deficit would see borrowing undershoot the OBR’s forecast by £7 billion or so. The upshot is that the OBR should allow the Chancellor a bit more room for manoeuvre in its autumn forecast.”

That will offer some relief for a Treasury committed to an extra £20.5 billion in health spending by 2022-23 and a clutch of departments, such as Defence, lobbying for extra cash. But it is unlikely to spare the British public from tax hikes, such as a potential rise in fuel duty, to pay for the largesse.

EY Item Club chief economic adviser Howard Archer, who also predicted a £7 billion undershoot, added: “The Chancellor has admitted that tax rises will be needed for the extra NHS funding as the government remains committed to bringing down the budget deficit.”

The detailed figures revealed receipts holding up despite the snow-hit to the economy earlier this year, with an extra £1.5 billion in revenues compared to June last year. 

But overall government spending is also down 3.1% on last year, the Office for National Statistics added.

Part of the reason for the fall was much lower payments to the EU, which were £600 million higher last year after growth was revised higher, ramping up the UK’s contributions. VAT and income tax revenues were up 4% and 2.1% respectively but the figures also showed the impact of the slowing housing market despite the rising overall tax take.

Stamp duty land tax revenues were some 11% down on a year earlier at £1 billion. 

The UK’s overall debt stands at £1.79 trillion, equivalent to 85.2% of gross domestic product. June’s sale of 7.7% of the Treasury’s stake in Royal Bank of Scotland, cutting the taxpayer’s interest to around 62.4%, chipped £2.5 billion off the debt mountain.

Despite the improvement in the public finances the OBR warned this week over the sustainability of the UK’s long-term financial position. 

Without tax rises to cope with an ageing population and higher health spending the deficit could hit £176 billion a year, in today’s terms, by 2068, it added.

Source Article from https://www.standard.co.uk/business/tax-bonanza-and-austerity-hands-philip-hammond-7-billion-extra-to-spend-a3892296.html

July 20, 2018 |

Secrets of my success: Jon Dye, chief executive of Allianz Insurance

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Allianz Insurance’s Jon Dye reveals he once wanted to be a palaeontologist, and discusses what he likes and dislikes about leading a business…

What do you do?

I lead Allianz, which is one of the UK’s biggest general insurers, with about seven million customers, and a part of a global finance services organisation which is in 70 countries. I travel a lot, with trips to our headquarters in Munich about once a month — there are worse places to visit.

What does your job involve?

My past year has been spent working on the joint venture that we signed with LV=, becoming the UK’s third-biggest personal insurer. It was the culmination of a year’s work, and for me meant lots of meetings to get the deal done.

It’s also a big vote of confidence in the UK business for Allianz: a Munich-based company is investing a substantial amount of money in a deal in this country. It’s clearly not that bothered by Brexit.

What do you enjoy?

The fact that insurance is a people business — when something unfortunate happens in someone’s life, such as a car accident or a fire, or a pet is ill — we’re here to help them get back to normal.

I get to meet all sorts of people. Years ago, as a claims investigator, I was looking at an injury claim for a woman who had cracked her head on some stairs, and said she had developed “foreign accent syndrome”, which meant that she was suddenly speaking with an Italian accent. I assumed it was made up, but it’s a real phenomenon.

What don’t you enjoy?

Having to make difficult decisions, making people redundant — nobody enjoys that.

It’s not a significant part of the role, but as chief executive it’s something you have to face from time to time.

What was your biggest break?

I’d been working for my predecessor as chief executive, Andrew Torrance, for 10 years when he suddenly found himself moving to California to run our US business. It was announced out of the blue one Wednesday back in 2013; three weeks later he was gone.

I was thrilled when they decided to give me a go at the job.

And your biggest setback?

Trying — and failing — to grow the car insurance business organically for 15 years.

UK car insurance is ruthlessly cut-throat, very tough to grow and make the right level of profit on.

We tried lots of times to get it off the ground, but it wasn’t happening. We’ve now solved that problem with the LV= deal.

What did you want to be when you were a child?

I wanted to be a palaeontologist, because I was fascinated by dinosaurs. But then I realised it meant brushing the dirt off bones, which wasn’t so exciting.

How do you handle your work life balance?

Well, I think I’ve got it under control, but my wife would say otherwise. I live in Guildford, near our head office, so for the two days a week that I’m in the office I can get home soon after six and see my two teenage kids. I try not to work at weekends, and like to go to the pub followed by a walk up a Surrey hill. But most of the time I’m just “dad’s taxi”.

Any tips?

Move into different roles, different locations, or even different countries — you’re more likely to succeed with more breadth.

 

Source Article from https://www.standard.co.uk/business/secrets-of-my-success-jon-dye-chief-executive-of-allianz-insurance-a3891386.html

July 19, 2018 |

Simon English: The rise and rise of the nonsense jobs, and what they do to our psyche

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American comic Bill Hicks had a bit which went like this. 

Boss: How come you’re not working? 

Worker: There’s nothing to do. 

Boss: Well, you’re supposed to pretend like you’re working. 

Worker: Hey, I got a better idea. Why don’t you pretend like I’m working. You get paid more than me.

This features in Bullshit Jobs*, David Graeber’s terrific book on the pointlessness of much modern work. 

By some measures, up to half of people think their jobs have no meaning, that it wouldn’t matter if they didn’t do them. For many of the rest of us, the time spent doing the meaningful part of work is increasingly eclipsed by the other stuff. The meetings, the emails, the group pressure to sit and look busy, when all you are really doing is surfing the net.

Graeber’s own work is important. People are desperate to be useful. When they feel like they are not, they quickly become miserable.

The trend towards pointless jobs is more than just a tale of capitalism going wrong, he argues. “Profound psychological violence” is being done to large chunks of the population.

Graeber describes the shift that saw employers measure time — how long people spent doing work — rather than the work itself.

This led to employees realising it does not pay to be efficient. It earns no prizes, as per the Hicks joke.

Some places of work are efficient, of course — it’s slick around here as a matter of necessity — but that seems increasingly unusual. Work slows to the pace of the least able person in the office; doing things fast is seen as evidence that you aren’t trying.

More and more workers feel obliged to “play a game of make believe” not of their own invention, one which they can’t possibly win.

Into Graeber’s list of bullshit jobs fall “HR consultants, communications coordinators, PR researchers, financial strategists, corporate lawyers or the sort of people (very familiar in academic contexts) who spend their time staffing committees that discuss the problem of unnecessary committees”.

But even “proper” jobs are infected.

Of a 40-hour week, most of the meaningful stuff could comfortably be done in 15 hours, but bosses hate this idea, which means that “huge swathes of people in Europe and North America in particular, spend their entire working lives performing tasks they secretly believe do not really need to be performed. The moral and spiritual damage that comes from this is profound. It is a scar across our collective soul,” he writes. “Yet virtually no one talks about it.”

These swathes of people who hate their pointless jobs find it hard to admit to the fact, even if it leaves them empty and depressed. Staff are confused too, because they can’t tell if their supervisors are aware of how little actual work is occurring, or whether they genuinely think the tasks they make underlings undertake matter.

The book is by turns funny and sad, but it also makes the reader angry. There is no sensible reason why life should be like this. Critics of Graeber generally fail to engage with the point. They can see that government departments might fall prey to bullshitisation, but insist that proper entrepreneurial companies couldn’t possibly, despite the evidence all around them.

So they end up insisting that what look like bullshit jobs are a function of the economy becoming more complicated. That the seemingly stupid jobs are actually clever folk administering complex global supply chains, or expedited frictionless convergences, or some such other piece of obvious bullshit. This stuff isn’t even good for the large companies that might defend it. 

One of the author’s case studies works for a big accountancy firm, hired to help a bank sort out its PPI problem. He writes: “The accountancy firm was paid by the case, and we were paid by the hour. As a result, they purposefully mis-trained and disorganised staff so that the jobs were repeatedly and consistently done wrong.” 

Graber lacks a solution to all this, but thinks it should at least be part of the economic discussion. Underlying his research is the feeling that bullshit jobs exist partly out of fear of what folk might do if they weren’t at work.

That’s puritanism, as HL Mencken described it: the haunting fear that someone, somewhere, may be happy.

*Bullshit Jobs, David Graeber, Penguin Books 2018

Source Article from https://www.standard.co.uk/business/simon-english-the-rise-and-rise-of-the-nonsense-jobs-and-what-they-do-to-our-psyche-a3891326.html

July 19, 2018 |

Russell Lynch: Fiscal watchdog barks again, but Government isn't listening

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Robert Chote’s fiscal watchdog, the Office for Budget Responsibility, needs a new name. When a Government doesn’t appear to be remotely responsible, or care that much about budgets, something more pungent is needed. 

The Office for Bullshit Rebuttal has a nice ring to it; keeping the same initials might save on the stationery, too.

Chote is supposed to be the headteacher marking the homework, but repeated swishes of the cane don’t seem to bring about any change in behaviour. Instead the errant pupils are more interested in scrapping among themselves at the back of the classroom, as demonstrated by this week’s Parliamentary warfare.

The OBR’s latest Fiscal Sustainability Report is a case in point. Theresa May set out plans for an extra £20.5 billion in health spending by 2023, funded by a “Brexit dividend” and “us as a country contributing a little more”. But in this post-truth age May appears to be taking lessons from her “fake news” counterpart across the Atlantic. The dividend — regaining EU contributions — doesn’t exist, the OBR says, destroying the myth with cold numbers.

Take away the £7.5 billion cost of leaving from our £13.3 billion contribution in 2023 and you have £5.8 billion, which will probably have to be spent on other things apart from health.

Clearly the “contributing a little more” part will be doing the heavy lifting on the health bonanza; Chancellor Philip Hammond will doubtless make this plain in our diminishing payslips after November’s Budget.

And in any case, the whole ‘Brexit dividend’ concept is a fantasy, as “it is more likely to weaken the public finances than strengthen them over the medium term, thanks to its likely effect on the economy and tax revenues”. 

The recent spree heaps yet more pressure on the longer-term public finances, already burdened with an ageing population needing extra health spending.

In the absence of corrective measures, the OBR estimates net debt at a phenomenal 282% of GDP by 2068, and a deficit of £176 billion a year in today’s terms. But these are problems far off in the future, when the PM is measuring her lifespan in days, like the proverbial mayfly. How else do you explain this Government’s fast and loose treatment of the public accounts? 

Another issue exercising Chote this week is the accounting treatment of student loans, which gives the Treasury another fiscal free hit. That’s because the current accounting rules state that if student loans are sold off at a loss before they are written off after 30 years, there’s no impact on the deficit.

That creates a “huge incentive” for the Government to finance higher education with loans that can be sold off, says the Treasury Select Committee. Mischievously, Chote said a more realistic accounting approach to tackle this “fiscal illusion” — treating some of the loans as genuine loans, and the ones unlikely to be paid back as grants — could raise the deficit by £15 billion.

That, coincidentally, is roughly the same amount as the Chancellor’s headroom against his target of cutting the deficit to 2% of GDP by 2021. 

Rather than do something about this accounting fiddle the Government looks set to embrace it further, especially with £12 billion of loan sales in the pipeline. Its mealy-mouthed response to the OBR’s report talks about “taking account of their impact on both sides of the government balance sheet” although it doesn’t go as far as suggesting a change in the rules.

But then this administration has been shameless in its treatment of fiscal conventions for years, such as its reclassification of housing associations to the private sector last November. That trick removed up to £81 billion from the UK’s debt pile and nearly £4 billion a year from the deficit, largesse which Hammond could spend elsewhere.

That’s despite the OBR saying the change had “no material effect on the underlying health and riskiness of the public finances” because ministers would be forced to stand behind associations, whatever their classification, in the event of financial difficulties.

Chote has a good line in plain-speaking sarcasm but the warnings of his organisation remind me of former Bank of England Governor Mervyn King’s complaints a decade ago; when it came to banks, he only had the power to “issue sermons and organise burials”.

If the Government keeps ignoring the OBR’s sermons, it’ll soon be burying the public finances.

Source Article from https://www.standard.co.uk/business/russell-lynch-fiscal-watchdog-barks-again-but-government-isn-t-listening-a3891306.html

July 19, 2018 |

Small-cap spotlight: Bagir and Xeros shares pop on China deals

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Welcome to Small-Cap Spotlight where the Evening Standard business team will bring investors rolling coverage and analysis on all the major small cap news this morning.

Top story sees Israeli tailor Bagir confirm that China’s Shandong Ruyi will invest $16.5 million (£12.7 million) to buy 54% of the company. 

There are plenty of other updates out there for discussion.

Stay tuned.

Live Updates


Source Article from https://www.standard.co.uk/business/smallcap-spotlight-bagir-and-xeros-shares-pop-on-china-deals-a3890131.html

July 18, 2018 |

Lucy Tobin: Turn off the money taps in this murky water set-up

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It’s 2050 and, after pollution and climate change finally turned the atmosphere toxic, UK air has been privatised. A system of underground pumps were built by outsourcing giant G4SercApita in 2030 (the project ran £4 billion over budget and ultimately required a bail-out organised by Minister for Air, Lara Johnson). 

Now the capital’s homes, offices and driverless car network draw in breathable air from the network. Bar the occasional oldie moaning about “the golden years before the post-Brexit decline of civilisation” when air was actually free, privatisation works well. 

Yet there’s been a bit of a political hoo-ha recently: Oh Too Air Plc, the biggest air provider in London, was found to be chucking millions to its private equity owners and top executives, while ramping up its debts and not paying tax. 

It all sounds so improbable and yet, the nation’s water supplies are not so different to air, and we’re well used to paying private monopolies to pump clean water into our homes. 

Privatisation works, says the Government, because regulators ensure that corporations running vital public services don’t just lap up the rewards but also absorb the financial pain and operational risks. Except, in water especially, that hasn’t been happening. 

Shareholders and executives have been siphoning off profits, while customers pay for investment and debt. The nine major water utilities made £18.8 billion of post-tax profits in the decade to 2017, paid out £18.1 billion in dividends, and dumped £42 billion of debt onto consumers. 

Like a child behind on his homework, Ofwat is finally showing signs of taking note. Ahead of next year’s price review, the regulator has just told suppliers they’ll need to explain how executive pay and dividends are linked to performance and stop creaming off the benefits of low-interest rate debts. 

Only it didn’t put it quite like that: Ofwat’s lingo could have been written in Russian, run through Google Translate, then splattered at a corporate jargon shooting range. Suppliers, it declared, need to “share benefits with customers where companies have gearing that is materially above the notional level that underpins price controls”.  

When the regulator uses such confusing language, little wonder the companies it polices do the same. Many of their corporate structures are just as obfuscating.  Until new management cleaned up its corporate structure recently, Thames Water, was made up of a whopping nine limited companies, including two Cayman Islands outfits, making it harder to isolate who’s paying for what. Still, analysts are clear: it’s mainly consumers. English households and firms pay £2.3 billion more a year for water and sewerage than if supply was state owned, according to University of Greenwich research. 

So why isn’t Ofwat making Thames Water take on some risk with its £4.2 billion super-sewer being built between Acton and Greenwich? It’s being paid for via a surcharge on customer bills and by City bonds, not by Thames Water’s shareholders. 

Thames claims it “serves” 15 million customers in and around London but gushed out more than £1 billion in dividends to its former owner, Australia’s investment bank Macquarie, in just over a decade, and paid no corporation tax (‘because, duh, investment,’ says the company). The new management have agreed to halt divis and bonuses for the chief executive for two years, but he can still get up to £3.8 million in 2020

Meanwhile, Thames’s gearing, the debt relative to equity capital, has shot up to 80%. By contrast, state-owned Scottish Water, which has been subject to the EU’s same, investment-requiring regulations on cleanliness and efficiency, is only 53% geared. The Scots’ average bill was £350 last year, with the English equivalent almost £400. Welsh Water, which was essentially renationalised and is run by a company with no shareholders, “solely for the benefit of customers”, is flourishing too.

Still, Labour’s battle-cry to renationalise is louder than it is logical. It would cost billions we don’t have. And the lack of incentive would mean investment drying up and so reservoirs, possibly, too. The maths and the scandals show Ofwat has swallowed suppliers’ claims and remained too hands-off.The corporate culture hasn’t  changed enough.. 

That Ofwat’s pricing settlements take three years to calculate reveals how the water in our taps is hostage to corporate lobbyists. The regulator must upgrade its filter to keep our water pure.

Source Article from https://www.standard.co.uk/business/lucy-tobin-turn-off-the-money-taps-in-this-murky-water-setup-a3890451.html

July 18, 2018 |

Premier Foods chief Gavin Darby only just survives bid to topple him

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Premier Foods boss Gavin Darby today survived a shareholder rebellion to oust him, and attempted to soothe investors by revealing sales growth.

Darby faced a tense showdown with shareholders at the firm’s packed annual meeting near London Bridge. He scored a narrow victory, with 59% of proxy votes cast in favour of him staying.

He had faced calls to resign from the Mr Kipling maker from activist investors Oasis Management and Paulson & Co, the second and third-largest shareholders.

The 61-year-old chief executive, who has been under intense pressure to boost returns, said: “We have more to do… but Premier has come an awful long way in a pretty challenging market.”

Darby faced a grilling at the annual meeting from a number of shareholders. Daniel Wosner from activist investor Oasis claimed the boss “has no credibility”. He added that “we do not have any faith [in Darby as a leader]”. 

There was applause in the room after the Oasis representative called for Darby to be removed from the role.

Another shareholder directed a comment at Darby and said: “I think in the interests of shareholders you should bow out.”

However the chief executive found some support from Premier Food’s former chairman David Beever. He said Darby “is probably the best chief executive I’ve ever worked with”.

Darby also revealed the board would consider a sale of parts of the Bisto gravy-to-Ambrosia custard group. “We haven’t ruled out divestments,” he said.

Oasis, which last week doubled its stake to 17.3%, has branded the manufacturer “zombie-like” under Darby’s five years at the helm.

He has been under pressure to boost returns since 2016, when Schwartz spices owner McCormick abandoned a 65p-a-share bid, valuing the business at £537 million. 

The firm instead opted for a tie-up with Japanese noodles maker Nissin, now a 19.56% shareholder. 

Shares in Premier Foods were down 3.6%, or 1.7p, to 45.1p earlier.

Speaking to reporters before the annual meeting, Darby came out fighting. He said: “I’m absolutely convinced the share price will rise.” He added that Hong Kong-based Oasis, which wants to put the Batchelors noodles brand up for a potential sale, had a simplistic view that there “was low-hanging fruit” at Premier Foods.

Oasis declined to comment on Darby’s comments, but sources close to Oasis suggested it would have sold if it thought there was no value in the Premier Foods business.

Premier Foods chairman Keith Hamill said the drawn out fight with Oasis was “not all negative”… as “activists do make you think”.

Jefferies analyst Martin Deboo said: “As long-term observers of Premier Foods, we welcome any debate that illuminates potential new avenues of value for shareholders.”

The manufacturer saw first-quarter sales rise 1.7%, boosted by a strong performance from Mr Kipling.

Source Article from https://www.standard.co.uk/business/premier-foods-chief-gavin-darby-only-just-survives-bid-to-topple-him-a3890426.html

July 18, 2018 |

Space NK set to be sold with Unilever circling

Comments Off on Space NK set to be sold with Unilever circling

America’s Fisher family, who set up clothing brand Gap, are looking to offload their London beauty business Space NK, the Standard can reveal. 

Manzanita Capital, founded by Bill Fisher, the son of Gap founder Don Fisher, is thought to be in advanced talks to sell the cosmetics retailer. Goldman Sachs is advising Space NK on the deal, it is understood. Sources say consumer goods giant Unilever has been eyeing the beauty chain. 

The beauty apothecary, which began life as a single store in Covent Garden, has more than 60 shops in Britain and 29 in America. 

Its founder Nicky Kinnaird stepped down from her role at Space NK in 2014. In 2007 she sold a 90% stake to the private equity house for an undisclosed sum.  

The business, which sells upmarket make-up brands such as Laura Mercier and Nars, made pre-tax profits of  £3.2 million on sales of £96.4 million for the year to March 25. 

Unilever is thought to be looking to move into the more-upmarket beauty arena. Last year it was rumoured it was tabling a bid for cosmetics giant Estée Lauder. Unilever declined to comment on either deal. 

City sources had linked The Hut Group, which owns more than 160 specialist websites including Skinstore.com and Myprotein.com, with the deal but the company refuted it had ever looked at Space NK. 

Manzanita, based in London, also owns sister firm Space Brands, selling its own labels such as Eve Lom and Lipstick Queen, as well as posh candles purveyor Diptyque. 

Manzanita could not be reached for comment. 

Source Article from https://www.standard.co.uk/business/space-nk-set-to-be-sold-with-unilever-circling-a3889041.html

July 17, 2018 |
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