Europe 3 – UK 0

Europe 3 – UK 0

Under the auspices of the European League, the UK has just lost 3-0.

The ink was barely dry on my blog that under the new constitution, Europe actually needed no Mr President since they had a power lady already in place with Neelie when, by some stroke of genius, she is replaced. Replaced in the most vital job of all as far as the UK in concerned, that is, the economic one. Her replacement is an avowed federalist. But the game was all but over by the time this third goal had whizzed past the keeper.

Goal number one was of course the placing of an introvert Belgium as Mr President and the second was an own goal by an unknown British lady with good experience of local government to help run all European foreign affairs.

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I am not a football fan but it sounded a good game even though the UK got relegated.

Lloyds Banking Group Escape Route

Lloyds Banking Group escape route

The mechanism and price of the escape route for Lloyds Banking Group out of the APS programme is now agreed. Due to the success of the first element which was to issue £8.8bn worth of contingent convertible bonds, the rights issue is somewhat stronger than initially thought and as set out in this diary dated 9th November.

The rights issue is valued at £13.5bn and means it is the highest ever attempted beating the HSBC issue by some £.3bn. Of equal significance is that Lloyds has the largest private shareholder base of any company listed on the London Stock Exchange at 2.8 million people and amounting to about 7.5% of the equity. The event is therefore of major public interest. Furthermore, since the taxpayer owns 43.4% of the business and intends to keep it that way, the Government (that is the taxpayer) is going to stump up a further £5.8bn just to stay still.

The issue, (as approved by a vote of shareholders on the 26th November) is of 1.34 shares for each existing share (previously 2 for 1 was mooted) at a price of 37p per share. The market overall seems pleased since the share price ahead of the issue had passed the 93p price. Post the approval, it fell as expected to around 58p.

The taxpayer does have some compensation in that £2.5bn has already been paid for insurance of the assets up to this point and £144m will be the underwriting fee. The investment banks will also have a fee bonanza – as usual.

Was it all worth it to escape the insurance scheme? The market seems to think so. As a fairly large private shareholder, I hope so.

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Dubai And Debt

Dubai and debt

Ok, it is a hackneyed phrase but they must be turning in their grave. Back in 1822 Brodie McGhie Willcox and Arthur Anderson got together and were joined in 1835 by Captain Richard Bourne to form in 1837 what was to become the well loved and greatly respected Peninsular & Oriental Steam Navigation Company (P&O): registered by Royal Charter. As recently as 2004 it was glorified in the FTSE 100 as a prime UK-based business turning over £2.4bn and with over 22,000 employees world-wide.

P&O not only weathered the seven seas, its assets and men weathered British interests to the tune of losing 85 ships in the Great War and 179 in World War 2. From packages to heavy freight to the largest ocean-going liners to hotels and ports, P&O bestrode the world. Then, like all great empires, it started to fade. The liners faded into Carnival and the ports and infrastructure faded into DP World except that American Senators cried foul and an American business subservient to (can you believe) AIG bought out the American ports on nationalistic grounds after ex-President Bush threatened to veto any deal to let Arabs have his port interests.

Can this woeful story have a happy end? It is just possible since DP World is part of Dubai World which is a Dubai government investment company that cannot pay its way. Its huge debt way. So huge that the financial world shudders once again and all the stock exchanges are flashing red. Come on British Business Ltd, go get our P & O back.

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Embarrassing or what..

Embarrassing or what..

The poor old lady must have been squirming in her gilded seat.

“My Government ….” If ever anyone wished they did not own something!

Aside from the fact that the legislation outlined in the latest Queen’s speech has only an outside chance of ever hitting the statute book, how does one legislate away half of the nation’s debt? It was, after all, acquired without legislation. Sort of laissez faire really.

Hope my three clever granddaughters read this in a few years time. It will give them a huge belly-laugh. Not that either has a belly of course; unlike UK Ltd.

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Neelie The Elephant

23rd November 09 – Neelie the elephant

She’s not really an elephant but merely a behemoth beast. Neelie Kroes has done it again. The European Competition Commissioner has done it again ; eaten Angela Merkel for breakfast. Just as well for the German Chancellor that she rode to victory in the elections on the back of saving thousands of German Opel jobs by backing the Canadian car parts firm Magna to buy GM Europe assisted by the Russian bank Sberbank.

Kroes broke up the Dutch bank ING, played a starring role in the reduction of Lloyds Banking Group and RBS and now has helped persuade GM that they might as well do their own thing with their European business since by the time Neelie has felled another tree, the answer will be about the same. Of course, the Russian bear is sore.

Few items of news have occupied more column inches in the credit crunch aftermath than what the bankrupt GM Motors would do with its European wing. With 25,000 jobs at stake in mainland Europe and 5,000 in the UK plus probably as many again in the ranks of distributors and ancillary trades, it was and still is one of the major fall-outs.

Well, the Americans have stood their ground and the sovereign governments will have to put up if they want to keep the business in tact. All this talk of the new European Constitution and whether there will be a European President seems a bit pointless. We already have the most powerful person in Europe firmly in place. Not nearly but Neelie.

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If A Soft Man Turns Hard

If A Soft Man Turns Hard

It was sort of inevitable that President Obama would stop off in Singapore en-route China since it is the thrusting little state of the Far East that cannot be ignored (refer to Chapter 11 of Violets) as a microcosm of the China syndrome.

Ex President Bush played the hard man, ably backed by his Treasury Secretary of the time. They put the East/West trade imbalance on the line and blamed China openly for its currency hold-down in support of its exporters and worried openly about China’s purchase of stakes in mines in Africa and elsewhere to support its gargantuan appetite for commodities.

Then came a softer approach from the new administration. The two big powers needed to understand each other, needed to get closer together on economic thinking. The trouble is that China has continued to pump its money into the supply side by building more and more infrastructure: more manufacturing capacity. It has played with its worry beads about its external funds invested in the greenback and even threatened to invent its own world currency exchange.

The employment situation in the US is very grim and getting worse no matter the rate of unemployment may be steadying off.

What happens when the soft man turns hard? In my experience he can be harder than the upfront hard man. The US economy is still vastly greater than that of China. If President Obama closes the door for a year or two, China will be in the biggest mess the economic world has ever seen. If the students with their primed questions laugh at Obama like they did at Bush, watch the worm turn.

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“Probably the worst managed bank this country has ever seen.”

16th November 09 – “Probably the worst managed bank this country has ever seen.”

The quote from Lord Myners, the City minister, relates to none other than the Royal Bank of Scotland (RBS) as it was announced that it would use the Government’s Asset Protection Scheme (APS) for £282b of toxic assets. It will stand the first £60b of losses itself.

A further £25.5b is to be pumped into the bank (in “B” shares with a coupon of 7%) to add to the £20b of existing support and giving the taxpayer an 84.4% holding in the beleaguered outfit. A further £8b could be injected in the future should the tier 1 ratio fall below 5%.

Like Lloyds Banking Group (see entry dated 9th November 09) concessions have been dragged out of the bank as one cost of the saviour efforts. Cash bonuses are to cease for those on salaries above £39,000 pa in favour of shares and even new recruits who were appointed on multi-million “guarantees” will be caught. Directors are to defer bonuses until 2012 and clawback clauses will apply. RBS will have a lending target of £25b for this year and next.

Facing up to Europe’s competition authorities, RBS will sell its insurance arm Sempra, its global payments business and 312 branches.

Lloyds and RBS taken together, it is estimated that 10% of all personal banking and small business arrangements will pass to new owners over the term of the deal.

All that “goodwill” on past acquisitions wiped out at a stroke.

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What A Lottery!

What a lottery!

Combining two sources creates “A voluntary tax on the stupid”.

Impatiently waiting to pay for my Saturday paper, the lady at the counter looked (as my dad would have put it) as if she hadn’t two half-pennies to rub together. Her clothes were old and very worn and her hair not brushed since last Saturday at least. She bought one of those magazines aimed at young girls that have alluring bangles and sparkly things on the front cover and which I know from getting them myself for a granddaughter cost about £1.60. But the lady’s bill came to £18.60. Why?

Three scratch cards and three lottery tickets for tonight and three for something in the week is the answer.

Some statistical wag has just calculated that if one buys a lottery ticket at 4pm on a Monday, the odds favour your death within the next 40 minutes rather than a win on the lottery next Saturday. Whether that is any win or the massive Euro Lottery win just announced, I know not but the point is well made.

The couple who have just picked up £48m or so will be ruined. No ordinary human being can handle that sort of windfall. Plenty extraordinary souls cannot either. 48 people winning £1m each would have made more sense.

Was the lady just plain stupid or is the scratch card and lottery phenomenon symptomatic of a despairing society where there are only two hopes left – make the beautiful granddaughter happy for a few minutes and to get something big to get me out of this lot?

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A Race Apart

A race apart

Having blogged on this before, it still blows my mind. The disconnection betwixt the demonstrable affects of the continuing UK recession and the activities of the unaffected.

We have just returned from a celebratory two days and one night at the Belfry, the HQ of UK golf. The car park is huge with only the Ferrari Dino and The Bentley Mulsanne managing to stand out from the everyday Mercs and Beamers. The vast main restaurant (£25 per head for the buffet) was packed from 7 pm onwards as was the golf bar from 3 pm. To leave means a good five minutes wait before a gap opens up on the passing A446. All this on the manufacturing-depleted outskirts of Birmingham.

We stop off en-route back for a spot of Christmas shopping (with 13% of the year yet to go before the commercial feast day) to find central Nottingham heaving and specifically the erstwhile MP’s listed store John Lewis packed to the gunwales with free-spending cosmopolitans and where ipods at £115 were flying off the shelf.

Still trying to comprehend, I telephone the Manchester Crowne Plaza for a room on Saturday 28th November to find they are full, “Manchester City are playing that day and the Classical Spectacular is on at the MEN Arena.”

In my little book “Derbyshire born …” I refer to the haves and the have nots of the early 1950’s in rural Derbyshire. The disparity is wider now and those that worry about it, are hiding under the bed.

The APS that wasn’t

The APS that wasn’t

Back on the 13th August, I was writing a piece that assumed that the new Lloyds Banking Group (LBG) would sign the government inspired Asset Protection Scheme (APS) agreement. Well, it never was signed and now will not be. Rather the bank has crawled out from under the insurance cover preferring big funding actions and bowing to competitive pressure issues from Europe.

The future shape of LBG can be summarised as follows:-

• There will be a massive (the largest ever in the UK) rights issue to raise £13.5b. The shares will be issued on the basis of 2 for each existing share and priced at the higher of 15p or a 38% to 42% discount to the ex-rights price and calculated as 29p or 34p based on the closing price on Monday 2nd November 09.

• £7.5b of debt will be swapped for capital that can convert to shares.

• The Government will pump a further £5.7b into the bank to augment the £15b of taxpayer support previously applied.

• Cash bonuses are banned to staff on salaries above £39,000. Bonuses will have to be in shares.

• Board directors will defer all their bonuses until 2012.

• All bonuses will be subject to clawbacks.

• Lending targets have been set at £14b for both this year and next.

• 600 branches of Lloyds/TSB must be sold, together with the Cheltenham & Gloucester branded accounts and mortgages and the Intelligent Finance business, all by the end of 2013. Halifax is to be retained.

• Acquisitions are banned for the next four years.

• Dividends are banned until the end of January 2012.

• There is an expected hit of about £34b in loan losses for the next two years.

Quite a turn up. And to think that I used to bank with Bank of Scotland, a lovely friendly bank that had pushed quietly Southwards and started off the bidding round for Natwest. How times change.

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Back To School

Back to school

Taking a young child to school for the 9am start is a very emotional experience. It happens to me occasionally either with my two granddaughters in Bristol or my third one on the Nottinghamshire/Lincolnshire border.

I think it is because whether we are walking hand in hand (Bristol) or driving (Notts/Lincs), there is always much chatter and today for instance about bonfire night and the danger involved and needing to stand well back from the fire behind a fence. And with sparklers the fact that they are still hot after they have finished burning and so there must be a bucket of sand or water ready to put the spent sparkler in.

All this follows making sure the school clothes are on properly, the school work is in the bag together with a bottle of water and sandwiches and biscuits and grapes for lunch. It is a busy and exciting hour or so, until the school gate is reached.

Then it all changes. The hand is released, “goodbye granddad”, she turns away and walks on already having met up with a friend. She has entered a different and full world and I am left empty and drained. I shout “bye Katy” or “bye Colette” or “bye Zoe” but it is not heard. She doesn’t turn around, she has gone.

There was no taking to school in Newton in 1948 or warnings about the dangers of bonfires and sparklers. You were just thrown in and that was that. I will re-read my book “Derbyshire born” and try and imagine how different was that record of early school life compared with whatever Katy is experiencing this morning in her bright new school. It might help, but I still feel lost.

Lloyds Banking Group And Robots

Lloyds Banking Group and robots

I should be writing about LBG’s great escape from the Asset Purchase Scheme but that can wait the “credit crunch aftermath diary” once the final details are announced later today. Instead, I can announce the replacement of humans by robots.

My wife has banked with Lloyds for over forty years and when there has been a little problem can pick up the ‘phone and chat to the lady in the Mansfield branch and sort it. Now a small diversion. It is well known that power in a two-way communication always lies with the questioner. That is why the media interviewers are always on the front foot.

Suppose a cheque has gone missing either courtesy of our kamikaze friends at Royal (does the Queen still approve by the way?) Mail or due to inefficiency of the receiver. No matter, all we need do is cancel it and start again. Try getting that through to the new robot who does not ask the question “Do you want to cancel a cheque?” He will ask for your account number (either tell me or input from your telephone key pad) and your identification number (which of course is long forgotten) and what the cheque number is you are enquiring about and confirm it has not been processed. But that is all folks – bad luck.

My advice is, go to First Direct, who still employ people.

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Of Confidence

Of Confidence

In the early days of the credit crunch diary, I referred to the esoteric factor of confidence as the most important ingredient in getting things going again and likened it to “culture” overlaying the performance of a corporate body.

Market research company Nielsen has published its latest survey on consumer confidence showing the highest level for eighteen months. Specifically, sentiment about personal finances has improved a little and attitudes to spending on discretionary items are more positive. Overall the consumer confidence index rose to 75 in October being a 10 point gain on the all-time low registered in April 09.

Significantly, 20% of people now believe job prospects in the UK will be “good” or “excellent” over the next twelve months compared with 14% in June 09. Adding some mollification, the British Retail Consortium’s (BRC) director general, Stephen Robertson said “There’s no question the general mood of customers is better than a year ago when conditions were dire, but improvements have been slow so far. Half of consumers believe we’ll still be in recession in a year’s time. More than half are worried about jobs and their own finances and that will hold back full scale recovery well into next year.”

One other aspect of aftermath is worth noting since it is definitely a factor in my family. People still in employment are working harder and there has been an increase in people feeling their work-life balance is their biggest concern (9% compared with 4% a year ago.)

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Derbyshire Born - My journey from Farm Boy To Financier.

Welcome The Big Scene

Welcome the big scene

Desperate to find the macro and shake off the micro, desperate to see global and dismiss with disdain our small Island’s woeful leadership and weak opposition, I homed in on some statistics trotted out by Alan Steel, chairman of Alan Steel Asset Management in a piece in Saturday’s Daily Telegraph. I know not whether they are truly factual, but I hope so. And hope is at the zenith of my economic horizon as we successfully survive Hallowe’en.

“First, there are three billion people in the developing world who want to be better off; 180,000 people a day in these countries are moving from the country to the city, increasing their income and prospects. This will continue for at least the next 20 years. Growth in India, China and Latin America has accelerated. It’s expected imports to (he means their exports to) China will dramatically rise shortly, benefiting commodity funds. The second reason is Generation Y in the US. This is a generation 20% bigger than the post-war Baby Boom generation. It’s estimated they’re four times wealthier than baby boomers in real terms. And progress and new opportunities will come out of left field.”

Alan Steel’s context is British investors. Mine is the big scene and time enough to find better economic leaders in our little bit of that big scene.

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