- Edward Croft is CEO of Stockopedia, a UK-based website which aggregates research, commentary and analysis for investors, and offers social networking opportunities. The opinions expressed are his own. He will participate in the Reuters Politics Today live blog at noon British time on Wednesday, April 7, 2010, during Prime Minister’s Questions. Please tune in and join the discussion. -
The Great Debate UK
-Angus Rigby is CEO of TD Waterhouse. The opinions expressed are his own.-
Volatility has been the name of the game since Lehman’s collapse, an event which sent shock waves through the global financial markets. The ripple effect on correlated sectors sent share prices on a roller coaster ride of unpredictable fluctuations throughout the year – and yet at the same time this very volatility paved the way for the profit-taking retail trader, if they got their timing right of course.
Sir Victor’s Blank cheque has finally bounced. Drawn on the Bank of Gordon, it looked like a dodgy piece of paper from the start, and now it has been sent back, marked “Refer to Drawer”.
Shares in Lloyds Banking Group rose in relief that someone, anyone, has finally agreed to take the rap for the disastrous takeover of HBoS, at the behest of the UK government, during last year’s financial panic.
Dazzled by the prospect of a market position in the UK which the competition authorities would never have allowed in normal times, Blank and his chief executive Eric Daniels failed to look their gift horse in the mouth, and discovered it was really a broken-down old nag.
The acquisition obscured the fact that the Black Horse itself was hardly in shape, and even without the handicap of HBoS, would almost certainly have been obliged to limp to the government for help. That is as much Daniels’ fault as Blank’s, and he will have to pay once a new chairman has been found.
This will not be easy. It would surely be too venal, even for this government, to impose finance minister Alistair Darling on the suffering shareholders, once he finds himself out of a job next year.
Lord Sandy Leitch, the Labour luvvie elevated to deputy chairman at the weekend, might fancy his chances, but his background is in insurance. The fashion for bank chairman who know nothing about banking has, mercifully, been blown away by the crisis.
More sensibly, Lord Mervyn Davies seems to have little to do since he quit Standard Chartered Bank <STAN.L> for the administration, while Doug Flint from HSBC would be a fine, and popular choice as chief executive if he could face the challenge. He’s a Scot, which would also play well in the Brown bunker.
However, John Kingman, the civil servant in charge of UK Financial Investments, the government’s fig leaf covering its 43 percent stake in the bank, had signally failed to endorse Blank’s re-election at the forthcoming annual meeting. Perhaps he is showing signs of independence after all.
Philip Hampton, who was ousted as finance director from Lloyds five years ago for urging a cut in the dividend, would have been the ideal candidate. Unfortunately, he was tapped to chair RBS last January.
LONDON, April 7 (Reuters) – One share in every five in Punch Taverns <PUB.L> has been lent by its owner to the short sellers, who over the last couple of years have made more than enough to cover the bar bills.
Yet in the last fortnight, the Punch price has got off the floor and hit back, doubling from 40p to 80p. Why?
Pubs have endured the perfect storm, as new health’n'safety rules have been piled on to a raised minimum wage and the smoking ban. Meanwhile, supermarkets have exploited a relentless campaign against drink driving by making it cheaper to drink at home.
Every storm eventually abates, and this one may be easing. The professionals in the industry like Mitchells & Butler <MAB.L>, Marston’s <MARS.L> and JD Wetherspoon <JDW.L> are all making more optimistic noises.
The groups, which are essentially financial constructs that happen to sell beer, had been priced for bankruptcy, an outcome which now looks marginally less likely.
True, things still look pretty grim. Globe Pub Company, Robert Tchenguiz’s card in this game, is already in the hands of its bondholders following a technical default. Punch, the next weakest, is struggling to find the cash to repay its 224 pound ($334.2) million convertible due next year.
Its problem is that most of its pub estate is in three securitized vehicles that must generate threshold amounts of cash before they can pay anything up to the parent. Too little, and the cash is trapped; much too little, and the lenders take over the portfolio.
Punch is a debt mountain built on a sliver of equity; even after the doubling of the share price, its market capitalisation represents only 4 percent of the enterprise value of the business.
The shares are an option on the financial engineers at Punch finding a way to hang on long enough for the storm to pass.
They then have to work out how to compete with those companies that know about the business, which are now gaining market share from the engineers.
No wonder some brokers, such as Evolution Securities, are saying sell. The bears may yet swing the final Punch.
(Editing by Malcolm Davidson)