22 June 2017
Week In Brief: BUSINESS AND THE CITY
BAD WEEK BEHIND THE COUNTERS: Maybe the bankers are going to be regulated less (see our article on the US this week) but Barclays, the 300 year old UK domiciled bank, must be wishing it had thrown itself on the regulatory mercies of the Bank of England during the financial crisis. Instead Barclays went for self-help, with an institutional capital raising including a major contribution from the Gulf state of Qatar. The terms on which this was done have caused rumour and trouble ever since. As much of it is subject to various bits of litigation we will not get into details here, but in the most simple terms the Qataris and others provided loans of around £7.5bn to Barclays which were structured so they could be included as capital in regulatory calculations, and thus gave the bank the ability to meet the regulatory tests and also liquidity to enable it to continue to be active in business and assure its depositors. The support was not cheap but it got Barclays through and was in due course repaid. Even in Barclays elements of this were controversial, as were other aspects of the bank’s business. This led to several change of senior executive board members, including the sudden departure of Bob Diamond, regarded as brilliant but too drawn to risk taking to head a clearing bank, and Antony Jenkins, regarded as a steady pair of hands but not a sufficiently imaginative leader. Now Barclays has a new boss, Jes Staley, and a new strategy – cutting off much of the minor business overseas, but rebuilding the investment banking side.
But the past is suddenly back – to start with, Mr Staley’s hiring strategy, which was to lure in bright talent from JP Morgan where he himself had worked. This was so pronounced that there was a bit of a row (or “a polite conversation” chairman to chairman as is said in the City) and Barclays agreed not to recruit any more staff from JPM. Now the US Justice Department is having a look at this – not objecting to the enticements, but the fact that Barclays agreed to stop. The Justice Department thinks this might breach anti-trust laws. Those of our readers who tango will be aware that it takes two, but at the moment the interest seems to be in Barclay’s role, not JPM’s, who say that nobody agreed anything improper.
Then Mr Staley was announced to be under investigation for matters relating to an alleged whistle blowing incident in the bank. And the bank is under continuing investigation by the US authorities relating to alleged mis-selling of securities instruments in the time leading up to the 2008 financial crisis, charges which Barclays very strongly rebuts.
But all those troubles were dwarfed by the events of earlier this week where the British Serious Fraud Office arrested four senior former Barclays men; ex-chairman John Varley, the aforementioned Antony Jenkins, Thomas Kalaris former head of the private wealth unit, and Richard Boath, then of the global finance unit, and charged them with various offences relating to fraud by misrepresentation. The bank itself has also been charged with similar matters. This all centres around what was made public to investors when the bank did its huge fund raise in June 2008. This raise was not just the £4.5bn or so put in by the Qatar parties but by several other large international institutions, and it is understood that the SFO is concerned not all investors may have been made aware of the same facts.
Not surprisingly, this has not helped Barclays share price, nor presumably its standing among some of its major customers, though no doubt on reflection it will be remembered that the allegations relate to matters nine years ago, and that none of the accused are now in positions in the bank. Mr Staley must be reflecting that he wished he had stayed at JP Morgan.
COKING UP A REVIVAL: It’s an unlikely place to be a centre of power generation – but the English Lake District is making an increasingly important contribution to Britain’s energy needs. The nuclear power station complex at Sellafield is of course closed and the two power stations on the site are in the process of decommissioning and dismantling (but a new one is under construction creating 21,000 jobs and costing £10bn), but also the site is the centre of dealing with spent nuclear fuel in the UK, a vital role in keeping the remains of the nuclear generation capacity operational. On the Lake District fells are a number of wind turbines, and lots more are going into the Irish Sea catching the strong winds that sweep across the Irish Sea. The concept of a barrage across the estuary of Morecambe Bay continues to be researched – and another two bays east and west of Barrow-in-Furness are suitable for barrages and could follow if viability can be proven and environmental factors satisfied. And now there is hope of a revival of West Cumberland’s ancient coal mining industry. West Cumbria Mining, a new venture owned by an Australian venture capital fund, is well advanced in plans to reopen and extend mining operations under the sea south of the port of Whitehaven to extract what are believed to be large reserves of high quality coking coal, a vital component of steel production which the world is getting short of. The price of this has risen recently to US$ 300 per tonne, which is around twice the price needed for viable production, and WCM says it has initial orders for about 500,000 tonnes per year for export. Two more potential customers are Britain’s only major steel works at Scunthorpe and in South Wales. The mine has finance in place and it is hoped that it may be operational by the end of 2019.
MR CORBYN WILL BE PLEASED: We have followed the troubles of Co-op group for some time, where its banking arm has become a major problem as it continues a steep and troubled decline. But what the Co-Op Group, the parent company which historically is closely allied with the Labour Party, has just revealed is that its historic main business, the retail operation which operates a big chain of supermarkets in northern and rural England is doing very well, and last year turned over £9.47bn, just behind the John Lewis Group. And membership (the Co-op is owned by its members) is up 700,000 which suggests increasing customer loyalty and more good figures to come.
FIGHT AT THE TILL: But one potential source of easy growth seems to have escaped the Co-op. It was hoping to buy Nisa, a cooperative itself, which is a group of around 1,400 shopkeepers with a central supply business. The majority apparently want to demutualise, not surprising as some could get payments of over £600,000, but they have decided to run with J Sainsbury, who want to add to its corner shop offerings. However the deal is not done yet and it may not be – there is said to be major opposition from some members who want to remain independent.
KEY MARKET INDICES: (as at 20th June 2017; comments refer to changes on last 7 days; $ is US$)
Interest Rates:
UK£ Base rate: 0.25%, unchanged: 3 month 0.30% (unchanged); 5 year 0.63% (rise).
Euro€: 1 mth -0.37% (steady); 3 mth -0.33% (steady); 5 year 0.03% (fall)
US$: 1 mth 1.04% (steady); 3 mth 1.20% (steady); 5 year 1.82% (steady)
Currency Exchanges:
£/Euro: 1.13, £ steady
£/$: 1.27, £ steady
Euro/$: 1.12, € steady
Commodities:
Gold, oz: $1,244, modest fall
Aluminium, tonne: $1,861 slight fall
Copper, tonne: $5,686, slight rise
Iron Ore, tonne: $54.71, rising
Oil, Brent Crude barrel: $45.82 fall
Wheat, tonne: £146, steady
London Stock Exchange: FTSE 100: 7,472 (slight fall). FTSE Allshare: 4,087 (slight fall)
Briefly:
If you put your money in wheat and iron ore then you have had a good week – both moved significantly up, wheat on presumably the hot weather and the prospects for yields in this year’ harvest. Everything else, whether due to the heat or to investor nervousness, was pretty torpid. Apart that is, from oil – that had another bad week, with political events suggesting that the OPEC production agreements may fail.
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