Fancy financial footwork over the bailout suggests that the government is anxious to offload some of its shareholding
There is no fixed timetable for selling any shares in Lloyds and Royal Bank of Scotland, says the Treasury. Perfectly true, as far as it goes. But you can tell the government is champing at the bit, eager to offload a few, by the fancy financial footwork used on Friday to explain the price at which the state rescued Lloyds in 2009.
In the past, this territory has been straightforward. UK Financial Investments, the body that “manages” the state’s investments in the bailed-out banks, provides the arithmetic in its annual reports. Its text is clear: the Labour government invested in Lloyds in three tranches and “the gross cost of these investments is £20.3bn, at an average cost per share of 73.58p”. There’s even an admirably clear table to explain the workings.
So what’s this 61p figure that appeared on Friday? Apparently, it is “the average price at which the equity support provided to Lloyds Banking Group is recorded in the public finances”. But how can that be different from UKFI’s calculation?
It seems the Office for National Statistics used the average price in the market for Lloyds shares on the day of the investments, not the actual price paid by the state.
It calls the overpayment a “capital transfer”, explaining that it’s all to do with permanent and temporary effects and that £3.4bn of the £20.3bn has been booked on the national debt.
Forget the ONS’ weird methodology. Common sense says you only show a profit on an investment when you sell at a price higher than the one you paid. The threshold for a profit on the Lloyds shares therefore remains 73.6p.
Yes, the Labour government paid more than the market price at the time, but the Treasury shouldn’t ignore that fact.
Lloyds, to its credit, is not pushing the 61p figure. Indeed, it seems embarrassed that it has been obliged to use it in setting a condition for chief executive António Horta-Osório’s £1.5bn bonus – he’ll get his money if the state sells a third of its stake above that price. It was the Treasury’s idea to use 61p. The goalposts have started to move. So did Lloyds’ share price – it was down 2% to 53p. But, if and when 62p is seen, expect to hear the government declare victory, and a profit, far too early.
Glasenberg and the black kettles
“I hope CEOs have learned their lesson. The big guys really screwed up.” So said Ivan Glasenberg, multibillionaire chief executive of Glencore, this week in a blast against the mining industry’s record in recent years of overbuilding and overinvesting.
He makes a fair point, of course, since there have been some spectacular writedowns in asset values at big miners. But is Glasenberg really the man to preach?
He has also been a director of Xstrata – where Glencore hopes soon to complete its takeover – since 2002. There have been no big writedowns (yet) at Xstrata but few would describe the company, circa 2006-08, as a model of level-headed financial sobriety in a room of excitable fools.
Xstrata aggressively pursued a takeover of platinum producer Lonmin, to the point of bagging 29% of the shares, in late 2008, long after the whistle had blown on the commodities price boom. A humiliating 2-for-1 rights issue followed (causing a little difficulty for Glencore itself in the midst of the credit crunch) to repair a balance sheet overburdened with debt.
OK, Glasenberg was only a non-executive director of Xstrata, but he was definitely a big guy: Glencore owned 35% of the shares and had two, and then three, boardroom seats.
And, as we’re on the subject of overoptimism, spare a thought for investors who invested in Glencore’s flotation in May 2011 at 530p a share. That price has never been seen since and the shares now stand at 377p, down a little yesterday as completion of the Glenstrata deal was delayed again (maybe the Chinese competition authorities noticed that part of Glasenberg’s speech about the importance of miners not building in order to keep the market “tight”).
Among London’s big five mining stocks, only ailing Anglo-American’s shares have done worse than Glencore’s since the latter’s IPO.
That wasn’t meant to be the script. Wasn’t being big in trading commodities, as opposed to merely digging the stuff out of the ground, meant to offer shareholders protection? All will be explained in inimitable style with Tuesday’s results, one assumes.
It may be galling, but it’s probably time to get less exercised about Centrica’s booming profits and start to worry about something more important – like how will the UK keep the lights on.
There have now been two serious warnings in a fortnight. The first was from Alistair Buchanan, chief executive of regulator Ofgem, who said there was “horrendous serendipity” in a large chunk of the UK’s power generation (mainly coal) going offline just as global supplies of gas, the easiest power source to turn on in a hurry, could be squeezed.
Sam Laidlaw, Centrica’s chief executive, then said he wouldn’t be building more gas-fired plants until new market legislation is in place, which could take another two years. He told the FT he thinks there is a possibility of rolling blackouts by 2017-18 if there are nuclear or other outages.
Is Laidlaw trying to make himself even more unpopular by refusing to invest now? Not really. It is reasonable for Centrica to want to know how the government intends the market to work before it commits. That’s just how the privatised energy industry works these days, as the government knows. The rate for having gas-fired plants on stand-by, for example, is vital commercial information.
Buchanan and Laidlaw may not be disinterested parties in this debate, but warnings from high places about energy shortages in three and four years’ time should not be ignored. The questions for the department for energy are clear. Now that new nuclear is delayed until 2020 at the earliest, what is the contingency plan? Is there one?
From Bumi to bust despite Bakrie win
Shares in Bumi have fallen almost 20% in the six trading days since the board triumphed over Nat Rothschild (above) in the battle to control the boardroom. Bumi is an illiquid stock, of course, but the old theory was that victory for the board would be “good” for the share price in that divorce from the Indonesian Bakrie family would be more likely to happen. On this argument, a raging Rothschild at the helm would have created more uncertainty.
Corporate divorces, even ones planned months ago, don’t happen overnight. And a week of radio silence from Bumi is perhaps a welcome novelty by recent standards.
All the same, bruised investors in Bumi might welcome some reassurance soonish that all is well with the Bakrie unwind.
The village of Rüschlikon got £242m when Glencore floated – but many residents have reservations about the money’s origins
He’s so rich and pays so much tax that every one of his 3,600 neighbours in the picturesque village overlooking Lake Zurich got a 7% tax break, but not everyone in Rüschlikon likes Ivan Glasenberg.
The 55-year-old, who had been living quietly in the village for more than a decade, exploded into the public consciousness last year when his previously extremely secretive commodity trading company Glencore floated on the London Stock Exchange and turned Glasenberg into Switzerland’s sixth richest man overnight.
The float valued his stake in the company, which is worth four times as much as Marks & Spencer, at £5.7bn. Even with Switzerland’s famously low tax rates, Glasenberg, pictured above, paid 360m Swiss francs (£242m) in tax to Rüschlikon’s coffers because under Swiss law a large proportion of income taxes are paid to the local community rather than directly to the state.
As a result Rüschlikon, which was already known as the “richest village in Switzerland”, was left with so much spare cash that the village council proposed cutting its already low tax rate by a further 7%. The idea was overwhelmingly approved in a public vote, but some citizens argued against the windfall – suggesting it was tainted money – and are still concerned today.
The money which Rüschlikon is benefiting from comes via Glencore’s mining and trading operations in more than 40 countries around the world. “He [Glasenberg] covers a lot of territory and has access to a lot of heads of state,” said James Campbell, a former executive at mining multinational Anglo American who worked closely with Glasenberg on one of his first deals in the 1980s. “His modus operandi is active. Certainly you either like Ivan or you don’t. I’m not sure those who don’t like him can tell you why.”
Growing up, Glasenberg was a keen athlete, going on to become a champion race walker who would have competed in the 1984 Olympics if South Africa had not been banned from the competition during the apartheid period. Chris Rael, who trained with him in California in the 1980s and now works for the US athletics team, remembers Glasenberg as courteous, friendly and approachable. “He never talked about money or business, so I would never have suspected that was what he’d become.”While Glasenberg, who lives in a glass and steel chalet up a steep hill with views over the lake, is on first-name terms with presidents and prime ministers, few people in Rüschlikon had heard of him until his taxes reached the village coffers. The huge payment caused an immediate stir, with the mayor being advised to call the village’s bank to make sure it was prepared to receive such a large payment.
In Le Bistro cafe in the converted waiting room of Rüschlikon station, from where the village’s rich residents can be whisked to downtown Zurich in 15 minutes, none of the clientele whiling away the afternoon have met Glasenberg but all are happy to chat about his impact on the community.
“They are really happy with him paying a lot of taxes,” said waitress Sylvia Hauser. “But they don’t like his business, they don’t like what he is doing. It’s not very friendly and they do not agree with what he does, especially in
The European Commission gives its backing to commodities giant Glencore’s $31bn (£19.5bn) bid to take over mining firm Xstrata.
Link: EU backs Xstrata-Glencore merger
Shareholders in mining group Xstrata have blocked bonuses worth about $220 million promised to some of its top executives as an incentive to stay at the company after its takeover by commodities trader Glencore.
Read this article: No merger bonuses for Xstrata execs