TODAY’S FAYRE – Sunday 20th April 2014

TODAY’S FAYRE – Sunday 20th April 2014

“Desperation is a lonely poem
And what I have to say
And have said so many times before
Will not save me
From this situation.

Desperation is a lonely poem
And a helpless poem
And a difficult poem
And a painful poem
And a poem I do not know how to get out of.

Desperation is the silence of all these words
And the nothingness of endless not hearing
When I cry with all my soul aloud.”

Shalom Freedman – poet & author – 1942

I had forgotten what a timeless, beautiful and unspoilt part of the country the north coast of Norfolk is; from Hunstanton to Heacham to Thornham to Brancaster, to Burnham Overy Staithe to Holkham to Wells to Stiffkey to Morston to Blakeney and finally to Cley. There are endless miles of sandy unpopulated beaches. If the weather is fine it is Heaven reincarnated for all ages from 2 to 82! At the end of the day what better than a home-cooked family dinner or just a crab/lobster supper washed down with a glass or two of very decent white burgundy to give everyone a satisfactory glow of healthy tiredness, whilst playing competitive family board games! Bliss!

During a working week it is very easy to miss the presentational mistakes and any signs of negative body language from speeches by world leaders or politicians. Last Thursday, whilst on holiday I watched President Obama. He looked tired, his confidence was shot to ribbons; he was hesitant and rudderless in presenting his comments. Where was the world’s great hope that the free world believed in to get the 21st century off to a really positive start post the disastrous George Dubya dynasty.

What a disappointment! Once Obama ‘bottled’ Syria, Putin was always going to have him on toast, as no one, understandably wants to go to war! The sanctions process is a waste of time and effort and the world stands to lose more than Russia does. As far as UK PLC look no further than BP for the first potential financial disaster! When the curtain comes down on his Presidency in 2016, what will Barack Hussein Obama be remembered for? – A botched and badly presented healthcare plan?

Sentiment surrounding the Ukraine crisis bounced around the world like a cork in a bath last week – net, net on the week, after a semblance of agreement, it ended just above the Plimsoll line but I would not be about to hold my breath that a decent workable settlement could be negotiated. Secretary Kerry fills me with zero confidence and like it or not Putin is running away with this current ‘pot boiler!’ And in the name of all that is wise and wonderful why does Baroness Ashton hold such a pre-eminent position. I suspect she know no more about foreign affairs than I do! Tech stocks rallied sharply from last week’s sell off, aided and abetted by decent numbers from Yahoo!, which also has a healthy stake in Alibaba, which is coming to the market soon.

The initial slew of 2nd quarter earnings were very acceptable with GE, Citigroup, Morgan Stanley, Coca-Cola and Johnson & Johnson showing the way. Only Google and IBM disappointed. At the end of a shortened Easter week the S&P 500 was up 2.7%, the NASDAQ by 4.2%, the FTSE by 1%, European stocks by 1.2% and Japan’s Nikkei by 4%. Equities were also given a boost by comments made by Fed chairman Janet Yelled which would have dispirited interest rate hawks. She implied that employment data was far from good enough to send a signal for rates to rise after tapering QE has finished. Clearly equity geeks too heart, marking stocks up ahead of the holiday break.

In London there were 3 main stories for me – TESCO, COOP and ANGLO-IRISH BANKS – plus a compendium of corporate and economic issues, all of which brought something to the week’s fayre. Tesco’s Phil Clarke just about got away with what looked like a plan full of platitudes and excuses, when he presented a woeful set of numbers last Wednesday with profits down 7% and like for like sales easier by 1.4%. Shareholders were under-whelmed that Tesco’s share price had risen only 32p in the last decade up to the close of business on Tuesday. After the results the shares rallied 4% but by Thursday evening 2% had been surrendered. The confidence in a rapid recovery was not there. When in a relatively short period stalwarts such as Higginson, Brasher, Potts, McIlwee and Atkinson are shown the door, as an observer you should be forgiven for thinking leaders of this quality are rarely replaced quickly. Mr Clarke lives to fight another day, but fund managers will be watching his movements like a hawk.

The financial world owes a great debt of gratitude to Lord Paul Myners, who in his capacity as a recently appointed chairman of the Coop Bank, acted for the good of the whole movement which employs 90,000 and serves 7 million customers/members, when he became a very vociferous whistle-‘blower’ over corporate governance issues. He subsequently resigned. He did not pull his punches in supporting many of the views of the Coop’s recently departed CEO Euan Sutherland, by stating that the Coop was run by too many people ill-qualified to do the jobs they had been given, implying that the Rev Flowers was just one of many and that many changes would need to be made to comply not only with regulatory requirements but also to satisfy this mutual’s supporters that its operations were being run as professionally and efficiently as possible.

Richard Pennycook, the acting CEO, when presenting the not unexpected loss of £2.5 billion last Wednesday, much of it down to the bank’s incompetence in buying the Britannia Building Society at the wrong price plus a write-down of £226 million for the purchase of Somerfield and an operating loss of £148 million, did not pull any punches. Without actually naming Peter Marks, the previous CEO to Sutherland, he was unequivocal in laying the reckless blame at the door of the previous management regime. The ramifications for not saving the Coop are too great! Too many people’s jobs and assets are tied up in this monolithic operation. In future Labour party ‘jobs for the boys’ can only be given to those who tick all the professional boxes. Hedge fund managers now have their clammy paws on the controls of the bank with 70% ownership. However there is a capital shortfall of about £400 million, the original £1.5 billion having been largely dealt with by the US hedge funds. 30% of this will need to come from its members or reserves. This is a sorry tale, with a terrible story in the middle. Let’s hope the ending makes better reading. If Lord Myners’s advice is listened to, ‘hope could spring eternal!’ It is interesting to note that RBS has parachuted Bob Hedger, a well-respected corporate banker to oversee loans made by RBS to Coop. Mr Hedger is tougher than teak and will take no prisoners until the problem in hand is dealt with to his satisfaction. There will be no white-washing, of that we can be sure.

When the jury found former CEO, Sean Fitzpatrick not guilty of fraudulently making loans on behalf of Anglo-Irish Banks, which eventually brought the bank and eventually Ireland’s economy to its knees to the tune of E30 billion and $62 billion respectively, the world was astonished. However it just goes to prove that the perception of financial incompetence and proving criminal fraud are very hard to separate – a la Fred Goodwin. The loans in question were part of a move to unwind a large position taken in the bank by the Fermanagh businessman Sean Quinn, who through sophisticated financial engineering in a roundabout manner ended up owning 25% of the bank! Co-defendants, Pat Whelan, 51, and Willie McAteer, 63, were accused and eventually found guilty of making loans designed to illegally prop up the bank’s share price. Both could end up with custodial sentences. Though the property game in Ireland for over a decade seemed like money for old rope to the banking fraternity, it is astonishing that a Mickey Mouse operation such as Anglo-Irish Banks could go down the ‘Sewanee’ for such a gargantuan sum of money without the Irish Government being held to account. It is almost as absurd as the amount of money RBS lost. At least RBS was supposedly a substantial bank.

The UK had some good news on the economic from with inflation down to 1.6% in March and unemployment dropping to 6.9%. The government can preen itself like a peacock, but it will not need reminding that growth has only just reached 2008 levels. There are mountains to climb. RSA’s Stephen Hester is about to wield his axe in terms of cost cutting as he seeks to raise £750 million rights issue. RSA also intends to sell its Baltic and Polish operations.

Because of Easter, it won’t be ‘Merger Monday’ next week. However it could be ‘Merger Tuesday’ if there is any substance to the idle gossip that Pfizer, the US drug giant, is about to table an offer for Astra Zeneca, the Anglo/Swedish drug titan. This deal could value Astra Zeneca at £60 billion. It is thought that this suggestion has fallen on Astra’s deaf ears. Any initial offer may be rejected. Pfizer has a cash mountain of about $70 billion. Some of its patents are coming to maturity; so Pfizer, the maker of Viagra is looking to be pro-active. Pfizer and Astra have already collaborated with each other on cancer drugs for the treatment of lungs.

These are David Buik personal views

Twitter – @truemagic68

David Buik

Market Commentator

D +44 (0)20 7886 2775
Panmure Gordon & Co
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