TODAY’S FAYRE & CMA INQUIRY

TODAY’S FAYRE – Sunday, 20th July 2014

“Sighing, and sadly sitting by my love,
He asked the cause of my heart’s sorrowing,
Conjuring me by heaven’s eternal King
To tell the cause which me so much did move.
Compelled (quoth I), to thee will I confess,
Love is the cause, and only love it is
That doth deprive me of my heavenly bliss.
Love is the pain that doth my heart oppress.
And what is she (quoth he) whom thou dost love?
Look in this glass (quoth I), there shalt thou see
The perfect form of my felicity.
When, thinking that it would strange magic prove,
He opened it, and taking off the cover,
He straight perceived himself to be my lover.”

Richard Banfield – poet – 1890-1986

Having spent two great days at Lord’s with friends and family in glorious sunshine – always an unforgettable experience – even though the cricket against India was interesting rather than inspiring – I watched Channel 5’s recorded coverage. In my humble opinion Simon ‘Yosser’ Hughes is one of the best commentators and analysers in the game and why Sky don’t sweep him up is a mystery to me. He may not have captained England and was only a journeyman performer in a very successful Middlesex side; nonetheless he makes an outstanding contribution to the game.

The US economy was just beginning to coming in its summer coat after such a heinous winter, which saw growth go in to reverse (-2.9% for the 1st quarter). Many felt that a Bletchley Park styled code book to decipher FED chairman Janet Yellen’s messages on the US economy may not be needed. Quantitative easing was on the retreat and interest rates were unlikely to be hiked until early 2015. China was playing its part by keeping growth at 7.5%.

In the UK unemployment was continuing to fall; growth was accelerating and inflation is not a serious issue in isolation, though with wages still lagging behind, disposable income remains at a premium. So there may be no case for rates to go up in the UK until 2015, property bubble or not! Apart from Germany Europe’s economy remains a mess.

So at the beginning of last week, equities were responding well to the 2nd quarter earnings season in the US with disappointment. Even gargantuan fines failed to stop some banks reporting great numbers – Goldman, Morgan Stanley and JP Morgan to the fore. Google saw sales up 22% on the year.

M&A activity, which has been vibrant this year, was in overdrive last week. AbbVie consummated its acquisition of Shire Pharmaceuticals for £32 billion, despite the veiled threat from the US government about capitalising on tax advantages. Rupert Murdoch still enjoys an insatiable appetite for deals and put in a bold bid for Time Warner, valuing the joint operation at $80 billion. It was rejected out of hand, but this deal may not be dead in the water. At the same time BSKYB sold its remaining 6.4% stake in ITV to Liberty Media, which could mount a full scale bid in 6 months’ time.

Then came that incomprehensible act of barbarism, when a pro-Moscow separatist allegedly brought down a Malayan airliner with 295 people on board over Eastern Ukraine. This act of mindless terrorism temporarily rocked the world back on its heels, with investors, not surprisingly taking some risk off the table.

However having reflected on the political and economic ramifications of this atrocity and the ongoing implementation of sanctions, markets are nervously retaining their poise, though airlines, travel companies, banks and some oil companies have shed some value. However most global indices closed the week above the Plimsoll line – The S&P finished last week +0.27%, the FTSE 100 +0.89%, European stocks an average of 0.81% and the NIKKEI +0.34%.

Glaxo admitted to making bribes in China in 2001. It also looks as though this week’s results will see profits fall maybe down as much as 7.7% according to Panmure’s Savvas Neophytou. Bank of America’s results last week were adversely affected by a $13-17 billion for miss-selling of mortgages. IBM announced an initiative with Apple, whereby they would be pooling resources for their commercial operations, much to the chagrin of Blackberry. The Coop has sold its pharmaceutical retail operations to Bestway. Bird’s Eye and United Biscuits are both considering IPOS. UB churns out 100 million biscuits a day and PAI and Blackstone may be keen to cash in sooner rather than later.

BSKYB hopes to seal the takeover of its Italian and German operations, valued at E8 billion before 20th Century improves its bid for Time Warner.

The SFO is considering a probe in to currency trading price rigging. London hosts about 40% of the foreign exchange market and were the allegations to have any REAL substance the issues over LIBOR, PPI and money laundering could be made to look like a vicarage tea party in comparison. The ramifications are frightening. The domino effect through global markets – banks, brokers, fund managers, corporations and governments could be gargantuan. It is thought that HSBC, Barclays, RBS and Lloyds Banking Group all have questions that require answers.

On Friday the Competitions & Markets Authority announced that it was having the drains up as to how to create an environment for greater competition amongst the banks than is currently available to the consumer. The idea, we think, is for more transparency, an environment that makes it easier for customers to move their accounts, in the hope that it will make the banks more competitive, thus encouraging challenger banks to enter the fray. Despite assurances from the major banks that competition concerns were unfounded, the CMA under the eagle eye of CEO Alex Chisholm was not satisfied an inquiry was called.

This initiative has the salivating Dr Cable’s dabs all over it! No one officially loathes banks more than he does. I am sure the CMA’S intentions are honourable, but this idea is about as naive and unnecessary as could be. This inquiry is a waste of time energy and the taxpayers’ money. Why? For a start the banking crisis has triggered draconian capital requirements – understandably. It is now very expensive to run a bank. Also when a bank is repairing its balance sheet, it is unrealistic to think that banks should lend money indiscriminately to everyone who makes widgets in Wisbech!

We need to see how successful TSB becomes and whether W&G can break through, when this bank is ready to go and not when Dr Cable wants it to happen. We have the likes of Metro, Tesco, M&S, Virgin Money and maybe the Coop on the peripheries. We wish them well and they may make some sort of impact. However will they beat up the top 4 – never! We need overseas banks to take the UK by storm like Handelsbanken, which has been a huge success in a limited manner here in the UK, to step up to the plate.

There is idle talk of breaking up RBS and Lloyds with view to creating competition. In my opinion this would just be an act of vituperative retribution and would achieve very little. First and foremost the tax payer could probably kiss goodbye to its money for at least a decade. Whether the government thinks that that risk is worth taking for the benefit of the the retail customer and the recovery of UK’S economy remains to be seen. I think it would be an act of venomous folly!

We have more banking committees than the UK can shake a stick at with the Vickers’ Committee, the FCA, the BOE, and the Parliamentary Committee on Banking Standards, the Treasury Select Committee and dear old Sir Richard Lambert’s Committee on banking ethics! How many more committees are required for those in authority to make some fundamental decisions!

Monday – BABCOCK INTERNATIONAL, Tuesday – ARM HOLDINGS, IG GROUP, PREMIER FOODS, PETROPAVLOVSK, ROYAL MAIL, QINETIQ GROUP, Wednesday – BHP BILITON, CAPITA,PLAYPOINT, PROVIDENT FINANCIAL, BREWIN DOLPHIN, GSK, JOHNSON MATTHEY, TALKTALK TELECOM GROUP, HOGG ROBINSON, SAGE Thursday – EASYJET, KINGFISHER, UNILEVER, DMGT, CLOSE BROS, M&B, CSR, SAB MILLER, (NOKIA), Friday – AFRICAN BARRICK GOLD, LONMIN, C&W COMMUNICATIONS, BSKYB, VODAFONE (TS), UNITED UTILITIES.

Monday – ALLERGAN, HALLIBURTON, NETFLIX RAMBUS, TEXAS INSTRUMENTS, NETFLIX, Tuesday – VERIZON, ALTRIA, COMCAST, OMNICOM, HARLEY-DAVIDSON, TRAVELERS, MCDONALD’S, COCA-COLA, LOCKHEED-MARTIN, APPLE, XILINX, MICROSOFT, BROADCOM, Wednesday – WHIRLPOOL, BOEING, GENERAL DYNAMICS, FREEPORT-McMORAN, BIOGEN IDEC, PEPSICO, FACEBOOK, AT&T, QUALCOMM, Thursday – FORD, ZIMMER, RAYTHEON, CATERPILLAR, DR HORTON, DUPONT, DUNKIN DOUGHNUTS, HERSHEY, KKR, PULTE, STARWOOD, BJ RESTAURANTS, CHUBB, DOLBY, VISA, STARBUCKS, Friday – XEROX, AON.

These are David Buik personal views

Twitter – @truemagic68

David Buik

Market Commentator

D +44 (0)20 7886 2775
Panmure Gordon & Co
One New Change | London | EC4M 9AF | United Kingdom
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