TODAY’S FAYRE – Sunday 7th June 2015


“There’s something in the air,’ he said

In the farm parlour cool and bare;

Plain words, which in his hearers bred

A tumult, yet in silence there

All waited; wryly gay, he left the phrase,

Ordered the march, and bade us go our ways.


‘We’re going South, man’; as he spoke

The howitzer with huge ping-bang

Racked the light hut; as thus he broke

The death-news, bright the skylarks sang;

He took his riding-crop and humming went

Among the apple-trees all bloom and scent.


Now far withdraws the roaring night

Which wrecked our flower after the first

Of those two voices; misty light

Shrouds Thiepval Wood and all its worst;

But still ‘There’s something in the air’ I hear,

And still ‘We’re going South, man,’ deadly near.


Edmund Blunden, CBE, MC – poet & soldier– 1896-1974


Though I would never, ever condone phone hacking, I was delighted that Andy Coulson had no case to answer on the perjury charge. Like many others I think he carried the can for News Corporation in the phone hacking trial. I never felt that he quite received the support from his former employers and consequently it appeared that he was hung out to dry. However Mr Coulson was by then no longer a News Corp employee, having been appointed head of corporate communications at No: 10 in 2007, where he did an excellent undemonstrative job. With his life in tatters, let’s hope he and his family get another chance – everyone deserves one!


What a memorable weekend of sport. A great Derby with the rekindled Frankie Dettori winning his second Derby on ‘Golden Horn’ for his old chum and advocate John Gosden – not a dry eye in the house! Barcelona v Juventus! How about that for a magnificent Champions League final! Messi, Iniesta, Suarez and Neymar at their very best! Mind you Pirla, Evra, Tevez and co were hardly shabby fayre!

Bond markets vented their spleens on investors last week in a similar manner as they did during the Russian financial crisis in 1998. Double digit losses in a short period of time resulted in investors feeling the wheels of pain being lashed across their backs. Though the writing had been on the wall for some weeks, the reality of limited liquidity and wide dealing price quotes against a background of unrealistically humungous portfolios and the threat of higher interest rates in the US, released an overwhelming stench of fear across the financial spectrum.

Add to this the calamitous Greek saga and some average global economic data on the service sector and this produced quite a toxic cocktail of uncertainty. Though the Greek people have had to put up with intolerable economic pain in recent years, the manner in which its financial problems have been dealt by the EU, has frankly resembled a Fred Karno circus production – an absolute custard pie slapstick comedy! Of course Germany does not want to be seen as the instigator of GREXIT or as the bully boy rail-roading Greece in to submission on draconian terms of austerity, which Greece cannot deliver. Why?  Because it was Germany that promoted Greece’s membership of the EU, when it was not even close to meeting the financial criteria.  Germany wants a collective decision. Of course the EU fully realises that GREXIT could mean the Hellenic empire falling in to the hands of Russia, which could even include a naval base in the Piraeus – Heaven forbid!

Frankly Tsipras & Varoufakis have been given an unambiguous mandate by Syriza – no more austerity and no cuts in pensions or public sector salaries. So they are caught between a rock and a hard place. Why the G7 should waste its time this weekend on this carbuncle of a problem, when it faces real issues with IS and unrest in Ukraine – a real pot boiler – escapes me! We all know about cracks appearing in the basic fabric of the EU.  That is just too bad. The vernacular required is – ‘Dump or get off the pot!’ To allow Greece to bundle together €1.5 billion of its debt repayments until 30th June is a farcical joke. Greece’s cash problem won’t dissipate one iota! As Frank Sinatra sang all those years ago – ‘The Party’s over! It’s time to call it a day! You burst your pretty balloon and taken the moon away!….’ Of course the icing on the cake on Friday was robust non-farm payroll data – 280k jobs created in May with unemployment rising a pip to 5.5%.  This news ventures to suggest a rate rise by the FED in 3rd quarter, despite exhortations for IMF’s Christine Lagarde to leave it until next year. The UK’S economy, despite the BCC’S lower growth forecasts still looks robust and rates may rise above 0.5% a smidgen after 6 years in early 2016!

So it is easy to transcribe last week’s dispiriting machinations in to the poor performances of many global indices, though China, thanks to persistent stimulus packages did hit new heights – up 55% since March – madness, though in terms of P/E ratio still quite a fair way below what it was 10 years ago! The S&P lost 0.69% on the week, the FTSE 100 2.57%, European bourses an average of 2.69%, with the DAX a particularly disappointing performer and the NIKKEI was down by 0.50%.  As expected OPEC left oil supplies as they were. Saudi Arabia are still calling the shots!

Never a week goes by without the banks hitting the headlines and last week proved no exception. There was initially news of Lloyds Banking Group. The taxpayer’s stake is now down to 18.9%, thanks to Morgan Stanley very cleverly dribbling out stock surreptitiously. We are likely to hear more detail in the Chancellor’s Mansion House speech on Wednesday of the Government’s plans to sell the balance of the stock in the Black Horse – £5 billion to retail investors – maybe with a 5% discount to its current price. The Chancellor may also have similar plans for RBS. However most people think this bank may not yet be fit for purpose. The break even share price of 500p at seems a long way off at 349p. Perhaps the ‘good bank’ could be IPOd. Some believe that the Chancellor may hold out an olive branch to the banking sector over the bank levy in next Wednesday Mansion House speech. That being the case HSBC might think again about packing its bags for pastures greener!


Then on Friday there was yet another fine for Lloyds of £117 million for PPI transgressions. This fine was alleged to have been leaked by the FCA. If so, this is unacceptable, but not a heinous crime as it lacks price sensitivity in the same manner that the annuity insurance leak of last year. My real concern is that these PPI claims are far from over when one considers issues with credit cards and interest on interest. The ‘Black Horse’ may also be sued for bond manipulation by retail customers. This is an issue, which is currently under discussion.


HSBC was fined $28 million for Swiss investment banking tax issues – hopefully the matter has been finally put to bed in full and final settlement. It would be a pity if HSBC felt that it was being hounded out of the UK, forcing the bank to repatriate to Singapore. It was rumoured on Friday that Deutsche Bank may well be investigated for money laundering $6 billion on behalf of Russian clients.


Many will have sympathy with Barclays retiring Chairman Sir David Walker over his comments that the regulator has been too draconian in its efforts to split investment and retail banking. Then of course, the ‘Bald Eagle’ has hardly covered itself in glory and though Sir David was a politically acceptable appointment, he has been very ineffective. I suspect he has set down John McFarlane’s stall but I fear the wailing may fall upon deaf ears.


Severance pay and bonuses, unconnected with banks, have caused some consternation this week. Retiring Morrison CEO Dalton Phillip’s £3 million severance pay was not well received. Nor was WPP’S Sir Martin Sorrell’s £42 million bonus compensation. We may not have heard the last of that episode. Nor did M&S’S Marc Bolland’s award of £4.5 million for an improvement in the High Street titan’s performance struck a slight chord of disapproval. Though the share price has rallied nearly 50% in the last 6 months; it is expectation, rather than achievement, that has rallied the share price.

Chancellor Osborne announced the forthcoming sale of the remaining 30% of Royal Mail for circa £1.5 billion. NM Rothschild have been appointed advisors replacing Lazard Brothers. Vodafone shares bounced on news that the mobile titan was in talks to work with Liberty Media, though there was no talk of a merger.  One gets the feeling that the level of enthusiasm for a relationship is Luke-warm. However it is rumoured that Liberty’s John Malone has loftier aspirations. Sophos has agreed in principle to place its £1.2 billion IPO in London rather than with the NASDAQ in New York.  Inmarsat replaced Aggreko in the FTSE 100. Aldermore, One Saving, Shawbrook, Autotrader, John Laing, Wizz Air and Woodford joined the FTSE 250.


Despite all the political and economic turmoil, M&A activity seems very prominent. According to the Sunday Times, Shire, which majors in hyperactivity drugs and valued at £32 billion, is considering a £12 billion acquisition of Swiss drug maker Actelion – known for its prowess in pulmonary arterial hypertension drugs. Worldplay, the payment operator hived off from RBS, may go for a float which could see its staff and CEO Philip Jansen benefit by as much as £400m, though JP Morgan Chase is doing what it can to thwart this public offering. This morning the Sunday Telegraph tells us that Pension Corporation also has its eye on an IPO. The company valued at £2 billion may be brought to the market by CEO Edi Truell. Lloyds RBS and JC Flowers would be the main beneficiaries.


UK companies posting results – Monday – DRAX GROUP, Tuesday – RPC GROUP, Thursday – HOME RETAIL (TS), J SAINSBURY (TS), Thursday – WS ATKINS, MULBERRY

US companies posting interim results – Monday – VAIL RESORTS, SEARS, H&R BLOCK, MCDONALD’S (sales), Tuesday – CHRISTOPHER & BANKS, Wednesday – KRISPY KREME, MEN’S WEARHOUSE, Thursday KORN/FERRY


Economic data – Tuesday – EU GDP estimates, Wednesday – UK industrial production, Thursday – US Retail sales, Friday EU Industrial production.



David Buik – market commentator


Panmure Gordon & Co


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