Archive for the ‘FT’ Category

I think I’ve said before that I find public sector accounts incredibly weird. Here’s a great example; it’s a very good FT story on the bank nationalisation plan and how it affects the national finances. Bizarrely, the £25-50bn of government bond issuance required to raise the money probably won’t count towards the public sector net cash requirement (what used to be the PSBR in John Major’s days of sound finance…not!); it’s a “financial transaction” and these are excluded.

Well, that makes a weird sort of sense; the liability on one side is matched by an asset (the stake in the banks) on the other, the net change in the government’s cash position is zero (at first, but even later, any dividend paid on the preferred stock would at least balance the interest payments). The next bit, however, gets really strange; although it’s not counted as new public borrowing, it is counted in the figure for the national debt. It’s debt, right? Yes, but if the government was anything else but the government, the increased debt would be matched on its balance sheet by the stash of bank shares. It being the government, however, it’s not.

Now, it gets really counterintuitive when it comes to the really big money – the £250bn guarantee for wholesale bank lending. Apparently, if the Government (as suggested) charges the banks a significant fee for the guarantee, this will force it to take the full wad on its books as a liability of the public sector. (Even though most of any transactions among the eight participating banks will add up to zero; if Lloyds lends Barclays £1bn and Barclays lends HBOS £1bn, and Barclays then goes bust, the state guarantee would only come into it if Lloyds and HBOS couldn’t agree to settle the transaction between themselves.) If the Government offers the guarantee free of charge, however, the rules on public sector contingent liabilities mean they can keep it off the books. Yes, you heard that correctly; it’s in some sense financially better for the state not to receive quite a lot of money.

Anyway, in these weird times, let me propose a weird solution. The Government has promised to put manners on the banks in return for the £50bn, pressing for executive pay restraint and measures to help small businesses. Some people are concerned that they won’t be able to make this stick because preference shares don’t come with a vote. I disagree; whatever the formal terms, anyone who fronts up as much as half of RBS’s capital base is going to have several billion votes, and indeed it looks like the CEO is going to be sacked as a condition of the deal. It’s a question of political will.

EDINBURGH, October 12th: Crowds cheered as the giant statue of Sir Fred Goodwin was torn from its perch by a Royal Engineers’ armoured tractor. As the news spread this morning, a mob gathered around the base of the monument, unavailingly beating it with sledgehammers and dragging at it with ropes. Eventually, Sergeant Mick Kelly’s Chieftain AVRE arrived. After a few minutes, its engine roaring, the huge vehicle succeeded where they had failed and the dictator’s figure crashed into the dust. In a sinister orgasm of rage and contempt, the mob beat it with their shoes, spitting and jeering as the ruin was towed through the streets….

Like I said, it’s a matter of political will.

However, it will be much easier to hold the Government’s feet to the fire about this if they do have formal rights to intervene, as well as safer, as unwinding the stakes in a hurry in order to punish a recalcitrant bank wouldn’t be easy. One option is to buy ordinary shares as well as the new preference ones, and have the Treasury Shareholder Executive manage them; the numbers involved would put the Government in a position to insist on a seat on the board and extensive influence over management. However, this would be riskier, as ordinary shares don’t have the charge over cashflow the preferred kind do, and it would also spook the market even more, as issuing the new shares would dilute the existing shareholders.

It would also be affected by weird public accounting, as this would make the banks into public-sector entities and therefore bring them on the Treasury’s books; in which case, only their liquid assets would be counted against their debts and the national debt would therefore reach unheard-of proportions.

But there’s another option. For many years after privatisation, the Government held so-called “golden shares” in a range of ex-nationalised industries considered to be strategically important. For example, that in Rolls-Royce gave the Government a veto over changes of ownership and the right to reserve the top management positions to British citizens. Some of them were abandoned in the early 2000s at the request of the European Commission; notably those in BAA plc. Now, these shares were legally structured as “special preference shares”, and the Office for National Statistics didn’t consider them to be sufficient state control to put BAE, RR, National Grid plc, BAA and the rest on the books – but they certainly granted the Government special rights over these companies. In fact, they still do at BAE Systems and Rolls.

Update: Oh well, here comes the shock and awe. Sod golden shares, preference shares, whatever – it looks like we’re in for the whole hog, 75% of RBS’s market cap, voting stock, Government directors, sack the board, don’t open the London Stock Exchange…fuck, did they just say that? Looks like the opening of the books must have been quite a dramatic event.

Did I say I loved the Financial Times?

When everyone else was frontpaging with Princess Diana, the paper had the following stories on the front: the BAE investigation kibosh (this was the lead), Blair grilled by the rozzers (number two, opposite the lead and separated by a photo of the man), then the OPEC meeting and Vodafone’s €67 million fine in the Greek snooping case.

Spyblog, via Iain Dale, carries a table of journalists using illegal “data brokers” to get at private information. It’s fascinating that the more illegal snooping was done, the less actual news. Here’s the data. The left column shows the total transactions, the right the number of individual hacks involved.

Daily Mail 952 58
Sunday People 802 50
Daily Mirror 681 45
Mail on Sunday 266 33
NOTW 182 19
Sunday Mirror 143 25
Best Magazine 134 20
Evening Standard 130 1
The Observer 103 4
Daily Sport 62 4
Sunday Times 52 7
The People 37 19
Daily Express 36 7
Mail Weekend mag 30 4
Sunday Express 29 8
The Sun 24 4
Closer Magazine 22 5
Sunday Sport 15 1
Mail Sunday mag 9 2
Sunday Business 8 1
Daily Record 7 2
Express, Sat 7 1
Sunday MirrorMag 6 1
Real Magazine 4 1
Woman’s Own 4 2
Daily Mirror Mag 3 2
Mail in Ireland 3 1
Daily Star 2 4
Marie Claire 2 1
Personal Mag 1 1
Sunday World 1 1

Do you see a pattern? Quality is inversely proportionate to bastardness. This even holds for the Guardian Media Group papers – The Grauniad isn’t in there with even one request, but its super-Blairite stablemate the Obscurer put in a performance worthy of the Daily Beast. It’s also noticeable that the Murdoch press was almost restrained compared with Rothermere and Northern & Shell titles.