The London Stock Exchange is no longer the red-hot crucible it once was, given the multifarious ways by which shares, bonds and derivatives now change hands. But the prospect of the LSE passing into the control of Deutsche Börse — in what was announced as a ‘merger of equals’, but with the Germans holding the larger stake and the top job — is a mighty provocation to Brexit campaigners. The Express claims it would reduce the London market ‘to an insignificant regional afterthought’. Brexit or not, there’s logic to a pan-European trading platform with shared technologies and harmonised listing rules: but who can doubt that the German agenda must be to hoover as much business as possible from London to Frankfurt?
So if the LSE is to lose independence, as has long been on the cards, let’s pray for a counterbidder — either Atlanta-based ICE (which owns the New York Stock Exchange) or the Chicago Mercantile Exchange. Synergies with one of those would be just as fruitful as with Frankfurt; and the Americans would be in it for money, whereas the Germans are in it for political advantage.
Forces of disequilibrium
A fortnight ago I said that negative official interest rates, as in Japan, Sweden, Switzerland and the eurozone, look like ‘sheer desperation’. But that’s the way the world’s moving. About a quarter of all government bonds in issue now show negative yields, yet few economists are convinced this last tool in the monetary box will stimulate growth and counteract deflation. Swedish inflation has ticked upwards, but elsewhere the effects look diminishing or negligible, while the distortions for banks and investors are enormous. Governor Carney says negative rates won’t happen here and central banks are not ‘out of ammunition’ — but who listens to him these days? None of us really has a clue where all this is heading: as Carney’s predecessor Mervyn King tells us in his new book, forces of disequilibrium are at work in the financial world. Something must give, but we don’t yet know what, how or when.
Out of Africa
The bank results season continues. RBS unveiled its eighth successive annual loss, having now squandered more than the entire £45 billion bailout that kept it alive in 2008. This is a global-scale embarrassment: the management of Ross McEwan seems to have made little impact and the crippled giant is so far from any hope of return to the private sector that I can’t understand why George Osborne doesn’t overrule his advisers, break it up, sell off NatWest, Coutts and Ulster Bank for whatever they might raise as separate entities (as well as Williams & Glyn and Direct Line, already heading that way) and give the residual Scottish bank to Nicola Sturgeon as a booby-trapped 46th birthday present.
Lloyds, by contrast and despite £16 billion of PPI compensation costs, is now healthy enough to restore the fat dividend for which it was once famous, and its boss António Horta-Osório — who four years ago took leave for nervous exhaustion — has the glow of a man with an £8.5 million pay packet. As for Barclays, the shares plunged in response to a profit fall and a dividend cut, but the striking news was the proposed sell-off of its businesses across Africa. These colonial relics had long been a distraction to Barclays chiefs who saw themselves as builders of a JP Morgan-style global corporate bank: but while that dream repeatedly went awry, the African businesses remained solidly profitable. Now ex-JP Morgan man Jes Staley is in charge, ‘out of Africa’ is hardly a surprise — but is it a good decision?
I consulted one of the lost Barclays tribe who began their careers in Africa: Justin Urquhart Stewart of Seven Investment Management, who as a young manager in Uganda was shot at a rebel roadblock and still carries metal fragments in his body. Despite that experience, he feels ‘a pang of nostalgia’ — and questions Staley’s judgment.‘It’s the wrong time to sell an opportunity asset. Emerging markets and commodity prices are down right now, but African banking is a high-margin business that has been very profitable in the past.’ For students of Barclays history, there’s an echo of the bank’s withdrawal from South Africa 30 years ago, which also coincided with a shift towards the new world of corporate and investment banking: when a Johannesburg office was reopened a decade later, Nelson Mandela himself told the men from Lombard Street: ‘You should never have sold.’
Vote for slow, guys
I’ve been on one of those speed-awareness courses that save you three points on your licence. An hour’s worth of useful info (if, as in my case, you last read the Highway Code in 1976) was stretched to a punitive half-day by the use of morally obvious rhetorical questions appended to every point: ‘A football bounces in front of you from between parked cars. Whass next? A kiddie’s gonna run out after it, right? So whaddaya do, guys, accelerate or brake? Ya slow down, doncha guys?’
As the hours rolled by, I began to think our course leaders would be better employed on the ‘remain’ campaign: ‘Ya see a sign that says “Danger: Cliff Ahead!” Do you shut your eyes and floor the gas, or park up and share your picnic with some friendly migrants?’ For those who prefer un-patronising Brexit debate, I commend this week’s Spectator Money, which concludes, on balance, that ‘leave’ is the economically sensible choice. To put it another way: ‘You’re gridlocked on a European highway to nowhere, guys. Do you pick a fight with a French trucker, or leave a safe distance between vehicles and plan your journey better next time?’ To which a bad boy at the back — perhaps one of the big beasts of the City I referred to last week, such as Crispin Odey, Paul Marshall or Terry Smith — shouts: ‘Ya leave by the first exit, no matter how bumpy, and ya never look back.’
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