Hands off the Old Lady
THE nearly two-decade truce between Westminster and the Bank of England is being rudely shattered by ill-judged attacks on the institution and governor Mark Carney from Tory politicians.
What began with some sensible remarks from Theresa May on the plight of savers in a low interest rate world has turned into a witch-hunt, with first William Hague and now Michael Gove training their guns in the governor’s direction.
Carney has made mistakes. The Bank’s forecasting has been flawed. His prediction that interest rates would rise in 2016 was wrong. Moreover, he overstepped the mark during the referendum by talking to the media when he should have confined comments to the Inflation Report press conference.
None of this justifies an attack on the Bank’s independence. It is similar to the lunatic campaign Donald Trump launched against the Federal Reserve, picking up on the ideas of America’s libertarian Republican fringe.
Partly, the attacks have been a barely disguised way of getting at former chancellor George Osborne for his choice of a ‘celebrity’ Canadian. The reality is that Carney steered Canada through the financial crisis without losing any banks or needing a taxpayer bailout. He has also led the global effort to strengthen bank balance sheets and to end the scandal of too-big-to-fail lenders where losses end up being picked up by ordinary citizens.
Gove seems to think that his work for Goldman Sachs is a black mark. But we should never forget that Franklin D Roosevelt, in the midst of the Great Recession, turned to the notorious bear trader Joseph Kennedy, scion of the dynasty, to be the first head of the Securities and Exchange Commission which cleaned up Wall Street.
It is possible that Carney will follow through on his original intentions and leave the Bank after five years, which would take him through to 2018, rather than exercise an option to stay for eight.
But the Government should be warned that any attempt to chisel him out early will backfire. It would be bad for the pound, disastrous for government stocks and add a new layer of uncertainty to economic policy at a time of global and Brexit uncertainty when preserving stability outweighs all else.
Lighting up
JuST as everyone was expecting a mega American offer for one of the FTSE 100 giants, along comes a deal in the opposite direction.
British American Tobacco – last of the uK behemoths with British in its name – is a much-loved stock for investors without moral scruples who buy the shares for the progressive dividend and stellar performance. But it hovers below the radar despite a vast market value of £91.2bn.
It is now raising its head above the parapet – with new emphasis on the American in its name – with a bid of £38bn for the 58pc of Reynolds it doesn’t own. The move represents a reverse ferret in that 12 years ago BAT merged its litigation-plagued Brown & Williams franchise into Reynolds, gaining a stake in the North American giant.
Despite all the opprobrium surrounding tobacco in Western democracies, BAT’s Brazilian chief executive, Nicandro Durante, is seeking to take the company back to its roots. It almost certainly wants to double up on the research and marketing of new, less toxic tobacco products such as vaping.
Durante is taking BAT full circle. In the 1980s it used the strong cash flow from smoking operations to fund a spending spree which saw it acquire insurers including Eagle Star and the uS Farmers group, as well as prestige retail chains such as Saks Fifth Avenue.
All that came to a shuddering halt in 1989 when it was confronted with a bid from a buyout consortium led by three colourful financiers: Sir James Goldsmith, Lord (Jacob) Rothschild and Kerry Packer. The bid fell down when Californian regulators had cold feet about a side deal to sell the insurance companies to Axa.
A tie-up with Reynolds will provide some cost savings, put at a relatively modest £300m. The main benefits are strategic in the shape of adding market share in the uS where Reynolds sells Newport, Camel and Pall Mall, and taking the brands into BAT’s emerging markets with Brazil a stronghold.
In macro terms, BAT helps to anchor Britain’s global horizons beyond Brexit. But it is by no means a done deal and uS anti-trust authorities will want to take a look.
Green mail
SIR Philip Green is a terrible exemplar of Anglo-Saxon capitalism, and his failure to pony up and sort out the 20,000 BHS pension fund members is unconscionable.
Hopefully, I am not alone in thinking that the kangaroo court of the Commons, where a series of ignorant windbags gave vent to their faux anger, was not the right place for the case against Green to be heard.
MPs might have been better deployed thinking about how their own feather bedded, over-generous defined salary pensions – funded by the taxpayer – might look to the lowly paid shop assistant in Liverpool who has been deprived of her job and savings.
Sheer hypocrisy.