The run on Carillion cash
TakE a look at the website of Carillion and you would immediately think ‘What on earth could go wrong?’
after all, here is a construction group which has had a hand in Britain’s most impressive projects including the Royal opera House, the Tate Modern and the Chunnel.
as was the case before the financial crisis the hedge funds spotted long ago that all was not well with the construction and consulting group and have been relentlessly shorting the shares.
In the last few days the hedge funds led by Marshall Wace have been able to harvest handsome profits as the market value of the enterprise has plunged dramatically by 70pc to just £246m.
Construction companies are a bit like banks. once confidence in survival drains away clients decline to make the down payments on projects, which are required to furnish the cash flow, and insolvency stares you in the face.
In Carillion’s case it is all made worse by a debt pile estimated by industry sources at £800m and a whopping great black hole in the pension fund.
Chairman Philip Green may feel he has no option but to follow an initial (but reversed) stratagem set by his namesake Sir Philip Green of allowing the company to fall into administration and hoping the Pension Protection Fund will pick up the pieces.
Investment bankers lazard may come with a plan involving a debt-equity swap.
It is also possible a global construction giant such as Bechtel or a Chinese construction firm might see Carillion as an entry point for grabbing a share of Britain’s upcoming grand infrastructure projects such as HS2. Fairy tales sometimes happen. as for the auditors KPMG and the former Blair acolyte Baroness Sally Morgan – who is an independent director – this is another embarrassment.
auditors and non-executives should learn from past mistakes.
US shakedown
FRED Goodwin may be long gone from Royal Bank of Scotland but I can still hear his voice over lunch in his office in the heart of the City.
Unlike HSBC, Bear Stearns and others, investors in his bank had nothing to fear from exposure to mortgage-backed securities. It is sobering to think that ten years after the onset of the financial crisis the taxpayer is still £29.2bn down on the bailout of RBS, yet it is John Varley at Barclays who is facing fraud charges having kept his bank out of Government hands.
In the latest episode in the RBS saga the bank has agreed to pay a key US regulator £4.2bn to settle claims that it wrongly sold £25bn of garbage mortgages to intermediaries Fannie Mae and Freddie Mac.
The paradox is that the two mortgage giants returned to profit some time ago even though they remain in ‘conservatorship’ a polite name for public ownership.
When will RBS be in a fit state to cut the ties of Government ownership? The settlement with the US mortgage regulator is only part of its outstanding issues with the americans. The US Department of Justice still has to extract its pound of flesh.
Nevertheless, under the guidance of chief executive Ross McEwan, RBS is being steered towards a finish line when a timid Government can start selling shares. The biggest mistake made with RBS is that the Government failed to set it free by reshaping it and selling off the rest of the shares.
Instead, it has jettisoned its best assets – including Worldpay and its stake in Citizens – at rock bottom prices, to keep afloat and satisfy European regulators.
The current Chancellor could do all citizens a favour by using his autumn budget to announce the start of a share sales process even at a loss.
once a market is re-established the underlying value in Britain’s premier domestic commercial bank should be recognised.
you only have to look across the atlantic to see how investors have rallied around banking stocks.
Excuses, excuses
BURBERRY finance director Julie Brown is not off to a flying start. First, she accepted a stonking pay package which angered investors and later agreed to pare it back.
Now she is calling a halt to plans for a £50m new factory in yorkshire until Britain has sorted out its deal with the EU.
yet it is the depreciation of the pound and Brexit which has led to Burberry’s doubled online sales in China and caused tourists to crowd into its flagship london stores.
Does Brown think we are daft?