Companies in the news ... and how they were assessed
UK banks: fit for a disorderly Brexit
Britain’s major lenders are “robust enough to survive a chaotic Brexit”, according to the Bank of England’s latest annual “stress test”, which subjected seven UK banks to their toughest “doomsday” scenario yet, said Iain Withers in The Daily Telegraph. “The extreme scenario included a slump in both world and UK GDP, a dive in the value of the pound and house prices falling by a third.” Reassuringly, all but two banks – RBS and Barclays – passed with flying colours. In mitigation, the Bank pointed out that the tests were based on the two banks’ capital positions in late 2016; both have since improved their capital buffers and would now pass. “For the first time since the tests were launched in 2014,” no British bank now “needs to strengthen its capital position”, said Christopher Thompson on Reuters Breakingviews. That’s a boon for the Government: “the clean bill of health will help state-owned RBS restart dividend payments”, making it easier for the state to sell down its 71% stake. Still, it won’t be plain sailing ahead, said Withers. The Bank specifically warned that politicians “must act quickly to minimise disruption to trillions of pounds of contracts”.
Centrica: mini-crash
About £1.6bn was wiped from the value of British Gas’s parent company last week, after the energy provider issued a huge profit warning “following the loss of 823,000 customers in just four months”, said Daniel Grote on Citywire. Shares in the company endured “their worst day ever”, tumbling by about 17% – a mini-crash that took total share losses for the year to 42%. Centrica’s woes in Britain have been well rehearsed: “pricing pressure has hurt its retail business” and a cack-handed price rise in August, in the teeth of public clamour for a price cap, can hardly have improved customer relations. But the group’s business-facing division is also now in trouble, “especially in the US, where it has taken a £46m write-down”. Centrica could “ill afford to break more bad news”, remarked one analyst, “but unfortunately, that’s exactly what it’s done”. Many analysts are now “fretting about a dividend cut”, said John Collingridge in The Sunday Times. The company’s boss, Iain Conn, has also admitted that it is now “open to offers for its 20% stake in eight nuclear power stations”. Unfortunately, as he noted, “there are very few buyers of nuclear assets acceptable to the Government and EDF”, its main nuclear partner. China is a possibility, but would certainly face political opposition.
Sports Direct: family soap opera
It’s Christmas panto time, said Alistair Osborne in The Times. And instead of the Ugly Sisters, this year’s theatrical villains are the Ashley Brothers. Most investors thought that the wrangle involving founder Mike Ashley’s brother John, who was forced out in 2015, had been resolved. But Ashley is determined to resurrect it. As well as rehiring his brother apparently to run the group’s IT, he wants to “reimburse” him £11m, arguing that he missed out on earlier bonuses because of “concerns” about public relations. Cue outrage. Everyone knows Ashley likes to keep it in the family, said Jim Armitage in the London Evening Standard: “he put his daughter’s boyfriend in charge of the company’s property division” and clearly “couldn’t give a monkeys for good governance”. Anyone doubting that hasn’t done their homework. “If you don’t like it, sell your shares.”
A Budget for the rich?
Philip Hammond’s first autumn Budget had “more giveaways than takeaways”, said FT Money. Although aimed at younger voters, it “also left wealthy voters relatively unscathed”. “Particularly pleasing” was Hammond’s decision not to tinker with pensions, noted Jason Hollands of the Tilney Group: the feared overhaul of tax reliefs, or a cut to the general allowance, didn’t materialise. So for now at least, “pensions remain unbeatable in their generosity, especially for higher-earners”. Another measure for wealthy investors was a doubling of the Enterprise Investment Scheme limit to £2m, said Tanya Jefferies on Thisismoney.co.uk. The move – which increases the tax relief available to a potential £600,000 – is intended to boost investment in “young and adventurous businesses”. Hitherto, this relief has been widely abused, but Hammond vowed a crackdown on what he called “low-risk capital preservation schemes”.
Stamp of approval?
First-time home-buyers enjoyed the biggest headline giveaway, typically saving between £2,500-£5,000 from the complete scrapping of stamp duty on houses worth up to £300,000. In expensive areas such as London, the first £300,000 of homes up to £500,000 will not be taxed. But “initial enthusiasm turned to disappointment” for a sizeable group on the discovery that the duty reform doesn’t apply to them, said Anna Mikhailova in The Sunday Times. Joint buyers in particular need to watch out. They’ll only qualify if neither has, or has had, any interest in a residential property. Mortgage brokers John Charcol and Kinnison reckon that will rule out about “one in four first-timers” who are buying with someone with a property history.
Stuck in the middle
This reform “could prompt more firsttimers to step on to the first rung of the housing ladder”, said Richard Dyson in The Daily Telegraph. The danger, though, is that they then become “stuck there”. Contrary to received wisdom, the most troubled part of the UK property market isn’t at the “entry point”, but “stagnation” further up the scale. Having bought their first house, a swelling group of “nonmovers” find they cannot afford to “convert that equity” into their second property – because “static” incomes are preventing them from making the upgrade.