Trump’s risky loose lips
DONALD Trump’s presidency is going to be a rollercoaster ride for financial markets if latest events are any guidance. Generally, governments on both sides of the Atlantic are exceedingly careful to avoid the leakage of price-sensitive information.
Indeed, former Financial Conduct Authority chief executive Martin Wheatley partly lost his job because of leaks of likely action directed at insurers which wiped £3bn off their market value.
The President-elect has no such sensitivity. At his first press conference since July he took aim at big pharma, arguing that US citizens are paying too much for medicines and complaining there is very little price competition in the drug marketplace.
It was a comment which had an immediate impact on the share prices of pharma and biotech companies, with GlaxoSmithKline among those affected.
Similarly, Trump’s pledge to simultaneously sweep Obamacare into the sea and replace it with Trump-plan cannot but have an impact on the drugs industry.
Trump’s ability to change corporate behaviour has been evident in the car industry, with Ford, Fiat Chrysler and others rethinking plans to move production to low-wage Mexico. Those who do move production south of the US frontier will face a ‘border tax’ or import levy. This will indirectly pay for the President-elect’s Mexico wall, which he wants to start building on January 20.
Cost overruns on defence equipment are also in the firing line, with Lockheed Martin getting both barrels over the rising price of the F-35 stealth fighter jet.
Mark Carney says the Bank of England is monitoring Trump’s words and Twitter feed closely. Central banks and traders have little choice. A Trump-led administration is making Brexit look like a financial sideshow.
Green bank betrayal
AMONG the virtually unnoticed acts of the Cameron Government in May 2016 was moving responsibility for government stakes in commerce from the Department of Business to the Treasury. Such bureaucratic reshuffling can have nasty side-effects.
HM Treasury is driven by lowering the budget deficit and asset sales are an important part of what it does.
It chose to sell down the Lloyds bank stake to City institutions rather than the taxpayer because it was a speedier way of filling Government coffers. Now it has set its sights on selling the profitable Green Investment Bank to ‘vampire kangaroo’ Macquarie because it wants a quick and clean deal.
But Macquarie’s poor history as an owner of UK assets and an apparent intention to break up the GIB and sell off its assets bit by bit have provoked a mighty political row.
Someone in the Treasury or the Climate Change Minister Nick Hurd, who has been put to the sword in the Commons, should have recognised that selling to Macquarie is not a responsible act. At Thames Water, the firm is best known for taking out fat dividends for its own investors and paying insufficient attention to the deficit in the pension fund.
There are other choices. The second shortlisted party, Sustainable Development Capital, has invested in green projects and assembled £2bn to do the deal.
Paradoxically, the cornerstone investor in the bank would be the Pensions Protection Fund. It is willing to put up 20pc and has an interest in long-term investments which can stretch decades into the future.
GIB is a perfect match in that most of its investments, such as offshore wind power and biomass, are for the long term and offer decent and socially responsible returns. Precise details of the value of SDCL’s bid are a little vague but it is not thought to be very different to the Macquarie offer. It would leave GIB in British hands, focused on sustainable technologies.
Alternatively, the Treasury could look at the possibility of a merger with the enlarged British Business Bank and eventually a partial privatisation.
Foreign takeovers of our infrastructure have been destructive for the UK. The sale by National Express of the Essex line c2c to Italy’s Trenitalia means another chunk of our railways being run from abroad. It will leave management beyond the reach of most stakeholders and outside the tax system.
Both the Green Bank sale to Macquarie and the c2c disposal should be stopped.
Sainsbury fightback
SO MANY acquisitions go wrong that it is encouraging to see J Sainsbury making its takeover of Argos work well.
Argos’s same-store sales roared 4pc ahead in the third quarter and the logistics of its hub-and-spoke system of distribution held up to the pressure. Argos concessions in Sainsbury’s stores are doing well and the plan is to move clothing ranges such as Sainsbury’s popular Tu range to the platform.
As for grocery, Sainsbury’s sales are up 0.1pc excluding fuel. In spite of the Aldi and Lidl hype, our plucky British supermarkets are resisting Germany’s no-frills challenge.