Daily Mail

Threats to a risky rescue

- Alex Brummer

Apositive message from the rescue package for interserve is that, with the help of some careful prodding from the Cabinet office, the private sector has come together to ensure a vital service provider lives to see another day. London’s undergroun­d stations will continue to be cleaned and 45,000 jobs in Britain should be safer.

As is the case at another much smaller, wounded quoted company, Flybe, there is a big holder of the ordinary shares, New York-based hedge fund Coltrane, which is less than happy.

perhaps someone should explain to the arch- capitalist­s at Coltrane and Hosking that shares are risk capital and ordinary investors are first in the firing line.

Under the proposed rescue plan the Royal Bank of scotland, HsBC and France’s BNp together with emerald investment (which has been snapping up interserve paper) will effectivel­y become the 97pc owners, swapping debt for equity.

the banks are seeking to protect themselves by securing some £350m of debt against interserve’s profitable equipment enterprise RMD Kwikform. the plan to keep interserve afloat, a year after the collapse of Carillion, shows the wisdom of the Government in keeping private sector suppliers of public services under close review.

this was the least the Cabinet office could do given it was its interferen­ce in contracts, during the era of austerity, which saw profit margins cut to the bone.

What we cannot know about interserve is whether, in spite of the rescue, there are unknown fissures. After all, at the centre of the Carillion debacle were dodgy accounting practices which disguised the true horror of the company’s position.

With net debt slashed by nearly two-thirds and most of the shares in the hands of the banks, chief executive Debbie White has a chance to make a go of it. But it is going to mean a ruthless pruning of contracts which took interserve to almost every corner of the earth.

What happens next is still uncertain. Bizarrely, the shares bounced sharply on the deal, suggesting some investors saw a short-term speculatio­n opportunit­y.

Coltrane, with a lumpy 17pc of the shares, wants to seize effective control by replacing the board – but not White – with its own slate of directors before approving the proposed reconstruc­tion deal.

But it should be aware that if confidence drains away, suppliers will be edgy, the banks could hold back capital and administra­tion could be the next port of call.

sure, there may be a good case for a board overhaul. But at this point it could be an act of self-immolation.

Labour threat

JUst as well that RBs shareholde­rs have overwhelmi­ngly approved a plan by the bank to use some of its capital to buy back shares from the Government.

ten years after the financial crisis the Government still owns 62.3pc of RBs but has been reluctant to sell down for fear of political fall-out from taxpayer losses.

one might have hoped by now that with RBs fully functionin­g, the bank paying a dividend, costs coming down and the big settlement with the Us government over sub-prime mortgages out of the way, RBs shares would be on the rise.

But British bank stock is hopelessly out of favour, with Us investment funds among those who have cut back investment in Ftse 100 companies in the face of Brexit. it will be easier for RBs itself to mop up some of the equity, rather than wait for a treasury green light which may never come.

there is some urgency about this. the last thing the City should want is a left-wing Labour government in control of one of the country’s largest financial institutio­ns.

Labour’s banking spokesman John Reynolds says that if his party comes to power it will not seek to take ‘day-to-day control’, which is a big improvemen­t on previous threats to nationalis­e.

But it is hard to believe that if Labour were faced with a interserve-type situation that it wouldn’t be tempted to direct RBs to lead a rescue on non-commercial terms.

that would be the route back to the knacker’s yard.

Safari Bob

sHAMe to see my old friend Bob Diamond moved out of the chairman’s seat at AtlasMara, the African bank he founded.

Didn’t that happen to him when he was chief executive of Barclays?

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