Brexit tonic for bankers

ON the vast trading floors of the investment banks, the volatility in bonds and currencies generated by Britain’s historic June 23 Brexit vote will bring a big smile to bankers contemplating 2016 bonuses.

At Barclays it has been a gift to chief executive Jes Staley, who in the face of the naysayers instinctively saw investment banking as a key activity and reversed the direction taken by predecessor Antony Jenkins. Trading income at the investment bank jumped 40pc in the third quarter and was enough to take the sting out of further payment protection insurance (PPI) costs of £600m at the retail arm.

Even Deutsche Bank, the weakest link among casino lenders, managed a 14pc hike in trading income. But it also revealed there had been big outflows of £7.4bn from retail and wealth management, and falling cash reserves.

Staley at Barclays hasn’t quite traded the bank out of the woods. It has to reach a settlement with the US Justice Department over mortgage securities, its capital is woefully thin and the implications for the balance sheet of the mandated divorce between retail and investment banking units have yet to be absorbed.

Unless new players rush into the space, Barclays – like Goldman Sachs and Morgan Stanley – should benefit from less competition. As for Lloyds Banking Group, it is still suffering from the Deutsche scare which hit all bank shares across Europe. The government shareholder UKFI has rightly taken the opportunity to discard more shares, although at a disappointing price. It is doing the right thing and if the Government was brave enough, it would start to sell down the Royal Bank of Scotland stake too, even if that means initial losses, in the confidence that future tranches could be disposed of for a big profit.

That worked in the US at AIG, General Motors and Citibank among others. Why not here?

Reaching out

FEW UK companies are more vital to our daily lives than BT. It is a critical part of the drive towards 95pc broadband coverage, vital to keeping Britain among the leaders in development of the digital economy.

But it faces enormous challenges. It is under regulatory and competitive pressure to separate out network provider Openreach. It is battling to improve appalling customer service and has a pension deficit the size of Everest.

Chief executive Gavin Patterson remains upbeat, as befits someone running a profitgenerating machine. In addition to the cash it collects from landline rentals, BT has a new, growing earnings stream from the country’s largest mobile supplier EE. It is using this as a battering ram to add television subscribers at a time when competitor Sky is struggling with Premier League subscriptions.

BT in its current imperial guise is strong enough to be able to write off £145m for something intriguingly described as ‘inappropriate management behaviour’ in Italy, see off a drop in public sector income and weather a surge in the pension fund deficit from £6.2bn in June to £9.5bn in September.

Whether the good years can keep on rolling is largely going to depend on the outcome of the Openreach experiment. Patterson is confident it is doing enough to separate Openreach, including appointing an independent chairman to convince regulator Ofcom it will no longer have the opportunity to act in an uncompetitive way.

Be that as it may, the challengers – TalkTalk, Sky and the like – have a genuine grievance because the ability to provide reliable, fast broadband is dependent on exchanges, ducts and tunnels controlled by BT.

Full separation has its own problem. If some 35,000 Openreach staff were to be shifted out of BT, that would also mean the new company taking on a share of the pension fund deficit. BT is currently shovelling in chunks of money – some £1.5bn over the current triennial – and in addition to the company covenant there is a Crown guarantee. In the case of everything going horribly wrong, HM Treasury would step in.

The covenant and the Crown guarantee would possibly be weakened if Openreach were hived off. Benefits in terms of competition and cheaper access to super-fast broadband should more than outweigh that. If BT manages to stay intact it will continue to pile up profits. It could even take a leaf out of the book of AT&T and bid for a big, creative enterprise such as ITV or Channel 4 to boost its TV challenge. That could be its next growth opportunity.

Glaxo winners

AS his sojourn as chief honcho at GlaxoSmithKline draws to a close, Sir Andrew Witty is finally able to see sunny uplands. The Brexit currency bonus of £1bn is nice to have. But closer to my own well-being is the positive reporting of Shingrix, a vaccine for shingles that can be administered jointly with the flu vaccine. Investors approve too. Bring it on.

Naysayers

THE New Economics Foundation has done good work in the recent past on reshaping the banking system and debt. But its kneejerk response to third-quarter output figures, described by Goldman Sachs at 2.3pc yearon-year as ‘the highest annual growth in 12 months’, is churlish. NEF argues that the growth figures are of ‘little reassurance or relevance to the millions facing high inflation and stagnating wages’. Get real.