Thomas Cook’s last stand

There will be no winners if Thomas Cook goes into administration. having managed to keep trading through this year’s peak summer season without letting holidaymakers down (any more than usual), this venerable travel brand is facing an existential crisis.

Biggest shareholder Fosun has stepped up to the plate, along with assorted bond holders, hedge funds and banks, to put in place a debt for equity swap.

This would allow the travel operator to make arrangements with suppliers, hotels, airlines and the rest, for the 2020 season, by October 1. hold-outs include royal Bank of Scotland and Lloyds, which argue that the safety margin under the agreed recapitalisation is insufficient and there needs to be another £150m-£200m in the kitty.

The dissident banks are the very same lenders which came within hours of shutting down cash machines before the Government stepped in with a £500bn rescue in 2008.

If Thomas Cook were to fail, it is not just a great brand which would be obliterated. There would be further destruction of the high Street, with 550 travel shops in danger. Some 9,000 British jobs potentially could be lost, and 21,000 worldwide. hundreds of hotels would be placed in jeopardy and the shockwaves would spread to Germany and the Nordic countries, delivering UK capitalism and reputation a huge blow at a time when Brexit deadlock has done enough harm.

holiday firms are not dissimilar to banks, in that they depend on confidence. In the travel industry, uncertainty leads to falling bookings, cash flow grinds to a halt and suppliers, such as hotels, demand everlarger up-front payments.

Government cannot look at this with equanimity. If Thomas Cook goes under, the cost of repatriation for the UK alone could be as high as £500m to £600m.

That is three or four times more than the extra float the banks want to see as part of the rescue and equity wipe-out. Bonkers.

Helping hand

The Bank of england is valiantly defying the rate- cutting zeitgeist at the Federal reserve and the european Central Bank.

This could be taken as a vote of confidence in the UK economy, which continues to surprise on the upside. But circumstances are very different.

The Fed has been through a tightening cycle since the financial crisis of a decade ago, and is seeking to prolong expansion with the cut in its key Federal Funds rate to between 1.75pc and 2pc.

In contrast, the eurozone has never fully recovered from the crisis in the single currency area, and Germany is staring at recession. The eCB is still in an easing phase with a new round of money printing and a cut in its key interest rate to minus 0.4pc.

The Old Lady is keeping her powder dry. Inflation is not a threat, with the consumer prices index at 1.7pc in August. The pound is bouncing around close to $1.20, but there are few signs of panic.

The Bank has chosen a holding pattern and is resisting flight refuelling, recognising the crunch comes on October 31.

If there were a Brexit deal, there may be no need to do anything. A No Deal, and months more of uncertainty with the economy disrupted, will pose different problems.

The traditional response to disorderly foreign exchange markets is to raise rates. More likely the Bank would seek to calm matters with a decisive rate cut, more quantitative easing and extra assistance for the banking system. This has been made possible by Chancellor Sajid Javid, who is addressing the supply side of the economy by opening the spending taps, including more resources for No Deal.

As Britain wrestles with Brexit, across the Atlantic the Fed is doing some emergency work. It has pumped an extra $75bn into the banking system for three days in a row, because of cash shortages.

It may simply be a short-term technical need. Pessimists might note this is how the great financial crisis began.

On the run

The Competition and Markets Authority has struck again, by putting the brakes on the sporty £90m takeover by JD Sports of Footasylum, fearing a bad impact on consumers. The regulator is demanding remedies, or threatens that it will move to an in-depth investigation.

Nothing is routine about the CMA these days. Is Advent, the conqueror of Cobham, listening?