RBS – Rapidly Bury Story

 

It’s fair to say that last week was a great week to bury a story given that the press and media were drinking large quantities of the General Election-May-Corbyn-Farron-Sturgeon political cocktail that were being swilled with vigour.

 

Enter Chancellor Philip Hammond armed with the biggest spade he could get his hands on to do just that……bury the ugly story. No surprise that it was linked to the banking sector!

 

In short, we still have a 72% stake in Royal Bank of Scotland (RBS) which was bought for £45 billion in 2008 at the height of the financial crisis at 502p per share. It is currently trading at around half of that at 246p per share.

 

Despite this, the Chancellor has stated previously that the Government did not expect to offload its stake in RBS until after 2020 as “we are making real progress in realising our holdings in the banking sector.”

 

However, in a political u-turn (quelle surprise!) the Chancellor has admitted for the first time that the Government is prepared to sell its stake in RBS at a loss.

 

At face value, there is a perception that there is not much to be positive about:

 

• In February 2017, RBS posted its ninth consecutive annual loss (£7 billion).

 

• RBS has racked up losses of more than £50bn since the Government bailout.

 

• A potentially huge fine by the US Department of Justice is in the post.

 

 

Philip Hammond told MPs on Tuesday within minutes of the General Election announcement: "Our policy remains to return the bank to private hands as soon as we can achieve fair value for the shares, recognising that fair value could well be below what the previous Government paid for them. We have to live in the real world and make decisions on the future of our holding in RBS in the best interests of taxpayers."

 

There will (eventually) be many negative headlines about this. There has to be given the negative angle our press / media are obsessed with to the point of addiction.

 

However, there is a counter argument to this. The large Government stake is contributing to RBS's share price weakness as no one wants to buy shares when you know that there is a massive seller waiting to offload three quarters of all the shares!

 

Perhaps, selling RBS at a loss is a medicine that may taste unpleasant but is worth taking for the longer term good.

 

Perhaps.

Snap Election

So, a General Election it is then……8^th June.

 

Just when the Trump / Brexit cocktail of political spin dominates our news feeds at indigestible levels……we must stomach a further 2 months of political face slapping until we bleed from our ears and eyes.

 

Just what the nation wants……a third nationwide poll in less than two years. The joy.

 

Theresa May tried her best to justify the rationale given that only last month there was “no chance” of a General Election in 2017:

 

“At this moment of enormous national significance there should be unity at Westminster. We need a general election and we need one now because we have at this moment a one off opportunity to get this [Brexit deal] done. I have only recently and reluctantly come to this conclusion. I have concluded the only way to guarantee security and stability for the years ahead is to call this election."

 

Let’s cut to the chase here……this is simply a political move at a point when her stock is valued highly. It would be hard to believe that three polls giving the Tories a 20% lead in the opinion polls was not a significant factor over the weekend.

 

Assuming election, it will give her 5 years to sort Brexit out rather than the 2 years she’s currently working towards before a General Election would need to be called……and we could be in the middle of a right old UK / EU mess that she would be blamed for.

 

Whether this is the right time for the UK to hold a General Election is low on the priority list……it is the right time for Theresa May and the Conservatives.

 

And that is all that they are concerned with.

Don’t Blame It On The Sunshine

Don’t blame it on the sunshine, don’t blame it on the moonlight, don’t blame it on the good times…..blame it on the Brexit.

 

As the Brexit negotiations, spin, pointless predicting, more spin and a load of Westminster waffle engulfs us for the next 2 years, it is becoming more and more evident that there is a readymade excuse for anyone that encounters commercial hardships……blame it on the Brexit.

 

Sham-pain

Last month France’s main champagne industry body attributed a dip in sales in 2016 to the weak pound reducing British demand. The result for the champagne industry was that sales to Britain (still the biggest export market by volume) fell 8.7% to 31.2 million bottles. By value, British exports tumbled 14% to £381 million.

 

Pucka Pasta

Jamie Oliver was forced to announce the impending closure of six of his chain’s 42 UK restaurants in January. A combination of high costs on ingredients, staff training and lower footfall had forced the restaurant closures……all due to Brexit apparently. Yet according to Office for National Statistics figures in November, its economic index for hotels and restaurants was up 1.1% in the third quarter of 2016 following the vote for Brexit. Need an excuse Jamie? Brexit will do.

 

Canary Dwarf

HSBC is Europe’s biggest bank and employs 240,000 people worldwide. They made pre-tax profits of just £5.7 billion in 2016, down 62% from the previous year. Only one thing for it then if you are the boss……he claimed in February that the ‘unexpected’ shocks of the Brexit vote and Donald Trump’s election were partly to blame for a slump in profits.

 

The Brex Factor

ITV cited the Brexit vote as the catalyst for its first decline in advertising sales since the financial crisis. The TV channel revealed that its net advertising revenue for 2016 was 3% lower than the previous year’s total at £1.67 billion.

 

Shrinking Ship

Not much gets the people of the UK so riled as the size of Cadbury’s chocolate bars. Such a tactic, known as ‘shrinkflation’, means companies charge the same price for less in order to keep up with rising costs. Last week the Cadbury’s boss (Glenn Caton) stated the company was confident it will see out any uncertainty but chocolate bars may get smaller due to rising costs of manufacture as a result of Brexit.

 

 

Just a few examples of how the mighty are looking to deflect attention using their Brexit excuse card. Remember, you have a 2 year window to blame everything rubbish in your life on Brexit……use wisely and with haste as the ‘use by’ date will be here before you know it.

 

Now, what Brexit excuse angle can I use for my inability to hit a squash ball against a wall in a manner that would be deemed ‘competitive’!    

Brexit – The Big Issues

With Article 50 triggered, Theresa May now has two years to carry out the most complex set of negotiations in UK history. The future of Britain’s trading relationship with the EU (and ultimately the world) rests on the deal the Government can secure with Brussels. It’s kind of a big deal.

 

Here are the key (dare I suggest ‘vital’) areas that need to be agreed……and quickly!

 

 

Divorce Bill

If the preliminary skirmishes are anything to go by, the most contentious part of the negotiation is how much the UK will have to pay the EU when it leaves.

 

Figures floating about either side of the water suggest this to be as high as €60 billion, while some in the UK don’t think we should be paying anything. Hence the skirmishes. The bill relates to already agreed projects, pension payments and other commitments made by the EU which have yet to be paid for.

 

There is a very good argument that as the UK is leaving the EU, it could just walk away without handing anything over. However, this is unlikely to make the EU receptive to positive trade negotiations. On the one hand, Theresa May will be keen to get this figure as low as possible. Yet on the other, paying a bit more cash in the divorce settlement might oil the political engine for trade negotiations.

 

 

Rights of UK & EU Nationals

The Government has been under enormous pressure to guarantee the residency rights of EU workers already in the UK before the negotiations begin. So far, Theresa May has refused as she has insisted that other EU countries need to make the same guarantee for Brits living in their counties.

 

The Government has repeatedly promised to make it one of the first talking points when negotiations begin. Whilst an understanding may be reached relatively early on in the talks, it is unlikely to be legally agreed until the end of the two-period.

 

 

New Trade Deal

With the UK out of the Single Market, businesses will no longer be able sell their products into the EU without incurring tariffs unless a trade deal is agreed. If Theresa May carries out her threat of walking away without a deal, the UK would revert to World Trade Organisation (WTO) rules.

 

WTO rules would see cars sold from the UK to the EU incurring a 10% tariff, alcohol would be nearly 20% and dairy products would be more than 35%. May will have to negotiate a comprehensive free trade deal with the EU in order to remove these tariffs. However, some members of the EU may resent this.

 

To give this issue some perspective……in January 2017 alone, exports to the EU were worth £12.8billion and UK imports from the EU totalled £19.5billion.

 

Securing a comprehensive free trade deal with the EU is the jewel in the crown when it comes to the negotiations and it would be a considerable feat to complete this work in the next two years.

 

 

New Immigration System

One of the key questions for Theresa May is how the UK’s immigration system will operate after Brexit. Currently, anyone from the EU can come to live in the UK provided they have a job or find one within three months of arriving.

 

The Government said it will no longer abide by the EU’s Free Movement Directive after Brexit and will “design our immigration system to ensure that we are able to control the number of people who come here from the EU.”

 

May has ruled out adopting an Australian style points based system, which suggests a work permit system based on gaps in the UK workforce (most probably where EU migrants already dominate).

 

 

Protecting The UK’s Financial Sector

Bashing the bankers may be a national pastime in the UK (and an active hobby of my own) but without the flourishing financial sector, the UK’s economy would be seriously weakened.

 

A report for the City of London estimated the UK’s financial sector pumped £71.4billion into the Treasury in the year to March 2016 – 11.5% of all taxes collected by the Government. Or to put that another way……the banking sector is a big deal (and also explains why the Government is so supportive of it).

 

Brexit places this at risk as banks will no longer automatically have access to all the financial sectors across the EU (known as ‘passporting’).

 

Frankfurt, Paris and Dublin are already trying to woo banks away from London and Theresa May will have her work cut out to get the financial sector the same passporting rights it currently enjoys. At the same time, expect German, French and Irish Governments trying to block the move in order to get a slice of the very lucrative pie for themselves.

 

To counter this, Chancellor Philip Hammond has already suggested he will slash business rates if the EU start playing hardball in order make the UK extremely attractive for banks to set up.

 

There is an argument that the flight of bankers from the UK might ultimately prove a good thing for the UK as the economy could be rebalanced and less dependent on one sector. There would be plenty of short term pain to the economy though.

 

 

It’s fair to say that the next two years will be intriguing and (dare I suggest) fascinating. However, I’m not sure I can take two years of Sky News showing a clock counting down until we have left though!

 

The situation was perfectly summed up by Brexit Secretary David Davis……“nothing is agreed until everything is agreed”.

 

Hold on to your seat.