Well done António Horta-Osório, chief executive of Lloyds Banking Group, for making himself unpopular with his peers. In a speech last night he gave a stout defence of the ringfencing rules, which oblige banks to separate their retail operations from investment banking activities. “Ringfencing is happening. The industry should accept this and move on,” said Horta-Osório.
That ought to be a statement of the bleedin’ obvious. The ringfencing rules became law in 2013 and must be implemented by 2019. But the grumblers keep grumbling, seemingly hoping that parliament might change its mind and that a Conservative government might overturn a manifesto commitment.
Ringfencing is part of HSBC’s unhappiness with life in the UK while John McFarlane, new chairman of Barclays, wonders whether all the “statutory and regulatory changes are really necessary”.
Horta-Osório’s speech should serve as a useful corrective. First, he argued that ringfencing should be seen as part of a package of measures to protect taxpayers in the next crisis. Second, he suggested that, in time, the banks might gain via lower capital requirements.
HSBC and Barclays will probably ignore him. But the former, in particular, would be wise to change its tune. On the bank levy, HSBC has a reasonable argument that taxing worldwide assets, rather than just UK assets, is unfair and should be reviewed. But it’s hard to get a hearing if your approach is to whinge about everything under the sun, even laws that entered the statute book two years ago and were backed by two banking commissions.
A good bet
They’ll be kicking themselves at CVC. If the private equity house had put another quid on its 975p-a-share takeover offer two years ago, it would probably have won. It would have been a smart piece of business. These days Betfair trades at £24 and even bears, who choke on a valuation of 30 times earnings, reckon £21 would be roughly right.
CVC might have mis-managed Betfair, of course, but it seems unlikely. Run sensibly, Betfair throws off cash. In any case, chief executive Breon Corcoran, newly arrived at the time, had already plotted a self-help strategy that all sides agreed was correct. In short, don’t experiment in countries where you can be legislated out of existence overnight; concentrate instead on regulated markets; and remember that Betfair is a gambling company with its roots in sport.
The fruits of the keep-it-simple approach have been rich. Revenues last year rose by a fifth and operating profits improved 53% to £94.3m. The UK’s new point-of-consumption betting tax was merely an inconvenience, rather the source of Ladbrokes-style anguish.
Despite a 70% hike in the dividend, Betfair was the biggest faller in the mid-cap index yesterday on these full-year figures. The rich valuation was one reason. The other was disappointment that Corcoran didn’t repeat last year’s £200m return of cash to shareholders.
That reaction seems churlish. Yes, Betfair could afford to hand over more of its winnings since it is still sitting on net cash of £105m. But acquisitions – which, presumably, is what Corcoran means when he emphasises the importance of scale – could make Betfair a more interesting proposition yet. In particular, the newish US business is giving off good vibes and looks to be worth backing.
Waitrose’s scheme could fly off the shelves
The supermarket price was is not being fought solely with cannon. Here’s an eye-catching example of sharpshooting from Waitrose: give the customers 20% off ten items of their choice. It’s not quite that simple, it should be said. You have to choose your products in advance from a list of 950 and you have stick with your selections for a fixed period. And you have to have a loyalty card. None of those conditions seem overly onerous, however.
This scheme will come at a cost to Waitrose, of course. It reckons £260m over the course of a year, and it’s not saying how much can be shoved onto suppliers. But Clive Black of Shore Capital is right: Waitrose has recognised that shoppers don’t trust most supermarket promotion and think they are being led a merry dance. A pick-your-own approach is different.
He’s also correct that the big boys, despite bragging about how much valuable data they collect from their Clubcard and Nectar cards, barely bother with personalised offers. We’ll see, but one suspects copycat versions of the Waitrose scheme will follow.
