“A milestone” is how it has been dubbed. Royal Bank of Scotland has finally bought out the Government’s so-called “dividend access share” (DAS), which gave taxpayers first call on any payouts.
The £1.2bn deal clears the way for the bank to restart dividends to all shareholders (which would still include the Government for as long as it keeps taxpayers invested), although it probably won’t happen until 2017 and may take even longer depending on how the bank’s numerous legal difficulties are resolved.
Now bear with me because some people will tell you this is good news. The DAS buyout advances the process of RBS becoming a more normal bank. It makes the business more attractive as an investment proposition and ought to make it easier for the Government to sell off its remaining 73 per cent stake. The line that an awful lot of people would dearly love to draw under the scandalous mismanagement and then bailout of the bank has moved a little closer.
But here’s the thing: with the shares languishing at less than half break-even point (500p), taxpayers are currently exposed to a thumping loss. Even were the Government to wait until the shares do rise to that point, the sheer length of time during which capital that could have been used for other purposes has been tied up in RBS means we would still be facing a considerable deficit.
Given that there would be no RBS without government intervention, you might very well think that the taxpayer should have first call on any capital distribution from RBS until the state’s capital distribution to RBS has been paid back, and with interest.
Had a commercial partner been found to rescue RBS, we wouldn’t be even having this debate. However, because it was the government that had to step up with taxpayers’ funds – a government wary of nationalising RBS – the bank got very preferential terms. Its shareholders at the time of the bailout, who had been facing obliteration, got to keep a piece of the pie, albeit a small one.
Given all that, a consequence of those favourable terms ought to be that the DAS remains in place until taxpayers are no longer out of pocket. That would be a milestone and something to celebrate. At that point a line could finally be drawn under the affair. Unfortunately that is not going to happen. The DAS has been sold because it furthers the aims of this Government and the management of RBS. Taxpayers ought to be quite cross about that. I know I am.
The online gaming tables could turn against 888
Look at the revenue line of online gaming’s 888 and you’ll see a company in good health. Average daily revenue is 20 per cent higher than it was a year ago and 888 has added customers at a decent clip.
Look at the earnings, however, and a different picture emerges.
The UK’s decision to impose a 15 per cent charge on bets regardless of where they are placed has removed much of the benefit to internet gambling companies of setting up shop in tax havens – Gibraltar, Malta and the like. And the UK is not alone, with 888 warning that it might be forced to declare a taxable presence in other countries. The tax-lite gambling party is coming to an end.
Faced with the need to do something about all those disappearing earnings, companies have been getting together so they can cut their cost bases, at a previously unseen rate. It was the driver behind the mergers of Ladbrokes and Coral and of Betfair and Paddy Power.
Of course 888 tried to join the Bwin.party but was busted out by rival GVC. The aftermath of the failed bid battle is another hit to those earnings I mentioned.
William Hill had earlier rolled the dice on taking over 888, but wouldn’t put enough money down to make the bet worth while for 888’s shareholders.
Their holdings have done rather well since, but it’s still a fair bet that 888 will be at the takeover tables before too long. Now 888 is setting a sprightly pace, but with more and more countries seeing gambling as a cash cow for their cash-strapped exchequers, tax will become an increasingly heavy burden to shoulder. And when its competitors have bedded down their deals, they’ll be snapping at its heels too, if they aren’t already.
After dark pools, investors may try the water at the LSE
Usually the London Stock Exchange only goes dark in the event of IT chaos. Not any more. The exchange is experimenting with switching the lights off for a couple of minutes at midday, with the aim of tempting back big investors with large blocks of shares to trade. With the exchange briefly going dark, these investors can, potentially, buy or sell those tranches without the market moving against them. Of course, it only works if there’s someone on the other side of the trade who has also put in an order in the dark. And the volume of deals done on the first run-through of the service was hardly earth shattering.
Still, “dark pools” – share-trading venues that allow investors to do this at all times – have recently been causing a lot of controversy amid suggestions that at least some might not be as dark as has been claimed. EU rules may be on the way, which could also push business back towards traditional exchanges – especially traditional exchanges that can offer a workable alternative.
And London appears up to that challenge.
