What odds would Ladbrokes and Coral offer on their merger receiving a clean thumbs-up from the competition authorities? They would have to be extremely long to appeal.
There are two problems. First, this bookmaking combination was blocked in 1998, deemed too damaging to punters. The duo might argue that the last century was another age and, up to a point, they’d be right: the online revolution hadn’t happened and Betfair hadn’t matched its first bet.
Yet the retail shops are hardly sideshows today. They still provide the bulk of the big boys’ earnings and those irritating electronic roulette wheels yield solid cash flows. Ladbrokes has 25% of the UK’s licensed shops and Coral 21%. William Hill has 27%, so a merger of the second- and third-largest players would see two companies account for 73% of the high street presence. That looks too much, whatever pleas are made about the inevitability of industry consolidation and punters’ new ability to compare odds on their smartphones.
Then there’s the second factor, the form book of the Competition and Markets Authority. This body, strangely, is quarrelling over Poundland’s purchase of 99p Stores. If the bar for problematic retail deals can be set that low, Ladbrokes/Coral surely would not slip under smoothly.
Relevant questions, then, are: what disposals could be demanded, and would the deal still be worth doing? Impossible to say, of course. But a requirement to flog, say, several hundred leasehold premises in a hurry could create a serious financial obstacle.
Still, you can’t blame the new Ladbrokes chief executive, Jim Mullen, for thinking big and radically. The company, under his predecessor Richard Glynn and chairman Peter Erskine, has been so comprehensively thumped by William Hill in the online market over the past half-decade that the argument for acquiring greater muscle is strong.
Coral has had similar stumbles online, even if progress is now being made. Indeed, the duo are only the fifth and sixth largest in the online market, a damning statistic. A merger with Ladbrokes might offer a better exit for Coral’s private equity owners than a stock market flotation that would carry its own uncertainties.
By way of encouragement, Ladbrokes’ shares rose 15% as City analysts counted possible easy winnings from a merger. The first guesses were £70m-ish, which should not be too demanding from a combined cost base of £1.3bn.
Yet this deal screams caution. In the parade ring, the numbers and thinking look promising. On the course, the competition remedies could prove too daunting. Mullen should keep his alternative mount, a self-help strategy for Ladbrokes, in full training.
Bonus rules still fall short
The principle is easy to understand: make bankers wait for their bonuses because bad bets can take years to turn sour and dodgy behaviour can take even longer to be revealed.
The challenge is to design new bonus rules to fit the doctrine. In the hands of the Bank of England and the Financial Conduct Authority, the result is anything but simple.
Top brass will have to wait seven years to get their prizes; for the managers one rung below, the deferral period will be five years; then it’s three to five years on the rung below that. Then there are separate clawback periods in which already-paid bonuses can be returned in certain circumstances. These range from seven years to 10.
What happens when a banker switches firms? Buyout awards, when the new employer picks up the tab for bonuses yet to be paid by the old employer, are a headache for regulators because so-called malus provisions are seemingly bypassed. Thus the Bank and FCA will “explore further” ideas to allow buyouts to be clawed back.
To be fair to the officials, they weren’t aiming for complexity. They’ve been obliged to be pragmatic. Traders, inevitably, have grumbled that a bonus isn’t a real bonus if it has strings attached and can’t be banked for years. That’s the point, regulators might reply. The trouble is, bankers have clamoured for higher fixed salaries and often succeeded, thereby chipping away at the notion that rewards must be earned properly.
In the circumstances, an imperfect fudge was on the cards. But the shortcomings are obvious. Rigging of foreign exchange markets was revealed only this year, but some of the dodgy deeds were committed in 2008. If future horrors also take seven years to come to light, deferring juniors’ bonuses for three to five years is not a proper deterrent.
Co-op flops can rest easy
Long horizons are also required with the Co-operative Bank, where the same two regulators are limbering up. The bank, which almost collapsed two years ago, is braced for a fine, which is not a surprise.
The intriguing part, though, is whether former directors will be sanctioned. Don’t bet on it. Royal Bank of Scotland and HBOS were much bigger catastrophes for UK banking but have yielded the sum total of one action against a senior individual.
Given that record of regulatory feeble-ness, the Co-op flops could probably consider themselves unlucky if any are singled out for dishonourable mention.
