YOUR shares are on their knees, you're passing the hat around hard-pressed shareholders for £4 billion and you have said growth will be paltry for years. How much worse must things get before you waive your bonus, Mr Hornby?
Remarkably, Andy Hornby, boss of HBoS, last week refused to rule out taking a bonus this year. Last year he received £1.93 million, including his basic pay of £940,000.
Pay and bonuses for him and his executive team will, he explained, be based on performance.
Those who did not line up with the near one in five of investors to vote against HBoS's remuneration scheme at last week's annual meeting - which proposed rebasing the share awards to make targets easier - should be shot. But Hornby is, of course, not alone.
Sir Fred Goodwin, chief executive of Royal Bank of Scotland, who has just launched a £12 billion cash call, received £4.2 million in total last year. His basic was £1.29 million.
John Varley at Barclays, where a capital raising looks inevitable with time, earned £1.4 million after his basic pay of £975,000. Michael Geoghegan at HSBC collected a total of £3.54 million (£1 million basic) while Eric Daniels at Lloyds TSB had £1.8 million on top of a £960,000 salary. The credit crunch, which their staff had done so much to bring about, was in full swing as these guys trousered such huge amounts. Shares in their companies (HSBC excepted) were well on their way under the surf. They were all busy shutting up the mortgage shop.
There should be no question of these men being paid a bonus this year and shareholders should stand resolutely against attempts to base share options on growth from low, post right-issue share prices.
But how refreshing it would be if these men actually volunteered to waive at least some of their astronomical rewards to share the pain of their customers and investors. A tough call as Halifax looks for £4 billion extra - Midas, Page 60
REFLECTING on the abject governance failures that have been exposed by the credit crunch, City grandee Sir Paul Myners, former chairman of Marks & Spencer and Gartmore and current head of the Guardian Media Group, has been urging bank boards to ensure they have sufficient financial expertise.
Clearly, one of the issues that led to the credit crunch was a failure by boards to question closely enough off-balance-sheet vehicles and repackaged mortgage debt. It would certainly be foolish to argue against having someone on the board who understands the best the rocket scientists can dream up.
But, before we rush to change, remember that on the board of Northern Rock was Sir Derek Wanless, former boss of NatWest and one of the best minds in the sector. Whatever questions he asked about Rock's risk management, the far more pedestrian Adam Applegarth clearly managed to circumvent.
And bear in mind that big credit woes happen once in a couple of decades. If the Bank of England's somewhat optimistic assessment published last Thursday is to be believed, the worst of the financial tightness is largely over.
It would be foolhardy for banks to rush to beef up the financial quotient on their boards when what is needed is fresh thinking about how to keep high double-digit earnings growth in an almost stagnant economy when they are carrying new, more costly, levels of capital.
These are times for imagination, for marketing and sales input and for people with the skills to persuade a sceptical public that they can be trusted with savings.
FEW things are more disgusting than an open-mouthed chewer of gum - think Sir Alex Ferguson at Old Trafford. But those who then spit it out on the ground deserve the utmost contempt.
The London borough of Westminster reckons gum removal and the application of an anti-stick coating costs about £6 a square metre. Multiply that by all the paving in the country and the annual bill would be £14 billion. A basic clean would be half that.
Malcolm Walker may be extreme to consider banning the sale of gum from his Iceland stores (Page 61), as he did with cigarettes. But as Mars creates a global behemoth with its bid for Wrigley, it is hard not to sympathise with his repugnance at what this stuff is doing to the environment.
Chewing gum is the fastest-growing segment of the sweets industry. A gum tax rather than a ban might be more appropriate, with revenues funding pavement cleaning. Send us your views on chewing gum at thisismoney.co.uk/gum-poll.
LIKE a great bear slowly emerging from a lengthy hibernation, shareholders are beginning to awake from the slumber of many months.
It is the surest sign that they fear the credit crunch is moving out of the financial sector and into the real world. And even though the blue-chip FTSE 100 index is still bobbing merrily above the 6,000 mark, there are clear signs that investors are becoming wary.
After an extended period of toeing the line behind all but the most outrageous management propositions, institutional shareholders are shaking off their lethargy to make their voices heard.
The proposal to elevate Sir Stuart Rose from mere chief executive at Marks & Spencer to executive chairman evoked howls of opposition led by Legal & General, which despite being a governance heavyweight is unaccustomed to being the first to put its head above the parapet on such matters.
The mighty Association of British Insurers added to the pressure on M&S last week by complaining about the investment made by Rose in a karaoke business owned by Martha Lane Fox, a non-executive on the M&S board. Her
status as ‘independent’ is now in doubt.
There have been votes against executive pay packages proposed at BP and at global media giant Reed Elsevier.
There was even an outbreak of hostility to the rewards proposed for Bart Becht, chief executive of household goods company Reckitt Benckiser whose brands include Dettol, Cillit Bang and Nurofen.
Certainly, Becht is paid an eye-watering sum, but his company defies gravity and has so far never disappointed. The trajectory of Reckitt’s shares would be perfectly at home at Cape Canaveral – up from 550p in 2000 to about £30 today.
Clearly, companies continue egregious assaults of one kind or another on their shareholders’ pockets. But these have not suddenly got worse.
The outbreak of shareholder grumpiness reflects a sense that corporate Britain is heading for a financial maelstrom. So far, pain has been limited. The banks, predictably, are shipping water. The High Street has been in a greater or lesser degree of torture since late last year. And the housing market is finally showing severe strain – builder Persimmon last week said it was shutting up shop until potential purchasers could find loans with which to buy. That could be some time.
Elsewhere, though, actual financial performance is holding up – even if confidence is starting to look a tad threadbare.
What institutional shareholders are indicating, however, is a belief that this might be a long touchpaper to implosion.
Sir Martin Sorrell, boss of advertising giant WPP – seen as a barometer of economic activity – said last week it felt like the calm before the storm and reckoned the ‘rubber will really hit the road’ next year.
Shareholders’ behaviour seems to be suggesting the dam may well break before then.
WE could all probably do with a bit of whatever they are all taking round at the supercharged Office of Fair Trading.
Under Irish boss John Fingleton, the watchdog has become much more of a consumer champion.
It was a fraction unfortunate that the OFT had to cough up £100,000 to supermarket group Morrisons for an oversight in a press release, but the regulator has caught and fined airlines for price-fixing the fuel surcharge, it is still looking into possible collusion on milk prices, it has clobbered the construction industry for years of fiddling contract bids and it is now looking into whether the price of cigarettes has been kept artificially high by Imperial, Gallaher and a host of retailers.
It also appeared to have scored a success with a court ruling on bank charges last week.
I admit to being among those who reclaimed overdraft charges. But this may well be a Pyrrhic victory. The banks will eventually be forced to pay out hundreds of millions to those who bust their overdraft limit. Then, as banks do, they will seek to claw it all back – and more.
Free current accounts will become a thing of the past, there will be a charge for direct debits and statements and quite probably an entry fee to go into a branch. And certainly, it will also be an end to fee-free cash machines. For ordinary people, that will be the real credit crunch.
What a stomach-churning spectacle much of last week’s extraordinary meeting of Northern Rock shareholders turned out to be.
To see Monaco-based hedge fund boss Jon Wood address the meeting trying to look as though his interests were aligned with those of private shareholders was nauseating.
Though it looks like the chance of a private solution to the Rock’s trauma will be kept alive this week when Goldman Sach’s financing proposals are unveiled, investors are likely to get little.
Arguably, small shareholders deserve some sympathy. Many may not have actually lost money, they have simply seen a potential windfall from the legacy shares on demutualisation snatched away.
But for the professional investors who piled in after the Rock’s multi-billion pound problems became manifest to seek sympathy is simply laughable.
The Bank of England may be a lender of last resort, but there is no duty of Government to rescue a failing business. The last-resort facility – under which cash-strapped banks can tap the Old Lady – exists for the security of the banking system as a whole to prevent systemic failure and infection of the economy.
The only question for the Government now is how best to recover taxpayers’ exposure. Shareholders, particularly those who bought knowing full well what they were getting into, should not expect to be looked after ahead of the rest of us.
No one will resent shareholders getting some value for their shares so long as the repayment of taxpayers is met first.
In pursuing the money that we are all owed by Northern Rock, the Government is doing no more or less than any other creditor of a failing company. Small shareholders might be unpleasantly surprised by this. It ill behoves those such as Wood who play the market for a living to be so disingenuous.
Clearly, our elected representatives find numbers something of a challenge.
Tessa Jowell, the little dear, didn’t know anything about her mortgage. Peter Hain, a member of the Cabinet, couldn’t keep track of tens of thousands of pounds of campaign contributions, and George Osborne, who has pretensions to run the nation’s finances if the Conservatives win power, appears challenged when it comes to his own.
So it comes as little surprise to learn from John Ralfe, the highly regarded pensions consultant, that the Senior Salaries Review Body, which is recommending an above-inflation pay award on which MPs (or those who dare) will vote this week, seems to have got its sums all wrong.
The Review Body estimates that the pension costs of an MP are worth 22 per cent of salary. Ralfe – who in his time at Boots set a trend by transferring the entire fund into bonds – reckons that this underestimates the benefit – and by an astonishing amount.
As those in the world of commerce see their final salary pension schemes pared down or eliminated altogether, MPs enjoy an inflation-proofed payment that builds up at 1/40th of final salary for every year worked. Typically, a private sector final salary scheme builds up at increments of 1/60th and is linked to a career average wage.
Ralfe reckons that far from being a benefit worth 22 per cent of salary, as the Review body estimates, if the rules of commercial company schemes were applied, MPs would actually be getting an input worth something closer to 48 per cent of their pay.
He argues that pretty much everything of any long-term importance to a pension scheme was aberrant.
So the cost to the taxpayer of MPs’ pensions is £20.5 million, not the £9.5 million contained in the Review Body’s report. For individual MPs earning £60,000 a year, the real pension benefit of a life on the backbenches is £29,000 not £13,000 – which rather puts this week’s vote into context. Thank goodness all we ask of them is to run the country.
And then there were none.
Barring an extraordinary last-minute hitch, Scottish & Newcastle will this week recommend a £7.8 billion takeover bid from Carlsberg and Heineken. Though S&N has been in its current incarnation for about only a decade, it can trace its roots back for centuries.
Ten years ago there were six big brewers in this country, all UK-owned. Today there are four beer makers. When S&N falls to Carlsberg, not one will be British owned.
So much for being a nation of beer lovers.
My death may not have been the express intention of the letter from our power supplier, but had I been a little more frail, or less financially robust, it could easily have been the result.
Out of the blue the German-owned npower - which has just become the first of the big utilities to up prices this year - wrote to thank me for paying by direct debit and to inform me that my dual fuel charges would increase to £850 a month. A month!
No acknowledgement that this was a bit of a steep change from what I had been paying. No phone number for Citizens Advice or the Samaritans. The letter didn't even explain that the new charge was to offset huge arrears that I discovered had been building up since 2003 and had now hit an astonishing £4,500. The reason?
Meter readings over the previous four years had struck npower's people as 'too high' so they had exercised a bit of judgment and ignored them. So much for obediently setting up a direct debit so my supplier can tap into my bank account saving me all those unwanted, lumpy bills.
Well they don't come much lumpier than £4,500, but it was with the heavy heart of someone who has, over the years, dealt with several utilities that I lodged a complaint.
Then, while one part of npower started to threaten me with bailiffs, another part lopped £1,000 off the arrears.
Their generosity practically passed me by as the company issued a demand for immediate full payment.
'Thanks for being an npower customer,' said the demand. 'If we can be of help please get in touch - that's what we're here for.'
In fact, nothing could be further from the truth.
After months of wrangling I finally contacted energywatch, through which I was put on to an expedited npower complaints system where I was blithely told that 'this [the failure to deal with complaints] is what happens through our call centre'.
Remarkably, through this - yet unresolved - process I was able to speak to real people rather than dealing with an answering system. The call handlers were universally friendly. The fatal flaw, of course, was that they were npowered to do nothing.
There may be some sensible investment decisions in the market, but I'm blowed if I can see them.
Just look at what happened to Marks & Spencer last week after it admitted Christmas trading had been a fraction worse than expected. Investors sped for the exit and shares were back at the level of Sir Philip Green's bid in 2004.
M&S is still on course for a profit of about £1 billion. It has invested £1 billion on some very smart store refits.
It has also handed back the best part of £3.5 billion to shareholders. Sir Stuart Rose may have created some discomfort but this was not armageddon. Certainly, the current state of heightened market panic is tending to over-punish disappointment. But for M&S to tank so dramatically looked significantly overdone.
And what is worrying is that other blue-chip companies are being similarly flayed, opening the way for anyone with a rather longer-term investment horizon and an eye for a takeover to seize UK plc's family silver.
As I have pointed out before, sovereign funds - notably from the Middle East and Asia - have started to pick up tranches of bank shares. The banks need capital and the sovereign funds can see what will almost certainly soon look like a bargain.
Out-of-favour British Land attracted interest from Singapore last week. There are plenty of other examples.
Yet it is, of course, our own pension funds that should be taking this long-term view of equities.
They should be spotting bargains to be squirreled away for future generations of retirees rather than impoverishing us all by ploughing money into government bonds, which are anything other than a bargain.
