Mark Kleinman on banks, Ocado and London’s IPO market
Mark Kleinman is City editor at Sky News
Politics could push ministers to punish banks
This is a cost of living crisis, not a banking crisis: if I had a fiver for every time a senior bank executive had said that to me over the last 18 months, I’d never need another mortgage of my own.
But as interest rates have steadily crept up during that period, Britain’s biggest lenders have suddenly been thrust back into a political spotlight they hoped they had shimmied out of after an unforgiving decade.
The banking industry should be in no doubt that it is back in government crosshairs. Soaring mortgage costs and the withdrawal of hundreds of home-loan deals from the market have combined in the last month to produce a toxic combination that will make the energy price crisis – which began a couple of years ago – seem trivial.
Jeremy Hunt, the Chancellor, didn’t mince his words this week. After trumpeting a series of measures to insulate mortgage customers from the impact of the Bank of England’s latest base rate increase, he turned his fire on the banks over the speed at which they pass on rate increases to savers, particularly those with instant access accounts.
He told MPs that his officials were “working on a solution” and that the issue “needs to be resolved”.
One bank executive highlighted ‘signposting’ alternative accounts with higher savings rates to customers in lenders’ apps as a possible answer.
But as the Chancellor’s meeting yesterday with economic regulators, including the Competition and Markets Authority and Ofcom, reinforced, he requires bigger victories than internet gimmicks to prove
a point.
A government fighting for its political survival cannot afford to take prisoners. Roughly 25 points behind in the polls and acutely aware that halving inflation – one of the PM’s five key targets this year – suddenly looks highly unlikely, banks should not be surprised if they become collateral damage in a bitter 2024 election campaign, particularly if they don’t yield to the current wave of Treasury pressure.
Half-year results in the coming weeks that demonstrate improved profitability and dividends will be welcomed by shareholders, but a dose of enlightened self-interest in bank boardrooms, and a note of caution about future payouts, probably wouldn’t go amiss.
Ocado spike one more reason to look at stock market rules
Unlike most supermarket home deliveries, silly season seems to have arrived on the London Stock Market early this year.
Recent speculation that Ocado might be the subject of takeover interest from Amazon or other “technology heavyweights”, according to one newspaper market report, propelled the shares over 45 per cent in a single trading session.
Ocado isn’t a microcap penny stock. Its shares have slumped in the past year, the post-Covid doldrums truly having set in, but the market response was barmy. Goldman Sachs, which reports suggested might be advising a bidder for Ocado, has in fact been a long-standing adviser to… Ocado.
The absence of any corroborating statement was taken as evidence that nothing is going on. But the falseness of the market which existed for several hours in Ocado stock surely makes the case yet again for reforming the rulebook and forcing companies to state explicitly that they know of no reason for such ludicrous gyrations
in value.
WE Soda pull-out leaves London feeling flat
It’s a safe bet that Alasdair Warren won’t be receiving many Christmas cards this year from his erstwhile colleagues and peers in the City.
Rarely has one company captured so many hopes for an entire IPO market as WE Soda, the soda ash producer, which aimed to go public in London at a valuation of around £6bn.
This month, those hopes went up in smoke when investors balked at the asking price and demanded it be slashed by as much as 20 per cent. The company demurred, and the deal was abandoned, prompting veiled threats about taking it across the Atlantic to list in the US instead.
The fault, according to Warren, a former equity capital markets banker at Deutsche Bank and Goldman Sachs, lay with risk-averse investors who lack the “commitment” to back “local” companies which are cash-generative and want to list in London.
Leaving aside the fact that WE Soda is Turkish, Warren’s point does contain some merit. The de-equitisation of the London market is not a new phenomenon, and neither is the sharply lower allocation of UK equities held in many pension and other investment funds, leading to a much greater weighting of London-listed shares held by international investors.
It’s the timing of WE Soda’s decision that threatens to do so much damage to sentiment towards the London market. Recent moves by London-quoted CRH, the building materials group, and Flutter Entertainment, the owner of Paddy Power, to list in the US have shaken confidence in the City, while Arm Holdings’ impending US float came in spite of some rather desperate pleas from UK government ministers.
Next month’s Mansion House dinner, at which the Chancellor, Bank of England governor and Lord mayor of London will speak, presents an opportunity for concrete actions aimed at restoring the City’s equity market to its proper international standing.
Those gathered in the room should eschew the grandees’ conventional back-slapping – without a firm plan to halt this erosion, the London market faces a real risk of becoming an equity markets backwater.
Mark Kleinman is Sky News’ City Editor and can be found tweeting at @Markkleinmansky