While attention has focused on the sudden ubiquity and alleged iniquity of payday lenders, boom and impending bust has infected another part of the short-term credit sector. For the very reason that the global economy is recovering, Britain’s pawnbrokers are in trouble.
Pawnbroking traces its history to the Medicis, but owes its traditional image in this country to Charles Dickens: ‘Of the numerous receptacles for misery and distress with which the streets of London unhappily abound,’ he wrote in 1835, ‘there are, perhaps, none which present such striking scenes as the pawnbrokers’ shops.’
Today’s UK market leader H&T, formerly Harvey & Thompson, opened for business on Vauxhall Bridge Road in 1897. According to the National Pawnbrokers Association, there are 2,144 outlets of this venerable if not quite respectable trade; they typically make loans of less than £100, of which 85 per cent are redeemed; they charge annualised interest rates of 80 to 130 per cent, compared with Wonga’s latest breathtaking APR of 5,853 per cent. And poignantly, the most popular pawn items are gold rings.
Naturally the gentlemen who operate under the sign of the three golden balls are most active when times are hard, banks won’t help and the gold price is strong because investors are afraid to hold anything else. It helps also that shop units are cheap in a recession: both H&T and its most aggressive competitor, Albemarle & Bond, expanded their branch networks rapidly — as did other quick-cash kiosks and instant gold buyers. In easier times there might be just one competitor in any high street, H&T boss John Nichols told the FT: ‘Now you’ll have eight or nine.’ Even Tesco offers a ‘gold exchange’ under the slogan ‘Collect cash, not dust.’ But as investors regained confidence and switched out of the safe-haven metal, the gold price has fallen by a third — and the pawnbrokers’ business model has been shot to pieces.
Laden with debt, Albemarle & Bond saw its share price collapse by three-quarters at the end of September after admitting ‘uncertainty’ in future profits; its largest shareholder, the US pawnbroker EZCorp, refused to back a rights issue, and a new chief executive has been parachuted in at short notice to attempt a turnaround.
Meanwhile H&T’s profits were down 40 per cent for the first half, and its shares have halved since March. The two firms discussed merger back in 2009 when gold was rising, and may be forced to do so again now with radically reduced prospects. As Merryn Somerset Webb wrote last week, Wonga and its ilk are all too easy to deal with if you’re strapped for cash. Ironically, it will be a pity for the poor if they no longer have the alternative of an old-fashioned pawnbroker.
More than a fast buck
To suggest, as Labour spokesmen did, that Royal Mail must have been sold too cheap because the share offer which closed on Tuesday was oversubscribed is to misunderstand the new issues market. There has clearly been some ‘stagging’, no doubt with City boys to the fore taking advantage of the easy option of applying online for up to £10,000 worth of shares using a debit card. Over-subscription means they won’t get £10,000 allocations, but if they only receive the minimum £750 worth each, they’re still set to turn a nifty profit by selling instantly as institutions mop up shares next week.
Is that a bad thing? Not really: it tells us the market is lively, and that the concept of a privatised Royal Mail — carried through purposefully this time, despite implacable union opposition — is well accepted by the investment community. The fact that all but 368 of Royal Mail’s huge workforce took up free shares is a good thing too: some will sell but many will be long-term holders, enjoying what’s promised to be a decent dividend stream as well as a warm sense of ownership. It’s useful to be reminded, 30 years after Margaret Thatcher embarked on it, why privatisation is a positive force for change even if it sometimes also offers a fast buck.
While my Coffee House colleagues dissected Monday’s reshuffle for political nuance, I was scrutinising appointees for evidence of real-world experience, especially in business. The Treasury gains a merger and acquisitions lawyer in Nicky Morgan, who could be useful when it comes to selling bits of RBS. Then there’s Tory rising star Sajid Javid, promoted from Economic Secretary to Financial Secretary. He once held the title of ‘global head of emerging markets structuring’ for Deutsche Bank in London before running its trading operations in Asia, so brings expert knowledge of financial sector risk — though when I shared a fringe platform with him on that topic at the Conservative conference in Manchester two years ago, he applied such innovative structuring to his own off-the-cuff grammar that I failed to understand a word he said.
In fact the best-qualified newcomer is probably Baroness (Susan) Kramer, the Lib Dems’ former London mayoral candidate, who becomes minister of state for transport. Before politics she was a consultant on infrastructure financing, mostly in Eastern Europe, in partnership with her late husband John, an American who served as chairman of Chicago’s regional transport authority. Having previously declared herself ‘very supportive of big infrastructure projects such as HS2’, can she make it happen?
Alongside her at Transport will be another latecomer to office, Robert Goodwill MP, a North Yorkshire farmer with experience of at least one small infrastructure project: in 1995 he converted a field into a commercial ‘green burial’ site, provoking uproar among neighbours who feared an invasion of ethnic and gypsy funeral cortèges. When I investigated the story, a drinker in the local pub told me: ‘As far as I’m concerned, Muslims are part of t’walk of life these days. But I suppose I’d rather have them here dead than alive.’ Let me reassure you that Yorkshire villages, like ministerial reshuffles, are much more inclusive these days.