This week marks the 20th anniversary of John Major’s election victory and my debut in The Spectator. The two events were connected: going to press on the eve of a close poll, the editor needed one more non-political feature — and pulled my essay on the follies of the 1980s City out of the pile of unsolicited submissions. In it I observed that the ‘great blaze of swaggering hubris’ which characterised bankers’ boom-time behaviour had given way to grimmer times. The archetypal financier was no longer swanning round the world in first-class luxury but, ‘if he still had a job at all, stuck at Frankfurt… with an economy ticket, a ham roll and a bout of flu’. Not for long, however: ‘Markets and bank proprietors have short memories, the gravy train may roll again.’
I certainly got that right, but I’m ready to eat a more recent prediction — that the opening of the Olympics on 27 July will be the moment the nation finally shakes off its economic gloom. Now the OECD says we’ve double-dipped — though the British Chambers of Commerce disagree — I fear I must elasticate my timetable. Again, our archive offers a guide. In April 1992, the economy had fallen back into negative territory after one narrowly positive quarter preceded by 18 months of recession. Growth started motoring again in September, when the pound fell out of the European exchange rate mechanism; but morale did not perk up for many months after that. Indeed, it was in August 1994 (when Tony Blair had taken a 33-point honeymoon lead over Major in opinion polls) that I felt moved to write a piece headlined ‘You’ve really never had it so good’, cataloguing upbeat indications and urging the nation to cheer up. Perhaps I should shift my prediction to 23 July 2014; that’s the opening of the Commonwealth Games in Glasgow, and we must all start thinking positively about it.
Here’s tae us
Another ray of sunshine from north of the border, and I’m not referring to George Galloway. Scottish exports of food and drink have risen 46 per cent in five years to £5.4 billion, led by whisky, fish and seafood. Even the French are big consumers of Scottish produce these days, while brands reporting overseas sales surges include Walkers shortbread, Baxters soups and — a new name to me — Devro, a Lanarkshire company employing more than 2,000 people ‘which has seen strong demand from emerging markets for its sausage skin casings’. Stand by for a wave of propaganda, also peaking in mid-2014 ahead of Alex Salmond’s referendum, about how internationally competitive the Tartan Tiger has become. An old toast offers a ready-made slogan: ‘Here’s tae us, wha’s like us, dam’ few an’ they’re a’ deid.’
Wily traders
The BBC’s claim that UK Financial Investments is ‘in talks to sell a significant stake in RBS to Abu Dhabi’ came barely 48 hours after I wrote here that the disposal of the taxpayers’ 82 per cent holding in the crippled bank was about to become a hot topic. The story gained legs, in more than one sense, with the suggestion that it involved Amanda Staveley, a former girlfriend of the Duke of York (and granddaughter of a Doncaster bookie), who is celebrated for her big-money connections in the Gulf.
It was Staveley who brokered the 2008 deal in which Abu Dhabi’s Sheikh Mansour bin Zayed al-Nahya invested £2 billion in Barclays on very favourable terms — alongside Qatar, and thereby preserving Barclays from a bailout — only to sell at a huge profit nine months later then reinvest that profit in 2010 to exercise some of the warrants that came with the original deal.
The trouble is that their Barclays dealings made the Sheikh and his pals look like wily traders rather than the sort of stable, long-term investors the government must hope will underpin RBS’s return to the private sector — and any deal done this year would almost certainly lock in an unpalatable loss for the taxpayer. No doubt UKFI is talking to several sovereign wealth funds in the Gulf, and Gulf investors are looking at lots of western banks, but I suspect that’s as far as it goes for the time being.
Meanwhile, a reader who knows his onions emails the following proposal, which sounds good to me: ‘UKFI could sell long-dated call options on RBS shares, or the government could issue a gilt convertible into the shares, or both. Neither are obscure instruments: both are quite easy to price, and both have the advantage of raising cash now against a potential sale later. Furthermore, if the option strike price is set above UKFI’s cost price (which averaged 50p per share), then either the strike price is reached, in which case the Treasury is happy to sell, or it is not — in which case the Treasury has at least collected a premium.’
And, he might have added, not only would sheikhs be welcome as buyers of this non-toxic paper, but the sophisticated end of the securities markets would at last have done something useful for the nation.
Mighty fallen
3i, Britain’s biggest quoted private equity business, whose chief executive Michael Queen is departing, was reported at the weekend to have so disappointed leading investors that some of them are willing to consider liquidating its investments and closing it down. Yet this is the institution, founded in 1945 as the Industrial and Commercial Finance Company with government support and the clearing banks as its shareholders, that was once a locomotive of British industrial development. In its first 50 years it backed more than 11,000 promising businesses, ranging from high-tech Oxford Instruments to Phileas Fogg snacks. But then it went public and global, started picking too many losers — and acquired a shark-like reputation with investee companies. I asked a small industrialist who had recently found new owners how the 3i experience had been for him: ‘Talk about wanting pints of blood,’ he said. ‘Glad to see the back of them.’
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