Martin Vander Weyer’s Any Other Business
The flotation of a business that has carved a big slice of a fast-growth consumer market within less than a decade of its start-up ought to be a cause for celebration: an example of capitalism doing what it’s supposed to do in support of entrepreneurs; an affirmation that markets are back in business after their nervous breakdown two years ago. But the share offering for the online grocer Ocado, for which a price will be struck on 21 July, has provoked more of a City brawl than a champagne reception. Some fund managers are enraged by the indicative pricing, which values Ocado at up to £1.3 billion even though it lost £26 million last year on £402 million of sales. And there are so many health warnings in the prospectus that some analysts think the £200 million capital-raising looks more like a rescue than a step up the ladder to success.
Ocado’s people retort that professional investors are cynically trying to talk the price down — but I suspect Ocado’s people are the problem. Its founders, Jonathan Faiman, Tim Steiner and Jason Gissing, are all former Goldman Sachs executives (Gissing was a Bullingdon Club contemporary of George Osborne, by the by) and Goldman is co-sponsor of the deal alongside JPMorgan Cazenove, UBS and a team-sheet of top City firms. Ocado’s chairman is Michael Grade, and among its early backers who stand to do well out of the float are two already very rich men, Jorn Rausing of the billionaire Tetrapak dynasty, and Nick Roditi, a former associate of George Soros. In short, Ocado’s people are about as sophisticated a busload of financiers as it would be possible to assemble, and the feeling is that they have closed ranks to get this deal away, and reap its rewards, sooner than Ocado’s track record really justifies.
I’m reminded of Adam Smith’s dictum: ‘People of the same trade seldom meet together… but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.’ Ocado is a brilliantly executed idea, and it might eventually be a highly profitable business if it can hold its own against powerful supermarket competitors. If you like its service, by all means go on ordering its groceries — as my van-spotter tells me someone in Downing Street regularly does, presumably Mrs Osborne. But unless you’re a very sophisticated investor, I wouldn’t put its shares on your shopping list this weekend.
The Mainwaring model
I argued here last year (‘The time is ripe to launch Spectator Bank’, 21 November 2009) that the financial crisis would have a positive aftermath if it led to a crop of new banks springing up in our high streets, each with a distinctive mission to serve local customers and small businesses. At last that seems to be happening. Metro Bank is about to unveil its first outlet in Holborn, and will soon open a dozen more across London under the slogan ‘Love your bank at last’. It’s the brainchild of US entrepreneur Vernon Hill, who made his fortune by founding the customer-friendly Commerce Bank of New Jersey and also owns a string of Burger King franchises. He aims to ‘make banking fun’, which will certainly be a change from what he describes as the ‘horrendous experience’ offered by existing high-street giants — one of which, state-owned NatWest, is trying to re- invent itself with a glossy ad campaign pledging a list of service improvements that will make it ‘Britain’s most helpful bank’.
So far so good, and there’s more. Virgin Money (also backed by an American, Wilbur L. Ross Jr) bought a tiny bank called Church House Trust in January, and claims to be planning a branch network; and the Kent Reliance Building Society finds itself being wooed by yet another Yank, J.C. Flowers. Finally, there’s the ‘City grandees’ bank’, though I’m sure they’ll swiftly find a less repellent name for it. This venture, which is seeking institutional funding to relieve the taxpayer of the rump of Northern Rock and a portfolio of Lloyds branches, is led by former minister Lord Levene alongside Sir David Walker (Bank of England and Morgan Stanley), Lord McFall, ex chairman of the Treasury Select Committee, and former EU commissioner Charles McCreevy. Much is made of such a heavyweight line-up, while Levene succinctly defines the style they’re aiming for as ‘Bring back Captain Mainwaring’.
What a curious inversion that is, given that in the era when the Dad’s Army captain was branch manager at Walmington-on-Sea, banks operated an interest-rate cartel, lent to small businesses only on the most cautious terms, and regarded un- authorised overdrafts as akin to theft. But at least Mainwaring knew all his customers by name, understood local circumstances, and was a man of integrity to be relied upon in a tight corner — when enemy airmen capture your church hall, for example. Not such a bad model, perhaps.
Multiple choice
All this promises an exciting multiplicity of choice: retro-banking with the grandees, a touch of Burger King slickness at Metro out-gimmicked in due course by Virgin, even a new awareness of the long-suffering customer at NatWest. But hang on a minute: let’s take a closer look at those grandees. Levene made his name as a military equipment salesman; Walker is a central-banking technocrat; McFall used to be a chemistry teacher; and McCreevy is a career Irish politician. Not a day’s retail banking experience between them, in fact, unless you count Walker’s brief stint as non-executive deputy chairman of Lloyds.
Nothing wrong with that, you might say, given the ruination wrought upon several of our banks by executives who had been there man and boy. A fresh approach is just what’s needed. Which brings me back to my proposal last year, to create Spectator Bank: since journalists have so much to say on the matter, why not a bank run by members of the fourth estate? I might slip modestly but comfortably into the chairman’s seat, and I can see Toby Young as our thrusting chief executive, once he’s finished building his free school; the great investigator Tom Bower could take charge of risk, with Rod Liddle as his deputy; Taki would be the obvious choice to head up international wealth management. Would we make a worse hash of it than any of the other new entrants? I doubt it. ‘Our words are our bond’ might be our slogan, and we’d certainly make the small print more fun to read.
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