Bath/Head Office & Unquoted Equity Team:
London Office & Quoted Equity Team:
Edinburgh Office & European Quoted Equity Team:
The Financial Ironmonger Blog No 51

The Financial Ironmonger Blog No 51

Every week our guest blogger, David Oakes of Mosaic Money Management (aka The Financial Ironmonger), shares with us his take on some of the major UK and overseas macro and political events that shaped the previous week.

Please be reminded the value of investments, and the income from them, may fall or rise. The views expressed in this article are those of the author at the date of publication and not necessarily those of Chelverton Asset Management Limited or Mosaic Money Management. The contents of this article are not intended as investment or tax advice and will not be updated after publication unless otherwise stated.

–THE FINANCIAL IRONMONGER BLOG NO 51–

On Monday, whilst all eyes were on Italy, and the fate of the bank Monte dei Paschi, RBS, (73% state owned), announced that it was paying £800mn to 3 shareholder groups. They had claimed that they were misled over the £12bn rights issue in the months before the whole thing collapsed anyway, requiring the government to bung in a further £45bn. They have spent £100mn on lawyers, so far, but there are still two shareholder groups who have not settled, so this will drag on.

Press reports suggest that RBS are desperate to keep this out of the courts, which would feature former CEO Fred Goodwin in the stand, and in the meantime the state have postponed any further share sales. No wrongdoing of any sort has been admitted, and as always is the case, those involved have moved on, leaving new players to clear up.

I said to my erstwhile colleagues, at the time of the rights issue, that the document must have been written by a relation of Enid Blyton, and I was a shareholder at the time. Spare a thought for the employees, however, some of whom had significant sums saved up in share option schemes. It is my understanding that they were allowed to borrow money to invest in the rights issue, to be repaid by the year- end bonus. Well, that never turned up, and their shares, both old and new, fell by some 90%.

They seem to be the real victims of this, given that very few had any idea what their employer was up to, and I hope they get some recompense. Meanwhile, if you are wondering why you would pay out £800mn if you had done nothing wrong, the answer has to be that it fends off a total liability of £12bn, and counting. These are very large sums of money, albeit not their own, but surely this is binary. Either the shareholders were misled, (polite word), or they were not. And where, pray, is Dixon of Dock Green, in all of this?

Back in Italy, the referendum was comprehensively lost, 59 to 41%, on a 70% turnout. Only two regions voted in favour, the south totally rejected it, as did 81% of voters under the age of 35. You will recall that somewhere between 38 and 40% of them are unemployed. It was an outcome so obvious that it was not even worth forecasting. Being Italy, what happens next is uncertain, but the central view is that there will be elections in the spring, albeit that the rules governing this are yet to be established.

Given that both of the main opposition parties are anti euro, there is a real danger that we will see an elected government of that stance, and this will only have been inflamed by the decision to allow no further time for the rescue of Monte dei Paschi, derailed by the vote. New EU rules require a bail in of depositors, alongside bondholders, which have been implemented in some of the small, regional, banks. It is, obviously, deeply unpopular. If you are a shareholder, or a bondholder, then you have taken a view on the risk involved, presumably, but if you have simply deposited your money in the local branch, it cannot be right that you share an equal loss, which is what these rules state.

As to the fate of the oldest bank in the world, the shares were suspended Friday night. The options look to be very limited. Politically, there is no way that the “bail in”, (taking money off depositors), will be acceptable, whilst the state bail out is illegal. The camel racers from Qatar seem to have disappeared in to the dunes, along with their 20% of the £5bn needed, so the ultimate backstop is that control is ceded to the EU. This, in a country, where the two opposition parties, want out of the euro. Go figure, as the Donald might say.

Last Sunday also saw the result of the Austrian presidential elections, where the far-right candidate, Norbert Hofer, was defeated by 53 to 47%, an outcome described by the BBC as “decisive” despite thinking that the Brexit vote, 52 to 48% was “marginal”. I would be the first to admit that I have enjoyed the destruction of the status quo this year, with both Brexit and Trump living up to my predictions, but there comes a point where enough is enough. A clear message has been sent to the political elite, and they need time to respond, if the message has not got through, already.

The narrow vote in Austria provides a breathing space, no more; these people are far from finished, just regrouping. I keep getting drawn back to this idea that history works in 80 year cycles; the internet was to make us all much more informed, linked up, and war would be unthinkable. Hmm.

Here in the village, NatWest have decided that they are going to close the branch next June, hot on the heels of HSBC, who pulled out this year. They claim that transactions are down 21% since 2011, but now they have no competition, and with houses being built all over the green fields, this seems short sighted. I was sad, at first, but given the above, maybe it is good riddance. Perhaps it is an opportunity to start a local bank, and hence the wheel comes full circle, because that is how the whole game originated.

The new pub, which opened in June, has plans to double in size, (albeit that ideas of crowdfunding are now sunk). In the next, and final blog of 2016, I will have some thoughts about what we might glean from this year, but there are plenty of signs of optimism out there.

–MORE ABOUT OUR GUEST BLOGGER, DAVID OAKES–

David joined Manchester stockbroker Henry Cooke, Lumsden in 1977 and after becoming a member of the London Stock Exchange in 1984 held a number of senior positions within the firm including Managing Director of the in-house fund management company and member of the Executive Committee.

After senior appointments at Cazenove Fund Management and latterly Mercater Capital Management, David joined Mosaic Money Management in 2013. He has successfully managed private client and fund portfolios for over thirty years and has particular expertise in providing a multi manager service to his loyal client base.

The Financial Ironmonger is a hat-tip to Ironmonger Lane, the location of Chelverton’s London office.