Business Comment: The City will not profit from backing Regan

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The Independent Online
Andrew Regan's attempts to launch a breakup bid for the Cooperative Wholesale Society have gone far enough. Hambros, Schroders and other top drawer City backers for this avaricious endeavour would be well advised to withdraw their support now before it is too late. Already they have done themselves not insignificant reputational harm by lending their names to this attempted act of piracy. If they might reasonably have failed to anticipate the extent of public distaste for what they are doing, they must by now be very aware of it. To persist would be to play fast and loose with their good names.

This is a disreputable enterprise pursued for disreputable purposes. It may be thought common enough for City folk to earn pounds 2.4m for three days work (though if the truth be known it is actually extremely uncommon even within the confines of the Square Mile), but nobody is going to believe outside the world of high finance that lottery style winnings like this can be legitimately earnt. Graham Melmoth, the Co-op's chief executive, speaks the language of the ordinary man in his letter expressing incredulity at Mr Regan's explanation for this payment.

The matter is not, as the Regan camp would like us to believe, a sideshow and a distraction from the wider debate over the Co-op's future. It goes to the heart of matter and it is indicative of why so many people feel such a strong sense of revulsion for this escapade. The legitimacy or otherwise of the payment is beside the point, though Mr Regan's explanation of it does bear a quite uncanny similarity to the explanation given by Ernest Saunders of his payment of pounds 5.2m to Tom Ward in the Guinness affair.

The Guinness payment was found to be an illegal payment and there is no suggestion of that here. However, then as now the justification advanced was for invaluable advice and assistance in a commercial endeavour. Then as now the overriding question is how anyone, however brilliant and accomplished, could possible be worth such staggeringly large amounts of money for so little work. It makes "excess" in executive pay look positively reasonable.

No, this payment is not a sideshow. It is symbolic of what this breakup bid is all about. The CWS has no doubt been a very poorly run company for a very long time. But it contains within it assets and reserves built up over generations through honest toil and endeavour. It is not right that such riches should be so easily plundered for the benefit of such a small group of asset stripping insiders. A mil here, a mil there for a few hours easy work - such will be the division of spoils if the Trellis payment is anything to go by. Don't let him do it.

Privatisation issues do funny things to investors but building society flotations, where it really is a case of money for nothing, provoke even odder behaviour. Yesterday among the cascade of bargains being done in Alliance & Leicester stock were a smattering of trades involving fewer than 50 shares and one that involved just eight. Even at pounds 5.66 a share that is hardly worth getting out of bed and going down to the local share shop for.

Much better to have ticked the box saying you want your windfall in green folding stuff now and let Cazenove get on with it.

The sharp rise in the A & L's share price in first day dealings gave the fleeting impression that those who held onto their 250 free shares would do rather better than those who chose to take part in the great Caz auction. Yesterday's equally sharp drop in the price suggests otherwise.

Unless the last of the three share auctions has gone terribly wrong then those who sold out look like having done so at pretty much the market price. A smart investor might have made a killing by selling in the market on Monday but even then it would have been mighty small - pounds 70 at most, after dealing costs, on a windfall worth more than pounds 1,300.

The interesting question is whether the A&L's experience, where 27 per cent of shareholders opted to sell immediately, will set the trend for all the other societies taking the demutualisation route this summer. There is already a frisson in the air. The Halifax, the daddy of them all with 8.5m members against the A&L's 2.3m, is writing to all qualifying customers warning them that they will lose their chance to benefit from the issue altogether if their forms are not in by 26 May.

Based on the A&L experience, there seems little incentive to do anything other than take the money and run. The theory was that prices would inevitably rise under the law of supply and demand. Since the big pension funds and other investment institutions would need to buy to adjust their weightings, there would be heavy demand for the shares. Thus far this doesn't seem to be happening, or if it is there is not much effect on the share price.

It's in the nature of financial markets, politicians and commentators alike to get so tangled up in minutiae that they lose sight of the broader picture. The budget deficit trees are once again obscuring the Emu wood. The obsession with whether or not various countries' 1997 government deficits will be just below or just above 3 per cent, the magic Maastricht number, is distracting attention from the important question, which is whether or not the single currency will work.

The targets for economic convergence, which include the 3 per cent deficit ceiling, were deliberately set out with some flexibility. It would be madness to pin a country's chances of joining the single currency on the bogus precision of one year's figures. Nothing in the economy is that precise.

A budget deficit is the difference between two extremely large and variable numbers, tax revenues and government spending. Taking it as a ratio of GDP means dividing it by a third very large number which will, with certainty, be revised substantially as the months go by. There is no essential difference between 2.9 per cent and 3.2 per cent in this case.

And though the markets ebb and flow to the tiniest movements in these numbers, the big economic picture has not changed. The core countries, France and Germany, are struggling to get their economies into shape for a sustainable monetary union. They can manage it if they really want to. The political will to do so on the part of their governments remains.

What has changed, perhaps, is the degree of political opposition to the necessary economic medicine within both France and Germany. This is why President Chirac wants early elections and why Chancellor Kohl might struggle to get tax reforms through parliament.

When Britain underwent a combination of fiscal retrenchment and structural economic reform in the 1980s, there were violent strikes and regular inner city riots. A government has to be sure about where it wants to end up to set off down this path. This debate is what the fretting about tiny differences in deficit forecasts is really about - the degree of pain between here and 1 January 1999.

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