Comment : Sterling's stumble signals end of its glory days
`So what is going on here? Certainly it was not concern on the part of the Government that caused sterling to falter. If there was anxiety at the Treasury and the Bank of England about the strength of the pound, it hasn't showed'
Wednesday 04 December 1996
So what is going on here? Certainly it was not concern on the part of the Government that caused sterling to falter. If there was anxiety at the Treasury and the Bank of England about the strength of the pound, it hasn't showed. So far, there has been no intervention by the Bank of England in foreign exchange markets, nor has there been much comment from the Chancellor.
When you think about it, however, there is no earthly reason why he should be concerned. In the short to medium term, a strong pound is all to the good, politically at least. For a start, it means cheaper foreign holidays. Then there's that sense of national pride that springs from a strong currency. More important still, the deflationary effect decreases the pressure on Mr Clarke to raise interest rates.
The only people complaining about it were exporters. If they get hurt, then plainly that eventually affects the real economy and the Government. But there is a relatively long lag here and it seems unlikely there would be any noticeable adverse effect in the six months left to an election. The upshot is that there is no incentive at all for Mr Clarke to do anything about a strong pound.
Moreover, there is good reason to believe that it is in any case only a temporary phenomenon. The pound is not made inherently attractive just because the Germans seem prepared to give up their strong Deutschemark for a softer and more volatile Euro. Meanwhile there are problems aplenty building up in the domestic economy, most urgently that of runaway consumer demand.
This looks destined to bring higher interest rates, with or without the strong pound. Anyone who believes the picture is going to look any better under Tony Blair is whistling in the wind; Labour is going to find it much harder to hold the lid on spending while big tax increases to correct the problem are going to be as difficult for Mr Blair as they are for Mr Clarke - they would risk strangling the new administration at birth. This is not a backdrop conducive to a strong currency of Swiss-like predictability and resilience.
Another bungle on insider dealing
Whoops. Another one bungled. The Stock Exchange typically refers two or three dozen cases of suspected insider dealing a year to securities regulators. But convictions are still as rare as summer snow. Most of them never even get to court. This year there has been a grand total of two trials, one of which fizzled out yesterday with a hung jury. Amazingly the other produced a guilty verdict, though we do not yet know the sentence, but it hardly makes much difference.
Over the years, criminal prosecutions for insider dealing have produced a lamentable record of which neither legislators nor prosecutors can be proud. The law was beefed up in 1993, but few believe that this will do much good. This is an issue that is giving ethical standards in the City a bad name, and deservedly so. As a result, there has been much hand wringing among regulators over what to do next.
The problem is that a large number of what we can only call professional insider dealers gets away scot free every year, simply because they are so good at their egregious calling. It is the occasional amateur who tends to get caught and fined.
The mystery about it is that the DTI has powers to investigate insider dealing that go far beyond those available to the police in the ordinary course of their investigations. Inspectors can trample over what are normally regarded as core civil liberties with impunity. Karen Morgan Thomas, a former stockbroker at James Capel who was innocently caught up in investigations into alleged insider trading in Anglia TV shares, is so incensed about her treatment that she is reportedly planning to take the issue to the European courts.
This DTI tiger, which looks on paper as if it can give anybody a mauling, looks more like a kitten when you look at the record of court success, and the paltry level of penalties, with only one jailing in a decade. The conventional answer, favoured by the Stock Exchange, is to use the civil law and the regulatory system, where the burden of proof is lower, to prosecute insider trading. Reluctantly, it has to be said that the criminal prosecution record is making the exchange's case stronger every year.
Mr Rice needs to keep on running
Victor Rice, the chief executive of LucasVarity, is a larger-than-life character so he should be able to take yesterday's rather perverse 6 per cent decline in the company's share price in his stride. Any man who can wear pink jogging pants into the office isn't the sort to lose much sleep over one or two stock market downgrades anyway.
The cause of the slippage in the share price was some bearish comments about the trading outlook that the usually bullish Mr Rice made at the end of a teleconference with analysts. Apparently the French have stopped buying so many diesel engined cars now that their government has stopped bribing them to enter the showrooms.
The bigger picture is somewhat rosier, however. Poor old Sir Brian Pearse, the group's non-exec chairman, could only spot pounds 65m worth of cost savings in the merged business.
Moreover, he forecast that the job losses would be few and far between, such was the complementary match between the two businesses.
But the sharp-suited Mr Rice is an altogether smarter cookie. He has managed, surprise, surprise, to double the figure for cost savings to pounds 120m after identifying 1,500 folk on the Lucas payroll who were surplus to requirements after all. In total, the headcount will fall by some 8,000 once Mr Rice has finished swinging the axe elsewhere in the sleepy old world of car components and disposed of some 13 businesses (again all ex-Lucas subsidiaries) that do not fit with the grand strategy.
Perhaps we should not be too surprised at all this. Mr Rice was brought in from Varity to do precisely this job and he has set about his task with gusto. Any pretence that this was other than an American takeover of Lucas has been firmly squashed.
The kitchen sink exercise will mean pounds 250m of exceptional charges this year. But the flip side is that all the cost savings identified by Mr Rice will be flowing through to shareholders inside two years.
That, generally, is when mergers of this sort start to run into the ground and investors start to worry. Mr Rice will need to keep his jogging pants on.
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