COMMENT : Trafs manages to find another sugar daddy
'If Trafalgar's chequered past is anything to go by, Kvaerner is going to need all the hallucinogenic powers of a Viking magic mushroom to sustain it on this particular voyage into the unknown'
Wednesday 28 February 1996
If Trafalgar's chequered past is anything to go by, Kvaerner is going to need all the hallucinogenic powers of a Viking magic mushroom to sustain it on this particular voyage into the unknown. Virtually to script came the coincidental news yesterday that the aptly named Cunard cruiser, the Sagafjord was drifting aimlessly in the South Seas looking for a tow, her engines beyond repair. If ever there were a timely reminder of the perils of investing in Trafalgar House, this was it.
None the less, Kvaerner seems determined to go for the nuptials. By all accounts Hong Kong Land, the vehicle for the Keswicks' investment in Trafalgar House, has all but agreed terms, the courtship arranged by SBC Warburg, which has a relationship with both sides. All that remains is formal Trafalgar House board approval. Kvaerner presumably has some idea of what it is letting itself in for. By a strange twist of fate, Kvaerner actually built the Sagafjord some 31 years ago. As one of the world's largest cruise ship builders, it knows a thing or two about the business.
Clearly, however, it is the engineering and contracting side of Trafalgar that interests Kvaerner most; Kvaerner believes that once in the saddle, it can make as big a margin out of the Trafalgar engineering businesses as it does out of its own.
In other respects too, Trafalgar could work for Kvaerner where it failed for the Keswicks. For a likely cost of around pounds 800m, Kvaerner is getting a business which has had pounds 630m of new equity pumped into it since the Keswicks first became involved. Admittedly, there's still a fair chunk of debt, but essentially Kvaerner is buying a refinanced company at what could be a knock-down price. All told, therefore, it looks a better deal for Kvaerner than Amec would have been.
It might be said that if Trafalgar is so attractive to Kvaerner, why is Hong Kong Land getting out. Trafalgar has not been a happy experience for the Keswicks; they have lost well over pounds 100m on the adventure and there was a risk that for them that the pill would turn more bitter still. Other shareholders can only thank their lucky stars for the Keswicks' misfortune; without them, Trafalgar would long ago have sunk beneath the waves.
Doubts grow over Barclays
Is Martin Taylor, Barclays' youthful chief executive, a fraud or a genius? The query hung over the bank's results presentation yesterday, as Mr Taylor beamed at the impressive pounds 2bn-plus in pre-tax profits while deftly passing over the line that showed underlying profits down by 5 per cent. Barclays is doing well, but that is not quite the achievement it seems when all the banks are making money hand over fist in the most sustained period of profitability for decades. The fact is that Barclays' performance, compared with that of the other major rival clearers, is poor and has been so year after year.
For the proselytising Mr Taylor, this is clear proof that Barclays alone is treading the path of banking virtue, while its greedy rivals are heading for another painful period in the hellfire of recession. When he assumed command at Barclays a little over two years ago, Martin Taylor made plenty of impact with his talk of New Age banking, stuffing the culture of growth and profligacy into a recession-proof hairshirt of abstemiousness in which quality comes before quantity. Fine. But has the cultural revolution really happened? Barclays' profits increase is largely due to a sharp fall in its bad debt provisions. This hardly amounts to a secular change in the quality of the bank. In the meantime, Barclays drops further behind its competitors in underlying earnings, while its costs show little evidence of control. Lloyds bank's costs grew by 4.4 per cent last year, but this was accompanied by substantial expansion; Barclays' rose by 5 per cent but it is shrinking, not growing.
Martin Taylor may yet be proved a visionary, but we shall have to wait until the next recession to find out. Having joined Barclays at its nadir, his claims have yet to be tested. But as the market showed yesterday, the doubts are growing.
How much more can Clarke give away?
Post-Scott, the political endgame continues to favour an election delayed to the last possible moment, in May 1997. Already, the political and economic calculations are turning to the next Budget and just how much Kenneth Clarke can give away.
Last November, the buzz in the corridors at Westminster was that the Chancellor had kept his powder dry. The modest pounds 3bn cut in taxes was seen as an opening instalment for the real bonanza - a decisive 2p off the basic rate of income tax, providing the Tories with the springboard for an election-grabbing pledge of a 20p basic rate.
A recent calculation by the National Institute of Economic and Social Research seems to support this view, suggesting the Chancellor has more room for manoeuvre than is generally appreciated. Mr Clarke could cut income tax in one fell swoop to 20p and the Public Sector Borrowing Requirement would still be lower in 1997/8 than the pounds 30bn it looks set to reach in the present tax year, according to the National Institute.
Everyone forgets Maastricht, however, and for all its Euro-scepticism the Government is as keen as anyone to meet its onerous criteria. Figures out today and next month will show how Britain has been progressing towards the all-important target of a financial deficit of 3 per cent or less of GDP in 1997. The National Institute projects that even a modest pounds 4bn tax-cutting package will put Britain on a knife-edge, with a deficit/GDP ratio of 2.8 per cent in 1997. Another reason for not over-estimating the size of a giveaway Budget in November - always assuming the Government can survive that long.
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