COMMENT Investors will have their revenge on Littlechild

"Professor Littlechild is not just shifting the goal posts; he seems to have dug up the entire pitch."

Littlechild by name, Littlechild by nature. That was the view of investors, anyway. In a single day Professor Stephen Littlechild has managed to wreak more havoc in the City than George Soros and Nick Leeson put together. Some £3.5bn was knocked off the value of electricity shares as the electricity regulator admitted that perhaps after all he had got it wrong during the last price review and would need to be tougher.

This may well be the right approach from a consumer point of view - this newspaper and others have been saying it for long enough - but from an investment perspective it looks disingenuous and arbitrary in the extreme. Prof Littlechild is not just shifting the goal posts; he seems to have dug up the entire pitch. Moreover, the timing, coming in the middle of the Government's Gencos offers and the Trafalgar House bid for Northern Electric, could hardly be more disruptive, damaging and unfortunate.

The Treasury must be fuming. Proceeds from the sale of the two generators seem to be secure but those left holding the baby - 1.1 million private shareholders have already paid £1,000 apiece - have every right to feel aggrieved. So, too, do the legion of investors who bought into the regional electricity companies in the belief that when Professor Littlechild set a new five-year pricing regime in August he meant it.

Only kidding, he appeared to be saying yesterday as he announced that the bid by Trafalgar House for Northern Electric, the subsequent Northern defence and widespread public concern about whether the new pricing regime was sufficiently demanding on the RECs had led him to reconsider the position. Though he seems to be entirely within his rights, the City had assumed that what it was told last August was the way it would be.

That he could so easily change his mind is something investors neither knew about still less appreciated. Small wonder that the stock market price of both electricity generating companies fell through the offer price yesterday. In the circumstances, the insistence of advisers that Prof Littlechild's volte face has little if anything to do with electricity generation, though technically true, looks either naive or disingenuous. If the regulator can act like this with one set of utilities, why not another? At a stroke Prof (by the book) Littlechild seems to have sunk all prospect of either the National Grid or Railtrack flotations. The timing of his intervention may look to consumer groups like an admirable show of regulatory independence, but from a City perspective it is crass stupidity, as if one side of Government doesn't know what the other is doing, and a damning indictment of privatisation strategy.

It would be absurd to suggest that utility regulators stick to the letter of the privatisation prospectus. Circumstances change. The scope for efficiencies among privatised businesses and for the introduction of new competition into their markets often prove more dramatic than had been supposed. The regulator must have the right to chop, change and adapt accordingly. By the same token, however, to move the goal posts so unexpectedly just six months after putting them in place is really not on, not if ministers want to continue to sell these businesses to investors anyway. Independent regulators are not just consumer watchdogs; they are also there to ensure that the interests of investors are protected from political whim and prejudice.

Investors are now being obliged to pay a heavy price for Prof Littlechild's misjudgment. They will have their revenge the next time the Government tries to privatise anything.

New mind set that shrinks loans

Barclays had the shrinks in last year, and a very good idea it was, too. Martin Taylor, chief executive, has got the bank's loans down by £9bn, or about a tenth.

Mr Taylor is the industrialist who came into a troubled bank and made no secret of his surprise at its management deficiencies. Much of the past year has been spent talking his colleagues into a new state of mind about what they do. Some of it is so simple it is amazing it was not done before.

Top of his list is shareholder value - "the lodestar we are following" - as the key to all decisions about taking on business. This new refrain at Barclays has been familiar for years at Lloyds under Sir Brian Pitman.

It means examining every business decision in terms of the return it produces and avoiding or getting rid of activities that do not satisfy minimum criteria. There is no point in growth for its own sake unless there are profits.

Such a change of direction can clearly cause great personal distress to traditional bankers. Some of them apparently have difficulty understanding why they should withdraw from any of their core lending businesses, no matter how poor the return on equity.

Loans are now priced by analysing the risk of different types of business and the volatility of returns. Using these calculations, the bank can estimate some of the potential losses when the economic cycle turns down and set aside bad debt provisions well ahead to reduce the shock.

Far from slashing the general provision for bad debt as banks used to do at the peak of a cycle, Mr Taylor has topped it up £74m to £850m. And his managers are forced by the new methods of analysis to think harder about the risk factor on every loan they make, which discourages lending just for volume.

The bank has to get these decisions right or its talk of managing its own capital to match its lending - and handing back money to shareholders when there is a surplus - will be just hot air. Nobody wants a return to the days of high dividends clawed back by rights issues every few years.

But while Barclays is more shipshape under its new skipper, it is still not steaming very fast. Lower lending and a more cautious attitude to speculation at BZW pulled operating profit down. The whole of last year's pre-tax improvement was due to lower bad debts. The gross level of bad debt provisions last year of more than £1bn - in contrast to the net level after recoveries - is still alarmingly high.

Barclays' average post-tax return on shareholders' funds over 10 years is 9 per cent, less than half the level targeted by any respectable industrial company. The 21 per cent return reached last year was not enough because it was on the sharpest part of the cyclical upswing (so talk of profiteering is nonsense).

The real measure of whether Mr Taylor has got it right will only be available in three or four years' time when we see if he can reach his target average return on equity of 15 per cent. So while his first year report shows good progress on the easy part - disciplining an errant bank - Mr Taylor now has to show he can grow Barclays in a tough new regime in which profitability comes before size.

Sport
The giant banner displayed by Legia Warsaw supporters last night
football
News
news
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
News
Angelina Jolie with her father Jon Voight
people
PROMOTED VIDEO
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
News
Melissa and Joan Rivers together at an NBC event in May 2014
peopleDaughter Melissa thanks fans for 'outpouring of support'
Life and Style
tech
Life and Style
life
Life and Style
One in six drivers cannot identify a single one of the main components found under the bonnet of an average car
motoringOne in six drivers can't carry out basic under-bonnet checks
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
News
i100
Voices
Pupils educated at schools like Eton (pictured) are far more likely to succeed in politics and the judiciary, the report found
voices
Arts and Entertainment
Simon Cowell is less than impressed with the Strictly/X Factor scheduling clash
tvSimon Cowell blasts BBC for breaking 'gentlemen's agreement' in scheduling war
News
peopleWrestling veteran drifting in and out of consciousness
Arts and Entertainment
Shady character: Jon Hamm as sports agent JB Bernstein in Million Dollar Arm
filmReview: Jon Hamm finally finds the right role on the big screen in Million Dollar Arm
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Consultants - Banking & Finance

£20000 - £30000 per annum + OTE £40 - £50K first year: SThree: SThree Group an...

Business Analyst,HR,Halifax,£400-450pd

£400 - £450 per day + competitive: Orgtel: My client, a leading bank, is curre...

Recruitment Consultants - IT - Trainee / Experienced

£20000 - £30000 per annum + OTE £40-50K first year: SThree: The SThree group i...

Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

£300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

Day In a Page

Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

The phoney war is over

Russian troops and armour pour into Ukraine
Potatoes could be off the menu as crop pests threaten UK

Potatoes could be off the menu as crop pests threaten UK

The world’s entire food system is under attack - and Britain is most at risk, according to a new study
Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
From Mozart to Orson Welles: Creative geniuses who peaked too soon

Creative geniuses who peaked too soon

After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
Caught in the crossfire of a cyber Cold War

Caught in the crossfire of a cyber Cold War

Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

Salomé: A head for seduction

Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

British Library celebrates all things Gothic

Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

Is the Hard Rock Café worth fighting for?

The restaurant chain's owners are currently embroiled in a bitter legal dispute
Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

In search of Caribbean soul food

Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
11 best face powders

11 best face powders

Sweep away shiny skin with our pick of the best pressed and loose powder bases
England vs Norway: Roy Hodgson's hands tied by exploding top flight

Roy Hodgson's hands tied by exploding top flight

Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

Di Maria and Ronaldo: A tale of two Manchester United No 7s

They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone