After high hopes of a sustained run, the new-issues market is flagging.
Former Tesco chief Sir Terry Leahy will manage to get the discount retailer B&M away and state aid rules mean Lloyds has to get cracking with a TSB share sale, but many City advisers have already moved their horizons back to the autumn.These are the chaps who once again cynically exploited the renewed appetite for equities by overpricing and over-hyping.
The downbeat mood created an interesting backdrop for lunch this week with the stockbroker Paul Killik, a veteran of the Thatcher-era share-buying boom. On the back of a series of state privatisations such as BT, Killik, then a partner at Quilter Goodison, opened Britain’s first share shop in Debenhams on Oxford Street in London that had day traders queuing through the bedding department.
Quilter was bought by the French bank Paribas in 1986, so he used his private-client expertise to found Killik & Co from a chemist shop in Chelsea three years later. He’s still growing, with almost £4bn of assets invested for more than 20,000 clients.
A different threat comes in the form of Brussels’ Prospectus Directive, which has slapped a €100,000 (£84,000) lower limit on trading bond issues in the secondary market that aren’t accompanied by a retail-friendly prospectus. Killik’s fear is that new equity issues could eventually face similar rules, which seek to nanny where individuals are able to put their money but actually end up putting institutional investors at a distinct advantage.
What is forgotten, he says, is that three-quarters of the £650bn of privately invested money in Britain is run through firms that charge for advice, instead of just mechanically carrying out transactions. Whereas high street banks have largely withdrawn from offering investment tips after a string of mis-selling scandals, the host of private-client brokers have not.
It is true that retail investors would have welcomed being saved from some of the lukewarm initial public offerings of the past few months: Just Eat and the electrical appliances website AO World spring to mind. Even Saga, the golden oldies’ insurer with a strong consumer following, underwhelmed. But please don’t prevent investors who should take a long-term view when considering equities from making up their own mind.
The problems of being a big fish in a small pond
The inscrutable Leif Johansson had the chance to focus on his other job this week after Pfizer finally called time on its interest in AstraZeneca. The Swede is chairman of the British drug maker, which has a Swedish side thanks to the 1999 merger of Astra with ICI’s former pharmaceuticals arm Zeneca. Mr Johansson also chairs the resolutely Swedish Ericsson, the maker of telecoms kit such as base stations and routers that carry 40 per cent of the world’s mobile traffic.
On a recent visit to our offices, Ericsson’s chief executive Hans Vestberg talked expansively about the future of communications but was more cautious about corporate sovereignty. He spends barely five working days a month in his home country as he jets between Ericsson’s 180 markets.
Any country likes to claim the headquarters and nationality of a global business as its own. But commercial realities mean that flag-waving is no guarantee of favouritism, especially if you happen to be a big company in small country.
Vestberg’s predecessor, Carl-Henric Svanberg, now chairman of BP, was fêted as the “gentle conqueror” for leading a rash of takeovers without ever resorting to going hostile. But he was cast as the local villain for axeing thousands of Swedish jobs during the economic downturn. Ericsson’s home workforce has shrunk from 40,000 to 17,000 in a decade.
Such a radical reshaping could be the secret to Ericsson’s success, when you consider that the lumbering Nokia in neighbouring Finland lost its way so spectacularly. As Vestberg, who has posted half of his direct reports overseas, said: “In order to be competitive you need to be in the place the business is.”
When the old guard stop things moving forward
A further exit from Centrica focused the mind on how challenging running a consumer-facing energy business has become. But another departure thousands of miles away, that of Infosys president BG Srinivas, had a sharper impact on the Indian IT outsourcer’s share price than Chris Weston quitting the British Gas owner.
Just as Centrica needs to remake itself with a new management team, Infosys is groping for a better future. It has been a year since its former leader Narayana Murthy was drafted back into service to arrest a worrying drop in profits and slowing growth.
His biggest job is to find a new chief executive, a role that Srinivas, who has gone to Hong Kong to run PCCW, would have well suited. One of the main problems for Infosys is that most of the shots are still called by seven founders who quit their jobs in 1981 to start up on their own with just $250 of funds.
What the company needs is at least one fresh pair of eyes. In that regard, Centrica is in the same boat. Where they differ is that the energy group’s old guard are not overstaying their welcome.