James Ashton: Davis' pursuit of Lonmin has dug a hole for Xstrata - Business Comment - Business - The Independent

James Ashton: Davis' pursuit of Lonmin has dug a hole for Xstrata

Loss of life in its mines is occurring with frightening regularity

The price put on Mick Davis' head by Xstrata and Glencore's now troubled mining mega-merger troubled mining mega-merger suggested he was indispensable. Yet this week's strife in South Africa suffered by platinum producer Lonmin acts as a timely reminder that Mr Davis, who was dangled a £30m, no-strings retention package, is human after all.

Xstrata owns a 25 per cent stake in Lonmin, the legacy of an aborted, £5bn takeover attempt in 2008. It has had to sit back and watch as efforts to mechanise its deep and dirty platinum mines have come unstuck. Costs have soared, production has slumped, staff are rioting and loss of life in its mines is occurring with frightening regularity. Images of South African police gunning down miners wouldn't have looked out of place during the apartheid era.

Yet Xstrata, which wrote down the value of its Lonmin stake by $500m (£319m) this month, might not be in this situation if Mr Davis hadn't ploughed on with a top-of-the-market takeover attempt. Nor might the company have had to resort to a bumper, $5.9bn rights issue three years ago when metal prices collapsed and debt repayments loomed.

Ivan Glasenberg, the boss of Glencore which owns 34 per cent of Xstrata, wasn't happy with Mr Davis chasing after Lonmin. The stake will be one of the first things to be sold if this £50bn union is eventually consummated.

The chances are that it won't, as Xstrata shareholders, including Qatari investors who are sitting on an 11 per cent stake, want better terms. Mr Davis' £30m deal, even after the companies climbed down and inserted a performance clause in it, is still a flashpoint.

True, he had the vision to build Xstrata up by taking control of Glencore's unloved coal assets. But it's worth remembering that even the most celebrated executives can over-reach themselves.

Two visions for the future of banking

I would have thought there were more pressing matters in Sir David Walker's in-tray than to weigh into the debate over free banking. Yet the early musings of Barclays' new chairman this week only served to set hares running.

Bankers would love to slap charges on basic bank accounts. They grumble in private that the industry can only re-invent itself if lenders are able to make a profit from customers who stay within the limits of their overdraft and pay off their credit card bill every month.

Just as the banking industry is trying to clean up its act after various mis-selling scandals, it seems an odd time to trot this idea out. Customers, already inured to zero interest on current accounts, want better service, not higher fees. However, there is momentum building. Lord Turner, chairman of the Financial Services Authority who is campaigning hard to be the next Bank of England Governor, said last month free accounts should be a thing of the past.

It will be interesting to see how this squares with another vision for the future of banking being championed by Simon Culhane, the chief executive of the Chartered Institute for Securities & Investment.

In an attempt to tackle high levels of financial illiteracy, he would like to see every teenager offered a basic bank account shortly before their 16th birthday in the same letter they receive from the Department for Work and Pensions (DWP) that supplies their national insurance number. At the moment, unofficial statistics suggest only one in three under-16s have a current account. That might explain why budgeting and saving are greeted with blank looks when they are raised in the classroom.

Mr Culhane reckons that much of the required data for signing up to an account could be provided by the DWP. If youngsters are exposed to personal finance earlier, they are less likely to be puzzled by compound interest rates, taking out a mortgage or sucked into the cycle of pay-day loans. Laudable stuff.

But does greater financial literacy square with more profitable retail banks? Probably not if it means customers have more confidence to shop around. Maybe that is why it is taking lenders so long to sign up to Mr Culhane's cause.

Money men can make, not just break, jobs

Mitt Romney's push for the White House has thrust capitalism on to the American campaign trail.

Mr Romney's career at the buyout house Bain Capital made him a wealthy man, but it could lose him as many votes in Middle America as it gains him on either coast.President Barack Obama, who was a squeaky-clean civil rights lawyer before taking office, is doing his level best to capitalise. The accusations that range from bankruptcies to outsourcing of American jobs to China, Mexico and beyond sounds suspiciously like the ammunition fired at the private-equity industry on this side of the pond a few years ago.

Much of that criticism has evaporated along with the liquidity of bank funding lines. It means that private-equity firms thankfully can't borrow as much to gear assets up to the eyeballs, but they are still willing to invest – unlike some.

Take Getty Images. The picture agency, a US company now although it began life in an office in north London, wasn't in great shape when it was taken off the stock market several years ago. It took restructuring and investment away from the public glare to turn it around before it could be sold again this week, to private-equity group Carlyle for more than $3bn.

There are plenty of examples where these shadowy financiers help to sustain jobs, not destroy them. I doubt the average Joe on Mr Romney's campaign trail will see it that way.

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