Margareta Pagano: Is the Big Beast about to oust Bullingdon Boy?
Latest Westminster rumour gains currency in the City
Sunday 14 February 2010
My favourite City rumour of the moment is an old chestnut. This time, however, I'm told it really is true. It's worth airing because it tells you as much about the febrile state of the markets as it does about the Tories.
The story is that David Cameron is considering reshuffling his shadow Cabinet, promoting the brown-suede-shod Big Beast to take over from Bullingdon Boy. Apparently, Cameron will replace George Osborne with Ken Clarke, the shadow Business secretary and former chancellor, either before we go to the polls or swiftly afterwards. Cameron would then give Osborne something big in return, maybe the Foreign job. To make way, William Hague would be offered a peerage.
What's enlightening about this latest mischief is that it has such legs in the City. Many of those I talk to say it's the only way the Tories can win back some economic credibility after recent U-turns. Even the party's most fervent supporters will admit to being pretty clueless as to what the Tories are actually offering as an economic policy. There are also many who have serious issues with Osborne – with both his supposed arrogance and his flip-flopping on policy.
Thus the case for Clarke has two strands. First, the ad hominem. The Notts Forest-supporting, jazz-loving, 70-year-old cuts a more reassuring, man-of-the-people figure than young George. Even if Clarke isn't quite as homey as he may seem, he's good on TV, gives the party the bottom it needs and has been there and done that – a sense that is lacking from the shadow front bench. And that is precisely what the City so badly believes is needed to steady nerves; a government of all the talents rather than so many earnest, fresh-faced youngsters.
And, secondly, giving Clarke back the money machine could also help Cameron turn the tables on the Labour assault that the Tories would slash front-line services, as Clarke has a reputation as a trimmer rather than a slasher. (The reality is that Labour is already cutting deeply into spending, as the savage cuts to university places reveals.)
Cameron and Osborne have managed to confuse over what they will do to tackle spending. Cameron says the impact of cuts will be small, but Osborne seems set on a Geoffrey Howe, 1981-style, slash-and-burn budget. They all miss the point. Most sentient people not only know that cuts must be made but actively want them, because there is so much waste. What annoys people the most, though, is the way the Tories (and Labour for that matter) are not prepared to engage in grown-up debate. People also want honesty about tax rises – will they or won't they drop the higher-rate tax immediately?
Clarke's budget of 1993 is a good lesson. He also took over during a time of deep recession and soaring public-sector debt. While cutting the basic rate of tax, he phased in tax increases and capped public spending, thus calming the markets. That's the sort of budget we need now.
Rumours can be funny, dangerous things, often driven by propaganda as much as gossip, so the provenance of the latest chat is in itself of interest. Cameron must have considered the switch; it's an obvious one as he contemplates the recent tightening of the polls. And he still has time to do it.
After McQueen Now Gucci must decide if brand goes on
Alexander McQueen made his name creating edgy fashion. The former enfant terrible once said that he liked to protect people; that his clothes were hard-edged, like armour. The question now, though, is whether Gucci – the company which owned McQueen's brand and is itself controlled by the French retail group Pinault-Printemps Redoute – is brave enough to continue his work after his sad death. Analysts are divided; some say Gucci will drop the brand, which they paid £13m for a decade back but which made its first profit just two years ago, because it can't survive without the designer. Others argue Gucci should push forward, building on his legend. Looking at the way women have rushed into McQueen shops, frantically buying his clothes, I suspect they are right. He would have liked that.
Investors run scared as banks dress listings in the emperor's new clothes
As Oscar Wilde might have said, losing one flotation is a misfortune, losing two is careless. But three? That looks like a humdinger of a disaster. Typically, the private-equity owners of the three firms – Travelport, entertainments group Merlin and high-street retailer New Look – are blaming nervous market conditions for their decision to pull the listings. They also claim that the reason they are unable to go ahead is that institutional investors are demanding such heavy discounts.
But the decision to pull these floats shouldn't come as any surprise. All the hype at the end of last year about how 2010 would be the year of the flotation was so obviously spin by investment bankers, desperate to win new business. No doubt they were able to persuade private-equity owners that with the markets looking so firm, they could get these businesses away at a premium, with some offering quite fantastic multiples.
It really is a question of the emperor's new clothes, particularly in the case of New Look, which is saddled with so much debt that investors have, quite rightly, run scared. It's also the second time in three years that New Look, backed by Permira and Apax, has given up sale plans. Investors don't want any more duds; memories of the Debenhams float in 2006 are strong and they don't want to get burnt again.
For once, investors seem to be getting much choosier about what they back. Since December, about half the 60 listings which have been launched have been shelved. So all eyes will now be on Ocado, to see if it will go ahead with its listing, one that looks far more attractive than these other floats.
My view is that the fund managers, who have piles of cash, have used the markets as an excuse because they didn't want to overpay. As Simon Bragg of Oriel Securities says: "Good companies can always float."
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