Sell (almost) everything, says Andrew Roberts, Royal Bank of Scotland’s credit guru.
Unfortunately for George Osborne this advice has arrived late in the day for a chancellor seeking to flog more than a few shares in RBS itself.
The Treasury managed to get rid of 5% of RBS last August at 330p, taking the state’s stake to 73%, but since then nothing has happened. Nor will it if the RBS share price remains below 300p.
The big idea last autumn was that the mere act of starting to sell shares in RBS would lead to better prices in future as the outside world came to recognise that the bank was escaping the clutches of the state and marching down the road to full privatisation. The theory was sensible but the practical fact of RBS’s share price at 283p, within pennies of an 18-month low, surely disqualifies further sales for the time being.
Delay to the RBS disposal programme was always possible. But flogging the last part of Lloyds Banking Group was supposed to be an easy task for Osborne. Suddenly, that ambition looks tricky with Lloyds shares at 69.3p. Under the drip-feed programme, which has reduced the state’s stake to 9%, sales are prohibited below 73.6p, the break-even price.
And, if the drip-feed programme is stalled, can Osborne really go ahead with his parallel idea to exit Lloyds with a flourish this spring by selling £2bn worth of discounted shares to the public? Technically, he can. But it would be highly embarrassing, politically speaking, to sell Lloyds shares to private punters at a loss to the public purse.
A lot can happen in coming weeks. Stock markets could recover and Lloyds’ full-year results, due next month, could be sparkling. But, as matters stand, Osborne is looking at the possibility that, in his March budget, he could be announcing he has missed his borrowing target and the feel-good Lloyds retail offer has had to be postponed. No wonder he sounded so gloomy at new year.
Scraping the oil barrel
How low can the price of oil, which approached $30 a barrel yesterday, go? Morgan Stanley and Goldman Sachs say $20. Standard Chartered thinks $10. Reinforcing the air of bearishness, BP has announced yet another round of job losses – some 4,000 posts will go, including 600 in operations in the North Sea.
In the current climate, almost any guess for the short-term oil price sounds credible. The world is producing about 1m barrels a day more than it currently needs; the Opec cartel is in chaos, unable to agree production quotas; and Iranian oil will arrive on world markets with the lifting of sanctions. As Standard Chartered rightly says, in this environment the oil price can be driven lower by financial factors, such as a strong dollar.
Remember, though, that the pressing question is not so much “how low?” but “for how long?” The answer to the latter question, unfortunately, is equally obscure.
It is possible to make an argument that the market could be under-supplied by the end of this year. Demand for oil is still rising – even in China, at least for now – and production in the US or Russia could fall with investment cuts.
That, at least, is the hope to which the producers cling. But, in truth, if their wishes are to be granted, it has to happen soon. Here’s an industry insider’s rule of thumb: if sub-$40 is the average price for this year, dividends are toast at all the major producers; and if sub-$40 extends into 2017, then there will be budget crises in Russia and a fair number of Gulf states.
‘Triumph’ for Morrisons
In the world of supermarkets, a land of shrunken expectations, a barely visible 0.2% rise in like-for-like sales counts as a triumph. Well, it does if you’re Morrisons. The lift in the nine-week Christmas period was the group’s first positive reading for four years.
But let’s not be too churlish. Suddenly, Morrisons’ balance sheet is starting to look like a port in a storm. From £2.34bn a year ago, the group now reckons debt will be £1.65bn-£1.8bn at the end of this month.
It helps, of course, that Morrisons has been flogging a few supermarkets, plus its convenience stores, but that reduction in borrowing represents progress. Even after a cut in the dividend last year, the yield is 3%. Decent balance sheet, safe-ish dividend and – possibly – stability on the sales line? It could be worse. Beleaguered Asda could yet turn nasty, but one can understand why Morrisons’ shares rose 9%.
Apologies from ex-BBA chief
Bankers used to have great difficulty apologising but Angela Knight, their former lobbyist at the British Bankers’ Association, barely stopped doing so yesterday. “I am so sorry I ended up at the BBA during the banking crisis. I’m so sorry it chose me to be its target,” she told the Treasury select committee.
The MPs are assessing if Knight is a suitable chair of the Office of Tax Simplification. The BBA, supposedly in charge of Libor during the time of the rate-rigging scandal, has much to answer for, but Knight herself probably deserves a break. Lobbying for banks was not a pretty job, but it was never an illegal activity and shouldn’t be a bar to fresh employment.
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