Afternoon:
10°c
To Rod Kent, chairman of Bradford & Bingley
Dear Rod
I am sorry to be writing this, but you have blighted a distinguished career. We go back a long way. You were a fine chief executive of Close Brothers, and we were happy to see you return as chairman, the Higgs guidelines notwithstanding. We were confident that with you in the chair of Bradford & Bingley, the former building society would prosper quietly.
The model looked pretty simple, if a little dull. There has always been a good living to be made taking in deposits and advancing mortgages, and even buy-to-let seemed a sensible niche; since the buyers should have plenty of equity in their own home to add to their investment in rental properties, it looked (and still looks) a better bet than 100% advances to first-time buyers.
Your last report and accounts, only a couple of months ago, boasts of being "focused on providing specialist mortgage and savings products". If only.
The warning signs were plain, with the emphasis on the smooth upward curve of "underlying" profits before tax, rather than 2007's nasty setback to actual profits.
It's now clear that B&B was miles out of its depth in the waters of subprime, far from where shareholders thought it was, and now you are asking them for rescue. This rights issue is effectively that; 16 new shares for every 25, at a discount of 48% to an already-battered share price, cannot truthfully be called anything else. The dividend is shot to pieces, and you've fallen for what is rapidly becoming the standard con on impoverished shareholders, the scrip interim dividend.
As we both know, this is a meaningless gesture; you've added a novel twist by forecasting it at the equivalent of 4.2p a share.
Do you think the shareholders are fools? They are already paying handsomely enough, thanks to your generosity to the issue's underwriters, who share £24 million (minus the cost of mailing 850,000 shareholders). That's equivalent to a cash payment of 2.5p a share on the enlarged capital.
This is capitulation in all but name, made still worse by the pathetic denials of fund-raising a mere month ago. Your chief executive must go. You are a decent, honourable and good man, but your experience should have helped you avoid this disaster, and your position is untenable.
Yours, more in sorrow than anger,
Neil
£182 million legal scrap could be a real gas
A management consultant, the joke goes, borrows your watch to tell you the time before presenting his bill, so there will be an attentive audience for Accenture's clash with British Gas over who was to blame for the domestic billing system they launched in 2006.
Millions of us will remember how a poor service suddenly got much worse. After a flood of complaints, British Gas had to employ 2500 extra staff and write off £200 million. Now it's gone to court demanding £182 million from their consultants.
"Accenture" say the gasmen, "was responsible for fundamental errors in the design and implementation of the system." How do they know? They hired another firm of consultants to tell them, how else?
As for Accenture, the failings were nothing to do with them. "Centrica directed the design, build and implementation and insisted on many of the features they now find problematic." Of course. We gave you the wrong time? Nothing to do with us, guv. It was your watch, after all.
What am I bid for this fine set of peerages?
I like the sound of Peter D Hahn, the FME Fellow at Sir John Cass Business School in the City and author of How Not To Pay Your Outside Directors.
He's proposing an elegant solution to Labour's financial woes - the open sale of peerages. He suggests there should be a fee of between £1 million and £10 million, with the donor having the option of paying 70% of it to the party of his choice.
As he points out, it would certainly be an improvement on the existing system, which does much the same thing while denying it ever happens.
I'd go further. I propose an annual quota of new peerages. Anyone could bid, subject to a few checks to ensure they weren't paedophiles or shoplifters, and the entry fee would be a non-refundable £1 million.
The actual title bid would be on top of that, and the quota filled in from the highest bidder down. The individual bids would not be revealed, but the total raised would be published along with the names of the new peers, to give the next lot some idea where they should pitch their bids.
Underbidders could try again next year, subject to paying another £1 million. It could prove a nice little earner, and provide some harmless entertainment for the rest of us.
You can see where Hahn got his idea from. The Cass Business School used to be plain old City University until 2001, when it discovered Sir John Cass's Foundation, an educational charity the City grandee founded 300 years ago.
What could be more natural than a handsome donation in return for a change of name...
How Barratt bought its way into negative equity
Suddenly, it's easy to find a builder who will turn up when he says, and might even match the final bill to his initial estimate. This unfamiliar experience is good news for owners of dilapidated houses, but it's a consequence of meltdown in the housebuilding industry.
This week Redrow and Barratt Developments were displaying their wounds, with collapsing numbers of punters reserving new homes, and even more pulling out. Their spring sales offensive has turned into the Battle of the Somme.
They blame the banks, naturally, for cutting off the mortgage supply, but Barratt has itself to blame for its disastrous takeover of Wilson Bowden, for cash, at the top of the market.
Yesterday Barratt claimed it can support debt of £1.7 billion on a shrunken market value of £900 million, but it can't. It needs a rights issue, and the longer it waits, the more painful and expensive it will be.
Meanwhile, the demands on housebuilders are going up all the time. More insulation, Fensa-standard windows, absurd safety measures; the "lifetime homes" initiative requiring that everything built after 2013 must be suitable for elderly occupants - including starter homes for first-time buyers.
Next comes the ludicrous demand for all homes to be carbon-neutral by 2016, another fantasy headline grabber. It all adds to the cost, and presages a slump in housebuilding, even when the banks start lending again.
Home-owners watching the value of their castle shrink can take comfort that one day demand will recover. The supply won't. Like so much else from this bankrupt government, its promise of three million new homes by 2020 is an entirely empty one.
