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It cannot be the most pleasant experience on a sunny Bank Holiday to open a Sunday newspaper and discover its lead story is the possibility of your being sacked. It is true that politicians put up with such indignity all the time but not businessmen.
Francis Salway, the chief executive of Land Securities, was the victim. But he ought not to have been too surprised, at any rate not by the underlying message, although he might possibly have been surprised that the story leaked in the first place.
When earlier this year his board chose Alison Carnwath rather than Rick Haythornthwaite as chairman after Paul Myners departed to the Lords, they were deliberately selecting someone with a reputation for clear-sighted unsentimental toughness. When she used her customary early briefings with City editors immediately after her appointment to cast doubts on the value which most property companies add from their developments, and asked what shareholders were expecting to happen in return for re-financing most of the sector via rights issues at a price which was a barely a 10th of what the shares cost two years ago, it was obvious that while she might not have been musing about Land Securities in particular, she did believe property companies needed to think through what they were there for.
In this she is not alone. Property is a uniquely difficult industry in that it is not just a business it is also an investment asset class. The share price - and the ability of the company management to do what it wants to do - can go up and down depending on whether property yields are more attractive than bonds, whether the sector looks safer than equities, or even if the weakness of the pound is attracting investment from overseas.
Its fortunes are also inextricably tied up with the health of the banking industry - and vice versa - because more than half of total bank lending goes into property in one form or another. When the first round of property rights issues was launched last year this prompted some observers to forecast that it would not be the last. They believed that property companies would be too optimistic and consistently underestimate the damage that de-leverage and falling asset prices would do to their balance sheets, and the length of time it would take for the unwinding to work through the system, just as the banks had. They also pointed to the great property de-leverage in the Seventies when, in very similar conditions, the collapse of the UK's secondary banking system, which was a major source of property lending, sparked off a decade-long plunge in values.
This put off many institutional investors for a generation, even though the sector was ultimately only stabilised about five years into the bust by a co-ordinated buying programme from those same long-only investors. The property sector has forgotten all this - of course - and is convinced it has recapitalised itself adequately. But it is interesting how rumours are now beginning to swirl around Hammerson again, because its balance sheet is still under pressure and it is finding it hard to sell its biggest asset, the Bishop's Square complex between Liverpool Street and Spitalfields. One wonders how many are really provisioned adequately for a really long haul - whether they really would be able to get through a re-run of the Seventies, particularly as we now have auditors and accountants who insist on putting the full horror of any uncertainty on the face of the balance sheet and are much less willing to put their own necks on the line. This is a stark change from 30 years ago when auditors used their judgment to allow companies they could easily have said were bust to have the opportunity to trade their way through.
Though property values may be down from the peak by some 35% there is reason to believe there is more pain to come. The good news is that the boom which preceded this bust did not encourage the rash of overbuilding of offices but that is about it. Retail experts say that new shopping centres with the equivalent space of 10 Wembley stadiums are coming on to the market, just as failures of established High Street names throw up more and more second-hand property.
The stress is still not showing as much as it might because the banks are not being as brutal as they might. Normally by now the bankruptcies would be mounting. But banks are loath to pull the plug - not because they lack good reason but because they have quite enough problems without adding to them when there is little short-term gain to be had by taking a tough line. It suits both sides to pretend there is a glimmer of hope rather than be forced into a further writedown of values.
It is hard for anyone whose career has been forged in a long bull market to come to terms with the possibility of such a great unravelling, and that may be why hints are being dropped that the business might be better led by someone from outside the sector, with no emotional commitment to bricks and mortar or glass and steel, who will find it easier to adjust to modern times. If it comes to that it will be tough on Salway, one of the decent men in a sector where such virtues are not always apparent. But in commercial property these are very tough times.
