Tonight:
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Jessops is one of those High Street businesses everyone knew was likely to struggle when digital cameras came in. The photographer was de-skilled overnight when it became possible to snap away endlessly at no cost for film or developing until eventually even the most inept camera hand got the right shot. At the same time, quantity overtook quality — witness all those images on Facebook, few of which are there for their artistic excellence.
But while it was never going to be easy coping with technological change, Jessops made it harder for itself by buying out a string of local operators, taking on a lot of debt and getting so carried away it returned to shareholders cash it could ill afford. Now with the recession upon us, the burden of debt has put its very survival in doubt.
But this week it escaped and provided a new twist to the already controversial world of pre-pack administration — the process by which a business transfers in the blink of an eye from one party to the same party in a different guise. A pre-pack changes the legal ownership of the business, albeit the same people often stay in charge, shedding its liabilities on the way so that what is left might then be viable.
Jessops' problem was that a traditional pre-pack was not on because it could not afford to stuff its suppliers. There are very few camera producers, and they were not going to supply Jessops Mk 2 with new stock in time for Christmas when Jessops Mk 1 had just gone bust on them. So the company has put together a pre-pack that leaves the suppliers unscathed — but stuffs the shareholders instead.
Basically, a new company is created and HSBC swaps debt for equity, giving it roughly half the new shares. Trustees of the pension fund, with an a unsightly deficit, are appeased with 30% of the new company. The balance of 20% goes to management.
Meanwhile, the original shareholders have an investment worth less than a penny — down from 150p in 2007.
Manoeuvres with the military
Lloyd's of London was today hosting its first joint conference with Nato, the military alliance, to discuss the problems faced by the world from piracy, climate change and cyber crime. It was a landmark event, highlighting yet another way in which the financial crisis is reshaping our world and the institutions within it.
As the insurance market's chairman, Lord Levene, said in his opening remarks, governments have lost their monopoly of power. The very concept of banks that are too big to fail underlines the fact the private sector can create problems that even government cannot handle. Indeed, it remains touch and go whether governments will emerge from their massive support operations with their credit ratings intact. It is still possible the burden of private-sector debt they have been forced to take on will be too much for them and cause them to buckle. Even if it does not, the concept of government as the long-stop solution to all problems has taken a battering.
Hence today's conference. The risks on the agenda — piracy, cyber crime and climate change — may still be within governments' competence, but there has been a lack of progress so far. So, says Levene, we need to develop new networks — between, for example, the military alliance and business — to craft policies to face up to today's risks.
One can see where he is coming from, and the benefits of this meeting of minds, but one wonders if everyone will be as comfortable as he is with this alliance. Levene, with his long history of military connections and his work in the 1980s for Margaret Thatcher's government, has given him huge experience at the interface of business, government and the military.
He understands how it might work. But at a time when the trust of the public in almost everything is at a historically low level, the ramifications need careful handling. By all means, let business and the military talk about these issues. But before they go too far, they need also to think about and be able to demonstrate accountability.
Insurer deserves pat on the back
Congratulations must surely be in order for insurance group Aviva, which today finally reached the point in its reattribution exercise at which it will soon be able to send out money to policyholders.
The company had surplus capital in its funds where it did not need it, and reattribution was about giving some of this to policyholders and mobilising the rest for use elsewhere in the business. The argument was over how much was there in the first place, and who got the lion's share of it. The deal, hammered out with painful thoroughness, gives policyholders £470 million to share while the company gets access to £650 million of hitherto idle capital over the next five years — though this money stays in the company.
Had they known how tough negotiations would be, Aviva might never have started out down the road. But it is to its credit that it stuck with it, and today it has delivered.
