George Osborne has discovered that share prices can go down as well as up. The chancellor has postponed his plan to flog £2bn of Lloyds Banking Group shares to the public because stock markets are deemed too “turbulent”, by which he means that Lloyds shares sit at 64p, well below the state’s break-even price of 73.6p.
Spring had been the deadline for the sale – now it’s not. The scheme can be resuscitated at a later date but there is a simple moral to this tale: don’t make promises on timing, because markets can make you look foolish.
The chancellor started talking about “the biggest privatisation for 20 years” before the 2015 general election, trying to summon Thatcherite visions of a “shareholding democracy”. At the Conservative party conference in October, the unwise “next spring” pledge was made.
Technically speaking, the Treasury could have gone ahead with the retail offer because the formal promise not to sell below 73.6p applied only to sales to institutional investors – that “drip-feed” process has successfully reduced the state’s stake in Lloyds from 43% in 2013 to 9%.
In practice, a springtime sale would have risked yet more accusations of shortchanging the public purse. The idea was to give private punters a 5% discount to the market price, plus loyalty bonuses. That plan always had the whiff of a bung to those people able to write a cheque for a few thousand quid at short notice, as argued here at the time. But the political storm would have been more intense if the shares were departing at 60p, rather than the 80p-ish that Osborne had surely originally hoped for.
In that sense, postponement is correct decision – politically and for the public coffers. Indeed, a delay has been inevitable for weeks. But before Osborne spends too much time congratulating himself on his “responsible” move, he should ask why Lloyds’ share price has fallen by a quarter since May.
Yes, those pesky turbulent markets are a major contributor. But Lloyds – more than any other big UK bank – is also a proxy for the market’s view of the health of the UK economy. Investors sense bigger problems for the chancellor than an embarrassing delay in a £2bn share sale.
Is Russian-Saudi oil production cut really in the pipeline?
It was another wild day in oil markets, this time triggered by reports that Russia wants to talk to Saudi Arabia and the rest of the Opec cartel about production cuts to try to force prices higher. If they happened, coordinated cuts would be a very big development. The oil market, it is said, is oversupplied by about 1m barrels a day: that could be cleared if Russia and the Saudis both reduced output by 5%.
It is easy to see why recessionary Russia would dearly love the Saudis to cut, but it is still a stretch to believe that a deal will happen. The Saudis don’t want to cede any share of the oil market to new Iranian supplies. Production of US shale oil seems, finally, to be falling, which many assumed was the point of the Saudis’ “keep pumping” policy.
And, as thinktank Capital Economics points out, “it is not obvious that Russia would be a reliable partner”. Its competing oil firms cannot be controlled in the way that state-owned Saudi Aramco can.
Anything is possible, of course, in the current oil climate, but the Saudis have another reason to be wary of Russian overtures. From the point of view of producers, a failed deal is worse than no deal: it advertises weakness.
HBOS inquiry: disgracefully late is better than never
The investigation of HBOS bosses, mark two, can’t fail to be better than the original version. Recall Andrew Green QC’s damning verdict – “materially flawed” – in November on the old Financial Services Authority’s timid efforts back in 2009 that led to action against only Peter Cummings, the bank’s former head of corporate lending.
Given that backdrop, it will have been the easiest decision in the world for the FSA’s successors – the Financial Conduct Authority and the Prudential Regulation Authority – to decide that, yes, they will begin investigations into “certain former HBOS senior managers”. Andrew Bailey, soon to transfer from the PRA to the FCA, had signalled as much in November when the official report into the failure of HBOS was finally published; it was just a question of going through the formalities of launching an investigation.
Can we, then, expect a speedy outcome? After all, a lot of the work should already have been done. Don’t hold your breath. When individuals dispute findings, these investigations can take up to two years to conclude. That could mean that it will be 2017, or even 2018, before the full results are known. HBOS failed in 2008 – an age ago – but don’t think that the passage of time renders the fresh investigation pointless. Disgracefully late is still better than never.
