A lot has changed since George Osborne announced Andrew Bailey as new head of the Financial Conduct Authority less than six months ago. Osborne was then in his post-election pomp and seen as the most likely successor to David Cameron. He had ousted Martin Wheatley, Bailey’s predecessor, for being too tough on the banks and declared interim boss Tracey McDermott out of the running without warning her.
But Bailey, who started on 1 July, had barely got his feet under the desk before Theresa May replaced Osborne with Philip Hammond, whose views on regulation we don’t yet know. The FCA is, of course, set up as an independent watchdog, but it can’t help notice the way the political wind is blowing. After May’s attack on “the privileged few”, Osborne’s push to cosy up to the City may not be so fashionable. So it’s a great week for Bailey, who joined from the Bank of England, to face questions at the FCA’s annual meeting on Tuesday and then from Andrew Tyrie and the gang at the Treasury committee the next day.
Potential subjects for discussion include the dropping-off of FCA fines to a trickle this year, delays in getting new firms authorised and staffing levels that appear to be stretched. What are morale and employee turnover like after Osborne’s dismissal of Wheatley and McDermott?
Commercial property crisis brews
Commercial property has been one of the biggest business casualties of the Brexit vote, so it’s good timing that Land Securities and British Land report on trading this week. Since 4 July, seven funds invested in office blocks, retail parks and the like have barred withdrawals or cut their value as retail investors head for the door. The Bank of England has warned commercial property prices, especially in London, are too high.
It’s easy to see how things could go wrong. Foreign investment, which has fuelled the boom, is ebbing, and values are falling on concerns about the economy. As Mike Prew, an analyst at Jefferies, points out, commercial property is mainly funded by bank lending and owners of property have taken on more debt. Smaller banks are more exposed than big lenders and 75% of small- and medium-sized companies use property as collateral.
The share prices of commercial real estate companies have fallen heavily since the referendum result. Land Securities and British Land are the two biggest and their trading updates will coincide with their annual general meetings this week. Shareholders should inquire about this brew of risks.
Lack of direction at easyJet?
What is going on post-Brexit at easyJet, which publishes a trading update on Thursday? On the Friday of the referendum result, the budget airline issued a vague but reassuring statement saying that it would continue to achieve long-term earnings growth and returns for shareholders. But the following Monday it published a more detailed update listing problems in the European aviation industry such as cancellations and saying Brexit had made things worse. Analysts were bemused by the timing of the two statements but didn’t get the chance to question Carolyn McCall, easyJet’s chief executive.
There are also questions about how Brexit will affect easyJet’s ability to fly throughout Europe and where it will base its operations. The message from the company is that it may need one or two extra air operator certificates, in addition to its UK and Swiss ones now, but that would mean placing a handful of employees in a particular country. It all depends on the deal the new government manages to get from the EU. Whatever the outcome, easyJet’s head office and its 1,000 employees would stay at Luton airport, a spokesman said. Still, there’s nothing like hearing things from the boss, so there will be plenty to talk about when McCall faces analysts for the first time since the Brexit vote.
