After all the talk, the Chancellor's much anticipated deficit-busting budget is finally upon us. Mr Osborne termed it "tough but fair" but many might not subscribe to his verdict.
For those in the public sector, it's unpleasant. A two year pay freeze, essentially a pay cut (as Mr Cameron himself confessed), a smaller pension pot and the potential for further job cuts.
A recent Policy Exchange report revealed that on average those in the public sector spend nine fewer years at work over their lifetime and earn 30 per cent more than their private sector brethren. Despite these generous benefits – or perhaps because of them – productivity in the public sector has fallen over the past 10 years, while productivity increased in the private sector 28 per cent. Surely it's about time the gold plated public sector pensions were abolished and pay came in line with the private sector? On the subject of pay, the Policy Exchange report found that median gross pay is £22,417 in the public sector and £19,932 in the private sector.
A problem is that without public sector jobs, unemployment will obviously rise and thereby leave those in work to foot the bill – unless the Tories' plan for the private sector to increase employment is successful…I guess that is a story yet to be told.
The private sector has perhaps fared slightly better, with the eradication of the tax on jobs proposed by Labour and the national insurance threshold being raised making it cheaper for companies to employ staff. That said, it was a surprise that capital gains came down under a Labour government and perhaps more surprising that the Conservatives have increased it.
What surprises me most is the uproar of furious liberal democrat supporters over the VAT increase. It is true that Nick Clegg campaigned against it, however there is one thing that needs to be remembered – it is a Conservative led government and Mr Clegg was never going to get his way on everything. And, is being £33 a year worse off on average really worth splitting hairs about?
RS
Monday, June 28, 2010
To cut or not to cut?
One of the most interesting aspects of last week's Budget was the divide in the press reaction. Edmund Conway writing for the Daily Telegraph said "this was – in both senses of the word – one of the most "courageous" Budgets in living memory" before going on to argue that the extent of cuts to public spending further needed is likely to test the Government to its limit. While Polly Toynbee, who David Cameron famously said he wanted the Conservative party to be more like, writing in the Guardian, said of the Budget and its central aim; "there was no necessity to create a surplus in six years, returning to depression economics with mortal risk of sinking the country into second recession or slump."
Okay so these are only two viewpoints. And yes, they're from two of the most diametrically opposed national newspapers in regards to political leaning. Yet, after twenty five years of broad ideological consensus between the main parties, the budgetary deficit we are now facing appears to be creating some clear divides in Britain's political class. The coalition government believes in the need to slash the budget and raise taxes while the Labour Party, and whoever is chosen to lead it, argue that it is important not to slash governmental spending to drastically in the midst of a recession.
Are we seeing a return to ideological politics? Are the Government's and the Labour opposition's disparity motivated by some genuine difference of opinion as to how to solve the economic crisis? Probably not, and to this extent most interesting is the response of Vince Cable, who over two months ago was against budgetary cuts but now is regularly reeled out in front of the TV cameras to justify them. Mr Cable argues that he has grave concerns that if Britain didn't start cutting today, we would be tomorrow's Greece. Whether this is correct or not is debatable. However, what is clear is that Mr Cable now believes that cuts are necessary to ensure that foreign investors who own pounds (principally emerging market central banks, who own the vast majority) don't lose confidence in Britain. It is pure political pragmatism.
So are we returning to ideological politics and does it even matter? It probably doesn't matter as even though the majority of voters, those who voted for Labour and the Liberal Democrats, were against cutting before the election, the cuts remain. This begs the question, in a global market economy, is a country's destiny no longer shaped by its own people but rather the views of outside investors, and if so what does this mean - not only for our political parties but also for the sovereignty of the nation state. "To cut or not to cut", is no longer a question for the electorate but rather the wider global economy. It's interesting in this context to refer back to comments made back in February by the then shadow Chancellor, George Osborne, warning that significant early cuts were the only way to preserve Britain's economic sovereignty.
JCL
Okay so these are only two viewpoints. And yes, they're from two of the most diametrically opposed national newspapers in regards to political leaning. Yet, after twenty five years of broad ideological consensus between the main parties, the budgetary deficit we are now facing appears to be creating some clear divides in Britain's political class. The coalition government believes in the need to slash the budget and raise taxes while the Labour Party, and whoever is chosen to lead it, argue that it is important not to slash governmental spending to drastically in the midst of a recession.
Are we seeing a return to ideological politics? Are the Government's and the Labour opposition's disparity motivated by some genuine difference of opinion as to how to solve the economic crisis? Probably not, and to this extent most interesting is the response of Vince Cable, who over two months ago was against budgetary cuts but now is regularly reeled out in front of the TV cameras to justify them. Mr Cable argues that he has grave concerns that if Britain didn't start cutting today, we would be tomorrow's Greece. Whether this is correct or not is debatable. However, what is clear is that Mr Cable now believes that cuts are necessary to ensure that foreign investors who own pounds (principally emerging market central banks, who own the vast majority) don't lose confidence in Britain. It is pure political pragmatism.
So are we returning to ideological politics and does it even matter? It probably doesn't matter as even though the majority of voters, those who voted for Labour and the Liberal Democrats, were against cutting before the election, the cuts remain. This begs the question, in a global market economy, is a country's destiny no longer shaped by its own people but rather the views of outside investors, and if so what does this mean - not only for our political parties but also for the sovereignty of the nation state. "To cut or not to cut", is no longer a question for the electorate but rather the wider global economy. It's interesting in this context to refer back to comments made back in February by the then shadow Chancellor, George Osborne, warning that significant early cuts were the only way to preserve Britain's economic sovereignty.
JCL
Friday, June 11, 2010
Oilier than thou?
It's perhaps surprising that no-one has yet calculated whether the acreage of trees felled to supply the newsprint expended on the BP oil leak story has been more environmentally damaging than the spill itself.
The still-growing oil slick in the Gulf of Mexico is, of course, a genuine ecological nightmare. But from a purely "news" perspective, what a story! It's uncommon for one incident to dominate the headlines, globally and more or less continuously, for nearly two months, and still have the potential to run for a long time yet. What makes it so enduring is the way new aspects have developed, the latest being the heightening tension between US policy makers and BP's shareholders, (of whom two significant sub-groups are Americans and UK pension funds).
Having earlier vowed to "keep its boot on the throat of BP", the US administration has continued to use strident language without, apparently, succeeding in convincing US public opinion that it is achieving much. As Philip Stephens points out in today's Financial Times, by castigating BP Chief Executive Tony Hayward and vowing to "kick ass", President Obama "has cast himself in the role of furious but hapless bystander".
Aggressive posturing from the Whitehouse may be understandable, given the imminence of mid-term elections in the US. But not only does the rhetoric have potentially damaging implications for UK pension funds, it's not doing much for Anglo-American relations either. Some UK commentators, for example, have been unable to resist dragging out examples of similarly catastrophic US corporate disasters which did not elicit quite the same level of opprobrium.
Others have sought to identify the extent to which the US government, despite its posturing, remains "in thrall" to the oil industry. And this funny contribution from the creator of the Dilbert cartoon, suggests BP could ultimately benefit from the whole affair.
AF
The still-growing oil slick in the Gulf of Mexico is, of course, a genuine ecological nightmare. But from a purely "news" perspective, what a story! It's uncommon for one incident to dominate the headlines, globally and more or less continuously, for nearly two months, and still have the potential to run for a long time yet. What makes it so enduring is the way new aspects have developed, the latest being the heightening tension between US policy makers and BP's shareholders, (of whom two significant sub-groups are Americans and UK pension funds).
Having earlier vowed to "keep its boot on the throat of BP", the US administration has continued to use strident language without, apparently, succeeding in convincing US public opinion that it is achieving much. As Philip Stephens points out in today's Financial Times, by castigating BP Chief Executive Tony Hayward and vowing to "kick ass", President Obama "has cast himself in the role of furious but hapless bystander".
Aggressive posturing from the Whitehouse may be understandable, given the imminence of mid-term elections in the US. But not only does the rhetoric have potentially damaging implications for UK pension funds, it's not doing much for Anglo-American relations either. Some UK commentators, for example, have been unable to resist dragging out examples of similarly catastrophic US corporate disasters which did not elicit quite the same level of opprobrium.
Others have sought to identify the extent to which the US government, despite its posturing, remains "in thrall" to the oil industry. And this funny contribution from the creator of the Dilbert cartoon, suggests BP could ultimately benefit from the whole affair.
AF
Thursday, June 10, 2010
Investment Banks and Gordon Banks
Finally, Goldman Sachs delivered what we've all been waiting for. No, not the FCIC requests for documents and interviews – in fact, the Wall Street giant has been hit with a subpoena for a "deliberate and disruptive" failure to co-operate with requests for information about its role in the credit crunch that shook the global economy. It doesn't have anything to do with the SEC fraud charge either...that would be far too prosaic for such anticipation and excitement. What I'm talking about is the publication of Goldman Sachs World Cup and Economics 2010 – the fourth book they've compiled since debuting at France '98. With WC2010 one day away, the only Fabulous 'Fab' that football fans want to hear about is Fabio Capello or Cesc Fabregas. So, Monsieur Fabrice Tourre, back in your box, while the rest of us watch the beautiful game enraptured.
The World Cup paper is a fairly hefty tome – some 75 pages – but makes surprisingly easy reading (provided you like football of course). Jim O'Neill, Goldman's chief economist and avid football fan, kicks off the report and as you might expect from the man that coined the Bric concept, mentions it repeatedly. Honestly Jim, it's always 'Bric this Bric that'...enough already. The acronym doesn't even hold up for the World Cup (notwithstanding Brazil) as Russia, India and China didn't even qualify.
Some may ask what all this has got to do with the world of finance and, despite my best efforts to turn this into a football blog, that would be a fair question. Well, as outlined previously – the world of football and finance are intimately acquainted and the business of the beautiful game is just as prevalent when we talk about nations as when we talk about domestic sides. In fact, the sovereign state has it all to play for as the World Cup offers real revenue and growth potential for hosts. Igor Shuvalov, First Deputy Prime Minister of Russia, makes this point in the Goldman report when discussing Russia's 2018 bid: "Modern football is a whole industry. It includes complex infrastructure, such as top stadiums, rehabilitation centres and training bases, as well as sports gear and equipment, to say nothing of advertising and TV rights....Intensive development of football infrastructure will act as a huge boost to both regional and national economic development."
Moreover, the World Cup also provides a truly global forum to highlight the ambitions and capabilities of a country. For instance, what better way for Brazil to communicate its status as an economic force, than to put on a stellar World Cup in 2014 and then Olympics in 2016. To keep with the Bric theme (sorry) – China did a similar thing with the Olympics two years ago. Beijing 2008 was a formidable event that showcased the economic might of the nation to a global audience.
Towards the end of the Goldman report, my attention turned to the section on Spain entitled "Leading in Football, Lagging in the Economy." Angel Ubide, a former Real Zaragoza FC player and Director of Global Economics at Tudor Investment Corporation, makes some great comparisons between the success Spain enjoys on the pitch compared to its economic shortcomings. He concludes: "Without a question, the football team has been more dynamic, creative and successful than the economic team, and thus the odds of success in the World Cup are certainly much higher than the economic league. Good luck to all." His erudite comments are a long way from the monosyllabic and anodyne trivialities we're used to on Match of the Day each week.
Anyway, Jim O'Neill and his gang predict that England, Argentina, Brazil and Spain make the semi-finals. I'd certainly settle for that. God bless the World Cup.
JS
The World Cup paper is a fairly hefty tome – some 75 pages – but makes surprisingly easy reading (provided you like football of course). Jim O'Neill, Goldman's chief economist and avid football fan, kicks off the report and as you might expect from the man that coined the Bric concept, mentions it repeatedly. Honestly Jim, it's always 'Bric this Bric that'...enough already. The acronym doesn't even hold up for the World Cup (notwithstanding Brazil) as Russia, India and China didn't even qualify.
Some may ask what all this has got to do with the world of finance and, despite my best efforts to turn this into a football blog, that would be a fair question. Well, as outlined previously – the world of football and finance are intimately acquainted and the business of the beautiful game is just as prevalent when we talk about nations as when we talk about domestic sides. In fact, the sovereign state has it all to play for as the World Cup offers real revenue and growth potential for hosts. Igor Shuvalov, First Deputy Prime Minister of Russia, makes this point in the Goldman report when discussing Russia's 2018 bid: "Modern football is a whole industry. It includes complex infrastructure, such as top stadiums, rehabilitation centres and training bases, as well as sports gear and equipment, to say nothing of advertising and TV rights....Intensive development of football infrastructure will act as a huge boost to both regional and national economic development."
Moreover, the World Cup also provides a truly global forum to highlight the ambitions and capabilities of a country. For instance, what better way for Brazil to communicate its status as an economic force, than to put on a stellar World Cup in 2014 and then Olympics in 2016. To keep with the Bric theme (sorry) – China did a similar thing with the Olympics two years ago. Beijing 2008 was a formidable event that showcased the economic might of the nation to a global audience.
Towards the end of the Goldman report, my attention turned to the section on Spain entitled "Leading in Football, Lagging in the Economy." Angel Ubide, a former Real Zaragoza FC player and Director of Global Economics at Tudor Investment Corporation, makes some great comparisons between the success Spain enjoys on the pitch compared to its economic shortcomings. He concludes: "Without a question, the football team has been more dynamic, creative and successful than the economic team, and thus the odds of success in the World Cup are certainly much higher than the economic league. Good luck to all." His erudite comments are a long way from the monosyllabic and anodyne trivialities we're used to on Match of the Day each week.
Anyway, Jim O'Neill and his gang predict that England, Argentina, Brazil and Spain make the semi-finals. I'd certainly settle for that. God bless the World Cup.
JS
Wednesday, April 21, 2010
Sympathy for the devil
Please don't judge me but a small confession to begin: I actually feel a little sorry for Goldman Sachs. I know, I know, how much sympathy can you really have for a bunch of people who are richer than God? But remember, the bank is doing God's work, so presumably they should be reimbursed accordingly.
The giant vampire squid has been flogged by media commentators and political opportunists, the PM included, with such wilful abandon that it almost seems sadistic to watch. Many critics see the bank as guilty of the worst excesses of the bull market bubble and have certainly not been backward in coming forward. This seems to have reached a crescendo following the SEC's allegation that the bank is guilty of securities fraud related to the structuring and marketing of synthetic collateralised debt obligations (CDOs) linked to subprime residential mortgage-backed securities.
The degree of Schadenfreude on show following the SEC and FSA probes highlights the animosity against Goldman. However, in this case it seems potentially misplaced and perhaps a little premature. Bloomberg reported that the SEC vote was split 3-2 to approve the enforcement case against the bank. The fact that the committee was divided denotes some degree of uncertainty and when combined with seemingly "nakedly political" posturing and timing from the SEC and the Obama administration in turn, the case seems unduly vindictive to boot. Not a great start.
The specifics of the case have not been unveiled and as The Times' David Wighton writes: "It is too early to draw any but the most tentative conclusions about the Abacus affair." Much of what has been written in the press seems to focus on the fact that the trader at the centre of the affair referred to himself as "fabulous Fab" in his gloriously hubristic email to a colleague: "More and more leverage in the system, The whole building is about to collapse anytime now…Only potential survivor, the fabulous Fab…standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities [sic]!!!"
This email proves nothing other than the fact that Fabrice is a bit of a prat who refers to himself in the third person. It is certainly not an indication of some elaborate and Madoff-esque subterfuge to defraud investors. The whole affair seems far more prosaic than that. The conflict of interest that follows the Bermuda triangle of CDOs created and checked by Paulson & Co, Goldman Sachs and ACA is one thing, but proving deliberate and calculated fraud is quite another.
The case is interesting because it involves four things that have captivated the market throughout the financial crisis – Goldman Sachs, exotic structured products, hedge funds and the regulators. Investors in the CDOs have protested against the way they were misled but, regardless of whether that is true or not, their refusal to take accountability is a microcosm of the whole credit crisis. Highly sophisticated investors use these products, not your average punter. They have due diligence teams that pore over documentation, and if they didn't – what the hell happened to caveat emptor? Breakingviews neatly summed up the debate: "As politicians and regulators pick over the SEC's allegations, they might keep in mind the synthetic CDO tango took two."
In terms of Schadenfreude, Goldman's competitors and critics should perhaps be wary to cast the first stone. Goldman was a major player in the CDO market but certainly not the biggest – Merrill Lynch, Citigroup and UBS all underwrote more securities according to Nomura. The regulators are clearly taking a hard look at the CDO market and given the sheer volumes traded, you would expect a similar case of "disreputable activity" to have taken place. Critics should also note that Goldman is run like a military operation. They are tough and will come out swinging – yesterday's bumper first quarter profit announcement and accompanying "aggressive defence against US fraud charges" highlights that they are a force to be reckoned with. They will not disappear gently into the night.
Goldman is an extremely difficult firm to like, but provided they can ride out the reputational storm, I doubt that their shareholders and heavily remunerated employees will be too troubled by this specific case (wider regulation is another matter). If Goldman was to suddenly adopt a football terrace style chant (chance would be a fine thing) they might well take their inspiration from Millwall FC: "No One Likes Us – We Don't Care."
JS
The giant vampire squid has been flogged by media commentators and political opportunists, the PM included, with such wilful abandon that it almost seems sadistic to watch. Many critics see the bank as guilty of the worst excesses of the bull market bubble and have certainly not been backward in coming forward. This seems to have reached a crescendo following the SEC's allegation that the bank is guilty of securities fraud related to the structuring and marketing of synthetic collateralised debt obligations (CDOs) linked to subprime residential mortgage-backed securities.
The degree of Schadenfreude on show following the SEC and FSA probes highlights the animosity against Goldman. However, in this case it seems potentially misplaced and perhaps a little premature. Bloomberg reported that the SEC vote was split 3-2 to approve the enforcement case against the bank. The fact that the committee was divided denotes some degree of uncertainty and when combined with seemingly "nakedly political" posturing and timing from the SEC and the Obama administration in turn, the case seems unduly vindictive to boot. Not a great start.
The specifics of the case have not been unveiled and as The Times' David Wighton writes: "It is too early to draw any but the most tentative conclusions about the Abacus affair." Much of what has been written in the press seems to focus on the fact that the trader at the centre of the affair referred to himself as "fabulous Fab" in his gloriously hubristic email to a colleague: "More and more leverage in the system, The whole building is about to collapse anytime now…Only potential survivor, the fabulous Fab…standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities [sic]!!!"
This email proves nothing other than the fact that Fabrice is a bit of a prat who refers to himself in the third person. It is certainly not an indication of some elaborate and Madoff-esque subterfuge to defraud investors. The whole affair seems far more prosaic than that. The conflict of interest that follows the Bermuda triangle of CDOs created and checked by Paulson & Co, Goldman Sachs and ACA is one thing, but proving deliberate and calculated fraud is quite another.
The case is interesting because it involves four things that have captivated the market throughout the financial crisis – Goldman Sachs, exotic structured products, hedge funds and the regulators. Investors in the CDOs have protested against the way they were misled but, regardless of whether that is true or not, their refusal to take accountability is a microcosm of the whole credit crisis. Highly sophisticated investors use these products, not your average punter. They have due diligence teams that pore over documentation, and if they didn't – what the hell happened to caveat emptor? Breakingviews neatly summed up the debate: "As politicians and regulators pick over the SEC's allegations, they might keep in mind the synthetic CDO tango took two."
In terms of Schadenfreude, Goldman's competitors and critics should perhaps be wary to cast the first stone. Goldman was a major player in the CDO market but certainly not the biggest – Merrill Lynch, Citigroup and UBS all underwrote more securities according to Nomura. The regulators are clearly taking a hard look at the CDO market and given the sheer volumes traded, you would expect a similar case of "disreputable activity" to have taken place. Critics should also note that Goldman is run like a military operation. They are tough and will come out swinging – yesterday's bumper first quarter profit announcement and accompanying "aggressive defence against US fraud charges" highlights that they are a force to be reckoned with. They will not disappear gently into the night.
Goldman is an extremely difficult firm to like, but provided they can ride out the reputational storm, I doubt that their shareholders and heavily remunerated employees will be too troubled by this specific case (wider regulation is another matter). If Goldman was to suddenly adopt a football terrace style chant (chance would be a fine thing) they might well take their inspiration from Millwall FC: "No One Likes Us – We Don't Care."
JS
Monday, March 29, 2010
Tinker, failure, closure, grief
There can't be many people who genuinely believe any government has set out to systematically undermine UK workplace pension provision. But you could be forgiven for thinking politicians are genetically programmed to indulge in well intentioned tinkering, with irredeemably baleful consequences.
Today's survey from Punter Southall provides a fairly stark picture of the malaise into which the once vaunted UK pension system has descended. One in four employers report staff cutting or suspending pension contributions, only one in twenty still offer defined benefit schemes to new employees, and there is a rising tide of resentment against the pernicious impact of government actions. While nearly nine out of ten respondents anticipate a change of government in the forthcoming general election, only 13% think this would be a good thing, and a whacking 57% think it would make little or no difference.
A popular idea which emerges from the Punter Southall study, as well as from a broad range of other pensions commentators, is to take politics out of pensions. If the pensions industry craves one thing, it is a stable long term regulatory environment in which to get its act together. Politicians who win power have a range of priorities, but by far the most important is to get re-elected within the next five years. As we all know, even a week is a long time in politics, but five years is barely a blink of the eye in the glacial world of pensions.
Given this asymmetry between the time horizons of the pensions industry and the ministers whose decisions shape it, or mis-shape it, perhaps the Pensions Commission might serve as a useful template for the way forward. Chaired by Lord Turner, the Commission's 2005 analysis and recommendations achieved the unusual feat of attracting support from across the pensions community and, broadly speaking, across the political spectrum. Maybe a similar body, made up of representatives from the various stakeholder groups, and freed from the straightjacket of political short termism, could come up with sensible, practical and effective ideas for reform of the pensions system. Maybe along these lines, in fact?
AF
Today's survey from Punter Southall provides a fairly stark picture of the malaise into which the once vaunted UK pension system has descended. One in four employers report staff cutting or suspending pension contributions, only one in twenty still offer defined benefit schemes to new employees, and there is a rising tide of resentment against the pernicious impact of government actions. While nearly nine out of ten respondents anticipate a change of government in the forthcoming general election, only 13% think this would be a good thing, and a whacking 57% think it would make little or no difference.
A popular idea which emerges from the Punter Southall study, as well as from a broad range of other pensions commentators, is to take politics out of pensions. If the pensions industry craves one thing, it is a stable long term regulatory environment in which to get its act together. Politicians who win power have a range of priorities, but by far the most important is to get re-elected within the next five years. As we all know, even a week is a long time in politics, but five years is barely a blink of the eye in the glacial world of pensions.
Given this asymmetry between the time horizons of the pensions industry and the ministers whose decisions shape it, or mis-shape it, perhaps the Pensions Commission might serve as a useful template for the way forward. Chaired by Lord Turner, the Commission's 2005 analysis and recommendations achieved the unusual feat of attracting support from across the pensions community and, broadly speaking, across the political spectrum. Maybe a similar body, made up of representatives from the various stakeholder groups, and freed from the straightjacket of political short termism, could come up with sensible, practical and effective ideas for reform of the pensions system. Maybe along these lines, in fact?
AF
Monday, March 8, 2010
Some knights, a vampire squid, one acronym and a chunk of debt
Hostile takeovers, excessive leverage, boom and bust, board room wrangling and exorbitant pay packets...might sound like just another day in the financial markets but it's also the perilous state of English football at the moment. The business of the 'beautiful game' is now played out right across the front, middle and back pages. Just a few years ago, when things were ostensibly all swell in the market, there used to be a rough order to things – politics and social affairs on the front, business in the middle and sport on the back. Now, things are a little more blurry.
The fate of Portsmouth FC is a cautionary tale in just the same way as Bear Stearns, Lehman Brothers, RBS or the other financial institutions which imploded. They were debt laden, engaged in aggressive M&A activity (read transfer policy), remunerated their stars heavily and crested the wave of cheap credit. They did rather well on that strategy for a time – much like RBS (remember when Sir Fred was the toast of the town) – winning the FA Cup less than two years ago. However, if something seems too good to be true; it often is exactly that. So, sure enough, Portsmouth duly became the first Premiership club to fall into administration on 26 February.
Now, in the red corner, we have Manchester United – the most successful English club of recent years and a footballing powerhouse with a fan base that straddles the globe. Their debt levels have attracted attention ever since the Glazers took over the club in a highly leveraged deal in 2005. However, the various restructurings of late and the effective 'Green-and-Gold' protest movement has galvanised supporter animosity and the Glazers have really been feeling the heat. This has arguably come to a head with the surge of interest which the Red Knights consortium has generated.
In keeping with the front-page theme, The Observer led with a story proclaiming how Alex Ferguson was "backing bid to buy United", according to unnamed City financiers. Whether the Red Knights can really wrest control away from the Glazers is unsure but, like all good takeover struggles, the clash of personalities and ideologies is what we all love to see. The embattled Glazers are certainly the pantomime villains in this production of Twelfth Night...perhaps that should read as Twelfth Knight? On that note, enter stage left those intrepid Knights, led by Goldman Sachs' Jim O'Neill, as he rides proudly across on a giant vampire squid. [As an aside, has anyone's financial career and industry standing been so elevated by the simple use of a four lettered acronym – Bric, really?]
As The Sunday Times highlighted, Mr O'Neill is an unlikely hero – a Goldman Sachs banker and the Old Trafford faithful make unlikely bed fellows. However, the Glazers are public enemy number one and the Red Knights' ideology appears infinitely more palatable to the fans. Indeed, the notion of the supporter-owned club (a la Barcelona, Real Madrid and several German clubs) is gaining credence all around. "In an ideal world all clubs would be controlled and run by their supporters according to democratic principles," Uefa said in Vision Europe, a document setting out the direction and development of football over the next decade. In fact, a Uefa report last month revealed that 18 of the Premier League’s 20 clubs owe more combined than the rest of Europe’s top divisions put together. The debt for the 2008 season stood at £3.4 billion, 56% of the European club total.
All this makes for a compelling financial story. Who knows, perhaps one day football and business will become so closely aligned that the likes of Manchester United are 'too big to fail' and the Ronaldo's and Kaka's of the world are packaged into complex structured products, securitised and traded in tranches with inferior players, eventually leading to the dislocation of the global economy. Perhaps a government bail-out of a club will take place, leading to the creation of a 'good' club and 'bad' club – thereby classifying John Terry and Ashley Cole as 'toxic assets.' Actually, maybe not.
JS
The fate of Portsmouth FC is a cautionary tale in just the same way as Bear Stearns, Lehman Brothers, RBS or the other financial institutions which imploded. They were debt laden, engaged in aggressive M&A activity (read transfer policy), remunerated their stars heavily and crested the wave of cheap credit. They did rather well on that strategy for a time – much like RBS (remember when Sir Fred was the toast of the town) – winning the FA Cup less than two years ago. However, if something seems too good to be true; it often is exactly that. So, sure enough, Portsmouth duly became the first Premiership club to fall into administration on 26 February.
Now, in the red corner, we have Manchester United – the most successful English club of recent years and a footballing powerhouse with a fan base that straddles the globe. Their debt levels have attracted attention ever since the Glazers took over the club in a highly leveraged deal in 2005. However, the various restructurings of late and the effective 'Green-and-Gold' protest movement has galvanised supporter animosity and the Glazers have really been feeling the heat. This has arguably come to a head with the surge of interest which the Red Knights consortium has generated.
In keeping with the front-page theme, The Observer led with a story proclaiming how Alex Ferguson was "backing bid to buy United", according to unnamed City financiers. Whether the Red Knights can really wrest control away from the Glazers is unsure but, like all good takeover struggles, the clash of personalities and ideologies is what we all love to see. The embattled Glazers are certainly the pantomime villains in this production of Twelfth Night...perhaps that should read as Twelfth Knight? On that note, enter stage left those intrepid Knights, led by Goldman Sachs' Jim O'Neill, as he rides proudly across on a giant vampire squid. [As an aside, has anyone's financial career and industry standing been so elevated by the simple use of a four lettered acronym – Bric, really?]
As The Sunday Times highlighted, Mr O'Neill is an unlikely hero – a Goldman Sachs banker and the Old Trafford faithful make unlikely bed fellows. However, the Glazers are public enemy number one and the Red Knights' ideology appears infinitely more palatable to the fans. Indeed, the notion of the supporter-owned club (a la Barcelona, Real Madrid and several German clubs) is gaining credence all around. "In an ideal world all clubs would be controlled and run by their supporters according to democratic principles," Uefa said in Vision Europe, a document setting out the direction and development of football over the next decade. In fact, a Uefa report last month revealed that 18 of the Premier League’s 20 clubs owe more combined than the rest of Europe’s top divisions put together. The debt for the 2008 season stood at £3.4 billion, 56% of the European club total.
All this makes for a compelling financial story. Who knows, perhaps one day football and business will become so closely aligned that the likes of Manchester United are 'too big to fail' and the Ronaldo's and Kaka's of the world are packaged into complex structured products, securitised and traded in tranches with inferior players, eventually leading to the dislocation of the global economy. Perhaps a government bail-out of a club will take place, leading to the creation of a 'good' club and 'bad' club – thereby classifying John Terry and Ashley Cole as 'toxic assets.' Actually, maybe not.
JS
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