Feb. 20th, 2008

peterbirks: (Default)
I finally got round to watching The Lives Of Others last night, and for the first hour I wondered whether it would live up to its hype. Sure, it was good, but no better than many a strong German drama (say, "Goodbye Lenin") reflecting on the East German interregnum.

But the last half-hour absolutely ratcheted up the bar, if a bar can be ratcheted up. Had Graham Greene had been alive and German, I thought, he would have written this. very few films get to the heart of that great abstract -- "the human condition". Part of the appeal of Phil Dick had always been the underlying metaphysical question "What is it to be human?". The Lives Of Others approached the same grand question in a different way. Although the film is ostensibly about East Germany and the Stasi, it goes beyond that to universals. Few books or films can manage that.

Not the most entertaining film I've seen in the past year or so, but certainly one of the most moving and inspiring.


All of which makes it sad to return to real world of dumpkins and their financial reporting techniques.

Alliance And Leicester came out with a first-class pile of shit, in two senses of the word, this morning.

First, there's the actual numbers. Keefe Bruyette Woods' analysis was rather strongly worded (for an investment bank). Its note this morning went:

the outlook reads poorly, with volumes down, costs rising, margin guidance slashed, the earnings target cut and the dividend guided flat in 2008. Add in a weak capital position and risk of impairments rising from a low level, and the outlook is miserable, with significant earnings cuts likely. The only positive may be a white knight if the stock falls enough.

However, horrific figures will not stop a PLC from trying to dress things up nicely. CEOs might claim that "that is their job", to which seasoned observers might respond that "no, your job is not to get into the hole in the first place; it isn't to try to convince us that the hole is not really a hole."

A&L reached new depths of incomprehensibility with these figures "at the top" of their release this morning.

The stuff may not tabulate correctly, so I'll summarize the nonsense afterwards.

Year Year
31.12.07 31.12.06
£m £m
Core operating profit excluding changes in the fair value and impairment of certain treasury investments (1)

602 585
Reduction in the fair value of certain treasury investments (2) (32) -
Impairment of certain treasury investments (153) -
Core operating profit 417 585
Redundancy costs (8) (24)
Hedge ineffectiveness (3) (10) 8
Statutory profit before tax 399 569 (4)

Roughly summarized, these read as follows:

(1) Money we made after taking out all of the nasty bits. A bit like "this is how much I made at poker last year if I ignore the losing sessions".

(2) "Certain treasury investments" = Disastrous investment decisions.

(3) "Hedge Ineffectiveness". WTF? I've never seen that one before. "We gained £8m in 2006 through hedge ineffectiveness". What does it mean? "We should have hedged, but didn't"? Or "We hedged, but we shouldn't have"? Or what.

It's not as if it's a small sum of money. an £18m swing is hardly pennies.

A hunt through the notes informs me that hedge ineffectiveness was "previously referred to as fair value accounting volatility".

Well, that makes at least a bit of sense. But, er, isn't there a fair value adjustment higher up? This seems to be "assign two terms to the same thing, split them into two smaller numbers, and hope no-one notices". Jeez.

(4) So, although the number at the top was bigger, in fact we made 33% less last year than the year before, and the auditors won't let us bury this away in book value -- it has to go in the P&L account.

A&L has adopted a standard strategy when results are horrible; maintain its dividend -- paying out a whopping 60% of basic earnings.

The market, not being stupid, thwacked the price as much as it deserved -- down 12% at the moment. All eyes now turn to Lloyds TSB. Will they be more like Barclays or more like A&L?


Barclays timed it all nicely yesterday. Not only did they slip out news that wasn't any worse than had been expected, but they also had the good luck to do it on the same day that Crédit Suisse had to write down $2.85bn.

This was a true beaut (although not up there with SocGen).

Crédit Suisse, as part of its risk management procedures, insisted that positions be valued daily. Unfortunately what was not part of the risk management procedure was to check that the daily valuations were accurate. This harks back to a great tradition in European financial institutions, where for decades the line was "we have valued this stock at SFr100, ebcause that's what we paid for it". Institutional investor screams that: "But at the moment, it's only worth SFr20!" "So what? We don't plan to sell it until it is back to SFr100".

Unfortunately, you can't do that under modern accounting rules. As Lex said this morning: "full disclosure is only any use if it is reliable".

Quite. The question now is; do the top boys at companies really know what is going on down on the floor. Have the numbers that have been supplied to the auditors (in good faith, as part of full disclosure) been accurate, or are there some people lower down the food chain who hope that things will sort themselves out in the coming months, before the bosses have to find out?


Anyhoo, I finally bought the carpet yesterday. Everything fine, apart from the fact that they do not take up the old carpet. So yesterday evening (following a lunchtime at the gym as well!) saw the unique occurrence of Birks involved in physical labour. I felt like I was turning into Butler (or a butler .. whatever). Carpet was eventually ripped up, although it's still sitting in the middle of the room.

Of course, I've done all this in the wrong order. But we learn from experience. I should have ripped up the carpet before getting the painters in. I shouldn't have put up the blind before the painters came in. But, well, in London it's a matter of getting who you can, when you can. None of it is life-threatening. Just not perfect.

So, if all goes to plan, I'm ready to phone the estate agent on Saturday morning, four weeks after purchase. That's not bad going for a completely redecorated flat, new washing machine, tidied garden, and all the other pain-in-the-arse accoutrements.

I need a break.


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