Children in a land of sharks
Feb. 27th, 2009 08:52 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
peterbirksThe pension furore over your favourite banker and mine, Fred Goodwin (demise first predicted here btw, while the rest of the press were predicting that he would stay because the alternatives were worse) seems to have failed to emphasize the point that Goodwin has acted in his own best interests and the Treasury has shown that politicians are no match for capitalists when it comes to making deals.
When the pension deal was initially announced (probably, and super-ironically, leaked by the government in an attempt to deflect attention from its added liabilities to RBS) the government claimed loudly that it was unaware of the whole thing. Within hours this had unravelled -- Goodwin wrote a letter pointing out that Lord Myners not only knew about the deal, but he also approved it.
Hurried change of tack by govt after (I assume) fraught conversations between Darling, Myners and Brown, which may or may not have included the phrase from Brown to Myners "you incompetent prick! What do you mean 'you took their word!"?". The new line from Myners was that he was led to understand that there was no choice on the matter, and that the government was not a stakeholder in RBS at the time.
This is disingenuous to say the least. Signing a contract on someone else's say-so was called "naive" by Peston. "Fucking stupid" would be more my terminology. To claim that the government wasn't a stakeholder at the time is even worse. The deal was signed after the government had said that Goodwin had to go as a condition for a rescue.
As Peston observes, Goodwin has stitched up Myners like a kipper. A senior lawyer was present when the soon-to-be-famous phrase "contractual obligation" was used.
"Lord Myners was informed by Sir Tom (McKillop, then RBS chairman) that Sir Fred would walk away with a pension pot valued at £16m - and that this was a contractual obligation.
Lord Myners felt he couldn't challenge an arrangement that therefore seemed obligatory - though presumably he now wishes that he had done.
The question that now arises is what did Sir Tom mean by "a contractual obligation" - since it is now clear that the board had discretion not to give Sir Fred £650,000 per annum aged just 50."
The government is shouting loudly about legal action, but Goodwin seems to have pissed all over them. Despite my poor opinion of him as a business strategist or banker, I have a sneaking admiration for his ability to show politicians and civil servants what things are like in the real world, outside their fancy offices, free parking spaces and (of course) tasty final salary pension schemes. "You're dealing with the big boys now, Myners. Now go back to your office and have a cry".
+++++++++
The market continues to be fascinating. William Hill announced a 1-for-1 rights issue at 105p a share, something like a 650% discount. It also announced that it would not be paying a dividend. Result? Share price (already up 50% since October) outperforms the market. As written in an earlier post, this is mainly relief at William Hill apparently having solved their debt refinancing problem. In other words, concerns about the feasibility of refinancing is, in many cases, outweighing the subsequent concerns about equity dilution and the requirement for more cash. This would seem to indicate that there is a "wall of institutional money" that is waiting for these deep discounted issues at fundamentally sound companies. And one can see why. When money was freely available, equity investors just got the scraps of shit. Now that the banks won't lend, equity buyers get much tastier morsels. Some of these offers are absolutely stonking. The Hill offer might dilute earnings on existing shares to 3%, but the earnings on the new shares more than compensate for that. And, in addition, net debt gets reduced by 25%. Gimme gimme gimme.
_________________
When the pension deal was initially announced (probably, and super-ironically, leaked by the government in an attempt to deflect attention from its added liabilities to RBS) the government claimed loudly that it was unaware of the whole thing. Within hours this had unravelled -- Goodwin wrote a letter pointing out that Lord Myners not only knew about the deal, but he also approved it.
Hurried change of tack by govt after (I assume) fraught conversations between Darling, Myners and Brown, which may or may not have included the phrase from Brown to Myners "you incompetent prick! What do you mean 'you took their word!"?". The new line from Myners was that he was led to understand that there was no choice on the matter, and that the government was not a stakeholder in RBS at the time.
This is disingenuous to say the least. Signing a contract on someone else's say-so was called "naive" by Peston. "Fucking stupid" would be more my terminology. To claim that the government wasn't a stakeholder at the time is even worse. The deal was signed after the government had said that Goodwin had to go as a condition for a rescue.
As Peston observes, Goodwin has stitched up Myners like a kipper. A senior lawyer was present when the soon-to-be-famous phrase "contractual obligation" was used.
"Lord Myners was informed by Sir Tom (McKillop, then RBS chairman) that Sir Fred would walk away with a pension pot valued at £16m - and that this was a contractual obligation.
Lord Myners felt he couldn't challenge an arrangement that therefore seemed obligatory - though presumably he now wishes that he had done.
The question that now arises is what did Sir Tom mean by "a contractual obligation" - since it is now clear that the board had discretion not to give Sir Fred £650,000 per annum aged just 50."
The government is shouting loudly about legal action, but Goodwin seems to have pissed all over them. Despite my poor opinion of him as a business strategist or banker, I have a sneaking admiration for his ability to show politicians and civil servants what things are like in the real world, outside their fancy offices, free parking spaces and (of course) tasty final salary pension schemes. "You're dealing with the big boys now, Myners. Now go back to your office and have a cry".
+++++++++
The market continues to be fascinating. William Hill announced a 1-for-1 rights issue at 105p a share, something like a 650% discount. It also announced that it would not be paying a dividend. Result? Share price (already up 50% since October) outperforms the market. As written in an earlier post, this is mainly relief at William Hill apparently having solved their debt refinancing problem. In other words, concerns about the feasibility of refinancing is, in many cases, outweighing the subsequent concerns about equity dilution and the requirement for more cash. This would seem to indicate that there is a "wall of institutional money" that is waiting for these deep discounted issues at fundamentally sound companies. And one can see why. When money was freely available, equity investors just got the scraps of shit. Now that the banks won't lend, equity buyers get much tastier morsels. Some of these offers are absolutely stonking. The Hill offer might dilute earnings on existing shares to 3%, but the earnings on the new shares more than compensate for that. And, in addition, net debt gets reduced by 25%. Gimme gimme gimme.
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no subject
Date: 2009-02-27 01:41 pm (UTC)Fuck Me Pension Rights
Date: 2009-02-27 10:06 pm (UTC)Goodwin's pension rights appear ludicrous to the public not, for once, because the public doesn't understand the finer points (contractual or otherwise) of what's going on.
They appear ludicrous to the public because they are ludicrous.
Correct me if I'm wrong here. You have the option of firing somebody (possibly with severance pay, which I'd presume is an overly generous amount based on years of service) or else inviting them to resign. At which point, contractual obligations such as pension rights kick in.
Possibly the Government and the Treasury are short of competent lawyers. They're clearly short of competent -- possibly, even trained -- accountants. Which is a more general concern.
But it shouldn't have been at all difficult to see the long-term costs. And it shouldn't have been at all difficult to see the immediate PR disaster.
Now, I don't know whether there were, or were not, legally palatable alternatives. I would have suggested something like "Our bank (and, Fred, it is our bank now) needs someone to head up the SPV in St Helena -- which we coincidentally also own. Apparently they need an airport. We think you're the only (totally unqualified) banker in the world who can make this work. Pro-rata living expenses; we'll pay for your self-build bungalow, as long as the French don't get narked because it's too close to where we poisoned Napoleon.
Whaddya say?
Do you have options, punk?"
Or, to quote you, "Goodwin has acted in his own best interests and the Treasury has shown that politicians are no match for capitalists when it comes to making deals."
Deal? No deal.
There are politicians, and then there are politicians.
There are capitalists, and then there are capitalists.
I have no high regard for Clinton-era politicians, but at least those stupid venal bastards managed to deal with the stupid venal bastards like Bernie.
Question: Is the British Government either constitutionally, institutionally, organisationally, or intellectually incapable of dealing with stupid venal bastards in a similar way?
Re: Fuck Me Pension Rights
Date: 2009-02-27 11:21 pm (UTC)PJ
Re: Fuck Me Pension Rights
Date: 2009-02-27 11:22 pm (UTC)PJ
Re: Fuck Me Pension Rights
Date: 2009-02-28 07:16 pm (UTC)I've got a swiss army pen-knive. Apparently it copes with any catastrophe other than one involving horses' hooves. (That bit broke off. Damn Ebay's quality assurance.)
If I "take out" Mr Goodwin, can I assume that my Family gets a decent cut of the action?
Do I need to stand in a queue, or what?
I mean, I'm aleady covered on legal claims. "Extraodinary rendition into a garbage disposal unit? Well, M'Lud, that might very well have happened. Or possibly not. But it would compromise National Security to give you the details..."
... although the video is available on YouTube, should you wish. Just insert your National Identity Card here, please.
Ka-ching! £12 billion here, and ta. Sign on the dotted line, there's a good boy.
I believe this is an appropriate time to quote Dr Thompson:
"How much more, O Lord? How much more?"
no subject
Date: 2009-02-27 11:19 pm (UTC)Bet you sit there tut-tutting during Minder as well, saying "of course, all this is morally indefensible".
Lighten up!
PJ
no subject
Date: 2009-02-27 02:38 pm (UTC)http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2009/02/goodwins-pension-labours-failure.html
no subject
Date: 2009-02-27 10:11 pm (UTC)Funny old world, isn't it?
That's why I'm a historian who prats around with computers, and you're just somebody stuck with pratting around with computers.
no subject
Date: 2009-03-01 08:00 pm (UTC)Pension
Date: 2009-03-01 08:13 pm (UTC)All talk of "pots" is misleading, as is this earlier claim that its size had been "doubled from £8m to £16m". In fact, Goodwin has nicked an early retirement arrangement that you and I would die for (or, rather, would definitely stay alive for); inflation-linked defined-benefit plan. Yes please. At 50? Double Yes Please. The cost of this can only be actuarially estimated, and if he lives a long time and inflation goes up, the cost will be far higher than £16m.
Of course, estimating pension liabilities has long been a bone of contention, and the "match liabilities to assets in terms of timescale" farce led to a bubble in long-term gilts (and, also, I think, to the distorted yield curve we saw a few years ago).
As a child could have spotted, it would have been quite easy to say goodbye to Sir Fred and say to him "yes, we will pay you the pension to which you are entitled at 60". However, the remuneration committee had approved a pension scheme that was generous in the extreme to people taking early retirement under a cloud if they were over the age of 50. It might as well have been copied from the Police Force in the 1970s.
I've yet to meet anyone with the guts to honestly say that, had they been in Goodwin's position, they would not have taken exactly the same actions to assure themselves of a nice pot for many many years. It's the shareholders who get screwed here. Ironically, these are likely to be institutional investors such as, er, quite a few pension funds.....
PJ
no subject
Date: 2009-03-03 06:19 am (UTC)Loan Modification (http://www.loanmodifyexpress.com)