Saturday, 19 October 2013

Royal Mail Robbery

The bunch of crooks running the country have flogged off a national asset to their mates in the City. There is a thin veneer of small shareholders who will be used to provide a fig leaf of respectability. Experience shows that a few years down the line the fat cats will have their grubby little paws all over the profits. Ian Bell, writing in the Herald was singularly unimpressed.

IF someone told you that your house was worth X thousands and offered to take it off your hands, you might be peeved to see the homestead then going for X+50%.

If you discovered that the agent and his friends had been less than frank about X, then divvied up the proceeds, you might be furious.
That would be the sane response. Sanity is not generally the prominent feature, however, when a British government embarks upon a privatisation. Time after time, the same odd little quirk is evident. The price named for shares in a state asset bears only a scant resemblance to the price achieved. Public property is always sold cheap.
In the case of Royal Mail, the Government took the wise and responsible decision to ask a "syndicate of banks" to give advice on pricing. Next, rabid foxes will be invited to comment on the design and protection of chicken coops. The upshot has been, in that overused word, a scandal.
At the time of writing, the share price is still moving upwards. In City parlance, the institutions are piling in to secure public property that was supposedly strike-ridden, antiquated, not fit for modern purposes and not far from death's door. Suddenly, almost overnight, Royal Mail is an extremely attractive investment. It seems those banks miscalculated slightly.
Roughly speaking, they got their sums wrong by around 45% to 50%. Yesterday, shares the Government and its experts had priced at 330p were touching 490p. One way or another, the taxpayer - we, the owners - has probably lost out to the tune of £750m. Business Secretary Vince Cable puts it all down to "speculation" and "froth". Other words spring to mind.
You can believe the Government is inept, or you can believe, like the Communications Workers Union, that this was the idea all along. You can say that the banks simply looked at Royal Mail's £400m-plus adjusted profits for 2013-14 and applied the usual multiplier, thus arriving at 330p. An easy, uncomplicated sum.
To achieve such faith, however, you would first have to imagine that no-one noticed the parcels business. In that regard, Royal Mail has 36% of the entire UK market, a share that is growing as the internet grows. But then, the derided, old-fashioned habit of delivering letters to every corner of the country also brought a 3% increase in revenues, even as volumes fell.
In fact, profits achieved by Royal Mail have increased from £18m in 2010-11 to £403m. The idea that the group had to be rescued by go-getting private enterprise is almost insultingly stupid. In total, the business sold off on the cheap had a £9.3bn turnover last year. It is, or was, growing fast. Whatever Coalition ministers might claim, that was why it had to go. Lame ducks do not attract market frenzies.
Hedge funds and other investors also seem to have spotted a few other things that the banks' experts missed. Royal Mail is a big, very big, property owner. What's more, many of its sites are in prime city-centre locations. "Marketing mail" - junk, to you and me - meanwhile brings in more than £1bn annually. The brand, what with that logo on the stamps, is unbeatable. And the privatised group is promising to pay some very generous dividends.
None of this gave the Government or its advisers pause for thought when they picked a price. They did the fabled "small investors" the usual small favour with the bribe - if the shares could be sold - of a few hundred pounds. The rest of us had to watch while a public service was put in harm's way and then swallow the fact we were being short-changed on the deal. Given the scale of the injury, the insult was suitably big.
In all this, an old argument looms. One of the things driving those frantic investors is the belief that Royal Mail will distribute around £200m in dividends - just for starters - as a private company. That's a fifth of a billion that could be going into improving the business. It will be extracted from an enterprise that had to be privatised, if you believe the Government, precisely because it stood in need of just that kind of investment. But hedge funds do not look at the world in that way.
To maintain the dividend, costs will have to be squeezed, yet again. Workers whose pay and conditions have never been enviable will have to be clobbered, yet again. Services and routes that cannot be justified on the balance sheet will be questioned and picked apart. The cost of parcels and stamps will come under what is called "pressure". There will be a straightforward, unavoidable choice between profit and public service.
Needless to say, a majority of voters were opposed to this sell-off. Most polling put the balance of opinion at three to one against. We now know, furthermore, that we got a very bad deal for a sale we did not want. So Dr Cable and his colleagues might care to explain in whose interests they acted.
It goes without saying that the banks will pick up substantial fees for what has been lousy advice. Investors in those banks, very often the same institutions that have been gobbling up Royal Mail, will benefit in turn. Those intent on making a quick killing in the days and weeks ahead can scarcely lose. The entire affair has been a carve-up, astounding in its audacity.
But we are not supposed to say such things. We are supposed to believe that a stampede for shares is proof of "success". We are supposed to realise that any industrial action by Royal Mail workers has ceased, of all of sudden, to be a threat to the viability of the business. And we are supposed to buy the idea that this public institution will continue as before, universal service obligation and all.
Those of us who have seen these things before will recognise all the hallmarks: Tories and their City friends stripping an asset in the face of public protest. This time around, they have the assistance, with no hint of hesitation, from the Liberal Democrats. But anyone who has been paying attention should know that Labour toyed with versions of this scheme more than once.
The familiar cry that "even Margaret Thatcher didn't go this far", while true, is of no real relevance. The Royal Mail sale might even count as a lesson to those of us liable to invoke the 1980s. Perhaps the Coalition is more determined than right-wing governments of the past. What this privatisation says is that nothing is now sacred or safe if there is a choice between public and private ownership.
Alex Salmond asserts that Royal Mail would be renationalised should the SNP become the government of an independent Scotland. I'm very glad to hear it. Labour is making no such promises, after all. It is also clear, however, that the First Minister's vow has not deterred the City in the slightest. The lesson in that, at least, is familiar. Once lost, these public assets are never regained. Thieves never bother to return stolen goods.” 16/10/13

Since the article was written, shares have continued to climb. They are now trading at £5-00. The Financial Times has the news today that the government were warned by two investment banks that they were selling it off far too cheaply. Even their mates thought it was a rip-off! 

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