The Guardian - 30.08.2019

Section:GDN 1N PaGe:42 Edition Date:190830 Edition:01 Zone: Sent at 29/8/2019 19:36 cYanmaGentaYellowb

• The Guardian Friday 30 Aug ust 2019

(^42) Financial
Business view
Larry Elliott

B

ritain’s consumers

have largely been

deaf to the warnings

of impending

economic disaster

that have rained

down thick and fast ever since

the EU referendum in June 2016.

The public’s appetite to spend has

remained strong, but one thing it

won’t buy is doom and gloom.

It would be surprising,

though, if consumers were

completely impervious to what

is happening over Brexit. Surveys

have suggested that consumer

confi dence is getting weaker even

though spending in the shops and

online has held up well.

This is not a s incongruous

as it might seem. Consumers

are normally asked how they

feel about their own fi nances

and also how they view the

economy generally. The fact that

employment is high and real wages

are rising can leave people feeling

good about their own prospects

even though watching the news

and reading the papers can leave

them wondering whether the

country as a whole is going to the

dogs.

Growth will weaken markedly if

consumer concerns about the state

of the nation start to outweigh the

feeling that they are personally

better off. If that were to happen,

consumers would be deferring

spending, just as businesses are

deferring investment.

There are warning signs

from the monthly European

Commission survey of UK

consumer confi dence that this is

a distinct possibility. Household

confi dence in the health of the

economy fell to its lowest level in

seven years, but more worrying

was the drop in confi dence in

people’s own fi nancial situations,

because this tends to have a

strong correlation with high street

spending.

The survey does not contain a

regional breakdown, but an insight

into how consumer confi dence is

holding up in two diff erent parts of

England is provided by Algorithmic

Economics, a company that has

been charting the feelgood factor in

Greater London and Rochdale since

the start of 2018 using machine

learning algorithms to monitor

tweets. The fi ndings suggest that

attitudes towards Brexit might be

aff ecting confi dence levels. Despite

being a lot wealthier, remain-voting

London has consistently had a lower

feelgood factor, with a steady fall

each month since Easter. In leave-

voting Rochdale, the feelgood factor

has held up much better.

With friends like Amigo

No tears should be shed for

shareholders in the loans group

Amigo who saw the value of

their investment halved after the

company warned them to expect

tough times ahead.

Amigo’s activities have rightly

• if rather belatedly – attracted the
  attention of the Financial Conduct
  Authority, the City watchdog, over
  a business model that involves
  guarantor loans. These allow people
  with poor credit records to borrow,
  provided they can get a friend or
  family member to pledge to pay up if
  the borrower cannot.
  What bothers the FCA is that
  many of the guarantors fail to grasp
  what they are letting themselves in
  for, with the result that too many
  loans were being called in. That’s
  not entirely surprising given that the
  friends and family of high-credit risk
  individuals don’t tend to be rolling
  in it themselves.
  The FCA was also unhappy about
  Amigo’s annual interest rates of just
  less than 50%, pointing out that
  instead of smoothing out temporary
  cash fl ow issues, the loans were
  trapping borrowers in a cycle of
  debt.
  Amigo could sense the way
  the wind was blowing. Fearing
  a regulatory crackdown, it
  has now decided to adopt a
  more conservative strategy by
  concentrating on securing new
  customers rather than repeat
  business. This will be bad for
  Amigo’s profi ts – and hence its share
  price – but is good news for the weak
  and vulnerable.
  All the problems with guarantor
  loans could have been predicted
  long ago and it is surprising the
  FCA did not take a tougher line
  earlier rather than face the charge
  that it is behind the curve. Expect
  a somewhat speedier response for
  claims management companies
  looking to fi nd new cases of mis-
  sold products now that the deadline
  for applying for PPI compensation
  has passed.

The FCA was unhappy

about interest rates of

50%, saying instead of

smoothing cash fl ow

issues it trapped people

in a cycle of debt

Reasons to be cheerful? That

all depends on where in the

countr y you’re coming from

Shareholder

advisers join

calls to oust

Ashley from

Sports Direct

Sarah Butler

Mike Ashley faces a shareholder

rebellion after the advisory fi rm Insti-

tutional Shareholder Services joined

calls for Sports Direct investors to vote

against hi m continuing as a director

amid “signifi cant operational and gov-

ernance concerns” at the retail group.

ISS said the acquisition of House

of Fraser had “led to concerns about

the company’s viability as a whole ”. It

also raised concerns about deals with

Ashley’s brother and his daughter’s

partner, Michael Murray, who received

payments of over £5m in the past year.

The report also highlighted Sports

Direct’s acquisition of stakes in

businesses that ha d collapsed into

administration – Debenhams – or

whose accounting practices are being

investigated – Goals Soccer Centres.

It said Sports Direct had failed

to issue profi t guidance for the year

ahead after receiving an unexpected

£605m Belgian tax bill that had

resulted in “further uncertainty” and

had led to the resignation of its audi-

tor, Grant Thornton. The audit fi rm

is already under investigation over

Sports Direct’s failure to disclose a

transaction with a company owned

by Ashley’s brother.

The report said: “ISS’s policy for UK

companies provides for withholding

support from directors under extraor-

dinary circumstances for material

failures of governance, stewardship, or

risk oversight. Recent events at Sports

Direct appear to indicate that in this

case, all three criteria apply. ”

Ashley, who founded the business

in 1982, is the chief executive and

owns 62% of Sports Direct. The group’s

shares have crumbled to 247p from

a bout 400p a year ago. Five years ago

they were more than 900p.

Advisory fi rm Glass Lewis said the

billionaire was “inextricably linked

with the myriad controversies, past

and ongoing ” at Sports Direct. It

criticised the multiple delays to the

annual results last month, saying it

was the most recent manifestation

of a “disregard for the rights and con-

cerns of independent shareholders ”.

Pirc, another advisory group, also

advised opposing the re-election

of Sports Direct’s chair , David Daly ,

and three of its four non-executive

directors, Richard Bottomley , Nicola

Frampton and David Brayshaw.

Nearly 37% of independent share-

holders who voted at Sports Direct’s

annual shareholder meeting last year

made it clear they wanted to block Ash-

ley’s reappointment as a director. He

accused shareholders of stabbing him

in the back and “repeatedly hound-

ing” the ex-chairman Keith Hellawell.

▲ Pressure continues to pile up on Mike Ashley PHOTOGRAPH: LEE SMITH/ACTION IMAGES

▲ The FCA said Amigo guarantors did

not always realise the ramifi cations

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