The Week UK - 04.04.2020

CITY 43

4April 2020 THE WEEK

Talking points

“Governmentsandinvestorswokeup
fartoolatetothecurrentcrisis,”said
RichardPartingtonandGraeme
WeardeninTheObserver.“Nowthey
facetheprospectofthedeepestrecession
inhistory.”Fortheglobalfinancial
system,amonthof“unprecedented
pandemonium”hasthreatenedtobring
Westerncapitalismtoitsknees,despite
theinterventionsofcentralbanks.“This
isageneration-definingmoment,”said
MohamedEl-Erianofinsurancegiant
Allianz.“I’veneverseenaneconomic
stoponthisscale,certainlyneverinbig
countriesandallatonce.”

Therehavebeenafewencouragingsigns
thisweek:notably,anincreaseinChina’smanufacturingactivity.
Indeed,apartialreboundinstockmarketsoverthepastweek
“signalsthatsomeinvestorsbelievetheworstofthefinancial
marketimpactsofthepandemicareover”,saidStephen
BartholomeuszinTheSydneyMorningHerald.Butalthough“the
levelofmonetary and fiscalstimulusisfar greaterand hasbeen
implementedfarearlier thantheresponses tothefinancialcrisis
in2008”,the elusive“bottom”may stillnotyetbeinsight.
Certainly,themood elsewhere isn’t optimistic.Copper,regarded
as one ofthebestindicatorsof economicactivity,is25% offits
Januarypeak. Andoilpriceshavebeensmashed tobelow$20a
barrel. While that plungepartlyreflectsaglut ofsupply,“it’sthe

demandsidethatismostsignificant”–

demandhasfallenbymorethan 25

millionbarrelsaday,oraboutaquarter

ofnormalglobaldemand.Indeed,the

threatnow,accordingtoGoldman

Sachs,isthat“oilpricescouldturn

negative”ifhugeoversupplymeans

producershave“topaytogetridoftheir

oil”,saidEdClowesinTheDaily

Telegraph.Theimpactontroubled

producerslikeIran–oneofmorethan

80 countriesnowseekingfinancialhelp

fromtheIMF–couldbedevastating.

Poorernations,whackedbythecollapse

ofcommoditypricesandcapitalflight,

havebeenparticularlyhardhit.Buteven

richercountries,likeBritain,shouldprepareforhardtimesahead,

saidAndrewVerityonBBCBusiness.Despiteunprecedented

governmentsupport,“afifthofsmallerUKfirms”could“run

outofcash”afterjustafour-weeklockdown,accordingtothe

CorporateFinanceNetwork–becausecashisn’tgettingthrough

viathebanks.“Eachmorning,weawaketoasurrealworldof

inactivityanduncertainty, thelikeofwhich isbeyond allprevious

experience,”said JeremyWarnerin TheSundayTelegraph. “If

the shutdowngoes onfor nomore thanthree months,then the

economy oughtto emerge ontheother side justabout

operationallyintactandcapableof astrongbounce-back.”That’s

the best-case scenario.“Ifitis six months,thenallbets areoff.”

Issueoftheweek: rebootingtheworld

Tamingthebanks: whattheexpertsthink

●Poorjudgement?
“Jes Staley hasmadesome
decent strategic callsat
Barclays,”saidAlistair
Osborne inTheTimes.But
when itcomes to“personal
decisions”, herepeatedly
gets it wrong.Atatime
whencustomers’businesses
havebeen “pole-axed”by
thecoronavirus,Staleyis
pocketinga£395, 000
cashbonus.“Whatsort
ofjudgementcallisthat?”
Thedole-outhadtheeffect
of highlightinganother
“delicateissue” for Barclays: namely, its
“ill-judged” insistence on continuing with
aplanned £1.03bn dividend payment to
investors–even though credit-s trapped
companiesare cryingout forthecash.
Fortunately, thebankhas beensaved from
its ownfolly. Followingpressure from
regu lators,all of Britain’slargest lenders
havenowagreed to cancelthei rdividends
–freeing upacombined£7.5bn.

●Doingthe rightthing
Rightcall,said Nils Pratley inThe
Guardian. The mosturgent problem in
British banking,fromthe pointof view
of protecting theeconomy,ist he pace
at whichbanks are“converting the
Government’s£330bnsupport package
intohardcash”for British companies.
“Speed matterswhen tryingtominimise

failuresandjoblosses”and

complaints from “frustrated

borrowers”hadclearly

rattled the authorities.

Giventhe rancour about

thesector’sbailoutafter the

2008 crash,no onewants

“grumbles aboutfoot-

dragginglenders”to

become “arunningsub-

plot”of thiscrisis.“Ifthe

economicdamageturnsout

to beslighterthanfeared”,

thedividendscouldalways

be “reinstated”.Inthe

meantime,preserving bank

capital would create “confidence” that the

economy canrebound after the lockdown.

●Tough love

Lenders in Britain have beenexpecting“a

tougherappr oach” since the European

CentralBankorderedeurozone banksto

freezedividends andshar ebuybacks last

week, said theFT. TheBank of England

was abletorely on “moralsuasion”,

rather than “diktat”. Still, the move will

proveunpopularwith someinvestors,

especially retailshareholderswhorely

on thepayout for their income.Thatmay

not be theend of it either.The Prudential

RegulationAuthorityhas also written to

UK insurersasking them“to pay close

attentiontothe need to protect

policyholders” when making decisionson

shareholderpayouts andstaff bonuses.

Oil crisis: demand has fallen byaquarter

Property matters

Houses:frozen“AnEnglishman’shome

wasoncehiscastle,”saidLexintheFT.

“Itisnowhisopenprison.”Allthe

moresosincethepropertymarket

waseffectively“shutdown”thisweek.

Banksarewithdrawingmortgages;

homeswillnolongerbeadvertised;

housebuildershave“mostlydowned

tools”.Themovewasinevitablegiven

collapsingtransactions:Zoopla

reportedthatthenumberof“sales

fallingthrough”roseby60%inmid-

March.Thequestioneveryhomeowner

wantstoaskis:whatwillhappento

prices?Technically,“notalot”while

thelockdowncontinues.Inthelonger

term,likemuchelse,italldependson

theextentoftheeconomicfall-out.

Shops:rent strikesInmuchofthe

commercialpropertymarket,

meanwhile,anarchyrules,saidBen

ChapmaninTheIndependent.

“Hundredsofretailers”simply

“stoppedpayingrent”whenthe

Governmentpromisedtheywouldn’t

“forfeittheirleases”iftheychoseto

delaypayments.Thatmeantan

immediatenightmareforalready

imperilledlandlords,likeshopping-

centre“expert”Intu.Thankstothe

“rentstrike”,thecompanyreceivedjust

29%oftherentitwasdueinthelast

quarterand,likemanyotherlandlords,

is“strugglingtocoverthecostofits

propertyloans”.Meanwhile,the

numberofbignamerefusenikscontin-

uestomount:JDSports,BurgerKing

andDunelmhavealljoinedthestrike.

Withmorethan 80 countriesalreadyqueuingforIMFassistance,theglobaleconomyisinuncharteredwaters

JesStaley:a£395,000bonus