Section:GDN 1N PaGe:36 Edition Date:190815 Edition:01 Zone: Sent at 14/8/2019 20:06 cYanmaGentaYellowb
- The Guardian Thursday 15 Aug ust 2019
(^36) Financial
W
eWork, the
loss-making
US offi ce rental
company, is
planning a
stock market
launch next month to fund its
global expansion. All the signs on
Wall Street yesterday were that
Silicon Valley’s next big thing
might have left it a tad late.
On a day when global stock
markets took a tumble, WeWork
will doubtless be hoping that swift
and decisive action by the Federal
Reserve can hold off a bear market
in shares for just a bit longer.
Otherwise the company’s fl oat
will be remembered for the wrong
reason: as the one that marked the
top of the cycle.
Donald Trump has his own
reasons for wanting the stock
market to remain buoyant – the
fact that his 2020 presidential
campaign is already under way –
but was uncharacteristically slow
to respond to the turmoil.
Eventually, of course, the
president could not resist having
another dig at the Federal Reserve
as part of his campaign to have
interest rates slashed.
And they almost certainly will
be. The Fed is highly sensitive to
what is happening on Wall Street
and a rate cut at its next meeting in
September is a nailed-on certainty.
Some analysts – Steen Jakobsen
Business view
Larry Elliott
at Saxo Bank, for instance – think
the US central bank might not wait
that long but instead announce an
emergency cut before its scheduled
meeting. That still seems a bit of a
long shot but the accumulation of
bad economic news means the battle
between the Fed and the White
House has been won decisively by
Trump. All that remains is to see
how much face the Fed’s chairman,
Jerome Powell , can save.
His position was uncomfortable
but defensible all the time the
fi nancial markets thought the
longest sustained period of growth
in US history would continue. Now,
though, the bond markets have
signalled that they think Trump has
got it right and the Fed has got it
wrong.
The catalyst for the latest share
sell-off was the news that the yield
(broadly speaking, the interest rate)
on a 10-year treasury bond was
lower than that on a two-year bond.
This is unusual because for the
most part investors demand a higher
yield on 10-year bonds because
there is more uncertainty over what
might happen in the next decade
than in the next two years. Higher
risk equals a higher return.
But occasionally, the yields on 10-
and two-year bonds converge. Even
more rarely, yields on 10-year bonds
fall below those on two-year bonds.
That’s when investors are more
concerned about short-term growth
prospects than about infl ation risks
in the longer term and, historically,
it is often the moment the recession
warning light turns red.
That’s not always the case.
Sometimes the economy sails on
regardless. But share prices have
been defying gravity for months and
it would be a brave investor who
would shrug off the inverted yield
curve as a false signal this time.
Hard to account for
It says something about a company
when none of Britain’s “big four”
accountancy fi rms are willing to
take on the job of doing its books.
When the boss of Sports Direct, Mike
Ashley, asked PwC, KPMG, EY and
Deloitte whether they wanted his
business, they all said no.
As things stand, the business
secretary, Andrea Leadsom, may
have to appoint one of them to do
the Sports Direct accounts. This sort
of humiliation is unprecedented
for a major UK company. But this
aff air also speaks volumes about
the current state of the accountancy
business, which has been tarnished
by failures to spot problems
developing in a number of high-
profi le collapses: Carillion , BHS and
Patisserie Valerie to name but three.
The big four (and Sports Direct’s
current auditors, Grant Thornton)
have enough problems without
Ashley’s unconventional business
adding to them. What’s more, a
recession is likely to expose further
accountancy failings because, as
Warren Buff ett said, it’s only when
the tide goes out that it is possible to
see who’s swimming naked.
Share prices have
been defying gravity.
It would be a brave
investor who shrugged
off the inverted yield
curve as a false signal
Kalyeena Makortoff
Banking correspondent
The digital bank Monzo is dipping its
toes into the short-term loans mar-
ket a year after Wonga’s collapse , but
insists it will not target customers who
usually turn to payday lenders.
The bank yesterday formally
launched loans for its 2.5 million cus-
tomers , following a trial with about
4,000 people. Those who qualify will
be able to borrow as much as £15,000
for up to 60 months, or take loans as
small as £200 for as little as 90 days.
That kind of wage top-up has been
the hallmark of short-term or payday
lenders , whose customers borrow an
average of £300 over three months.
But while payday lenders usually hit
customers with interest charges equal
to an annual percentage rate (APR) of
1,000%, Monzo is charging a maxi-
mum 20.4% APR on loans up to £7,500.
Loans between £7,500 and £15,000 will
be charged at 3.7% APR.
Tom Blomfi eld, Monzo’s founder
Monzo insists
new short-term
loans won’t be
at Wonga rates
and chief executive, said the bank
was not trying to appeal to customers
with low credit scores. “These aren’t
targeted at the sub-prime end of the
market at all. You have to pass a relat-
ively stringent credit check.”
Last year Blomfi eld told the Tel-
egraph that Monzo was considering
launching loans directed at “the
Wonga segment” of the market; he
said he did not want to expand into
that area solely for profi t, and sug-
gested there could be a more ethical
approach to payday loans.
But he was forced to backtrack on
those comments and days later said
Monzo was “categorically not working
on a high-cost credit product”. How-
ever, he said the fi rm planned to move
into the area relating to people with ris-
ing debt and poor credit scores.
Blomfield said Monzo’s new,
smaller, loans would appeal to cus-
tomers who, for example, might need
emergency boiler repairs but would
not want to pay with their existing
credit cards or have costly overdrafts.
Monzo recently doubled its value
to £2bn after a fresh round of investor
funding. The bank raised £113m from
investors led by Y Combinator , a US-
based investment fi rm best known for
backing the holiday letting platform
Airbnb, the fi le hosting service Drop-
box and the online forum Reddit.
This is not the best
time for a tech darling
to test the market
Top US bosses paid 278 times
the wages of average workers
Dominic Rushe
New York
Chief executives at the top US compa-
nies were paid an average of $17.2m
(£14.3m) last year – 278 times the sal-
ary of their average worker. Between
1978 and 2018, the average pay of the
bosses of America’s largest 350 compa-
nies has grown by 1,007.5%, adjusted
for infl ation, according to the Econom-
ics Policy Institute’s latest survey.
The increase far outstripped the
typical worker’s salary growth, at
11.9% adjusted for infl ation, and also
the returns from the stock market,
often used to justify high executive
pay. The S&P 500 index of top US com-
panies grew 706.7% over that period.
The analysis comes as some of
America’s richest businessmen have
publicly worried about growing
income inequality. In April, Ray Dalio,
the billionaire founder of Bridge water,
the world’s biggest hedge fund, said
the gap between rich and poor in the
US was becoming a “national emer-
gency”. JP Morgan’s chief executive,
Jamie Dimon, has called for a “Mar-
shall plan” to address a “systemic
problem” that had left half of society
“severely disadvantaged ”.
Lawrence Mishel, distinguished
fellow at EPI, said there was a direct
correlation between the outsized pay
gains of chief executive offi cers and
the stagnant wages of work ers given
there was little evidence linking the
turbocharged growth in top pay with
the performance of their companies.
“You could cut CEO pay in half and the
economy would not be any diff erent.”
CEO compensation rose by 7.1%
in 2018 and 9.2% in 2017, according
to EPI. The rise has been driven by
increasingly large awards of stock in
the companies they run. On average,
CEOs received $7.5m in stock awards
in 2018, accounting for close to half
their compensation. Wages grew by
1.6% over the last year, after infl ation.
CEOs who took advantage of the
shares they were awarded have
enjoyed a 52.6% pay rise since 2009.
Those granted shares who have not yet
cashed in saw their pay r ise by 29.4%.
By contrast, the typical worker in
one of these large fi rms has had a rise
of 5.3% over the course of the recovery
and their wages actually fell by 0.2%
between 2017 and 2018.
In 1965, the average CEO earned 20
times as much as the average worker
at one of America’s top 350 compa-
nies. By 1978 the ratio was 30-1. By
1991 it was 121-1 and has since more
than doubled.
▲ Tom Blomfi eld, Monzo bank ’s CEO,
‘is not chasing the sub-prime market’
PHOTOGRAPH: ALEX LAKE/THE OBSERVER
$17.2m
Pay of average US chief executive
in 2018, up 7.1% on the year. Wages
rose 1.6% after a fall of 0.2% in 2017
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