the times | Thursday January 13 2022 39
Business
Morgan Stanley is expected to increase
annual bonuses for some of its invest-
ment bankers by more than a fifth to-
day, after a record year of dealmaking.
The American investment bank
will issue bumper payouts to staff with-
in its equity underwriting and mergers
and acquisitions advisory businesses,
according to Reuters.
It comes after an unprecedentedly
busy — and lucrative — year for deal-
making, which generated billions of
dollars in fees for Wall Street’s top
banks. Firms in this competitive sector
are also jostling for talent and have
lined up to increase the remuneration
of their most valued employees, in the
wake of a succession of highly profita-
ble quarters during the pandemic.
Bankers at Morgan Stanley are
expected to be given the details of their
bonus payouts today, before receiving
them next month. A spokesman for
Surveyors must beef
up compliance
L
uckily the stock market has
long seen through RICS.
How else to explain the
gulf between company
valuations and the fantasy
prices put on their property estates
by deluded members of the Royal
Institution of Chartered Surveyors?
Take Hammerson, the shopping
centre outfit whose portfolio
includes London’s Brent Cross and
Birmingham’s Bullring. Apparently,
its managed estate is worth
£3.6 billion, or a net asset value of
69p a share — itself cut from 82p at
August’s half-year results. So how
come the shares are valued at only
half that, 35p? Similar, though less
dramatic, discounts are found at the
likes of British Land (NAV 681p,
share price 541½p) and Land
Securities (NAV £10.12, shares 774p).
Yes, overvaluing or undervaluing
companies is the stuff of stock
markets. But the discount around
property groups’ NAVs stands out
— even before the pandemic pushed
more shopping online, while
working from home emptied office
blocks. So, on valuation grounds
alone, reform of the Royal
Institution of Conflicted Speculators
looks overdue. Happily, though, the
review by Peter Pereira Gray, boss of
the Wellcome Trust’s investment
wing, gets to the nub of key
problems. And not least the cosiness
between valuers at the likes of
CBRE, Cushman & Wakefield, Jones
Lang LaSalle, Savills and Knight
Frank and their clients.
As Pereira Gray notes, property
makes up 70 per cent of global
wealth, so it’s crucial investors have
valuations they can “trust”. Even if
the ultimate arbiter of price is a
property’s sale, the valuations put
on shopping centres, office blocks
and business parks still underpin
financial reporting, collective
investment schemes, property funds
and company takeovers.
So investors deserve something
more robust than the efforts of a
valuer incentivised via valuation
fees to put as high a price on a
property as possible. Or one that is
riven with conflicts, with another
part of the business raking it in from
the same client via consultancy
work — acting as buying or selling
agents, say, or advising on rents.
The 13-point review stops short of
breaking up the big firms. But
Pereira Gray’s recommendations
still herald a big shake-up. Like the
banks, firms will be forced to ramp
up compliance, with a “valuation
compliance officer” to manage
conflicts and ensure “full
accountability”. RICS, which has
accepted all 13 proposals, must
create an independent “quality
assurance panel”, while “discounted
cashflow” models will now become
the standard for all valuations.
Mandatory rotations of valuers
will also become the norm —
Cushman was Hammerson’s sole
valuer between 2002 and 2019
before it added two others. And
Pereira Gray also wants a “valuation
audit trail” of all “instructions and
meetings between client and
valuer”, no doubt extending to the
entertainment budget.
True, none of this will ensure
spot-on valuations. And stock
market pricing can prove tooconservative. Recent takeovers of
St Modwen, Urban & Civic and
GCP Student Living have all been at
a premium to NAV. But at least the
review leaves fewer grounds for
RICS valuation tricks.Sainsbury’s value
M
ore winter wonderland stuff
from a supermarket chain.
This time it’s Sainsbury’s,
proving just how much lolly you can
deck the aisles with when Omicron
ruins Christmas for pubs and
restaurants. With restaurant sales
down 14 per cent last month, people
pigged out at home instead. The
upshot? A top up to full-year
underlying profits guidance, with
the grocer now shooting for “at least
£720 million pre-tax” versus
previous estimates of £660 million.
Such was demand that some
customers even loaded up with
Plant Pioneers Maple-Glazed No
Gammon Joint and No Salmon En
Croute — vegans, you hope. And
like Aldi, Sainsbury’s also reckons it
wolfed down some extra market
share: a boast likely to be repeated
today by Tesco. Morrisons and Asda
so far look the festive losers.
So was it all down to Omicron?
Not really. When he took charge in
June 2020, chief executive Simon
Roberts set out to “put food back at
the heart of Sainsbury’s”: a shift of
focus after the joys of integrating
Argos. And while third-quarter
grocery sales fell 1.1 per cent against
2020’s lockdown rise of 7.4 per cent,
they were still 6.6 per cent up on- Adjust for closing stores on
Boxing Day and sales for the six
weeks to January 8 were up 0.8 per
cent. Roberts has brought better
value, now matching Aldi prices on
150 fresh food products, plus more
new lines: 600 last quarter.
There are trickier tests to come.
But the shares, up 3 per cent to
288p, trade on a forward earnings
multiple of 13 times. Decent value,
too — not least with private equity
looking for ways to fill their trollies.
Bumper takeover?
N
o one is more skilled than
hedge fund Elliott at
bumpitrage — the art of
squeezing a little extra out of a
bidder at the last minute. It proved
it at SABMiller, Poundland and
Dragon Oil. So is that its game, too,
at drugs provider Clinigen? The
board, chaired by Elmar Schnee, has
recommended a £1.2 billion takeover
by private equity outfit Triton at
883p. It’s at a 41 per cent premium.
The vote’s on Tuesday and proxy
advisers ISS and Glass Lewis reckon
investors should accept.
Yet after an in-line trading update,
Clinigen shares stand at 915p. Triton
needs 75 per cent of the votes. But
Elliott has 11.4 per cent, while three
hedge funds have been buying since
the bid: Sparta Capital, Carlson
Capital and TIG, holding 9 per cent
between them. So, 20 per cent in
total. It’s late in the day and voting
down the deal is high-risk. But it’s
enough to try for a bump.[email protected]business commentary Alistair Osborne
Bonuses set to soar at Morgan Stanley
Morgan Stanley did not respond to a
request for comment.
However, steep pay increases by
banks after a robust year of trading will
risk attracting considerable public
scrutiny and comment as rising
inflation continues to pile pressure on
the cost of living for many consumers.
Energy bills, food prices and rentalcosts are all increasing in both America
and Britain.
Morgan Stanley first opened for busi-
ness on Wall Street in 1935. Today the
bank has about 70,000 employees
worldwide, 5,500 of whom are based in
Britain, mainly in London but also in
Glasgow. It has a market value of nearly
$188 billion. Shares in the investmentbanking group were down by 1 per cent,
or $1.07, to $104.88 at lunchtime in New
York yesterday.
As investors prepare for the latest
quarterly flurry of earnings from the
heavyweights of America’s financial
sector, due to commence tomorrow,
the bank is scheduled to update share-
holders next week. In October, when
Morgan Stanley reported on its third
quarter, the investment banking unit
unveiled record advisory revenues,
which had more than tripled to
$1.27 billion.
Morgan Stanley is far from the only
bank in the United States preparing to
improve the remuneration of its top
performers. Executives at Bank of
America plan to increase the bonus
pool for its investment bankers by more
than 40 per cent this year, according to
a report by Bloomberg this month.
Bonuses for staff working within the
lender’s sales and trading divisions
could increase by an average that
exceeds 30 per cent.Callum Jones
US Business Correspondent
Holmes to be sentenced in September
Elizabeth Holmes faces sentencing in
the autumn after the Theranos founder
was convicted of fraud following the
demise of her blood-testing group.
Prosecutors have proposed that the
disgraced entrepreneur be sentenced
on September 12, according to court
filings. They do not plan to pursue three
charges upon which a federal jury
failed to reach a unanimous verdict.
The filing was submitted jointly by
prosecutors and lawyers for Holmes, 37.
The suggested date requires approval
from Edward Davila, the judge at her
trial in San Jose, California.
This month Holmes was convicted of
conspiracy to commit wire fraud and
three charges of wire fraud. She was ac-
quitted on four other charges. She is ex-
pected to appeal the verdict. Holmes,
right, persuaded investors to plough
hundreds of millions of dollars into
Theranos. At its peak, the start-up
was valued at $9 billion. It prom-
ised to revolutionise healthcare
with technology that it said re-
quired only a few drops of blood
for hundreds of medical tests.
The company was shut down in
2018 after revelations that its
devices could handle only a
fraction of the tests it claimed.
Ramesh “Sunny” Balwani,
Holmes’ former deputy and
boyfriend, is to face trial over
the same charges. Balwani,
56, has pleaded not guilty.
Questions first surfacedfollowing an investigation by The Wall
Street Journal in 2015. Publication had
not felt like an “enormous risk”, its
editor-at-large said yesterday, as the
strength of its reporting “was so
clear”.
Gerard Baker told an online event
hosted by The News Movement:
“This wasn’t just about one entre-
preneur, one company, coming
up with a scheme that [Holmes]
claimed would do something [it]
couldn’t. There was this sense that
we were taking on a wider kind of
Silicon Valley culture.”
The Wall Street Journal is owned
by News Corp, owner of The Times.
Rupert Murdoch, executive chair-
man of News Corp, was a signifi-
cant investor in Theranos.Callum Jones
Amundi Asset
Management were also
seen to be more
supportive of activists
when compared with their
passive manager peers,
most of which run tracker
funds linked to indices
such as the FTSE 100 in
London or the S&P 500 on
Wall Street.
A growing band of
institutional investors now
employ teams to look at
how firms are responding
to environmental, social
and governance concerns
and guidelines. According
to SquareWell: “Investors
are increasingly applying
these non-financial factors
as part of their analysis
process to identify
material risks and growth
opportunities.
“Stewardship teams are
focused on ESG matters,
primarily governance, and
therefore campaigns by
hedge fund activists that
fail to leverage these
aspects adequately will
not convince the support
of large, passive holders.”
The survey also noted a
difference in the approach
taken by activists with
stakes in American
companies and those
outside. It said: “During a
campaign, activists in the
US used public letters and
published [in newspapers
and journals] more so
than outside the US.”CHIP SOMODEVILLA/GETTY IMAGES5,500
Morgan Stanley employees based in
London and Glasgow