The Sunday Times February 13, 2022 7
These calls have come
following a devastating 78 per
cent drop in train journeys in
2020 as a result of the work-
from-home orders, while
passenger journeys now are
at about 60 per cent of pre-
Covid levels. The government
has stepped in to fund the
railways to the tune of
£17 billion so far, giving rise to
fears that services may need
to be cut to reach a
sustainable footing.
The RDG is seeking to
revive proposals it made in
2019 to overhaul fare
structures by ripping up
regulations established in the
1990s when the railways were
privatised. If enacted, its
plans could end the quirk of
single tickets on some routes
costing almost the same as
return fares.
Andy Bagnall, director-
general of the RDG, said the
industry should “harness
digital technology to have a
much smoother curve of
pricing through the day”.
“That’s better because we will
have fewer trains running
with empty seats, and it’s
better ... because you have
less crowding,” he said. The
proposals were all made in acompanies will not bid for the
government contracts.
Anthony Smith, chief
executive of the independent
watchdog Transport Focus,
said fare reform would help
attract people back to rail.
“Many passengers tell us they
find fares and ticketing
complex and confusing. They
want a simpler, easier-to-
understand system,” he said.
Transport consultant
Christian Wolmar noted that
decisions on reforming fares
would lie with GBR, not the
private sector. “It’s got to
come from the public sector
because they set the rules and
are already collecting the
fares,” he said, adding that it
would be hard for operators
to take on more revenue risk
under a centrally controlled
system. “You can’t have it
both ways; either we privatise
railways or nationalise them.”
In its submission, the RDG
urged ministers to consider a
future rail system that “makes
the best of the partnership
between the public and
private sectors”.
The GBR Transition Team
is expected to publish the
findings of its consultation on
the strategic plan this spring.of the past 25 years to a
centrally controlled structure
run by a body called Great
British Railways (GBR).
Under the old system, train
companies would bid for
franchises and took on the
“revenue risk” of operating
the service, meaning they
had an incentive to grow fare
revenues but were liable for
costs if revenue fell.
Since the pandemic started
hammering fare revenues,
companies have been paid a
flat percentage fee to run the
lines, with the revenue risk
falling on the taxpayer.
The precise structure of
GBR, which will be
operational from 2024, is still
being determined. Bagnall
said he hoped it would be “a
guiding mind, not a
controlling mind”, and
warned against a “structure
that is overly centralised”.
The government is
developing a new type of
operating contract for train
firms, and Bagnall suggested
that some would be willing to
take on more revenue risk in
future if it meant the rewards
were greater. But he added
that “risk and reward... have
got to be commensurate” orsubmission last week to the
government’s consultation on
the “Whole industry strategic
plan for rail”.
The documents, seen by
The Sunday Times, revealed
that the revenue shortfall in
fares caused by the pandemic
will “cumulatively be around
£20 billion” by 2025; this is
based on actual lost revenue
during lockdowns, and also
on revenue growth that the
railway would have enjoyed
had there been no Covid.
The RDG said: “Overall,
the modelling suggests that
total passenger journeys will
be 4.7 per cent higher in 2025
than before the pandemic.
But all other things being
equal, this is 6.6 per cent
lower than the amount of
passenger journeys that may
have been expected in 2025.”
The RDG warned that the
£20 billion fares shortfall
“could be higher if the private
sector is not given the right
levers and incentives to
attract customers to rail”.
Its findings come as rail
companies seek to shape the
future structure of the
industry, which is undergoing
huge reform as it transitions
from the franchising systemSome want
to get
involved,
some just
want a
dividend,
and some
want to cash
in and sell
the whole
thing
thought to have long coveted the chair-
man role despite never having worked
full time in the family business. Younger
brother Hugo, a former High Sheriff of
Kent with a penchant for pantaloons, has
spent almost 30 years in the business
without reaching the highest rungs.I
n 2017, Richard Pennycook, who mas-
terminded a turnaround of the Co-Op,
became Fenwick’s first outside chair-
man. Robbie Feather, formerly a digi-
tal director at Sainsbury’s, was hired
as chief executive.
Pennycook came to take a dim view of
Fenwick’s prospects and began exploring
ways of clawing the family’s money back
out of the business. Fenwick held explor-
atory talks with John Lewis over taking
on some of its stores. Separately, more
detailed talks took place with Thai con-
glomerate Central Group over buying the
entire business in the early part of 2020.
Neither deal came to pass. Central moved
on to buy Selfridges.
The family, who didn’t take to Penny-
cook’s stern and uncompromising style,
are said to have bridled at his suggestion
that Fenwick close some stores. Feather
and Pennycook abruptly left the business
in April 2020. One source believed the
pair faced an impossible task. “While you
play the family’s game, it’s OK — but as
soon as you put your foot down, it isn’t...
The family would just say ‘no’ and stomp
off,” the source said.
John Edgar, a former finance director
at Selfridges and Harrods, has stepped
into the breach as chief executive.
Despite the uncertainty over whether
footfall will ever return to pre-pandemic
levels, the Fenwick family have not lost
faith in the high street. Over the next few
years, the company plans to put £40 mil-
lion into a refurbishment of its Newcastle
store. Edgar has even had talks with land-
lords about opening new stores in loca-
tions where rivals have closed. He insists
any openings will be selective but the par-
lous state of the department store market
has left others sceptical.
“The role of a department store was to
curate and edit brands. Some people still
want to shop that way but others don’t
because you can do it yourself with a few
clicks online,” said former Selfridges boss
Peter Williams.
It’s unclear whether the mooted
sale of the Bond Street store,
which is being marketed as a
redevelopment opportu-
nity, would result in Fen-
wick leaving entirely.
Edgar expects Fen-
wick’s fledgling online
business to make up at
least a fifth of sales
within three to five
years — up from just
under 10 per cent
today.
The new boss is sell-
ing edgier brands to
suit younger custom-
ers than the 30 to
55-year-olds on whom
Fenwick has relied.
Athleisure brand Juicy
Couture has “flown off
the rails”, Edgar said.
The new boss added
that this year’s underly-
ing losses will be less
severe than the pre-pan-
demic £19 million loss in
2019.
Past evidence suggests
that Edgar’s biggest chal-
lenge will be navigating the
Fenwick familial strife, but he
insists that he won’t be wading
in. “I don’t get involved... the
shareholders have been very
supportive — I couldn’t have
asked for more. They are very pro-
tective too. After all, it’s their name
above the door.”nt
,
e
ash
l
e
years, the company
lion into a refurbish
store. Edgar has eve
lords about openin
tions where rivals h
anyopenings will be
lous state of the dep
has left others scept
“The role of a dep
curate and edit bran
want to shop that w
because you can do
clicks online,” said f
Peter Williams.
It’s unclear
sale of the
which i
redeve
nity,
wick
E
wic
bu
le
w
ye
un
todin
su
e
5
F
At
Co
the
Th
that
ing
seve
demi
2019.
Past
that Ed
lenge wi
Fenwick
insists tha
in. “I don
shareho
supportiv
asked for mor
tective too. Af
above the doorILLUSTRATION: JAMES COWENWhile you play the
family’s game, it’s
OK — put your foot
down, and it isn’t
lBailed out NatWest will provide the clearest
illustration of the reversal in fortunes in the sector,
swinging from a £351 million loss a year ago to a
profit of £4 billion. But Alison Rose has also
promised to cut costs at the bank by 4 per cent a
year. This could prove a tough task given the
impact of soaraway inflation on the costs of doing
business and hiring staff. In her favour, though, are
expectations that she has most to benefit from the
rise in Bank of England interest rates. Lloyds is the
most UK-focused of the big banks, so is keenly
linked to events at Threadneedle Street. It also has
surplus capital on which it will be paid a higher rate
of interest. Berenberg analysts now expect
£2 billion of share buybacks annually — up from
£1.6 billion last year. This has implications for the
taxpayer’s stake in the bank which has fallen from
79 per cent to 52 per cent over recent years as the
Treasury sold its shares. Alastair Ryan, analyst at
Bank of America, said the state’s stake would fall
below 50 per cent this year. “NatWest is
privatising itself,” he said.Banks brace for blowback after
jumbo profits hit £34 billion
UK bankers will
join their Wall
Street peers with
hefty bonuses,
writes Jill Treanor
lWhen Jes Staley quit Barclays to fight an inquiry
into whether he misled the bank over his links with
Jeffrey Epstein, CS Venkatakrishnan — known as
Venkat — stepped up. He intends to stick to his
predecessor’s strategy of retaining an investment
bank straddling Britain and America, and a big high
street operation in Britain. But he inherits the plan
at a time when the big American banks are
boosting bonuses and spending on technology.
His rival and former boss at JP Morgan, Jamie
Dimon, has said he is putting $12 billion (£9 billion)
this year into boosting its tech, while Venkat could
also face a backlash over bonuses. The consensus
in the City is for the bank to report £8.1 billion of
profits — its highest in recent memory, though
there have been changes to accounting rules —
which could imply bonus payments of £2 billion.
Alastair Ryan at Bank of America said Barclays
would want to invest in new areas but also in the
traditional fields of mortgages and credit cards.
“Do shareholders love it when a low-value bank
wants to put capital to work instead of returning
it? There is tension there,” said Ryan.6 The presentation of Lloyds’ financial results are
likely to be the sideshow — even though the City is
expecting record profits of £7.2 billion. The real
focus will be on Charlie Nunn, the new chief
executive, and his strategic review — the big plan
for the bank’s future under his reign. Investors want
to know what are the growth opportunities for a
bank which, since exiting its international markets
after being bailed out by the taxpayer in the global
financial crisis, is entirely focused on the UK. It is
Britain’s biggest lending and savings bank as a
result of its ownership of Halifax and has started to
look for opportunities in other areas. As part of its
expansion into wealth management, it has bought
the IFA platform Embark, adding to its tie-ups with
Schroders and Cazenove Capital. It has even
mulled a move into owning buy-to-rent homes.
Other potential avenues for growth could include
insurance. Bank of America analysts described its
focus on the UK as anachronistic when it could
work with corporate clients in continential
Europe and the US. Analysts at Barclays expect
“evolution rather than revolution” from Nunn. He
will disappoint the market if he does not unveil a
share buyback, perhaps of between £1 billion and
£1.3 billion.lNot only does he run Britain’s biggest bank, but
also one of the biggest in the world. Even with a
retrenchment process undertaken by previous
management teams, Noel Quinn, oversees HSBC’s
operations in 64 countries. Only 20 per cent of its
profits are generated in the UK and Europe with
Asia generating more than half. Its long-standing
connections in Hong Kong, and the political
changes last year, mean that Quinn constantly
faces questions about China’s new security law. As
Covid restrictions ease elsewhere, HSBC’s fortunes
should improve because of its global role in
facilitating trade and the benefit it should reap
from rising interest rates — not just in Britain, but
also America. Last year, Quinn had to scale back
his targets for return on tangible equity — a key
performance indicator for shareholders because
of the low interest rate environment. The profits
should get a boost this year to $19.2 billion, says
Gary Greenwood, analyst at Shore Capital, up
from $8.8 billion a year ago. Greenwood said that
while investors had been concerned about Hong
Kong last year, the prospect of rate rises was a
source of optimism for shareholders.ALISON ROSE
BANK NATWEST
PAY £2.6M (2020)C.S. VENKATAKRISHNAN
NOEL QUINN
BANK HSBC
PAY £4.1MBANK BARCLAYS
PAY £2.7M (BEFORE BONUSES)SHARES THIS YEARU4%
SHARES THIS YEARU7%
SHARES THIS YEARU20%
sh
£1CHARLIE NUNN
BANK LLOYDS^
PAY £2.1M (BEFORE BONUSES)SHARES THIS YEARU7%
What a difference a year
makes. Twelve months ago,
the high street lenders were
grappling with an order from
the Bank of England to get
ready for negative interest
rates. Their businesses were
laden with multibillion-
pound provisions for loans
expected not to be repaid as
Covid ravaged the economy.
However, as the “big four”
of Lloyds Banking Group,
NatWest, Barclays and HSBC
prepare to publish their
results for 2021 in the coming
days, they face the opposite
scenario: rates are rising and
worries about bad debts — at
least for now — have abated.
City analysts are expecting
the big four to report total
profits of £34 billion. In the
case of Lloyds and Barclays, it
will be their highest earnings
for decades. Bumper bonuses
are back - and likely to cause
controversy at a time when
many in the country are
feeling the pinch from
inflation.
Banks’ bosses and
shareholders can now look
forward to bigger profits
ahead, too, as higher rates
allow them to make more on
the difference between what
they pay savers for their
deposits, and what they
charge on loans.
After being blocked from
paying dividends by the Bank
of England in the early stages
of the pandemic, they will
start pushing out payments to
investors.
However, banks also face a
new battle with inflation that
could impede their ability to
cut costs, as everything from
wages to the price of paper
starts to rise.
“Consensus has moved up
on the cost line, but the focus
will be on the outlook
commentary as well as the
updated interest rate
sensitivities,” said John
Cronin, analyst at the
stockbroker Goodbody.
At NatWest, Alison Rose
will face questions about
meeting her cost-cutting
goals. She was the only bank
boss permanently in post
before the pandemic began.
Noel Quinn had been the
stand-in boss at HSBC and
was confirmed in the position
just as Covid-19 struck. How
will he steer the Asia-focused
HSBC through the zero-Covid
approach being followed by
Hong Kong?
At Barclays, C S
Venkatakrishnan was
catapulted into the chief
executive’s seat in November
when Jes Staley resigned to
fight the conclusions of a
regulatory report into what
he told the bank about his
relationship with the late
disgraced financier Jeffrey
Epstein. Will he keep the
strategy of his predecessor?
But for Charlie Nunn at
Lloyds Banking Group, who
was hired from HSBC to
replace António Horta-
Osório, the key question is to
what extent will he tear up
the plans laid by his
predecessor?GENERAL CLASSIFIED
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