Zak Mir’s sleazewatch – SFO’s, “shareholder value and our friends the bankers!

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3 mins. to read

Although it may be said that the remit of the job of editor at Spreadbet Magazine does not include a daily newspaper review, in the aftermath of the business headlines today, it may be that a regular Sleaze Watch is something which we should introduce to this publication!

I will not take up too much time in this respect given the way that most of the issues here are not necessarily market moving. However, it was truly amazing that Severn Trent  (SVT) managed to spend £19 million on rejecting a £5.3 billion takeover which valued the utility at £22 a share. It has been reported that the company said that “the offer failed to reflect the long-term future potential value” that the water group has.

On this basis, it would appear then that the current £17.44 valuation also does not do the company justice and that the “market” is offering us a perfect buying opportunity… My theory at the time of the offer last month was that in circumstances like this, and with human nature being what it is, the immediate interests of shareholders and management may not be perfectly aligned. This is said on the basis that a job at  utilities company where profit-making is essentially risk-free on an indefinite timeframe may not be something that anyone  in management would give up lightly be it for £22 a share or £220 a share… Therefore ,it seems understandable that there may be a temptation to opt for a stress free executive lifestyle rather than consider a full and fair offer from a third party.

Speaking of executive lifestyles, it would appear that the best job is working for the SFO (Serious Fraud Office). It is noteworthy that former CEO of this much feared watchdog, Phillippa Williamson, managed to run up a bill of nearly £100,000 for travel and hotel costs associated with “working from home” in the Lake District two days a week and travelling to London to “work” there three days a week. Luckily, or unluckily, this arrangement finished in April last year with voluntary redundancy and a near half a million Pounds severance package. I am sure that G4S (GFS) who are about to face the SFO in the wake of the alleged tagging outsourcing scandal will have some justifiable defence in terms of citing examples where the use of public money was made in the most generous fashion!

Of course, for taxpayers cash to be wasted in the first place someone has to pay it in. We have already been treated to revelations regarding how unnecessary it is for multinational corporations to pay tax in the UK, with Starbucks (SBUX) being particularly hard hit in terms of its reputation. Clearly, for bankers, reputational damage is not an issue, in fact it can be a career enhancer! But in the wake of the latest mega fine for Barclays (BARC) over alleged manipulation of the energy markets, we are reminded that arguably the only time that the cheque book is wheeled out to write big sums other than bonuses, is when such institutions are fined by the regulators.

In this instance it is the US Federal Energy Regulatory Commission (FERC) which has hit the UK bank for a whopping $487.9 million. As a matter of interest this works out at well over double what the bank paid in corporation tax in 2011 which was £113m.  Apart from forcing them to pay out, it is difficult to be sure what the benefit of hitting banks with such fines is, given that at the end of the  day it is the little old retail client who ends up footing the bill. And of course, regulators seem far more keen to close the stable door after the horse has bolted via fines, than prevent these events happening – in which case there would be no fine, and no “big trophy win”.

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