Skinflint's City Diary
The Ionian Bank is a name you hear of from time to time. It is becoming better known as a result of its North Sea activities putting together and floating the Oil Exploration consortium. One of the City's more exotic institutions (it has a Picasso sculpture in one of its Coleman Street windows and swanky offices), Ionian is not a quoted company and is inevitably better known to cognoscenti than to the business world as a whole.
In spite of the name it is British and has nothing whatever to do with Greece. Its latest coup has been to sell General Electrical and Mechanical Systems (GEMS), a company it nursed for some Years, to Babcock and Wilcox, at a useful Profit to shareholders. Earlier this year it made an attractive deal over Cowlishaw Walker, the power press builders which Ionian's own team of management executives put right in short order, during Which the share price rose fourfold from 3P to 12p.
Ionian is now giving the treatment to a former Glasgow-based engineering firm, Mirrlees Watson, once famous as makers of sugar machinery (more recently a classical asset situation), which has been transformed into a thriving toy company and is now known as Berwick Timpo. About time too. I remember being put into the shares in 1965 and only being bailed out by Ionian's bid. Their shares may be Worth a glance over the next few weeks.
Other Ionian men are sorting out Truscon for which they made a successful takeover bid about a year ago, and Anthony Carrimore, an ailing builder of commercial vehicles.
The two men behind Ionian, Michael Behrens and John Trusted, are, not surprisingly, rolling rich, having helped to Put Pat Mathews of FNFC in business in the early 'sixties. Ionian makes its money by taking an equity stake (it had about 30 Per cent of GEMS) in its recovery situations, which seem to have come to them by orderly negotiation rather than by the long slow haul of gathering a strategic stake in the market followed by :an aggressive underwritten paper bid that 13 more usual now with the impatient conglomerates. At present Ionian are looking out for another medium-sized engineering concern as a candidate for turning around.
Anxious times
The Department of Trade and Industry's rfeturns released this week show as I eared that manufacturing investment e,?(Penditure slumped by 11 per cent in 'no first three-quarters of this year etUnpared with the same period last year ciWhich itself was dismal. This is a time of „eeP anxiety for many firms and inrnpanies in the capital goods industries. t 15 not the time to have a weak and
indecisive Minister for Industrial Development like Christopher Chataway stumbling around and uncomprehendingly changing his mind in public about the incentives for financial support payable under the Industries Act.
If Chataway is for some mysterious reason to be left in this important position he should know by now that for industry to invest it must rely more on retained profits for its funds than on borrowed money and that the relating of investment incentives to profit by way of tax allowances is not the correct medicine' in a slump. Chataway presumably subscribes to the mistaken view, advocated by the City for its own good reasons, that profits should be distributed to the maximum. He believes no doubt that they may be funnelled out (after shareholders and the tax man have been satisfied) through the capital market (of course leaving some Danegeld in the City) and thus in this roundabout way, having paid their tolls, be ready to pay for such equipment as the business needs in the first place. As the sagacious Anthony Harris pointed out ironically the efficiency of the capital market can be taken for granted, since people in the City make large profits.
This is the false credo adopted, and it appears in a pamphlet out this week Incentive to Industry by Christy Davies and David Rhys Davies priced at 25p, and published by the Conservative Political Centre. This appalling tract needs careful examination since it reasserts as truth the myths which have caused Conservatives who know better to move in the reverse of the right direction and to lose their way so completely. If this catastrophic drop in capital spending is to be reversed, generous quickly paid regional grants are needed because of the gravity of the present situation. However, some urgent though long-term action is called for by some thinking member of the Government a good deal less dim and more senior than the Minister for Industrial Development.
Attention needs to be directed at tax policies which encourage retentive investment by high distribution tax instead of relying on the exploded myth of a highdistribution philosophy. At the same time someone somewhere in the Treasury or the Government must have the courage to attempt to reduce interest rates :which obviously benefit the City to the detriment of industry and in particular engineering with its long work cycle, and heavy investment in stocks, expensive plant and buildings.
Australian view
I was both impressed and depressed by the initial reaction to his job of Mr Gough Whitlam, the new Australian Prime Minister. Mr Whitlam, said that he valued the connection between Britain and Australia because we — in Britain — had both an effective parliamentary system and a very good Stock Exchange. He added that our system of industrial management, and particularly, our efficiency at exporting were a joke. I am impressed by Mr Whitlam's confidence; and depressed by his analysis of the national condition. I wonder if we have not been paying too much attention to the Common Market, and too little attention to such parts of the underdeveloped world — like Australia — as are willing to buy our finished products, and sell to us their raw materials. After all, we are going into the Common Market to achieve growth. Growth in Germany from 1958 to 1968 was 6.3 per cent; and between 1968 and 1969, 4.9 per cent. If the most successful member of the Common Market sees her growth rate declining in this way perhaps we ought to attend to markets other than the European!
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