In the City
Rough times for clearers
Jock Bruce-Gardyne
One day last summer, not long after Nigel Lawson had returned to Great George Street as the man in charge, I found myself lunching in one of our banking parlours. 'And tell me,' asked my host as the coffee circulated, 'what has our new Chancellor got in store for us? After all, I'm told you wrote a book with him!' I was tempted to answer 'read it' — but then reflected that our publishers had let it pass from print. So instead I referred him to the writings of the former City Editor in the Sunday Telegraph. 'I don't think you will find in them a wholly uncritical admirer of the City and its institutions — even includ- ing the banks.' I see. Storms ahead,' was the laconic rejoinder.
And 'so, indeed, it has proved. With last week's assessment of the damage to Lloyds from Sir Jeremy Morse we have the picture of what the Budget is eventually going to do to bank balance-sheets. Barclays and NatWest have suffered the indignity of downgrading from Standard and Poor's exclusion Triple A credit rating to AA-plus, while Midland (trailing Crocker National) has slipped to AA-minus. Lord Boardman summed it up for NatWest with a splendid clash of metaphors: 'There are not so many "golden eggs" in the British economy that we can afford to "clip the wings" of those that provide many of them.'
In reality the leasing activities of the banks which have now been 'clipped' were boosted by the need to enable those less
than golden layers that had run out of tax liability to have a means of indirect access/to tax allowances. But no matter. The tax bills
will fall first and foremost on the clearers.
And to add insult to injury these selfsame clearers last week found themselves once more squeezed between the money market's expectations of higher interest rates and the authorities' determination to avoid them.
By the time these words appear the odds are that the clearers will have responded to the market pressures and raised their base rates. In so doing they will have scored no brownie points along Whitehall.
They should not let that worry them. About the end in sight for tax-efficient leas- ing their complaints ring hollow. (And in- cidentally the duties of a clearing bank economist are not all beer and skittles. The contribution of Mr Christopher Johnson of Lloyds on Nigel Lawson's Budget in the May issue of his bank's review is a model of its kind. It combines acknowledgment of the good sense of terminating tax incentives to misplaced investment with the charge that it is all a wicked socialist plot. Which is not bad going.) We can argue till the cows come home about the wisdom or folly or allowances to stimulate investment. But the purpose of such allowances is to sway deci- sions in the boardrooms of industry, and the banks are no more than conduits. The rates they charge on borrowed money, on the other hand, are — and since 1981 have been officially acknowledged to be — a reflection of conditions in the market place. The money markets may have been prim- arily concerned in recent weeks with the outlook for US interest rates and for sterl- ing. That doesn't alter the fact that almost every indicator known to man (with the possible exception of that smart new monetary aggregate, Little Mo) — not only broad and narrow money dials, but also housing prices, bank lending and sterling has been suggesting an awful lot of credit slopping around. The authorities may not like it, but by their own criteria a rise in bank base rates was surely overdue. Delay- ing it, as in 1981, could only lead to a bigger jump (or jumps) eventually.
One who does not share the indignation of the bank chairmen (and, to be fair, a good many chairmen of industrial com- panies) at the curtailment of allowances in
The Spectator 12 May 1984 the Budget is Mr Brian Warnes of Midland Bank Venture Capital. Mr Warnes is an evangelist, and he has just published — off his own bat — what he bravely calls a 'definitive guide' to success in business, The Genghis Khan Guide to Business (Osmosis Press). It is, he tells me, selling like hot cakes (and not only in the UK), and he boasts endorsement from Sir Kenneth Cor- held of STC and some other even more exalted captains of industry. More to the Point. perhaps, it has been fiercelY denounced by the accountancy profession (of which Mr Warnes is himself a member). One can quite see why. For Mr Warnes has no time at all for traditional balance' sheet accountancy, which he likens to a steering wheel too often disconnected from the axles. For him the things to watch' month by month and even week by wee % are the break-even point of a business and its cash-flow: 'In the last resort unless the wages can be paid on Friday, every Friday' there will be no more Fridays on continue in business.' which to This set of seemingly simple rules ealelsads ndhinsyistteorras which his own operation applies to the 50 firms (start-ups, buy-outs and recovery situations) in which it holds equity par- ticipations. To be honest the chart of their perfor- mance under this treatment does not /0°k vastly different from what one might exPeet from more conventional disciplines. Some arc roaring away; some have turned the cor- ner after a passage through what Brian Warnes calls 'death valley'; while for sone recovery still looks to be a gleam in Iv': Warnes's eye. In any case experience counsels caution over magic wands. Which , does not mean to say they have naught tvi teach us. On the contrary I am sure th.s ai many businessmen struggling with the Pal' of entrepreneurship would find Mr Wallies well worth the ride — at the very least they would be able to put some searching clne's Dons to their own accountants. Who kn°ws what might have happened if Mr Warnes had checked out the books at Crack National? Maybe Mr Warnes could teach a thin& ortwo to Martins the Newsagents: certainly, their record has not been all that awe, Inspiring in the past few years. Even 0,01 trust the bid for them from W. "' .STAI a does not mean that Smith's have recetvG"... nod and wink from the Office of fa.t" Trading that there will be no reference: the Monopolies Commission'. It is not J 'c of that, as the City has perceived, the lo&I r Smith's ambitions is as hazy as their rice of past acquisitions, while their bid 01 et looks underpitched. Nor is it the Pt.°5P._c„ of another reduction in the distribution tpieoimn tasttfeorr oPfrti hvaer se mEyiteh., sTahnedreMartinsis bined share of the national market _r books and newspapers. If that, at 15 by will be cent, is not a suitable case for treatment " the Monopolies Commission then compete hard a is° ' tliceofrnion; hard to take the new emphasis on choelog.. tion as the overriding criterion for t ment of prospective mergers very sertouslY.
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