The Sainsburys stage their own grand opera — it needs a happy ending
The force of destiny works in peculiar ways, Verdi wrote a four-act opera about them, now being sponsored by Lady Sainsbury at Covent Garden, and in its great glass bubble down the road the family business is staging a grand opera of its own, to make Verdi's point for him. The libretto has everything: prophetic warnings, stormy crowd scenes, scheming counsellors, a chieftain with a chest of gold. Now comes a new act and a new chieftain. Swaggering forward, he draws his scimitar and, with a sweeping gesture, cuts the dividend in two. Through the chorus of shareholders runs a low murmur of dismay. More than a third of them — the better-turned-out ones — belong to the Sainsbury family. Long ago, when this opera was just getting going, they handed over control of their birthright to mercenaries, and applied themselves and their wealth to the good causes they had made their own. Opera was only one of them. They were public benefactors, but they relied on the mercenaries to sustain their wealth, they have seen it eroded, and now the income on which all their causes depend has been halved. What are they to do now? Where will operas (except their own) be staged and who will pay for them? Reading between the lines of the programme, I detect a breathing-space. The sale of Shaw's in America (you have to watch those surtitles closely) put money into the shareholders' pockets, and this, with the cash still flowing in, should be enough to keep all the good works going for several years. The family would want to shelter the beneficiaries. Even so, the new chieftain, Justin King, would have to generate a happy ending.
Slash and prosper
As incoming chieftains do, Mr King blames the bad news on his predecessor. Sir Peter Davis had his chest of gold delivered to his home address, but too many of Sainsbury's other deliveries got no further than the stockrooms. Mr King thinks that the goods would sell better if they were put on the shelves. His shops would then have the chance to recover their traditional place in the market, at the top of the range on quality but not on price. That means slashing the margins — the dividend has gone with them — and hoping to make up the differ ence by selling more. The family must hope so, too. They have been reluctant to second-guess their mercenary managers, even if they could agree on what ought to be done, but they must know that time is not on their side. If Mr King cannot make use of their breathing-space, they will have to find the business a new owner. Even the weariest opera must reach its final curtain.
Wrong kind of wealth
What a pity we can't all get rich by selling our houses to each other. That would solve the pension problem overnight. As it is, we have the wrong kind of wealth, and it has been moving briskly in the wrong direction. I am obliged for this insight to Michael Saunders of Citicorp, who measures our personal wealth. We have more of it than ever, he says, and at £5,292 billion, it works out at 188,200 each, which does not sound too bad. The catch is that more than two-fifths is tied up in our houses, while the savings that will have to pay for our pensions account for less than one third. Seven years ago — that is, when an incoming Chancellor was nerving himself for his first scoop from the pension fund pot — the proportions were the other way around. Housing accounted for only 27 per cent of our personal wealth, and assets held for our benefit by pension funds and life assurance offices made up as much as 39 per cent. Pension crisis? What crisis?
Waiting for auntie
In these seven years, house prices have soared but share prices have fallen back to where they started, partly because of the Chancellors scooping. Tom Bower tells us in Gordon Brown (HarperCollins, £20) that the Chancellor wanted to take out £8 billion a year but was made to settle for rather
more than half. We should try to be grateful for that. As things are, we are rich in bricks and mortar, which are not well adapted to looking after us in our old age. We have to live somewhere. We cannot chip off the conservatory and turn it into cash. Even to move from one house to another may consume 10 per cent of its capital value, with help, once again, from this Chancellor's zeal for taxation. The best way to get rich from the long boom in house prices would be to inherit your aunt's house and sell it, but guess who would tax your inheritance? In the end, no thanks to him, we shall bring our finances back into balance, and end up with more of the right kind of wealth than we think we have now.
Hola y adios
Well, hola, Abadia Nacional. Grumpily accepting that this was the only game in town, Abbey's shareholders have voted to merge their company's fortunes with those of Banco Santander, and all that remains to be seen is whether the Spaniards have got themselves un limon. They are buying a mortgage bank at what may be the top of the market in houses. Abbey's achievement had been to lose money when all the other mortgage lenders were coining it. There are something like 80 of them, they have been happily lending and busily competing, but life will be tougher from now on, and there will be casualties. In the end, the lowcost producers will win, and that may be Santander's plan, but to bet on it would involve accepting shares which are denominated in euros, offer dividends in euros and are quoted in Madrid. Prejudiced as I am, I would sell in the market, for sterling.
Bill of exchange
Raymond Postgate used to warn readers of his Good Food Guide against using out-ofdate editions. This, he said, would lead to disappointment and indigestion. Bill Clarke could say the same about his good financial guide, How the City of London Works (Sweet & Maxwell, £14.95) — back in its sixth edition, because the answers keep changing. Its scope now extends from bill-brokers to hedge funds, which are distinguished, so he explains, by their use of derivatives for enhancing risk. 1 might define them as modish labels deployed by the usual suspects to charge even more for their services. Beware of disappointment.
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