Royal Mail float: paying bankers' deferred fees would be 'mad', MP says

Select committee chairman says paying the extra fees would reward bankers who priced the float too low

The government would be "mad" to pay more than £4m in deferred fees to the banks that advised on Royal Mail's privatisation because they undervalued the company, the chairman of a parliamentary committee said after grilling the bankers on Wednesday.

Adrian Bailey, who chairs the Business, Innovation and Skills (Bis) select committee, said paying the fees, on top of more than £12m already handed over, would reward highly paid bankers who set the float price too low at the expense of the taxpayer.

Bailey gave his judgment after the committee questioned senior staff from Goldman Sachs and UBS, the banks that led the flotation. In more than two hours of questioning, they were accused of failing at their jobs and selling the taxpayer short.

The government sold 60% of Royal Mail at 330p a share last month, valuing the company at £3.3bn. But the shares leapt 38% on their first day of trading and closed on Wednesday at 550p, giving Royal Mail a market value of £5.5bn.

Goldman, UBS and five other banks that marketed the shares have so far been paid £12.7m between them but they could get a further £4.2m if Vince Cable, the secretary of state, thinks they warrant it.

Bailey said: "The government, in view of what has happened subsequently, would be mad to give them [the money].

"It would be seen as rewarding the private sector that lost the taxpayer potentially £1bn and, in these days of austerity, I think it would be a very politically dangerous thing to do. These are professional people, who got it wrong, and they would be rewarded despite the fact they got it wrong."

The banks in the syndicate that marketed Royal Mail to investors shared fees of 0.8% of the money raised, with Goldman and UBS splitting an extra 0.1% for leading the operation. The government's independent adviser, Lazard, has been paid £1.5m with no fees deferred.

Asked whether taxpayers would be willing to accept the banks getting the extra fees, UBS's James Robertson said: "I think that is for the secretary of state to decide. It is in his gift."

MPs questioned James Robertson and Richard Cormack of Goldman Sachs alongside bankers from Citi, JP Morgan and Deutsche Bank, which missed out on advising on the float. Gert Zonneveld of Panmure Gordon, who argued that Royal Mail was undervalued before the shares started trading, also appeared.

Goldman's initial pitch, made without inside information, valued Royal Mail at up to £3.75bn and UBS's top estimate was £4.6bn. The others were more than £1bn higher with JP Morgan's the highest at £8.5bn.

The banks' job was to sound out fund managers on how much they were prepared to pay for the shares and to generate demand in a so-called book-building process. As interest increased, they moved the price to the top of their initial 260p-330p range.

The UBS and Goldman bankers defended the sale price, saying a potential US debt default and the threat of a nationwide postal strike loomed over the flotation.

Robertson admitted the government could have got a further 20p per share if it had gone above the agreed range but he said the risks were too great because it would have caused a delay and pushed long-term investors to their limit. "Momentum can evaporate and go away very quickly … when we were looking at all the risks, on balance we chose to stick to 330p. We discussed it with the Shareholder Executive [which advises on privatisations] and Lazard and they discussed it with the secretary of state."

But committee members accused the banks of failing at their job and of being duped by potential investors, who always want to pay as little as possible.

Brian Binley, a Conservative member of the committee, told the bankers: "Somebody somewhere has failed the taxpayer and cost the taxpayer in this initial instance. I just wonder whether the taxpayer has the right to wonder whether for all the money you were paid you weren't very good at your job."

The committee's attention will now turn to Cable and his minister Michael Fallon, who will appear next Wednesday with representatives from Lazard and the Shareholder Executive. In his last appearance at the committee just before the flotation, Cable dismissed the prospect of a jump in Royal Mail's share price as "froth".

Bailey said the session with the bankers was preparation for asking Cable why he priced the privatisation so low.

"I think there was a recognition [by the committee that the price has been undervalued. Did they rate their political position as being more important than the interests of the taxpayer because if it was overpriced they would have had egg on their faces?"

Article Source : http://www.guardian.co.uk
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New car sales hit five-year high

SMMT figures show rise for 19th consecutive month as car market 'reflects growing economic confidence'

Car sales jumped in September to record the strongest monthly figures in more than five years as the automotive industry underlined its importance to the UK's economic recovery.

According to the Society of Motor Manufacturers and Traders (SMMT) sales rose 12.1% last month to 403,136 vehicles, following 10.9% annual growth in August and 12.7% growth in July.

The car industry has now registered 19 months of improving sales and become widely regarded as one of the main reasons why the UK avoided a triple dip recession this year. The numbers for September – a key sales month when new registration plates are issued – represent the highest monthly total since March 2008.

Along with mobile phone contract sales and a surge in demand for hotels and restaurants, cars have proved to be the main big-ticket item favoured by consumers, who until recently have shunned new furniture and clothes in favour of new vehicles.

Private new car sales were particularly healthy, which Howard Archer, UK economist at IHS Global Insight, said was "fuelled by sharply improved consumer confidence and record high employment".

He said consumers were also taking up special offers and packages, and shifting to more fuel-efficient cars at a time of high petrol prices.

"The rise in consumer confidence to a 70-month high in September and ongoing improvement in business confidence came at a particularly good time for the car industry given that September is a key month for sales," he said.

UK car sales. Source: SMMT

"Furthermore, there are likely to be a significant number of people who have held off for an extended period from replacing their car, due to difficult times, who have now reached the stage where they really need to act and are more prepared to do so due to the brighter outlook."

The mis-selling of payment protection insurance has also been singled out as a boon for car sales, with some of the £11.5bn in compensation paid out to consumers being spent on new vehicles.

Private car sales climbed 17.9% year-on-year to reach 208,844 in September. Overall, private car sales were up 16.7% year-on-year in the first nine months of 2013.

However, several economists have issued warnings that sales may plateau as the capacity of consumers to borrow to buy new cars begins to wane.

The latest figures show that annual earnings growth was limited to 1% in the three months to July while consumer price inflation stood at 2.7% in August.

On the plus side, real household disposable income rose by 1.5% quarter-on-quarter in the second quarter, mainly as a result of the coalition government's hike in the personal tax threshold, but this followed a dip of 1.7% in the first quarter and disposable incomes were down by 0.7% year-on-year.

Most of Britain's car manufacturing is exported and the Nissan Note, which recently began production at the company's UK base in Sunderland is no exception. Honda, Toyota and BMW's Oxford plant making Mini Coopers are all working at capacity and exporting around eight out of 10 cars they produce.German carmaker Daimler said on Friday that it sold a record number of Mercedes-Benz cars in September. The Stuttgart-based firm said it sold 142,994 vehicles in September, up 15.9% on the same month a year before.

It credited new versions of its E-Class and S-Class sedans, as well as increased sales of its smaller models such as the A, B and CLA classes. Compacts increased sales as a group by 68.3% in the first nine months of the year.

September sales rose 6.7% in the US, the brand's biggest single market, and 21.2% in China. Sales at home in Germany rose only 1.5%, however.

Mercedes-Benz also increased sales 14.2% in Europe, much of it in Britain and areas such as Sweden that have recovered more strongly.

Archer said: "The motor industry will be hoping that the recent improvement in UK economic activity is sustained and extended, and that this leads to further strengthening in consumer and business confidence, and their willingness to splash out on new cars."

Article Source : http://www.guardian.co.uk

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