Loans and Finance

Loans and Finance

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News and information about loans, money, debt, finance and business issues.

Tuesday, September 30, 2014

Wonga Profts Fall 53%

Wonga has posted pre-tax profits of £39.7M for 2013, a fall of 53% from the previous year's profits of £84.5M.

The figures contain £19M of "remediation" costs, relating to systems issues and growing its overseas business. The results are chronologically before Wonga's £2.6M fine for sending thousands of letters to customers in arrears from fictional law companies.

Andy Haste, chairman, is quoted by the Telegraph:
"Wonga has the ability to be great once again.

We need to repair the reputation, regain trust and get an accepted seat at the table of financial services."
This will be an uphill struggle, as the FCA has proposed a.o. capping the fees and rates charged on payday loans at 0.8% a day.

Monday, September 29, 2014

Tesco Whistleblower Ignored For Months

According to the International Business Times, the Tesco whistleblower who alerted senior executives to the £250M shortfall in profits was allegedly ignored for months.

Seemingly the whistleblower alerted senior directors at Tesco in July of concerns but "failed to get traction".

Friday, September 26, 2014

Interest Rates To Rise, But Not Yet

Mark Carney, Governor of The Bank of England, said strong growth and rapid job creation meant the judgement about when to start raising interest rates had become “more balanced”.

He is quoted by the Telegraph:
Relative to the recent past, the economic outlook is much improved.

While there is always uncertainty about the future, you can expect interest rates to begin to increase.” 
Rest assured, as I have noted many times before, there will be no increase in rates until after the general election in May 2015.

Thursday, September 25, 2014

The Tesco Clusterfuck

On Tuesday I asked:
"Given that the auditors warned about this in May, does this mean that the previous year's profits were overstated?"
It seems that I am not the only one who thinks this. The Telegraph reports that the Financial Reporting Council is “monitoring the situation” and could force Tesco to restate past accounts.

To rub salt into the wounds, it seems that Tesco have been "winging it" without a Finance Director since April; as its outgoing finance director Laurie McIlwee had “has not been involved or had any input to any financial matters” since he resigned on April 4.

This appears to be but the tip of a very large iceberg.

Wednesday, September 24, 2014

The Mansion Tax

Labour's mansion tax proposal will, even it it fails the NHS, most definitely create jobs and prosperity (for some):

- property valuation "experts".
- lawyers and "specialists" involved in the inevitable disputes over valuations that will arise when the first mansion tax bills hit the doormats.

It is a tax that will fall at the first hurdle, and the proposal indicates how little Labour understands how the real world works.

Tuesday, September 23, 2014

The Tesco Clusterfuck Live

Tesco Warned By PwC

The Telegraph reports that PwC, Tesco’s auditor, warned in the company’s annual report in May that it was concerned about how income from commercial deals with suppliers was recognised. It listed the issue as its primary area of focus “because of the judgement required in accounting for the commercial income deals and the risk of manipulation of these balances”.

In response, Ken Hanna, chairman of Tesco’s audit committee, wrote:
The committee notes that commercial income was an area of focus for the external auditors based on their assessment of gross risks. It is the committee’s view that while commercial income is a significant income for the group and involves an element of judgement, management operates an appropriate control environment which minimises risks in this area. As a result, the committee does not consider that this is a significant issue for disclosure in its report.”
Given that the auditors warned about this in May, does this mean that the previous year's profits were overstated?

Barclays Fined For Co-mingling

Barclays, the bank that likes to stay in the headlines, is to be fined £38M for breaching City rules requiring clients’ funds to be kept separate from its own assets (ie it was co-mingling).

The size of the fine is but small change for the bank, and does not inflict any pain on it whatsoever!

Monday, September 22, 2014

Tesco Overstates Profit Forecast By £250M

Tesco has stated that it overstated a six month profit forecast by £250M.

It has appointed Deloitte to independently investigate the issue.

Dave Lewis, CEO, is quoted by the BBC:
"We have uncovered a serious issue and responded accordingly."
Tesco said the overstatement was "principally due to the accelerated recognition of commercial income and delayed accrual of costs". It also said some of the error was due to "in-year timing differences".

Unsurprisingly the markets are unimpressed, and shares in Tesco nosedived by 10% this morning.


Tuesday, September 16, 2014

The True Costs of Independence

As the consequences of a "yes" vote finally dawn, Britain’s banks have been laying plans lest there be a run on the banks' ATMs in Scotland on Friday after a "Yes" vote.

As such they have, according to the Independent, been moving millions of banknotes to Scotland.
Sources at major banks said they had been issuing clear instructions to their Scottish branches to reassure customers there was no reason to panic.

Aside from bank runs, and losses of corporate headquarters another cost (that has yet to be openly factored in/discussed) is the rebranding of Britain. The loss of the Union Jack will be more than just the flag flying above public buildings, but also its removal from all products currently sporting the image.

Add into that the duplication of bureaucracy and paperwork caused by a divorce of a 300 year old marriage, and you have some very large costs indeed.

I wonder if people really have woken up to the costs of this divorce?

Monday, September 15, 2014

Phones 4u In Administration

Phones 4u has gone into administration, after EE decided not to renew its contract (which has until September 2015 to run) with Phones 4u.

Vodafone also recently terminated its contract with the firm, as had O2 some months ago.

Phones 4u employs 5,596 staff across 550 stores in the UK. The company has a turnover of £1BN and made a profit of over £100M.

Sadly, even though the business in itself is successful, without network operators it cannot exist.

Why have the network operators pulled the plug?

Money, they are facing reduced profits as result of caps on roaming charges etc; as such they are seeking to eliminate the middle man.

Two days ago John Caudwell, the founder of Phones 4U, saw the writing on the wall, and launched a scathing attack on Vodafone.

Mr Caudwell, who sold Phones 4u for £1.46BN, is quoted by the Telegraph:
I believe they really acted very, very ruthlessly. I get the feeling it came as a shock to the whole organisation of Phones 4u and potentially gave them no time to try and find a solution. 
I feel desperately worried for the future of Phones 4u. It’s in a really, really grim place. 
As far I can see it’s a well operated business that in a fair world has every right to exist. But we don’t live in a fair world, we live in a world where you make what you can for yourself and it’s a bit dog eat dog. I think that’s what’s happening here.

There’s a lot of ruthlessness being applied and if the public actually felt strongly enough they know what they could do, they could vote with their feet and move their business to other networks.

I don’t believe it can be rescued without one of the networks coming back to the table. Unless the government steps in we’ll be witnessing what was a phenomenal business destroyed by very ruthless behaviour. 

It seems a shame that a business I spent 20 years of my life growing looks like it could come to such a sticky end.

I fully respect Vodafone’s right to act whichever way they want to for their own best commercial interests, which is fully in line with free enterprise and trying to maximise their shareholder value. 

But I don’t think I could have ever behaved like that in Vodafone’s place. Business should have a bit of a heart. It isn’t just the bottom line at all costs.” 
Whilst Mr Caudwell may well be right in his sentiments about business having a "bit of a heart", I wonder if he applied those sentiments 100% when he sold Phones 4u?

Friday, September 12, 2014

Will Ye No Come Back Again?



Royal Bank of Scotland, Lloyds Banking Group, TSB, Clydesdale, Tesco Bank and Aegon will all leave Scotland if it votes for independence.

The economic costs of such a move cannot be dismissed by Salmond as merely the "removal of a brass plaque". The fact that Salmond does not want to discuss this issue indicates that he has not factored in the costs, or does not want to admit that he has factored in the costs of independence.

Don't do it Scotland, you will regret it!

Thursday, September 11, 2014

RBS To Leave Independent Scotland

In the event that Scotland votes "Yes", it has emerged that RBS (without any sense of irony) and Lloyds will leave Scotland and decamp to England setting up their HQ's in London.

With a week to go until the vote, markets are reacting to the daily poll results (they rise when "No" leads, and fall when "Yes" is in the ascendancy). As I have noted before traders are doing very nicely out of the politically induced volatility, let us trust that none of them have foresight of the polls before they are published!

Tuesday, September 09, 2014

Diamonds Are Forever - Well Done Petra

The Telegraph reports that Petra Diamonds has said that it has recovered an "exceptional" 232 carat white diamond at its Cullinan mine in South Africa.

Petra said that it expected the diamond (which has no measurable nitrogen impurities) will be sold in the second quarter of its current fiscal year ending June 30 2015. 
 
Well done!

Monday, September 08, 2014

Traders Love Volatility

Unsurprisingly, since the publication of a poll that shows that Scotland is sitting on a knife-edge over independence, the pound has fallen.

The Telegraph reports that Sterling suffered its biggest intra-day loss in over a year, sliding to $1.6150 against the dollar, its lowest point since November. This follows last week’s decline of 0.7% as support for the “Yes” campaign continued to rise.

Kit Juckes, head of foreign exchange research at Societe Generale, said:
If the ‘Yes’ vote wins, I wouldn’t be surprised to see a 3pc to 5pc fall in sterling.
So what?

A fall in the value of Sterling will be good for exports, and good for England (in the event Scotland leaves the Union).

That being said, there are ten days left before the poll; during this time the FX traders will be making some serious money playing around with the value of Sterling, as newspaper headlines become ever more shrill wrt "saving the Union".

Traders love volatility!