ALEX BRUMMER: Poorly executed and wrongly priced...The betrayal of the Royal Mail flotation

With the exception of the most recidivist of trades unions no one could dispute that it was right to free Royal Mail from its sheltered life in state ownership.
What is indisputable is that this was a flotation that has been poorly executed, wrongly priced and has done nothing to encourage wider or longer-term ownership of shares in Britain as recommended by the 2012 Kay Review.
Much of the blame for this farrago is aimed at Vince Cable, who as Secretary of State is ultimately responsible. But much of the early preparations, including meetings with advisers, was done by Tory Michael Fallon who was charged with bringing some private sector skills into the Business department.

 Royal Mail float: The taxpayer has received a terrible deal, says Alex Brummer
The taxpayer has received a terrible deal. Shares floated at £3.30 each have now leapt two pounds to £5.29p. The Government had fair warning of this from some of the investment banks, with JPMorgan valuing the company at up to £9.95billion, Citibank placing a £7.3billion value on the enterprise and Deutsche up to £6.9billion.


Clearly, the Government didn’t want a flop on its hands and allowed the offer to be ‘priced to go’. But the misjudgement was huge.
Several fundamental errors have been made. First, the retail offer was not meant to be a national lottery-style get-rich-quick scheme, but to encourage broader share ownership. This it has failed to do, with punters immediately cashing in.
Second, it should have been aimed at long-term British-based funds. It was not beyond the brainpower of the global bookrunners to have devised a system that gave these holders preference.
Instead, the big winners have turned out to be aggressive hedge funds, including TCI with an eye-catching 5.8 per cent stake.
Finally, ahead of the float Cable, Fallon and others insisted there was no need for a ‘golden share’ that ensured the Royal Mail remained British because it would be hanging on to a minority stake currently 38 per cent. This, it was argued, would act as a bulwark against overseas owners. But for how long given that the Government is committed to running down its stake? 
The consequences of allowing strategic assets, from oil refineries at Grangemouth to nuclear engineer Westinghouse and British Energy to be sold abroad, has been seen in its full glory this week. It leaves government on the outside with little leverage over essential services.
It may be too late to impose a golden share on Royal Mail that could prevent the European parcels service GLS from being carved out of the enterprise by TCI and others.
But Cable should make clear that if that is attempted the matter will be referred immediately to the Office of Fair Trading/Competition Commission for a thorough study of its strategic and economic impact.
Full Mark
In the wake of the great panic it has become fashionable to denigrate bankers, the City and Britain’s dependence on finance. Labour is still waxing on about bonus taxes; Vince Cable has never forgiven banks for misdeeds and the Chancellor wants a march of the makers.
Even the Archbishop of Canterbury, Justin Welby, is not yet convinced that the danger of a taxpayer rescue has been overcome.
It is fascinating that it takes someone from overseas, Bank of England governor Mark Carney, to bang the drum for finance.
In a speech marking the 125th birthday of the FT, Carney notes the exponential expansion of banking in Britain and postulates that by 2050 the worth of the financial system could be nine times total output – even before the enormous assets of the foreign banks and offshoots based here are added up.
Rather than dissing the role of banking Carney insists that the financial sector can be ‘both a  global good and a national asset – if it is resilient’.
To assist, the Old Lady is unfurling a series of new measures to help ensure that if the wholesale markets freeze, as they did in 2007-08, financial firms, even non-banks, from the UK and overseas, can get all the cash they need from the Bank’s discount window without paying the kind of penalty interest rates and fees imposed by the ancien regime.

Good thinking.
Crocodile tears
After the Great Crash and the Great Recession we now have the Great Onion Crisis.
Anglo-Dutch consumer products group Unilever has peeled away the layers of reasons for its poor performance to reveal it is partly down to onions.
In India, one of the main suppliers, prices have jumped 245 per cent over the past year putting a tear in the eyes of fans of Oxo and Bisto cubes, which are among Unilever’s core products.
Whatever happened to all those happy-go-lucky French chaps in striped shirts and berets on heavy cycles that used to patrol suburban streets?
They can’t all be working in the City and living in South Kensington