Here’s a top bit of advice: keep your head down if you’re a Hounslow day trader. Always the default suspect with any flash crash caper, especially if the Americans have done their money. Next thing you know, you’re being carted off in your trackie bottoms.
So don’t say you weren’t warned. Still, bizarrely no one has yet accused the Hounslow brethren of being behind yesterday’s early hours sterling heist, the one that saw the pound plunge 6.1 per cent in two minutes. But give it time. You can only have so many wild theories in one day. Was it a fat-fingered trader? Or a plot to pole-axe the pound when the Brits were asleep, Singaporeans had barely got to work and New York traders were in the bar? Or was it all due to President Hollande’s tough-guy stance over Brexit, the one only his bodyguard usually sees when he’s late with the morning croissants?
In the end, something called Algo mainly got the blame — a machine as it turns out, with JP Morgan having one of the more plausible explanations. Dismissing a fat finger, because the volumes were too high, the bank put it down to “a one-way market where selling was exacerbated by a cascade of stop-loss activity”, all souped up by algorithmic trading. Or, to put it another way, lots of stuff going on at once. And getting to the bottom of what happened is tough: forex is a multi-platform market with ad-hoc regulation. Indeed, no one can even agree how low the pound got: Icap said $1.1938, Bloomberg $1.1841 and Thomson Reuters $1.1491.
More pertinent is what it all says about Brexit Britain. David Bloom, HSBC currency analyst, had a neat phrase. The pound, he said, was “the de facto official opposition to the government’s policies”, one that’s given Theresa May a swift verdict on all her “hard Brexit” posturing. Forget the flash crash for a sec: the key issue is that her stance has taken more than 4 per cent off sterling in a week, from a currency already at a 31-year low, and Brexit hasn’t even started yet. Yes, weak sterling helps exporters, but Britain is an import nation, running trade, budget and current account deficits. It’s not just holidaymakers who lose when the pound’s a political football.
A spike in inflation is an obvious risk, not least for Mark Carney, whose trigger-happy rates cut had already weakened sterling, now down 16.5 per cent since the Brexit vote. His ever reliable “forward guidance” is for another cut to 0.1 per cent. But wouldn’t that trash sterling again and import more inflation? And might the guv’nor then be forced to raise rates? Just think of the fun currency traders everywhere, not least in Hounslow, can have goading him over that.
No one could pretend it’s been cheap. SVG Capital has hardly spared the cash in its defence of a 650p-a-share hostile bid from HarbourVest, the not-so-mighty-looking Bostonians. The UK-listed investor in private equity funds even spent £2.5 million on a break-fee after a couple of hours monkeying around with Pomona Capital and Pantheon Ventures, a duo that only wanted to buy half the business, anyway.
And now SVG is running up an eye-popping £33.5 million of costs relating to a four-stage take-out at a mooted 680p by Goldman Sachs and the Canadian Pension Plan Investment Board. That includes juicy fees for its financial advisers JP Morgan Cazenove, Lazard and Numis and an £8 million going away present for chief executive Lynn Fordham (including shares she owns), on top of the £8.45 million she’s pocketed over the past two years.
Yet at least SVG investors should have something to show for the money, unlike HarbourVest. It looks like ending up £7 million down (£11 million fees less the £4 million profit on the shares it bought). The price, you might say, for its arrogance. It pitched up on a Sunday night with a “full and final” £1 billion hostile bid, claiming that it had 51 per cent shareholder support. And from that heady position, it looks to have blown it.
Yes, theoretically, HarbourVest’s bid is still open until next Thursday, at least. But its support is melting away: Legal & General, Aviva and, now, Old Mutual. The upshot is it can now count on only 36 per cent of the shares. It’s hard to see where the rest are coming from.
Poor old Sid. He’s been jocked off the Black Horse, just when it was limbering up for a bit of racecourse action, the sale of the government’s remaining £3.6 billion stake in Lloyds Banking Group. Yes, some chap called Philip Hammond, has taken back the reins, reckoning he can do a better job than Sid by employing the famous “dribble out” riding technique. He’ll use it to get shot of the final 9 per cent stake the government has lurking in the nag’s saddle bag. Taxpayers paid an average 73.6p a share for their once-43 per cent holding. But don’t worry about that because, with the shares at just 52½p, Mr Hammond plans to sell the rest at a galloping great loss. It’s horsemanship like that that got him the job of chancellor.
Flying into trouble
Is TUIfly catching? It’s a question doctors are often asked about the terrible Teutonic plague. So, luckily, it does seem to be confined at present to pilots from the budget airline of Germany’s TUI group.
What usually happens is that they find out that the company plans to form a new airline with Air Berlin and are instantly struck down with a terrible pain in the wallet, forcing them to call in sick en masse, with the cancellation of 108 flights. No one knows if they’ll ever recover. But at least it does make TUIfly very hard to catch.