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A review of 2012 published on December 21 has a real sense of occasion. The world is set to end on Friday, according to an interpretation of the Mayan calendar that one would dismiss as crackpot if it did not provide the introductory conceit for this article. So, as a celestial crocodile prepares to devour the sun (maybe), strong or resurgent businesses can congratulate themselves on performing well not just during 2012, but at the end of days.
António Horta-Osório can comfort himself that Lloyds has enjoyed a re-rating as he faces the judgment of Mayan creator deity Itzamna. The bank is the best performer in the FTSE 100 this year. That reflects an impressive rally in the depressed banking sector. Worries about the weakness of the eurozone, property and bank balance sheets have moderated.
The upswing, which has lifted Lloyds price to net book value from 0.48 to 0.76 times, also recognises Mr Horta-Osório’s return to work in January after sick leave triggered by acute insomnia. No one should be more relieved than chairman Sir Win Bischoff, who had staked his own job on his chief executive’s recovery.
Insurers, businesses almost as out of favour a year ago as banks, bounced back too. Rising markets lifted the value of their securities portfolios. However, the existential challenges of operating in mature, over-competitive markets remain for businesses such as Legal & General, if not for Asia-focused Prudential. The group may mull the sale of US unit Jackson Life in the new year, if there is one.
Natural resources stocks were the deadweight that pegged the FTSE 100 back to a 4.5 per cent rise, as economists cut estimates of Chinese growth. The worst performers had additional woes. Eurasian Natural Resources retained a corporate governance discount. Threats of mine nationalisation in South Africa hung over Anglo American. And an output warning left BG investors as spooked as a Mayan confronted by bird demon Vucub Cacquix.
Shrugging off UK growth downgrades, the domestically oriented FTSE 250 surged 20 per cent, led by Dixons, beneficiary of the collapse of white goods rival Comet. easyJet finished the year a whisker away from FTSE 100 admission, despite – or perhaps because of – critical commentary from dominant shareholder Sir Stelios Haji-Ioannou. And Mike Ashley’s trainers-to-tracksuits chain Sports Direct at last bettered its 2007 float price.
Human sacrifice is customary in UK corporate life, as it was among the Mayans. Andrew Moss of Aviva, David Brennan of AstraZeneca and Sly Bailey of Trinity Mirror were all slung off a step pyramid (metaphorically) to appease angry shareholders.
But there is less grumbling about high pay and poor performance at the end of 2012 than at 2011’s last gasp. Chief executive salaries are rising at a median level of about 2-3 per cent a year, according to Deloitte remuneration consultant Carol Arrowsmith.
The City’s own apocalypse began in 2008 with the collapse of Lehmans and continued in 2012 as banks such as UBS shed thousands more jobs. Secondary market trading was depressed in many asset classes, triggering the ejection of interdealer broker ICAP from the FTSE 100. M&A involving at least one UK-listed participant was worth some £177bn, according to Dealogic, compared with £210bn last year and £530bn in 2007. Initial public offerings worth just £2.75bn were transacted, a poor out-turn after 2011, when the flotation of Swiss trader Glencore supported a total of £11.2bn.
The going was tough for private equity firms and hedge funds, investors more dependent on strong markets for their returns than their marketing brochures had let on. Funds of hedge funds found themselves firmly out of favour. Listed hedge fund group Man Group failed to adjust to stop-go markets for a second year, prompting chief executive Peter Clarke to announce his departure.
More positively, Chinese entities continued dipping their toes into the choppy waters of the Square Mile after China Re forged a partnership with quoted Lloyd’s of London insurer Catlin at the end of 2011. Hong Kong Exchanges and Clearing bought the historic London Metals Exchange for a toppy £1.4bn. And China Construction Bank last month became the first Chinese bank to issue a renminbi-denominated bond in London.
Two things would help the renminbi trade flourish in the UK. First, a less prohibitive view of branch openings by Chinese banks from the Financial Services Authority. Second, for the world to continue turning after midnight tonight. The Mayan calendar does not extend beyond then. But Lombard’s new pocket diary (so much easier to carry on the tube than carved stone tablets) runs up until January 2014. On that basis, we wish readers a merry Christmas and a new year that is both prosperous and undisturbed by celestial crocodiles.
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