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Stodgy quoted companies planning to dump loss-making subsidiaries in the hands of risk-seeking investors should think twice. The practice is receiving unwelcome publicity following the collapse into administration of Comet, the white goods group that Kesa paid hit-and-miss turnround specialist OpCapita to cart away earlier this year. Vince Cable, a business secretary with a knack for prodding business where it hurts, has announced an Insolvency Service probe.
Sanctions could follow, if any wrongdoing is found. However, the findings of the investigation may not be made public. That is a trade-off for the speed of the inquiry. But it is a pity all the same. The circumstances of Comet’s collapse, with almost 7,000 job losses, merit dispassionate public exposure.
Kesa, which has changed its name to Darty, paid Hailey, the investment vehicle advised by OpCapita, a £50m dowry to acquire Comet for a nominal sum. Had Comet then tottered on for a year or two, the sale would have insulated its reputation from the redundancies and from losses to unsecured creditors.
As it is, Kesa’s actions will be closely scrutinised by investigators. However, public wrath is largely directed at OpCapita, its founder Henry Jackson and Hailey. A report from administrator Deloitte suggests that Hailey may have lost around £85m on Comet, net of interest paid. Deduct the £50m dowry and the loss falls to £35m. Neither OpCapita nor Hailey will comment. This fosters the suspicion – however unfair – that they may have made a profit.
Insolvency Service probes can lead to disqualification proceedings against directors. There is nothing to suggest misconduct on the part of Mr Jackson and his colleagues. But the furore around Comet means their chances of taking control of another subsidiary of a big quoted group have already fallen to zero.
Independent directors were once seen as a fashion accessory for the holier-than-thou, like fancy rosary beads. They are evolving into important guardians of shareholder rights. The latest boost to their status comes from the UK Listings Authority, which believes they should constitute at least half of company boards.
The rules governing admission to the stock market need to be tough enough to keep standards high, but sufficiently flexible to attract plenty of applicants. Damaging boardroom conflicts at some foreign natural resources companies have shown the system had become too lax.
The response was a consultation launched in October that closes on January 2. In the accompanying paper the gatekeeper argues that companies should only be eligible for a lustrous premium listing if their boards boast as many independents as executives and directors appointed by big shareholders. Independent investors could veto the appointment of independent directors they did not favour as representatives.
The moves are sensible, helping to align listing rules with the Corporate Governance Code, an official best practice handbook. But they will hardly appeal to hard-nosed foreign entrepreneurs otherwise keen to list businesses in London.
Most of the damage done to the east coast of the US by superstorm Sandy in October was cleared up weeks ago. But catastrophe insurers are only beginning to pick through the financial debris, reckoning their losses. Prompted in part by Lloyd’s of London, quoted vehicles have started to publish some estimates.
As Espirito Santo analysts point out, Sandy is likely to turn a benign year for catastrophe losses into one that is merely average. The consensus is that the insured cost of the storm will come in at about $20bn, in line with an early forecast from Bronek Masojada of Hiscox, who reckoned around $2bn would be covered by Lloyd’s.
The biggest nasty surprise so far has come from Catlin, which announced a net loss of $200m on Tuesday, pushing the shares down almost 4 per cent. The market was more sanguine about estimated losses of $90m and $25-30m at Beazley and Novae, and expected claims of some $145m at Hiscox.
Do such estimates merely represent a starting point? Nicky Samengo-Turner, an M&A adviser, Lombard reader and former Lloyd’s broker, believes the market lacks modern systems for measuring and managing risk.
A more charitable view is that it takes a while for customers to claim, and for claims to be assessed. Either way, no one should be surprised if some Lloyd’s insurers are forced to recognise steeper losses later on. That was the fate of Amlin in 2011, following an earthquake in New Zealand.
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