Very comradely of leftwingers at the European parliament to insist on salary increases for top bankers. Had MEPs really wanted to curb “obscene” remuneration, they would have set a numeric ceiling for salary, as well as a maximum bonus of two times that. Instead, a bald 1:2 ratio will prompt many banks to raise fixed pay.
The provision, a cuckoo in the nest of the capital requirements directive, therefore shifts financial risk from the worker (if that term can ever apply to a man in a Hermès’ tie) to the employer. In theory, a bank can boost and shrink bonuses in parallel with returns from a business unit. Fixed salary, even as an acknowledged proxy for the variable kind, will be harder to change swiftly.
But a flexible labour market has never been a priority for MEPs such as Germany’s Udo Bullman, champion of the bonus cap, whose main aim is political signalling. The appearance of sticking it to the man is more important than being proved, years hence, to have stuck it to him effectively.
The characteristic City threat to decamp to Zug or Singapore also sounds simplistic. A bonus cap alone cannot outweigh the profit potential of plugging into the synapse-rich business network that is the City. The damage is at the margin, and is cumulative, as red tape proliferates. A British bank might not decamp to Hong Kong to evade the ratio. But a US bank might move a trading desk from London to New York for that reason.
At a practical level, the bonus cap matters less than fans and haters would claim. But as a token of what EU banking integration may visit on a marginalised UK, it is alarming. The government would need better adverts for European engagement to win a 2017 referendum.
Peace appears to have broken out at Reed Elsevier, the professional and scientific publisher. A 6 per cent increase in full-year adjusted earnings to £1.7bn was nothing showy. But it confirmed that the group can deliver to plan, justifying a re-rating that has seen the shares generate a return of 33 per cent over 12 months.
Diffident chief executive Erik Engstrom thus looks more secure in his job. Previously, investors fretted that his vision for the group – helping customers make decisions – was too vague and that he obsessed over minutiae. One result, through a weird process of displacement, was the removal of blameless finance director Mark Armour. Another was a demand for the group to break itself up.
Mr Engstrom, while not quite leaving the City gasping and begging for more on Thursday, at least came across in presentations as a tech-smart business leader rather than just a bright divisional manager. Mentoring from chairman Anthony Habgood may have helped. The grandee has also hit the right buttons in nudging Reed into disposing of such surplus assets as a screening business, sold for an estimated $300m in January.
So the company will buy back another £300m in shares, having increased the dividend 7 per cent to 23p on earnings per share 42 per cent higher at 46p. Net debts are a touch high at £3.1bn, equivalent to 2.2 times earnings, but have been falling. The shares, trading on a forward earnings multiple of 13.2 times, compared with Wolters Kluwer on 9.63 times, look fully valued barring a more radical overhaul, for example, a sale of the lower-margin legal division.
A lesser man than John Dodds would be discouraged by the problems of Severfield-Rowen, writes Mark Wembridge. The construction steel group has just swung £23m into the red and launched a deep-discounted rescue rights.
But Mr Dodds, brought in to replace Tom Haughey in January, still has his rose-tinted specs firmly perched on his nose. “When we come out the other side of this refinancing, we will have the strongest balance sheet and best reputation in the sector,” he says.
The “issues” Mr Dodds admits to include nine underquoted contracts that have left the balance sheet as pre-stressed as a chunk of architectural concrete. The Cheesegrater building at 122 Leadenhall has alone drilled a £10m hole in the bottom line.
Rattled investors would only put up a net £44.8m through a seven-for-three rights issue at 23p a share. That implies a theoretical ex-rights price of 37p – a discount of 38 per cent – and 67 per cent lower than Wednesday’s closing price of 71.5p.
The outlook for the construction industry is poor. One hopes Mr Dodd’s leap of faith does not transpire to be a skyscraper base jump, made without the benefit of a parachute.