Dear readers,

This week Lex regretfully noted the passing of baseball Hall of Famer Frank Robinson, the first Afro-American manager in the Major Leagues. As a player, he starred in a number of World Series championships for the Baltimore Orioles in the 1960s and ’70s. This writer watched him at Memorial Stadium, the city’s former sporting venue. Like most outfielders, he had a knack of seeing things coming from a long distance away.

In the same year that Frank Robinson joined the Orioles, 1966, another farsighted man went off to Las Vegas to try his luck. Bill Gross, starting with a small stake, scored big time winning the equivalent today of more than $77,000. That victory probably convinced him to progress in the investment field, later becoming one of the world’s foremost bond traders.

This week Mr Gross announced his retirement from investment house Janus Henderson where he has sat over the past four years. He left Pimco, which he founded, after an acrimonious split. He prospered during a long bull market for bonds and was named by Morningstar as Fixed Income Manager of the Decade for 2000-2009. Lex noted his withdrawal and his diminution from bond king to coupon quitter, but hoped he would not stop writing his insightful and witty market commentaries.

What investors (and Lex) liked about Mr Gross was his ability to call out any silliness he saw in the markets. Lex sees some of this among US listed private equity companies such as Apollo, KKR and Blackstone. The share prices of these groups have not performed as well as their billionaire founders had hoped. Lex objected to a tweak in the financial reporting which could theoretically boost the valuations of these groups. Lex felt that the main beneficiaries were founders such as Leon Black, Henry Kravitz and Stephen Schwarzman.

Ocado is another group dealing with an accounting shift, this time imposed upon it. New international rules — IFRS 15 — will affect how the UK online grocer can book revenues. That is important because Ocado in the past couple of years has secured contracts with supermarkets in the UK and abroad to build its specialist distribution centres. These warehouses hold all the technology to enable supermarkets, such as Kroger in the US, to enable more efficient delivery. Ocado recovers costs via a licensing fee.

New regulations mean that what had been current profits get pushed two or more years into the future, and losses are generated near term. Lex thought that meant that Ocado would become even more of a “jam tomorrow” story for the optimists. Its share price already discounts a lot of future growth in its valuation, and a fire at one of its distribution centres this week will not help matters.

Fans of French banks, Société Générale and BNP Paribas, will also have to remain patient. Never mind the jam, how about some fruit? Profits for both have gone nowhere for several years. The latter reported its earnings this week. Its investment bank unit lost €225m in the last quarter. Lex noted that despite the explanations of one-off charges by BNP Paribas, investors were not convinced. The shares trade at just 0.6 times book value.

One of the few banks trading more cheaply is SocGen. In response to weak fourth-quarter earnings, it plans to cut €500m in costs, after its investment bank too had a rough final period. On a ranking of investment banking revenue, the two French banks occupy the bottom slots. Lex thought the cuts would provide only temporary relief.

Perhaps those poorly performing French bankers might have found some relief via gaming on their mobile phones. Enough folks have switched to gaming on their phones, rather than consoles at home, that it has taken a toll on console makers. Both Nintendo and Sony have had to warn recently about the erosion of that side of their gaming businesses. The question for investors, said Lex, was not whether the games console industry was declining, but how fast.

Despite the dire weather in North America, one harbinger of spring there — baseball’s pre-season — begins in two weeks. Warmer weather (for some of us) lies not so far ahead, then.

In the meantime, enjoy your weekend.

Alan Livsey
Lex Research Editor

Bill Gross: coupon quitter
Active management is no longer easy for a Bond King

US private equity: carry on
Rearranging lines in a ledger cannot undo a fundamental mismatch

Ocado: a treasure deferred
A catch may startle investors trying to value group using traditional measures

BNP Paribas: less miserable
Even as it retrenches, the French bank wants to increase market share

Société Générale: whine list
Fine-dining investment bankers are not its only worry

Nintendo/Sony: Dr Mario, heal thyself
The question is not whether the games console industry is declining, but how fast

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