Archive for February, 2018

British Companies ruined by the City of London.

February 2, 2018

The City of London demands that British companies put the short term interest of shareholders first. A ruinous demand.

Last Thursday the Governor of Thameside prison, operated by Serco, told staff, including me, that Carillion had been borrowing money to pay shareholders. ‘Serco don’t do this. Don’t worry that Serco is going to collapse like Carillion,’ was the message.

Most of us think, righty, that shareholders are only paid when the company makes a profit. The City of London thinks differently. Shareholders should be paid as a priority over anyone else. If there is no profit, you borrow money to pay shareholders. Carillion did it and the City of London was happy.

To pay shareholders Carillion borrowed money from its own workers, as well as from banks etc. For several years Carillion paid less than its obligation to the company pension fund.  The workers lost money on their pensions while the shareholders gained money in dividends and inflated share price: In 2012, outside advisers said Carillion had prioritised growing earnings and supporting the share price ahead of the pension scheme. http://www.bbc.co.uk/news/business-42871054  This led to a shortfall in the pension fund of £990million. http://www.bbc.co.uk/news/business-42853895

In the short term the shareholders benefited. In the long term, of course, they lost out, as the value of their shares has now collapsed. But the City of London is not interested in the long term interests of either companies or shareholders. The City of London concentrates on making sure shareholders can get out at signs of trouble, not on helping companies through difficult circumstances.

Last Friday someone who works for Severn Trent Water said that it is company policy that no work will be undertaken unless the cost can be recouped within 3 years. ‘It’s simply a matter of finances,’ is how this is explained.

Nonsense! It’s simply a matter of short term thinking. If a water main is leaking about £500 worth of water a year, and the repair will cost £2000, Severn Trent say the repair is ‘uneconomic.’ The company choose to lose £500 ever year for years and years, rather than pay for the repair. Of course it makes economic sense, in the long term, to repair the main. But Severn Trent only think in the short term. They ‘cannot afford’ this repair because it would reduce their short term profit and the City of London insists that their short term profit grows rather than reduces.

No UK farmer would expect to recoup the cost of land improvement within 3 years. No UK house-owner would expect to recoup the cost of extra insulation within 3 years. Ordinary people know we have to invest for the longer term. Not the City of London. They have their own twisted thinking, their own rigged rules.

The City of London serves the short term interests of shareholders, against the long term interest of British workers, British companies, the British nation. The City of London are flagrantly not loving their neighbour as they love themselves. It is time we found a different way of investing in British companies.

See http://www.laddermedia.co.uk/about-us/4561595889 for one different way.

Roger Harper

 

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