Of all the places that beleaguered Andrew Bailey can have expected to receive a poke with a sharp stick, the church in New Romney, Kent, cannot have been high on his list. However, the source of the wound, Mervyn King, would have been less of a surprise. Lord King is hardly the only one unhappy with the direction the Bank of England has been travelling recently, but as a renowned former governor, he is by far the most authoritative.
It is too soon to blame Governor Bailey, even if his Monetary Policy Committee has not started well, but it is notable that after Mark Carney, his predecessor as governor, decided to get stuck into opposing Brexit, tangling up in climate change, and rending garments over slavery allegations, the MPC has lost sight, and control, of its primary function.
Its experts have finally noticed that inflation is headed for double figures, and few economists now expect it to come rattling down again. The MPC’s remit, of course, is to keep it as close as practicable to 2 per cent, so last week it decided to add 1/4 per cent to Bank Rate, up to 1 per cent. There is, according to Bailey, a tightrope to walk between inflation and recession. Presumably he did not mean we would get both, as seems increasingly likely.
Yet his job is not to walk the tightrope, but to try and wrestle inflation back to the 2 per cent target. Should the government of the day change the rules to oblige him to take account of slavery, employment, LBGT rights, global warming or the state of the railways, it is in government’s power to do so. Unless and until that happens, the mandate is reassuringly simple, and relatively easy to measure. Bailey may not see himself cast as Paul Volcker, the chairman of the Federal Reserve who became the most hated man in America as he raised interest rate to kill off inflation last time, but if he stays in the job, that may well be the role that has been cast for him.
Any central bank is essentially a confidence trick, rather like paper money itself. But as Paul Tucker, who saw disasters and triumphs at the Bank from the inside, tells us in our Podcast this week, this can be sustained indefinitely provided the market has confidence that the Bank is financially sound, is seen to be honest and is open about its decision-making. Bailey has much to learn.
Wipe-clean Formica
Managing funds is a great business for the fund managers. For the investors, not so much. The latest dose of acrimony in this febrile business concerns Jupiter, a comparative minnow in the multi-billion world of money management, and one of its outside shareholders. He has much to be acrimonious about.
Jon Little was once a director, but left in 2016. Three years later, the Jupiter board found a new CEO, in the shape of the perma-stubbled Andrew Formica. Little says now that the appointment was a mistake, as to some of us it seemed at the time. Formica’s previous job had been as the rear of the pantomime horse that was Janus Henderson. The joint CEO was not a success (it never is) despite an award-winning explanation of why his salary should be bumped up to $7.6m: “Andrew’s change in remuneration reflects a combination of transitioning him to the new methodology and benchmark compensation level for the chief executive of a comparable global asset manager, as well as the positive financial results of Janus Henderson relative to the combined firms in 2016.”
The following year he lost the power struggle, taking $12m to go, while the shares had halved. He had justified the merger by saying that Henderson was “sub-scale” with $127bn under management. Despite this less-than-sparkling background, he got the job at Jupiter (very sub-scale, with just £42bn on board) in January 2019. Nearly £5bn under management fled during the next year.
Unabashed, he bought another small fund manager, Merian, for £419m in February 2020. Within six months the value of Formica’s purchase had halved, as has the Jupiter share price since he arrived. It’s now at its worst for more than a decade. Little lacks the clout to force a change at the top, unless he can galvanise other shareholders. Either way, Formica will again be reflecting that fund management is a great business, except for the shareholders.
Stating the bleedin’ obvious
Who’d have thought it? Those virtue-signalling disposals of oily assets by top companies really are ending up in the hands of couldn’t-care-less operators, but out of sight of the public markets. That is the conclusion of a study from the Environmental Defense Fund, a green lobby group that is not known for its love of oil companies.
As the EDF concludes: “If assets move from industry leaders to industry laggards, emissions can increase and transparency can decrease, regardless of why M&A transactions take place.” This is a fine summary of how green pressure on oil companies is producing exactly the opposite effect to that intended.
Why should we be surprised? The buyers frequently have more debt, less experience and no scope for correcting mistakes. Will it discourage the enviro-protesters? Of course not. Only this week they were attacking Coldplay, a popular singing combo, for their partnership with Finnish oil company Neste. The band were dubbed “useful idiots” by Transport and Environment, yet another green campaign group. In the light of the EDF study, they might ask who are the useful idiots here.
