Fascinating. So, John Lewis is supposedly 100% owned by its staff. Yet proposes to raise £2 billion by selling a minority stake. And promises that "staff would remain majority control". Gee, that's alright then. Just for a minute there, I thought you were nicking £2 billion from your owners, the staff.
Now, I can see plenty of advantages to this deal for the Banking sector. And plenty for UBS, who seem to have bought a bank not only on the cheap, but lots of financial support on top.
But the owners of Credit Suisse, the shareholders, appear to be the only people who had no say in this deal. On Friday, Credit Suisse was valued at $8 billion. The Regulator has agreed to sell it for just over $3 billion. Causing a $5 billion loss to the shareholders-who have not been allowed to vote on the deal.
The Banks all seem to think this is wonderful, claiming it has secured the banking industry and the Swiss economy.
Hands up who feels comfortable owning shares in Banks, if the Regulator can choose to give your shares away at a massive discount?
I'd be interested in learning some more about the John Lewis ownership. Staff can have their shares diluted everything a new member of staff joins. I suspect there are also terms that allow capital raising if certain criteria is met. Some of those criteria might not require a vote e.g. the company is loss-making or about to go bust.
I'm not that hot on company distress and administrations or banking regulation, but it makes sense not to seek a full shareholder vote if a bank will collapse, as long as an independent body exists to do the deal.
I'd be interested in learning some more about the John Lewis ownership. Staff can have their shares diluted everything a new member of staff joins. I suspect there are also terms that allow capital raising if certain criteria is met. Some of those criteria might not require a vote e.g. the company is loss-making or about to go bust.
I'm not that hot on company distress and administrations or banking regulation, but it makes sense not to seek a full shareholder vote if a bank will collapse, as long as an independent body exists to do the deal.
Taking John Lewis first.
You are right that, in theory, staff's "shares" (it's technically an employee-owned Partnership, not a limited company) would in theory be diluted were there to be an increase in staff. However, the reverse is equally true-and, in reality, employee numbers have dropped considerably.
I am sure you are right in relation to capital raising powers-after all, the "Partners" (employees) appear to share in the Profits but not the losses. But there is a Trust in charge of such things, and its guiding principles appear to be "democracy" and that they are there principally for the benefit of the Partners. Not the Management.
Turning to Credit Suisse. I used to be distinctly hot on (English, not Swiss) company distress, administrations, and banking regulation.
The first point to make is that it is not a "company in distress" or "administration". And that is a very important distinction. So-to give the recent pertinent example-this is a totally different position to Silicon Valley Bank (where what you say is entirely correct).
Credit Suisse was valued on the Stock Market at $8 billion at the time of the "agreement" to sell it for $3 billion. A transaction at a $5 billion undervalue.
There has not been an "independent body" involved in the deal. At all. Let's look at the 3 parties that agreed this deal:-
1. UBS. They want to buy their traditional rival as cheaply as possible. And get maximum protections from the Government and the Regulator that they can. That's business.
2. The Swiss Government. Their primary goal is to protect the Swiss Banking market generally. Maximum protection at as little cost as possible. That can be done a lot cheaper if you agree to sell someone else's assets at a $5 billion discount
3. The Regulator. Regulators are there to protect various people. But they are not independent-their role will be to protect the Government, the Consumer depositors (though that will in turn be protected by a Government-backed scheme), and the wider Swiss Banking system. However, all of those will have higher priorities than the Shareholders of the Bank.
The market has been manipulated by the deal. If you decree that shares have been devalued by 60%, the Stock Market automatically corrects to take account of that. And, in reality, it is more than 60%-because it is not a cash value, but merely a UBS share value, which involves a further drop in value today.
The deal has tried to solve the problems of today. While forgetting the wider problems inherent on people's willingness to invest in banks.
Thanks for the extra insight, Phil. I hadnt clocked that information about Credit Suisse.
I've been involved with buying some small companies owned by staff, along with series A and B investing on either side of the fence. Often the little guy with a small holding doesn't get much say, about dilution, but they tend to benefit from the additional funding or buyout. The company i work for has just been put into a trust like Patagonia, which is incredibly generous of the owner. There are a number of conditions though, which mean outside investment or takeover can still happen if certain criteria are met. That was a **** of a document that required hundreds of hours of legal and accounting fees.
Comments
Frankly, most conspiracy theories are entertaining nonsense. But, occasionally, just occasionally, I do wonder about things.
Sunday is often the preferred day to announce something controversial. 2 bits of business news caught my eye today.
1. John Lewis in the UK
https://www.bbc.co.uk/news/business-65006218
Fascinating. So, John Lewis is supposedly 100% owned by its staff. Yet proposes to raise £2 billion by selling a minority stake. And promises that "staff would remain majority control". Gee, that's alright then. Just for a minute there, I thought you were nicking £2 billion from your owners, the staff.
2. Credit Suisse in Switzerland
https://www.bbc.co.uk/news/business-65007871
Now, I can see plenty of advantages to this deal for the Banking sector. And plenty for UBS, who seem to have bought a bank not only on the cheap, but lots of financial support on top.
But the owners of Credit Suisse, the shareholders, appear to be the only people who had no say in this deal. On Friday, Credit Suisse was valued at $8 billion. The Regulator has agreed to sell it for just over $3 billion. Causing a $5 billion loss to the shareholders-who have not been allowed to vote on the deal.
The Banks all seem to think this is wonderful, claiming it has secured the banking industry and the Swiss economy.
Hands up who feels comfortable owning shares in Banks, if the Regulator can choose to give your shares away at a massive discount?
I'm not that hot on company distress and administrations or banking regulation, but it makes sense not to seek a full shareholder vote if a bank will collapse, as long as an independent body exists to do the deal.
You are right that, in theory, staff's "shares" (it's technically an employee-owned Partnership, not a limited company) would in theory be diluted were there to be an increase in staff. However, the reverse is equally true-and, in reality, employee numbers have dropped considerably.
I am sure you are right in relation to capital raising powers-after all, the "Partners" (employees) appear to share in the Profits but not the losses. But there is a Trust in charge of such things, and its guiding principles appear to be "democracy" and that they are there principally for the benefit of the Partners. Not the Management.
Turning to Credit Suisse. I used to be distinctly hot on (English, not Swiss) company distress, administrations, and banking regulation.
The first point to make is that it is not a "company in distress" or "administration". And that is a very important distinction. So-to give the recent pertinent example-this is a totally different position to Silicon Valley Bank (where what you say is entirely correct).
Credit Suisse was valued on the Stock Market at $8 billion at the time of the "agreement" to sell it for $3 billion. A transaction at a $5 billion undervalue.
There has not been an "independent body" involved in the deal. At all. Let's look at the 3 parties that agreed this deal:-
1. UBS. They want to buy their traditional rival as cheaply as possible. And get maximum protections from the Government and the Regulator that they can. That's business.
2. The Swiss Government. Their primary goal is to protect the Swiss Banking market generally. Maximum protection at as little cost as possible. That can be done a lot cheaper if you agree to sell someone else's assets at a $5 billion discount
3. The Regulator. Regulators are there to protect various people. But they are not independent-their role will be to protect the Government, the Consumer depositors (though that will in turn be protected by a Government-backed scheme), and the wider Swiss Banking system. However, all of those will have higher priorities than the Shareholders of the Bank.
The market has been manipulated by the deal. If you decree that shares have been devalued by 60%, the Stock Market automatically corrects to take account of that. And, in reality, it is more than 60%-because it is not a cash value, but merely a UBS share value, which involves a further drop in value today.
The deal has tried to solve the problems of today. While forgetting the wider problems inherent on people's willingness to invest in banks.
https://www.express.co.uk/news/politics/1748838/sunak-brexit-deal-erg-report-northern-ireland
I've been involved with buying some small companies owned by staff, along with series A and B investing on either side of the fence. Often the little guy with a small holding doesn't get much say, about dilution, but they tend to benefit from the additional funding or buyout. The company i work for has just been put into a trust like Patagonia, which is incredibly generous of the owner. There are a number of conditions though, which mean outside investment or takeover can still happen if certain criteria are met. That was a **** of a document that required hundreds of hours of legal and accounting fees.
All we need now is some sort of distraction away from this story......