Give Moody’s and the other ratings agencies their due: after failing to identify the symptoms of the last credit crisis, as detractors allege, they are making up for it by raising the alarm for the next one with what some would say is undue haste.
Elena Salgado, the Spanish Finance Minister, certainly thinks so. Having downgraded Greece three notches earlier this week, Moody’s took the red pen to Spain yesterday, prompting Ms Salgado to mutter that she had “differences” with the agency.
The timing could scarcely be less embarrassing; the figures were published just hours before the Bank of Spain was due to give its official estimates of how much to restructure Spain’s battered cajas and, coming before today’s meeting of eurozone ministers, also serves to undermine recent efforts by Spain to distance itself from the likes of Greece, Ireland and Portugal in the eyes of investors and its eurozone partners.
Ms Salgado may not agree — Moody’s estimates a Spanish banking rescue could be more than three times more costly than her central bank does — but the agency may have done her a favour. It also points out that, thanks to recent labour market and pensions reforms, Spain’s debt burden is not unsustainable and that in the medium term, unlike its Iberian neighbour, it should avoid the need for a bailout.
It may also have done the rest of the eurozone a favour. In highlighting the matter before today’s meeting, it has raised the imperative for eurozone leaders to come up with a convincing crisis management framework.
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Do not hold your breath, though.
An unsporting response
Rupert Soames, the chief executive of Aggreko, regrets his failure to persuade Fifa to hold the World Cup on a biennial basis instead of every four years. Short of that, it is hard to see quite how else he could have satisfied the market, which churlishly marked down the temporary power provider’s shares by almost 7 per cent yesterday, despite some sparky results. A 25 per cent rise in full year pre-tax profits, translating to a 27 per cent rise in earnings per share, was a record performance and has made possible a £150 million special dividend.
Critics will argue one-offs such as the Winter Olympics, the World Cup and the Asian Games distorted the results, but, even on an underlying basis, revenue growth is accelerating.
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There is no reason for this not to continue. Energy demand is rising at up to 8 per cent annually in the emerging markets Mr Soames is targeting, while new capacity is rising at just 3 per cent. Accordingly, capital expenditure will hit a record £320 million this year. Few companies are growing at this rate and sharing the proceeds with investors quite so generously. And, who knows, perhaps Mr Soames may yet persuade Fifa of the wisdom of his argument.
Can Morrisons finally deliver?
Jet2.com, the budget airline, put on a special service from Leeds Bradford airport to New York last Christmas but, if Dalton Philips has his way, it may need more capacity.
In buying a 10 per cent stake in the New York-based online grocer FreshDirect, the Wm Morrison chief executive hopes to acquire its expertise and gain ground rapidly on his rivals without incurring their scars. The question is whether this, along with the newly acquired Kiddicare — which will spearhead a move into e-commerce in general merchandise — will be enough to establish the Yorkshire-based grocer in a field in which Sainsbury, Asda and Tesco are already strong and in which Tesco is plainly planning further expansion. The same goes for the convenience concept, M Local, being trialled.
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In short, Mr Philips is making some modest bets which, if executed well, will pay off handsomely. Their size also reflects the need to keep investors happy; yesterday’s results also carried a promise of double-digit dividend growth in each of the next three years.
Mr Philips has set himself some tough targets. Achieve them and there may be some jet fuel in the share price.
Déjà vu all over again?
What happens in New York business circles usually happens in London about six to nine months later. So the revival on Wall Street of covenant-lite loans, the form of borrowing under which lenders receive less protection because they impose fewer conditions than usual, is already raising concerns here.
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Moody’s raised the issue yesterday, pointing out that, despite their widespread use in the bubble era, cov-lite loans did not inflict as much pain on lenders as they might have, because of the speed with which credit markets recovered after action by the US Government. It warns lenders may be less lucky in a future downturn.
Defenders of cov-lite argue that such loans blow up less frequently because only the strongest borrowers may access credit on such terms and because they are left in peace to get on with running their affairs rather than fret about meeting lending covenants.
Maybe. The big fear has to be that Wall Street is suffering yet another bout of collective memory loss.
He’s not ‘sage’ for nothing
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Warren Buffett, as is known, drives a hard bargain. He made no exception when, in September 2008, he invested $5 billion in Goldman Sachs in a deal securing him a hefty 10 per cent interest rate.
Goldman, now set to return capital to investors, is keen to buy back his stock, but first needs permission from the Federal Reserve to do so.
If it does, according to Goldman’s latest 10-K filing with the SEC, such a buyback would cost $5.5 billion. The document suggests that Goldman would take a hit of up to $2.80 to its earnings per share during the quarter in which the buyback takes place.
Well, you wouldn’t expect Mr Buffett to give away future income stream for nothing, would you?