Everything’s for sale

The underpriced valuation of Royal Mail proves that nothing's changed in decades, says Merryn Somerset Webb.

I get asked a lot what would make the public trust the financial industry again. The answer is remarkably simple: all you have to do, I tell the assorted bankers, fund managers and financial advisers who ask, is be trustworthy and be seen to be trustworthy. Bring a little transparency, simplicity and honesty into what you do and all will be well.

I usually say this to enthusiastic nodding all round. But that nodding means nothing. If it did, the front page of the FT wouldn't have carried a story on Wednesday telling us that Rabobank has been fined $1bn for manipulating benchmark interest rates; that Deutsche Bank has put aside €1.2bn to cover various legal penalties; and Lloyds another £750m to cover the compensation it is having to pay out for PPI mis-selling. Its bill so far is £8bn. Real money.

You might say all these sins are in the past. Today's stories are about the reckonings, not the crimes. But that would be to think that all was well today. Not so.

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On the front pages on the same day were stories about the way in which the "broad system of fund-management charges lacks transparency" and more on how old pension schemes somehow manage to have total expense ratios on their funds of 2.5%-plus. It's hard to make your money work for you when it is so very occupied working for somebody else.

Then there is the debacle of the Royal Mail privatisation. Most people seem to be over this, but I just can't let it go. One reason we pay our investment bankers so very well is so that they can make the right decisions about things such as the market value of a share in the Royal Mail; it isn't easy to do.

But you might think they should be able to do it within a 10%-15% margin of error. They didn't. They got it wrong by 60%. I could have done that myself as could any of you.

When the history books look back on this, they may also wonder about how this grotesquely undervalued issue was allocated. The asset management businesses of the big banks were bidders for stock. So were the banks' biggest and most profitable trading partners.

I'm £460 richer than I was a few weeks ago. But the largest single investor in the company, a London-based hedge fund with a 5.8% stake, has made a paper gain of tens of millions. Is that really what we wanted?

All these headlines surely make it clear that nothing has really changed in decades. Forty-something readers will remember the Pet Shop Boys track Shopping, released just after a host of underpriced privatisations and before the UK's last big storm in October 1987:

No questions in the House, no give and take There's a Big Bang in the City We're all on the make Our gain is your loss, that's the price you pay I heard it in the House of Commons everything's for sale.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.