Richard Branson to fly away with Northern Rock…

The entrepreneur hungry Richard Branson has returned to bid for Northern Rock again, after failing first time round in 2007.

 

This week saw transport mogul Richard Branson spark rumours of a possible attempt to purchase Northern Rock when Virgin Money applied to the Financial Services Authority for a banking license. Is it just a rumour or is Virgin set to dominate another British industry?

 

Not so lucky first time round -(Reuters- ‘Virgin applies to FSA for banking license)

 

In a report from Reuters UK they reflected on the rumour that is causing controversy in the press this week. Virgin Money, a company that provides credit cards, insurance and mortgages tried to purchase Northern Rock back in 2007. At the time a confident Branson promised to pay off Northern Rock’s ‘£11billion bank loan immediately, and the rest within three years’ (The Economist).  However, Branson’s wishes were blown out of the window when Northern Rock was forced to accept government support when early signs of a recession started to emerge in late 2007. Since, a takeover bid from Virgin Money has never been mentioned…

 

Two years on and Branson has “itchy feet” again- (The Times- ‘Virgin Money signals new move for Northern Rock)

 

With an eventful two years for the global financial economy hopefully coming to an end, it would seem apparent that Richard Branson, and Virgin Money chief executive Jayne-Anne Ghadia, are timing another attempt to buy Northern Rock nicely with the predicted start of economic recovery.  In ‘The Times’ this week reporters referred to Virgin Money as being one of the biggest players in mind for Northern rock. The bank, which is currently controlled by the European Commission, is said to be selling off “the good bits” of Northern Rock to other banks including Lloyds TSB and Royal Bank of Scotland.

 

The article goes on to tell of the issues that Virgin Money faced previously in 2007, which included the fact that the Treasury for northern rock feared that, at the time, Virgin lacked the required experience to take on the fifth biggest mortgage provider in Britain.  Since then Virgin Money have “upped their game” by employing Sir Brian Pitman who previously run Lloyds TSB.

 

Has Virgin Money got what it takes? – (The Telegraph- ‘Sir Richard Branson to launch ‘Virgin Bank’)

 

Banking editor Phillip Aldrick comments that Britain could fear , ‘ an aggressive’, competitor if Virgin Money is granted a full banking license from the FSA. Although the process can take up to six months to be finalized, bankers are already commenting on Virgin’s plans to launch an online bank allowing customers to make online mortgage applications. Jayne-Anne Gadhia has always openly declared that Virgin Money would be interested in any banking opportunities that come up for sale. This is what is fueling the belief that they are applying for the banking license for a potential Northern rock takeover.  It would seem that the UK “banking world” feel threatened by Branson’s potential power and might possibly hoped that their banking license application is refused.

 

In spite of this, Virgin Money continues to express a healthy position with over 200 employees and an increase to £24million in profit in the year to December 31^st 2008. Although only minimal, could one argue that Branson’s entrepreneurial success will be the driving brain of this new venture?  Or should Virgin stick to planes and trains?

 

If the rumour is true…does the idea of ‘Virgin Bank’ sound plausible?

 

In conclusion to the debates that have been going on in the press this week, I would say that on the basis of Richard Branson’s existing success, Virgin Bank is extremely plausible. However, based on the current status of the financial crisis I am inclined to think that right now Virgin might be trying to “fill some very big shoes” as after all, it is the transport industry that they thrive at, not banking. On the other hand, a small part of me believes that Branson is doing what any other wise, cash-ready entrepreneur would do – snap up a good opportunity!

Articles read:

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6418584/Sir-Richard-Branson-to-launch-Virgin-Bank.html

http://www.economist.com/world/britain/displaystory.cfm?story_id=E1_TDNTVDRS

http://uk.reuters.com/article/idUKTRE59M36D20091023TimesOnline

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6888182.ece

This might seem absurd…but yes the weak pound is good for the UK economy!

The weak pound against the Euro stimulates exportation for UK manufacturers fulfilling the hopes of the government in the ongoing attempt of national economic recovery.

When we hear that the pound has weakened again against the Euro, our holiday to Europe seems that little more painfully expensive. A stroll across the Grand Canal in Venice or a swim in the Mediterranean remains just a dream when we consider just how weak the pound is….From an economic point-of-view, the weak pound opens up opportunity for the UK as a country, despite being disappointing for British people hoping to travel abroad .

How did the pound get so weak?

‘The Telegraph’ blames the long-term weakness in sterling on the extensive national debt and extreme measures being taken to rebalance the UK economy. Furthermore, economist Erik Britton, predicts that, ‘…depreciating we have seen so far is a permanent shock’. This is something that could therefore probe problem for the recovery of the UK in the current recession. A reaction to this, one would think, would be fear. Yet, economists still continue to argue that the weak pound is just what the UK needs. Using the pound against the Euro as an example, it was at its strongest in January 2007 when it reached 1.53. However, the implications of the recession caused the worth of the pound to drop to an all time low of 1.05 in January 2009.

What does the weak pound mean for the UK?

Industry benefits

Opinions of the majority of economists are that the weak pound sparks a strategic increase in exports from the UK and therefore a potential increase in sales for industries across Britain. For European and American companies who are benefiting from a stronger currency compared to the pound, they have been able to purchase higher levels of resources from the UK for a considerably lower prices. This advantage for the UK has not be favoured by everyone with the French Economy Minister Christine Lagarde (Reuters, 2009) arguing that it is "unfair" for the UK to take advantage of cheaper exports for foreign traders. Does the UK care?.......No 

In response to such comments, the UK dispute that increased exports has enabled large manufacturers situated in the struggling UK to “keep-their-head-above-water” during the economic crisis. Vicky Redwood from Capital Economics, a consultancy company, commented in a news report that the competitiveness between UK exporters has intensified due to increased demand from foreign buyers, which in the long run can lead to greater efficiency and productivity. Couldn’t this support the UK through recovery?

Tourism benefits

Anyone living in London would have surely recognized an increase in European and American tourists. With the opportunity for them get more value for their money; London has never seemed so cheap. On the other end of the spectrum, English people cannot afford to go abroad as the Euro and Dollar have become so expensive to purchase. Henk Potts of Barclays Wealth concludes that this has lead to increased sales in holiday destinations in the domestic market. Furthermore, low-cost UK based resorts such as Pontins and Butlins are performing better as British people are choosing to holiday at home.

Ironically, is the weak pound working out for the UK?

As a textbook would say, a country experiences a weak currency, so their exports begin to increase and in return the country’s economy starts to recover. Right? A recent article published by ‘The Telegraph’ suggests that the textbook theory is not quite working out for the UK. Although exports were growing in early 2009, a recent report published by the Office of National Statistics in September showed that exports are not as prosperous as hoped by the government. Reason being, according to Edmund Conway, is that countries (EG: Germany, France and America) who would normally “snap-up” the opportunity of cheap exports from the UK, have been so deep in the recession that they have not been financially able to do so. The government’s hopes of greater exports have been shattered.

My final opinion would be that a desperate UK has been holding onto any glimpse of positive activity for the economy during the recession. Although economists have been responding to the news of the weak pound with the “text book” theory of exchange rates, it would seem that the UK were unconscious to the global recession and instead focused on the national recession forgetting that as foreign traders would not be in a financial position to import from the UK. Finally, the problems with strength of the pound, may give them a drive towards converting to the Euro in many years to come, once the worth of the pound has strengthened.

Sources:

http://www.telegraph.co.uk/finance/financetopics/recession/6163566/Weak-pound-might-not-be-enough-to-rescue-UK-economy.html

http://www.reuters.com/article/usDollarRpt/idUSLM16726720090122

http://uk.biz.yahoo.com/02032009/389/six-reasons-weak-pound-good-economy.html

http://www.telegraph.co.uk/finance/currency/6234980/Weak-pound-is-permanent--economists-warn.html

UK’s pride and joy Marks & Spencer feeling the pinch…

M&S knocked from the top spot retailer in the market to third position giving Sir Stuart Rose the last 18 months of his role to "up their game".

This week saw the release of private market research carried out by TNS Worldpanel, declaring that Asda has taken over Marks & Spencer in the UK and is now the biggest fashion retailer holding the largest market share. M&S sit third place with 9.8% ownership of the market, Primark second with 9.9% and Wal-mart giant Asda claiming the largest share with 10.1%. Although only minimal differences, the psychological consequences are huge for one of the UK’s original stores- M&S. They will certainly be feeling the “pinch” after dominating the clothing retail market for so long and now watching their discount rivals soar above them. Things just aren’t looking so “rosy” for Sir Stuart Rose…..

 

Asda-Gem in the crown (BBC News)

In a methodical report from ‘BBC News’ they managed to sneak in some opinion stating that Sir Stuart Rose of M&S, will be feeling the pressure as Asda emerges as the largest clothes retailer in Britain. His intentions were to “go out on a high” when he steps down from M&S next year. However in my opinion, if performance doesn’t creep up in the near future he may be sighing with relief when he steps down.

 

Managing Director of Asda Anthony Thompson spoke to ‘BBC News’ referring to the current situation as early sign of success commenting, “Our objective was to be number one by volume by 2011, so we’re 18 months early”.  Mr Thompson goes onto discuss the causes of this early success being that of the recession, whereby consumers have become money conscious, looking for clothes that are “quality, style and value coming together”. This is what he believes Asda has and M&S doesn’t resulting in Asda taking over the top spot of UK retailers. Mr Thompson is confident that they will hold this market position because they offer quality clothing, unlike their second place rival Primark. He believes that consumers have learnt through the recession to buy one-off, long lasting pieces rather than “throwaway fashion”. What has M&S got to say about Asda’s confidence?

 

The struggle of M&S (The Times)

Sir Stuart Rose has strived to display a significant difference between the likes of Primark and Asda with M&S. A spokeswoman for M&S commented to ‘The Times’ that the news isn’t a real threat for M&S. This is because they have the prosperous thought of growth in market share over this winter, when their clothing sales generally increase due to their highly regarded knitwear. But maybe a few knitted jumpers isn’t enough to get M&S back on top…

 

Reason being that there are other underlying issues for M&S at the moment. In the same article ‘The Times’ reflects back on a report they made earlier this year when they had an attack on rival Primark when Sir Stuart Rose commented “You cannot sell a T-Shirt in the UK for £2 and pay the designer and pay for the raw material, manufacturer, designer, rents, rates and pay fair living wage to the person who made it. I won’t sell a T-Shirt for £2”. With M&S determined to express their values for corporate social responsibility, it suggests that they are sub-consciously aware that their performance has fallen and so they need to protect the brand for the long term.  Should M&S be worried about growing competition from the likes of Asda and Primark?

 

Although not a solid source, a public blog under the ‘The Times’ article includes a comment made by one blogger sharing their view that “M&S is yesterdays news…like it or not, Primark offers unmatchable pricing.” With the public catching onto the cracks in M&S’s strategy, this may be just be the core of their recent decrease in market share.

 

M&S staying strong (Guardian and Reuters)

In fairness to M&S they have suffered attacks from both Asda and Primark (first and second position market share holders). Sir Stuart Rose has defended his role and showed a competitive long-term strategy for the future, something M&S has always been good at. ‘The Guardian’ discusses how Stuart Rose fought off a £9bn takeover bid from retail giant Philip Green, recognized for his achievements through shops such as ‘Topshop’. In times of a recession and during Rose’s last year at M&S one may think he should ‘snap-up’ the opportunity of a takeover and walk away confident that M&S will be OK.  However, I would conclude that Rose is doing the right thing by promising to improve the clothing strategy of M&S before stepping down in 18 months time. Furthermore, the results of M&S retail performance could be the consequences of the recession and with economists predicting recovering starting by 2010, I think there is still hope for M&S to possibly return to the top. Yet, one could argue that this principle is the same for Asda and Primark too...

Articles read:

http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article6867118.ece

http://news.bbc.co.uk/1/hi/business/companies/8299290.stm

http://www.reuters.com/article/rbssRetailDepartmentStores/idUSNWLA470920091001

http://www.guardian.co.uk/business/2004/aug/23/shopping.supermarkets

 

 

 

House Price Recovery: To buy or not to buy…

With Nationwide boasting that UK house prices are back to 2008 level, you would expect everyone to be confidently selling their homes. Last month the average price of a home rose by 0.9% to £161,816 which was almost an identical match of figures in September 2008 before the financial crash. The collapse of Lehman Brothers saw a huge blow to house price, bursting the housing boom.  However today, expects are challenging whether the recent released figures by Nationwide are something to get excited about or not. Is the economy showing light of recovery? Or is this a simply a momentary ray of light soon to be crushed by predicted growth in unemployment?

 

Window of opportunity

 

Considering that house prices have risen for five consecutive months, there is said to belief that the housing market in on the mend.  During the last months homeowners have built greater confidence and have accelerated in repaying back their mortgages faster and even putting down larger initial deposits when taking out new mortgages. Consumer confidence is something that was largely hit by the economic crisis and so to see people making brave decisions once again is something economists did not expect for some time.  James Hayman of Cluttons estate agency in London, has commented to ‘The Times’ that “Sellers should make hay while the sun shines, as an increase in the supply for sale easily could tip the market out of favour”. His urge for sellers to exceed straight ahead with selling their home without wasting time, suggests that there is a lot of more sustainable confidence amongst potential sellers. Therefore, this is what is feeding the current rise in house prices.

 

Furthermore with the problem of “accidental landlords” whereby many people decided to delay selling and rent out their property instead during the recession, there has reputedly been a is loss supply for sales. This in turn is why James Hayman of Cluttons, feels it is a perfect opportunity for potential sellers to advantage from the low supply and sell their homes now while prices are rising. Additionally there is a “window of opportunity” for anybody wishing to sell.

 

In May this year, Nationwide reported the average house price was at £154,016, which was then a drastic improvement since the financial crash. However, with the current average house price is sitting at £161,816 indicates that there has been consistency in growth over the last two quarters. Despite this, economists and estate agents are warning people to almost take this news “with a pinch of salt” and still remain cautious in selling/buying property.

 

Keep your guard up

 

BBC News reports that Martin Gahbauer, the chief economist of Nationwide, believes that the future of the housing market may not remain as prosperous as of current. Underlying contributors include a prediction of even higher unemployment. With this is mind, banks will, for obvious reasons, remain inclined to give out very few loans and so fewer mortgages will be purchased. Martin Gahbauer deems it would be extremely surprising if house prices continued to rise in the near future on the basis that unemployment is on the rise. BBC News reports that an increase in purchases, whilst there a prediction of further growth in unemployment, could mean that people will not be able to meet their mortgages repayments which will lead to a downward pressure on the market. Consequently there could be a reverse impact on the healthy growth that has been recently encountered in the housing market.

 

Advising the nation

 

Homes Counties agent Nick Salmon, concludes that, “Sellers can now afford to be optimistic when they price their home, but they should not dare to be greedy if they want their house to sell”. Nick Salmon, like many others are advising people to keep their guard slightly up, whether this is fueled by media exploitation of the financial crash is unknown. However, the general opinion from sources is not to be too hasty too quick and to remain rational, with huge consideration of the predicted rise in unemployment, when deciding whether to buy or sell. Mortgage purchase history is not showing enough strength to advise people to rush to take out new mortgages

 

Despite what has been said by economists and in particular estate agents, would they advise their customer not to sell/buy a property right now?...So where does the truth lie?

 Articles read:

• http://news.bbc.co.uk/1/hi/business/8286028.stm
• http://business.timesonline.co.uk/tol/business/economics/article6859434.ece
  
• http://www.nationwide.co.uk/hpi/default.asp