THE proposal by Financial Services Authority (FSA) chairman Lord Turner that major banks should have to pay for their own funeral arrangements in advance has much to commend it.
The minds of regulators around the world have been concentrated by th
e financial convulsions resulting from the failure of Lehman Brothers a year ago. Along with the collapse of Bear Stearns – and transatlantic government bailouts ranging from Fannie Mae and Freddie Mac in the United States to Northern Rock, Royal Bank of Scotland and Lloyds/HBOS as was in the UK – Lehman's collapse has made regulators wonder how the disastrous domino effect of banking collapse can be avoided in future.
"Living wills" – as Turner picturesquely describes them – for the banking industry's titans would be one way of ring-fencing and moderating future major collapses so that potential systemic financial catastrophe is not a corollary.
After all, if many individuals already pre-pay for their funerals to ease the financial burden on their remaining family, then how much more important that banking giants prepare for their own orderly winding-down if they get into trouble through overly-risky trading and spare their millions of customers financial pain and insecurity?
To comply with Turner's aim, systemically important banks would have to radically simplify their complex legal structures to allow them to be wound down more easily and with greater clarity and security for their customers. In tandem with this, Turner says the new rules, due to come into force by the end of 2010, would see banks' capital adequacy requirements on certain risky trading activities go up by a multiple of three to five.
This is welcome: ill-thought-through, risky trading got the industry into the doghouse.
One of the key problems, however, is that to dismantle banks' complex legal structures would push up their tax bills by hundreds of millions of dollars.
Those complex structures were there in the first place to often mitigate tax. The banks are therefore likely to fight the proposals tooth and nail.
After the cataclysm the industry has put wider society through, they should be faced down. Banks' living wills are an idea whose time has come.
HMVTHANK heavens for business failures – if there weren't any such failures in this recession, it would be difficult for surviving competitors to keep their heads above water.
Without dancing on anyone's grave, there is no doubt that HMV, the eponymous music-to-Waterstone's bookstores chain, benefited from the demise of high street rivals Woolworths and Zavvi at the tail-end of last year.
It was pennies from heaven in terms of market share gains for HMV and certainly took the edge off what remain tough markets for its books, games and music.
The group's same-floorspace sales in the UK and Ireland rose 1.7 per cent, which was a particularly useful offset to international sales on the same basis down 12.6 per cent. Like-for-like sales at Waterstone's books were off 3.4 per cent.
There is nothing particularly rocket-science about HMV's response to the difficult trading conditions, the plunderings of the all-mighty supermarkets and the rise of digital competition.
Chief executive Simon Fox is broadening the product range while cutting costs, and ploughing HMV itself more into the digital arena.
Yesterday the group announced it was buying a 50 per cent holding in digital media firm 7digital (very dotcom-sounding, sorry chaps) as an earnest of this desire to expand HMV's digital footprint.
Next, expect Fox to try to repeat the trick abroad with HMV's foreign operations. More products and a streamlined base look all but certain in the likes of Canada, Hong Kong and Singapore.
HaysA SHAFT of good news. Hays, the UKs largest recruitment firm, and so something of a bellwether for economic recovery, says the jobs market is stabilising.
That is not the same as recovering, and far from healthy.
But you need to pull out of the dive before clawing your way back up, and Hays's statement yesterday will give hope to some given the company's size and spread across so many job sectors.
Hays, revealing that its profits slumped 43 per cent in the year to June, follows rival Michael Page, which recently said the rate of jobs decline had slowed noticeably.
When the likes of these companies' profits start coming back, we will know we are on the mend economically.
Al Stanton of RBC Capital Markets
ONE TO WATCH
Heritage Oil
514p +11.5p
Scotsman says BUYHERITAGE Oil has participated in a series of exploration successes in Uganda and Iraq that have driven its share price from 205p to 514p. But despite this strong performance, Heritage endures a relatively low profile.
Many institutional investors dismiss the Tony Buckingham-led company because of his previous association with private military companies. But it may no longer be so easy for investors to "ignore" the stock; management is embarking on a deal that would double the size of the company and propel it (renamed HeritaGE) into the FTSE 100, alongside Tullow Oil and Cairn Energy.
The proposed all-paper acquisition of Genel Enerji, a private Turkish company that holds stakes in producing oil fields in the Kurdistan region of Iraq, is value accretive and it should transform Heritage Oil's production and cash flow streams – HeritaGE could be generating more than $800 million of post-tax cashflow in 2012.
The key risk to our HeritaGE valuation is the absence of a payment mechanism for international oil sales from Kurdistan. This impasse is constraining Genel's cash inflows and we expect it to put a brake on capital investment. The absence of a payment mechanism is also unnerving investors in the region; however, we forecast Heritage has sufficient cash in hand to meet its commitments into 2010.
We expect the acquisition to be swept through by shareholders and thereafter the inclusion of HeritaGE in the FTSE 100 would generate index buying in the tightly held stock.
• Al Stanton is an equity analyst at RBC Capital Markets. Investment markets and conditions can change rapidly and as such the views expressed should not be taken as statements of fact nor should reliance be placed on these views when making investment decisions. Past performance is not a guide to the future. RBC Europe acts as market maker for Heritage Oil.
Stagecoach driven up after outlining National Express move
SCOTS STOCKSSTAGECOACH shares leapt yesterday after it outlined plans to buy parts of National Express if its troubled rival is taken over by the consortium involving the Cosmen family and CVC Capital Partners.
Shares in the group had been falling in recent days on rumours that Stagecoach may attempt to buy the whole of National Express, but those fears were eased by yesterday's statement. The sector was also boosted by resilient trading at Newcastle-based Go-Ahead.
Stagecoach shares jumped 11.5 per cent to 145.9p. Elsewhere, FirstGroup, the Aberdeen-based bus and rail operator, closed up 4.8 per cent at 377.6p.
John Menzies shares were upgraded by analysts at Altium Securities, who said they were confident following a meeting with management that existing forecasts were conservative despite challenges facing both its news distribution and aviation businesses.
Altium increased its target price on Menzies by 25p to 375p. Shares in the Edinburgh-headquartered group closed up 0.5p at 353p.
Bowleven slipped 1p to 84p after it announced it will now drill a crucial appraisal well in Cameroon in 2010, later than was expected.
Optos, the Dunfermline headquartered retinal scanning group, jumped 11p to 87p, its highest level in almost a year.
Ten Alps agrees distribution tie-up with BBC
SMALL BUT BEAUTIFULTEN Alps, the Aim-listed TV production company founded by Bob Geldof, yesterday signed a three-year distribution deal with BBC Worldwide, the corporation's commercial arm.
All of Ten Alps' documentary production companies – Brook Lapping, Blakeway, Films of Record and Below the Radar – are included in the deal, which also involves BBC Worldwide giving Ten Alps development funding.
So far this year, Ten Alps' programmes have included Iran And The West and The Madoff Hustle for BBC2 and Murder Mansion and several Dispatches episodes for Channel 4.
BBC Worldwide will work with the production companies to identify international opportunities in their upcoming programmes.
The corporation will have an exclusive first option to distribute available rights in commissioned programmes on a global basis.
Alex Connock, chief executive of Ten Alps, which has a market cap of about £15 million, said: "We made expansion of the international potential of our programming a key goal for this year.
"Working with BBC Worldwide, with its unique footprint, is the relationship we were looking for."
BBC Worldwide has 22 offices around the world.
