Ignore the 180-point fall in the FTSE 100 index. Part of the decline occurred before the lectern had even been placed in Downing Street. Part of the rest can be explained by a stronger pound, which tends to depresses the value of the many big dollar-earners in the index. The real question is why sterling, which hit a six-month high, reacted so strongly to an early general election.
It was because investors calculated – counter-intuitively at first glance – that a bigger Tory majority in the Commons, if that’s what follows, will mean a softer form of Brexit. This argument was best expressed by Deutsche Bank’s analysts, who reckon the election is “a game-changer” for the pound and the Brexit negotiations. A bigger majority would set Theresa May free from the “unrealistic timetable” set by the eurosceptics in her party, they argue.
First, the 2019 deadline for delivering a “clean” Brexit will be less pressing because there won’t now be an election the following year. Second, the influence of hard Brexiters will be diluted and the government will be able to compromise over transitional agreements. Third, May can fall into step with the EU’s desire to settle the divorce bill first and then negotiate the detail of Brexit. “This sequenced approach materially reduces the ‘crash risk’ of Brexit negotiations as well as strengthening the prime minister’s hand in pursuing an orderly (and very lengthy) withdrawal,” argues Deutsche.
Up to a point, this line seems legitimate. If delivering a “successful” Brexit involves making a few pragmatic compromises – which is surely the lesson from the initial skirmishes with the EU negotiators – you can’t blame May for seeking cover from the hard-liners in her own party. And kicking out the next election until 2022 seems a smart political move: it would allow time for a three-year transitional phase before UK voters go back to the polls, which could take the edge off any economic shock at the moment of Brexit in 2019.
So, yes, it was fair for investors to take some comfort in the idea that a market-friendly “soft” Brexit is now easier to imagine. Just don’t get too carried away with the idea. Investment uncertainties rarely evaporate so easily. If the election delivers a messy result – even a barely-improved Tory majority – what would really have changed?
China couldn’t stomach Weetabix – will its US owners find the right recipe?
The late Sir Richard George, the businessman who built Weetabix as a family company before selling it to a private equity firm in 2003, understood he was selling a product with limited international appeal. “Mothers tend to wean their children on Weetabix and people in Britain tend to grow up with an in-built liking for them. That’s not the case in other countries – it’s very hard to sell them in Germany for instance,” he said.
The Chinese attempt to disprove this theory has, to nobody’s great surprise, ended in failure. The Weetabix that Chinese state-backed Bright Food group is selling looks very like the business it bought in 2012: 75% of revenues are in the UK and the 20% that comes from North America is mainly generated from products with a US heritage. The big idea of persuading breakfast diners in Shanghai and Beijing to enjoy the delights of wheat biscuits hasn’t moved the dial. Weetabix’s overall revenues of £400m-ish and top-line earnings of £120m have gone sideways for the past half-decade.
In the circumstances, Bright Food should count itself lucky that it has found a buyer willing to pay a price that allows it to exit with financial respectability. Post Holdings, a US cereal maker, is paying £1.4bn, versus the £1.2bn that Bright Food shelled out.
Post, as it happens, is also talking about “bringing much-loved brands to significantly more customers globally”. But words are easy to utter. Once suspects the US acquirer perfectly understands that Weetabix is a niche product outside the UK. What it really likes, apart from the undoubted strong cash flows, is the potential for removing a claimed £20m a year in costs. That sounds a more realistic plan.
FCA investigation looms for Barclays boss
Andrew Bailey, head of the Financial Conduct Authority, refused to mention Jes Staley or Barclays when asked about whistleblowing. But his response was exactly what you’d expect: it’s important for regulators and society that whistleblowers are protected. Staley’s unsuccessful attempt to uncover the identity of a whistleblower at his bank is being investigated by the authorities, including the FCA. It’s hard to see how the report can be less than damning. Staley’s survival as chief executive is not guaranteed.