Capital Markets Corporate

January 25, 2019

Our Weekly Newsletter

Contact

Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.

British manufacturers saving for a rainy day post-Brexit

British manufacturers are being forced to build up financial buffers in preparation for a no-deal Brexit. While everyone’s talking about stockpiling, few acknowledge the cost; manufacturing companies in particular are being forced to create cash cushions and take out working capital loans to fund their stockpiling strategies. (From The Guardian, 18 January 2019)

The $100bn private equity race

The race is on: who is going to be Europe’s first $100bn private equity firm? The recent boom in private equity fundraising is showing no sign of abating, with big name firms raising some of their largest-ever funds. Industry players like Ardian, Partners Group and CVC Capital Partners are now closing in on $100bn in assets under management after launching new investment strategies in areas such as infrastructure, credit and real estate. (From Financial News, 22 January 2019)

Do shops have an accessibility issue?

Several shops have come under scrutiny for refusing to serve disabled shoppers who use a “chip and signature” debit card. Shops often refuse this payment method because they do not accept signatures as valid verification. This can cause distress and humiliation to customers who, due to medical issues, are unable to memorise pin numbers. The problem seems to stem from ignorance rather than malice: according to UK Finance, it is illegal for traders who accept card payments to discriminate against these cards. (From The Observer, 20 January 2019)

Sense and Liability

New research by QBE Business Insurance shows business leaders are becoming more and more vulnerable when it comes to liability claims. Carly Eveniss, portfolio manager for management liability at QBE Business Insurance, cited a sustained increase in the number of claims against directors and officers. A combination of the expanding remit of their roles and the emergence of a culture where senior executives are increasingly seen as legitimate targets for legal action has led to senior executives facing fines and penalties on top of legal defence costs. (From Insurance Business UK, 22 January 2019)

Common ownership crushes competition

Overlapping corporate ownership by investors could pose a significant threat to the asset management industry. Academics argue that when owners hold shares in competing companies within the same sector, there is little incentive for companies to innovate or lure customers from rivals. Ultimately, common ownership could be crushing market competition. (From Financial Times, 22 January)

RIP RPI?

You may not have noticed it, but a furious debate is raging among UK statisticians and economists around the Retail Price Index (RPI) and the Consumer Price Index (CPI). Both are cornerstones of how our economy functions, but are they fit for purpose?

The core of this debate is around how CPI and RPI are calculated and how they are used. Both measure the change in the price of a basket of goods to determine inflation, but ultimately measure very different things. The problem centres on RPI, which the government has admitted is a flawed measurement.

Critics argue this is because RPI uses the Carli Formula, which takes the rate of change in the price of each item in the basket, and then the average of those changes to find inflation. This is problematic – for example, if an item doubles in price and then drops by a half, it returns to its original price, and therefore records no price inflation. But the Carli formula generates price inflation of 25%, which statisticians call “chain drift”.

This drift means RPI is typically higher than CPI – today’s CPI is 2%, but RPI is 2.7%.  The House of Lords recently highlighted this error, noting the discrepancy is being used to consumers’ detriment. While CPI is harnessed to penalise savers with less competitive rates of interest, RPI is employed to hit people with higher rates of repayment for everything from railcards to phone bills. Typical annual railcard rates could be hundreds of pounds higher under RPI than CPI.

The Lords noted that allowing the cherry-picking of inflation rates is “untenable” and criticised the Government for using CPI to pay out less and RPI to collect more, all under the banner of ‘inflation’.

But, the end of RPI might be nigh. Various Government departments and watchdogs alike are calling for a universal switch to CPI to measure inflation, with the Bank of England arguing for the measurement to be scrapped entirely. The final decision lies with the Chancellor, but it might be that we are close to a future where we only have one rate of inflation to worry about.
Creds Button

Search