An eventful week that saw a day trader from Hounslow accused of creating the “flash crash” of 2010 by the US department of Justice, and two very different companies making headlines, Richemont and Tesco, announcing large loses not associated with the day-to-day trading activities of their business. None of which can be particularly reassuring for the average investor. Tesco’s announcement that they had made the 5th largest loss of any UK any company in history was covered in great depth by all the news channels. The losses came, as the new chief executive appeared to be engaging in what is commonly known as kitchen sinking. Putting as much bad news together he can find and taking one hit, hoping that in the years to come he will be seen as been overly cautious and at appropriate times in the future may well be able to write back some of those losses.
The bulk of the losses were taken in property write-downs, but trading profits also fell to £1.4bn from £3.3bn the previous year. Tesco's wrote down the value land that had been acquired with the intension of increasing the number of stores; much of this store expansion plan has now been abandoned. Over the past few years Tesco’s has moved out of areas of core competency, into areas such as banking and telephones, perhaps with the apparent lack of housing in the country they could consider adding house building to their portfolio of activities. It would bring even more truth to the phase a Tesco's on every street corner. The losses did attract a lot of media attention, the shares initially less so falling less than 1%, as the day wore on the stock closed down 5%.
Richemont, the luxury goods company that owns brands such as Cartier and Montblanc announced a 36% fall in profits caused by losses on financial instruments. It appears Richemont took a view on the Swiss franc and were bitten badly when the Swiss central bank removed its peg against the constantly falling euro.
The Conservatives have announced that if they win the next election they will offer shares in Lloyds bank to private individuals. Then encourage investors to hold those shares and not take a quick turn by offering a £200 bonus to those who keep them for over a year. The FT reports that European countries are also trying to encourage investors to hold shares for the long term. One such suggestion is to double voting rights to those who hold shares for a certain period of time. This move would seem to benefit institutions that by definition tend to hold shares over a longer time period. Why minority shareholders would benefit from an increase in voting rights appears unclear? In our view the best way to encourage long-term shareholding amongst retail investors is to offer tax incentives, reducing capital gains liabilities as a reward for holding shares over a longer period.