The Guardian from London, Greater London, England on June 28, 1983 · 18
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The Guardian from London, Greater London, England · 18

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Tuesday, June 28, 1983
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18
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FINANCIAL GUARDIAN 18 Tuesday June 28 1983 Falling interest rates are making the bank branches more expensive to run NOTEBOOK . Edited by Hamish McRae AVALANCHES do not occur spontaneously something has to trigger them. So it is with the cuts in the clearing bank branch networks. For more than a decade now, the need for the clearing banks to cut their branch networks has been confidently forecast, not least by senior bankers themselves. It. was a battle cry of Mr (now Sir) Len Mather, when he was chief general manager of Midland nearly 20 years ago. But up to now it has not happened. The principal reason for this was that it did not need to. While interest rales remained high a branch network gathering, non-interest bearing current account deposits was quite a cheap way of getting money. The notional cost of current account deposits is around 10 per cent. In other words the costs of staffing the branches, running the computers and so on was the same as paying 10 per cent on a large "wholesale" deposit bought on the money market. So while interest rates remained above 10 per cent, it made sense to keep as much of a non-interest bearing body of funds as possible. In fact, the share of current account deposits has shrunk inexorably during the last decade. In 1970 more than half the clearing banks' domestic deposits were on current account. In its 1982 accounts Barclays disclosed that current account deposits accounted for only 23 per cent of its domestic deposits. So current accounts were a wasting asset, but an asset none the less. You can have all sorts of views about the future direction of interest rates, and it may well be that the next move in sterling rates will be upwards. But it does seem pretty clear that the secular trend in interest rates is downwards, mirroring the secular trend in inflation. Far from being an asset, then, current account deposits will begin to look an extremely expensive source of funds. The banks can do some thing about this by, for example, raising their charges. But the ' more they do that the more they undermine the one thing they have been very successful at fostering during the last decade the growth of the banking habit. At the end of the day they have to cut costs, especially when in spite of the new scheme Barclays is' planning 1,000 a year net increase in staff to cope with the growth of business. Barclays, of course, argues that service will improve, through specialisation, by channelling corporate business to bigger branches and concentrating elsewhere on personal and small business customers. Midland tried a separation of corporate and other business but stopped the . experiment because it found it wanting. Naturally Barclays blames the way Midland implemented the policy for the failure there, rather than the policy itself. Indeed, the claims for better service are unconvincing, when 700 branches will offer less not more in terms of the broad range of banking services, and 63 branches and 80 or more part time offices will close completely. In fact, just under half the network will remain as full scale branches, and the rest will either be satellite or tiny agencies of the bigger branches. This raises the interesting long-term possibility, given the wonderful electronics that can already be bought off the shelf, that the next stage will be the spread of machines to do most of the counterwork, especially in the smallest branches. By far the most intriguing part of Barclays announcement was that it may instal a small number of automatic cash dispensers away from branches, but " accompanied " by somebody who will sell loans or personal banking services. The shape of banking to come ? Autumn cuts ? THE CBI may well want lower interest rates, but the only way to achieve these may be a package of spending cuts in the late autumn. It is now looking increasingly as though the next set of banking figures will show monetary growth in the banking month to mid-June at between and 1 per cent. Whil this wou!d in itself be respectable enough, given what has already happened so far this financial year, with two very bad months, the fact remains that the money numbers are likely to run above target for most of this year. If you are looking around for ways of meeting the CBI's aspirations, then, it will be very hard to see supporting evidence in money supply. The likelihood of a surge in' sterling overriding the money-supply figures is also not that high, given the disappearance, of our current account deficit. And relying on a fall in US interest rates to enable us to bring ours down. Last week saw a fall in money supply and this week's figures will be all right. But there is another slump coming soon. So the three main things that might clear the way for another fall in interest rates do not look too likely. But suppose the Government is desperate to get rates down, to stimulate private industry, just as it is clearly prepared to continue pumping large funds into state industry (see opposite). What can it do ? The one obvious course of action would be to cut the PSBR. This would make intellectual sense, for unlike that 1981 budget the cut would come at a time of rising demand and output. It would correct the rather hairy assumptions (like the tendency of Government departments to underspend) upon which Sir Geoffrey Howe's last budget was based. And it would be wholly consistent with the policy of a stepped reduction in the PSBR, set out by Mr Lawson during his previous stint at the Treasury. There is no reason to suppose that a Treasury plan to cut spending in the autumn is already in the pipeline for the simple reason that the sort of review that would lead to an autumn spending cuts package could not yet have taken place. But the balance between fiscal and monetary policv is just the sort of thing that the new Chancellor will now be examining, and people should be aware that one of the options will be to use a cut in public spending as a means of cutting interest rates. Early retirement for some in bank streamlining operation Barclays to close branches By Peter Rodgers, Financial Correspondent. Barclays Bank is to close 150 banking offices, including 63 full branches and downgrade a further 700 branches as part of an ambitious reshaping of its network. This makes it the first of the big four banks to annouce a streamlining of its branch system, at a time when rising costs and new electronic systems have raised big question marks over the future of the huge high street networks. Barclays now has 2,900 banking offices, of which 2,016 are full branches, and because of the closures 100,000 to 150,000 customers will move their accounts. The closures will be over two years and the downgrading of the 700 branches over five to seven years. There is no redundancy programme but 350 branch managers will be offered voluntary early retirement over the five to seven year period "to combat any adverse impact upon promotion prospects," the bank said. Bank unions, which were told on Friday, expressed seri ous concern about the career prospects for members. A spokesman for the Banking Insurance and Finance Union said it was concerned about the jobs of managers being put at risk and promotion routes being blocked. Up to a third of managers in some grades were to go. All the banks have been looking hard at their branch networks and are likely to introduce new plans soon. Midland has management consultants taking an in depth look, while Barclays plans reflect a nine-month national survey. The closures include 80 small part-time offices, reducing the number of "counter extension " and agency branches dependent on bigger branches to 750. These will give basic counter services only, and the message will not be lost on bank staff that these are the jobs increasingly performed by machines. Mr John Quinton, Barclays' senior general manager, said that extension and agency branches "will be the obvious candidates" for linking to machines. The bank also said it-may install a small number of automatic cash dispensers away from bank premises but with staff in attendance. The overall reshaping, said Barclays, was to provide greater specialisation for corporate and personal customers, Barclays now has 2,016 full branches, 93 sub-branches and 811 agency branches. The new plan is to have 110 key branches in large cities with strong management teams giving comprehensive corporate and foreign services, with the emphasis on business customers. There will be 1,200 general branches, similar to existing branches and serving well defined communities. The 700 downgraded branches, which will no longer have full managers in charge, will be of two types, one providing only personal services and the other combining this with small business clients. These "support" offices will be linked in groups of up to three to the key and general branches. John Quinton : more machines NatWest ups home loan rate by lpc By David Simpson. City Correspondent. National Westminster Bank, which now accounts for the bulk of all new home loan lending by the High Street banks, yesterday folowed Sunday's example by Barclays by raising its mortgage rate. Like Barclays, Natwest has undercut last week's rise by the building societies but has raised its basic rate by 1 per cent, a compromise between Barclays's 0.75 per cent increase and the building societies 1.25 per cent hike. The TSB later emulated NatWest exactly. As NatWest operated a lower rate than Barclays initially, however, its rise takes it to a new basic rate of 11 per cent, exactly in line with Barclays and 0.25 per cent below the building society rate. On the other hand, NatWest's effective annualised rate of 11.8 per cent is above Barclays 11.5 per cent APR. while below the building societies 12 per cent. NatWest calculates its annualised rate on the same basis as the building societies, working it out 12 months in advance whereas Barclays deducts repayments on a monthly basis to work out the operative rate. It sounds complicated and is so, but the current standing order is that Barclays is offering slightly cheaper mortgages in real terms than NatWest which in turn is offering slightly cheaper mortgages than the building societies. The scale of the rise by NatWest is designed to maintain its current mortgage demand at a level of between 75 million and 100 million a month, a level which the bank is presently meeting. NatWest, like Barclays, has no intention of raising the number of home loans it is making, although the new interest rate structure now allows the banks to at least break even on mortgage lending for the first time since last year. Bnoc hopes to hold oil prices after talks By Rod Chapman, Energy Correspondent The British National Oil Corporation is having talks with the oil companies this week which are likely to lead to a maintenance of its North Sea oil prices for the third quarter. The expected confirmation will provide welcome news for Opec since E'VOC sparked off the bout of price cutting earlier in the year. It emphasises the newly found stability in world oil markets, where spot prices are now slightly higher than contract levels in many cases and Opec's new pricing and production system is seen to be holding. Pressure on Bnoc has eased since it was forced to lop $3 from its contract prices in February, precipitating an Opec emergency meeting in March which saw the organisation's first ever joint price cut of $5, BNOC has since trimmed prices again, leaving its marker price for oil from the Brent Field at $30 a barrel and that for most other crudes at $29.75, compared with the new Opec marker of $29. Most of the leading oil companies are now happy with BNOC s prices, ana the corporation has been able to mini mise the amounts of oil it has been forced to sell at a loss on the spot market. It is also understood to nave attracted some new American contract customers. But Shell, operator of the Brent Field, said at the time of the last BNOC price change that it was unhappy at the dif ferential price for its oil and is understood to be maintain ing its opposition to the new Brent dropped back temporarily during the last couple of pricing system. Production from months because of maintenance work. Pegler-Hattersley pic Group results in brief 1983 1982 000 000 Sales 149,155 ? 20,1 67 Trading profit 10,533 7,829 Share of associated company profits 5,209 5,194 Interest received less paid 2,020 3,1 47 Profit before tax 17.762 1 6,170 Profit aftertax 1 0,248 1 0,1 58 Earnings per share 33.56p 32.93p Ordinary dividends per share 11.85p 10.75p -J The profitability of our manufacturing divisions improved and we have have made further progress in our policy of modernising our factories, product development and computerising our administrative procedures. X- The future prospects for our business are very largely bound up with the prospects for our own country's economy and that of the principal overseas countries in which we operate. The company is financially strong and our products are fundamental to the basic requirements of housing, water supply and the principal energy industries. We are increasingly competitive within the U K and in most international markets. The means are at hand to improve our competitive position still further and we intend to exploit these opportunities. Sir Peter Matthews, Chairman Copies of the full report and accounts, on which the auditors have issued an unqualified report, are available from the Secretary, Pegler-Hattersley pic, St. Catherine's Avenue, DoncasterDN48DF LOiNO PRODUCTS - VALVES INDUSTRIAL COMPONENTS Go-ahead for Lotus BCA deal By Jane McLoughlin, Business Correspondent Group Lotus, the perform ance car manufacturer founded by the late Colin Chapman, confirmed yesterday that Mr David Wickins of British Car Auctions is to provide a refinancing deal for the financially troubled company worth 3.5 million. British Car Auctions will pay an initial 1.2 million for new shares which carries 20 per cent of the company. BCA then plans to underwrite a 2.3 million issue on the basis of one for one at 40p each. This would Eive BCA about 40 per cent of the enlarged capital. It also ensures that the 1.6 million overdraft facility. which the American Express In ternational Bank has been eager to get rid of. can be paid off. Mr Wickins had joined the board of Lotus, and BCA will nominate another board member on implementation of the proposed rights issue. The deal will be subject to approval by the Panel, on Takeovers and Mergers to waive any obligation on BCA by Rule 34 of the City Code on Takeovers to extend a general offer to all the ordinary shareholders of Lotus. Lotus shares leaped to 60p at the confirmation of the BCA involvement but the deal is still subject to approval by shareholders, not all of whom are happy at the BCA offer, buf with Chapman family interests, plus the 8 per cent share of Mr Fred Bushell, the chairman, those who have already approved the deal represent 51 per cent of the shares. i Sheikh sued over loan By our Financial Staff FOUR big institutions, including Commercial Union, last week issued a writ in the High Court against Sheikh Ghanem Bin Ali al-Thani, uncle of the ruler of Qatar and one of the country's biggest landowners. Included in the writ was Sheikh Ghanem's property company, Ghanem Real Estate Investment Company and a number of other members of the ruling family of the state. The writ, also issued on behalf of Pakhoed Holding NV, Bank of Credit and Commerce International (Overseas) and Credit & Finance Corporation Ltd, concerns guarantees by the four institutions on loans raised in 1978 to finance residential property development in Qatar. The loans went into default in -March 1981. The guarantees are for 12 million Saudi riyals (26 million) on a SR 40 million syndicated loan. The loan was to fund an exclusive residential complex to be built near the Ghanem Hotel, one of the sheikh's earlier ventures. His financial position had been deteriorating until in March 1981 he defaulted. A month later Banque Arabe et Internationale d'lnvestissements, agent bank for the syndicated loan, demanded the money from the four guarantors, who paid up. Meanwhile, reports from Kuwait say that a member of another prominent Arab family is in financial trouble. Khalifa Abdullah al-Khalfia al-Sabah, a member of the ruling family has asked a group of banks to roll over interest payments on a $100 million loan because of debt problems arising from last year's Kuwait stock market collanse. according to finan cial sources in the Gulf. The one-year loan was signed last September. Khalifa is alleged by Middle East Economic Survey to have debts totalling billions of dollars. Bow Group debt plan THE TORY Bow Group yesterday called for a new inter national agency to help solve the debt crisis. The agency would shift from the Inter national Monetary fund emphasis on rescheduling and macro-economic condi tions to direct equity invest ment and guarantees, -xne agency should also guarantee investment in countries with debt problems, against political risk rather than commercial failure, help debtors identify economic problems and new markets, and coor dinate expert help. The paper is published ahead of the Bow Group's " Transatlantic Conference " which begins this week. US Supreme Court rules 'unitary tax' is legal From Alex Brummer in Washington In a decision which appears certain to cause fresh tensions across the Atlantic the US Supreme Court ruled last night that the State of California could continue to levy corporation tax on the worldwide income of multinational companies which operate in the state. The ruling is of major significance since the so-called " unitary taxation " has already spread to a dozen states and could lead to other states in the Union adopting the method in order to boost their treasuries. In the past the British government has strongly objected to the system because of its impact on British companies. The case was brought to the Supreme Court by Container Corporation of America, a sub sidiary of Mobil Oil. It charged that the (Jautornian system meant that the authorities in the state were raising taxes beyond their own boundaries which was subject to income tax in other states and by foreign governments. But in a relatively close 5-3 vote the Supreme Court justices however upheld a ruling already made by the Cali-fornian Supreme Court. It said that the treatment of Container Corporation which controls some 20 companies in western Europe and Latin America was appropriate and does not violate the American Constitution. The main issue in the case was whether a state should be limited to charging taxes in income generated by company's earnings there or on a basis which takes account of worldwide earnings. It has serious implications for a company such as British Petroleum, which for instance has extensive operations in Alaska, one of the states which uses the unitary taxation concept. ' According to the opinion written by Justice William Brennan, multinationals, their associated companies and subsidiaries must be considered as one company for tax purposes and taxation on a proportion of their worldwide operations was appropriate. In 1979 some 40 British companies, with the help of the then Minister of Stale at the Treasury, Mr Peter Rees, made a strong effort of head off the unitary taxation principle in Congress. And it was hoped that the issue would be laid to rest by the double taxation treaty concluded by the US and Britain in 1980. But given the Supreme Court ruling it may now be possible for California and other states to try to impose unitary taxes on British subsidiraies and associate companies. This once again raises the vexed isue of the extra-territoriality of - US law which is at the centre of the cu r r e n t Transatlantic disputes over the Laker Airline collapse and the Export Administration Act. ERF in 30m link-up with Hino By Jane McLoughlin Business Correspondent ERF, Britain's last surviving heavy truck maker has announced a link up with Hino, Japan's biggest, commercial vehicle maker, providing nearly 30 million investment. The tie up means that ERF, which concentrates at the heavy end of the market where the upturn in demand is less marked than in lighter trucks, will extend its range to build 12-15 tonne vehicles based on Hino models. Hino, which has been hard-hit in Japan by the effects of world recession, has previously collaborated with companies who assemble its trucks in countries where there is no indigenous manufacturer Ireland, Norway, Portugal, Belgium and Greece. This is the company's first excursion into competition on a domestic market with a home-based producer. The new investment will solve some problems for ERF, which announced further redundancies among its workforce at the start of the year, to bring it down to 662. The company made a small trading profit last year which became a pre-tax loss after interest and tax but this was an improvement on the previous year. ERF hopes to return to profit in 1983. ERF had rationalised its operations and concentrated its main business on premium priced trucks. But any recovery from the slump in demand for commercial vehicles is now showing in lighter vans, and the addition of the Hino new models will give ERF a healthier, broader base. At present, there will be no new jobs at ERF's Sandbach plant, which ultimately could produce 4,000 vehicles a year. In 1982, it produced 1,732. But the existing workforce is made secure, and with 60 per cent component input in the new trucks British, new jobs may, follow. This is Hino's second attempt to penetrate the UK market, of which ERF has 12 per cent. Before the 1980 slump in transport, Hino hoped to import and assemble trucks, but union and other opposition prevented the plan getting off the ground. The UK market is not the only one at stake in this new tie-up. ERF has been increasing its exports to the Middle East, which is a key export market for Hino. Together the two companies could offset a downturn in demand from that quarter. Hino is also part of the Toyota federation, and makes pick-ups for this leading Japanese carmaker. ERF chairman, Mr Peter Foden, said yesterday that the Hino deal is not a Japanese takeover bid. " If we did nothing, we could go out of business and there would be even more imports. By this deal, we help to create jobs." 'Harmful sacrifices' imposed on Brazil By Peter Rodgers A senior Brazilian banker yesterday pleaded with international bankers to understand the " sacrifices " being asked of Brazilian society under this year's debt renegotiations, and said creditors do not understand the importance of Brazil's internal problems. Mr Angelo Calmon de Sa, a member of Brazil's National Monetary Council, said that the bank rescue programme for his country was $3.6 billion short of the agreed target, which is considerably greater than the backlog of payments by Brazil. He added that " a solution must be found in the very short term." Mr Calmon de Sa is also a director of American Express International Bank and his views are published in its monthly review. His key message, one which the government has been trying to impress on the IMF and apparently failing, is that the austerity measures which have been imposed to meet IMF requirements carry internal political risks. He says : " The austerity programme is imposing great sacrifices on the population." He adds : " Unemployment in an economy such as Brazil, in the absence of the social and unemployment support schemes prevalent in industrial countries, has a very direct and harmful effect." Any delay in solving the cash problem will diminish the government's credibility. Once the cash is made available, he adds, a new round of negotiations on 1984 and 1985 debts will have to begin. Imasco drops CTC bid By Margareta Pagano IMASCO, the Canadian tobacco to fast-food chain giant, has withdrawn its bid for the Canadian Tire Corporation due to shareholder opposition just two weeks after revealing the offer worth C$1 billion. Mr Paul Pare, head of Imasco, which is 40 per cent owned by the British BAT Industries group, said yester day: " We stated at the out set that we were seeking the support of the maior share holders of CTC and the endorsement of management. it now appears that such sup port is not forthcoming." Imasco had every reason to try to win support before going ahead with the formal document because of CTC's shareholding structure. The group, which is Canada's largest hardware store chain run by franchise, is still owned by the founding Billes family. Three of the children of Mr Alfred Billes, co-founder, own 10 per cent chunks each, while 30 per cent was left in trust on behalf of 23 charities, and another 21 per cent is held by management and an employee profit sharing scheme. The block held by the trust proved the key to Imasco's first advance when the charities decided they wanted to realise their investment. They argued that the shares were not doing well enough but the Billes family resisted the sale. Shares were then trading at C$60 each. But, two weeks ago, the Ontario Supreme Court ruled the trust could sell the stake and in stepped Imasco with its first C$72 a share offer. Another complication arose the trust now has to put the shares up for tender to the highest offer and Imasco would have to pitch against the family to buy the shares. At the same time, the management of CTC's chain of 365 stores also came out against Imasco. Although Imasco, with BAT's backing, would dearly like to acquire CTC it believes a battle would be detrimental to the group. Mr Keithe Richardson, of BAT, added: " One of the reasons Imasco wants CTC is because it is so well run. If the management are against it then the bid is self-defeating." To keep its stake in Imasco BAT would have pumped in over 100 million cash part of which would have gone to finance the offer. Another unknown in the situation was the view of the Government's Foreign Investment Review Agency which has previously blocked Imasco because of BAT's stake. NEWS IN BRIEF UK quote for General Foods GENERAL Foods, the biggest food and beverage con-lomerate in the United States, led a disparate array of companies which announced yesterday that their shares are to receive a full listing on the London Stock Exchange. Last vear General Foods earned 184 million after tax on sales of 5.3 billion, and the London listing fuelled speculation that it might again be on the acquisition trail in the UK. Also coming to the Stock Exchange this week is L. Texas Petroleum, an obscure oil and gas exploration company DPCE Holdings, the highly successful computer maintenance firm founded by a management buy-out in 1981! is also going public with a full listing and offer for sale of its ordinary shares. Last year DPCE Holdings earned 756,000 pre-tax on sales of just 3.6 million. SIR JAMES Goldsmith's master company, General Oriental, is raising $64 million by floating off 80 per cent of Calmar Incorporated, a wholly owned subsidiary of GO's American subsidiary Diamond International Corporation. SHARES in Anglo-African Finance and Dewhurst Dent were restored on the Stock Exchange yesterday afternoon after takeover terms were agreed between the two parties. AA is controlled by Dr H. Khazam and Mr I. Yentob and their faini-lies.

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