Monday, 15 January 2018

Carillion: Winners and Losers

City AM have listed the winners to save me the bother:

... Amid the chaos, however, lurk some cunning opportunists – most of whom can be found in Mayfair.

In many ways, Carillion has been the story of the short sellers. The most bet-against stock in Europe will see hedge funds share profits of around £300m between them. Marshall Wace took the biggest piece of this as shares plunged in the autumn. After it exited stage left, the fund was quickly replaced by rivals, steadfast in the belief worse was to come. Blackrock, the world’s biggest asset manager, has stuck around and still holds a chunky bet against the contractor.

Then there is a raft of advisers picking up hefty fees. The jewel in the crown would be the administrator mandate. EY is reportedly in the box seat, but pension scheme adviser PwC may cry foul, arguing its rival has a conflict given EY’s six-month role helping the company right-size operations.

But never mind the winners, back to the many losers from Carillion's decline – including, of course, the government. A decade on from the financial crisis it is incredible the state yet again finds itself under pressure to consider a taxpayer bailout of a private company, this time during a period of economic growth. Such situations imperil public faith in business and the very principles of a market-led economy, and remind us that regulators – in the financial sector and beyond – have some way to go before we can be confident that the spectre of bailouts has been consigned to the past.

As to paying hundreds of millions for "administration", sod that. All the government needs to do is send somebody round to each site where Carillion operates and tell everybody "You're working for us now, here's your new employment contract". Those people will then get onto their own suppliers and tell them to send future invoices to the Department of [whatever] and everything continues as was. It'll save the government taxpayer a fortune.

This is also another argument for deposit funded corporations - like building societies, co-operatives or partnerships, they don't have a share price, so speculators will have to find something better to do.


Lola said...


Lola said...

As to your bit about deposit funded organisations many of the large that built the railways and lots of other 19th 'infrastructure' were partnerships...

Mark Wadsworth said...

L, good point, I will update. And prior to limited companies being invented, of course they were (limited) partnerships.

DBC Reed said...

Good to see the Thatcherite revamp of capitalism going up like a puff of smoke. Hey ho!Who could have foreseen any risk in allowing private capital to (try to) make a profit out of public sector organisations run just to cover their costs?
Before I am accused of anti Thatcherite bias/ derision /contempt I will quote a neutral reference (Wikipedia) on Privatisation "However it was in the 1980's under Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States that privatisation gained momentum". This source quite rightly includes the right to buy 1 million council houses under "privatisation" so that ties in another criticism of the deluded old cow which is part of our property-oriented remit.

Lola said...

DBCR. The Carillion failure is not 'Thatcherite' at all. It's a 'crony-corporatist-proto-EU-ite' type failure. Definitely Blairite and maybe 'Majorite'. These bloody outsourcing outfits are the way that government has masked state jobs (jobs in the loosest sense as most are not very productive or engaged in boondoggles - the latter being entirely un-Thatcherite) and to try and show that the public payroll has declined. The Coalition and Cameron's Torees were also experts. Essentially they are outfits configured to give various senior political patrons sinecure directorships and shareholders opportunities for rent seeking and to mask mal-employment. And they are serious players in various economic and financial stupidities like HS2 and Hinckley Point. In lots of ways these sorts of outfits are classic Fascist Socialist organisations. Part of the Military/Industrial/Mega Corporate Complex. (And the bloody banks - of course. Immer the bloody banks.) And that's why these are not Thatcherite privatisations. And Council House Sales are entirely not the same thing. Whatever we think about Council House Sales they were one of the largest redistributions of wealth, ever. I thought you were all for wealth distribution?

I really don't mind you objecting to these things, in fact you know I support that, but do at least get your arguments right. Carillion is straight out of the crony corporatist playbook of failure. Oh and lets not forget the sorry contribution of the pensions deficit based on flawed calculations prescribed by relatively stupid bureaucrats and the malign affects of QE and ZIRP on Gilt rates against which those pension deficits are calculated.

Mark Wadsworth said...

DBC, change the record.

Thatcher might have got the ball rolling but the real advances in crony capitalism were under Blair and then the current lot just kept the scam going.

And you must be perfectly aware of the rules of thumb which tell us a) what the government should do itself; b) what the government should sub-contract and c) which things it shouldn't be involved in at all.

Pretty much everything that Carillion was doing falls into the first category a).

See also L's reply.

Graeme said...

Mark, it is arguable whether a government/civil service really ought to get into the business of construction. For a start, the first thing they will have to do is to get people with the expertise to design, build and manage the construction project, probably by issuing tenders. The experience of AGR, Concord, the M25 among others is not very persuasive is it?

Lola said...

Graeme. Agreed. But a lot of the stuff Carillion was building ought not to be built at all. HS2 for example. And it was running stuff it ought to be to be running. It's been used to shuffle 'jobs' around, a lot of which could (and should) just have been made redundant.

Mark Wadsworth said...


I'm not sure what "AGR" means in this context.

Concord was a white elephant (as beautiful as it was).

M25 is a splendid motorway (at the right time of the day).

As I have said many times before, for big things, like roads and railways, the only people who CAN authorise it is the government. There is no way that private landowners between two large towns would spontaneously agree to build a road or railway to connect the two. The so-called privately financed railways of the 19th C all required Acts of Parliament, compulsory purchase orders and the like.

When it comes to actually building a road, the government of course has to sub-contract with competitive tenders and so on. For sure they often get stiffed, but at least the road gets built. Better to get stiffed on the tender (a one-off cost) than give private companies permission and CPOs to build a road and let them collect rent/tolls for ever more.

To sum up, as I've also said before, the rule of thumb is, the government has the roads built and the private sector builds the cars and runs the lorries and so on.

Mark Wadsworth said...

L, HS2 is a crock of shit of course.

I suspect there is a missing "not" in the middle of your comment.

Lola said...

MW. Yes. Oops.

Bayard said...

"All the government needs to do is send somebody round to each site where Carillion operates and tell everybody "You're working for us now, here's your new employment contract""

Isn't interfering with the smooth running of Her Majesty's Gravy Train a capital offence?

Graeme said...

OK Mark, get the experts to do the building but stop the rent-seeking ppi exploitation. AGR is the advanced gas-cooled reactor, designed by British experts and eventually built at Dungeness 20 years late,while all the teething problems of an innovative design were solved. My views on Carillion crystallised earlier this year when the auto tollbooths on the M6 relief road failed and you had to pass a credit card to a Carillion operative to do the contactless card payment for you. They couldn't even do that right

Mark Wadsworth said...

B, true.

G, I've always been against ppi. A huge great scam.

Shiney said...

As a small-business owner I daren't read about all this shit without getting VERY angry.

So I try not to.

But, imho small is beautiful and partnerships or 'close' companies are better than mega corps. Like what Lola said - create a 'single-issue' partnership for each project or let 'business' build infra themselves if they think they need it.