FINANCIAL ANALYSIS: Misquoted companies, mendacious valuations and the beastly beatitudes of the Bourse

The Slog dishes the dirt on globalism’s mad system of raising capital


Before you all fall asleep, this is not a Slogpost about football. I merely, for starters, present this quite astoundingly daft extract from the Manchester United plc latest results as an example of what utter drivel quoted companies will trot out as a rationalisation for disappointing results:


Association Football – “soccer” in the vernacular – is really a very simple game: if you have world class strikers who score tons of goals, and intelligent defenders who stop the other side scoring anywhere near as many goals against you, then success will be yours. Knockout competitions, top national League championships and European trophies shall be yours. Even more so, if you achieve these ends by playing positive and inventive football that excites live crowds and viewers, huge amounts of cash will flow into your coffers, because every kid and comms network from Sao Paulo via San Francisco to Slovakia will want to wear your team shirt or cover the game.

Bruno Fernandes is an extremely capable midfielder who attacks with flair and defends with grit. The fact that his Twitter followers grew after he signed for United is about as relevant to the business model of 21st century soccer as the idea that great goalscorers could maybe perhaps but we don’t know possibly change the quantum future every time their foot connects with an inflated sphere.

I really don’t give a monkey’s chuff if Odian Ighalo trended ahead of Brexit and quite the silliest Impeachment trial in US history. What I want to know is can he play?

Very, very few people on the planet realise just how multifaceted bourse reporting’s distractive mendacity is. In turn, brokers know perfectly well that it’s going on – as do finance ministers, central bankers and financial journalists. I have seen the whole mess from both a management and investment viewpoint over thirty years, and – to employ the Trumpian syntax – it is a swamp made malodorous by the incontinent bulls**t they defaecate morning, noon and night.

It starts with the corporate accountant. This is the person charged with City and broker relations, but his real job is bamboozlement of the analysts, hacks and naive public at all times. Unlike the underling actually calculating real turnover and profits (while trying his best not to pay any bills at all) the corporate chap invents new names for columns in the accounts, hides the debt under something boring like the car fleet, paints a rosey picture of unending market buoyancy, sticks the bonuses in ‘contractual obligations’, plays footsie with the falling margins, and ensures that cheaply borrowed money is renamed ‘shareholder dividends’.

At some point in the preparation process of what are laughably referred to as “the results”, the CA ambles along to the Chairman’s office and points out that the company is a cheque short of a forecast. A call is made to a large and trusted customer, who duly writes a cheque in payment of unfinished work….to be repaid when the annual shareholders’ meeting is over and a new fiscal year has begun.

This minor problem having been solved, the managing and marketing directors meet with their City PR agency and various friendly (aka lazy) journalists are given briefing packs to illustrate just how well the company is forging ahead. Several dozen analyst lunches then ensue. The results conference goes well, the brokers make the shares a Buy, and the company’s valuation leaps by around 18%. The senior directors wait a month or so, sell some of their shares, and return to the task of how to make the coming fiscal look even better.

And that’s just a company already quoted on a major bourse. There’s another wonderful part of the action called an IPO, or initial public offering – what most people think of as “floating a company onto the stock exchange”.

This remains largely the domain of investment bankers, who (after some form of beauty parade) are chosen to “market” the float to investors and other associated opinion leaders. To be brutal (it is, I find, the only way when dealing with these lizards) their job is to sell. Any chance relationship between the prospectus and Truth is purely accidental: the senior managers all have cvs suitable for use by Spiderman, the growth rate has been spectacular, the sector they’re in is overdue for huge expansion, and thus the sponsors have come to the City in order to finance the next stage on the road to global dominance.

Actually, the owners have come to the City because they’ve managed to cobble together five years of growth in a row (much of it through acquisition of failing minnows) and they want to pay off debt while tucking away a tidy sum in the Piggy Bank.

The crookery involved in many IPOs is exceeded only by the naivety of the investors just gagging to buy nine-bob notes for a quid. When not engaged in this gigantic con, investment bankers also manage (and often suggest and arrange) marriages between companies to create “economies of scale”. What this really means is firing lots of people, going through twelve months of eye-off-the-ball chaos, and then winding up with a five-humped colossus using square wheels.

In 2005, the Economist magazine audited every quoted company merger during the previous decade, and concluded that “53% of all such mergers destroy shareholder value”. Not reduce, not damage, not threaten: destroy.

The bourses of the world – every last one kept high by taxpayers throwing free money to the participants, and banks abolishing interest payments to depositors – are at the core of the current globalist model of commerce that is referred to as neoliberal capitalism. It’s effect as a whole is to starve creative entrepreneurs of risk capital and increase the dominance of lumbering giants that flex their cash mountains and distribution power to snuff out every last bit of dynamic competition.

The model is not capitalist: if the ordinary Joe or Joan can’t get interest on their savings, entrepreneurs can’t grow through capital offered at competitive rates, and the giants just keep getting bigger, then it could be a bird or a plane or even Wily Coyote, but it isn’t capitalism.

Most of the time, it’s a rigged, overrated monopoly driven by debt and lacking any realistic fit between electronically created money, and real value stemming from research, development, product performance, consumer appeal, quality distribution and inventive marketing.

Calling it a perversion of capitalism is far too kind; what began in the 12th century as a way for pioneers to afford raw material exploration has become a financialised fantasy based on depraved accountancy and unshakeable grips on the levers of government, retail, and media power by multinationals….huge concerns cheating at every turn on product quality and taxes owed.

There is a time and a place for an honest bourse reverting to its original purpose of bankrolling everything from excavation to social infrastructure projects. The current Dorian Gray version is already on borrowed time. The correct place for it is in the bin.