De La Rue shareholders suffer from a licence to print money

At De La Rue’s shareholder meeting in June, 48% of votes were cast against the banknote printer’s remuneration report, presumably in protest at the £197,000 bonus awarded to chief executive Martin Sutherland in his final undistinguished year at the helm. Perhaps the 52% of compliant voters were half asleep. Five months later, the horrible state of De La Rue should be plain even to dozy fund managers.

Debt has soared, borrowing covenants are tight and there is “material uncertainty” over the 200-year-old company’s future if known risks materialise. De La Rue has fallen into a half-year loss of £12.1m. The dividend is being cut from 25p a share to zero, which clearly should have happened before now. The share price, down by almost a quarter on Tuesday, stands at a 21-year low.

The farewell bonus for Sutherland, who finally departed last month, now looks a wretched joke about a licence to print money.

New chief executive Clive Vacher was too polite to aim a direct kick at his predecessors but it wasn’t hard to detect his diagnosis of drift in the boardroom. “The business has experienced an unprecedented level of change with the chairman, CEO, senior independent director and most of the executive team leaving or resigning in the period,” he wrote in the half-year report. “This has led to inconsistency in both quality and speed of execution.”

This, remember, was the same succession process that departed chairman Philip Rogerson, who just beat Sutherland out of the door, described as “orderly”.

None of which is to deny that De La Rue is operating in tricky conditions. Margins in banknote printing are being squeezed by over-capacity. Growth in “product authentication and traceability” – meaning devices to track goods through the supply chain – is not yet fully compensating. In the wings, the Venezuelan central bank has stopped paying its bills (but perhaps it was never a good customer to accept) and an on-going investigation by the Serious Fraud Office tied to “suspected corruption” in South Sudan probably hasn’t lifted morale in the ranks.

The better news, of a sort, is that Vacher’s cost-cutting plan, with a strategic review to follow, looks more credible than Sutherland’s. The open question, though, is whether the balance sheet needs to be reconstructed since De La Rue is now a company valued at only £140m but carrying £170m of debt. In a rational world, Sutherland would be asked to return his £197,000 bonus but, of course, that won’t happen.

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Mini-bond ban is timely, but more is needed

Mini-bonds are a major financial scandal – or, more precisely, the scandal lies in the promotion to unwary small investors of speculative IOUs with enticing interest rates.

So one must welcome the Financial Conduct Authority’s decision to use a blunt instrument and ban the mass marketing of unlisted mini-bonds to retail customers from January. The Isa season approaches. The regulator had to do something.

Very good, but an emergency 12-month ban also serves to underline two features about mini-bonds, which typically fund loans to small companies or finance property developments. First, the current regulations on promotions are full of holes. Second, the shortcomings should have been recognised by the FCA before the collapse of London Capital & Finance, which failed earlier this year owing £236m to more than 11,000 customers.

The regulatory system needs a proper fix. At a bare minimum, punters should be warned in triplicate when their investments are not covered by the Financial Services Compensation Scheme. Pre-approval of marketing materials is another option to spare the FCA the “whack a mole” game of chasing Google to take down suspect websites. The Treasury-commissioned review, led by Dame Elizabeth Gloster, a former court of appeal judge, must produce workable proposals.

As for the FCA, it may now understand the size of the problem. It reports 80 cases of regulated activities being carried out without authorisation, and 200 cases of non-compliant promotions. Intervention is essential but it has arrived very late in the day.

Alarming levels of distain at Citibank

The next financial crisis, it is generally assumed, will occur outside the banking system. After all, regulators have focused their post-2009 reforms on big financial institutions, with “global systematically important banks” at the front of the queue.

But then you see the record £44m fine for Citigroup, one such global monster, and you wonder whether the comfortable thesis is correct.

The Bank of England cited “serious and widespread” failures in Citi’s record-keeping between 2014 and 2018. No real harm resulted on this occasion, but regulators rely on this data to monitor risks. A record fine implies an alarming level of incompetence, and perhaps distain for regulators, at a major bank.


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