US justice department causes jitters for Glencore | Nils Pratley

Glencore is the Swiss-based FTSE 100 miner that goes where others fear to tread. The hunt for higher returns hasn’t obviously paid off – the 2011 flotation price of 530p hasn’t been seen since – but the company’s appetite to operate in countries such as the Democratic Republic of the Congo (DRC) is undimmed. It’s what chief executive, Ivan Glasenberg, and his crew do. The stock market has just had to learn to price the risks.

It struggled in that task on Tuesday after Glencore said it had received a subpoena from the US justice department (DoJ) to produce documents relating to its operations in DRC, where it has two copper and cobalt mines, and also in Nigeria and Venezuela, where it trades oil. The DoJ wants to know how Glencore has complied with bribery and money laundering statutes and is looking as far back as 2007. At one point, the share price fell 12%, before closing 8% lower.

The market’s confusion is understandable. Some DoJ requests for information go nowhere. But this demand has arrived at such a delicate moment it is hard to believe the timing is coincidental. Less than a month ago, Glencore settled a long-running dispute in DRC with its former partner Dan Gertler, an Israeli billionaire on whom the US imposed sanctions last year. To keep control of its mines, Glencore resumed multimillion royalty payments to Gertler but thought it was safe to do so, from a sanctions perspective, because the payments would be in euros.

Would the US authorites really tolerate that arrangement? Perhaps they would if bigger wheels were turning in the background. For example: if the US feared Glencore’s huge ouput in the DRC of cobalt, used in batteries, mobile phones and electric cars, could fall into Chinese hands while trade war threats are flying, would it privately smile upon the settlement?

That thought comforted investors – not least because Glencore said it had met with US authorities. But now the DoJ is on the prowl anyway. Is it just reminding Glasenberg of its presence? Is it acting independently of the US Treasury? Could its subpoena be about something else entirely?

Those questions will hang in the air until facts emerge. As things stand, investors can only contemplate the alarming combination of a controversial deal in the DRC and an unpredictable administration in Washington. It is reminder of why some fund managers have always regarded Glencore as un-investable.

Ofwat seeks to end timidity

“The decisions some water companies have made on dividends, financial structures and top executive pay have damaged customer trust,” says Ofwat chief executive Rachel Fletcher, accurately.

The regulator intends to get heavier on all fronts and some of its ideas are clearly better than the timid hands-off approach of the past. If companies take higher-risk bets with their balance sheets, by cranking up borrowings beyond the 60% leverage ratio in Ofwat’s model, they’ll have to share some of the winnings with customers.

Yet the watchdog’s proposals on pay look more bark than bite. Companies will have to show “a substantial link” between executives’ incentives and “performance delivery” for customers. What does “substantial” mean? Ofwat didn’t say, which companies may interpret as a green light to offer a few token gestures while leaving in place potentially lucrative schemes based on returns to shareholders.

Indeed, the structure of rewards is only half the problem. Trust has also been damaged by the sheer size of pay packets. Or, at least, that’s what the environment secretary, Michael Gove, suggested in a speech to water company bosses in March in which he ran through a few recent highlights – £2.8m for the chief executive of United Utilities, £2.4m at Severn Trent and £1.2m apiece at Anglian and Yorkshire. “You must realise that, in the public eye, you are very handsomely remunerated,” said Gove.

Fair point. But Ofwat is powerless to curb the quantum of pay. As long as that remains the case, one suspects its “substantial link” to leakage targets, and suchlike, will get lost in the wash.

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Monk-y business

The Dutch digital advertising folk at MediaMonks will be laughing into their habits. They’ve arranged an auction of their production company and as, luck would have it, two parties waving their hands in the air have reasons to bid aggressively.

One is Sir Martin Sorrell, who will want to get his post-WPP career off to a flyer. The other is WPP itself, which will be desperate to show that its failure to impose a non-compete clause on Sorrell was less embarrassing than it looks. The chance of somebody overpaying is high.


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