Last September, David Schwimmer, boss of the London Stock Exchange Group, hit back at mounting criticism that the City was losing its status as one of the world’s leading financial centres.
The ex-Goldman Sachs executive described these fears as ‘an overplayed narrative and anything that is seen as negative commentary about London as a financial centre has become kind of clickbait. I think that narrative is overplayed’.
How Schwimmer must be eating his words today. Or he certainly should be.
In the space of a couple of days, the UK’s two biggest FTSE 100-listed companies, Shell and AstraZeneca, have in different ways shown that the ‘narrative’ has, if anything, been underplayed. Massively so.
The first red flashing light came from Shell. In a stunning confession, chief executive Wael Sawan said the oil giant was looking at quitting the London market and listing instead in New York, as one of many options to boost the group’s valuation.
Dark days: Brokers Peel Hunt likened the ‘relentless’ pace of takeover activity to a ‘feeding frenzy’ that could see more than 100 firms leave the stock markets over the next four years
There was nothing ambiguous about his words. In an interview with Bloomberg, he said: ‘I have a location that clearly seems to be undervalued.’ You can see why Sawan is so exasperated. Shell’s shares trade on a huge discount – or gap, as he calls it – to New York-listed rivals such as Exxon Mobil and Chevron, which is why it keeps buying back its own shares. (Anyone with money to spare should also be investing in Shell).
The second flashpoint came with the sheer scale of the backlash against the pay increase for Pascal Soriot, chief executive of AstraZeneca.
Soriot’s increase went through, but more than a third of investors voted against the rise to £18m.
On any measure, it is a generous pay package but, by US standards, it’s low for such a successful corporate leader.
Soriot has not threatened to up sticks yet, but there are fears that growing controversy over chief executive pay levels – and a distinctly British dislike of entrepreneurs and corporate success – are driving companies overseas.
Indeed, even Schwimmer has floated pay as one of the key causes for listing problems. If the UK wants to keep talent, he says, we should be copying US-style packages. Interestingly, he hopes to double his pay to £13m this year. Talk about talking your book.
While pay is one factor behind the LSE’s struggles, it is by no means the most compelling reason why companies such as ARM Holdings chose Nasdaq or why Flutter Entertainment crossed the water.
These have been well-rehearsed yet still nothing radical enough has been done by the Government or regulators to get to the root of why so many UK-listed companies are fundamentally undervalued.
We know the reasons. Institutional investors lack an appetite for risk – they own only 4 per cent of the equity markets compared to 46 per cent in 1997 – and are encouraged to invest in bonds. Liquidity is low and the cost of capital is high. Dual listing rules have been too stringent. Debt is favoured over equity. Stamp duty taxes are also too high. All this has led to the dearth of IPOs – 16 last year compared to 26 the year before. The Footsie has lagged the S&P 500 in New York in 13 of the past 15 years.
And it is only going to get worse. Brokers Peel Hunt likened the ‘relentless’ pace of takeover activity to a ‘feeding frenzy’ that could see more than 100 firms leave the stock markets over the next four years.
Goldman Sachs reckons £5billion has been pulled out of UK dedicated stock funds already this year.
If Shell were to move, it is inevitable that companies such as rival BP and commodities giant Glencore would follow.
One of the main attractions of the London market until now has been its international spread of corporates and investors.
Rather than justifying his pay rise, Schwimmer should call an emergency war cabinet at Paternoster Square this weekend with colleagues from the Treasury and the FCA to come up with radical plans to stop the potential exodus. And if not, we should be asking why not.
The best Chancellor Jeremy Hunt has come up with is a British ISA.
No bad thing in itself, but it’s fiddling while Rome burns.
He has a few months left. For starters, stamp duty on share trading should be scrapped. Now.
