British Firms Appear Healthy After Crash
Black Monday did not spell red for British investment firms, which appear to have survived the worldwide stock market crash relatively unscathed.
Piecemeal disclosures show firm losses have not been nearly as bad as the dire predictions issued after share prices began plummeting Oct. 19.
The Big Bang, the deregulation in October, 1986, of Britain’s financial markets, provided part of the cushion.
The Bank of England said it has monitored the firms carefully since the crash and was pleasantly surprised.
“There have been no significant failures, so the results do speak for themselves,” said a bank official, who spoke on condition of anonymity in accordance with British custom.
However, not all British firms have reported their losses, and those that did made only partial disclosures for varying periods.
In addition, the vast majority of British firms aren’t publicly traded, so they’re not required to make disclosures, and their shares, whose market prices would indicate losses, are not listed.
Still, Rod Barrett, a banking analyst with the firm Hoare Govett Ltd., said the impact has been “less bad that one might have expected given the crash.”
Barrett added: “There will be some tidy losses, I’m sure, in various places, and some of them will come as surprises and even a shock, but I don’t think it’s going to have people worrying that someone will close down or affect the marketplace.
“I do not see the losses that they sustained in the crash as altering more than one year’s profits,” he said.
Trend May Accelerate
Losses have been cushioned by profits made in the long bull market before the crash, he said.
David Poutney, a banking analyst with the investment firm of Barclays de Zoete Wedd Ltd., said those who were able to trade in first-line stocks--the Financial Times-Stock Exchange index of the 100 leading British stocks--have been able to trade their way out of trouble.
The effect, said Poutney, will be to accelerate the trend of concentrating the business among the bigger players.
Any layoffs in British firms will not be as dramatic as those on Wall Street, where thousands of people have been let go, the analysts said.
Some British firms already were retrenching before the crash because the post-Big Bang environment became much more competitive than expected.
Deregulation allowed commercial banks to enter the securities business and foreign firms to join the Stock Exchange in London.
It abolished minimum commissions and allowed brokers to make markets in stocks, an activity previously restricted to firms called jobbers.
At the same time, the Stock Exchange introduced new computer systems allowing dealers to trade off the exchange floor by using their phones and screens.
Security houses faced big losses on the huge sale of the government’s remaining 31.5% stake in British Petroleum Co. The $13.4-billion share sale was a flop with investors because it coincided with the market crash. Underwriters were left holding the unsold stock.
Smaller Losses
But British firms’ underwriting losses were smaller than those suffered by U.S. and Canadian underwriters because Britain has a system of spreading the risk of large equity issues through sub-underwriting.
The biggest losses have been reported by National Westminster Bank PLC, Britain’s largest commercial bank. It announced that its investment arm, County NatWest, had post-crash trading losses and provisions totaling $120 million.
“The big surprise is NatWest. They lost a lot of money and they’re not a large player. To lose that amount of money is appalling,” Poutney said.
However, Barrett said, “in the context of NatWest, it’s nothing.”
Barclays de Zoete Wedd Ltd., the investment unit of Barclays Bank PLC, said it had a total pretax loss of $33 million for the year ending Nov. 19. Analysts estimated that the firm lost up to $111 million in the crash.
