England Riots Create Problems for the British Retail Industry

For the last 4 days there has been rioting in the streets of England. It started in London with the biggest problems in Clapham, Croyden and Tottenham and then spread to other cities, including Birmingham, Manchester and Liverpool. There have been smaller outbreaks of violence and vandalism in other towns and London suburbs.

The reasons for the riots are still not fully understood but first analysis suggests it is a combination of social depirvation, unemployment, spiralling costs of living and a general dissatifcation with the way the country is being run. The reports are of children and unemployed ethnic minorities rioting, but the truth is that people from all walks of life are being caught in the act. Even a primary school worker has been seen in court for looting from an electrical store.

The greatest concern for retail now is not the immediate clean up that is required, but the longer term survival. Some shops have had all of their valuable stock stolen, many are not insured against these actions and others have had thie business burned to the ground with no hope of starting again. However, the greatest concern is that these riots and contiunued unrest will discourage more shoppers from visiting the high streets.

The retail industry is under a huge amount of strain at the moment. We have seen many closures of major hogh street brands such as HabitatThorntons and Mothercare. Now there is a new crisis, a general fear of visiting the high street.

It could be weeks before people feel safe returning to high streets to shop, and shopkeepers are going to remain wary of firther rioting and looting. What happened once can happen again. The police have now sent much larger forces to the streets but this is not sustainable in the long term. Many police units from around the country have been brought in to bolster the London Met Police ranks, but in time they will have to return to their other duties.

Many businesses do feel that the riots have all but destroyed them already. There are talks of that some towns will become ghost towns as retailers decide not to operate in them. Once bustling retail high streets will become deserted roads in the centre of residential estates.

Dixon’s seems to have been the hardest hit shop with 23 stores vandalised and looted across the country. Dixons has 49 stores nationwide, so almost half of all of their stores are now out of business and the losses in looted stock will be astronomical with mostly high tech equipment being stolen.

Sony have essentially stopped importing CD’s and DVD’s after the Enfield warehouse was burnt to the ground.

Carphone Warehouse have also suffered losses with many shops looted of all stock. Charles Dunstone told Sky News that retail business leaders were feeling totally helpless to do anything and that many companies simply could not afford to take such as massive blow.

One independent electrical retailer in Hackney was cleared our. Harris Electricals, a family owned business run by Debbie Harris, the 4th generation of the Harris family running the store. She said that all televisions, home entertainment systems and 3D glasses have been stolen, along with many other goods. They have reopened partially, but sales are down 70% and parts of the shop are closed off awaiting forensic examination.

The British Retail Consortium (BRC) fears that many businesses will not survive this wave of looting and riots. It is a time when many shops are counting on tourists to bolster sales, but tourists are being warned that London is now a danger zone. A good Christmas is the only hope now for many shops.

Harrods Open Their Christmas Wonderland

It seems that the new owners of Harrods have decided that one way to boost sales this Christmas is to start early. Maybe the Qatari royal family simply mistook our miserable British summer for the onset of winter?

Harrods are not alone though. Selfridges have also set up Christmas displays. It used to be a case that some businesses would start Christmas promotions towards the end of August but this has to be the earliest a major high street brand has started their Christmas campaign.

It seems that Harrods are taking the approach that if British shoppers are not going to be spending bug this winter then why not encourage tourists to spend more. Most of the tourist industry is centred around the summer so visitors to London usually miss all the festive fun. Not any more! Already we have seen scores of Koreans walking through the dazzling Christmas displays, still with their sun glasses on, and admiring the snow and reindeers.

Maybe Christmas will come early to Harrods? Unfortunately for the rest of us, this could set a trend and we may start to see Christmas displays springing up in stores all over the country.

Harrods have said that part of the reason for the very early Christmas is because Ramadan is early this year and many Muslims buy Christmas decorations to decorate their homes.

Not everyone is happy about the way the retail industry has totally hijacked Christmas, but consumers generally vote with their feet and the early votes suggest that they like it!

Is Corporate Actions Automation a Viable Solution?

For 2 years I tested an automated corporate actions system. I cannot name the system here, but can say that it won awards at the time and has been in the financial news press since. However, for our business we found that the system was not compatible.

The reason for sharing this information is to highlight the complexities of automating corporate actions. I started writing this article in 2009 and then abandoned it as I felt that nobody was really all that interested. However, as automation has been in the news I thought it was a good time to dust it off and have a new look.

For any system to work it must be able to follow set rules. Unfortunately, corporate actions processing is not as simple as imputing MT564’s into the trading and accounts software.

Advantages of Corporate Actions Automation

Before choosing to automate corporate actions you should consider all the advantages and disadvantages. The main advantages are:

  • Reduced risk of human error. If the process is computerised from start to finish then there is a reduced risk of human intervention breaking it. Typical human errors which cost companies money are inputting incorrect ratios and the wrong instructions from fund managers.
  • Reduced risk of lost advices. Sometimes the biggest financial losses can occur simply because a company failed to act within a given timeframe. Post not being received is sometimes the cause.
  • Increased speed of information. In theory an automated system can vastly increase the speed at which notices are passed from registrar to fund manager via the custodian and middle office (where applicable). Most offices work on a 24 hour turnaround for corporate action notices, an automated system which uses SWIFT messaging can achieve same day notifications if all parties are compliant.
  • Faster Corrections. If a system is fully automated a fund manager can correct their instructions extremely close to the deadline – this assumes that all instructions are sent on to the custodians without human checking.

Disadvantages of Corporate Actions Automation

Automation always carries disadvantages. Some of the main disadvantages of automation are:

  • An almost total reliance on a software provider to keep your systems up to date. A change in market rules or processing methods could throw a system out of line.
  • Complex relationship between systems. An automated corporate actions system never works in isolation. Although the sending and receiving of messages via the SWIFT network may seem to be the main focus of the software, its interaction with the accounting systems is vital. Businesses may run more than one accounting system with different systems for holding client shares and stock on loan.
  • When the accounting system is updated the software may also need updating. Working with a software provider adds risk to operations as the accounting systems may roll out a vital security update at short notice which will conflict with the corporate actions software.
  • Lack of manual intervention. One of the biggest risks in an automated system is when there is no way to manually intervene when something has gone wrong. Software providers call these situations “workarounds”, in reality it is a major failing.

One of the main reasons for wanting am automated system is to avoid human error. Human error is normal in any working environment and most corporation actions departments soon learn to mitigate this risk by enhancing procedures and checking to ensure that the chances of an error are greatly reduced.

How Automation Works

Different systems operate in slightly different ways, but mostly they will follow this workflow:

An MT564 is received into the system. This is an initial corporate action notice from SWIFT. Data is extracted and added to the corporate actions database. If it is a new event then a new corporate action is created, if an current event this information is added to the event details. It is at this stage that the first human input is required, as if the new advice does not agree with previously received advices, rather than overwriting the event it should provide an opportunity for the event to be manually updated. This only happens when multiple custodian advices are input into one system.

If this is a mandatory event then the system only needs to update the corporate actions diary to then inform the administrators of the date to process. A more advanced system may communicate directly with the accounting system and make the required changes on the even ex-date, however, in most cases this step will not be followed as it is vital to ensure all trades and reconciliations are resolved first.

For voluntary events there are several additional stages. The corporate actions advice will set up the event and also set the custodian deadlines. It will then send out notifications to fund managers, quoting the corporate actions deadline (which is generally 24 hours before the custodian advice). If a fund manager instructs then an MT565 is sent to the custodian and the instruction details are added to the system so that the corporate actions administration team can view the decisions made and update systems accordingly.

That is obviously a very brief outline of how these systems work. In reality there are a lot of variations due to the many complex corporate action types.

Before starting a project to implement an automated system it is vital to determine if the costs of the project in the long term is going to really reduce risk. A corporate actions system is not a one off payment to replace a headcount in an office, it is a long term strategic decision. By implementing a system you are essentially choosing to outsource a part of the processing to a 3rd party, i.e. the software house. You have to weigh up the benefits of automation against the costs of losing some of the control of the process.

From the work that I did on automation it became apparent that the systems which we looked at were just too often prone to failure which could lead to greater financial cost than any human error that we had encountered. Such problems included event details being updated based on incorrect information, client instructions being reversed or not sent at all due to system deadlines being missed and a total failure to correctly process various issues from start to finish. Sometimes the workarounds took more time and posed greater risk than not having the system at all.

Saying all that, many people have implemented systems successfully, and as more experience is gained systems improve.

The best system will always be one in which the corporate actions processing is an integral part of the stock trading and accounting systems, rather than a 3rd party piece of software.

Scottish Power Raise To Gas Bills By 19%

As if households have not felt the squeeze already, Scottish Power have announced that they will be increasing gas bills by 19% and electric bills by 10% this August.

How do they justify such a huge increase? Scottish Power stated that the price increase was a reflection of the continued increase in the cost of buying energy (gas and electric). They have no choice but to raise prices by almost 20%

They have chosen to raise the prices at the height of summer when there is a huge reduction in household gas bills. The real pinch will be felt by the 2.4 million Scottish Power customers when autumn comes.

700,000 Homes Protected By Capped / Fixed Contracts

Not all customers will experience these price rises though as 700,000 households have opted for either a capped or fixed price contract. However, when these contracts expire they may then be force on to the higher tariffs.

8.9% Electricity Rise in November 2010

What is most shocking is that Scottish Power raised electric bills by 8.9% just 7 months ago. This means that by August both gas and electric prices will have increased by 19% in one year.

Scottish Power still claim to offer the cheapest product currently on the market.

Scottish Power are now owned by Iberdola, a Spanish power company.

Further information;

Retail Sector Struggled In May 2011

High street spending was down again in May 2011. Weather cannot be blamed this time so it really is simply that people are saving their money.

This is really a good thing as as for too long people have been borrowing too much. Maybe the downturn is spending is not the result of people making the conscious decision to save, maybe it is simply because the big spenders of the past simply cannot get any more credit.

The treasury reminded us yesterday that the UK is not in recession, but as far as the average household is concerned, with still high unemployment, pay freezes, high inflation and very high petrol and food prices, we may as well be.

The worse hit products have been clothes and footwear. This is generally where women spend most money so a downturn is an indication that household budgets have been squeezed.

Also larger household items are suffering, including large furniture items such as sofas and new beds. People are just making do with what they already have instead of borrowing money to buy something new.

In these days of austerity one thing is clear – most people are getting by OK and less resources are being wasted on replacing items that are not broken.

Some of the biggest losers during this downturn are Focus DIY (who we have already reported on) and Oddbins, both of which have gone into administration. Oddbins was more of a surprise as the drinks industry generally fares well in the bad times. It is likely that shoppers are buying more wine from supermarkets who often provide cheaper options.

Many UK Store Closures

In additional to Focus DIY and Oddbins many other companies have announced that they will be closing down some of their high street stores. Mothercare announced a few weeks ago their plans to close down many of the high street branches to focus on the retail park stores. Other companies closing down shops include:

  • HMV
  • JJB
  • Comet
  • Dixons

The entertainment and electrical industry seems to be really suffering. Combined with the Currys-Dixons store mergers in 2006, the problems of many Bennetts Electrical stores in the East earlier this year the number of electrical shops on the high street is the lowest it has been in decades. There are still many mobile phone shops but people are either buying fewer electrical items or using the Internet instead (on a personal note, I ordered a new DVD drive for my PC yesterday from Amazon as it was half the price of any high street store).

The only way to boost retail spending again is to increase employment and reduce tax and fuel prices. Neither appears to be happening in the near future.

Investors Already Selling Off Airline Stocks – Volcano

European airline shares have fallen by around 5% in value already after a spate of selling by investors all over the world in response to the new Icelandic volcano.

By all accounts flights should not be affected as badly as last year as the civil aviation authority is allowing planes to fly in higher concentrations of volcanic ash, but there are already several cancellations across norther Europe.

This current volcanic eruption is also sending up larger particles than last year which are expected to settle sooner with much of the ash falling in the sea before it reaches Europe.

All the weather we have been having is also helping at the moment. It seems the the air industry is currently at the mercy of weather.

The transport secretary will be chairing a COBRA (Cabinet Office Briefing Room A) meeting later today (15.30hrs) to assess the current situation.

About 400 passengers spent the night at Edinburgh airport last night.

The Red Cross have issued blankets and supplies to stranded passengers.

The ash cloud is expected to be over Scottish air space from around 13.00 hrs today through to the evening.

Interest Rates Remain 0.5%

The Bank of England has decided to keep interest rates at 0.5%

The was speculation in the business community that May would be the month that rates started to increase again. However, BoE have conceded that the economic situation is still far from recovered. To increase borrowing costs would put many small businesses and home owners at great risk.

Inflation Pressure

Rising inflation, mostly caused by increasing oil prices, has put pressure on the BoE to raise interest rates. Inflation is now at 4% which is twice the government target.

But as the UK economy has been stagnant for 6 months the bank decided to keep the rates at 0.5%.

For the UK economy to grow at th grass roots level interest rates must remain low. An increased cost of borrowing can see small businesses fold overnight, and many homeowners are relying on low interest rates to keep up with their mortgage payments. This news is a great relief to many people across the UK today.

UK Economy Shrinks By 0.5%, But It Is Not In Recession

Latest figures show that the British economy shrunk in the final quarter of 2010. Everyone is blaming the coalition government and the snow, but nobody is calling it a recession. It’s a progressive reduction of 0.5%.

People are simply spending less, which is no surprise as half the people are out of work and the other half cannot get a loan. OK, that was not a statistic but an opinion.

Fact: GDP contracted by 5%, representing a shrinking economy at the end of a relatively good year.

Public sector net borrowing has been reduced to £16.8 billion in December 2010.

It is not known what effect the increase is VAT will have on the first quarter of 2011.

The Treasury have said that they are disappointed. But they blame the weather.

Ed Miliband is New Labour Leader

Not sure if that is New Labour Leader or new Labour Leader though.

A young guy at just 40 years old. Oxford educated, joined the Labour party when he was 17 years old. MP for Doncaster North and was secretary of state for Energy and Climate Change.

Son of a Marxist writer Ralph Miliband. He beat his big brother David Miliband to win the leadership race.

He is a real thinking man, having been educated at Oxford and the London School of Economics. Close ally to Gordon Brown and became Chairman of the Treasury’s Council of Economic Advisers.

The Trade Unions backed Ed which allowed him to snatch victory from his brother.

Mortgage Borrowers Being Rejected at Record Rates in the UK

An increasing number of first time home buyers are finding it extremely difficult to get mortgage loans in UK. Mortgage lenders are rejecting home loan applications at a record rate. According to a latest report released by British Bankers’ Association (BBA), approvals for home purchase loans plunged to a 4 month low of 34,813 in June 2010. The figure is down from 36,418 in May 2010. Mortgage lenders are rejecting 90% of the loan applications on receiving low deposits. Hence, the home buyer needs to decide the amount of money he can put down on the purchase price of the house. This will help a first time home buyer know mortgage how much can I borrow for a  easily.

Mortgage applications being rejected at record rates

According to a renowned mortgage specialist, mortgage loan applications are being discarded on slightest pretexts such as late credit card payments. Moreover, one mortgage lender even accepted of rejecting 90% of the applications it gets for 90% LTV (loan-to-value) home loans. It has been reported that the total value of mortgage lending has been below average in the first quarter of 2010.

The first-time home buyers need to larger deposit than any point of time. The borrowers are required to make at least 25% down payment on the purchase price of the homes. Now, the average cost of a first house is around £142,457. This price is around 4.6 times higher than that of the average UK wage. Hence, it becomes quite difficult for the borrowers to make that much of down payment. But most lenders are refusing to approve loan applications with less than 25% down payment. So, if an individual is planning to take out a mortgage loan in UK, then it is advisable to check whether or not he can put down 25% of the purchase price of the house. This will help him know for a ‘mortgage how much can I borrow’ immediately.

The above facts are indicating that the UK mortgage market might be on the verge of a fresh crash. The Halifax home price index has already dropped for 3 consecutive months. According to the latest report of Royal Institution of Chartered Surveyors, the home buyers demand had dropped to its lowest point in 2010. According to a renowned economist, the home prices are likely to drop further by 3% to 5% in the second quarter of 2010.