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Michael Baxter

Bull and bear: US corporate pays a year’s worth of dividends upfront in fear of fiscal cliff

Written by: Michael Baxter on December 4th 2012

Category: Bull & Bear, News

Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories: US corporate pays a year’s worth of dividends upfront in fear of fiscal cliff. Banking crisis is as bad as World War II, says Haldene. Yahoo fined $2.7 billion in Mexico. It’s early days, but so far the Funding for Lending Scheme is not exactly a runaway success. Blow to US economy: is the recovery over? Companies in the news Rio Tinto, Sirius Minerals

US corporate pays a year’s worth of dividends upfront in fear of fiscal cliff

Here is some irony for you. The fiscal cliff may provide a reason to buy, although only in the very short term, and only if you are very skilful or lucky in picking the companies.

Oracle has announced plans to bring forward all its dividend payments planned for the next 12 months into December. In all it is forking out $800 million in dividend payments originally slated for 2013.

According to Reuters: “In doing this, it is joining a growing number of companies accelerating such payments or declaring special dividends.”

So why the move?

It’s that fiscal cliff. Right now, in the US, dividends are taxed at 15 per cent. But if Congress is unable to agree with President Obama before the last day of this year, the Bush era tax breaks will come to an end, and the tax on dividends will rise to 39.6 per cent.

Banking crisis is as bad as World War II, says Haldene

“In terms of the loss of incomes and outputs, this is as bad as a world war. That is the scale we are talking about.” Or so said the Bank of England’s executive director in charge of financial stability, Andrew Haldane, on Radio 4’s ‘Today’ programme yesterday.

He said: “If we are fortunate, the cost of the crisis will be paid for by our children. More likely it will still be being paid for by our grandchildren.”

This is a tricky one. Andrew Haldene is a good bloke, and has said some good stuff over the years. He even went against the consensus view in the city and said that the Occupy movement had acted as kind of moral compass, or touched a “moral nerve” and played an important role.

He has sided against bankers’ pay, has called for more regulations, and for separating investment and retail banking.

In his Radio 4 interview, he said: “Back in 1980, your average investment banker was paid the same as your average lawyer or doctor…By the time we got to 2006, they were being paid four times as much.”

Yes, yes, Mr Haldane you are right there, but…

If you believe today’s crisis is down to greedy bankers, then that’s it, end of the argument – fix the banks, and you fix the economy.

But supposing there are deeper forces at play, which has been argued here so often; for example emergence of new technology, or demographics.
See: The real cause of today’s woes
See: Baby boomers retirement is the single biggest challenge facing UK 

If that is so, the banking crisis was a symptom, not a cause of today’s problems.

Then again one could argue that World War II was a symptom of underlying economic challenges – a nasty symptom, to be sure, but not the cause.

But the real point is that while World War II inflicted  a massive cost on the generation that fought in the war, later generations may well have been better off as a result. World War II was accompanied by a massive fiscal stimulus, and may have helped to re-structure the economy by promoting industry and manufacturing, as well as helping to facilitate the changeover in the US from farming to manufacturing.

If it is the case that the banking crisis in terms of cost has had a similar effect to that of World War II, why can it not then be followed by a World War II style stimulus?

Yahoo fined $2.7 billion in Mexico

This is an odd story. But, according to this report on ‘CNNMoney’, Yahoo has been fined $2.7 billion in Mexico. The fine, by the way, is the equivalent of 36 per cent of the company’s cash mountain. The fine relates to an alleged breach of promise on a yellow pages listing. Yet Yahoo has a relatively modest presence in Mexico. Common sense says the fine is a little on the high side, in much the same way that Mount Everest is a little on the high side.

Yahoo says it: “believes the plaintiffs’ claims are without merit and will vigorously pursue all appeals.”

If the fine does go ahead, it will be a catastrophic blow for Yahoo. And yet its share price was hardly affected yesterday.

The general feeling is that there is little chance that the Mexican court ruling will be upheld on appeal.

It does make one feel a little concerned about the objectivity of the Mexican legal system when it comes to US companies.

Not that the US legal system, as Samsung and BP may testify, is particularly objective when it comes to non-US companies.

It’s early days, but so far the Funding for Lending Scheme is not exactly a runaway success.

Yesterday saw the first set of data on the impact the Funding for Lending Scheme has had on lending since it was launched. Alas, the data was not very good.

In all, 35 institutions signed up to the scheme, but so far only six have made use of the funds available.

Or look at it this way. The Funding for Lending Scheme was meant to make £70 billion available. So far only £4.36 has been lent.

Furthermore Lloyds, Santander and RBS were among the banks that did sign up to the scheme, and in the period the data which relates to their net lending was actually negative.

This does not mean the scheme is an unqualified disaster – not yet anyway.

For one thing, the data only related to a two month period, so it probably is too soon to say for sure.

For another thing, we don’t know what bank lending would have been like without the scheme. Maybe the government initiative stopped an outright collapse in lending of the kind of scale not seen since 2008.


It does feel confusing, however. Banks are told to build up capital, and slated for not lending.

To say the Funding for Lending Scheme has been an unqualified disaster is a bit harsh. Let’s just settle for a qualified disaster.

Blow to US economy: is the recovery over?

Late yesterday afternoon, UK time, the latest Purchasing Managers’ Index (PMI) from ISM covering US manufacturing was out, and it was bad.

The PMI fell from 51.7 in October, to 49.5, falling below the 50 no change level. It was the lowest reading in three years.

There are just a handful of possible explanations. One is that it was down to hurricane Sandy; if so then that is actually good news, because that would imply the slowdown is a one off.

Another explanation is that it all boils down to fears over the fiscal cliff. If that is the case, if Congress and President Obama can reach an agreement, US manufacturing should pick-up.

The third possibility is that Uncle Sam has caught Europe’s cold.

ISM seemed to put the blame on fears relating to the fiscal cliff.

Companies in the news

Bull:       Questor in the ‘Telegraph’ took a look at Rio Tinto on Sunday. The company is cutting costs while ramping up production of iron ore, copper and aluminium operations. Questor foresees improved cashflow and higher dividends/share buy-backs. It said “buy”.

Meanwhile, this morning, over at the ‘Times’, Tempus took a look at Sirius Minerals. The company says costs related to its Potash mine are likely to be $1 billion less than originally thought. Tempus felt the stock was worth a speculative punt.

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Tags: Andew Haldene World War 2 banking crisis, funding for lending scheme, Oracle dividends fiscal cliff, Rio Tinto, Sirius Minerals, Yahoo fine Mexico

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