There’s no greater setback to Rishi Sunak’s efforts to make Britain the next Silicon Valley than the decision by the country’s biggest tech company, Arm Holdings, to re-list in New York.
Owner SoftBank is turning its back on Cambridge intellectual property, UK R&D and digital infrastructure.
It comes at a time when events at Silicon Valley Bank and San Francisco-based First Republic show that the financial stability surrounding US high-tech is far from secure.
The city’s regulator, the Financial Conduct Authority (FCA), has been criticized for Arm’s failed return to the London Stock Exchange (LSE), although it is suspected he never really was on the radar of manipulative SoftBank boss Masayoshi Son.
It is encouraging that FCA Chief Executive Nikhil Rathi has taken the Arm fiasco to heart and wants to remove barriers to primary and secondary listings in London, thereby making the Square Mile more competitive.
Floating: City regulator the Financial Conduct Authority has been criticized for failure to bring Arm back to the London Stock Exchange
He wants to abolish the distinction between standard and premium listings on the LSE and create a new, less regulated single listing.
The proposals will produce howls of anger from governance gurus, but could be just what is needed to reinvigorate the moribund UK market for initial public offerings, and could discourage would-be exiters from fleeing to Wall Street. .
There would be strict transparency requirements to replace the existing rules.
The requirements for presenting a three-year financial file, among the obstacles to start-ups, would be swept away.
Mandatory shareholder approvals for material transactions would be abolished, although full disclosure of transactions would be required.
Rathi argues that the UK’s strong board structure, with separation and independence between chief executives and chairmen, should protect all stakeholders.
He draws attention to the withdrawal of defined benefit pension funds from the UK stock market, with just 2% of portfolios in the FTSE, down from 50% in 1992. The rot began when Gordon Brown scrapped the tax incentive for dividends.
This has triggered outflows overseas and more recently fully funded plans have moved away from stocks.
Still, there’s a lot to play for as 90% of Britons outside the public sector are in defined contribution schemes, with the sums invested projected to reach £1trillion by 2029.
The opportunity to rekindle pension fund interest in UK stocks and shares is here. The UK will have to compete for that money and new, simpler registration requirements could make UK businesses much more invested again.
In the past, the Bank of England has buried discussion of the risk of liability-driven investments (LDIs) – derivatives built on golden stocks – in the back of its Financial Stability Report.
After last fall’s blackout, which jeopardized the nation’s pension funds, there is a change of heart.
He took the advice of former Deputy Governor Paul Tucker, who suggested that managers of pension funds, using devices such as LDIs, need to have sufficient liquidity to navigate through a variation of 2 .5% of the price of UK government bonds. . Previous stress tests looked at a 1% move.
Having slammed that stable door, the Bank is confident that UK banks, which hold capital against interest rate risks, are in a better position than some overseas counterparts. He seems confident that UK banks have the ability to support the economy in an era of high interest rates.
Maybe, but Governor Andrew Bailey can no more reverse the trend than King Canut.
We saw how quickly cash moved in the US, where £260bn of deposits fled banks into the money market/mutual funds with the flick of a key.
Anyone watching across the Atlantic and attending events in Zurich, where former UBS boss Sergio Ermotti was parachuted in to take over the rescue of Credit Suisse, can only be nervous.
There is no room for complacency.
Shares of Next have suffered in recent trades from chief executive Simon Wolfson’s acknowledgment that rising costs will hurt earnings this year. It’s worth bearing in mind that Wolfson likes to cook expectations badly.
More importantly, he recognizes that inflation is falling to 7% as summer approaches and will fall to 3% by the fall.
It’s a boost not only for investors, but also for Chancellor Jeremy Hunt. Phew!
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