ALLNewsBlog was a little surprised Wednesday to see the normally dry-as-dust Regulatory News Feed enlivened by the interim statement from Panther Securities PLC. The property investment firm’s results were worth reading for the numbers alone, as pretax profit multiplied to GBP4.9 million in the half-year ended June 30 from GBP257,000 a year before, as revenue increased to GBP7.1 million, from GBP6.2 million.
It also was interesting to read that Chairman Andrew Perloff’s proposal that the company donate GBP25K to the UK Independence Party was narrowly rejected by shareholders, forcing Perloff to make the donation to UKIP personally.
But what really grabbed ALLNewsBlog’s attention was Perloff’s personal commentary included within the statement, in which he takes on high-street retail property tax rates, the Bank of England, US Federal Reserve, and commercial banks by way of hair dressers and lady’s fashion.
We think he’s alleging that banks are profiteering and central banks are allowing it, but that’s reading between the many lines.
We enjoyed Perloff’s note so much, we thought it merits republishing in full. Enjoy!
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Chairman’s Ramblings
Last year in my interim report, I mentioned the unfairness of charging full vacant rates and indeed the damage done by this taxation system that is payable and continually increases whether a profit is made or not. This year the CEOs of many of our largest retailers have also taken up the cause, pointing out that the reduction in corporation tax is but a fraction of the increased taxes they pay under different guises.
The delay in rating revaluation was the final insult and misrepresentation when it was stated that the reason for this was to “help” businesses plan their costs.
There are about 100,000 vacant shop premises in our “high streets” each of which, if occupied, would probably generate 5 or more paying jobs. Many retails jobs are available to the less highly qualified school leavers or as stop gap employment for university graduates. Working in a shop needs punctuality, presentable appearance, pleasant interaction with customers and the ability to converse with all levels of people. It seems to be that many first time employees lack these qualities or experience and so any government scheme to improve the retail job market could be considered further education.
There are huge amounts of people who would like to start their own businesses. Their biggest fear is the first few years’ running costs; so, if the government allowed local authorities to give all new businesses the first two years rates free and then the next two years at half rates, I suspect within a year we would see at least 30,000 shops taken and thus creating an extra 150,000 jobs – probably double that amount if they are part time jobs. Historically, retail property ownership/ occupation was always taxed highly because most transactions were for cash and unscrupulous retailers were capable of not paying their appropriate share of tax by simply pocketing some of their turnover. Today most payments are via debit or credit cards and retailers can no longer hide their earnings from the tax man, so high rates once required to compensate for the manipulation carried out by cash businesses, are now very unfair and should be changed.
Last year I also questioned the logic of continuing quantitative easing to artificially force interest down to negligible rates. It seems to me the only groups that benefit are the banks who borrow huge amounts for speculation, governments who need to pay for unaffordable promises made to obtain votes, and of course, the impecunious.
Any business that wants to expand will not be unduly fazed by paying 1% or 2% above the normal current rates but they are put off when the charges become considerably higher and worst of all, when they are turned down completely for a loan and usually without a good reason.
Earlier this year, Barnacle Ben (barnacles move very slowly if at all and survive on boats and sea banks under water (get it?)) suggested that the Federal Reserve might start to slow down its purchases of USA government debt – overnight medium term (10 year) interest rates jumped 15 basis points to 2.33% pa. WOW! What would have happened if he had actually stopped the bond purchases?
This blip in rates to nearer normality benefited us and probably many others including pension funds but there must be others on the other side of the equation who were or will be losers. When will this show up in hedge funds? What would happen if rates went back to complete historical normality i.e. approximately 2% over inflation?
The new man in charge of the Bank of England was quick to try and contain the perception that quantitative easing would soon cease with limited effect. The cat is out of the bag, interest rates have only one way to go. I believe slightly higher interest rates that everybody believes are sustainable will bring more comfort to businesses than trying to hold them to a level that no one believes is realistic. More importantly higher rates force banks to lend more money to small and medium sized businesses who pay them the highest margins.
As always, I have a story that illustrates my point.
Many years ago, when I was still a young single man, like so many others before a night out, my friends and I would all meet up at one of our homes.
Martin, the father of one of my best friends, was always there as he had retired at a comparatively early age. To some youngsters this would be an intrusion but not to us as he had an endless supply of entertaining stories with which he regaled us.
In his younger days, which were probably in the 40s and 50s, he and his brother owned a hairdressing salon in Mayfair. Their location and cutting edge coiffures made them the hairdresser du jour with celebrities and members of the aristocracy queuing for an appointment.
I’m sure that most of you know, way before hacking was thought of, that the best way to discover a woman’s innermost secrets would be to ask her hairdressers. Sitting under the caring scissors of your stylist has a way of loosening the most reticent of tongues.
Martin therefore had a plethora of stories about Lady Docker the IT girl of her day and his favourite client, the countess of this and the duchess of that and tales of the misdeeds of many a young starlet. All of this was fascinating at the time but even then I was really only interested in trading so the stories were heard, enjoyed and forgotten but his business career was not.
After some years in Berkeley Street, the brothers’ success led to expansion that required larger premises which they found in Davies Street. Rather than relinquish their current very favourable lease, they transferred it to their sister who opened a high end ladies clothing shop. Due to the brothers’ social connections, it soon became a very successful business.
Time moves on inexorably and fashions change and eventually the salon closed its door and Martin went into semi-retirement. However, he did not want to lose contact with the world and people he had nurtured over the years, so he returned to Berkeley Street to help out his sister in her shop.
With his natural charm and always cheerful demeanour, he proved to be a great salesman. He told us that on numerous occasions, he would be asked “Oh Martin, I love this outfit, it fits perfectly, the colour is wonderful, but why is it so expensive?” Martin would then demonstrate the reply he always gave; standing up and spreading his arms wide, he would smile his charming smile and say softly “It’s the profit margin, madam”. He would then laugh to us and say that no-one ever questioned that answer but only thanked him for his helpfulness.
And so it is with the banks, it’s their profit margin, which is now enormous because of the shortage of finance caused by government interference, lack of proper competition and also the absence of any need to pay a proper price for the funds they borrow to onward lend. These conditions have let banks massively increase their profit margins. One of our subsidiary companies MRG Systems Ltd, which runs autonomously, is gradually improving, having struggled for the last few years, always with our full support, had independently organised a flexible overdraft facility of £50,000 with Natwest bank, who recently have arbitrarily told them that their interest rate payable would rise from 3% over LIBOR to 8% over LIBOR i.e. 16 times the bank’s costs to borrow. Even Martin’s sister with her one off dresses only managed a 3 times profit margin!!!!
Andrew S Perloff
Chairman
28 August 2013