Comment: Centrica shareholders have let the side down

By TERRY MURDEN
Published on 13/05/2012 00:00

OF ALL the shareholder rebellions of recent weeks, the reaction on Friday to Centrica’s proposed executive pay package was not the largest, but it was arguably the most revolting.

Just under 12 per cent opposed the Scottish Gas owner’s remuneration report, a significant though smaller level of dissent compared to the votes cast at other recent annual meetings.

The executive team at Centrica were thus granted their multi-million-pound bonuses despite earlier that day warning customers to expect energy bills to rise again this year.

The arguments over the soaring cost of energy is for another day, but suffice to say that even if price rises can be justified, Centrica’s board does not seem to believe in sharing the pain.

MPs were outraged, one accusing Centrica’s “greedy bosses” of choosing Friday as a “good day to bury bad bills”. It was indeed good timing, as most shareholders had already cast their votes before the announcement was made.

But even if shareholders had prior knowledge of the price rises, it’s doubtful that it would have affected their voting intentions. Where it does not reward improved performance higher pay may be regarded as vulgar, but higher prices – even if they hurt the consumer – bring in more profit and the prospect of bigger dividends.

Centrica chairman Sir Roger Carr argued that the board had met tough targets, though the company’s profits have flatlined and it was fined £2.5 million by regulator Ofgem for mishandling customer complaints.

Much has been made of the so-called “shareholder spring” in forcing a number of executives to fall on their swords and boards to review their pay policies. But at a time when households are feeling the pinch and the mood is firmly against higher executive pay, it must be said that shareholders on this occasion failed the test.

JP Morgan’s blip bad for other banks

JP MORGAN was one of the good guys of the banking crisis, emerging intact while others lost their shirts.

Its ability to remain in the black throughout the dull days led chief executive Jamie Dimon to criticise the need for more regulation.

So his admission that the $2 billion (£1.2bn) loss in its London operations had left egg on his face looks like a severe understatement.

Not only was $13bn wiped off the value of America’s biggest bank, this episode has shown that individual traders can still blow huge holes in bank balance sheets.

British banks will be on tenterhooks in case this latest setback to the sector’s reputation forces the government to impose a more stringent regime than already proposed. One comforting aside for JP Morgan is that even this scale of loss will not undermine its operations.

The bank is on course for $17bn of profit this year and will absorb this loss without being unduly troubled.

Spanish woes likely to affect UK firms

THE Eurozone crisis bandwagon has rolled into Spain, setting a few alarm bells ringing in Britain.

Spanish expansion over the past decade saw companies such as Ferrovial, Iberdrola, Santander and Telefonica swoop on numerous blue chip British firms from BAA and O2, to Abbey National, Amey and ScottishPower.

These deals were funded on a sea of debt at the height of the acquisitions boom, and as the Spanish banks seek ways of restoring their battered balance sheets some of these assets may have to be sold.