Comment: First things first after rail franchise debacle

FIRSTGROUP chief executive Tim O’Toole spends half his week back home in Pennsylvania, but he must be wondering if it is time to change his work routine by spending more, or perhaps less, time in the UK.

Seeing the west coast main rail line prized plucked from his grasp has forced some quick number-crunching from analysts who are worried this will blow a hole in the Aberdeen company’s balance sheet and even prompt a fund raising exercise.

First’s bus division was already under strain and the sale of £100 million of assets is proving slow.

I said in this column yesterday that success on both fronts was uncertain and Transport Secretary Patrick McLoughlin confirmed First’s worst nightmares late on Tuesday night when he ripped up the tender process for the Glasgow-London rail route. With its plans in disarray, First eagerly pushed out a statement emphasising that the company was not at fault and McLoughlin confirmed as much when he suspended a number of civil servants, placing the blame squarely on his department and, by innuendo, his predecessor Justine Greening.

O’Toole will be less concerned with the political in-fighting that may be a consequence of this debacle than he is about his own position. While he and First are off the hook on the cancellation, they will need to ease investor worries over the short-term uncertainty that prompted a sharp fall in the shares.

Jury is still out on prospects for RBS

Royal Bank of Scotland chief executive Stephen Hester has been outlining his hopes of a recovery and a return to paying dividends, though not everyone is happy.

Investec analyst Ian Gordon has always doubted the wisdom of the ten-for-one share consolidation exercise in June which the bank and its advisers hoped would reduce volatility in the stock.

Gordon claims it has done nothing of the sort, and now there has been what he calls a “useful correction” he is recommending closure of short positions.

Sceptics believe there are still too many constraints to stimulate any early return to RBS becoming a growth stock and the bad news is not over yet. A hefty fine over the Libor scandal is among the negative headlines yet to be written.

That said, there was something to cheer yesterday with news that there has been a healthy demand for shares in insurance group Direct Line which RBS is selling. This augurs well when it comes to market.

Despite his barbed comments, Gordon seems baffled by arguments from the regulators that the banks should raise more capital. RBS has a 10 per cent capital buffer, more than twice the level at the time of the bail-out, which would bear out his view that it does not need more funds. He has upgraded RBS from from sell to hold, though only lifting his target price from 245p to 255p.

Buying RBS shares is only for the brave, the supremely optimistic or the slightly unhinged, but at least they may no longer be sinking.

Small is beautiful, even for big supermarkets

Mary Portas is worrying about the ailing high street and the soaring number of empty shops. To that extent the supermarkets are doing everyone a favour. If they had their own way there would be one on every corner.

The small in-town format store is now driving growth in the sector alongside online operations. It also means fewer out of town sheds. 
Hooray to that.