Comment: Opportunity for investors taking a risk

Martin Flanagan
Martin Flanagan
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IT MIGHT seem ironic at first blush, particularly set against the freshly destabilising effects on financial markets of the extraordinary events in Cyprus (see below item), but a string of takeover deals yesterday, accompanied by a gathering flurry of flotation activity, begs the question: are we seeing a recovery in investor sentiment?

Nobody is actually putting up bunting yet, but encouraging signs suggest the housbuilding sector has at least put in a damp-proof course and installed new electrics.

The latest auspicious augury came yesterday, with the acquisition of the Scottish Cala housebuilding group by insurer Legal & General and private equity firm Patron Capital Partners.

A vote of confidence in housebuilding assets from one of Britain’s leading financial groups and the private equity industry, the latter not normally known for investing in sectors heading downwards, is welcome.

It comes after the recent successful £600 million flotation of housebuilder Crest Nicholson, a large stock market listing being another traditional touchstone of a sector’s perceived prospects.

Buttressing this housebuilding recovery scenario are several recent profitable results statements, including industry leaders such as Persimmon and Taylor Wimpey.

But the new optimism is far wider than housebuilding. Scottish engineering group MB Aerospace, spun out of the old Motherwell Bridge in a management buyout backed by Lloyds Development Capital in 2008, was bought yesterday in a second MBO by US-based Arlington Capital.

On the same day, another American private equity outfit, KSL Capital Partners, swooped to buy UK hotels chains Malmaison and Hotel du Vin, while Scottish energy outfit Ramco Oil Services has been bought out by Lloyds Development Capital.

Then we have had the recent successful flotation of part of Royal Bank of Scotland’s stake in the Direct Line insurance group, and Lloyds (they are busy bunnies) deciding to cash in a substantial amount of its chips in wealth management group St James’s Capital on the stock market.

Over the piece, there looks more of a market and private equity appetite for risk. It’s as if those two constituencies are looking beyond the UK’s austerity climate and seeing opportunities amid the challenges.

EU in a dangerous, nay reckless, Cypriot move

BILLIONS of pounds have been slashed from the value of shares around the world after the European Union’s crazy raid on bank accounts in Cyprus in return for any bailout. It was always a risk for the EU in such a bold (reckless?) action that such a move on the bankrupt island would risk capital outflows from other debt-strangled countries in Europe.

It is hardly the benefit of hindsight that allows one to conclude financial markets would be deeply disturbed by such a move. The EU was therefore either incompetently naive, or recklessly uncaring. In one fell swoop in Cyprus, European politicians have sapped the basic public trust that is the bedrock of any banking system.

If you can raid Cypriot bank accounts in this way, what is to stop the EU doing the same thing in other circumstances with Ireland or Portugal, even Spain or Italy.

It also seems to drive a cart and horses through the EU’s deposit insurance rules, under which most of us have felt €100,000 (£85,000 in the UK) is guaranteed. An almost surreal milestone has been passed.