2020年2月14日

ItiseasytodismisstheassortedproblemsofBP,thePrudential,RBSandBritishAirwaysasunconnected,justrandomproblemsthathappentohavecomealongatthesametime。

Butthatisnotmyview。

Eachofthesebigcompaniesisunderpressuretogrow。

Theyallhave,orhavehad,newbosseswhoneededtoprovetheirmettle。

Theyallhaveagroupofinstitutionalshareholderswhodemandgrowthwhatevertherealitiesofthesituationorthepossibleconsequences。

TakeBP,forexample。

IncomesnewbossTonyHayward。

Toearnhisspursheintroducesacost-cuttingdrive。

Cityshareholderslovethis。

Costcuttingisaquickwin。

Itsmucheasiertoboostprofitsbycuttingcoststhanbyembarkinguponnewinvestmentprojects。

BPsprofitsdulyrise。

Fundmanagerssalivate。

JournalistswritegushingcopyaboutHayward。

Now,though,itseemsthatBPhasbeenplayingfastandloose。

Theresjustonethingpreventingitfrombeingwipedout。

Thatsthefactthatitsstillabigfatgoosecapableofdroppinggoldeneggsintothehandsofplaintiffsandlawyersforyearstocome。

NowtakethePrudential。

Hereagainwehaveacompanythatissobigthatitinevitablystrugglestobreakintoatrot。

SohowcannewbossTidjaneThiammakeanameforhimself?

Hisplanwastospend$35bnontheAsianbusinessofAIG。

Shareholders,though,didnotlikethedealanditwasscrapped。

Butherestherealscandal。

Despitethefactthatnothingwasachieved,thePrudentialhasstillburnt£450mofitsshareholdersmoney,mainlyonfeestoitsfinancialandlegaladvisers。

Forbigcompanies,thisisalltootypical。

Financialadviserswantbigfees。

Theyknowthatthewaytogetthemistopitchnewbusinessideastomajorcompanies。

Nodoubttheywouldhaverakedoffevenmorehadthebidgonethough。

But£450misstillaprettytidyamountofshareholdermoneytohavesiphonedoff。

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LikeBPandthePrudential,RBSandBritishAirwaysarebigplayerslockedinfiercelycompetitiveindustries。

Theyhavenopricingpower。

Inotherwordstheyhavetoselltheirproductsandservicesfornomorethanthemarketwillallow。

Justtostayinthegametheyneedtoconstantlybattleagainstcosts,andeventheirbesteffortscanonlyachieveminimalrevenuegrowth。

Aswesawwiththebankingindustry,theyaredesperatelyvulnerabletotheherdinstinct,recklesslywritingnewbusinessjustbecauseeverybodyelseisdoingthesame。

Andsuchisthecriticismthattheyattractforsimplychuggingalongslowly,theyareinevitablydrawnintoboldstrategicinitiativesthatalltoooftenendindisaster。

Andyetmostpeopleconsiderthesegiantstobesound,bluechip,stick-them-away-in-the-bottom-drawerinvestments。

Itstimeforthesepeopletowakeup。

YouandIbothknowsomethingtheseinvestorsdont。

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Itcomesfromditchingthefailuresandstickingwiththewinners。

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ThisarticlewasfirstpublishedinTomBulfordstwice-weeklysmall-capinvestmentemail