Time to recap…..

The former boss of Wilko has tearfully told MPs she was devastated by the collapse of the budget retailer as she claimed the family’s multimillion-pound fortune was not enough to rescue it.

Lisa Wilkinson, the company’s former chair who is granddaughter of the founder and was an important shareholder, was hauled in front of MPs on the business and trade committee after Wilko collapsed in August with the loss of more than 12,000 jobs, £625m in debt and a £50m pension black hole.

Wilkinson said £15m in dividends paid out to shareholders in the past nine years were in a holding company owned by family trusts and tied up in investments that were difficult to access.

Wilkinson told MPs:

“You today have given another opportunity to thank team members and customers will thank them to dying day. I appreciate each and every one of them. They were the bedrock of Wilko.

“I am devastated that we have let each and every one of those people down with the insolvency. I don’t know how to put into words how sad I am that we have let down all our customers team members, suppliers and advisers.”

MPs also heard that Wilko had lost £40m through a botched foreign-exchange-hedging trade, while the GMB union blamed “weak leadership” and Wilko’s failure to adapt to a changing market.

Nadine Houghton, the national officer of GMB, told MPs the collapse of Wilko was not inevitable, adding:

We think that actually, what brought about the collapse was weak leadership, and a failure of Wilko to adapt to a changing marketplace.

Here’s the full story:

And here’s the rest of today’s main stories:

The chief executive of Lloyds Banking Group has fired a warning shot at UK policymakers, saying measures such as a windfall tax on banks should be ruled out before what is expected to be a hard-fought election year.

With Labour largely silent on its plans for City regulation despite its current commanding lead in the polls, Charlie Nunn said City firms and investors alike were “looking for more certainty and clarity around the future”.

His comments appear to be a call for assurances that the UK will not follow some European governments, which have put new taxes on banks accused of reaping billions in extra profit from rising interest rates over the past year.

Nunn urged policymakers to keep their hands off profits, dividend payments to shareholders and the amount of interest paid to lenders that park cash at the Bank of England.

More here:

Back in the energy sector, Britain’s National Grid will pay some households to use less electricity between 5pm and 6.30m tomorrow,.

Under the so-called demand flexibility service (DFS), homes that have signed up with their suppliers will be rewarded for not using as much power as usual – by not running energy-intensive appliances such as ovens and dishwashers.

An ESO [electricity system operator] spokesperson said:

“Our forecasts show electricity supply margins are expected to be tighter than normal on Wednesday evening.

We are activating a Live Demand Flexibility Service event between 17:00-18.30 tomorrow. It does not mean electricity supplies are at risk and people should not be worried. These are precautionary measures to maintain the buffer of spare capacity we need.”

The move comes as the UK weather turns chillier this week (which prompted Centrica to tap its Rough gas storage today – see earlier post).

The Met Office has issued yellow weather warnings for snow and ice that are set to last from Tuesday at 5pm to Wednesday at 11am.

Over in the US, consumer confidence has nudged up, after three monthly declines, as Americans turn less gloomy about the economic outlook.

The Conference Board’s Consumer Confidence Index increased in November to 102.0, up from 99.1 in October.

Consumers’ economic expectations improved this month, the index shows, while there was a drop in people’s assessment of current business and labor market conditions.

The Conference Board warns, though, that many people are still worried about a recession in the next year:

Despite this month’s improvement, the Expectations Index remains below 80 for a third consecutive month—a level that historically signals a recession within the next year.

While consumer fears of an impending recession abated slightly—to the lowest levels seen this year—around two-thirds of consumers surveyed in November still perceive a recession to be “somewhat” or “very likely” to occur over the next 12 months.

This is consistent with the short and shallow recession we anticipate in the first half of 2024.

Bank of England policymaker Jonathan Haskel has joined the festive choir singing that it’s too early to consider cutting interest rates.

In a speech being given to the University of Warwick today, Haskel states clearly that the current outlook does not suggest there is scope for moderation in rates anytime soon.

Haskel says:

The labour market is still historically tight. At current rates of change it would take at least a year to fall back to average pre-pandemic tightness, with the precise time depending critically on the greater the degree to which matching in the labour market has been impaired.

In concusion, he warns that interest rates will have to be held “higher and longer than many seem to be expecting”.

This chimes with the recent theme from members of the Monetary Policy Committee that the markest have got carried away by anticipating rate cuts.

Currently, the money markets are indicating that the Bank will cut rates from 5.25% to 5% by next August, with at least one more cut before the end of next year.

But last week, governor Andrew Bailey insisted it was ‘far too early’ to propose UK interest rate cuts.

And overnight, deputy governor Sir Dave Ramsden insisted that monetary policy would need to be “restrictive” for some time to defeat inflation.

In the banking sector today, Barclays notified 900 UK staff that they would lose their jobs, as the bank pushes ahead with sweeping job cuts meant to boost payouts for shareholders.

It comes days after reports emerged that the bank was considering slashing up to 2,000 jobs in a bit to save around £1bn in costs.

The 900 confirmed cuts will affect employees in back-office departments including compliance, finance, legal, policy, IT and risk.

While union Unite is pushing for staff to be redeployed, it is understood that most could permanently be jobless by the end of December.

Unite general secretary Sharon Graham criticised the lender for the move, which comes just weeks before the Christmas holidays.

Graham said:

“Barclays is disgracefully cutting jobs to further boost its massive profits. This is a mega-rich bank that is already on course to make eye watering profits this year.”

Barclays bankers have been steeling themselves for potential job losses since October, when executives warned they were planning a wave of “structural” cost cuts that boost dividends for investors.

It followed a slight drop in pre-tax profits in the third quarter, which fell 4% to £1.9bn as it put aside more money for customer defaults and suffered a slowdown in corporate dealmaking that hit returns at its investment bank.

A Barclays spokesperson said:

“As we said in October at Q3 results, we are taking a number of actions to simplify and reshape the business, improve service, and deliver higher returns.

This includes changes to our headcount as management layers are reduced and the group improves its technology and automation capabilities. We are committed to support impacted colleagues through these changes.”

Meanwhile, in the energy sector, the UK has withdrawn gas from its largest storage facility for the first time this winter to help meet higher heating demand during the current cold snap.

Households are expected to burn more gas than usual over the coming days after the Met Office issued yellow weather warnings from this afternoon to Wednesday morning, saying parts of Scotland, north-east England and Yorkshire could see snow and ice.

The Rough storage site was partially reopened last year by Centrica, the owner of British Gas, amid rising fears over Europe’s gas supplies in the wake of Russia’s war on Ukraine.

Chris O’Shea, Centrica’s chief executive, said:

“Gas storage is vital to ensure the UK can manage demand effectively, keeping prices down, and Rough contributes more than 50% of the UK’s total gas storage.”

The UK has some of the lowest levels of storage capacity in Europe, and can store enough gas to meet demand for 8 days in winter.

Morgan Stanley said Europe has reported record high gas storage levels of around 97.5% which will put countries in a good position to meet gas demand this winter season. This also bodes well for the task of refilling gas stores for next winter.

Liam Byrne summed up today’s hearing by running through the “sorry story” laid out before the committee today.

He says Lisa Wilkinson has admitted to a number of significant management mistakes, related to stock, range and furlough.

We’ve heard about a £60m warehouse modernisation that went wrong, a £40m loss on financial derivatives, a process of restructuring rents that didn’t go through.

And despite those problems you can’t explain why dividends went up, he reminds Wilko’s former chair.

We have money sloshing around in family trusts that somehow can’t be used to refund the pension scheme.

And we have auditors who stand by the judgements they made.

But we have, at least, had an apology, Byrne points out.

The former chief executive of Wilko, Mark Jackson, has also revealed that Wilko may have made an “enormous mistake” in an attempt to hedge against foreign exchange moves in 2018-19.

Jackson told MPs that:

It’s my understanding that this was a disastrous year, over a load of foreign exchange derivatives, nothing to do with underlying trading.

He explains:

“It bought all of its Far East products in US dollars. It took out forward-rate contracts to fix the price it was buying at, and it made an enormous mistake.

“And there was, I believe, a loss in the region of £40m.”

Lisa Wilkinson confirms that Wilko suffered “FX issues: that year.

Jackson also repeats that keeping trading though the pandemic meant Wilko continued to lose cash as it paid rents to its landlords.

Onto the auditors! (Who have been accused of not doing their jobs well)

Q: What advice did you give Wilko about Teneo’s recommendations about cost-cutting?

Victoria Venning, partner at EY (Wilko’s auditors since 2019), says an auditor’s role is not to advice management. It is to give an independent opinion if the company’s accounts, presented by management, are true and fair.

Q: So you didn’t give any advice about the ideas in Teneo’s proposal?

It wasn’t appropriate to, Venning says.

Q: Is that a no? Did you give advice?

Venning repeats that it wasn’t EY’s role, adding:

It’s a no.

Q: Do what advice did you give to Wilko about steps it might need to take to remain a going concern, for example around the sale of the warehouse? [the day before Wilko’s accounts were signed off].

Venning says it would be “highly inappropriate” to offer such advice to a business, given auditors’ need for independence.

She then pushes back against the criticism this morning from professor Atul Shah, of City University, and denies that the auditors ‘hid away’ their concerns over Wilko.

She says that EY stated clearly there was ‘material uncertainty’ over Wilko’s going concern status.

She reads out that EY had made clear that, at the date of approval of the financial statements, the group had insufficient commited financing in place to withstand a “severe but plausible downturn in trading activity” through the going concern period to January 2024”.

That was a warning there was a “plausible scenario” that Wilko could run out of cash if sufficent cash wasn’t raised.

Q: So did you warn Wilko’s management that they could miss the going concern test?

Venning says EY scrutinises the forecasts produced by management, and concluded that they were ‘optimistic’, and challenged them to revise them. That process took several months, and resulted in four different versions of the forecasts.

EY were only prepared to sign an audit of the accounts once a final forecast took account of the “severe but plausible” downside risks.

Q: And that last scenario included the sale of the warehouse?

Venning says it did, yes, because that had happened before the accounts were signed off.

That’s a long list of failures, Liam Byrne MP points out, and one that has left the taxpayer on the hook for over £40m in redundancy payments, a £50m hole in the pension scheme, and creditors getting 4p in the pound, at best, on their loans.

Q: Will you apologise to workers who are facing a Christmas without work?

Former chair Lisa Wilkinson says she is thankful to many people who supported Wilko, including the “fantastic team members” who always worked there, “amazing suppliers and advisers” and Wilko’s “fantastic customers” over the last 90 years.

Wilkinson (who was singled out for criticism over ‘weak leadership’ by the GMB this morning) tells the committee:

I am devastated that we have let each and every one of those people down, with the insolvency that Wilko has done.

Wilkinson says she can’t put into words how sad she is that Wilko “let down all our customers, all our team members, our suppliers, our advisers”.

Genuinely, I don’t know what you want me to say….

Byrne says he was looking for the word “sorry”, which we haven’t heard.

Wilkinson insists she is sorry, adding:

I am sorry that we are not there supporting all those people any more.

Lisa Wilkinson then explains that Liz Truss’s mini budget scuppered Wilko’s attempt to move from a revolving credit facility to a secured lending facility in 2022.

She reveals Wilko was negotiating a deal with Macquarie Bank, but the interest payments on that loan were hiked massively in the mini-budget turmoil, she says.

Turning to other cause of Wilko’s collapse, she says financially, revenues were falling faster than costs could be cut.

Wilko also lost the confidence of key allies, including its bank, Lloyds, and its credit insurers, who both pulled away in 2022.

And it didn’t get enough support from enough suppliers (although some were very supportive).

Customers have gradually reduced their spending at Wilko, Wilkinson points out – for reasons such as the failure to scale up the business, the cost of living crisis, product availability problems due to driver shortages.

Wilkinson says Wilko’s customer proposition, against the budget retailers, was ‘unclear”.

She also points to the pressure on profit margins, spiralling costs, expensive high street rents, and Wilko’s weak processes and infrastructure.

Committee chair Liam Byrne starts by asks Lisa Wilkinson why the retailer she chaired collapsed this year.

Q: Did your greed bankrupt Wilko?

“I don’t believe so, no”, replies Wilkinson softly.

Q: Why did Wilko collapse?

Wilkinson explains that , in essense, Wilko ran out of cash.

There were many contributory factors that led to that, she says, including the decline of the high streets, high rents, business rates, and Covid-19.

Wilkinson explains that Wilko stayed open during the pandemic, didn’t furlough staff, paid landlords in full during Covid, and only look advantage of business rates relief and the deferral to paying VAT (which has been paid off).

“There’s some debate about whether we should have done that, but we did”, Wilkinson adds.

Q: Why weren’t the problems at Wilko picked up by the auditors?

Professor Atul Shah, professor of accounting and finance at City University, says its a very good question.

He says PwC were the auditors up to 2019, when EY took over.

He says it shouldn’t be difficult to spot problems at Wilko, as while its turnover was high the margins were very low, and declining. That led to a £56m loss in 2018.

Shah says auditors have a duty to act in the public interest, and are trained to spot these kind of problems.

Q: So what went wrong?

“The auditors didn’t do their job,” Shah replies.

He points out that while the auditors said Wilko was a going concern, they cautioned that “however” they couldn’t guarantee the figure of the company due to the uncertained around it.

Q: Both sets of auditors – two members of the Big Four?

“Without any doubt,” Shah says. But, they phrased their audit reports carefully to protect themselves.

He adds that EY waited for nine months before signing off the last audited accounts, which is the maximum delay, because there were serious problems at the company.

Shah believes Barclays bank was calling for a £25m loan to be recalled.

The Wilko distribution centre at Worksop was sold the day before the accounts were signed off, Shah points out, providing a cash injection to keep the company running.

He argues that the auditors should have said the accounts did not give a full and fair view, and not just in 2021, at least three years earlier.

Labour MP Liam Byrne, the chair of the Business and Trade committee, says the first panel will set the stage for the sessions on Wilko’s collapse (including with former chair Lisa Wilkinson) later this morning.

Q: Why did Wilko fail and who, if anyone, is responsible?

Nadine Houghton, the national officer of GMB, says her union doesn’t believe the collapes of Wilko was inevitable.

She tells the committee:

We think that actually, what brought about the collapse was weak leadership, and a failure of Wilko to adapt to a changing marketplace.

Houghton says the consistent face on the leadership team was Lisa Wilkinson, adding:

We do believe she bears a significant amount of responsibility.

Under Wilkinson, there was a high churn of executive directors, no CEO for at least eight years, while “a huge amount of dividends” were taken out of the company, Houghton says.

Instead, more money should have been invested to improve Wilko’s online offering, make it competitive on price, and make its stores “fit for purpose”, Houghton adds.

Q: So, a failure of strategic leadership, operational leadership, some financial issues, and a failure of leadership at the business?

A failure of leadership and a lack of accountability, Houghton adds.

Parliament’s Business and Trade commmittee are about to begin their hearing into the collapse of Wilko this year, with the loss of 12,000 jobs.

First up, they will hear from:

• Nadine Houghton, National Officer, GMB

• Patrick O’Brien, Global Retail Research Director, GlobalData

• Professor Atul Shah, Professor of Accounting and Finance, City University

• David Steinberg, Partner, Stevens & Bolton

UBS’ chairman Colm Kelleher has blamed Credit Suisse’s investment bankers for leading to the lender’s eventual demise, and admitted one of his biggest concerns in taking over the rival lender was “cultural contamination” from those “bad actors”.

Speaking at the FT Banking Summit, Kelleher said:

“I was concerned [that] my single biggest risk when we acquired Credit Suisse was whether we would have cultural contamination there. That hasn’t worked out the case, mainly because most of the bad actors left anyway.”

Those “bad actors”, he explained, were “a lot of the investment bankers at Credit Suisse.”

“Credit Suisse would not have been in the position it was, if the investment bank had been allowed to be run properly. And I’m sure there were very many good investment bankers at Credit Suisse, that’s not a general rule, but it’s a clear point of what went on.”

While many Credit Suisse bankers left voluntarily as a result of the merger, UBS has also embarked on brutal job cuts, designed to cut costs and to avoid duplicating roles across the new group.

UBS confirmed earlier this month that they had slashed more than 4,000 jobs between July and September, bringing total job losses to 13,000 so far this year.

After a choppy time in the housing market, homebuyers are in the strongest negotiating position for five years, according to property website Zoopla.

Zoopla reports this morning that sellers are accepting discounts of £18,000, on average, to secure a deal.

This is due to more homes coming onto the market, while higher mortgage rates are constraining how much buyers can borrow.

Richard Donnell, executive director at Zoopla, explains:

“These are the best conditions for home buyers for some years with more homes to choose from and with sellers more prepared to negotiate on price to agree a sale. There is a growing acceptance that what a home might have been worth a year ago is now largely academic given current market conditions. Sellers have plenty of room to negotiate with average house prices still £41,350 higher than the start of the pandemic.

It’s a positive sign that new sales continue to be agreed at a faster rate than a year ago and pre-pandemic. This indicates that house prices do not need to post bigger falls to get people moving but sellers need to be ready for more negotiation on price.

New sales will slow as we run up to Christmas and some sellers will take homes off the market ready to relaunch in the new year.“

Here’s the full story:

And here’s more details of Zoopla’s report, from property agent Emma Fildes at Brick Weaver:

Shares in Rolls-Royce have hit a four-year high this morning, after the UK engineering company set out new targets for operating profit and free cash flow this morning.

Rolls-Royce said it intends to become financially stronger and more resilient than before, as it updates shareholders at its Capital Markets Day today.

It also plans to sell between £1bn and £1.5bn of assets over the next five years, including its electric plane arm.

Rolls-Royce makes and services jet engines, and is also developing a small, modular nuclear reactor.

Chief executive Tufan Erginbilgic, who took over in January, is attempting to grow Rolls-Royce’s profitability, with higher sustainable free cash flows and a strong balance sheet.

Erginbilgic says:

Rolls-Royce is at a pivotal point in its history.

After a strong start to our transformation programme, we are today laying out a clear vision for the journey we need to take and the areas where we must focus.

We are creating a high performing, competitive, resilient and growing Rolls-Royce that will have the financial strength to control and shape its own destiny. We are confident in our ability to achieve these ambitions and have a clear and granular plan to deliver on our targets.

We have made significant progress, with 2023 profit and cash forecast to be materially ahead of 2022.

Shares in Rolls-Royce are leading the FTSE 100 risers, up 6% at 258p.

Back in early October 2020 they fell below 35p, as the disruption to travel in the Covid-19 pandemic hit its revenues, before rallying as the first vaccine trial results came in.

In the City, budget airline easyJet has reported a record profit, but warned that conflict in the Middle East will hit trading.

EasyJet has posted a headline pre-tax profit of £455m for the year to 30 September, up from a loss of £178m a year earlier.

It benefited from the end of pandemic restrictions, flying 19% more passengers than a year before.

But, easyJet expects its winter schedule to see an impact from the Israel-Hamas war, with flights to both Israel and Jordan temporarily paused.

It adds:

Additionally there was a broader impact on near term flight searches and bookings across the industry, though this seems to be coming back with a recent improvement in trading.

EasyJet still has a positive outlook for the current year, though, which helped to send its share up 2.5% this morning.

Johan Lundgren, CEO of easyJet, said:

“We see a positive outlook for this year with airline and holidays bookings both ahead year on year and recent consumer research highlights that around three quarters of Britons plan to spend more on their holidays versus last year with travel continuing to be the top priority for household discretionary spending.

Elsewhere in the retail world, inflation in UK shops has fallen to a 17-month low…. but shops are warning that the trend may not continue,

Shop price annual inflation dropped to 4.3% in November, from 5.2% in October, according to the Britsh Retail Consortium.

That’s the slowest rate of price rises since June 2022, as retailers competed to win sales ahead of the Christmas rush.

Non-Food inflation fell to 2.5%, down from 3.4%, but food decelerated to 7.8%, from 8.8%.

But Helen Dickinson, chief executive of the BRC, warned that rising costs might lead to prices accelerating again:

“Retailers are committed to delivering an affordable Christmas for their customers.

They face new headwinds in 2024 - from government-imposed increases in business rates bills to the hidden costs of complying with new regulations. Combining these with the biggest rise to the National Living Wage on record will likely stall or even reverse progress made thus far on bringing down inflation, particularly in food.

More here:

Here’s the schedule for the Business and Trade Committee hearing into the collapse of Wilko:

Panel 1 (10.00am GMT):

• Nadine Houghton, National Officer, GMB

• Patrick O’Brien, Global Retail Research Director, GlobalData

• Professor Atul Shah, Professor of Accounting and Finance, City University

• David Steinberg, Partner, Stevens & Bolton

Panel 2 (10.45am GMT):

• Mark Jackson, former CEO of Wilko

• Victoria Venning, Partner, EY

• Andrew Walton, UK Head of Audit, EY

• Lisa Wilkinson, former Chair of Wilko

Panel 3 (11.30am GMT):

• Kevin Holinrake MP, Minister for Enterprise, Markets and Small Business, Department for Business and Trade

• Angela Crossley, Director of Strategy Policy and Analysis, Insolvency Service

Former Wilko workers are travelling to parliament today to hear the company former chair and CEO explain why the chain collapse, and they lost their jobs, the GMB union say.

GMB National Officer Nadine Houghton, who will testify to MPs today, explains:

“This will be the first time Wilko workers have heard from bosses about what went wrong and why the company was allowed to collapse.

“They’ve never received an apology or explanation from Lisa Wilkinson, despite many staff having dedicated decades of their lives to the business.

“Wilko chiefs should know that GMB members will be there listening; they expect the answers they have been denied for so long.”

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Greed has been blamed for the failure to agree a rescue deal for Wilko, as MPs prepare to examine the collapse of the discount retailer this autumn.

Doug Putman, the billionaire Canadian business executive, says he came very close to agreeing a deal that would have saved thousands of jobs, but was thwarted by the homeware chain’s suppliers.

Putman told Radio 4’s Today Programme that he really thought he had a deal to take over Wilko, which closed its doors last month with the loss of around 12,000 jobs.

But, he explains, companies – such as Wilko’s IT suppliers – refused to budge on fees they wanted to charge for the transition.

Putman says these companies were “super inflexible” about cooperating for the “four months or so” that he would have needed their systems before transitioning to his own.

Putman, who owns HMV, says:

I thought we did have a deal. We thought we would, we would get that over the line….

But for those four months, the amount of money that the companies wanted to charge made the Wilco deal literally impossible to do. And that was something that was found out really late in the game.

He cites a landlord who hosted Wilko’s servers, in a tiny room, but wanted to charge rent on their whole million square feet facility for Putman to keep the server.

He explains:

So I would say everyone just got a little bit greedy, and unfortunately, weren’t thinking about the 10,000-plus jobs that would have been saved and were only thinking about their little piece of it.

Wilko fell into administration in August, as it struggled with debts of £625m.

Putman offered to take on up to 350 of Wilko’s 400 stores and ensure the main creditors – led by the restructuring specialist Hilco – were paid. But that offer collapsed in mid-September, and was followed by the closure of the company.

Putman says today:

PwC [Wilko’s administrators] really wanted a deal. We wanted a deal. We had a deal.

We had an agreement and I think these things came out of the woodwork for both of us, where we were both a bit stunned.

MPs on the Business and Trade Committee will dig into the colllapse of Wilko today, when they hold a hearing with the firm’s former chair, Lisa Wilkinson (who stepped down in January) and Mark Jackson, the company’s CEO.

The committee say they will examine:

• the Wilkinson family’s justification for taking millions of pounds in dividends out of the firm, even when it was heavily indebted;

• what attempts were made to save the business and whether crucial advice was ignored; and

• the £50 million shortfall in the company’s pension fund.

They’ll also hear from union representatives and industry experts about what went wrong, and quiz business minister Kevin Hollinrake.

Here’s a post from the committee from last night:

The agenda

• 10am GMT: Business and Trade committee hearing on Wilko’s collapse begins

• 10.15am GMT: Treasury committee questions OBR officials on autumn statement

• 2pm GMT: US house price index for October

• 2.15pm GMT: Treasury committee questions economists on autumn statement

• 3pm GMT: US consumer confidence index for October