Shareholders in Capita will have had better days. In new chief executive Jonathan Lewis it at least has a boss ready to confront the issues rather than do a Carillion.

The fact that so many outsourcing firms Mitie, Serco, Carillion and now Capita have fallen on hard times is not an accident.

A consequence of austerity was that former Cabinet Office minister Francis Maude and George Osborne put the squeeze on the outsourcing firms after an easy ride by the Blair-Brown governments. In the act of battening down the hatches ministers shifted risk from the public to the private sector.

Hit hard: The punishment for investors, including guru Neil Woodford, has been horrible

Hit hard: The punishment for investors, including guru Neil Woodford, has been horrible

Previously comfortable projects which allowed bonuses for directors, over-generous dividend payouts and pledges to pension funds remained in place even though contract income was severely curtailed.

A lack of scrutiny by non-executive directors, audit firms, pension trustees and executives led to investors, employees, sub-contractors and retirement fund members being betrayed.

It is a terrible indictment of the governance of UK public companies, the feebleness of an overpaid audit profession and the weakness of pension fund trustees when it comes to defending their members. At Capita, Lewis has at least learned some of the lessons of Carillion (and for that matter Serco before) and is seeking to divert the runaway locomotive into the sidings before it hits the buffers.

The punishment for investors, including guru Neil Woodford, has been horrible, with the shares tumbling from a peak of 1326p as recently as 2015 to just 182.5p last night after a further 47.5 per cent fall in latest trading. The outsourcers are now looking as bombed out as some of the house builders after the financial crisis.

Between them, Lewis and Capita chairman and former PwC chief Ian Powell (what has taken him so long) are taking desperate measures. A number of non-core enterprises such as ParkingEye and Constructionline are to be ditched, the dividend scrapped and it has arranged standby underwriting for a £700m rights issue with Goldman Sachs and Citi. It would be nice to see directors fees slashed and bonuses abolished until survival is assured.

A serious problem for sinking firms like Capita is that as the share price tanks, so the covenant to the pension fund becomes less valuable, the debt-to-equity ratio soars and bank lenders seek to renegotiate agreements. The ground shifts beneath their feet and recovery retreats ever further into the distance.

Bond alert

AS Wall Street hit a series of new peaks at the start of 2018 there has been speculation as to how long the bull market can run.

One theory is that the Trump tax reform dramatically has changed the fundamentals and the boom will go on. Bond markets are sending out a different message.

In expectation of normalisation of interest rates and an end (or even repatriation) of quantitative easing, bonds bought for cash, yields are rising.

In Germany the rate paid on bunds saw its biggest rise since October 2016. The US ten-year Treasury bond return has jumped by one-third of a percentage point since the turn of the year forcing the yield up to 2.73 per cent.

It is still relatively modest but experts argue that if it pushes up towards 3 per cent it will start to have an impact on corporate borrowing – making it less sustainable – and investors may choose the relative safety of government bonds over shares.

A rising interest rate trend could yet overwhelm the Trump fiscal boost.

Rowe retreat

Until now most of Britain was in the dark on where the axe would fall on Marks & Spencer’s high street stores.

From Putney in south-west London to Bournemouth on the South Coast, there will be much teeth-gnashing among the company’s most loyal customers.

But some locals familiar with what has been going on in a number of high streets and town centres will not be that shocked.

Over time discounters, betting outlets, game arcades and fast food eateries have replaced the bigger chains and many stores remain boarded up.

The disappearance of an M&S anchor can only speed the process. It was not so long ago that I was told by an M&S executive that every store washes its face.

Let’s hope boss Steve Rowe knows what he has wrought.

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