– By Neil Collins –

Once upon a time, Max Rayne ran London Merchant Securities much as he wanted to. Many years later, it now seems that his son, Robert, would rather like to do the same with LMS Capital, the investment company which LMS begat, where he is chairman, and where he and his chums speak for 35 per cent of the shares.

Other shareholders are presented with an interesting choice. If enough of them vote for an orderly break-up of the company without Rayne Jr he will need Plan B. If they fail to stop him, the outside directors will resign.

These Noddies are cheesed off. True, the company, with assets of around £240m invested in a multitude of small enterprises, has not been a thumping success. Its cheery little slogan about “sustained medium to long-term growth” is a triumph of hope over experience. Dividends are conspicuous by their absence, and the shares trade, sparsely, miles below net asset value.

This is the heart of the problem. A conventional investment trust can calculate NAV pretty accurately, but it’s a slippery concept for LMS, with so many tiny, unquoted investments. Last year the board brought in Glenn Payne, a well-regarded Aussie, to ginger things up, but Payne and Rayne don’t seem to mix, and the latter’s concert party wants to bring the curtain down on the show and get their money back.

The non-execs wanted Payne to conduct things his way, but 35 per cent is uncomfortably close to effective control, so they’ve bowed to the inevitable and now propose to wind LMS down gently, without Rayne on board. If this is voted down, they will resign. The Rayners’ response is to welcome the wind-down, while harrumphing at the proposal “to remove a board member who has consisently supported the strategy which has now been adopted by the independent directors.”

It’s a curious little spat. The usual suspects on the share register, led by Schroders and Jupiter, would struggle to muster more votes than the concert party’s 35 per cent, and may not feel the fight is worth the effort. There is still time for peace to break out, but the danger is of a fire sale without the supervision of experienced non-execs to ensure LMS shareholders get value for their money.

When I’m 65

I’m only months away from my 65th birthday, and the kindly souls at the Department of Work and Pensions have sent me a non-glossy brochure about the state pension. The key decision is whether to take it asap or whether to defer the start to get a higher income later.

The rule is simple, even if the calculation isn’t. The entitlement rises by 1 per cent every five weeks you defer, or about 10.4 per cent for every full year. At first sight, this seems rather attractive for a reasonably fit 64-year-old with no immediate need for the money (and who will shortly have the added bonus of paying no more National Insurance contributions). It may not be all it seems, however.

If I defer for a year, it will take me almost to my 75th birthday before the value of the pension income finally overtakes the income I had given up. Curiously, the sums for deferring for two or three years are not that much different: the break-even ages there are 76 and 77 respectively. If I then survive into my 80s, I’ll be quids in. Unfortunately, that’s not the end of it.

The coalition has pledged to link the state pension to changes in earnings, rather than prices. The squeeze on incomes has meant a useful (to the exchequer) saving at a time when prices are going up faster, but history shows that this is unusual, and the last time pensions were linked to earnings, the cost was too great to bear and the link broke.

Then there is the little matter of income tax. I expect to keep earning for some years yet, which means that 40 per cent of the pension would be recycled to the Treasury while I do. That makes deferral much more attractive, since I may be struggling to earn anything at age 75.

The biggest unknown is future changes to the rules, like means-testing for the state pension, or a punitive tax on the deferred part. Various governments have form here, as they have progressively devalued Serps. Even so, I’m quite tempted not to start taking my reward for 40 years of National Insurance contributions just yet.

Making a drachma out of a crisis

The excellent Jim Grant, a long-term bull of gold, seems to have found something that looks like it in the crumbling ruins of the Greek economy. How about a few shares in the Bank of Greece, the nation’s central bank? Unusually for a bank these days, it’s been consistently profitable and is paying out to the shareholders as well as to the fat cats. At €14.80, the shares stand at less than 40 per cent of book value to yield 13 per cent on last year’s dividend.

It’s a pretty unusual bank in other ways, too. Its assets total €148bn, balanced on €815m of equity, including recently revalued land and buildings. The leverage of 182 to one makes Lehman Brothers look conservative, and rather gives the game away. The looming Greek government default is hardly a novelty; since 1821, when the modern state was founded, Greece has been in default for half the time. In 1965, creditors had to settle for half their money and some token interest payments.

Quite what will happen this time round is hard to say. The Bank will probably continue to pay out, but the paper is more likely to be in new half-price drachmas rather than old euros. As you might imagine, the share price has been under pressure recently, falling by a fifth in the last month alone, and Grant Can’t Recommend A Purchase. It’s gold, Jim, but not as we know it. Iron pyrites looks nearer the mark.

This entry was posted by Neil Collins on Friday, October 14th, 2011 at 21:00 and is filed under Capital markets, People. Tagged with bank of greece, Department of Work and Pensions, Greek, Jim Grant, lms capital, London Merchant Securities, Max Rayne, National Insurance, Serps, state pension. Edit this entry.