City diary
MONEY
CHRISTOPHER FILDES
'Time is now so short—the Chancellor of the Exchequer speaking—`and the reserves have got so low that a change in the dollar rate of ex- change is the only way in which we can get our prices down quickly enough. We had hoped that the growth of our productivity and other improvements would have made this un- necessary, but events have moved too fast.'
I have been back over the last devaluation of sterling: an instructive exercise. (The Chancellor I quote is Sir Stafford Cripps.) The crisis had begun to loom in the summer, with a serious strike in the London docks and trouble on the railways. The gold reserves fell sharply, and the trade figures continued to weaken. Sterling's price on the free market fell: so did government stocks: the premium-on the investment dollar rose to 35 per cent. Gold shares rose by 10 per cent in three months.
When devaluation came, the. stock market was supposed to be shut, but in fact'there was a tremendous day's business outside in the street. Labour MPS later asked who-was going to be prosecuted for obstructing the-traffic; and were told that the Government broker had been in there with the best, taking the nation's profit on its gold shares. Golds that'day rose 20 per cent. Equities, too, shot upwards. Both movements, though, were checked: that in golds by an immediate 15 per cent increase in wages on the Rand, that in equities by 5 per cent slapped on to profits tax. The Government did not care to see people making money on a devaluation.
So if you had put your money into ordinary shares as a hedge against devaloation you would have lost on the deal. Orr the'eve-16 September 1949—the Financial Times index was 2 per cent higher than it was at the end of the year. And there had been no spectacular rise earlier on: both prices were within 8 per 'cent of the lowest level since the war. Of course, if you had left your money in govern- ment stock you would have done far, fats worse. Gilts, which in June had their most damaging day since the French stopped fighting the Ger- mans, went straight on downwards. BY-the-end of the year they were on the high yield of 4 per cent, not helped by fears that a Conserva- tive government might. resurrect monetary policy and do something with Bank rate— unchanged since 1939.
Two vignettes for your scrapbook: Hugh Dalton said that people who sold government stock after the pound was devalued Were en- gaged in 'anti-patriotic speculation': the Treasury 2+ per cents that he had issued as Chancellor fell from 701 to 69: (They are now half the price.) And, replying to the devalua- tion debate, Mr Harold Wilson said that he was perfectly certain that we could within a short space of time treble the rate of exports of con- sumer goods to the United States, and increase the export of capital goods to Canada tenfold. Wishful thinking is no new policy.
The highest-yielding share on the market— suited to the small investor: the smaller the better—at the present price, paying for itself in eight months: I give you Mount Charlotte.
This company, which owns hotels, has been through a bad patch, but has now recovered to a point where the 2s 'A' shares stand
at 3s, to yield 3.3 per cent. Not, you will say, very remunerative. But every shareholder in Mount Charlotte is entitled to a free weekend (bed and breakfast) for himself and a guest in any of the company's hotels. The only stipulation is that it must be taken between October and March, when things are quiet.
Now watch the sum. You buy, say, a hundred Mount Charlotte at 3s each : £15. Your divi- dend income is just under 10s, gross of tax. But you and your guest are also entitled to two nights each at the Grand Hotel, Bristol, where bed and breakfast costs £3 5s a time. That makes £13; and since it comes tax-free you must add on income tax at the standard rate in order to compare it with the dividend. That brings it up to over £22; so that with your dividend you are earning £22 lOs a year on your f15 investment, or 150 per cent.
From Mount Charlotte's point of view, it costs- only the price of eggs, coffee and some laundry: the rooms and the staff are there already. I trust that some sales-manager doesn't wreck the whole thing by staging a conference and giving every other salesman one Mount Charlotte share.
Rentadiesel? British Rail has a new fleet of fifty diesel-electric engines, each with a brass plate on the side saying: 'MIS LOCOMOTIVE IS THE PROPERTY OF ENGLISH ELECTRIC LEASINGS LIMITED.- I foresee trouble. 'British Rail regrets to announce that the Cornish Riviera Express will go no farther. The bum-bailiffs are in.'
Lord Aldington, switching from hat to hat with practised ease, has doffed his GEC hat and put on his National and Grind lays for long enough to invite Mr Ronald Smith on to his board. It is a strong appointment; for Mr Smith, who re- tired earlier this year as chief general manager of the National Provincial Bank, remaining a director, is an outstanding figure among the Big Five banks. He was widely considered the best chief general manager of his day, and one of the best in the National Provincial's history.
Mr Smith's most obvious impact at the National Provincial was on the way it presents itself to the public. When he took over it had the dullest advertising of any bank : when he finished it had something like the best—with the same advertising agents. He asked them for ideas, and he gave them their head. This was more than a public relations exercise— though another of Mr Smith's contributions to the NP was-the setting-up of a proper press office. It was a move away from the joint-stock bank as a complacent, introspective institution and towards the bank as a competitive busi- ness. This meant catching customers young— since few people move their account from bank to bank; and this in turn meant market research. The NP's budget account scheme— credit to let you pay such unpleasant lumps as the rates or a yearly season ticket—was very much Mr Smith's baby. National Provincial has 4-9 per cent share- holding in National and Grindlays, but until now has had no director on the N and G board. Mr Smith's appointment may lead to the two banks working more closely together. For him- self, he hopes that it will enable him to travel to the overseas branches—though the Aden branch would not, he says, be his first choice.
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