Carillion – “a staggering act of negligence from the Conservatives”
By TruePublica: According to most of the mainstream media, losses facing Carillion’s lenders will far exceed the £900m of debt carried by the listed construction group making it the costliest UK corporate insolvency since the banks were bailed out 9 years ago.
The UK’s pensions lifeboat also faces a hit of up to £900m to cover the cost of paying compensation to thousands of pension scheme members, according to initial estimates, and it would make it the single-largest bill in the organisation’s history. In the meantime, Carillion were critised some time ago for paying dividends to shareholders when the pension fund gap had widened to half a billion pounds. There are 27,500 pension members affected by this scandal.
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The Mirror reports that “blundering chief executive Richard Howson was paid £55,000 a month basic salary – even though he quit last July after the first of two dire profit warnings. And it is believed the 49-year-old will carry on getting paid a £660,000 salary and £28,000 in benefits until October despite Carillion’s collapse. Other former chiefs are also to pocket wages for months to come – as ordinary staff face being dumped with nothing.”
“Taxpayers’ money appears to be siphoned off into private boardrooms.” Even the Institute of Directors turned on the greedy bosses. The group’s Roger Barker said: “Today’s outcome suggests effective governance was lacking at Carillion, and we must now consider if the board and shareholders have exercised appropriate oversight prior to the collapse.
As the Carillion collapse turns from business adminstration into national scandal – the details continue to get more gruesome for the Conservative government – who are clearly attempting to play down the gravity of this event.
David Lidington, the Cabinet Office Minister, said it was “regrettable” that Carillion had not secured a private rescue deal but added that “taxpayers cannot be expected to bail out a private company”.
Philip Green (not to be confused with the other Philip Green, who stripped BHS bare and then left it for dead, with contemptuous disregard for its pensioners) the company’s chairman, said the collapse meant it was “a very sad day for Carillion”.
The Official Receiver is responsible for examining the causes of corporate failure, a role that will include investigating directors’ conduct and “the business, dealings and affairs of the company”, according to a Government statement. And it needs to do a proper job as earlier this month, the company was already in the frame for a huge fall when the City watchdog launched a probe into the “timeliness and content” of statements it made to the stock market about its financial position between December 2016 and July last year, when a massive profit warning sent its shares crashing by 75%.
And it is here we find the usual skullduggery of those at the very top of the neoliberal class.
This from the “Construction Enquirer” published over four months ago: “Carillion introduced new rules to protect bonuses paid to bosses just months before an £845m profit warning sparked a nosedive in its share price.”
The publication went on to say that: “Previously bosses could have been forced to hand back their annual bonus and share awards in ‘circumstances of corporate failure’, but in the 2016 annual report the claw back rules were tightened to two circumstances – if results have been misstated or the participant is guilty of gross misconduct. Chief operating officer Richard Howson has made £1.9m in cash and share bonuses during his tenure while ex-finance chief Richard Adam has received £2.6m.”
Last September, ‘This Is Money’ went with the headline “Revealed: Carillion secretly protected bosses’ £4m bonuses just months before £600m accounting crisis.”
It went on to say that – “Troubled engineer Carillion introduced tougher rules that protect bonuses paid to bosses – just months before it was embroiled in an accounting crisis that wiped £600million off its shares. The firm changed the wording of its pay policy to make it harder for investors to claw back bonuses paid to executives in the event it ran into financial difficulty. In recent days Carillion has been under pressure from investors to recoup some of the millions of pounds in bonuses paid to former chief executive Richard Howson and ex-finance chief Richard Adam when they were in charge.”
In other words, these individuals took action to ensure they were financially protected knowing that Carillon was going to hit the buffers and cashed in prior to its inevitable demise. It appears from reports that they understated both losses and loans and had insufficient cashflow that led to Carillon’s demise.
Political Scrapbook reveals yet another small detail as this sorrowful tale unfolds.
“And yet Carillion’s chairman, Philip N Green, was apparently the best candidate available to advise Downing Street on corporate responsibility. He was appointed to the role in 2011 by then PM David Cameron and remained in post until December 2016. Cameron also gave Green a CBE in 2014 for “services to business” – some two years after Carillion had admitted illegally blacklisting workers.
Green met Theresa May in 2016 to discuss continuing to provide advice on “responsible business” but Number 10 has confirmed he was not re-appointed to the role he held under Cameron. Her government certainly could have used some advice on responsibility though, as it continued to hand Carillion huge public sector contracts AFTER the company issued a profits warnings.”
The second incredible detail of this story concerns job losses predicted by Green. In 2015, the Carillion chairman was among 100 big business chiefs who who signed a letter to the Telegraph which said:
“We believe this Conservative-led Government has been good for business and has pursued policies which have supported investment and job creation…
“…We believe a change in course will threaten jobs and deter investment.”
In the meantime, neoliberal capitalism in the extreme demonstrates quite clearly who the winners from this dreadful collapse could be.
The real winners are the hedge funds who bet on Carillon’s share price collapsing. Like vultures, hedge funds had been waiting to cash in on Carillion’s collapse, raking in hundreds of millions from the debacle.
Marshall Wace – whose co-founder Sir Ian Marshall was a major leave backer in the Brexit campaign – was the biggest winner as Carillion’s shares tumbled last July after a profit warning.
Its bet alledgedly made a tidy profit of £19.1 million pounds in just three days.
Another big winner is the US-based investment giant BlackRock – which recently hired former chancellor George Osborne on a salary of £650,000 for one day a week – the world’s biggest fund manager made over £16 million across its funds from Carillon’s demise.
Of course, TruePublica cannot confirm if George Osborne had any information that the government would not step in and support the company as it did with the banks – as that would implicate him in insider trading, a very serious offence indeed. Of course, any scandal involving Theresa May’s government is a good scandal to George Osborne.
Other UK hedge funds that have coined it from Carillion’s decline include Thunderbird Partners which profited to the tune of £14.5 and Immersion Capital which stood to make over £11.4 million.
In all, hedge funds have made around £300 million from the debacle since spotting that the Government contractor was in trouble.
What is interesting about the hedge funds is that they were betting Carillon would fail, yet the government continued to dish billions worth of contracts to it.
The damage from Carillion’s failure will run on for quite some time to come. Carillion manages a considerable portfolio of hospitals, barracks, prisons and other property on behalf of the government, employing almost 20,000 people across the UK. It was, in essence a poster child for the outsourcing revolution. It is now just another national scandal, and it is one of Tory making.
The Independent reports that “Despite the apparent suddenness of Carillion’s problems, this is a story that has been unfolding for months. In July 2017 Carillion issued a shock profit warning, setting aside £845m to cover problem contracts and pulling out of others. In September it announced half-year losses of £1.15bn. Remarkably, despite this and a further two profit warnings, Carillion has in the last six months been awarded three more government contracts worth almost £2bn. It is government policy to designate any of their “strategic suppliers” as High Risk if they issue just one profit warning. It is also government policy to appoint a Crown Representative to manage its relationship with such suppliers. In Carillion’s case this position was left vacant from August to November 2017, a crucial period in the company’s decline – a staggering act of negligence from the Conservatives.”
The Conservative Government has failed in its duty to protect both critical infrastructure and taxpayers and has many serious questions to answer about Carillion’s collapse and their total failure to act when so many signs, not least the vultures who had spotted dead meat on the floor as far back as 2015, were there for all to see.
Lastly, the projects that Carillion were currently working on included NHS hospitals, motorway works, road improvements, student accommodation, airports and highly unpopular Tory government vanity project HS2. Other works in hand include:
- £60m One Chamberlain Square, Birmingham Paraduse Circus
- £62m Midland Mainline improvement programme. Corby to London
- £60m Lincoln Eastern Bypass
- FARRS phase 2 link road to Doncaster Sheffield Airport
- £10m Heltwate school and £7m Jack Hunt school in Peterborough
- 21-storey Salford Central scheme flats
- £16m Salford New Bailey build to rent scheme
- Former Vaux Brewery site regeneration in Sunderland
- London £91m Barts Square development
- London Strand £25m flats contract at Arundel Court, Strand
- £37m National Grid powerlines upgrade Canterbury
- £38m overhead transmission line upgrade in Reading area
- £23m Waverley station upgrade in Edinburgh