Home' Trinidad and Tobago Guardian : September 19th 2013 Contents SEPTEMBER 2013 • WEEK THREE www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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One of the first British stories that
caught my attention last week
Thursday when I landed in Lon-
don was the news that the coali-
tion government here was pro-
ceeding with a plan to launch an initial public
offering (IPO) of shares in Royal Mail, the 497-
year-old postal service in the United Kingdom.
In July, the David Cameron government
announced it intended to dispose of a majority
stake in Royal Mail before April 2014, when
the fiscal year in Britain ends, and that individual
UK investors would be able to participate in
The UK government also announced in July
that the 150,000 UK-based employees of the
institution would be able to get shares in the
company for free---that ten per cent of all shares
would be reserved for the employees---through
an employee share ownership plan. In addition,
the employees were given the assurance they
would get priority if they applied for shares
outside of the employee share ownership plan.
In preparation for the privatisation of Royal
Mail, the UK government implemented two
important policy decisions: two years ago it
went to Parliament to amend the legislation
governing the postal service, which lifted restric-
tions on ownership of Royal Mail and placed
the company under the ambit of OFCOM, the
independent regulator and competition author-
ity for Britain s communications industries.
The government also agreed to underwrite
Royal Mail s unfunded pension liabilities, which
removed a barrier to the profitability of the
Those policy decisions---plus increases in
postage costs and strong parcel revenue
growth---led the postal service in the UK to
increase its profit after transformation costs to
£440 million in 2013 from £18 million in 2011,
according to last Thursday s Daily Telegraph.
The institution s revenue in the year to April
2013 was £9.1 billion. The transformation costs
referred to in the previous sentence include the
50,000 employees who were severed from the
institution in the last few years. In other words,
the institution has already suffered the pain of
restructuring, all of which would be behind it.
Despite the fact that Royal Mail s employee
share ownership plan would receive ten per
cent of the institution s shares free of charge
and despite the likelihood that an IPO of Royal
Mail s shares would be significantly oversub-
scribed, the trade union that represents the
majority of postal workers in the UK, which is
named the Communication Workers Union,
has come out very strongly against the plan to
privatise Royal Mail.
In fact, as the UK government was stepping
up its plans to float the postal service on the
stock market in London, the CWU was prepar-
ing to send out ballots to its members on
whether there should be a national postal strike
to protest the Cameron government s privati-
sation of Royal Mail.
Here s what the CWU s general secretary,
Billy Hayes, had to say about the IPO idea on
the union s Web site: "We remain convinced
that privatisation is the wrong decision for
Royal Mail. It would be bad for customers, bad
for staff and bad for the industry. Privatisation
would put jobs and services at risk and lead
to higher prices for customers. We ve seen it
happen time and again in other industries.
"We re taking this to Labour Party Conference
and we want a commitment that a Labour gov-
ernment would renationalise Royal Mail if pri-
vatised. Privatisation is an old-fashioned idea
and a breach of the public s trust. It would
destroy a centuries-old public service.
"This isn t about what s best for the Royal
Mail, it s about vested interests of government
ministers mates in the City.
"Privatisation is the worst way to access to
capital as it s more expensive than borrowing
under public ownership. There s no competition
with money for schools and hospitals as the
government would have you believe---look at
Network Rail which has borrowed billions on
private markets at cheaper rates under an
arrangement which doesn t affect public debt.
This is simply about dogma from old-fashioned
Tories wedded to privatisation."
Clearly, Mr Hayes has no concept that the
sale of shares in profitable state-owned com-
panies has the ability to create wealth for the
middle classes in both, both UK and T&T.
More importantly, privatisation (the option
being chosen for Royal Mail) or divestment
(the option that the Government of T&T chose
for First Citizens) also have the ability to create
wealth for the workers of the company that
has been privatised or divested.
As a result of the excitement that the First
Citizens IPO has caused among T&T investors,
the price of the banking group s shares has
increased by 32 per cent in its first two trading
days from $22 to $29.09.
This means that someone who invested
$22,000 to buy 1,000 First Citizens shares
would have had an investment worth $29,090
on paper after two days. If they sold at
$29.09---the price on Tuesday---the return on
their investment would probably be more than
if they had their money in an income fund or
a savings deposit for 20 years.
For the employees of the banking group,
their potential profit would be greater because
they were offered shares at $19.80, which was
a ten per cent discount to the price that every-
one else paid. The employees not only received
the shares at a discount, but were offered loans
by the bank to purchase the shares. So, a bank
employee who purchased 5,000 shares (which
was the amount they were allowed to buy at
the ten per cent discount), would have spent
$99,000, but would have had an investment
worth $145,450 on paper after two days.
With the discount and the soft loan, you
would think that First Citizens employees
would have rushed to ensure they were truly
First. But no. While 7,274,349 shares were set
aside for the bank s employees, they only sub-
scribed for 3,780,716---some 52 per cent of
what they were allocated.
Why would some First Citizens employees
look a gift horse in the mouth and tell it
High officials at the bank say that the
employees had to meet the same credit criteria
as any other customer and that the amount
they would have been allowed to borrow would
have been linked to their income and their
This is probably part of the truth, but not
the whole truth.
It may be that there are bank employees
who just don t see the value of owning shares
for the long term: who would prefer to receive
the 17 per cent salary increase between 2009
and 2011 that was negotiated by comrade Vin-
One suspects that neither those employees
nor the comrade realise that for every dollar
they earn beyond $5,000 a month, the Gov-
ernment takes back 25 cents directly and maybe
another 25 cents indirectly.
They don t realise that none of the gains
they could earn from owning First Citizens
shares (not from the capital appreciation or
from the dividends that begin to roll in as
soon as next month) are subject to any taxes.
From a financial point of view, then, it seems
to me that a First Citizens employee is better
off owning shares in the bank than getting a
salary increase every year---even if one takes
the final salary calculation for their pension
In fact, First Citizens should establish an
employee share ownership plan that would
invest in First Citizens and other local stocks
and could be used as a bargaining chip in the
salary negotiations with the union.
Do trade unionists
Banking, Insurance and General Workers Union (BIGWU) president Vincent Cabrera
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