Companies always pay close attention to corporate tax. Legally minimize the overall tax burden can maximize shareholder returns and these is what most companies eager for. A few countries’ corporate taxes are very low, such as Cayman Islands, Cyprus, and Ireland. These countries, for example, Ireland, has attractive many multinational companies. Many US companies have set up subsidiaries in Ireland and this have create many jobs for Irish.
Recently, due to the gloomy banking landscape, Irish government has to accept the assist from EU/IMF. EU/IMF programme is demanding €3.7bn of tax increases between 2011 and 2014. And almost all European countries especially France and Germany are discussing about the Ireland corporate tax and give pressure to Ireland government to increase the corporate tax.
Although Ireland government is under tension, it insists that the 12.5% corporate tax won’t be changed. Low corporate tax can attract foreign direct investment (FDI) and this is also a part of their economic development strategy. To fulfil the requirement of EU/IMF programme, Ireland government may add other taxes such as VAT, property tax instead of corporate tax.
Now the Irish government is negotiating with the EU/IMF in order to lower the interest rate on the loan. EU/IMF may ask Ireland to make concessions about the corporate tax. But in Ireland, many think preserving the unique corporation tax policy is more important than lowering the interest rate of the bailout package. Indeed, the low corporate tax has not decreased the tax revenue. According to PwC ( the largest professional services firm in Ireland provides integrated Audit, Tax and Advisory services across all industries in Ireland and internationally), as a% of GDP, Ireland’s corporate tax revenue is relatively higher than EU standards (2.9% in 2008, in contrast to Germany at 1.1% and an EU average of 2.7%). (http://www.pwc.)
In my opinion, increasing corporate tax will cause negative effect on countries. The FDI investment will decrease; a lot of people will lose their jobs and affect the economic stability. The 12.5% corporate tax strengthen Ireland’s international competitiveness and stability. That’s why Ireland government defends the corporate tax policy.
Sunday, 27 February 2011
Monday, 21 February 2011
Blog 3: The new Tesco Bank Retail’s 5.2% bonds
Recently, Tesco Bank has published information that it issues bonds which has a fixed rate interest of 5.2% gross each year. The bonds have a seven-year life (repay in 2018). The life time is relatively short compares with those who have 10 or even 20 years long. The face value is ￡100 and the minimum initial investment is ￡2,000. People only can gain the bonds from stockbrokers and check prices on LSE (London Stock Exchange) website.
Formerly, Tesco Bank was named Tesco Personal Finance (TPF) which was a banking joint venture. It owned by both Tesco and the Royal Bank of Scotland. In 2008, Tesco, Britain's biggest retailer, bought the whole Royal Bank of Scotland’s’ stake. Then TPF just owned by Tesco. In 2009, Tesco renamed it Tesco Banking. It main products are insurance, credit cards and personal loans, etc.
The fund is raised for Tesco Bank to launch of bank branches and mortgage ranges. Because Tesco is considered as stable company (one commenter (Kerrygold) even said: ‘I suspect the country will go broke before Tesco does.’), the bonds indeed attract many private investors. But what we should put in mind is that Tesco bank is a legally separate entity, Tesco’s subsidiary. The bond is not covered by the Financial Services Compensation Scheme. If Tesco Bank becomes insolvent, Tesco do not have the right to compensate you. In other word Tesco has no right of recourse. And no one else will give recourse. It just likes Tesco’s project finance and people should only consider Tesco bank separately from Tesco. However, some may think Tesco won’t let Tesco Bank go bust and it will put energy in it. People think it does not as risky as those traditional large banks and its bonds are worth to invest.
5.2% interest is higher than current banks’ 0.5% saving interest. Also bonds are considered less risky than shares. So it is good for those conservative investors or people who will retire soon to hold the bonds and get fixed return. The main matters are that the value of cash may fall due to the inflation and seven years later. If the discount value is at 5%, then after seven years, ￡100 only value at ￡26! If add the interest only ￡35 left. Also the bank’s saving interest may raise and then it will be no worth for us to put money in the bonds. Fortunately, you can buy and sale it whenever you like at the second market.
Personally, we can put Tesco Bank bonds in our portfolio to reduce the risk. Although the bonds’ value may fall, it is better for us to save money in bank if bank interest remains at 0.5%. We can buy shares, bonds, also a certain part of our money in the bank. Then if Tesco Bank go bust, we will not lost all of our money.
Formerly, Tesco Bank was named Tesco Personal Finance (TPF) which was a banking joint venture. It owned by both Tesco and the Royal Bank of Scotland. In 2008, Tesco, Britain's biggest retailer, bought the whole Royal Bank of Scotland’s’ stake. Then TPF just owned by Tesco. In 2009, Tesco renamed it Tesco Banking. It main products are insurance, credit cards and personal loans, etc.
The fund is raised for Tesco Bank to launch of bank branches and mortgage ranges. Because Tesco is considered as stable company (one commenter (Kerrygold) even said: ‘I suspect the country will go broke before Tesco does.’), the bonds indeed attract many private investors. But what we should put in mind is that Tesco bank is a legally separate entity, Tesco’s subsidiary. The bond is not covered by the Financial Services Compensation Scheme. If Tesco Bank becomes insolvent, Tesco do not have the right to compensate you. In other word Tesco has no right of recourse. And no one else will give recourse. It just likes Tesco’s project finance and people should only consider Tesco bank separately from Tesco. However, some may think Tesco won’t let Tesco Bank go bust and it will put energy in it. People think it does not as risky as those traditional large banks and its bonds are worth to invest.
5.2% interest is higher than current banks’ 0.5% saving interest. Also bonds are considered less risky than shares. So it is good for those conservative investors or people who will retire soon to hold the bonds and get fixed return. The main matters are that the value of cash may fall due to the inflation and seven years later. If the discount value is at 5%, then after seven years, ￡100 only value at ￡26! If add the interest only ￡35 left. Also the bank’s saving interest may raise and then it will be no worth for us to put money in the bonds. Fortunately, you can buy and sale it whenever you like at the second market.
Personally, we can put Tesco Bank bonds in our portfolio to reduce the risk. Although the bonds’ value may fall, it is better for us to save money in bank if bank interest remains at 0.5%. We can buy shares, bonds, also a certain part of our money in the bank. Then if Tesco Bank go bust, we will not lost all of our money.
Monday, 14 February 2011
Blog Two: Stock Market Efficiency in UK
This week, I have a better understanding of International Stock Exchanges and Stock Market Efficiency. Stock Exchange takes convenient for both the investors and companies. It reduces the cost of investment and can concentrate large portion of resources especially the international Stock Exchange to the most productivity. Companies can raise fund from all over the world! And if we focus on the stock market pricing efficiency, there are there levels of efficiency, they are Weak-form, Semi-strong form and Strong form efficiency. We can know what kind of market efficiency by checking how the share prices reflect the information.
Let us check London stock market’s efficiency by looking at one company – Barclays Bank PLC. The following is Barclays’ recent share price moving:
(Resource from London Stock Exchange website)
On 26th January 2011, Barclays announce it may cut 1,000 jobs because it is closing UK’s financial advice service. Barclay has to pay fine due to its financial Advice Services (failing to give suitable products to customers, etc.). On that the day, the share price fell from 298.4 per share to 295.5 per share. On 27th, BBC report Job fair Offers call centre would be post in Sunderland and Barclays revealed it would start a recruitment event and aiming to fill more than 200 positions. Then on that day, the share price rose to 299.4. On 31st, Barclays Bank manager has been given a suspended jail sentence because she siphoned more than ￡17,000 into her daughter’s bank account who was in serious debt. So on that day, the share price decreased to 293.8. We can see the share prices move just based on the news published. When the bad news occurs, the share price fall, the good news appears, it goes up. This may indicate that the UK stock market is semi-strong form efficient. The market is reacting quickly to the new information and people can’t make abnormal returns by studying publicly available information.
The share price follow the ‘random walks’ (Kendal: 1953) and we cannot know what kind of news may publish tomorrow. But we may use the information that has already published and the relative industry movement to predict the future share price movement. Whether we can have a successful prediction is depend on our knowledge, experiences and fortune. Why Warren Buffett can stably and continually earn money in the stock market? May be we can learn something from him.
Let us check London stock market’s efficiency by looking at one company – Barclays Bank PLC. The following is Barclays’ recent share price moving:
(Resource from London Stock Exchange website)
On 26th January 2011, Barclays announce it may cut 1,000 jobs because it is closing UK’s financial advice service. Barclay has to pay fine due to its financial Advice Services (failing to give suitable products to customers, etc.). On that the day, the share price fell from 298.4 per share to 295.5 per share. On 27th, BBC report Job fair Offers call centre would be post in Sunderland and Barclays revealed it would start a recruitment event and aiming to fill more than 200 positions. Then on that day, the share price rose to 299.4. On 31st, Barclays Bank manager has been given a suspended jail sentence because she siphoned more than ￡17,000 into her daughter’s bank account who was in serious debt. So on that day, the share price decreased to 293.8. We can see the share prices move just based on the news published. When the bad news occurs, the share price fall, the good news appears, it goes up. This may indicate that the UK stock market is semi-strong form efficient. The market is reacting quickly to the new information and people can’t make abnormal returns by studying publicly available information.
The share price follow the ‘random walks’ (Kendal: 1953) and we cannot know what kind of news may publish tomorrow. But we may use the information that has already published and the relative industry movement to predict the future share price movement. Whether we can have a successful prediction is depend on our knowledge, experiences and fortune. Why Warren Buffett can stably and continually earn money in the stock market? May be we can learn something from him.
Sunday, 6 February 2011
Blog one
Sell’s disappointed financial results
Recently, Royal Dutch Shell PLC has published its fourth-quarter and full year 2010 results. Shell Chief Executive – Peter Voser was disappointed about the result. Their earnings were $4.1 billion which is below the forecasts. The low natural-gas prices in the US, high price of material, some big refineries closed, and the government’s imposement of an oil drilling moratorium in the Gulf of Mexico have badly affected Shell’s profit earning.
Shell focus on the goal of shareholder wealth maximizing because it has invested large portions of fund in exploration of new area for oil drilling (such as Alaska’s Beaufort and Chukchi Seas) and these will directly benefit for the long-term. However, it is difficult for Shell to satisfy both shareholder and the society. Shell has an Alaska drilling plan, but due to the environmental issue – air-quality, it has to delay its plan. The environmental groups are happy with this result. They consider the safety of the environment. Oil drilling is a high risk activity and it may cause explosion. But this delay will cause Shell a lot of money and it will damage shareholders’ wealth.
A company can not only consider shareholder value, it also needs to consider stakeholder value – customers, government, even the whole society. Companies need to make thorough decision to consider both the shareholder and stakeholder value. Companies may easily ignore the safety of the environment and focus on the benefit of the shareholders. And government is an important role to protect stakeholder’s benefit in this case. Shell needs to explore a better way to balance the company benefit and environment safety.
Actelion may face an acquisition
Another piece of news is from Actelion Ltd. Actelion is the Europe’s largest biotech company. The company has suffered a 50% stock market valuation decreased below where it could be. And one of company’s largest shareholder – Investment firm Elliott Advisors Ltd. will put agenda of a sale of Actelion for Actelion’s shareholder meeting on May 5. It considers Actelion has a bad future direction and management. Also it stressed Actelion Chairman Robert Cawthorn and Chief Executive Jeanpaul Clozel to step down from the board immediately. It said they against shareholders’ interest.
If one company’s management cannot properly satisfy shareholders’ interests, they may be asked to quit. Shareholders’ of Actelion may want to have a high market share price and a bidder can raise Actelion share price. Elliott may ignore how the employees in company are or even how the company is running during the year but it has high interest in its share price and dividends. Has a bidder may not good for the company management or employees but it is good for shareholders. So the management really needs to put the shareholder value the first place and has a long-term progress step by step.
Recently, Royal Dutch Shell PLC has published its fourth-quarter and full year 2010 results. Shell Chief Executive – Peter Voser was disappointed about the result. Their earnings were $4.1 billion which is below the forecasts. The low natural-gas prices in the US, high price of material, some big refineries closed, and the government’s imposement of an oil drilling moratorium in the Gulf of Mexico have badly affected Shell’s profit earning.
Shell focus on the goal of shareholder wealth maximizing because it has invested large portions of fund in exploration of new area for oil drilling (such as Alaska’s Beaufort and Chukchi Seas) and these will directly benefit for the long-term. However, it is difficult for Shell to satisfy both shareholder and the society. Shell has an Alaska drilling plan, but due to the environmental issue – air-quality, it has to delay its plan. The environmental groups are happy with this result. They consider the safety of the environment. Oil drilling is a high risk activity and it may cause explosion. But this delay will cause Shell a lot of money and it will damage shareholders’ wealth.
A company can not only consider shareholder value, it also needs to consider stakeholder value – customers, government, even the whole society. Companies need to make thorough decision to consider both the shareholder and stakeholder value. Companies may easily ignore the safety of the environment and focus on the benefit of the shareholders. And government is an important role to protect stakeholder’s benefit in this case. Shell needs to explore a better way to balance the company benefit and environment safety.
Actelion may face an acquisition
Another piece of news is from Actelion Ltd. Actelion is the Europe’s largest biotech company. The company has suffered a 50% stock market valuation decreased below where it could be. And one of company’s largest shareholder – Investment firm Elliott Advisors Ltd. will put agenda of a sale of Actelion for Actelion’s shareholder meeting on May 5. It considers Actelion has a bad future direction and management. Also it stressed Actelion Chairman Robert Cawthorn and Chief Executive Jeanpaul Clozel to step down from the board immediately. It said they against shareholders’ interest.
If one company’s management cannot properly satisfy shareholders’ interests, they may be asked to quit. Shareholders’ of Actelion may want to have a high market share price and a bidder can raise Actelion share price. Elliott may ignore how the employees in company are or even how the company is running during the year but it has high interest in its share price and dividends. Has a bidder may not good for the company management or employees but it is good for shareholders. So the management really needs to put the shareholder value the first place and has a long-term progress step by step.
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