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Britain’s fourth-biggest household energy supplier is lining up bankers to explore options including bringing in a new investor or a sale, 15 years after it launched in a bid to challenge the industry’s oligopoly.

Sky News has learnt that OVO Group, which was founded by Stephen Fitzpatrick, is close to hiring Rothschild to assist with a strategic review of the business.

City sources said this weekend that a range of possibilities would be considered during the process, which is expected to take several months.

Money blog: How to split housework fairly

These are likely to include a refinancing – with talks already underway about OVO’s existing borrowings – as well as issuing new shares to prospective investors, or a partial or full sale by some of the company’s shareholders.

An outright sale of the business is considered by insiders to be unlikely at this point, but is expected to be explored as part of the strategic review.

OVO, which has about four million customers, sits behind Centrica, the owner of British Gas, Octopus Energy and E.ON Next in the rankings of Britain’s leading gas and electricity suppliers, according to market share data provided by Ofgem, the industry regulator.

More on Energy

Under Mr Fitzpatrick, who launched OVO in 2009, the company positioned itself as a challenger brand offering superior service to the industry’s established players.

OVO’s transformational moment came in 2020, when it bought the retail supply arm of SSE, transforming it overnight into one of Britain’s leading energy companies.

Its growth has not been without difficulties, with insiders referring to a challenged relationship with Ofgem and a torrent of customer complaints about overcharging.

Undated handout of OVO Energy chief executive Stephen Fitzpatrick sent 30/4/21
Image:
Stephen Fitzpatrick launched OVO in 2009. Pic: OVO

In recent months, OVO’s shareholders have reshaped its leadership team, bringing in the former J Sainsbury chief executive Justin King as its chairman.

In May, Mr King recruited David Buttress, the former Just Eat boss who was briefly Boris Johnson’s cost-of-living tsar, as the energy group’s new chief executive.

Mr Buttress replaced Raman Bhatia, who left to join Starling Bank.

He is expected to focus on sharpening the company’s customer service performance as well as exploring ways to further diversify its products and services.

Key to OVO’s valuation will be the growth of its technology platform, Kaluza, which was set up to license its software to other energy suppliers, and provides customers with smart electric vehicle charging and heat pumps.

OVO recently announced that AGL Energy, one of Australia’s biggest energy suppliers, had bought a 20% stake in Kaluza at a $500m valuation.

Kaluza is understood to be exploring further expansion opportunities in Europe, Japan and the US.

OVO has also entered the electric vehicle car charging sector under the brand Charge Anywhere, adding 34,000 public charging points across the UK.

In 2022, OVO Group made an unadjusted loss of £1.3bn, which it blamed on a decline in the value of energy it had bought in advance to meet future supply commitments.

It said this had “no cash impact” in a corporate filing, and that this value would rise as customers used the energy it had bought.

Last summer, the company announced a £200m secondary share sale which saw existing investors Mayfair Equity Partners and Morgan Stanley Investment Management increasing their stakes in the company.

Other investors include Mitsubishi Corporation, the Japanese conglomerate.

Mayfair is thought to hold a stake of over 30%, while Mitsubishi owns approximately 20%.

Mr Fitzpatrick also remains a significant shareholder.

This weekend, it was unclear which of OVO’s investors might seek a disposal of their interests, although insiders acknowledged that a sizeable proportion of the company’s shares could end up changing hands.

Like its rivals, OVO has been contending with the impact of the industry price cap after a period of enormous price spikes which sent customers’ bills soaring.

Last month, Ofgem said the cap would fall in the quarter from July to September by the annualised equivalent of £122, to £1568.

Other big players in the sector include EDF and Scottish Power, which is owned by Spain’s Iberdrola.

In recent months, Octopus Energy, run by Greg Jackson, has crystallised a valuation of over £7bn by selling stakes to a number of new investors.

Centrica has a market valuation on the London Stock Exchange of £7.3bn.

OVO, whose valuation in any major transaction was unclear this weekend, declined to comment.

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The big story from Bank of England is an easing in tightening to avert massive losses

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The big story from Bank of England is an easing in tightening to avert massive losses

For the most part, when people think about the Bank of England and what it does to control the economy, they think about interest rates.

And that’s quite understandable. After all, influencing inflation by raising or lowering the prevailing borrowing costs across the UK has been the Bank’s main tool for the vast majority of its history. There are data series on interest rates in the Bank’s archives that go all the way back to its foundation in 1694.

But depicting the Bank of England as being mostly about interest rates is no longer entirely true. For one thing, these days it is also in charge of regulating the financial system. And, even more relevant for the wider economy, it is engaged in another policy with enormous consequences – both for the markets and for the public purse. But since this policy is pretty complex, few outside of the financial world are even aware of it.

Money latest: What interest rate hold means for you

That project is quantitative easing (QE) or, as it’s better known these days, quantitative tightening (QT).

You might recall QE from the financial crisis. It was, in short, what the Bank did when interest rates went down to zero and it needed an extra tool to inject some oomph into the economy.

That tool was QE. Essentially it involved creating money (printing it electronically) to buy up assets. The idea was twofold: first, it means you have more money sloshing around the economy – an important concept given the Great Depression of the 1930s had been associated with a sudden shortage of money. Second, it was designed to try to bring down the interest rates prevailing in financial markets – in other words, not the interest rate set by the Bank of England but the yields on long-dated bonds like the ones issued by the government.

More on Bank Of England

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Bank of England’s decision in 90 seconds

So the Bank printed a lot of money – hundreds of billions of pounds – and bought hundreds of billions worth of assets. It could theoretically have spent that money on anything: stocks, shares, debt, housing. I calculated a few years ago that with the sums it forked out, it could theoretically have bought every home in Scotland.

Please use Chrome browser for a more accessible video player

Did Oasis cause a spike in inflation?

But the assets it chose to buy were not Scottish homes but government bonds, mostly, it said back at the time (this was 2009) because they were the most available liquid asset out there. That had a couple of profound consequences. The first was that from the very beginning QE was a technical policy most people didn’t entirely understand. It was all happening under the radar in financial markets. No one, save for the banks and funds selling government bonds (gilts, as they’re known) ever saw the money. The second consequence is that we’re starting to reckon with today.

Roll on a decade-and-a-half and the Bank of England had about £895bn worth of bonds sitting on its balance sheet, bought during the various spurts of QE – a couple of spurts during the financial crisis, another in the wake of the EU referendum and more during COVID. Some of those bonds were bought at low prices but, especially during the pandemic, they were bought for far higher prices (or, since the yield on these bonds moves in opposite directions to the price, at lower yields).

Then, three years ago, the Bank began to reverse QE. That meant selling off those bonds. And while it bought many of those bonds at high prices, it has been selling them at low prices. In some cases it has been losing astounding amounts on each sale.

Take the 2061 gilt. It bought a slug of them for £101 a go, and has sold them for £28 a piece. Hence realising a staggering 73% loss.

Tot it all up and you’re talking about losses, as a result of the reversal of QE, of many billions of pounds. At this point it’s worth calibrating your sense of these big numbers. Broadly speaking, £10bn is a lot of money – equivalent to around an extra penny on income tax. The fiscal “black hole” Rachel Reeves is facing at the forthcoming budget is, depending on who you ask, maybe £20bn.

Please use Chrome browser for a more accessible video player

UK long-term borrowing costs hit 27-year high

Well, the total losses expected on the Bank of England’s Quantitative Tightening programme (“tightening” because it’s the opposite of easing) is a whopping £134bn, according to the Office for Budget Responsibility.

Now it’s worth saying first off that, as things stand at least, not all of those losses have been crystallised. But over time it is expected to lose what are, to put it lightly, staggering sums. And they are sums that are being, and will be paid, by British taxpayers in the coming years and decades.

Now, if you’re the Bank of England, you argue that the cost was justifiable given the scale of economic emergency faced in 2008 and onwards. Looking at it purely in terms of fiscal losses is to miss the point, they say, because the alternative was that the Bank didn’t intervene and the UK economy would have faced hideous levels of recession and unemployment in those periods.

However, there’s another, more subtle, critique, voiced recently by economists like Christopher Mahon at Columbia Threadneedle Investments, which is that the Bank has been imprudent in its strategy of selling off these assets. They could, he argues, have sold off these bonds less quickly. They could, for that matter, have been more careful when buying assets not to invest too wholeheartedly in a single class of asset (in this case government bonds) that might be sensitive in future to changes in interest rates.

Most obviously, there are other central banks – most notably the Federal Reserve and European Central Bank – that have refrained from actively selling the bonds in their QE portfolios. And, coincidentally or not, these other central banks have incurred far smaller losses than the Bank of England. Or at least it looks like they have – trying to calculate these things is fiendishly hard.

But there’s another consequence to all of this as well. Because if you’re selling off a load of long-dated government bonds then, all else equal, that would have the tendency to push up the yields on those bonds. And this brings us back to the big issue so many people are fixated with right now: really high gilt yields. And it so happens that the very moment Britain’s long-term gilt yields began to lurch higher than most other central banks was the moment the Bank embarked on quantitative tightening.

But (the plot thickens) that moment was also the precise moment Liz Truss’s mini-budget took place. In other words, it’s very hard to unpick precisely how much of the divergence in British borrowing costs in recent years was down to Liz Truss and how much was down to the Bank of England.

Either way, perhaps by now you see the issue. This incredibly technical and esoteric economic policy might just have had enormous consequences. All of which brings us to the Bank’s decision today. By reducing the rate at which it’s selling those bonds into the market and – equally importantly – reducing the proportion of long-dated (eg 30 year or so) bonds it’s selling, the Bank seems to be tacitly acknowledging (without actually quite acknowledging it formally) that the plan wasn’t working – and it needs to change track.

However, the extent of the change is smaller than many would have hoped for. So questions about whether the Bank’s QT strategy was an expensive mistake are likely to get louder in the coming months.

Continue Reading

Business

The big story from Bank of England is an easing in tightening to avert massive losses

Published

on

By

The big story from Bank of England is an easing in tightening to avert massive losses

For the most part, when people think about the Bank of England and what it does to control the economy, they think about interest rates.

And that’s quite understandable. After all, influencing inflation by raising or lowering the prevailing borrowing costs across the UK has been the Bank’s main tool for the vast majority of its history. There are data series on interest rates in the Bank’s archives that go all the way back to its foundation in 1694.

But depicting the Bank of England as being mostly about interest rates is no longer entirely true. For one thing, these days it is also in charge of regulating the financial system. And, even more relevant for the wider economy, it is engaged in another policy with enormous consequences – both for the markets and for the public purse. But since this policy is pretty complex, few outside of the financial world are even aware of it.

Money latest: What interest rate hold means for you

That project is quantitative easing (QE) or, as it’s better known these days, quantitative tightening (QT).

You might recall QE from the financial crisis. It was, in short, what the Bank did when interest rates went down to zero and it needed an extra tool to inject some oomph into the economy.

That tool was QE. Essentially it involved creating money (printing it electronically) to buy up assets. The idea was twofold: first, it means you have more money sloshing around the economy – an important concept given the Great Depression of the 1930s had been associated with a sudden shortage of money. Second, it was designed to try to bring down the interest rates prevailing in financial markets – in other words, not the interest rate set by the Bank of England but the yields on long-dated bonds like the ones issued by the government.

More on Bank Of England

So the Bank printed a lot of money – hundreds of billions of pounds – and bought hundreds of billions worth of assets. It could theoretically have spent that money on anything: stocks, shares, debt, housing. I calculated a few years ago that with the sums it forked out, it could theoretically have bought every home in Scotland.

Please use Chrome browser for a more accessible video player

Did Oasis cause a spike in inflation?

But the assets it chose to buy were not Scottish homes but government bonds, mostly, it said back at the time (this was 2009) because they were the most available liquid asset out there. That had a couple of profound consequences. The first was that from the very beginning QE was a technical policy most people didn’t entirely understand. It was all happening under the radar in financial markets. No one, save for the banks and funds selling government bonds (gilts, as they’re known) ever saw the money. The second consequence is that we’re starting to reckon with today.

Roll on a decade-and-a-half and the Bank of England had about £895bn worth of bonds sitting on its balance sheet, bought during the various spurts of QE – a couple of spurts during the financial crisis, another in the wake of the EU referendum and more during COVID. Some of those bonds were bought at low prices but, especially during the pandemic, they were bought for far higher prices (or, since the yield on these bonds moves in opposite directions to the price, at lower yields).

Then, three years ago, the Bank began to reverse QE. That meant selling off those bonds. And while it bought many of those bonds at high prices, it has been selling them at low prices. In some cases it has been losing astounding amounts on each sale.

Take the 2061 gilt. It bought a slug of them for £101 a go, and has sold them for £28 a piece. Hence realising a staggering 73% loss.

Tot it all up and you’re talking about losses, as a result of the reversal of QE, of many billions of pounds. At this point it’s worth calibrating your sense of these big numbers. Broadly speaking, £10bn is a lot of money – equivalent to around an extra penny on income tax. The fiscal “black hole” Rachel Reeves is facing at the forthcoming budget is, depending on who you ask, maybe £20bn.

Please use Chrome browser for a more accessible video player

UK long-term borrowing costs hit 27-year high

Well, the total losses expected on the Bank of England’s Quantitative Tightening programme (“tightening” because it’s the opposite of easing) is a whopping £134bn, according to the Office for Budget Responsibility.

Now it’s worth saying first off that, as things stand at least, not all of those losses have been crystallised. But over time it is expected to lose what are, to put it lightly, staggering sums. And they are sums that are being, and will be paid, by British taxpayers in the coming years and decades.

Now, if you’re the Bank of England, you argue that the cost was justifiable given the scale of economic emergency faced in 2008 and onwards. Looking at it purely in terms of fiscal losses is to miss the point, they say, because the alternative was that the Bank didn’t intervene and the UK economy would have faced hideous levels of recession and unemployment in those periods.

However, there’s another, more subtle, critique, voiced recently by economists like Christopher Mahon at Columbia Threadneedle Investments, which is that the Bank has been imprudent in its strategy of selling off these assets. They could, he argues, have sold off these bonds less quickly. They could, for that matter, have been more careful when buying assets not to invest too wholeheartedly in a single class of asset (in this case government bonds) that might be sensitive in future to changes in interest rates.

Most obviously, there are other central banks – most notably the Federal Reserve and European Central Bank – that have refrained from actively selling the bonds in their QE portfolios. And, coincidentally or not, these other central banks have incurred far smaller losses than the Bank of England. Or at least it looks like they have – trying to calculate these things is fiendishly hard.

But there’s another consequence to all of this as well. Because if you’re selling off a load of long-dated government bonds then, all else equal, that would have the tendency to push up the yields on those bonds. And this brings us back to the big issue so many people are fixated with right now: really high gilt yields. And it so happens that the very moment Britain’s long-term gilt yields began to lurch higher than most other central banks was the moment the Bank embarked on quantitative tightening.

But (the plot thickens) that moment was also the precise moment Liz Truss’s mini-budget took place. In other words, it’s very hard to unpick precisely how much of the divergence in British borrowing costs in recent years was down to Liz Truss and how much was down to the Bank of England.

Either way, perhaps by now you see the issue. This incredibly technical and esoteric economic policy might just have had enormous consequences. All of which brings us to the Bank’s decision today. By reducing the rate at which it’s selling those bonds into the market and – equally importantly – reducing the proportion of long-dated (eg 30 year or so) bonds it’s selling, the Bank seems to be tacitly acknowledging (without actually quite acknowledging it formally) that the plan wasn’t working – and it needs to change track.

However, the extent of the change is smaller than many would have hoped for. So questions about whether the Bank’s QT strategy was an expensive mistake are likely to get louder in the coming months.

Continue Reading

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Bank of England leaves interest rate unchanged and slows quantitative tightening

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Bank of England leaves interest rate unchanged and slows quantitative tightening

The Bank of England has announced it is scaling back the rate at which it is selling bonds into the financial market as part of its quantitative tightening programme.

The Bank’s Monetary Policy Committee (MPC) voted to leave interest rates unchanged at 4% at its September meeting, but more controversial still is its annual decision over the reversal of its crisis-era quantitative easing programme.

Money blog: cost of visiting popular tourist destination rising

Over the last two years, the Bank has been in the midst of actively selling off bonds bought during the financial crisis and COVID-19, as part of its economic rescue measures. Those amounts were averaging out at £100bn a year.

Today, the Bank announced it is reducing the annual sale rate to £70bn a year.

It has also announced it will, in future, be selling fewer long-dated government bonds.

“The new target means the MPC can continue to reduce the size of the Bank’s balance sheet in line with its monetary policy objectives while continuing to minimise the impact on gilt [government bond] market conditions,” said governor Andrew Bailey.

More on Bank Of England

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The big story from the Bank of is reversal of tightening to avert massive losses

On the interest rate decision, Mr Bailey said, “We held interest rates at 4% today. Although we expect inflation to return to our 2% target, we’re not out of the woods yet so any future cuts will need to be made gradually and carefully.”

The decision was not unanimous, with two of the seven MPC members voting to cut the base interest rate by 0.25 percentage points.

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