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Mulberry, the struggling UK luxury brand, has rejected a proposed takeover bid by Mike Ashley’s Frasers Group.

Frasers, which is majority owned by the tycoon and best-known for its Sports Direct brand, made an offer on Monday that valued Mulberry at £83m.

The company is the second largest shareholder in Mulberry, with a 37% holding.

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It claimed to be acting to prevent “another Debenhams situation” after apparently being kept in the dark over a move by Mulberry, last Friday, to raise cash.

Mulberry, best known for its handbags, has been battling weak demand amid a global luxury slump and revealed last week it had fallen sharply into the red during its last financial year as a result of the challenges.

Its annual accounts had contained a warning that the downturn had resulted in a “material uncertainty which may cast significant doubt on the group and parent company’s ability to continue as a going concern” if it persisted.

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Mulberry responded on Tuesday by declaring that the proposal by Frasers, which has been run by Mr Ashley’s son-in-law Michael Murray since 2022, did not recognise the company’s “substantial future potential value”.

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Michael Murray has run Frasers Group since 2022

The bid, it also said, did not have the support of its majority shareholder.

Mulberry said it had discussed the approach with Singapore-based Challice – controlled by billionaire Ong Beng Seng and his wife Christina.

The firm put faith in its recently appointed chief executive Andrea Baldo to drive a turnaround and said it would stick with the plans for a capital raising.

Pic: Mulberry
Image:
Pic: Mulberry

This “provides the company with a solid platform to execute a turnaround and, ultimately, to deliver best value for all Mulberry shareholders,” it concluded.

Frasers’ approach, worth 130p per share, valued the stake in the company it does not own at £52.4m.

Under UK takeover rules, it has until 28 October to make a firm offer for Mulberry or walk away.

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Mulberry shares were trading 3% lower on Tuesday morning.

Dan Coatsworth, investment analyst at AJ Bell, said of the battle: “Ashley’s blood is likely to be boiling at being kept out of the loop by Mulberry with its fundraising plan last Friday, given that Frasers owns 37% of the company.

“Ashley may no longer run Frasers but as the majority owner of the retail conglomerate, you can be sure he’s active behind the scenes. The stake in Mulberry was also acquired when he was in charge of Frasers, so he’s likely to take the snub personally.

“Mulberry’s fundraising looks dangerously close to being a cash call simply to keep the lights on. Frasers has now stepped in with a possible takeover offer – it’s not a particularly generous one, but this situation doesn’t deserve it.”

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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

Business

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.

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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

Read more:
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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