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A small diversion. I was just reading this newsletter, and want to share it with you.
This has nothing to do with directors dealings, but everything to do with the deepening recession in the US.
Read John Mauldins ‘Thoughts from the Frontline’, and subscribe to his weekly email. Go to http://www.2000wave.com/index.asp
Like any transaction with a bank, you need to read the fine print before deciding on the merits of the offer.
Now that HBOS have released details of their directors purchases (why didn’t they tell us on Thursday?), I have changed my opinion as to the significance of these directors dealings.
1. The Bank EXPECTS executive directors to [buy shares] have meaningful shareholdings. ‘Every year since 2002 all incentive outcomes earned by all Executive Directors have, at their choice, been taken as HBOS shares, rather than cash’. The shares bought last Thursday were paid for using the net bonus paid to directors.
2. The increase in share positions is small, averaging only 16% of their pre purchase position in HBOS, wioth the exception of Jo Dawson, who increased her position by 49%.
3. The investments just made can be increased by up to 200% by the bank, dependent on real eps performance over three years. So these guys could be buying shares at 150p if they perform!
‘Executive Directors may receive up to 200% enhancement (250% for the CEO) of such shareholding dependent on growth in eps over three years in excess or RPI. 0% pa eps growth over RPI = 0% additional shares. +3% = 100% additional. +6% = 200% additional.’
My conclusion and revised opinion:
If the executive directors hadn’t bought shares in HBOS then that would have been something of concern. The fact that they did is in my view, and the view of the Bank, normal and expected behaviour. So the purchase on Thursday is in the normal course of business, and should not be taken as a positive message by investors.
For further details on remuneration policy see pp126-128 in the hbos plc 2007 Annual report and Accounts: http://www.hbosplc.com/investors/results/ARA_2007/downloads/HBOS_ARAreduce.pdf
I haven’t seen the full details yet of who bought what when.
But the Times points to a significant purchase by HBOS (HBOS, 474p) directors and staff, who ‘spent almost £6 million bumping up their shareholdings in the FTSE 100 mortgage bank the day after malicious rumours’.
Let’s take a look back to November last year, when the banks were in freefall over market rumours as to who held the toxic waste. RBS directors, by buying in significant size, and in concert, sent a very strong message to the market.
Over the next three weeks, RBS was up 21% absolute, or 18% relative to the FTSE. Can this happen again? Absolutely. But I don’t think it will take three weeks this time
See my note of December 6th: RBS directors outperform FTSE by 18%.
Postscript with my change of view following further information, see post of March 26th on HBOS ‘Read the fine print’.
Brambles Ld (BXB, 424p) has a secondary listing in London, and a primary listing in Sydney. I noticed a director selling £702k of shares, way down from the high, and wonder if this is a result of a slowdown in revenue at the group.
Brambles directors have been buying through 2006 and 2007, at prices between 506p and 557p in 10s and 20s (thousands of shares). The stock peaked in October 2007 at 650p. Then, last week, Craig van der laan de Vries, ‘Group President of CHEP Asia Pacific’ sells almost 20% of his holding, 160,000 shares at 440p, raising £702,000.
What does he know that we don’t know? Hazard a good guess.

With 83% of Brambles revenues from CHEP, the global ‘bluepallets’ people, with sales split 44% Americas, 43% Europe, and 13% Rest of World, these guys have significant exposure to a slowing economy.
But then there could be 4% of the company coming to market pretty soon (see smh comment here).
The last news release was the interim results on Feb 21st, so don’t expect anything soon. But still I do find this a curious move by a director of the group, and as a result I believe that the risks from here forward lie on the downside.

I was just looking at the forthcoming news, and see that Savills (SVS, 344p ) have their results this week (Wednesday March 12th).
A pretty non committal trading statement in January, and decent performance by the Real Estate sector (Savills classified by FTA as Real Estate) mean that this stock has been a great performer. Savills are up around 50% from their January lows, and have also outperformed Taylor Wimpey by 50% since the turn of the year.
I warned that it was too early to buy the housebuilders when I saw a director at Savills selling down his position in November at 353p. But I really now believe that any news this week from Savills is likely to be negative for the share price.
No matter what they say about global reach, 80% of operating profits come from the UK. And did you know that they have more than 17,000 employees ? Yes, a large chunk of costs will be commission (1/3rd of total staff costs), but 17,000 people is a heavy cost base to manage when things are turning down.
Another thing. Savills financial results didn’t seem to have any gearing to the upside when revenues were rising (revenues up 34%, operating profits only up 10% at June 2007 interim results) which means costs (staff costs up 35%) have been rising as fast as revenues. So watch what happens when revenues start falling.
Sources:
Savills H1 results presentation: http://ir.savills.com/savills/finnews/reports/interim07pres/interim07pres.pdf
Google Finance: http://finance.google.com/finance
Digitallook.com: http://www.digitallook.com/
For all articles on Savills published on followthedirectors click here.