(Please click on the image to enlarge)

To add to the festive fun, please contribute to the caption competition by finishing the well known Del Boy Robinson Quote:

“This time next year Rodney…..” 

Leave your response as a comment, a bottle of champagne for the best one and something for the biggest plonker as well.

Cheers - have a great Christmas and a prosperous 2009!

Morgan and Mark

We felt that light hearted banter was the way to deliver a little festive cheer after a fairly depressing 2008. But there are a number of alternatives (and obviously no right or wrongs.) I thought I would share my two favourites to date.

Christmas irony was delivered by Sheffield Hamworth, the recruitment consultant, who choose a Bull as their 2008 offering. Bulls were definitely the logo of 2006 not 2008, surely no one knows that better than a recruitment consultant? Maybe the Bears were too busy rampaging through the financial markets to pose for Xmas cards?

Well here is the card…

On a far more sober note, we got this from Postbank. Proving that no one does fun and festive better than our German friends…

We would love to see the best and worst offerings from your collection of cards. E-mail them to me (morgan@ellandi.com) and they’ll get a place on the blog.

Mr Ross was a pin up for entrepreneurial Britain, young, talented, successful and self made. He is even public spirited taking on the daunting task of trying to assure Boris ran a tight ship in planning the 2012 Olympics.

Sadly he has become the perfect target for the British press and the peculiarly British disease, we love to find a home grown hero but then take even more delight in watching them fall.

Undoubtedly, Ross has been somewhat foolish. Firstly, he leverages his stakes in not only Carphone but also the other three listed companies of which he is  a director without fully disclosing this. This is a bit of a schoolboy error but on the face of it there has not been any market manipulation that has allowed Ross to profit or any other investor to lose money.

Rather more foolish he seems to have monetisation, by way of leverage, his equity stakes in order to grow Kandahar,  his real estate portfolio. This leaves him, and other who have done the same - notably the Russian oligarchs in a perilous position. This is a situation that does threaten the stability of markets and the solvency of both companies and individuals.

In the boom times, this model looked ingenious. You took £100m of stock and raised say 75% of its value through a loan. You then reinvested the £75m of debt as equity in other deals or sectors. Through supporting your acquisition with leverage you could grow your portfolio exponentially benefiting from further stock price growth and the seemingly endless appreciation of all asset classes.

Prior to the loan you owned £100m of equity, following this financial engineering you owned £100m of equities and £375m of property. OK, you still only have £100m of equity value but the bigger portfolio in a rising market will generate far greater returns than a £100m ungeared equity holding. Suddenly a rich man is well on the way to being a billionaire.

Unfortunately, there is always a catch. Whilst banks loved this business, it allowed them to make profitable loans, generated M&A and brokerage fees they did need some security. This came through margin calls attached to loan to value covenants.

The original £75m loan would be secured on the shares but would be limited to say 80% of the value of those shares. If the share price falls then the client has to post cash as additional security to meet the 80% ratio. Simultaneously, if the value of your real estate holdings are falling this could trigger covenants in your property loans. The rapid fall in value of both shares and real estate was never predicted or properly thought through. Suddenly an investor needs lots of liquid cash to satisfy the banks security demands. If he can not provide this the bank repossesses both the shares and the property portfolio.

Many investors have not stashed away enough money to meet this rainy day requirement. Quite rapidly you can lose both the shares and the property, as banks rush to recover as much of their loan as possible. If shares and property both fall 25% the investor loses the lot. Very wealthy men could and will be be turned to dust.

I am not suggesting that this will happen to Mr Ross but it illustrates the risks attached to leverage. I suspect it will give the tabloids the opportunity to rubbish many more big names before the end of 2009.

In Spring 2009, Next will be relocating into The Arc Shopping Centre and vacating their existing unit fronting onto Cornmarket.

This attactive building was once three smaller units, which Ellandi will reinstate on Next’s behalf.

CBRE will be instructed to market the units in the New Year.

As a result of this partnership, Next will get the benefit of Ellandi’s development expertise, will not have to sell a unit with vacant possession into what is a very difficult market as well as retaining much of the “developers” profit.

This approach is one that Ellandi will be delighted to roll out with other retailers in the New Year, to help them maximise value from their property holdings.

http://uk.youtube.com/watch?v=jbgwR1pA1k0

There was wide ranging and at times passionate debate but the general conclusion was that there is very little consensus between banks. Some organisations are taking a proactive stance and looking to enforce covenants whilst others are willing to show patience to borrowers providing that interest is serviced. Some banks view LTV as a “technical default” that can be waived whilst others take the view it is a key contractual term that must be enforced. Certain people thought that the loan servicer model applied in the CMBS market is a robust structure whilst others argued it was incapable of making decisions and would lead to paralysis following a loan default.

The only universal opinion was that we are in uncharted waters and that 2009 will be see the banking and property industries having to learn how to cope with major challenges and a new environment. Although, it seems that lenders will address these issues in very different ways.

Will we bounce in and out, the classic “V” shape, as most economists predict? Or will we scrape along the bottom for a while, before a vertiginous recovery?

Clearly “L” is the ugly option with no recovery n sight.

The answer, I’m sure, won’t be simple, hopefully the general economy will follow a “V” shape as a result of the governments massive fiscal and monetary easing.

Housing and commodities could well be a “U”. New supply in housing and investment in capacity of commodities has fallen off a cliff as their price has plummeted, there might be no swift recovery, but once demand does recover, in line with the general economy and the slack taken up, the lack of new building or investment in refineries, say, could lead to a sharp recovery in asset prices.

But what of commercial property investment?

People in the industry forget that this is a discretionary activity and a case for it, especially in light of its recent catastrophic performance, will need to be made again, based on no guaranteed yield compression, low gearing and poor rental growth.

Until that case is compellingly made, we could be in for a “L” of a time.

Mark’s luxury Ibizan villa (availableto rent next year at very reasonable rates) has been donated as the main auction lot, which will hopefully raise some money towards the very worthwhile nominated charity, Touching Tiny Lives Campaign

The business, with assets of £180m, brought in Ellandi as a consultant to undertake an emergency analysis of its liquidity position. It feared it would shortly be unable to meet its debt obligations, as sales volumes and asset prices fell during H2 2008.

Ellandi worked intensivle to review the business’ cashflows, future projections and ongoing liabilities. We were then able to provide strategic advice in regards to how the business should operate in order to conserve cash and access new funds. This enabled the company to approach its banks with a comprehensive restructuring proposal that were supported by a disparate group of banks.

http://www.timesonline.co.uk/tol/news/uk/article5062778.ece

Even a bad assed hedgie, like Andrew Lahde, wants to turn his back on the lucrative career that “destroyed his health” to grow hemp (his resignation letter is well worth a read):

http://ftalphaville.ft.com/blog/2008/10/17/17194/andrew-lahde-bows-out-in-style/

Given the non-stop barrel of laughs that is the world of commercial property and finance, I quite fancy jacking it all in to be the man that oils the thighs of the virgins that roll Cohiba cigars, but I doubt it would cover the school fees.

Like many things in this crazy, mixed up world, I feel that the concept of downshifting is yet another example of woolly ideas and a lack of joined up thinking.

My local organic deli (North St SW4, very good) is already full of posters and flyers for individual yoga tuition, children’s pottery classes, aryudevic massage, toddler acting classes and Chinese stool therapy (OK I made that one up).   It would now appear likely that it will be impossible to get in the front door for further adverts extolling the virtues of “lifestyle” businesses set up by former bankers.

Call me a cynic, but these self indulgent pursuits were just as symptomatic of the credit boom as second homes, flash cars and Christmas in the Caribbean; moreover rely just as heavily on there being a large amount of highly paid idiots with too much money to spend.

Alas those times gone and in The Great Deleveraging (new expression for the post Credit Crunch world) people are going to be focused a little further down Maslows “Hierarchy of Needs” and will be more worried about the basics such as food and shelter.