A Swiss private bank has upped its multi-million pound bet on Irn-Bru maker AG Barr to fail during the coronavirus crisis, The Ferret can reveal.
As government lockdown measures have reduced demand for drinks, the Cumbernauld-based firm has furloughed staff and cut back on marketing and investment.
At the same time, the Lombard Odier bank has increased its short position in the company, ignoring a call by the Governor of the Bank of England not to cash in on the Covid-19 pandemic.
The head of the Scottish Trade Union Congress (STUC) called short-sellers “indiscriminate parasites” and said the practice should be banned during the crisis, as it has been in other countries.
Short-selling is when speculators pay a fee to borrow a share. They then sell them and hope to buy them back at a lower price so they make money when the share goes down.
On 18 March the Bank of England Governor, Andrew Bailey, told BBC News: “Anybody who says ‘I can make a load of money by shorting’ which might not be frankly in the interest of the economy, the interest of the people – just stop doing what you’re doing.”
Despite this warning, Geneva-based Lombard Odier has continued to increase its short position in AG Barr, which employs 525 people in Scotland.
According to Financial Conduct Authority data, Lombard Odier’s short position on AG Barr was 1.1 per cent of total issued share capital on 3 March. Since then, it has more than doubled to 2.43 per cent of shares, worth about £13 million.
At the same time, AG Barr’s share price was mostly falling as the company predicted government enforced closures of pubs, cafes and restaurants would reduce demand for its drinks.
It has cut back on marketing and commercial activity and frozen investment in items such as manufacturing equipment. The opening of a new £14 million liquid processing facility in Cumbernauld has also been delayed.
AG Barr’s board and senior executive team have also agreed to a voluntary 20 per cent salary reduction for at least three months.
In the 2019 fiscal year the 11 executives and board members were together paid £1.6 million in basic salary. Bonuses, benefits and pensions topped this up to over £4 million.
The company’s chief executive, Roger White, was on a basic salary of £462,000 and the three other executives’ salaries were between £200,000 and £300,000. White’s total remuneration was over £1.4 million.
Another fund shorting AG Barr is BennBridge Limited. The fund, which has offices in London and Edinburgh has a 0.7 per cent short position. This has not changed since the coronavirus crisis.
Short-selling AG Barr ‘should be condemned’
The revelations about short-selling prompted criticism from trade unionists and politicians. “The situation at AG Barr is exposing how many of the phenomenal things produced by workers in Scotland are skimmed for profits by share-holders and speculators,” said STUC general secretary designate, Rozanne Foyer.
“It is an ominous sign of the way that jobs and livelihoods are at the mercy of indiscriminate parasites. As they attempt to suck companies dry in the weeks and months to come, government must intervene on the side of workers.”
Foyer called for short-selling to be banned during the crisis, as it has been in South Korea, Spain, Italy, France and Belgium. “Short selling during a global health crisis reeks of greed,” she said.
Scottish Labour’s finance spokesperson, Rhoda Grant MSP, said: “Any business that seeks to profit out of the Covid-19 pandemic should be condemned. It is simply wrong when we should all being doing everything we can to get us through this situation and others use it as a financial advantage.”
She added: “We need our businesses ready to begin trading when restrictions are lifted and anything done to undermine this should be outlawed.”
SNP MP Stuart McDonald said that AG Barr was an important source of jobs in his constituency. While this was a challenging time, the company was well-placed to navigate the weeks ahead as it had “iconic products” and a “good financial base”, he argued.
McDonald pointed out that other companies such as Morrison’s and Royal Mail had been impacted by short-selling in recent weeks. “It may soon be time for the Financial Conduct Authority to take tougher action, as other regulators have,” he said.
According to Prem Sikka, professor of accounting at the University of Sheffield, short-selling doesn’t create wealth. “It is a form of gambling and it creates instability in markets,” he told The Ferret.
Short-selling gives a signal to the market that a firm is in trouble and so can drive down their shares, he argued. When a company’s shares fall, they may have to pay back loans and can struggle to access cash and keep trading.
Sikka suggested that firms would find ways round a short-selling ban so it would be better to remove limited liability from investment banks. Limited liability restricts the extent to which a bank’s partners can be personally sued.
Lombard Odier and AG Barr declined to comment. The Scottish Government said that short-selling regulation was a matter for the UK government and the Financial Conduct Authority in London, which would have to implement any ban on short-selling.
The Financial Conduct Authority referred The Ferret to a statement on short selling. “We have never initiated a ban under the new powers given to us by the European Union short-selling regulation,” it said.
“While we cannot rule out that this will be appropriate in particular circumstances, we set a high bar on imposing any bans.”