Wednesday, 18 May 2016

IPO excess contributes to Inequality

Talk of 'Shareholder Capitalism' is muted these days. The great unwashed public - thanks to the services for their fiduciaries in the asset management and private banking industry - is only allowed in at extortionate levels of company valuations when the insiders are ready to cash in their chips. No wonder Inequality is rising inexorably - helped by the mantra that those selling a business should be treated with kid's gloves by the tax authorities. Not content with paying a lower tax on share sales than the average employee pays on the earnings he derives from actually providing hard work there is often a tax shelter in the form of (sham) 'trusts' or offshore companies that reduce the tax burden even further - if there is any tax paid at all. Given the secrecy that shrouds individual tax returns we will never know the true picture.
The recent IPO of CMC Markets here in London illustrates the sorry state of affairs. The Public is allowed in at a generous multiple of the capital that is actually invested in the business. So the return that the savers can expect to get from their (risky) investment is burdened by a big disadvantage right at the start. But the greater Fool theory is alive and kicking, every fund manager thinks he can outwit his competitors and offload shares before they take a turn for the worse. Due to the lack of a minimum holding period before capital gains tax is due (zero for institutional fiduciaries in any case) the shares can be flipped the second they start trading in the aftermarket. Talk of sustainable capitalism.
So it is no surprise that the main beneficiary of these non-sensical arrangements goes out and buys himself a modest mansion for all of £ 42 million that he has cashed in from the public. So watch out for the next purchase, a yacht or country pad maybe?

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