Tweeting excitedly about bitcoin is one thing; spending $1.5bn (£1.1bn) of shareholders’ funds on the cryptocurrency is another. If Elon Musk, Tesla’s chief executive and 20% owner, can’t resist the urge to speculate, shouldn’t he be using his own money rather than shareholders’?
Tesla’s audit committee has approved the “investment” as a way to “further diversify and maximise returns on our cash”, which is a heroically breezy way to describe the difference in the profile of risks. Accumulating a large hoard of bitcoins for your treasury operation is not like, say, authorising diversification into Swiss francs. As Tesla’s statement had to concede: “The prices of digital assets have been in the past and may continue to be highly volatile.”
Nor, from a risk-management perspective, does it matter that Tesla plans to accept payment in bitcoins. You still don’t have to place roughly 10% of your cash balances in a cryptocurrency prone to wild swings in value. If punters choose to buy their electric cars with bitcoins, that’s their choice. The prudent approach for Tesla would be to convert such payments immediately into dollars or other currencies in which it incurs costs.
The move, then, looks like pure speculation. It’s worked fine so far, since Tesla will be sitting on a tidy paper profit as a result of its purchases of bitcoin. And, Musk’s crew might argue, $1.5bn is not much in the context of a company worth $800bn.
Come on, though – this adventure looks to be mostly about Musk’s taste for disruption and publicity. The winners are the promoters of bitcoin, who can say cryptocurrencies are reaching the mainstream of the financial system. But it’s not obvious what Tesla gets out of it, other than a small but still significant financial risk.
The company should stick to what it’s good at – electric cars, energy-storing batteries and so on. Leave punting on bitcoin to the devotees.
BP pays price for delay
BP – finally – is in the UK offshore wind business, but the prices it is paying for two leases in the Irish Sea won’t lessen shareholders’ worry that latecomers to the renewables game must pay a premium to gain entry.
The option rights amount to £231m a year per 1.5 gigawatt lease for BP and its joint venture partner, Energie Baden-Wüerttemberg of Germany, sums far higher than the ones the crown estate achieved for windy acreages of equivalent size over in the North Sea.
BP could argue that its patches are more attractive because the waters are particularly shallow, making construction a breeze (ho ho) for a specialist in deep-water drilling. Well, maybe, but Ørsted, the Danish leader in windfarms, warned of “unsustainably high front-end costs” in the auction, which is not what BP’s investors wanted to hear.
The real test is whether the projects deliver the 8%-10% returns on capital that the BP chief executive, Bernard Looney, has promised. The company is confident, but the more BP can say about its financial assumptions, the better. This is the company’s second big deal in offshore wind – the other was with Equinor in the US – and there will be more to come as the push for renewables accelerates. But BP hasn’t obviously bagged a bargain yet.
Bailey bruised but unbroken
Andrew Bailey did a decent job of painting the Financial Conduct Authority, circa 2016, as a snoozy regulator that wouldn’t recognise a financial scandal happening under its own nose. Try this detail from Monday’s session at the Treasury select committee, where the current governor of the Bank of England tried to explain how the FCA, when he was in charge, missed the £236m London Capital & Finance disaster for so long.
There was, said Bailey, no mechanism for extracting information coming into the FCA’s call centres. Thus the many “red flag” warnings about LC&F were ignored. It’s astonishing: a call centre that takes calls but doesn’t act on them.
This characterisation, though, chimes with Dame Elizabeth Gloster’s description of the FCA as “a broken machine” at the time Bailey was appointed. He sounded approving. What he didn’t like was Gloster’s more important point that top executives at the regulator – Bailey included – should have moved faster to fix the defects.
Since it took until late 2018 for the FCA to realise that LC&F was, in fact, a disaster, Gloster’s criticism feels wholly legitimate: leadership is about choosing priorities. But do not be surprised if this affair now fizzles away. The select committee found no new information. Bailey, one suspects, will emerge bruised but still the governor.