Will Martin Lewis/MSE start a Tesco shares damages claim?

grey_gym_sock

ClarkeKent wrote: »

What like claiming PPI from a bank/building society you are a customer of, or a bank you own shares in or perhaps your pension fund does? (Total cost so far to UK banks, over £30bn)

and indirectly, that's £30bn cost to shareholders of banks.

it's a very different situation. bank shareholders, and PPI customers of banks, are overlapping groups, but they are not the same group, or anywhere near.

and even where they overlap, the size of the gain/loss varies. suppose 2 people are both shareholders and both PPI customers of a bank. but 1 has 10x as many shares as the other. but the bigger shareholder probably didn't pay 10x as much in PPI premiums. so the compensation they receive as PPI customers will not (except by accident) be the same amount as the unfair profit which they benefited from as shareholders but later have to pay back.

suppose shareholders lost £100m from tesco's actions. (i just picked that figure out of the air.)

suppose i own 1 millionth of tesco's shares. so i can claim £100, right?

where does the money come from? tesco, which then has £100m less cash (or £100m more debt). so it will be worth about £100m less than before. so my shareholding will be worth £100 less.

what was the point in that?

actually, it's worse than pointless, because the lawyers have to be paid. i'll be worse off, as a result.

now, if you want to be more subtle, it may be that some shareholders lost more than others from tesco's actions. especially, those that bought the shares when tesco's latest financial statements had been misleading. and shareholders who sold during that period may have gained a bit. but we can't ask for any money back from the latter group, because they weren't responsible for tesco's actions (unless perhaps they coincidentally happened to also work there at a high level). so the only way to compensate the losers is at the expense of the current shareholders of tesco.

which is hardly fair. most of the shareholders who have stuck with the company have already lost out (with the probable exception of those who bought in at an opportune moment when the price was low after the problems started to come out), because the mismanagement of the company has damaged the business. why penalize them further?

the only way to genuinely compensate shareholders who've lost out is to sue the executives responsible, if that is possible. suing the company itself is just a scheme for enriching lawyers.

bowlhead99

ClarkeKent wrote: »

What like claiming PPI from a bank/building society you are a customer of, or a bank you own shares in or perhaps your pension fund does? (Total cost so far to UK banks, over £30bn)

Say you own £200k of diversified pension fund assets.

If your pension is 80% equities that's £160k of equities.

And let's say those equities are allocated to the FTSE all-world index whose constituents are valued at c. $40 trillion.

Your exposure to Lloyds Banking Group would be based on its relative size in the index: £40bn ($50bn) over $40 trillion.

That ratio, multiplied by £160k, you have a £200 investment in Lloyds Banking Group.

Then let's say you claim £1000 off Lloyds for misselling you PPI.

Your claim costs Lloyds £1000 out of their £40,000,000,000 valuation.

That means it costs them one pound for every £40 million pounds they're worth. Your ownership is £200 worth, not £40 million pounds. So it doesn't cost you personally a pound. It costs you one twohundredthousandth of a pound.

So, you claim £1k off Lloyds for PPI and your personal pension drops in value from £200k to £200k less one twohundredthousandth of a pound. That sounds like a net win to me. Fine, make the claim. You get £1000 in your hand and your pension pot is still worth £199,999.999995 instead of £200,000.

However, that is somewhat different from being a direct investor in Tesco and suggesting that Tesco misled its direct investors, of which you are one because you have a £1,000 or £10,000 direct ownership.

Tesco at the time of announcing it had overstated its profits and assets in September 2014 at the same time as a general profit warning was valued at about 230p but it fell to around170p as a consequence of both concern over accounting practice and the business headwinds that it faced (lidl and aldi competition etc). Let's pretend for the sake of it that the entire 25% short term drop in share price was due to the misleading revenue recognition policy and nothing at all to do with general downturn, honest guv.

So, all the direct holders of shares who are good and loyal shareholders and still own shares went to Tesco and said hey, you liars, we are going to sue you. We temporarily lost 25% of our £19bn shareholding as a result of the misstatement of interim profits, and if we sold out then, although we didn't, you caused us to lose our money through being bad guys. Martin from MSE told me to chase you up for that. Please cut us a cheque for £4.5bn.

So, the company, currently worth £17.5bn, has to write a cheque for £4.5bn. Ouch. The owners of the company get a cheque for £4.5bn. But they lost £4.5bn off the value of their company. No real gain or loss.

For an owner of Tesco it seems rather silly to sue Tesco for misleading you, because you are the one that will be paying yourself out of your own assets. Rather different to having some highly indirect holding in a bank via a pension scheme and collecting £1000 while losing £0.000005 off your pension pot.

It does make more sense if you are a former shareholder who sold out at the temporary decline after the profit warning was announced and before it recovered like it has now, and feel aggrieved. But I agree with grey gymsock and racing blue that it is part and parcel of making at-risk investments and probably best to just move on (especially if you're a current holder of the shares).

*edit, just saw GGS's post which is making the same kind of point and got in there before mine. Ah well, I've written it now

alanq

I held Tesco shares directly but got out during the fuss about the mistreatment of suppliers and before the revelation about the overstatement of profits.

I was also more than a little unhappy when it changed the terms (unreasonably in my view) of my 12-month Delivery Saver deal after 6 weeks such that I would have to spend a minimum of £40 instead of £25 per delivery. I took this as a sign that its treatment of customers would backfire.

Glen_Clark

grey_gym_sock wrote: »

suing the relevant top-level managers (some of whom are facing criminal charges) personally would make more sense. presumably it doesn't happen because they don't have enough money to be worth suing.

I see another reason. The Senior Managers running the company are more likely to pay up when its not their money.
If they don't pay up out of shareholder's money, the lawyers might come for them personally instead?
I think its long been the case that when managers have made a mistake costing the company money, they prefer to lose shareholder's money rather than face an investigation.
(Follows through to the Public Sector too. Look how much has been lost on Government Contracts. Even the Police making out of court settlements with taxpayers money. Paying up keeps the claimants quiet and sends them away.)

Malthusian

Although the point is true that if you own Tesco shares, suing them for misstating sales figures and thereby causing you to overpay for shares you bought in 2013 is essentially suing yourself; would there potentially be a case for people who bought Tesco shares in 2013 but have since sold them to sue? Any settlement money wouldn't be coming out of their own pocket.

That said it wouldn't interest me either. This is the kind of chance you take when you buy shares.

Perhaps Tesco shareholders shouldn't be suing the company, but the people who sold their shares in 2013 and therefore received "too much" money?

I raise this prospect simply to illustrate the absurdity of thinking that you can recover investment losses through the courts. Whenever a company falls in value it nearly always means someone somewhere has screwed up, if you could get your money back by suing them then investing would be risk-free. Except that there would be no functioning investment stockmarket as all returns would be destroyed by legal costs. We're not Americans.

bowlhead99

Malthusian wrote: »

That said it wouldn't interest me either. This is the kind of chance you take when you buy shares.

Perhaps Tesco shareholders shouldn't be suing the company, but the people who sold their shares in 2013 and therefore received "too much" money?

I raise this prospect simply to illustrate the absurdity of thinking that you can recover investment losses through the courts. Whenever a company falls in value it nearly always means someone somewhere has screwed up, if you could get your money back by suing them then investing would be risk-free. Except that there would be no functioning investment stockmarket as all returns would be destroyed by legal costs. We're not Americans.

Effectively what you paid to the previous owner of the shares is influenced by what the company says about its numbers. If you trade right after they publish interim accounts where they say x profits and before they release the apology that it should have been y profits and there is also z that was overstated from prior year, then you'll likely overpay.

The person who sold you the shares and unfairly benefited will shrug and say well, caveat emptor, I didn't tell you they were inherently worth 230p I just said I wouldn't take less than 230p for them and you went and paid me that after making your own judgements. Clearly there is a feeling of being duped but it's the seller that has your money, not the company, and there's no way he's paying you out.

Meanwhile the company may have caused you to overpay through the bad accounting, but they didn't visibly benefit from it and they didn't generate money that they can use to pay you out. If companies had to pay out for such mistakes after not directly benefiting there would be companies going out of business all over the place.

If on the other hand the company had raised significant sums of new equity or debt finance on the back of their published overstated interim accounts then they have obtained a financial advantage by deception and somebody needs to throw the book at them to discourage that practice and some kind of model could be built to attempt to quantify what they had gained.

It is hard to see how you quantify the "secondary" losses by people trading at a pumped-up price though, where they weren't buying anything from the company - and where investors just assumed the accounting policies were sensible when receiving the reports and they weren't. Especially as the share price did eventually recover and it's difficult to say what part of the recovery is attributable to more reliable information, macro sector factors, or new incremental performance of the business.

Glen_Clark

bowlhead99 wrote: »

Meanwhile the company may have caused you to overpay through the bad accounting, but they didn't visibly benefit from it

The Company doesn't benefit but the Directors usually do through bonuses and share options. Which shows they are working for themselves, not the Company. And they would rather pay out shareholder's money to a claimant than face cort action that will cost them more personally.

bowlhead99

Glen_Clark wrote: »

Which shows they are working for themselves, not the Company. And they would rather pay out shareholder's money to a claimant than face cort action that will cost them more personally.

Well, quite. Yes the directors/senior management would rather pay out shareholder's money than their own. But what you're saying is the company didn't make the money, the individuals did, who were not working as fiduciaries for the shareholders but for themselves. So the company and its current shareholders shouldn't have to pay because its the individual scoundrels at fault who were the beneficiaries of the "fraud".

The problem is that the individual directors don't have £100m so chasing them for it is a non starter. It won't cost them £100m personally because they ain't got it. No point suing them. But the SFO is investigating them as individuals right? Criminal sanctions and disgorgement of any profits are the practical alternative to having them turn back time and somehow give investors billions of pounds out of nowhere. Making it stick is of course the tricky part.

verybigchris

Martin Lewis has always steered well clear of anything to do with equity investments. I think the chance of him wading into this is pretty much zero.

jimjames

Malthusian wrote: »

Perhaps Tesco shareholders shouldn't be suing the company, but the people who sold their shares in 2013 and therefore received "too much" money?

Wouldn't the target be the accountancy firms that signed off the accounts rather than Tesco?