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M&B: one too many

• Robert Peston
• 29 Jan 08, 08:03 AM

It’s always the quiet ones.

, the leading pub chain, has become the first non-financial company in the UK to be seriously crunched by the poor conditions in credit markets.

M&B has suffered a £274m loss from closing out a series of financial positions it took on.

These were supposed to be a hedge for a property joint venture that it planned to execute last summer, but which was cancelled when the onset of the credit crunch made it impossible to raise debt for the deal.

Unfortunately for M&B and its shareholders, the hedge was already in place – but it was an orphan and it was naked, unable to do what it was supposed to do, which was to provide inflation-protection to that elusive property spin-off.

In fact the total loss for M&B is a bit more than £274m. There is further £22m unrealised loss showing on a bit of the hedge which M&B will retain.

Also, closing out the hedge has pushed up M&B’s debts, so the business’s interest-rate bill will rise and reduce post-tax earnings by £13m this year.

So the total cost is well over £300m.

M&B needs all this like a hole in the head right now.

Trading conditions for pubs, after the smoking ban and at the onset of a consumer slowdown, are as bad as anyone can remember.

As it happens, M&B is doing better than its peers and is capturing market share – but it is struggling to increase sales by more than a fraction.

Understandably, both of M&B's senior directors tendered their resignations.

The board allowed the finance director, , to go. But it decided that the services of the chief executive, , were too valuable – and, presumably with shareholders’ consent, he is staying.

None of the executives will receive a bonus for 2007 – which is perhaps a poke in the eye to all those investment bankers who felt it appropriate to pocket bonuses in spite of the enormous losses their outfits incurred on sub-prime and related rubbish.

Two questions.

What responsibility for this debacle rests with the big banks, Citigroup and Royal Bank of Scotland, which left M&B with its naked hedge when they declined to provide loans for the property deal, having indicated that they would provide the finance?

And what of . M&B’s partner in the property joint venture that never was? Has he too incurred a big loss on a similar hedge he took out? And how does he feel about the fall in value of his M&B stake?

He runs his business a long way from the stock market, so does not have to share his financial pain with the wider world. But he can’t be feeling too chipper.

That said, Robbie Tchenguiz certainly has gumption. He's been increasing his holding in M&B, so that it's now 21 per cent.

The stock market believes M&B has hung out the for-sale sign this morning, by making the resonant statement that it is reviewing "strategic options for value creation". Which is why its share price has risen a bit, in spite of the humiliating loss.

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