The many reasons why Shell’s deal with BG will happen in 2016

Outlook: Shell needs to do a deal at this time of obvious consolidation in the industry

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It will be the first big test of 2016: will Shell press on with its takeover of BG when the oil price is stubbornly below $40 a barrel? Today, it gave a clear “yes” by publishing its full merger documentation and posting the paperwork out to shareholders. If it was not planning to press on with the deal, it would have found some excuse why not to do so.

The documents rap out a series of reasons why the current bombed-out oil price is not relevant to the logic of integrating these two vast companies. The deal will bring so many efficiencies, Shell promises, that its hallowed dividend will be safer, bringing in more cashflow to pay into the divi pot at as low as $50 a barrel. Few people really think crude is likely to stay below that for decades to come. And, as far as the value of the combined assets goes, it can breakeven at the low $60s, Shell adds.

That’s better than the $90 a barrel that some investors have calculated the deal will need in order to work, but similar to the $60-$70 level that Standard Life’s David Cumming said was needed when he declared the deal a dud.

With this transaction, though, the industrial logic of a tie-up is not the be-all and end-all. Many other factors are at play beyond the spreadsheet calculations around various oil price scenarios.

For one, there is a battalion of cheerleaders in the City’s bonus-hungry investment banks and brokerages urging it on. These guys – and they are mostly guys – are immensely powerful in the corporate world. Few board members of companies as big as Shell would have the cojones to upset the entire City establishment by ripping up a deal of this size.

Even if walking away might give Shell some kudos among the small number of shareholders vocally opposing the deal, it would be a major loss of face for the company on the world stage. Oil companies of Shell’s size do multi-billion-dollar deals covering decades. They are long and involved negotiations requiring a huge amount of trust. Being the company famed for reneging on a takeover deal would be hugely damaging.

Finally, Shell needs to do a deal at this time of obvious consolidation in the industry. It missed the boat in the late Nineties and early Noughties when BP bought Amoco and Exxon took over Mobil. How idiotic would its board look if it ditched its current bride at the altar, only to see her hook up with a rival in a few months’ time?

My bet for 2016: this deal will happen. The City’s bonuses are safe.

Why does sterling move just before each announcement?

The public borrowing figures from the Office for National Statistics were a shocker – bad news for George Osborne and bad news for the pound. Less unpredictable was this: sterling started falling sharply at 9.15am, a full 15 minutes before the release.

Why “less unpredictable”? Because, if you look carefully, you see that the pound moves up and down in the minutes before shock ONS announcements with unerring regularity. The wage figures from last week and September; last month’s inflation numbers; September’s manufacturing data, all saw the pound pre-empt the surprise ONS announcements by “pre-acting” in the right direction.

A surprisingly large number of folks in Whitehall and Westminster get access 24 hours prior to release.

The manufacturing numbers, for example, went to 27 ministers, special advisers, press officers and clerks.

Inflation data often goes out early to 34 people outside the ONS as Bank of England mandarins get a sneak preview.

That’s on top of the ONS staff who get to see the stuff, of course. Plenty of chances for the odd release to come in front of wandering eyes.

Did that happen in these cases, or was it just another uncanny bit of last-minute forecasting by a genius investor? You decide.

Regulators too often shoo away whistleblowers

Yet again, a senior financial services sector whistleblower with serious allegations of corruption in the City comes knocking here at The Independent. His allegations involve one of the biggest investment banks and a former star player in the world of private equity.

And yet again, he comes to the media because the Financial Conduct Authority has shooed him away, saying his case wasn’t big enough. So many whistleblowers have emerged through the financial media since the financial crisis that one starts to lose count. In nearly every case, they do so after being brushed off by the regulators.

While this makes the financial pages more interesting, it doesn’t bode well for the prosecution of white-collar crime. Especially when put together with our failure to prosecute wrongdoers when the evidence against them piles up high. Take the Barclays staff who clearly ignored anti-money-laundering rules when trying to win some billionaire clients. They were caught bang to rights, the bank was fined a small fortune, yet the individuals themselves weren’t even named, let alone prosecuted.

Some days it feels as if we should make a choice: either fund the FCA, the City of London Police and the Serious Fraud Office properly, as if London was a world-leading financial centre, or just outsource the whole thing to the FBI.

Sepp Blatter would doubtless disagree.