RM vulnerable to credit ctunch

[F0zziebear]

This post may sound pessimistic, but I fear for Royal Mail's revenue streams.

Royal Mail's largest (mainly indirect customers) are the banks. Have a think about the junk mail that comes through your door and you'll soon realise that the majority is made up of banks trying to get you take out credit. The largest bank used to provide enough revenue to RM to fund South London for a year. If the banks either begin to tighten their belts or begin to fold (re: HBOS etc.) then RM's revenues could be in deep trouble. Bear in mind that most of this revenue now comes via DSA (DownStreamAccess) so there could be an indirect benefit if your rivals lose large parts of their contracts with these banks.

The second reason why I am worried for you is your pension. What has your pension contribution been invested in. Don't be so socialist and taking the moral high ground to laugh at Lehman Brother's misfortune. Yours and my pension funds are invested into company's such as Lehman's and we are now seeing that these cowboys were investing this into nonsense.

With the credit crunch likely to continue and possibly get worse I wonder how an organisation so relient on consumer advertising will fare?

My only thought from my time at RM is the fact that the public sector provided the largest increases in spending over the last ten years (under labour). However, even government has instructed its departments to save money via DSA. With public finances being squeezed one may argue that the slush fund of local government has been turned off.

RM is a far trimmed down organisation compared to the past, most of the middle management who were in the way have now been shed. I assume that more frontline staff in operations are at risk, though the marketing department is still bloated (though with it being lead by the strategy director, I expect plenty of culling).

Interesting times ahead. I wonder what others think

[DGP1]

I would agree that things could be tight but it's the DSA companies (especially the small ones) who will really suffer, after all they took all the valuable contracts with the banks (the government won't let HBOS go to the wall just like Northern Rock).

The pensions I'm not too worried about because it's a long term investment and I'll only really worry if the fund itself goes bust (I don't listen to the doom sayers on the news who tell us that because one big company goes under our pensions will be ruined, I remember Polly Peck and the disaster it would be for our pensions).

The managers have increased in my office (as I'm sure others will say) whilst the staff have decreased and the workload has increased, so it's not the frontline staff that have to go but the useless management (although thinking about it who would do all the cut-offs)

[BELIAL]

On the surface ,these are all good points Fozz, but what lies underneath?
True the credit crunch,collapse of the financial system and massive recession will cause a major change in mail traffic. Lots of companies who are "low leveraged" will advertise more to improve/maintain their market position, many more will up their 'distress ' mailings, and final demands/reminders/foreclosure notices will go through the roof. However, even if volumes dip,in order to maintain the USO the pipeline must be kept intact. RM senior management have just made the 'startling' discovery that they have a lot more fixed costs than previously assumed. The logic is simple,if RM is to cut costs the USO will have to be ditched, can't see Barclays; EDF etc willing to pay £15 to send a statement or bill to a rural address or £7.50 to contact a high worth customer in low density Surrey, but markets is as markets does.
As for the pension issue ,I think you are quite right to be worried,but lets be honest,things weren't looking too rosy before the collapse of these investment banks. Even without financial meltdown it would have been a miracle if the city slickers had left you with the proverbial pot in twenty years time.
Not quite sure that I would term events at Lehman Bros., Merril Lynch, Bear Sterns ,Fanny,Freddy possibly Goldman Sachs, misfortune. Investment bankers all in effect taking ordinary folks hard earned savings and gambling on long odds for massive personal gain, taking the bonuses whilst losing the stake. Then keeping the bonuses and inflated salaries and advising the rest of us how to get out of the mess they created, which oddly enough can only be done by us giving them more of our money.
Can't abide Americanisms but given the context , Coffee Sniff Coffee Sniff morning.

PS buy gold, or land, quick, and do not leave any surplus credit in any high street account,better under the mattress right now, youll lose 5% at most

[baldrick]

I don't know where all this is going, but I know where it started.
With the deregulation of the financial markets in the 90's under the free market theorists, and implemented by
Reagan and Thatcher. It led to the get rich quick, greed is good spivs in the City who would sell their Grannies an
unaffordable mortgage to buy her run down unsellable council flat in the belief it would maker her rich.
The whole structure was built on sand and was bound to come down at some point.
I can see rough times ahead.

[steviemac]

This post may sound pessimistic, but I fear for Royal Mail's revenue streams.

Royal Mail's largest (mainly indirect customers) are the banks. Have a think about the junk mail that comes through your door and you'll soon realise that the majority is made up of banks trying to get you take out credit. The largest bank used to provide enough revenue to RM to fund South London for a year. If the banks either begin to tighten their belts or begin to fold (re: HBOS etc.) then RM's revenues could be in deep trouble. Bear in mind that most of this revenue now comes via DSA (DownStreamAccess) so there could be an indirect benefit if your rivals lose large parts of their contracts with these banks.

The second reason why I am worried for you is your pension. What has your pension contribution been invested in. Don't be so socialist and taking the moral high ground to laugh at Lehman Brother's misfortune. Yours and my pension funds are invested into company's such as Lehman's and we are now seeing that these cowboys were investing this into nonsense.

With the credit crunch likely to continue and possibly get worse I wonder how an organisation so relient on consumer advertising will fare?

My only thought from my time at RM is the fact that the public sector provided the largest increases in spending over the last ten years (under labour). However, even government has instructed its departments to save money via DSA. With public finances being squeezed one may argue that the slush fund of local government has been turned off.

RM is a far trimmed down organisation compared to the past, most of the middle management who were in the way have now been shed. I assume that more frontline staff in operations are at risk, though the marketing department is still bloated (though with it being lead by the strategy director, I expect plenty of culling).

Interesting times ahead. I wonder what others think

RM have weathered recessions on and off for 300 years, 2 world wars, financial mergers will always occur and always have .... tv advertising is more expensive than mailshots so that will be first to go leaving advertising execs with no option but to reach the most people at the lowest cost. Trust me when i say banks have got demographics down to a 't' and can target exactly who they want by postcode alone. Time look for positives and not talk ourselves into a depression .

[BELIAL]

Phill Gramm ex US Republican senator from Texas who strangely enough went on to become vice chairman of UBS was a major player in the repeal of the Glass- Spiegel Act in the 9o's. The Act was introduced in the wake of the 1st Wall Street crash as an attempt to prevent a repetition of that financial meltdown and subsequent 10 years of "The Great Depression"
The Gramm-Leach-Bliley Act "modernized" banking,insurance,and securities laws.
I guess the Gramm-Rudman-Hollings Act, and the Gramm-Latta Budget which placed caps on and reduced Federal spending are out the window; AIG want $40 billion of taxpayers cash to stay afloat.
So far this week,our own government who seem unwilling to honor our pension promises, have seen fit to pump £25 billion into the fat cats crumbling system I suppose folks always tend to look after their own.
Keep an eye on GE Capital, any whispers about that lot and it will be time to head for the hills

Good points Steviemac, me, I'm loving it

[Night Tonic]

Time look for positives and not talk ourselves into a depression .

Wow - that'll be a first for RMC then :D

[Lounge Lizard]

If the credit crunch has a severe effect on Royal Mail than I'm sure that Leighton and Crozier will forgo their bonuses next year as a goodwill gesture.

[BELIAL]

Tuesday update, AIG got the $40 billion yesterday ,24 hrs later they are asking for another $80 billion taxpayers notes to help them out of a minor jam

[Wild Cat]

At the rate new starters are leaving the business a few job cuts will go relatively un noticed.
We are working to time now and what else are we expected to do?
OH! I have an idea,why don't we do a couple of hours overtime a day to help the business out,unpaid of course.
Maybe that will help plug the gap in the pension fund that lehman and co squandered on the horses,I mean lost through the global market turning bad.

This is just the same old propaganda from the same old people who want more job cuts and less pay for us,and anyone who grumbles must be a trot or a socialist.

[F0zziebear]

Well, it seems that some banks are too big to fail and my original post now seems partially invalid. Still RM's revenues will suffer as advertising budgets are squeezed, though I accept the point that mail is still cheaper than TV, so there could be some conversion of media channels.

[mailsort6]

All these banks and airlines are mergeing to save themselves from the credit crunch, will RM merge with DHL, TNT and UK Mail if things get bad? this might be their excuse for privitisation.

[Darren Bent]

If the recession last few years, will our workload get more manageable ?

[Big Daz]

Given that we deliver DSA at a LOSS then our DSA rivals losing work will not be a problem for us and will benefit us finacially!

[TrueBlueTerrier]

If the recession last few years, will our workload get more manageable ?

NO AL and AC will continue to try and get more blood from that particular stone. If volumes to drop then lapsing will become norm even if your call rate does not change.