Disquiet as Shell goes Dutch

VISITORS to the Willesden Jewish Cemetery in London can view the graves of some of the greatest names in British business.

Among them is the memorial to Lord Bearsted, whose vision led to the founding in 1897 of Shell Transport & Trading, the older partner in the Anglo-Dutch giant.

Now 107 years and countless billions of pounds of earnings later, Shell is to uproot itself from its London headquarters overlooking the Thames at Waterloo and decamp to The Hague. The new mantra is one Shell, one board, one chairman, one headquarters, one share quote and - one hopes - more than one barrel of oil.

But at the rate that Shell, under its Dutch leadership of Jeroen van der Veer, is downgrading the proven reserves he inherited from his predecessor, the luckless Sir Philip Watts, even that is not certain.

There can be no doubt that Shell's bureaucratic structure has been ripe for overhaul. All it has delivered is slow decision-making, accounting confusion, lost reserves and an arbitrage opportunity between two share quotes.

By bringing the quotes together and redistributing the shares on a proportional basis the two Shells are avoiding the need for an expensive and complex premium merger. Indeed, they have gone further than those other models of Anglo-Dutch capitalism, Unilever and Reed Elsevier.

What is less welcome is the apparent punishment being imposed on the admittedly smaller British arm of the business by moving the headquarters to The Hague.

Instead of hosting two oil majors, BP and Shell, Britain now finds it has one, with the top jobs in the reshaped Shell going to the Dutch.

The justification for such a move needs more explaining. The present trend is for overseas companies, possibly including Deutsche Bank, to move headquarters to London, not in the other direction.

London offers the deepest liquidity in its financial markets, the largest foreign exchange operations and access to the top investment banks. The Hague is a wonderful city, but it is not a top-line financial centre.

We are now beginning to see the full extent of the legacy at Shell of the Watts and - before that - the Sir Mark Moody-Stuart era. Profits are fine, thanks to the oil price. But with the latest downgrade Shell now has less proven reserves than any of the oil majors.

No wonder it is being required by investors to abandon its imperial pretensions.

Chinese puzzle

THERE is no mistaking the emergence of China as a global economic superpower. Beijing's manufacturing revolution is gobbling up 29% of world steel production, 26% of global copper and it is now the world's second-largest consumer of oil at 6.7m barrels a day, ahead of neighbouring Japan.

But despite its place at the high table of international economics - it attended the last Group of Seven meeting in Washington - decision-making is as obscure as ever.

As a result the country's action in raising its key interest rate by just over a quarter-point to 5.58% had analysts confused. China stated earlier this year that it would consider raising rates if inflation exceeded 5%. But it has been above that level for some time so the jump came as a shock.

It could be seen as more of the same as the Chinese have been tightening policy since September 2003 through a series of moves including an increase in bank reserve requirements - a policy instrument abandoned in the West some years ago.

But the markets saw Beijing's action as a turning point. The dollar climbed against the yen and the euro and US Treasury bonds rose strongly.

The markets believe that the rate rise may be a prelude to the long-postponed revaluation of the Chinese currency, the renminbi, against the American dollar.

If this were the case it is assumed that China would not have to support the dollar by buying US Treasuries as at present.

All of this remains speculation. Despite its openness to Western capitalism China prefers to keep its thoughts to itself, which is not helpful when it is so pivotal to global growth and stability.

Baker boost

BOOTS'S experiment with price cuts appears to be paying off with like-for-like sales and customer footfall sharply up after years of stagnation. But the shock to profits is severe.

New chief executive Richard Baker will have to focus on reducing costs and tightening the supply chain if he wants to rebuild margins and profits. If that can be done without sex toys, the existing Vielle sex aid notwithstanding, all the better.