What Happens When A Money Printer Finally Crashes

This is just too delightfully ironic to pass by.

In a world in which nobody has any faith in the capital markets because over $10 trillion in central bank liquidity has been injected to prop out a fragile house of risk asset cards...

... the one place one should have faith (because let's face it: monetarism is the only religion that matters in today's world) is that money will be printed for the foreseeable future, certainly metaphorically and also quite literally.

Alas, things did not quite work out that way for the company which, well, prints money (but sadly is not a central bank) when earlier this morning the shares of De La Rue, the company responsible for printing Bank of England banknotes, plunged a record 30% after it issued a profit warning.

Wait, a money printer losing money? Surely you jest.

Actually, no. From the BBC:

De La Rue, which prints banknotes for several countries and also makes the UK's biometric passports, warned that trading conditions had "deteriorated". Profits for this year are now expected to be £20m lower than in 2013/14.

The company said prices and margins for its printing services and secure paper used for banknotes were being squeezed.

Wait for it.... wait for it...

It also said rates of growth in new business had been slower than expected in recent months, and said the global transition to biometric passports, which it also makes for the UK government, had been "disappointing".

Guest that's what happens when you put all your chicken the money printing basket, and the head of the central bank suddenly gets cold feet on more printing.

Analysts say its banknote printing business is the real cause for concern. Earlier this month the company was named as the preferred bidder for a new 10-year deal to print Bank of England notes, but the value of the contract is believed to be lower than expected. The deal includes printing the Bank's next generation of plastic banknotes.

 

Kevin Doran, chief investment officer at Brown Shipley, said he suspected the Bank of England had behaved "more commercially" in demanding a lower price from De La Rue for the renewed contract and said other central banks may now follow suit, squeezing margins at the company further.

 

"The profits warning is the result of pricing pressure being seen in the banknote printing business, including in the renewed deal with the Bank of England," he said. "But the £20m isn't a one-off - when [the company's] existing customers come back to renew existing contracts they will push for the same price reductions that the Bank of England has demanded."

So... the Bank of England is ok with FX rigging and leaking confidential FX information to traders, but it has a problem with paying full price to the people who actually print the money?

But the punchlines don't stop there:

De La Rue has been involved in making banknotes for more than 150 countries, and passports or identity systems for over 65 governments.

 

De La Rue said it expects "the current difficult market conditions" to continue into the next financial year. 

 

The company's board said it was now reappraising the level of the dividend "in light of this more difficult trading environment".

 

It expects to announce an interim dividend of 8.3 pence per share in November. Analysts had expected about 14.1 pence.

 

"While disappointing to announce this trading update De La Rue, as the market leading banknote printer, remains a strong, profitable and cash generative business. We will continue to pursue efficiency gains, invest in the business and in R&D for the future," said De La Rue chairman Philip Rogerson.

Like we said, ironic, but hopefully not too ironic and not a harbinger of what happens to the other type of money printer, the central banks themselves when their particular business model also comes to an abrupt end.