cityam 14/12/2009

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FTSE 100 5,261.57 +17.20 DOW 10,471.50 +65.67 NASDAQ 2,190.31 -0.55 /$ 1.62-0.01 / 1.11 unc /$ 1.46-0.01 Certified Distribution02/11/09 29/11/09 is 102,194

((Left to right) Bob Wigley, Tim Linacre and George Osborne Pictures: REX, REUTERS

THE GOVERNMENT is today set tobow to City fury by issuing a clarifica-tion on its super-tax on bank bonuses,after being swamped by a deluge ofqueries from firms unsure if they willbe hit by the damaging levy.

Confusion in the UKs financialhub has been rising daily since lastWednesdays pre-Budget Report, whenchancellor Alistair Darling revealedplans to swipe 50 per cent off everydiscretionary bonus earmarked forbank staff before next April.

While the original parameters forthe tax seemed rigid enough the

Treasury initially indicated it wouldaffect only the 397 deposit-holdingbanks and building societies whichcurrently hold a banking licencefrom the Financial Services Authority,as well as their subsidiaries the Cityhas been dismayed by ever-changingguidance from the government in thedays following the announcement.

A statement from the governmenttoday will address concerns put to it

in writing last week by the BritishBankers Association (BBA). The groupwants elucidation on the situation fornon-banking entities owned by banks,

CONFUSION MOUNTS OVERBANK BONUSES SUPER-TAXBY VICTORIA BATESBANKING

BBAs Angela Knight saysthat ambiguity over thebonus tax rules has cre-ated extraordinary ten-sions in the City.

www.cityam.comIssue 1,036 Monday 14 December 2009 FREE

WINTERBREAKSWE REVIEW

HOLIDAYS IN

MAURITIUS P20

OBAMA: WALL STREETBANKERS ARE FAT CATS

NEW RULES PROMISED P3

BUSINESS WITH PERSONALITY

such as fund managers and insurers,and for independent non-bank finan-cial firms; more detail on how bonus-es will be policed at UK branches orsubsidiaries of foreign banks, for

example where bonus payments aredecided overseas; and how deferredshare-based payments agreed underG20 proposals should be taxed.

BBA chief executive Angela Knightsaid the ambiguity had caused extra-ordinary tensions in the City,adding: There was an assumptionthat if the government was going to

do something, they would haveworked it out first. Its a mess.In addition to a panicked flurry of

written and verbal enquiries from

individual firms, the Treasury willtoday receive a missive from a consor-tium of eight leading independentstockbrokers, including OrielSecurities, Arden Partners, Panmure

Gordon, Collins Stewart, Evolution,Numis, Cenkos and Altium, demand-ing clarification of their position.

Panmure Gordon chief executive

Tim Linacre said the legislation had been put together in a hurry andwithout proper reflection.

Firms like us have received no gov-ernment bailout, so why should wenot be allowed to compensate ourstaff appropriately, particularly whenwe have cut salaries across the boardto weather the recession? he said.

The news comes after it emergedBarclays Capital, Barclays star-per-forming investment banking divi-sion, had put on hold plans to boostbase salaries to compensate for thedwindling bonus pool, pending moreinformation from the Treasury.

Bob Wigley, the former MerrillLynch banker who chaired the Wigleyreport into Londons competitivenessfor Londons Mayor Boris Johnson,said: London is on a knife edge andthe situation is more precarious thanat any point in my career.

The Citys concerns came as shad-ow chancellor George Osborne said yesterday that he would not opposethe tax, despite Conservative LondonMayor Boris Johnson warning it coulddrive financial services overseas.

But he offered a sliver of hope forthe City by setting at rest fears thisyears tax could be repeated in 2011.

This is a one-year only tax,Osborne told the BBC.

If you were permanently toimpose some additional levy in theUK without trying to achieve [interna-

tional agreement]... then you would be running a serious risk with thecompetitiveness of the UK.

ALLISTER HEATH: P2; BARCLAYS: P9

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News2 CITYA.M. 14 DECEMBER 2009

People dont come here for the weather

IN 1733, Voltaire, one of Frances great-est thinkers, wrote a series of letterson the English nation, describingsome of the extraordinary going-onshe had discovered during his exile tothis country. The findings scandalisedmany of his French readers, then atruly statist and anti-capitalist nation.

Go into the London StockExchange a more respectable placethan many a court and you will seerepresentatives from all nations gath-ered together for the utility of men,

Voltaire wrote. Here Jew,Mohammedan and Christian deal

with each other as though they wereall of the same faith, and only applythe word infidel to people who go

bankrupt. Here the Presbyterian truststhe Anabaptist and the Anglican

accepts a promise from the Quaker.On leavingsome go to the Synagogueand others for a drink, this one goes to

be baptised in a great bath in thename of Father, Son and Holy Ghostand everybody is happy.

To 18th century French readers,such wonderful, peaceful trade-basedmulticulturalism was unbelievablyeccentric; yet the City of London, at its

best, was always an open, outward-looking marketplace. Its renaissance,especially after Big Bang in 1988, wenthand in hand with an influx of for-eign capital and talent. Investment

banks, hedge funds, private equityand consultancies have the mostdiverse staff in their London offices;others, such as the accountancy andlaw firms, are gradually catching up.

Take Barclays Capital: of its 12-strong executive committee, around

10 are overseas-born, hailing from theUS, France, Italy, Canada and

Australia. There are more overseas-born bosses in FTSE 100 boardroomsthan ever before we are tapping the

worlds best and brightest. In fact, theentire UK financial services industryrelies on foreign-born employees: ofthe 3.969m employed in banking,finance, insurance and other sub-sec-tors, 761,000 were born overseas, saysthe Office for National Statistics. Thatproportion 16 per cent is higherthan in any other sector.

High-end finance is even moreinternational but that makes it espe-cially vulnerable to political attacks.Many City workers packed their bagsonce to move here; why would theynot do so again to move elsewhere?Many foreigners, especially those from

America, France or Australia, will beforced to reconsider their career plansif they find the 50p tax rate and theraid on bonuses too painful. It is acase, Im afraid, of follow the money.

London holds many attractions,

including the language and the cul-tural attractions. But speak to success-ful City folk from overseas and there ismuch that they are also dissatisfied

with: property prices, school fees, the

health system, the binge drinking andmuch more. Moving to London wasalways a trade-off: people would come

because they knew they would be bet-ter off and this outweighed many per-ceived disadvantages. If the costs goon rising and the benefits are slashed,thousands will leave. It is that simple.

It is also the case that for histori-cal and cultural reasons the Britishare far more likely to move abroad insearch of better opportunities thancitizens of any other rich country. Goto Mumbai, Abu Dhabi or New Yorkand see for yourself (the stats also sug-gest this). Labours punitive new taxes

will chase far more people and wealthaway over the next few years, if notimmediately than the government

would have us believe. Voltaire wouldhave been dismayed at our stupidity.

[email protected]

THE chances of a hung Parliamentlooked that much greater yesterday,after a poll from YouGov put Labour

just nine points behind theConservatives, who registered 40 percent support.

The City is concerned that a nar-row majority for an incoming govern-ment, or even worse, no majority atall, will make it impossible to takedecisive action to reduce the coun-

trys fiscal deficit.Labour is generally thought to have

benefited politically from the intro-duction of the banker bonus tax last

week, even though it has provokedfury in the City of London.

There was some good news for theConservatives, though, with a secondpoll (ComRes) giving the Tories a mas-sive 17 per cent lead.

There were reports yesterday sug-gesting the government is preparingitself for a snap election, maybe asearly as 25 March.

BYDAVID HELLIER

POLITICS

Tory lead narrows in pollGordon Brown might choose to call a snap election Picture: JASON ALDEN

NEWS | IN BRIEF

Gartmore lists at 220p per shareFund management house Gartmore willlist on the stock exchange today at 220pper share, significantly below the 270pmid-point it had hoped for. Gartmoresflotation is the first initial public offeringof a private-equity owned companysince the onset of the credit crunch in

2007. While its share price will nowimply a market capitalisation of 676mcompared with its projected tag of800m a fortnight ago, the firmbelieves merely covering the IPO afterthe recent debt turmoil in Dubai andbond market jitters following the pre-Budget Report is an achievement.

Bankers destroy valueBankers destroy 7 of value for everypound they create, according to newresearch by the New EconomicsFoundation. The research into the socialvalue of different jobs concluded thathospital cleaners, for example, createmore then 10 in value for every 1 theyreceive in pay.Advertising executives and tax account-ants destroy even more of societyswealth 11.50 and 47 per 1 respec-tively.

2ndFloor14-16 Dowgate HillLondon EC4R 2SUTel: 020 7015 1200 Fax: 020 7248 1729Email: [email protected] www.cityam.com

EditorialEditor Allister HeathDeputy Editor David HellierNews Editor Ben GriffithsActing Night Editor David CrowFeatures Editor Jeremy HazlehurstArt Director Darren SoulsbyPictures Alice Hepple

CommercialSales Director Jeremy SlatteryDeputy Sales Director Harry OwenHead of Distribution Nick Owen

Editorial StatementThis newspaper adheres to the system of

self-regulation overseen by the Press ComplaintsCommission. The PCC takes complaints about theeditorial content of publications under the Editors

Code of Practice, a copy of which can be found atwww.pcc.org.uk

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Distribution helplineIf you have any comments about the distributionof City A.M. Please ring 0207 015 1230, or [email protected]

EDITORS LETTER

ALLISTER HEATH

Q & A : THE BANK BONUS TAX

Q.WHICH FIRMS ARE CONCERNEDTHEY MAY BE AFFECTED BY THEBONUS TAX?

A.The Treasury originally said thetax would only hit the 397deposit-holding banks and buildingsocieties which hold a bankinglicence from the Financial Services

Authority, as well as their sub-sidiaries. However, the rules havesince blurred; the Treasury hasalready stipulated that hedge funds

will not be subject to the tax, whiletodays announcement will seek toprovide more detail on whether non-

bank subsidiaries of banking groupswill be affected, as well as whethernon-banking financial groups suchas independent stockbrokers andasset management firms might becaught.

Q.IS THERE A WAY FOR COMPA-NIES TO GET AROUND THE NEWRULES?

A.Accountants have described theswoop on bonuses as dracon-ian after identifying ways in whichthe Treasury has sought to block offthe loopholes for example by block-ing payment through intermedi-aries, hitting non-domiciled

individuals contracted to aforeign bank as well as a UKsubsidiary. It also seems that

banks will be retrospectively chargedif they temporarily hike salaries tocompensate for smaller bonuses,although this is one area on which

banks such as Barclays will be eager-ly awaiting clarification today.

Q.HOW WILL IT AFFECT THEGUIDELINES ON BONUSES THATARE ALREADY IN PLACE?

A.This is one of the key questionsto which the British BankersAssociation hopes to get an answerfrom HM Revenue & Customs today.

The government is expected to clari-fy the position it will take in the caseof those banks which have alreadyimplemented the guidance given bythe G20 on bonuses earlier in the

year, which stipulates that a largeproportion of a bonus should be paidout in shares which are deferred over3 years. Senior City figures are con-cerned that if banks are expected topay 50 per cent tax on the deferredand equity-based component, thatthe levy will affect their competitive-ness for far longer than just the one-

year life of the tax.

?

GREECE WARNED TO ACT OVERDEFAULT RISKGreece must announce bold initia-tives in the next few days to rescue itscollapsing bond market and avert thepossibility of defaulting on a risingpublic debt, leading economists and

bankers warned on Sunday. GeorgePapandreou, prime minister, will out-line structural reforms on Mondayaimed at cutting the budget deficitfrom 12.7 per cent to 3 per cent ofgross domestic product in four years.

WHITE HOUSE PREDICTS JOBSGROWTH

The US economy will start to add new jobs by next spring, LawrenceSummers, Barack Obamas senioreconomic adviser, said the first time

the White House has predicted thereturn of jobs growth by April.

WIND FARMS FOR SECURITY NOT THECLIMATE, SAYS E.ON RENEWABLESCHIEF EXECUTIVE FRANK MASTIAUXBuilding wind farms is even moreimportant for keeping the lights onthan tackling global warming, accord-ing to the chief executive of E.ONRenewables. At the Copenhagen cli-mate change conference, FrankMastiaux claimed that increasingemphasis on renewables made sensefrom a commercial point of view.

HOBBYCRAFT SET TO BE SOLD FOR70MIt is understood that Grant Thorntonhas been appointed to advise the 39-store chain, which has benefited fromthe make-do-and-mend ethos of thecredit crisis. The chains manage-ment, led by chief executive ChrisCrombie, is believed to be exploring a

buy-out from the companys familyowners.

WHAT THE OTHER PAPERS SAY THIS MORNING

DEBENHAMS DIRECTORS GETBUMPER PAYOUTSDirectors of Debenhams havereceived bumper payouts, despite theretailer cutting its dividend paymentto shareholders last year. Rob

Templeman, chief executive, saw hispackage increase by a third to 1.24mafter he was granted a bonus of428,073. Michael Sharp, deputychief executive, saw his total packageincrease by 53pc to 968,644 after he

was granted a bonus of 331,290.

BRITISH AIRWAYS SUBSIDIARY THEMILEAGE COMPANY SEES PRE-TAXPROFITS FALL 19.4 PER CENTPre-tax profits at The MileageCompany, the British Airways sub-sidiary which runs its Airmilesrewards scheme, fell 19.4pc to 16.3m

in the year to 31 March 2009, accord-ing to its latest accounts.

GRANT BOVEY PARTNER SPENDS MIL-LIONS TO SELL MANSION

A former business associate of GrantBovey, the failed buy-to-let entrepre-neur, is selling Londons largest river-side private house for 25m twiceas much as the 300-year-old mansion

was expected to fetch before the prop-erty crash. James Taylor, who was adirector of Boveys Imagine Homesuntil summer 2008, is selling GordonHouse, which he bought as a develop-ment opportunity in early 2007.

BRITISH AIRWAYS SET FOR KEYSTRIKE BALLOTBritish Airways is braced for theresult of a strike ballot tomorrow thatcould lead to widespread disruptionof Christmas flights. The airlines13,000 cabin crew are voting whetherto take action in their longrunning

dispute over pay, redundancies andworking conditions.

MPS PREPARE TO QUESTION DARLINGON BANKERS BONUSES AND STATEBORROWINGBankers bonuses and spiralling gov-ernment debt remain under the glareof the spotlight this week as AlistairDarling faces fierce questioning byMPs over his Pre-Budget Report (PBR).

The Chancellors appearance beforethe Commons Treasury SelectCommittee comes amid reports thatcompany directors are fleeing Britainto avoid the 50 per cent tax rate,

bankers are seeking legal advice onprivacy and Barclays is to defer bonus-es for a year to try to beat the new

windfall tax.

WHITEHALL PLANS TO PRIVATISEQUARTER OF PUBLIC SECTOR

A plan to create at least two public-sector outsourcing giants that

could eventually be worth 4bn each is being studied by government.

TODAYTHE SUNDAYS

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DUBAI faces the first major hurdle inits struggle to resolve its debt crisistoday as the $3.5bn (2.2bn) bond bystate-owned firm Nakheel expires.

Last night there was no indicationwhether the Islamic bond, or sukuk, would be repaid on time. But thesukuk closed higher at 54 cents to thedollar on Friday on speculation thatNakheel, the property arm of DubaiWorld, would meet the deadline.

The outcome will dictate sentimentfor the region. Markets were throwninto disarray after Dubai World asked

for a moratorium on its debt repay-ments on 25 November.

US PRESIDENT Barack Obama lastnight lashed out at Wall Streetbankers, labeling them fat cats whodont get it.

Speaking on the eve of todaysmeeting with top US bankers at the White House, Obama said he wasfrustrated with the banks that thegovernment had bailed out.

I did not run for office to be help-ing out a bunch of fat cat bankers onWall Street, Mr. Obama told CBSs 60Minutes.

You guys are drawing down$10m, $20m bonuses after America went through the worst economicyear in decades and you guys causedthe problem, he added.

The comments are likely to create afrosty atmosphere at todays summit,where Obama will be canvassing thelikes of Goldman Sachs LloydBlankfein, JPMorgan Chases JamieDimon, and Bank of Americas KenLewis about allowing more loans.

Government officials are frustratedby some banks continued paymentof high bonuses and their reluctanceto lend, while many Americans are

struggling and out of work.Some people on Wall Street still

dont get it, said Obama. The harsh criticism follows the

House of Representatives approvalon Friday of sweeping legislation thatwould restrict the operations of bigbanks and the the Federal Reserve.

The bill aims to beef up financialregulation in the wake of last years banking crisis. But it may not beenacted if a similar set of rules is notalso passed by the Senate.

The proposals would give the gov-ernment power to:

break up even healthy companiesif regulators believe they pose a riskto the system

collect $150bn in fees from thebig financial institutions to create aninsurance fund to pay for future largefailures

strip the Federal Reserve of nearlyall its consumer protection laws

audit the Feds monetary policy.The bill gives shareholders an advi-

sory vote on executive compensationand creates a new ConsumerFinancial Protection Agency, which would write rules and check that banks were complying with con-sumer protection policies.

Obama hits

out at fat catUS bankers

LONDON enjoyed its best salesgrowth since October 2006, with cen-tral London retail sales for November13.3 per cent higher on a like-for-like basis than a year ago, according tothe latest survey from the BritishRetail Consortium (BRC) out today.

These are great figures, saidStephen Robertson, BRCs director

general.These figures show that Londonretailers have had a very encouragingstart to Christmas, he said.

Joscelyne Hynard, BRC businessinformation team senior analyst,said: Sterlings weakness, althoughless marked than last year, continuedto attract overseas visitors, she said.

Meanwhile the department storechain John Lewis reported its bestever sales performance last week.

Kinetic Direct Drive

Londons best salesgrowth for 3 years

CADBURY chief executive Todd Stitzerwill today tell shareholders why theyshould not accept a hostile takeoverfrom Kraft Foods as speculationmounted that the British confection-er is in talks with Hershey over a rivaloffer.

Hershey is widely understood to beholding talks with Cadbury about apossible friendly takeover.

At an eagerly anticipated presenta-tion at Goldman Sachs in the CityCadbury will discuss managementsplans for growth over the next two

years, and emphasise the companysambitious profit targets.

Stitzer set towoo investors$3.5bn Dubairepayment due

BY JENNY FORSYTH

BANKING

WORLD ECONOMY

FOOD

President Obamawas losing patiencewith bankers yes-terday

Picture: PA

BY JAMES LINACRERETAIL

News 3CITYA.M. 14 DECEMBER 2009

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TERRA Firmas 2bn lawsuit againstCitigroup, which it accuses of lyingduring its buyout of music giant EMItwo years ago, had been in thepipeline for 12 months.

The private equity group led byGuy Hands finally decided to strikeafter Citi rejected a refinancing dealthat would see 1bn of loans to EMIwritten off.

The move marks a sharp deteriora-tion in relations between the two

players, who once trusted one anoth-er in major deals, and means an ami-cable debt-for-equity swap for thebeleaguered record label will now beoff the cards.

In documents filed at a New Yorkcourt on Friday, Terra Firma levels aseries of explosive allegations at Citiand its top investment banker inLondon, David Wormsley.

The lawsuit revolves around therole of Citi, which ran the auction ofEMI but also provided 2.6bn financ-

ing for Terra Firmas 4bn bid in 2007.Hands alleges that Wormsley mis-

led him into thinking a rival privateequity firm, Cerberus CapitalManagement, would make a bid forEMI. He says this factor pushed TerraFirma into a generous offer of 265p ashare at the height of the M&A boom.

The court document claims: Citisrepresentations to Terra Firma wereknowingly false, and were deliberate-ly and maliciously designed to fabri-cate a false competitive landscapethat would elicit a bid...

Hands goes on to accuse the

American bank of trying to drive EMIinto bankruptcy so it can bring abouta merger with rival Warner Music,suggesting Citi used an analyst noteto talk down EMI.

EMI, which boasts a roster of starsincluding Lily Allen and Coldplay,declined to comment. Citi wasunavailable for comment although itis understood the American bank willcontest the action robustly. TerraFirma is seeking 1.5bn in lost equityplus punitive damages.

Hands in yearlong plan tosue Citigroup

Terra Firma, led by Guy Hands, is suing Citigroup over an EMI buyout deal Picture: PA

BYOLIVERSHAH

PRIVATE EQUITY


GUY Hands personal attack onDavid Wormsley will fascinate the

City. Affectionately known as TheWorm, Citigroups rainmaker isknown as one of the best investmentbankers in London. With a string ofdeals to his belt including the con-troversial 10.3bn sale of airportsoperator BAA to Spanish builderFerrovial in 2006 Wormsley isseen as dour but experienced.

He and Hands have a long history.Between 2000 and 2007, Citi rakedin 136m fees for helping TerraFirma on nearly 20 transactions. TheEMI deal alone netted Citi 92.5m.

A string of emails reveals the deci-sions that led to Terra Firmas disas-trous 4bn takeover of EMI, whichwas struggling under 1.7bn of debt.

Late on 6 May 2007, Wormsleywrote to Hands: I have a debt teamclear to talk to you. Meanwhile heemailed EMI to say he wasabsolutely certain that I can deliver

very serious added value in any dis-cussions with Guy.

Three days before the biddingdeadline, on 18 May, Wormsleyemailed Hands: how is it going[sic]. Hands replied: thank you foryour help. We are getting there butneed to sort out covenants with yourlending team.

A weekend of intense phone callsfollowed. Hands account of thesetalks makes up the meat of his claim.

DAVID WORMLSEY

CITIGROUP HEAD OF INVESTMENT

BANKING

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CRISPIN Odey, the hedge fund manag-er who made a killing over the courseof the crisis by shorting stricken City

banks, is set to pay himself a windfallof over 30m this year after profits athis firm soared by almost a quarter.

Odey Asset Management is today

expected to file accounts showingthat it made 68.4m over the year,

compared to 55.3m in the last finan-cial year.

Odey, one half of the couple nick-named the Posh and Becks offinance along with his banker wifeNichola Pease, is set to take a salary of30.4m, up on the 28m he paid him-self last year.

The payout will not be subject tothe governments new super-levy on

bank bonuses, after the Treasury clar-ified last week that hedge funds

would not be liable to pay the tax.Odey, who earlier this year threat-

ened to move his firms domicile outof the UK to avoid the injurious new50 per cent income tax band, has

been vilified during the financialmeltdown for profiting from short-selling firms such as nationalisedlender Bradford & Bingley, Irish bank

Anglo Irish, South African bank

Investec and insurance giant Legal &General.

Stricken banks pull in the profits for Odey

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PAUL A. Samuelson, the first

American to win the Nobel Prize ineconomics, died yesterday aged 94.An undergraduate at the University

of Chicago and a graduate student atHarvard University, his 1941 PhD the-sis, the Foundations of Economic

Analysis is widely acknowledged fortransforming and laying the founda-tions of modern economics.

Samuelson taught from 1940 at the

Massachusetts Institute of Technology, gaining world renownfor its economics course.

In 1970, he was the first Americanto win the Nobel Prize in economics,the second year the prize was offered.

His 1948 textbook, Economics: AnIntroductory Analysis sold over 4mcopies and was widely translated.

Paul Samuelson was both a path-

breaking and prolific economic theo-rist and one of the greatest teachersthat economics has ever known, saidBen Bernanke, head of the FederalReserve and former student ofSamuelsons at MIT.

Economics legend diesBY CHRIS KAY

ECONOMICS

GERMANY will more than double netnew borrowing next year and alsoincrease public spending, in a newdraft budget due to be approved on

Wednesday.The first budget of the new centre-

right German government will see arecord 85.8bn (77.1bn) in new bor-rowing next year, and total new debtis expected to approach 100bn.

Spending will rise by around 10.5per cent, as a result of rising social

welfare costs and the weak economy,experiencing its worst recession sincethe Second World War.

Germanys budget has to tackle ris-ing unemployment and lower tax rev-enues, and the gaps in the budgetthat has caused.

The governments draft 2010 budg-et bill says: We will only be able toovercome the crisis sustainably andthen return to a fiscal stabile path if

we are successful in supporting thestill fragile growth dynamic.

A course of consolidation will begin from 2011, aiming to reducethe countrys structural deficit by10bn each year, but that does nottake into account 19.5bn in tax cutsplanned for 2011.

Constitutionally, the structuraldeficit must be down to 0.35 per centof GDP by 2016.

Public finances were not hit ashard this year as had been expected.Budget plans show that net new bor-rowing for 2009 will register as37.5bn, not the 49.1bn previouslyplanned for.

Angela Merkels government willpresent medium-term financial plansin May, after it receives tax estimates

and the state of North-RhineWestphalia holds its election.Chancellor Merkels government

must win the election to keep itsmajority in Germanys upper house.

Germany todouble itsborrowing

ONE in twenty British householdsare now in negative equity, followingthe dramatic slip in the housingmarket.

The Bank of Englands Quarterlybulletin, published today, reveals theproportion of those in negative equi-ty rose from one per cent in 2007, tofive per cent this year.

Though not as severe as the 11 percent rate in the mid 1990s, the steepincrease reflects the rapid slump inhouse prices over the last two years.

But the Bank says that, despite therise in unemployment, tightening ofcredit conditions and erosion ofhome equity, households are notfeeling the pinch too badly becauseof lower mortgage interest rates andslashed prices on consumer goods.

A survey commissioned by theBank revealed the new mood of cau-tiousness in British households.

Over 80 per cent of mortgage hold-ers have at least 25 per cent equity intheir homes and, compared to last

year, more households said theycould keep up with their credit com-mitments without much difficulty.But the Bank found only 20 per centof households are using the extramoney to spend, while the rest arepaying off debt or increasing theirsavings.

The bulletin also revealed a dropin the number of pay settlements toless than two per cent, with manycompanies keen to freeze pay ordefer negotiations. Just under 35 percent of employees received a basicpay freeze and only one per centreceived a pay cut this year.

Conditions in sterling markets

improved over the quarter. Despitesome temporary bouts of investornervousness, asset prices continuedtheir recovery from March lows andfinancial market activity picked up.

Householdsare savingextra cash

Paul A. Samuelson won the Nobel Prize in economics Picture: GETTY

BY JENNY FORSYTH

ECONOMICS

BYVICTORIA BATES

HEDGE FUNDS

BY JAMES LINACRE

WORLD


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ANALYSIS lMillionaires playground: Crispin Odeys evolving pay packet

2006

Salary (m)

14m

2007

4.4m

2008

28m

2009

30.4m

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BARCLAYS Capital has put plans tohike base salaries for its investmentbankers on ice while it seeks clarifica-tion from the government on rulessurrounding the bonus clampdown.

BarCap had intended to give basicpay rises of up to 150 per cent to manyof its 22,000 employees, a move thatwould particularly benefit junior andback-office staff.

The cap on salaries at the bankwould rise from 120,000 to 300,000in an attempt to rearrange the bal-ance between pay and bonuses in itsremuneration packages.

However, BarCap planned to back-date the pay rises to June giving itsbankers a one-off cash windfall. Rulesset out alongside the 50 per centsupertax on bonuses forbid short-term cash payouts which could beseen as a substitute for bonuses in theperiod between December and April.

A source said the bank was in dis-cussion with the government overall aspects of the bonus supertax,including the issue of backdated payrises.

SPINVOX, the speech-recognition

technology firm, is reportedly close toaccepting a $150m (92m) takeoveroffer from an American rival.

Nuance Communications, which isNasdaq listed, is rumoured to be intalks with the company, which hasbeen dogged by allegations of finan-cial mismanagement and claims itstechnology is not up to scratch.

A sale of the business, which turnsvoicemails into text, puts the futureof its founders in question.

Christina Domecq, part of thefamous sherry family, started up thecompany along with Daniel Doultonin 2003.

She has since come under scrutinyafter shareholders were sent ananonymous dossier of allegationsabout the way the company was run.

The company was also forced toreveal that staff in overseas call cen-tres were transcribing voicemail mes-sages. Domecq claimed Spinvox wasthe victim of a smear campaign, andan internal inquiry by Deloitte, theaccountant, and Jones Day, did notuncover any wrongdoing.

Goldman Sachs, Carphone Warehouse and Peter Wood, theEsure insurance tycoon, were amongthe early backers of the business.

Spinvox has since eaten through100m of backers money and had tosecure a 30m bridging loan thissummer. The loan was due to berepaid next week, but has been rolledover to January.

It is not known whether Spinvoxscurrent shareholders, includinghedge fund GLG Partners, and MartinHughes, the boss of Toscafund AssetManagement, will make a profit froma sale of the company.

Spinvox in sale talks

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Barclays torethink its

salary plan

BYRACHEL STEVENSON

TECHNOLOGY

BANKING


NEWS | IN BRIEF

Saab confident on being boughtSaab can still find a buyer for the wholefirm, a spokesman for the loss-makingcarmaker said yesterday, as reports sug-gested parent company GM would sell

off parts of the company to ChinasBAIC. Saab, one of Sweden's bestknown brands, has been hoping an 11th-hour savior would turn up after parentGM said in late November it would winddown the firm if a buyer did not appearbefore the end of this month. Dutchsports car maker Spyker Cars NV is alsostill in talks about buying the brand.

Timis denies move towards listingAdvisers for African Petroleum, theLiberia-focused oil company headed bycontroversial tycoon Frank Timis, yester-day denied reports that it was seeking astock exchange listing. They said: At nopoint has African Petroleum applied tothe exchange to list the company.Furthermore there has been no contactwhatsoever from the exchange toAfrican Petroleum. The commentscame after reports suggested Timiscompany had been barred from floating

on Aim. He chairs African Minerals, thebiggest mining company on AIM.

Christina Domecq came under scrutiny at Spinvox Picture: Micha Theiner/ CITY A.M

8/14/2019 CityAM 14/12/2009

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GOING GALACTICThe Capitalist was intrigued at theweekend to receive an email singingthe praises of Spandau Ballet, ostensi-bly soon to become the first band toperform in space aboard Sir RichardBransons new commercial space-craft, the Virgin Enterprise.

Spandau Ballet will have five min-utes of weightlessness to perform oneof their hits, which will include eitherIll Fly For You, Gold or True, shoutsthe email, which also claims to havethe support of EMI chair Guy Hands forthe venture.

Which is very bizarre,since Virgin Galacticpresident Will Whitehorn has noidea its happening,saying: We have not been informed bySpandau Balletthat they wish tofly or do this per-formance inspace.

The first flights

must really be in demand if musicstars are resorting to such tactics, eh?

SWEET TOOTHDo staff at law firm Linklaters do any-thing but eat? I only ask because, aftera five-page tome from staffersappeared last week complainingabout every earthly aspect of theirnew office canteen, a division at thefirm is now taking nominations for anaward for the best cake submitter ofthe year.

The coveted prize is for the gener-ous co-worker whos come

up trumps at providinggoodies for the team

over the past year with suggest judging criterincluding the exot-ic nature of saidsweetmeats orwell-judged risk-taking in theconfectionery

selection proce-dure. Yum.

VETERAN LAUDS BIG-HEARTED CITYFOR SHOWING SOME GIVE AND TAKEAMONG the throng of eager banker-bashers busy giving the City what forat the moment, its good to see one ofour own returning as good as he gets.

Veteran Brian Winterflood, chair ofthe market-making firm of the samename, has taken on a new role in thepast few weeks as ambassador for theSquare Miles newest financial chari-ty project, the East London Bond.

The new bond offered by social

investment bond issuer Citylife willdonate 20 per cent of the capitalreceived to rejuvenate the poorestboroughs around the City, while theremaining 80 per cent will be loanedat a commercial rate to registeredsocial landlords, to use for affordablehousing in East London.

After five years, the loans are paidback with interest to pay off the grantmoney, while investors will receive

back their original capital so every-ones left smiling.

Its a great way to show that theCity does indeed give as well as take,says Winterflood.

Its all too easy to write us downall the time but there is an awful lotof money going to charities from theCity, and Im happy to act as anambassador to support that

Hear, hear.

City ambassador Brian Winterflood with wife Doreen Picture: MichaTheiner/ CITY A.M

The Capitalist10 CITYA.M. 14 DECEMBER 2009

EDITED BY

VICTORIA BATESGOT A STORY? [email protected]

BILL OF THE WEEK

IT SEEMS theres a new trick on thecanny corporates radar theChristmas client breakfast, which iseasy to book, cheap as chips (well, incomparison to an evening blowout,anyway) and doesnt leave you witha sore head for the next three days.

Take this group, for example, whoturned up to swanky eatery 1Lombard Street last week for anearly celebration. Each member ofthe group managed to pack awayhis or her own body weight in grub muesli and fruit for starters, fol-lowed by good old fry-ups andthey even squeezed in a few vita-mins with some fresh juices.

Four bottles of Laurent Perrierrose champagne were thecrowds only nod to the usualparty extravagance taking the

bill to an eminently reasonable917.61. Bargain.

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THE number of low-income familiesfacing marginal tax rates of morethan 90 per cent has doubled in therecession and is set to rise further, theConservatives claimed yesterday.

The Government had buried fig-ures in its Pre-Budget Report last week showing that 70,000 lowincome families are facing the mar-ginal tax rates, more than double the

total of 30,000 at the start of thedownturn, the Tories said.

A 90 per cent marginal tax ratemeans that for each extra 1 some-one earns, they get to keep only 10p,losing the rest to increased taxes orlower benefits.

Shadow Chancellor GeorgeOsborne said: Its the many, not thefew who are suffering under Labour.

Now thousands more families aregoing to be caught in the povertytrap.

The Conservatives also claimed

marginal tax rates of 80 per cent orwould affect more than half a million

families, a rise of 45,000 families com-pared to the tax and benefit regimein place in 2009-10.

The Conservatives said overall thenumber of families paying marginaltax rates of 60 per cent or more hasrisen by over a million under Labour,

Ministers say the tax credit systemis supporting peoples incomesthrough the downturn.

Since 1997, the number of familiesfacing marginal deductions rates of

more than 70 per cent has more thanhalved, a Treasury spokesman said.

Tories claim a doubling of low incomefamilies facing 90 per cent tax rates

OIL giant Royal Dutch Shell hasappointed investment bank Lazard tosell its Swedish unit, while rival BP islooking to sell its French petrol sta-tions, it is understood.

Shell is hoping to sell off itsSwedish business, which includes arefinery in Gothenburg, a marketingarm, and its network of more than400 gas stations for around $750m(461.2m).

Shell has been selling refineries inthe United States and Europe in

recent years and says its refiningfocus is shifting eastward.

It is planning to sell about 15 percent of its global refining capacity, or600,000 barrels a day of capacity overthe next three years as it looks torestructure, improve its profitabilityand increase its efficiency.

The news comes two days afterShell won a joint contract for one ofIraqs highly coveted oilfields, after atwo-day auction which was designed

to boost up the countrys crude oiloutput.

Lazard takes the helm asShell looks to sell assetsENERGY

BY PHILIPWALLER

POLITICS


UK economy can ill afford to lose 61bn in taxes

THE INTRODUCTION of a new 50per cent levy on banks payingbonuses above 25,000 is one ofseveral recent measures

including the incoming 50p tax bandand global transaction tax proposal that have been perceived to be an

attack on the City.We all acknowledge the real public

anger that exists as a result of thefinancial crisis, particularly when itcomes to bankers remuneration.

However, an excessively punitiveapproach towards pay will have adetrimental effect on the UK as awhole. Let me explain why.

The financial services industry con-tributed an estimated 61.4bn or12.1 per cent of total tax revenues tothe government during 2008/09.This combined with the redistribu-tion of the Citys business rates ofaround 580m and the industryssubstantial philanthropic contribu-tions is money that filters down tothe wider economy that we cannot

afford to lose when faced with a largebudget deficit.

According to one report, the totaltax rate on bonuses for high-earningbankers could, for some, rise to over

100 per cent in total as a result of thisnew levy. Such a high marginal rate isbound to make institutions and indi-viduals reconsider their commitmentto the City.

Furthermore, this has beendescribed as a one-off measure. Butthe government added it could, infact, be repeated next year as part of a broader review of pay levels. Suchuncertainty only serves to underminethe UK as a place to do business in theeyes of foreign investors and banks.

Industry figures are constantly

challenged to prove that institutionsand talent will move abroad as aresult of higher taxation. But by thetime we have that proof it will be toolate key business activities and staff

will have already left. This would fur-ther exacerbate the skills shortagethat is already problematic for the UKas a whole. Yet the financial servicessector will be crucial to a speedyrecovery from recession.

We are happy to compete with rivalglobal financial centres but suchcompetition must take place on alevel playing field. Writing in ThePrime Minister and President Sarkozydeclared last week: it is clear that theaction must be taken at a global level.No territory can be expected to or be

able to act on their own.And yet this seems to be where the

government is heading at themoment when it comes to bankersremuneration. We need much clear-

er evidence that other major finan-cial centres, especially in the West,will implement similar measures. Ifother governments act in accord withthe G20 principles we need not fearthe exodus of talent that wouldinevitably follow if the UK acts alone.

Sadly, it would seem that the trustbetween politicians and some parts ofthe City has been severely dented. Iam keen to do my part in restoringthat trust.

Nick Anstee is Lord Mayor of the City ofLondon

NEWS | IN BRIEF

Accenture website drops WoodsConsultants Accenture, the group whichbased its marketing around Tiger

Woods, has pulled the golfer from itswebsite, it said yesterday, while Gillettemaker Procter & Gamble said it wouldphase him out of adverts. The two arethe latest companies to reevaluate theircontracts with Woods following revela-tions about his private life. Pepsi hasbeen in talks over its 60m five-yeardeal, while phone giant AT&T is a lso con-sidering it arrangement with him.

Metro Bank to launchVernon Hill, a US financial entrepreneur,is close to launching a new bank, MetroBank, next year with two branches incentral London.The venture is set to go ahead if Hill getsapproval from the City regulator theFinancial Services Authority (FSA).Metro Bank would be the first bank tolaunch in the UK since the late 19th cen-tury. The FSA is looking at a number ofother applications from businesspeoplewishing to start banks, ncluding thosefrom Virgin and Sandy Chen, a PanmureGordon banking analyst.

Google ready to release mobileGoogle has released an experimentalmobile phone to employees, with accessto the public expected to be offered inJanuary. Asking employees to test prod-ucts has become an established tacticfor the search engine giant. A phonefrom Google has been rumoured for awhile, and could revolutionise mobilephone use, with people using social mes-saging services to communicate ratherthan making calls, which will weakenthe position of the mobile phone net-works. The phone is expected to becalled Nexus One. It will run the Androidoperating system for mobiles.

CITY COMMENT

NICK ANSTEE

ONLINE poker group PartyGaming isunderstood to be in talks with Austrian rival Bwin InteractiveEntertainment about a potential2bn tie-up.

PartyGaming is believed to haveheld on-off talks since the summerwith Vienna-based Bwin about a pos-sible merger of equals.

The firm is thought to be keen togrow in sports betting, a sector inwhich Bwin is particularly strong.

The Takeover Panel was expected toask PartyGaming to clarify the posi-tion before the market was due toopen today, it was reported yesterday.

PartyGaming refused to say any-thing. We will not comment onrumour, a spokesman said. Bwin wasunavailable for comment.

Gibraltar-based PartyGaming, ledby chief executive Jim Ryan, has beeninvolved in growing consolidation inthe gaming industry.

In August, PartyGaming agreed tobuy the World Poker Tour for $12.3mand in July it bought online bingo

business Cashcade, which owns theFoxy Bingo website, for up to 95.9m.

PartyGaming billionaire co-founder Anurag Dikshit set up thegroup in 1997 and developed its user-friendly technology and it enteredthe FTSE 100 after floating in 2005 ata value of 5bn.

Dikshit sold most of his remaining28 per cent stake in PartyGaming inOctober. An online gaming ban inthe US, which outlawed the industryin 2006, forced the firm and its rivalsto shut their lucrative American oper-ations. PartyGaming did a deal inApril with the US to protect it fromprosecution.

Partygaming

mulls a 2bntie with Bwin

Partygaming founder Anurag Dikshit

BY PHILIPWALLER

LEISURE

PARTYGAMING appointed NumisSecurities and the brokers MichaelMeade in April to work as joint corpo-rate broker alongside the online gaminggroups other corporate broker,Deutsche Bank.Meade became a managing director inthe investment banks corporatefinance business in June 2006.He worked as an executive director at

UBS between 1997 and 2005 and wasamong eight recruits taken on byNumis in 2006 to expand its equitiesand trading businesses.Numis carries out research, sales, trad-ing, broking, capital raising and corpo-rate finance in 15 sectors, includingaerospace and defence, building andproperty, engineering, fast moving con-sumer goods, life sciences, media, met-als & mining, new energy & emissions,non-life insurance, oil and gas, retail,speciality and other financials, supportservices, technology and travel andleisure.Numis and Meade are working forPartyGaming alongside a team ofbankers from Deutsche Bank's RealEstate, Gaming and Lodging group.

ANALYSIS lPartyGaming

210

230

250

270

290

14 Sep 2 Oct 22 Oct 11 Nov 1 Dec

p

256.5011 Dec

MICHAEL MEADENUMISSECURITIES

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WASTE management companyShanks is set to agree to open itsbooks to suitor US private equityfirm Carlyle Group, it emerged yes-terday, as a takeover battle brewedfor the firm.

Shanks is expected to sign anagreement with Carlyle later thisweek, allowing the US firm to seeits accounts after its 536m offer,an industry source said.

The agreement is not expectedto be exclusive, meaning otherpotential bidders could also gainaccess to Shanks books.

Carlyle is talking to Shanks aftermaking a 135p per share offer forthe UK group last week.

While it did not reject Carlylesapproach, Shanks has left the dooropen to other offers by saying a bidof at least 150p per share would beappropriate.

Other firms are believed to be waiting in the wings with rivalbids, with US firm Covanta said tohave contacted Shanks investment banking adviser Greenhill & Colate last week to express interest.

Waste management firm SitaUK, part of Frances SuezEnvironment, Dutch waste compa-ny AVR -- which is owned by privateequity outfits KKR and CVC CapitalPartners and Guy Hands privateequity group Terra Firma are allreportedly interested.

Shanks remained tightlipped.Im not going to comment on

market speculation, a spokesmansaid.

Under chief executive TomDrury, a former United Utilitiesdirector, Shanks has cut debt andsharpened its focus on recycling,organic waste treatment, and theUK Private Finance Initiative (PFI).

Shanks set to openits books to CarlyleBY PHILIPWALLER

SUPPORT SERVICES

IRAQS string of deals with oilmajors has catapulted it to impor-tance ahead of Opecs meeting in Angola later this month, accord-ing to the US.

The oil cartel is set to meet on 22December, and much focus will beon Iraq following new ambitiousoutput targets set by Baghdad overthe weekend.

Iraqs supergiant oil fieldswere auctioned off on Friday and

Saturday to energy giants includ-ing Shell.

Shell led a consortium to devel-op a 12.6bn-barrel Southern Iraqioilfield Majnoon and pledgedto boost up daily production to1.8m barrels of oil a day (bpd).

Theyre [Iraq] going to be a bigplayer that wants to come back tothe table, so theyre going to haveto negotiate with Saudi Arabia,Iran, Venezuela and the otherOPEC members, an anonymousUS official said.

Baghdad wants to produce 12mbpd within seven years, a massive

increase on the 2.5m it producesright now.

The worlds biggest oil exporter,Saudi Arabia, has a capacity of12.5bpd.

If the country did hit its dailytotal of 12m barrels, Iraq wouldovertake Russia and challengeSaudi Arabia for the position ofthe worlds largest oil producer.

Hussein al-Shahristani, who isthe countrys oil minister, hailedthe weekends auction the sec-ond such auction since 2003 amajor success, saying it was a big achievement for Iraq to win

such contracts at the currentprices.

Iraq will be a leading force at Opecsupcoming meeting, US official saysENERGY

Source:Rightm

ove

WALESAverage price December 09

162,261Annual Change

1.3%

SOUTH EASTAverage price December 09


3.7%

NORTHAverage price December 09


1.1%

WEST MIDLANDSAverage price December 09


1.1%GREATER LONDONAverage price December 09


1.7%

EAST MIDLANDSAverage price December 09158,141Annual Change

1.4%

YORKSHIRE &HUMBERSIDEAverage price December 09


1.8%

SOUTH WESTAverage price December 09


2.8%

NORTH WESTAverage price December 09


5.3%

EAST ANGLIAAverage price December 09


5.1%

PROPERTY HOT SPOTS

HOUSE asking prices are likely toremain static in 2010 as post-electionuncertainty and continued shortage ofstock creates a challenging environ-ment for the housing market, proper-ty website Rightmove will say today, asit reveals that asking prices fell for asecond consecutive month inDecember.

Rightmove expects Decembers 2.2per cent drop in prices to be followedby another drop in January as newsellers keep dropping prices duringthe traditionally weak winter quarter.

In the early spring, it is expecting

that asking prices will gain again,continuing the heightened level ofactivity seen during 2009. However,the post-election uncertainty is fore-cast to reverse these early gains.

Miles Shipside, commercial direc-tor at Rightmove, said: Time maywell be of the essence as the electionis likely to be a party pooper. This yearturned out to be a good time to tradeup, and we forecast the positive moodwill continue into 2010 until the post-election hangover kicks in.

The recession is also forecast tohave had a long-term structuralimpact on the UK housing marketwhereby there will potentially be afall in owner-occupation, with fewerfirst-time buyers, more time betweentrading up, and greater reliance onthe rented sector.

In this environment, location willbe the most important factor in insu-

lating asking prices against thesestructural shifts and Rightmoveexpects desirable areas in the south tofare best. Landlords should also bene-fit with an end to over-supply.

Election and stockshortage to keep

housing sales staticBY JESSICAMEAD

PROPERTY

ANALYSIS lShanks Group

80

90

100

110

120

130

2 Oct 22 Oct 11 Nov 1 Dec

p130.00

11 Dec

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PAUL PINDAR:Capita chief executive

PAUL LESTER:VT Group chief executive

BO LERENIUS:Mouchel chairman

RICHARD CUTHBERT:Mouchel chief executive

VT GROUP, the shipbuilder-turned-support services company, has madetwo takeover approaches for a rival, itemerged over the weekend, as itshifts focus away from its defenceroots.

Outsourcing and engineeringgroup Mouchel, whose share pricemoved massively on Friday after aninterim management statement, isthought to have snubbed the secretoffers.

The move comes as VT, which hasaround 400m in cash to burn afterthe sale of its shipbuilding group ear-lier this year, prepares to switch itsFTSE listed sector from aerospace anddefence to support services a weektoday.

VT has money to spend, and tak-ing on Mouchel would make sense,one industry source said. VT wantsto extend its current footprint inhighways and local authority work,so this move is highly logical and fits

with its strategy, he added.Rivals Serco and Capita are under-

stood to be waiting for a formal bid,and are waiting to add their bids forMouchel if it comes.

Mouchel is set to report a drop inprofits in its second half, and said onFriday it would be closing its officesin the middle east.

VT Group is understood to haveoffered around 250p a share in itsinformal approaches. Mouchelsshare price has fluctuated greatlyover the past 12 months; it closed at190p on Friday a 19 per cent riseform the previous day but has trad-ed as high as 384p. Based on Fridaysclosing price, Mouchels market cap is213m.

VT chief executive Paul Lester hasmade his desire to move into supportservices very public.

VT Group declined to comment, while Mouchel was unavailable forcomment yesterday.

HABITATS protracted sale finallytook place yesterday, when parentcompany ICAF Antillen sold the furni-ture company to Hilco.

ICAF, acting on behalf of theKamprad family, which also ownsIkea, sold Habitat Group to RetailInvestments Limited, a specialistretail investments group led by Hilco.

There had been speculation thatHilco would divide Habitat and pack-

age it off for sale, rather than takingit over with the intention of runningit as a going concern.

ICAF director Birger Lund moved toallay these fears, and insisted themanagement team will be retained.

He said: We are pleased with thisoutcome and that the Habitat brand

will continue and believe that themanagement team is well placed totake Habitat forward.

Chief executive Mark Saunders,

who arrived at the helm in April andreportedly tried to lead a buyout a

month ago, will remain in his post. When he arrived it was with a

three-year plan, designed to save thebusiness.

We have been given significantcommitted funds and will now beable to rapidly progress the current

business plan, said Saunders. The sale comes as a relief for the

Kamprad family, which had beeneager to have Habitat off next years

balance sheet.

The company has not made a profitsince the 2004-05 trading year.

Habitat will not be broken-up as thelong-awaited sale to Hilco is confirmed

GERMANYS national rail company,Deutsche Bahn, is planning to cut14,000 jobs, an unnamed board mem-

ber told a German newspaper. The cuts are necessary because of

the ongoing effects of the economiccrisis, said a source on the rail opera-tors supervisory board. But there

would be no forced redundanciesuntil the end of next year.

Around 240,000 people areemployed by Deutsche Bahn, with

182,000 based in Germany.Control of the metro rail system in

Tyne and Wear recently passed toDeutsche Bahn in a 600m renova-tion of one of Britains last whollypublicly owned rail networks.

Deutsche Bahn has been in exis-tence for 15 years, a private joint stockcompany that took over fromGermanys state railways. It is one ofthe largest infrastructure networks inEurope.

Deutsche Bahn declined to com-ment about the story.

Deutsche Bahn to shunt14,000 out of their jobs

TRANSPORT

MORGAN Stanley said yesterday ithad hired former Merrill Lynch presi-dent and chief operating officerGregory Fleming to run its invest-ment management group.

Fleming -- one of the architects ofMerrill Lynchs sale to Bank of

America -- will be president of MorganStanley Investment Management. He

will also be responsible for MorganStanleys global research and willreport to incoming chief executive

James Gorman.Fleming left Bank of America after

the deal closed in January and has been working as a senior researchscholar at Yale University. He has

been portrayed as a key proponent ofthe sale of Merrill Lynch at the heightof last years financial crisis despiteinitial reluctance from then-MerrillCEO John Thain. In Andrew RossSorkins book Too Big to Fail, Fleming

was credited with getting Bank of America to agree to pay substantialbonuses for Merrill bankers.

Ex Merrill star hired byMorgan Stanleys Gorman

BANKING THE SERIOUS Fraud Office (SFO) is

preparing to announce a formal

investigation into collapsed Icelandicbanks that operated in the UK. The inquiry, which will examine

Kaupthing, Glitnir and Landsbanki,follows months of intelligence gath-ering by officials at the SFO and isexpected to be announced soon.

The SFO has been in close touch with Eva Joly, the French specialinvestigator who was brought in bythe Icelandic government to look atthe flow of money between Iceland

and the City.She has held meetings with SFO

officials in London and, earlier thisyear, a team from the SFO travelled toReykjavik to meet the Icelandic

authorities, which are already con-ducting their own investigations in towhat brought down the banks.

The Icelandic banks, which hadlarge customer bases in the UK, wentunder last October, leaving 300,000British savers unable to get theirmoney and institutions facing bil-lions of losses. A number of charitiesand local councils were among those

with stranded funds.Following the collapse, the

Treasury paid out 7.5bn to compen-sate UK savers, although 2.3bn ofthis will be repaid by Iceland over thenext 15 years.

Two-thirds of the banks corporate

clients had links to London and thebank had relationships with a number of leading UK entrepreneurs -including Sports Direct owner Mike

Ashley and property tycoon RobertTchenguiz.

Tchenguiz, the former billionaireproperty investor who has lost hugesums in the recession, was one ofKaupthings biggest clients. He wasalso a director of its largest sharehold-ing institution.

SFO in Icelandic bank probeBYRACHEL STEVENSON

BANKING

Cash rich VT

eyes buyoutof MouchelBY LORACOVENTRY

SUPPORT SERVICES

BY JAMES LINACRE

RETAIL


VT GROUP is being advised by Bankof America Merrill Lynch in itsapproach for Mouchel given that itsother joint broker RBS is acting forthe other side.VT appointed BoA to be its joint

corporate broker at the end ofOctober, days before the supportservices company completed thedivestment of its historic shipbuild-ing arm.It was the financial adviser for the

firm when it sold its 45 per centstake in BVT Surface Fleet Limitedto its joint venture partner BAESystems.BoA is taking the driving seat in

the advising process, as RBS, once aVT adviser as well, is acting as bro-ker to the group VT is bidding for;Mouchel.The RBS team is headed up by NeilCollingridge.Collingridge this year advised on

Balfour Beattys rights issue and ona shareholder loan refinancing at TuiTravel. He also helped out with cardealer Inchcapes rights issue inMarch.Last year Collingridge led a team in

advising Balfour Beatty in its equityplacing.BofA has been battling with UBS

and JP Morgan Cazenove to advisethe cream of the FTSE crop, and has28 blue chip companies on its books.Michael Findlays decision to leave

Merrill as head of UK corporatebroking rocked the boat, however,and fears are rife that his departure,coupled with the BofA tie-up, couldlead to client desertions.

BOA MERRILL

LYNCH

RBS HOARE

GOVETT

ANALYSIS lMouchel

140

160

180

200

220

240

260


p

190.0011 Dec

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HUGH Osmond, the entrepreneur who built up Pizza Express andPunch Taverns, is amassing a 1bnwar chest to begin a spending spreeon distressed companies.

Sun Capital, Osmonds privateequity firm, is already in the processof raising capital for the venture, andis understood to be preparing for astock market listing early next year. Itis thought he will have raised around500m in capital and will aim to raiseanother 500m for when it floats.

Osmond is working on a list ofpotential targets that are strugglingwith debts and are close to breachingtheir lending agreements.

The serial entrepreneur has hiseyes fixed on the dozens of Britishcompanies that are close to beingoverwhelmed by debt. Many firmsused loans to finance expansion dur-ing the boom in credit over the pastfive years and are now facing difficul-ties as their debt is due for renewal.

About 150bn of debt used tofinance buyouts is due to be repaid bythe end of 2012.

Osmond has already been througha complicated debt restructuring

deal, which led to the sale of PearlGroup, his insurance business, toAmerican private equity investors.

The deal, which involved a debt-for-equity swap with a group of banksand also a cash injection from NewYork-based Liberty of 500m, severelydiluted Osmonds combined holdingsand influence in the group.

He believes many distressed compa-nies still have strong underlying busi-nesses with good management teamsand cash flows. He will provide capi-tal to help companies throughrestructuring, freeing from their debtburdens and allowing them to focuson future returns. He is known as ahands-on investor, who likes to takecharge of running companies.

It is understood he will not be look-ing at financial services companies,but will be a range of sectors, particu-larly in the leisure industry where hehas a long track record.

Osmond and his former businesspartner, Luke Johnson, the outgoingchairman of Channel 4, built upPizzaExpress business using a similartactic. They bought sites at knock-down prices during the last recessionto rapidly expand the business. Theyacquired the business for 18m andsold it for 279m.

PSAGOT, Israels largest investmenthouse, confirmed yesterday that ithas been bought by private equityfirm, Apax Partners.

The deal involves Apax buying a 76per cent share of the firm from share-holders led by York CapitalManagement.

The deal is still subject to regulato-

ry approval, according to a statementfrom Psagot to the Tel Aviv StockExchange.

York is expected to make $263m(162m) capital gain from the sale.

Apax is hoping to break into thehigh savings culture of Israels totalpopulation of 7.5m. It believesPsagots managed savings market willgrow strongly in the future.

Zehavit Cohen, head of Apaxs

Israeli office, said: This is a companythat we have been tracking for sometime, and we are delighted to havethe opportunity to support a verystrong management team in its nextphase of growth.

York, an 18-year-old hedge fundmanaging over $3bn in assets, took a100 per cent stake of Psagot overthree years ago from Bank Leumi forjust under $300m.

Psagot is bought by private equitygroup Apax after shareholder buyout

PRIVATE EQUITY

ITS HALF TIME in the match and just before the Christmas breakLiquidity and Earnings havestrolled to a three goal lead

against the Wall of Worry. But how

to bet in the second half? Will we seea re-run of the last six months in thenext six, or just like Liverpool FC inthat memorable Champions LeagueFinal, could worries about debt win

through in a penalty shootout?Certainly recent themes could become a running sore in 2010.Greeces debt downgrade, Spanishdebt on negative outlook and here inthe UK a pre-Budget Report which inthe Citys view completely failed tolay out any detailed plan to cut publicborrowing. One commentator, MarkOstwald from Monument Securities,called it a recipe for a downgrade. Isit not about time the UK went onto

outlook negative - why wait for theelection? Except of course thatsexactly what they will do. In essencethis government is borrowing on thecredit of the next, which means no

sterling crisis unless the next govern-ment is equally weak willed or we geta hung parliament.

But assuming a solid enoughmajority and therefore a muchtougher fiscal policy, there should besome compensation in the form ofstill loose monetary policy. The Bankof England would find it very hard toraise rates while taxes are going upand spending is being cut. Of coursethat doesnt mean gilt yields wont

rise. The Bank of England will finishup its current QE programme inFebruary and pre-supposing theresno extension, then yields on longerdated paper are only going one way.

But for that to become a headwindfor stocks theyll have to reach fiveper cent and in the short term thatlooks a stretch.

And then we look for the growthand here we might be pleasantly sur-prised, not necessarily for the UK butfor the rest of the world. BarclaysCapital has just issued its forecast for2010 and reckons global growth willhit 4.2 per cent next year and 4.1 percent the year after. After a contrac-

tion in 2009 and comparatively paltrygrowth of 2.7 per cent in 2008, this issome return to form.

The global companies who have cutcosts so much will only need a little

bit of growth to have a big differenceon their bottom lines. Add in still rel-atively cheap money and the firstpart of next year is unlikely to witnessan Istanbul miracle for the Wall ofWorry. Liquidity and Earnings shoulddo what A.C Milan couldnt. Protecttheir lead and close out a victory forstocks in the first part of the year. Ross Westgate co-presents WorldwideExchange and anchors Strictly Money eachweekday on CNBC.

Christmas is half time in liquidity vs worry match

Hugh Osmond

looks to buyfirms in debtBY RACHEL STEVENSON

INVESTMENT


BEST OF THE BROKERS

ANALYSIS lHMV

100

105

110

115

120


p103.70

11 Dec

HMVSinger Capital Markets has maintained abuy recommendation on HMV despite thegroup posting reported interim results atthe lower end of its expected performance.It said disappointment in Waterstonescould be offset by growth of sales in otherareas and cost savings at HMV. It set a tar-get price of 174p.

ANALYSIS lIntercontinental Hotels

740

780

820

860

900

880

840

800

760


p 903.5011 Dec

INTERCONTINENTAL HOTELSPanmure Gordon downgradedInterContinental Hotels Group to a holdon Friday, after strong share trading nearits target price of 910p. It was in favour ofWhitbreads Premier Inns UK chain, as IHGhas its majority stake in a cautiously recov-ering US hotel market compared to themore favourable UK hotel scene.

ANALYSIS lBovis Homes

340

380

420

460

500

480

440

400

360


p372.30

11 Dec

BOVIS HOMESKillik & Co initiated coverage of BovisHomes with a buy, claiming good medi-um to long-term prospects of the UK hous-ing market, with a finite supply of land anda growing population likely to put pressureon house prices.It said Bovis Homes has nearly a third of itsexposure in the resiliant South East.

To appear in Best of the Brokers email your research to [email protected]

CNBC COMMENT

ROSS WESTGATE

Financial Services AuthorityThe City regulator has hired GrahamHalliday as a senior adviser, focusingspecifically on retail banking.

Halliday was most recently director

of strategy and business affairs atMonitise, and has also worked as direc-tor of banking and financial services atthe Post Office and as a regional man-aging director at NatWest.

Socit GnraleThe bank has appointed three new sen-ior bankers within its coverage andinvestment banking division in London.

Rolf Petermann, who becomes headof the German and Austrian financialinstitutions coverage team, joins fromDresdner Kleinwort, where he was co-head of the European financial institu-tions group.

Vitcheslava Baranicka, formerly man-aging director responsible for oil andgas firms, will be in charge of Russianand Central Asian energy sector clients,while Dania Seiglie, formerly managingdirector covering oil and gas firms inthe energy and environmental group,will look after British energy corporates.

Jones Lang LaSalleThe property group has hired JamesFinnis as head of the English nationaloffice agency team.

Finnis has led the firms southernoffices team for the past three yearsand works with a broad range of clientsincluding leading investors, developers,funds and corporate clients. He suc-ceeds John Izett, who has co-led thenational offices team since joining fromRogers Chapman in 2006.

LGIMLegal & General InvestmentManagement has appointed PaulMurray as head of investment risk.

Murray will be responsible for the

independent measuring, monitoring anddevelopment of risk for the firms activefund management business. He joinsfrom F&C Asset Management, wherewas head of risk management for alter-native investments.

Prior to that, he worked in senior riskmanagement roles for SynapseInvestment Management, RothschildAustralia and ANZ Bank.

Berwin Leighton PaisnerThe law firm has relocated CarolinePope, previously a construction partnerin its London office, to Abu Dhabi,where it opened an office in March thisyear. She has been a partner at thefirm since 2001.

CITY MOVES | WHOS SWITCHING JOBS Edited by Victoria Bates

To appear in CITYMOVESplease email your career updates and pictures to [email protected]

RBC Wealth ManagementRBC Wealth Management has hired ShervinMellegard, Samuel Palmer and Neil Jeffries as amanaging director, director and wealth manag-er respectively in the UK domestic team.

Mellegard, pictured, has over 20 years ofexperience in financial services, with his careerhaving spanned commodities futures and secu-rities trading at Merrill Lynch to private bank-ing at Barclays Wealth in London.

Palmer and Jeffries both join from UBS.

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Investment | Spread Betting16 CITYA.M. 14 DECEMBER 2009

Gilt prices fall

off a cliff afterDarlings PBR

I

T IS probably fair to say that chan-cellor Alistair Darlings Pre-BudgetReport (PBR) has failed to calm

investors fears over the state of thecountrys public finances. In spite of yetanother warning that Britains prizedtriple-A credit rating on sovereign debtwas at risk, Darling slackened the paceof fiscal tightening over the next few years and left 30bn of cuts post-2014still unaccounted for.

In response, gilt yields surged to 3.80per cent on 10-year government debt, asbond investors concluded that there hadbeen a lack of progress in tackling the budget deficit and consequentlydemanded more compensation for hold-ing the asset in their portfolios.

During trading on Thursday, the costof borrowing 10-year UK gilts comparedto German 10-year bunds widened 10basis points to 81. Short maturity giltsheld up better, but everything withmaturities longer than five years saw yields increase by around 10-14 basispoints on the day.

So what does this mean for spread bet-ters? With gilt yields surging andtherefore prices falling spread betterscould look to go short on UK gilts in theanticipation that investors will remainconcerned about the fiscal black hole asdemand slackens and governmentissuance of bonds underpins supply.

How likely is this scenario to contin-ue? Well, Chris Alexander, analyst atfinancial services firm Fortis, said: Wesuspect that gilt yields have further torise. The damage to the gilt market was

somewhat self-inflicted with responsibil-ity resting with the PBRs woeful lack offiscal credibility.

And although Britains triple-A statusis safe for now ratings agency Moodyssaid on Thursday it did not believe theUK would face any problems with issu-ing the required amount of debt Alistair Darlings fiscal complacencymay unfortunately just be the beginningof the story. Britain is at risk of followingin the footsteps of both Dubai andGreece and is walking into a gilts crisis.

GARGANTUAN SHORTFALLIndeed, Hendersons chief economistSimon Ward notes: By delaying deficit-cutting until 2011-12, the chancellor isrelying on the kindness of the gilt mar-ket as it takes over responsibility fromthe Bank of England for funding the cur-rent gargantuan shortfall. A big rise ingilt yields could yet derail his economicand fiscal strategy.

Unless Britain brings down its budgetdeficit sharply, there is a serious riskthat UK sovereign debt will be down-graded, making it more expensive forthe government to service the debt. Adebt downgrade may also deter someinternational investors from snappingup gilts at a time when the governmentneeds to issue a record number.

Barclays Capital economist SimonHayes says that the detail of the fiscalforecast offers little to persuade himthat the Treasury has yet delivered thenecessary fiscal consolidation.

Indeed, the public sector debt/GDP

+44 (0) 207 170 0770LOND ON M AIN

gftuk.comWE B, LIV E C HAT

0800 358 0864UK FRE E P HONE

Beware of vertiginousfalls. Picture: GETTY

Labours fiscal complacency is a chance togo short on UK gilts, writes Jessica Mead

ratio is forecast to rise over the course ofthe period to 76.2 per cent, just belowthe critical 80 per cent level that is seenas a threshold for AAA issuers, headded.

Indeed, the Institute for Fiscal Studies

(IFS) estimated at the end of last weekthat net debt as a percentage of GDPwould remain high for a generation. Andeven worse, if the government doesnothing to address the growing impactof an ageing population on the publicfinances, then net debt could be sus-tained at an astonishing 60 per cent ofGDP. Prior to the financial crisis and theglobal recession, the government aimedto keep net debt at below 40 per cent ofGDP.

With the outlook for the publicfinances still dismal, there is likely to bea lot of volatility in the gilt markets overthe next six months in the wake of theboth the spring Budget and the generalelection.

Spread betters should get to grips withthis once staid market now and preparethemselves for an exciting 2010 that willsee sharp moves in gilts.

ANALYSIS lUK debt to remain high for a generation Source: IFS

0

%

20

60

80

40

76 81 86 91 96 01 06 11 16 36 4121 26 31

Budget 2008Budget 2009

PBR 2009

PBR 2008 (incl ageing)

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SIR RANULPHFIENNESSEE INTERVIEWON PAGE 19

17CITYA.M. 14 DECEMBER 2009

COUNTRIES public finances havedominated the headlines in recentweeks, but there is a good chancethat this is just the tip of the iceberg.

Whether it is wobbles in Dubai, debt down-grades in Greece, deteriorating outlooks in

Spain and Ireland, or a pre-Budget Reportin the UK, all of these countries have a longway to go before they are out of the woods.

Only Ireland has arguably moved closerto resolving its budget woes but lastweeks brutal spending cuts are likely to befollowed by more tough budget measuresbefore things can be said to be trulyimproving.

This focus on countries credit worthi-ness will continue well into 2010 it is anatural evolution of the repair process offinancial markets, in more ways than one.At the height of the crisis, few arguedagainst the need for a huge fiscal responsefrom governments, but spending bingesmust eventually be paid for.

Furthermore, high levels of unemploy-ment will only exacerbate the size of thedeficit and taint the budgets of all indus-trialised countries, not just those affectedby property bubbles and banking crises.This will have an impact on the marketsperception of these countries budgetdeficits and their credit worthiness.

The markets willingness to differentiatebetween risk on a country or regional levelis an important part of the repair processin financial markets. Credit worthiness isat the core of any assessment of risk andits ranking of risk should be instrumentalto the pricing of assets and currencies.

STRONG CORRELATIONBut during the course of 2009, a strongcorrelation has been sustained betweenstocks, oil prices, the S&P 500 and euro-yen, while the dollar index has beeninversely correlated with these riskyassets. An exception was Aussie dollar-USdollar, which started the year trading inline with risky assets. Since the springthough, Australias good economic funda-mentals have allowed it to outperform.

Even though the overall rally in risk

since the spring suggests that broad-based fear has been dispersing, strong cor-relations between some risky assetspersist. Forecasts of slow levels of growth

for most of the G10 in 2010 suggests thatthere are still a few more negative shocksin store for the markets in the comingmonths.

That said, reduced levels of fear shouldallow fundamentals, including assessments

of credit worthiness, to play a greater partin asset allocations. This is likely to resultin a breakdown in many of the correlationsthat have characterised markets over thepast year. Rather than move indiscrimi-nately in and out of risk, markets willgradually return to assessing individualmarkets and sectors on their merits.

For the FX market, the big question iswhen the dollar will give up its negativecorrelation with risk. The answer is clearlywhen the greenback is no longer consid-ered to be a funding currency. The reactionto the much better-than-expectedDecember payrolls report brought forwardthe perceived risk of a Fed rate hike andthus has given the market a taste of astronger dollar.

CYCLICAL RECOVERYIt is possible that the dollar has enteredthe first phase of a cyclical recoveryagainst the euro, although it remains byno means certain whether there will besufficient momentum in the US economyfor the Fed to start hiking interest ratesbefore the second half of next year. Giventhis risk, more good US data will be need-ed to stop euro-dollar rising back uptowards $1.49 over the coming fewmonths.

Assuming the dollar does enter cyclicalrecovery against the single currency overthe first half of 2010, this does not have tomean the end to the risk trade instead,the risk trade will evolve. It is quite feasi-ble that the greenback will continue itsdownward adjustment against other cur-rencies while simultaneously rising orremaining stable against the euro.

Strong growth in the Asian region sug-gests that the dollar may continue to fallagainst the Australian dollar as well asagainst some Asian and other high-yieldcurrencies next year, assuming the global

economy remains on the path back tohealth.

[email protected]

BREAKDOWNIN RISK TRADENEXT YEAR

JANE FOLEYRESEARCH DIRECTOR, FOREX.COM

TAKING A VIEW | Trading Outlook

ARGUMENTS over beer are nothingnew, but it was still interesting thisweek when brewers Greene Kingand Fullers started arguing about

whose beer is the capitals best-seller. Traditionally, Fullers London Pride hasheld the top spot, but its rival claimed thisweek that its Abbot Ale has overtaken it. Itturns out that Pride is still number one with 81,000 barrels a year drunk while

Abbot is the top premium ale.The spat might seem meaningless, but

it highlighted just how fierce is the com-petition in the brewing world at themoment. The pub industry is facing anextremely tough 2010. Consumer confi-dence is still relatively weak, which meansthat Britons are still watching their spend-ing closely and choosing to drink at hometo cut costs. Going to the pub is still seenas a relative luxury, especially comparedto buying alcohol at the supermarket.

Brewers such as Fuller, Smith andTurner, Young & Co and Greene King man-aged to post decent pre-tax profits in thefirst half of the financial year of 14.1m,11.46m and 62m respectively.

But all three noted trading conditionswould be challenging with Fullers chair-man Michael Turner saying that many ofthe factors that boosted the firms first-half profits incremental earnings fromacquisitions, record low interest rates, apay freeze and better weather may notrepeat or even reverse next year.

Spread betters who fancy a punt on the brewers should note that of the threementioned, analysts have picked GreeneKing as the best bet. Its long-term invest-ment case remains strong. It has a strongbalance sheet reflected in its 5.1x netdebt to core profits the lowest of thelarge pub groups.

Hugh-Guy Lorriman at investment bankSeymour Pierce says: We see Greene Kingas a quality play in the sector. With its

Small ad,

big big market.

Forex and other leveraged products involve significant risk of loss and may not be suitablefor everyone. FOREX.com UK is authorised and regulated by the Financial Services Authority.

Its your world. Trade it.

Sports Direct may seea recovery in the runup to Christmas.

Propping up thebrewers.Picture: JasonAlden/CITY A.M.

Punt on pints with

the King of pubcosDespite the recent spat with Fullers, Greene Kingremains the pick of the brewers, says Jessica Mead

SPORTS retailer Sports Direct is contin-uing to do well, rising to as high as 110plast week after opening Mondays trad-ing session at 102p. The stock lost some

ground towards the end of the week, but therecould be another recovery to come in the runup to Christmas. ShortsandLongs.com has arolling spread of 98.9p-99.5p.

After 1 January, VAT goes back up to 17.5per cent and the UK consumer will really takea bashing. Retailers are expected to struggleas a result so it might be time to go short onhigh-street names such as Marks&Spencer.Capital Spreads offers a price of 401.6-402.3.

Last week, Investec upgraded platinummining giant Lonmin to buy from hold andlifted its target price on the stock to 2,075pfrom 1,525p.

This could be an opportunity for spreadbetters to jump into the stock at low levels.

IG Index is offering 1,782.2p-1,786.8p.The price ofspot gold has fallen over 7 per

THE TIPSTERSPORTS DIRECTA BUY FORCHRISTMAS

cent in the last week from its all-time recordhigh of $1,226, triggered by the surprisinglystronger non farm payrolls out of the US anda strengthening US dollar.

With gold prices trading sideways for thelast three days, will the recent fall be enoughto encourage traders to buy back? City Indexwas offering a spot gold price of $1,127.1 -$1,127.6.

Tips last week to sell miners VedantaResources and Petropavlovskproved suc-cessful and there could be further to fall inboth stocks.

IG Index is offering a December spread on

Vedanta of 2,393.5p-2,405.1p and a dailyspread on Petropavlovsk of 1,192p-1,199p.

financial and operational strengths as wellas its long term diversified business modelwe see the company as a classic case whereinvestors should look through the cycle.

It looks like Fullers isnt just facing com-petition from Greene King at the bar.

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