cityam 2010-08-26

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FTSE 100 5,109.40 -46.55 DOW 10,060.06 +19.61 NASDAQ 2,141.54 +17.78 /$ 1.55 +0.01 / 1.22 unc /$ 1.27 +0.01 Certified Distribution05/07/2010 till 01/08/10 is 94,889

US authorities will step up theirinvestigation into insider trading atBanco Santander today as the scandalthreatens to engulf BHP Billitons$39bn (25bn) bid for PotashCorp.

The Securities and ExchangeCommission (SEC) has secured pow-ers to seize documents, emails andphone logs from Santanders Madridoffice after charging senior executiveJuan Jos Fernndez Garca with mar-ket abuse.

Fernndez Garca is accused ofmaking nearly $1.1m in illegal profits by piling into call options inPotashCorp before BHP made its hos-tile offer and selling them shortlyafterward when the stock had soared.

Santander, which is advising BHPon its attempted takeover, yesterdaysuspended Fernndez Garca andinsisted it had followed the appropri-

ate procedures. We are awaiting theresults of both our internal and thesupervisors investigations, aspokesperson said.

The SEC will question SantandersMergers &Acquisition bankers to see whether they leaked news of theimpending bid to Fernndez Garca,who works in a separate part of the bank as head of European equityderivatives research.

Daniel Hawke, head of the SECsmarket abuse division, told City A.M.:We will be examining all avenues ofinquiry relating to the circumstancessurrounding the trading. It appearshighly suspicious and the likelihoodthat it was based on an investmentdecision without access to privateinformation is low.

Fernndez Garca, 35, has hired toplawyer Scott Lassar of Sidley Austin inChicago to help argue his case. Lassaris a former US attorney and has worked for clients such as Charles

Conaway, the former Kmart chiefexecutive, who was fined more than$10m for misleading investors in theretail chain in February.

It is not known whether FernndezGarcas co-accused, Luis Martn CaroSnchez, has engaged a lawyer. CaroSnchez also lives in Madrid but isnot thought to work for Santander.

The two men have been sum-moned to appear before judge MarvinAspen at the US District Court for theNorthern District of Illinois today. Aspen will set another date in twoweeks time, by when the SEC mustreport with details of its probe.

Santander, the Eurozones largest bank, is one of several institutionsthat helped BHP line up a $45bn debtfacility for its PotashCorp approach.BHP chief executive Marius Klopperslaunched a fresh attack at speculators yesterday saying that fast moneywas piling into Potash in an attemptto profit from the deal. He said as

much as 40 per cent of Potashs shareregister had changed hands in thelast two weeks, and dismissed talk ofa counter-bid. MORE: P2 and P8

SANTANDERSUSPENDS

TOP ANALYSTBY OLIVER SHAHREGULATION

www.cityam.comIssue 1,207 Thursday 26 August 2010 FREE

ASIL NADIRBACK IN UKRETURNS AFTER

17 YEARS ON THE

RUN P2

WHYCAMERONSWRONGTOTAKE PATERNITYLEAVEAFATHEROFTWOSPEAKSOUT P23

BUSINESS WITH PERSONALITY

Fernndez Garca isaccused of making nearly$1.1m in illegal profits by

piling into call options inPotashCorp before BHPmade its hostile offer

Standard Life supportsMinerva in board battle

CITY stalwart Standard Life threw itsweight behind the board of Minervayesterday, after the property investorand its activist shareholder KiFin trad-ed another round of inflammatorystatements.

It is not clear to us that the KiFinnominated board candidates wouldact in the best interests of all share-holders, said Andrew Jackson, aninvestment director at Standard Life

Investments, which owns a 4.89 percent stake in Minerva.KiFin, owned by billionaire Nathan

Kirsh, defended its plans to oust sever-

al Minerva board members in its lat-est strongly-worded letter to share-holders yesterday.

It complained of the apparent apa-thy of Minervas non-executive direc-tors, and claimed the firm hascontinued to mislead you by couch-ing the planned overhaul as KiFinsattempt to seize control by stealth.

KiFin also turned on chief executiveSalmaan Hasan, pointing out hissalary represents 14 per cent of thefirms wage bill.

Minerva hit back, telling sharehold-

ers it regrets KiFins continued publiccriticism, but strongly recommendsthey vote down the proposals at acrunch meeting on 8 September.

BY MARION DAKERS

PROPERTY

Under fire Minerva boss Salmaan Hasan received backing from Standard Life

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News2 CITYA.M. 26 AUGUST 2010

Coalition hitsback at IFS THE coalition government hit backyesterday against claims its austeritybudget is regressive and will hit thepoorest hardest.

The Institute of Fiscal Studies (IFS)claimed poorer families will suffermost from stringent welfare cutssuch as slashing housing benefits.

But deputy Prime Minister NickClegg, whose reputation relies onconvincing the electorate that theBudget is fair, criticised the partialIFS report.

He said: If you just look at who isreceiving benefits then, in a sense, you dont ask the most importantquestion of all how you can relievepoverty and make Britain fairer.

He added: [It is a] single snapshotthat simply doesnt provide the full

picture of what we are trying to do.He was joined by financial secre-

tary Mark Hoban, who said the reportmade some fairly challengingassumptions about the impact ofsome of the welfare reforms.

The IFSs conclusions were support-ed by the National Institute ofEconomic and Social Research, anoth-er respected thinktank. Simon Kirby,an economist, said the work appearedvery robust, and added that the situ-ation may be even worse than the IFSsuggested because its model did notaccount for spending cuts.

BY STEVE DINNEEN

POLITICS

US CHAINS BEEF UP MEALS TO LIFTPROFITSFast-food chains in the US are rollingout more expensive premium prod-ucts after two years of relentless focuson lower priced meals in the hope ofrecouping profit margins surren-dered during the recession of 2008and 2009. McDonalds is selling asmokehouse deluxe burger inCanada priced at more than US$5.00at close to 100 restaurants in theprovince of Ontario.

UK COAL EXPECTS RETURN TO BLACKUK Coal said the end of lossmakinglegacy contracts coupled with bur-geoning production should returnthe group to profitability next year.However, pre-tax losses at the UKslargest coal miner widened from81.5m to 93.2m in the six months

to June 26, on revenues down from159.8m to 141.3m.

OUTLOOK IMPROVES FOR FORTH PORTSOil producers safety concerns follow-

ing Aprils Deepwater Horizon acci-dent in the Gulf of Mexico hitfirst-half throughput at two of theScottish oil and gas terminals operat-ed by Forth Ports, its chief executivesaid on Wednesday. Announcinginterim results at the ports and prop-erty business, Charles Hammond saidoil shipments through Hounds Pointand gas exports through Braefoot Bay,both on the Firth of Forth, had fallen.

DUBAI WORLD PLANS $19BN ASSETSALEDubai World has told lenders it couldraise up to $19.4bn from selling itsassets, in a bid to repay $14.4bn of theholding companys debt, the terms of which it is looking to restructure,according to people close to the situa-tion. In late July, the company set outits debt restructuring plan, includinga time frame over which it would con-

sider selling assets to raise funds torepay lenders.

CONFUSED.COM FAILS TO COMPARE TOA TENORConfused.com lost the battle of theprice comparison websites in the firsthalf, ceding the market-leading posi-tion in online car insurance to itsupstart rival GoCompare.com.Confused.com, owned by the AdmiralGroup, has been locked in a high-pro-file TV marketing war withGoCompare.com.

IT COMPANY THAT AXED 700 JOBSHAS 700 NEW VACANCIESHewlett Packard, a global computercompany that axed 700 jobs last yearat its factory at Erskine,Renfrewshire, has announced that itis to create 700 new jobs there. Theremarkable turnaround by HewlettPackard exemplifies global trends inmanufacturing, for while the lost

jobs were in making computer equip-ment.

APPLE TAKES A BITE AT HULU WITH TVSHOW RENTAL Apple is poised to unveil a majorrevamp of its Apple TV offering, amake-over which includes giving USusers the option to rent rather thanbuy programmes for as little as 99cents. The consumer technology giantis reported to be talking to a numberof US television networks about itsproposals, which could be announcedas early as next month.

ROEWE CASHES IN ON MG ROVER'SBRITISH HERITAGEFive years ago, the last car stutteredoff the production line at Longbridgeas MG Rover, Britains last major carmanufacturer, collapsed ignomin-iously. Today, however, sales of Roverstwin brother, the Roewe, are soaringin China. And the white gates of

Longbridge are open again, producinga new MG6.

COST SAVINGS, SALES HELP L'ORAL'SFIRST-HALF PROFITL'Oral, the worlds largest cosmeticscompany by revenue, said Wednesdayits first-half profit jumped 21 percent, as a sharp sales increase anddrastic cost cuts drove a rebound. TheFrench company, owner of such brands as Maybelline, L'Oral Parisand Lancme, said net profit reached1.31bn in the first six months of theyear, up from 1.08bn a year earlier.

RUSSIA'S AUTO MARKET PICKS UPSPEEDRussias car market is reboundingmore quickly than expected, buoyedby a return of cheap credit and a suc-cessful government scrappagescheme, top auto makers said onWednesday. Car sales in the countryare up 9 per cent for the first seven

months of the year compared to thesame period in 2009.

WHAT THE OTHER PAPERS SAY THIS MORNING

Kloppers wont fall into the bid trap

BHP chief executive Marius Kloppers was determined yesterday to playdown fears that he is about to over-pay for PotashCorp, the Canadian fer-tiliser group.

As Kloppers unveiled healthy annu-al results, most peoples minds werefocused on what he had to say aboutthe groups pursuit of Potash, forwhich he has made a $39bn bid.

Different times require differenttactics, and that applies to mergersand acquisitions as well as anythingelse.

In the heady days of the 1980s, for

example, the City loved a deal junkieand flocked to back the likes of LordHanson and Williams HoldingsNigel Rudd.

Obviously investors were con-

cerned at the kinds of premium beingpaid to take companies out, but in themain they trusted management toget it right.

But the financial crisis we have just been through has changed all that.The careers of men such as Sir VictorBlank and Sir Fred Goodwin took aturn for the worse after they wereconsidered to have made ill-judgedacquisitions.

Then there is the case of TidjaneThiam at the Prudential whose $35bnproposed acquisition of AIA had to beaborted due to a lack of support frominvestors.

With markets as nervous as can beand with sentiment clearly againstthe macho deal-doer, Kloppers couldbe forgiven for emphasising he wontoverpay for Potash.

He was keen to dampen down spec-

ulation there would be a host of other bidders for the Saskatchewan-basedfertiliser group, something thatmight lead to the price being rampedup. This is the only bid on the table,

he said.In the next few days Kloppers willembark on a globe-trotting roadshow where he will canvass shareholdersabout the bid.

He has not had an opportunitybetween Potashs rejection last weekand yesterdays results to meet theSaskatchewan-based companys man-agement.

My guess is that he will reassureinvestors he wont get into some crazybidding war but that he might be pre-pared to up his $130 a share bid atouch in return for an agreed deal.Moving to $140 a share would notbreak the bank. The bid at current lev-els, for example, is worth just two anda half years of BHPs cash-flow.

Im fairly convinced that if there isan auction, Kloppers will walk away ifhe thinks he has to. And he will be

well regarded for doing that.

DOUBLE DIP Theres been so much conjectureabout whether were headed for a

double dip recession and yet nobodyreally is any clearer about it now thanthey were a few weeks ago.

Each set of economic data is poredover voraciously by analysts and themedia alike in an effort to make senseof where the world economy is going.And yet....

Today on page 12, Dan Corry, for-mer economics adviser to GordonBrown, sets out his thoughts on thecircumstances that face the coalitiongovernment and concludes thatmany of the events most of themoutside the UK, such as the outcomeof the Eurozone crisis which willdetermine success or otherwise forthe chancellor George Osborne lieoutside his control. Somehow thatdoesnt sound too comforting.

[email protected] Heath is away

ASIL NADIR, the multimillionairebusinessman, who fled the UK afterfacing a series of significant fraudcharges, is to return after almost twodecades to face the courtroom.

Nadir will arrive at Luton from hisnative North Cyprus today to facemultimillion-pound fraud chargeslinked to the collapse of his Polly Peckbusiness, according to The Times.

Nadir fled to North Cyprus, which

has no extradition treaty withBritain, in 1993 rather than standtrial and is now expected to go court.The businessman will appear beforethe Old Bailey on 3 September wherehe will comply with 250,000 bailconditions.

In 1993 Nadir was due to stand trialon 66 charges of false accounting andtheft involving 34m but fled thecountry in the middle of the nightfirst to France and later to NorthCyprus where he has lived for thepast 17 years.

BY EMMA SADOWSKI

LEGAL

Nadir is back after 17 yearsAsil Nadir faces 66 charges of false accounting and theft Picture: PHOTOSHOT

NEWS | IN BRIEF

Unions set Tube strike datesTransport unions RMT and theTransport Salaried Staffs Association(TSSA) yesterday confirmed dates for aseries of 24-hour strikes to be launchedby 10,000 London Underground staff inwhat will bring severe disruption toLondons commuters. The unions said

the first staff walk out will start at 5pmon 6 September, with similar actionplanned for 3 October, 2 November and28 November. The dispute between theunions and London Underground is overplans to axe up to 800 jobs. LondonUnderground urged union leaders BobCrow and Gerry Doherty to call off thestrike, which is expected to cost the cityup to 48m a day. RMT said yesterdaythat London Underground has failed toanswer requests to meet with Acas, theconciliation service provider.

Plus gets derivatives faceliftPlus Markets, the small-cap listing andprice-reporting platform, is to relaunchas a full blown derivatives and stockexchange. The move, which is part of astrategy set out in March, will put Plusagainst the London Stock Exchange, Chi-X Europe and similar trading venues.

DEPUTY EDITORS LETTER

DAVID HELLIER

7th Floor, Centurion House,24 Monument Street,London, EC3R 8AJTel: 020 7015 1200 Fax: 020 7283 5334Email: [email protected] www.cityam.com

EditorialEditor Allister HeathDeputy Editor David HellierNews Editor Ben GriffithsNight Editor Katie HopeAssociate Editor David CrowLifestyle Editor Zoe StrimpelArt Director Darren SoulsbyPictures Alex Ridley

CommercialSales Director Jeremy SlatteryCommercial 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 EditorsCode of Practice, a copy of which can be found atwww.pcc.org.uk

Printed by Newsfax International,Beam Reach 5 Business Park,Marsh Way, Rainham, Essex, RM13 8RS

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

Nick Clegg criticisedthe partial IFS report,which he said does notconsider plans to getpeople off benefits

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ENDING the regulatory dividing line between a banks trading and core books would price risk better andhelp avoid public bailouts sparked bythe financial crisis, the markets

watchdog said yesterday. The Financial Services Authority

unveiled a 126-page discussion paperlooking at approaches to tightening

up the rules, that would preventbanks from exploiting differences inthe amount of capital they must holdagainst losses in their trading and

banking books.Paul Sharma, FSA director of pruden-

tial policy, said: The financial crisis hashighlighted that, for trading activitiesin particular, an over-reliance on theprinciples of efficient financial marketscan lead to severe consequences whenrisks are misunderstood.

HEDGE fund boss Richard Breedenwas burned by a second support serv-ices company yesterday as a badly-timed PR move by Xchanging wiped11 per cent from its market value.

Breeden European Partners saw158m shaved from its stake in theoutsourcing provider as nervyinvestors fled the stock. Just a fort-night ago, Breeden crystallised a30m loss by selling out of troubledsupport services firm Connaught,

which is battling for survival in theface of government spending cuts.

Shares in Xchanging fell 10.8 percent to 110p after the market wasspooked by an unexpected conferencecall in which chief executive David

Andrews tried to dispel baselessrumours circulating about the com-pany. Andrews insisted Xchangingsaccounting practices had beenapproved by its auditor, while financedirector Richard Houghton said itsprofit and loss account had not been

flattered by deferred income. Although the announcements

were designed to reassure investorsfollowing the high-profile problemssuffered by Connaught and Rok,many analysts missed the call as itcoincided with results from Serco.

Caroline de La Soujeole at SeymourPierce said the board was right tofight back against gossip. They justpicked the wrong day to do it.

Mike Allen at Panmure Gordonsaid: If a company in this market hasto defend its accounting policy, its a

bit of a recipe for disaster.

Breeden hurtas XchangingPR push fails UK life insurers could be hit with tensof millions of pounds of costs if theyare forced to comply with tough regu-

lations on tax evasion being draftedby US authorities.

Companies such as Aviva, OldMutual and Prudential would beforced to report the tax details oftheir US account holders every yearunder proposals being drafted in

Washington. The life insurance indus-try is anxious about the potential costof overhauling information systems ifit is caught up in the wave of red tape.

The Association of British Insurers(ABI) yesterday went into battle to tryto win the exemption of UK life firmsfrom the rules. Peter Vipond, directorof taxation at the ABI, said: UK insur-ers represent no significant risk to US

tax revenues and we are keen to avoidunnecessary and onerous costs on theindustry that will ultimately be borne

by all policyholders.The trade body has written to the

US Treasury and Internal RevenueService. It will attend a series of meet-ings with policymakers over the com-ing weeks to point out that savingssold by UK life insurers are taxed byHM Revenue & Customs, and US resi-dents make up just 0.1 per cent of UKlife policyholders.

ABI struggles tosave UK insurersfrom US rules

FSA policy director Paul Sharma (inset) is arguing for tougher rules Picture: REX

BYOLIVERSHAH

SUPPORT SERVICES

News 3CITYA.M. 26 AUGUST 2010

BYOLIVERSHAHINSURANCE

ANALYSIS l Xchanging

105

110

115

120

125

130

4pm2pm12pm10am8am

p

110.0025 Aug

FSA says banking tradingwarrants tougher action

BYHARRY BANKS

REGULATION

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OIL explorer Tullow faced tough ques-tions over its plans in Uganda yester-day, as shares dipped despite a 152 percent increase in pre-tax profit in thelast six months.

Its $10bn (6.6bn) project on oilfields once owned by Heritage stalledin January, after the Ugandan govern-ment disputed Heritages capital gainstax payments on the sale.

Exploration director Angus McCosstold City A.M. yesterday: Its a veryshort-term situation and we want tomake sure that we set the industry offon the right foot in Uganda.

McCoss added: I think these thingsare characteristics of a new entrant tothe oil industry. We encounter similarproblems in other places; its the real-ity of being a frontier explorer.

Tullow, which is led by AidanHeavey, saw its stock closed down 4.6per cent at 12.38 after the results

announcement raised concerns.When you get beyond the headline

figures you find significant problemsin Uganda, said Doug Youngson, oilanalyst at Arbuthnot. Its misleadingfor the company to say this will beresolved in weeks, since its beengoing on for months. And the longerthis goes on, the colder the deal getsfor its partners Total and CNOOC.

Pre-tax profit more than doubled to$131m (84.8m) in the six months to30 June.

Tullow slides

on Ugandanproject delayBYMARION DAKERS

ENERGY

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Tullow boss Aidan Heavey faces hold up Picture: Micha Theiner/ CITY A.M

ANALYSIS l Tullow Oil

1,000

1,100

1,200

1,300

13 Aug26 Jul6 Jul16 Jun

p 1,238.0025 Aug

ANALYST VIEWS: WHAT DO TODAYS RESULTSMEAN FOR TULLOW? Interviews by Marion Dakers

JONATHAN JACKSON | KILLIK

The interim results from Tullow were in line withexpectations. However, the commentary on Uganda is lesspositive. While todays news is frustrating, we believe thepotential upside from the region remains intact.

IVOR PETHER | ROYAL LONDON ASSET MANAGEMENT

There isnt an awful lot to say about the results, butthere is a lot of disappointment with the delays in Uganda.Its an expensive place to drill anyway, given the distancefrom the pipeline to a export point, without this.

JOB LANGBROEK | DAVY

While not directly Tullow's problem, the group cannotcomplete its intention to farm down to CNOOC and Total untilthe dispute is resolved. This is unfortunate as it will overshad-ow what is otherwise a strong performance.


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A ROW broke out between S&P andIreland yesterday after the countryaccused the credit rating agency offlawed analysis of its debt position.

The war of words broke out afterS&P cut its rating for Ireland by anotch to AA- after the markets closedon Tuesday night and placed thecountry on a negative outlook, indi-cating that another rating cut couldbe on the cards.

The agency expects debt to peak at137 per cent of GDP, compared withthe 97 per cent estimated by the Irishgovernment. S&P also estimates thatthe cost of bailing out the nations banks will surge to 50bn morethan double the governments ownpredictions.

John Corrigan, chief executive ofIrelands National TreasuryManagement Agency, insisted thatthe analysis failed to take intoaccount the value of its investment inAIB or Bank of Ireland. There was fur-ther disagreement over the ratingsagencys inclusion of the liabilities ofthe National Asset Management

Agency (NAMA) which is buying upIrelands bad property loans in thedebt figure. They have invented anew standard that doesnt conform with Eurostat or IMF measures. Itresults in a very exaggerated figure. Where you see faulty analysis youhave to challenge it, Corrigan said.

But S&P fought back, saying in itsoriginal document: We understandthat NAMA has been organised insuch a way as to keep it off the Irishgovernments balance sheet underEurostats accounting rules. We takea different approach and have treatedsimilar off-balance-sheet arrange-ments to support national financialsystems in other countries as directobligations of the government.

The downgrade pushed up the costof borrowing for the Dublin govern-ment as yields on ten-year bonds rosefrom 5.5 per cent to 5.7 per cent. Thattook the premium that investorsdemanded to hold the bonds ratherthan German bunds to the highestlevel since the Greek financial crisis.

Yields on ten-year gilts alsodropped to a record low of 2.79 percent as investors fled to the safety ofBritish government bonds.

Dublin in row

with S&P dueto downgrade

Or this?

BYKATIE HOPE

EUROPEAN ECONOMY

Why are the Irish banks still in such a mess?

IRISH banks seem unable to shakeoff the financial crisis, in fact theyseem to be in worse shape nowthen at the start of the year. The

main casualty is Anglo Irish Bank,

which threatens to squash the eco-nomic recovery under an estimated24bn of bad loans. It has alreadycaused credit rating agency S&P todowngrade Irelands sovereign rating

from AA to AA-.But how does a country with a pop-ulation of 4m get itself into this posi-tion in the first place? Whereas therest of the world suffered a financialcrisis because of very complicated debtstructures like CDOs, Irelands bank-ing crisis is essentially home grown. Itboils down to the bursting of one ofthe largest property bubbles in history.

The genesis of Irelands problems go back 10 years. Until about 2000,

growth had been on a secure export-led basis, underpinned by wagerestraint. However, from about 2000the character of the growth changed: aproperty price and construction bub-

ble took hold, wrote Patrick Honohanof Trinity College Dublin now gover-nor of the Irish Central Bank in areport published in 2009.

Anecdotal evidence of the scale ofthe boom is staggering. In one prosper-ous Dublin suburb an acre of land soldfor over80m in 2005.

This is also a tale of hubris. PhilipLane, head of economics at TrinityCollege Dublin, notes that the banksare in trouble not because of home-

owners defaulting on their mortgages,but as a result of a small number ofproperty developers. These guys bor-rowed billions during the boom yearsand are now facing bankruptcy.

Taxpayers have been consigned tospending huge sums to prop up the banks, including Anglo Irish, whichran aground after making bad loans.Former chief executive SeanFitzpatrick took $114m in personalloans over eight years at the bank, butrecently declared bankruptcy. The gov-ernment has been investigating.

What is most startling in Honohansreport is his refusal to blame the inter-national financial crisis for Irelands

problems. It would have happenedanyway, the straight-talking central banker says, and the collapse ofLehman Brothers in autumn 2008only exacerbated the Irish banks fund-

ing problems.The end of Honohons report sumsup this chapter in Irelands history:The Celtic Tiger period represented asolid convergence of Ireland to thefrontier. But it ended in 2000, to be suc-ceeded by an old-fashioned propertybubble.

At least its central bank governor isunder no delusion of what caused thecrisis. It took a decade to grow, it maytake a decade to unwind.

ANALYSIS

KATHLEEN BROOKS

ANALYSIS l IRELAND 10 Year Gilt Yield

Sep Nov 10 Mar May Jul

5.5116

5.8

5.6

5.4

5.2

5

4.8

4.6

4.4

ANALYSIS l GERMAN 10 Year Gilt Yield

3.4

3.2

3

2.8

2.6

2.4

2.2

2Sep Nov 10 Mar May Jul

2.118

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DELOITTE, one of the Big Fouraccountancy firms, has seen UK rev-enues fall for the second year in a rowin the face of challenging markets anda difficult economic environment.

The global firm posted 1.95bn inUK revenue for the year ended 31May, marking a 16m fall from last

year.Despite a second successive year of

very challenging markets for Deloitteand our clients, we are emergingfrom the recession with a very satis-factory performance, said Deloittesenior partner and chief executiveofficer John Connolly.

Connolly, said that revenue inDeloittes UK corporate finance divi-sion was up 10.6 per cent during the

year, while income in the firms UK

consulting business fell by four percent and the groups tax division sawrevenue decrease by 2.3 per cent.

Also, Deloittes UK auditing busi-ness posted a 2.9 per cent decline in

revenue, despite winning FTSE 100companies Kingfisher and EssarEnergy as new audit clients.

Connolly said that although theeconomic environment remainedfragile, he anticipated a return to rev-enue growth for the firms audit, taxand consulting business by 2011.

Meanwhile, Deloitte added 750people to its roster during the yearafter bolstering its business through aseries of acquisitions, most notably its

January merger with property con-sultants, Drivers Jonas.

Deloitte also added advisory firmReportSource and Swiss groupExsigno to its consultancy divisionand expanded its risk and security

business through the acquisition ofIM Global and Simulstrat.

Connolly added: We will continueto look for opportunities to bring inhighly skilled people who enable us

to offer increased range and depth ofadvice to a broader number ofclients.

Partners earned 873,000 in profitslast year after pensions and annuities

Deloitte upbeat despitelower partner profits

Deloitte senior partner John Connolly is confident on the year ahead Picture: REX

BY EMMA SADOWSKIACCOUNTANCY


payable to retired partners, markinga drop from 2009 when partnersearned 883,000.

Overall 2010 revenue fell 16m to 1.95bn. Corporate finance revenue up 10.6 per cent. Consultancy revenue down four per cent. Audit income fell 2.9 per cent. Tax revenue down by 2.3 per cent.

FAST FACTS | DELOITTE UK INCOME

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INDUSTRIAL giant BHP Billitonposted bumper profits in nearly allareas of its business yesterday, aschief executive Marius Kloppersremained confident over thefirms $40bn (25.9m) offer forCanadian fertiliser group Potash.

I have heard all the specula-tion, but I have only seen one bidon the table. Given the all-cashnature of what have offered, itdoesnt seem like there is an enor-mous universe of potential inter-lopers here, Kloppers said

yesterday.He said the worlds biggest

miner will remain disciplined

with its all-cash hostile offer, andwill not increase the bid if it risksthe firms A+ credit rating.Kloppers and four teams from BHP

will this week begin a charm offen-sive on all its shareholders to con-

vince them of the takeovers value.Kloppers said around 50 per

cent of BHP shareholders in theUSA also hold stakes in Potash.More information is always agood thing, he added.

The company identified potashfertiliser as a candidate for expan-sion as early as 2005, said Kloppers,along with investing in platinum.

BHP Billiton posted a 65 per centrise in operational profit to $20bn

yesterday, on the back of a 5.2 percent rise in revenue to $52.8bn.

Earnings per share more thandoubled to 228.6 cents.

Six of the firms nine areas ofoperation posted growth, withsome of the biggest jumps due torising commodities prices.

Shares fell two per cent yester-day to close at 17.67.

BHP Billiton stands

firm on Potash bid

Hammonds in merger talkswith American legal rival

BYMARION DAKERS

MINING

UK law firm Hammonds con-firmed yesterday that it is in merg-er talks with American rival SquireSaunders & Dempsey, marking anincreasing trend of trans-Atlanticconsolidation within the legal sec-tor.

Discussions between the twolegal outfits are at an early stage,

but should they merge, the consol-idated firm is expected to generate

annual revenue of $625m (405m).Currently the firms are undergo-

ing due diligence with expecta-tions that a decision to merge will

be brought to a partnership votebefore the end of the year.

Hammonds managing partnerPeter Crossley said a merger withSquire Saunders would help thefirm to meet its long-term growthstrategy.

He said: Operating as one firmaround the world is a foundationof the Hammonds culture which isshared by Squire Saunders.

Senior management at both law

firms notified partners yesterdayof thier intentions to join forces.

Hammonds needs 75 per cent of itspartners to vote in favour of themerger to go through, while SquireSaunders needs support from two-thirds of its partnership.

Should the merger go through,it will mark the third significanttrans-Atlantic tie-up in the legalsector this year.

In May, City based law firmLovells officially merged with

Washingtons Hogan & Hartson, while Denton Wilde Sapannounced in the same month its

plans to merge with SonnenscheinNath & Rosenthal.

BY EMMA SADOWSKI

LEGAL

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retsigeR.000723CS.oNdnaltocSnideretsigeR

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Chief executiveMarius Klopperssaid he had fullconfidence in BHPBillitons bid forPotash at the com-panys annualresults announce-ment at the MerrillLynch FinancialCentre yesterday

Picture:Micha Theiner/CITY A.M.

ANALYSIS l BHP Billiton

1,700

1,800

1,900

2,000


p 1,767.0025 Aug

ANNUAL RESULTS TO JUNE 2010

TOTAL REVENUE: $52.80bn (+5 per cent on 2009)(Petroleum: $8.78bn (+22 per cent),Aluminium: $4.35bn (+5 per cent),Base metals: $10.41bn (+47 per cent), Iron ore:$11.14bn (+11 per cent), Metallurgical coal: $6.06bn (minus 25 per cent)

EARNINGS PER SHARE: 228.6 cents (+116.5 per cent)

COST OF ONGOING PROJECTS: $10.1bn

OPERATING CASH FLOW: $17.9bn

8/9/2019 cityam 2010-08-26

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ROGUE shareholder Crystal Amberhas continued its campaign againstPinewood chairman Michael Gradedespite the film-studio upgradingits expectations for the year.

Crystal Amber has waged a cam-paign against Grade, whose stew-ardship of the firm and trackrecord has been called into ques-tion.

Yesterday a spokesman told CityA.M.: We are pleased to see thereare encouraging signs for the sec-ond half but our underlying con-cerns remain. Our views as thelargest shareholder remain valid.

Michael Grade declined to com-ment when contacted byCity A.M.yesterday but chief executive IvanDunleavy defended the boards per-formance.

He said: Were pleased with aresilient performance. Were sureall of our shareholders are pleasedthat our revenue is expected to rise.

Were enthusiastic about the business. With Michael Grade aschairman we are running the busi-ness for shareholders. It is notappropriate to comment on indi-vidual personalities.

We meet all of our shareholdersindividually on a regular basis andtake their views into account.

Crystal Amber recently

increased its stake in the studiobehind the Bond films from 16 to27 per cent, making it the firmslargest shareholder. January to June pre-tax profit for the groupwas 1.5m, down from 1.7m lastyear.

Crystal: Grade stillthe wrong leaderBY STEVE DINNEEN

MEDIA

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Indian oil firms step backfrom move to buy into Cairn

STATE-RUN Oil and Natural GasCorp, GAIL India and Oil India willnot make a counterbid againstVedanta Resources $9.6bn (6.2bn)stake purchase in Cairn India, asenior official in Indias oil min-istry said yesterday.

The decision makes it likely thatCairn Energys planned sale of upto a 51 per cent stake in its Indiandivision will proceed, analysts said,

and boosted the Edinburgh-basedcompanys shares.

There is no chance for a coun-terbid by Indian firms as the valua-tion done by Vedanta for CairnIndia is already very high, the oilministry official said.

He declined to be named as hewas not authorised to speak pub-licly.

Previously, an oil ministrysource had said all options wereopen for Indian state-run firms onCairn India and domestic mediareported the firms had held infor-mal talks on a joint bid.

ONGC, Oil India and GAILdeclined to comment yesterday.

Last week, India-focused minerVedanta said it agreed to spend upto $9.6bn to buy a majority stake inCairn India from parent companyCairn Energy.

I think it is very likely to gothrough, said Will Armstein, oilanalyst at brokerage Finncap,adding that since it was a corpo-rate transaction rather than thesale of an individual field, the gov-ernment had few mechanismsavailable to block the deal even if itsought to.

Shares in Cairn closed up 0.9 percent at 449p yesterday.

BYHARRY BANKSOIL

CITY VIEWS: IS FACEBOOK WORTH ITS $33BNVALUATION? Interviews by Tom Day

As a non-user, I struggle to imagine where a pri-vate company can possibly make anywhere nearthat much money with an asset likeFacebook.

PAUL STAPELY | CONNING ASSET MANAGEMENT

It is difficult to measure the impact Facebook

has had on 500m-plus lives as a monetary value,especially since we do not know the profitabil-ity. But it is hard to see how the current rev-enue models could justify such a valuation.

MARCANTOINE DE ROYS | GROUP M

Facebook is obviously an unbelievably popularwebsite. With the right marketing strategy, itcould plausibly generate that kind of valu-ation. Nonetheless, as it stands I cannotsee how it can be worth that much.

DEREK TYLER | WASPFORD & SALTING

ANALYSIS l Crystal Amber Fund

7 Jun 25 Jun 15 Jul 4 Aug

104.0025 Aug

108

107

106

105

104

103

p

Cleaning firmISS considers4.4bn IPO

ISS, the Denmark-based cleaningservices firm, is looking into a stockmarket flotation as its owners join aline of private equity firms testingmarkets with an eye to selling long-term investments.

Confirming what sources familiarwith the matter said last month, ISSsaid yesterday it was considering aninitial public of fering which analystssay could value the group at nearly40 billion crowns (4.4bn).

The company has appointedGoldman Sachs and Morgan Stanleyto assist in its strategic review andRothschild to act as adviser to ISSand its shareholders.

Jyske Bank corporate bond analystAlex Hauge Andersen said ISS should be valued at nine times expectedearnings before interest, tax, depreci-ation and amortisation, based on itssize and earnings potential, withinthe range of its peers that trade between seven and 11 times earn-ings.

BYHARRY BANKSSUPPORT SERVICES

8/9/2019 cityam 2010-08-26

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HEDGE FUNDMAN GOES

LONG ONBANGERSCELEBRITY endorsement works, at leastif the celebrity involved is a glamoroussportsman like Usain Bolt, who yesterdayannounced the biggest deal ever, to helpPuma flog its pumps and T-shirts. Butcan you really imagine Crispin Odey, thepermanently pin-striped hedge fundguru, as a brand ambassador?

Well, he is. The new branch of theUnion Market organic grocery store inFulham a company that is run byOdeys pal Tony Bromovsky, and whichthe fund manager has invested in hasadded an Odey Sausage to its range,made from prime Middle White rare

breed pork.

This raises several questions. Firstly, what sort of person buys a sausagebecause it is named after a hedge fundmanager? And secondly, could this bethe start of a trend for Odey? Can weexpect to see Crispin Duck pancakes onMayfair menus soon?

But most importantly, will his wife,Nichola Pease, who works at investmentmanager JO Hambro, bring out her ownrange of peas to go with her husbands

bangers? Surely an opportunity too goodto be missed.

Bangladesh to boot.The reason profitability is secondary

to ensuring a survivable future for human-ity according to the release. Putting theenvironment before investor returns for anoil company seems a tad unlikely. A quickcall to Cairn confirms that it is indeed ahoax release from a mystery party that hashacked into its systems. Its simply nottrue, a spokeswoman confirms.

WHATS IN A NAME? WHEN the birth of the Camerons

daughter was announced, speculationabout the name was rife. Borisina?Nichola? Nobody copuld have expect-ed Florence Rose Endellion. What can

we make of it? That third, Cornishname sounds like an investment fund,

but could it also be an attempt to wooCornish voters? After all, the south west

is a hotbed of Lib Dem seats, and any-thing the Tories can do to make headway

has got to help. If he wants to keep thatpart of the country yellow, the deputy PM

will have to get procreating, and fast.

BARKING BANKERSIVE never yet set foot in a Metro Bank

branch, but judging by a press releasethey sent out yesterday they sound like a

cross between a particularly gaudy funfairand an EasyJet check-in desk in Magaluf,

with some mild hallucinogens thrown in.And dogs. Dogs everywhere.

A press release announcing the launchof three new branches breathlessly boaststhat customers will be greeted by threedays of free giveaways including free

breakfasts, smoothies, and popcorn stilt walkers, musicians, jugglers and shoeshiners. The branches will all have theMetro Bank Magic Money Machine andoffer A friendly welcome to dogs and

their owners, with water bowls and dogbiscuits on hand for mans best friend dogs rule at Metro Bank!

Hmm. Somehow Im not sure Iwant the people who run my bank

acccount to be having quite somuch fun.

POLAR BEARS

BEFORE PROFIT? Just one day after Cairn Energyenthustically talked up its prospectsin Greenland, a press release pops upin The Capitalists inbox saying itspulling out of not just Greeland land of polar bears but Nepal and

Would you buy sausages from this man?

The Capitalist10 CITYA.M. 26 AUGUST 2010

EDITED BY

JEREMY HAZLEHURSTGOT A STORY? [email protected]

Will CrispinOdeys wifeNichola

Pease launcha range offrozen peasto go withher husbandssausages?

8/9/2019 cityam 2010-08-26

11/28


GERMANYScabinet yesterday agreedto adopt a levy on bank assets whichwill raise around 1bn (818m) a yearfor bailouts, a government sourcesaid, a move that small lendersslammed.

Small banks complained the new

bank restructuring bill fails to rulethem out as potential contributors

toward a common pot for rescuingbig banks, whose collapse would sendshock waves through the financialsystem.

The levy aims to shift the cost ofbailouts to the private sector in a bidto avoid future taxpayer-led salvageefforts.

The bill, which is expected to comeinto force next year after parliamen-

tary approval, would also give thestate powers to coordinate restructur-

ing of banks struck by crisis.We cant understand the list of

those called upon to contribute, aspokesman for the association ofGerman savings banks said.

He added: Its like asking the driv-er of a small car to help pay the insur-ance for a large hazardous goodstransporter.

Large banks would benefit at the

expense of smaller and stable lenders,the spokesman said.

Germany agrees to take up banking levy

www.cityindex.co.uk

0845 077 1178

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OUTSOURCING giant company Sercoposted a 21 per cent increase in half-

year pre-tax profit and said govern-ment spending cuts would boost salesin areas where outsourcers would behired to achieve savings.

Serco, which runs Boris Johnsonsnew cycle hire scheme, said yesterday

pre-tax profit for the first half to 30 June was 101.4m, against 83.4mlast year.

Support services companies withsignificant exposure to government

contracts are bracing for DowningStreets October Spending Review,which will outline the extent of thecoalitions drive to cut public spend-ing.

Serco said it and other companies

used by the government were in talkswith government officials about howto help achieve its cuts.

[The coalition government] havecalled us in to say where can we save

money? We see Serco as a big partnerto government, we still see them as avery strong customer, they still see usas a very strong supplier, chief execu-tive Christopher Hyman said yester-day.

Serco bullish on outlook

BYHARRY BANKS

SUPPORT SERVICES

SIG, the insulation and roofinggroup, said UK government austeritymeasures were a drag on its outlookdespite an encouraging start to thesecond half after a fall in first-halfpretax profit.

Sales across the group recovered inMay and June -- with sales per day inJuly up four per cent year-on-year --after cold weather badly affected salesat the start of the year.

We think that certainly over thelast three to five months, things havebeen gradually improving, said chiefexecutive Chris Davies.

SIG reported a core pre-tax profit of18.5m for the six months to the endof June, compared with 21.9m in thesame period last year.

However, the company offered anote of warning due to a faltering eco-nomic recovery and the British gov-ernments programme to slash publicspending.

SIGs management remains cau-tious on how its markets will developover the next few months ... based onthe continuing macroeconomicuncertainty and concerns about thepotential impact of government aus-terity measures and credit availabili-ty, chairman Les Tench saidyesterday.

Shares in SIG closed up 2.5 per centat 93p yesterday.

SIG fearsgovernmentcash cuts

AGGREKO, the worlds biggestprovider of temporary power, againupgraded its outlook for the yearafter posting a jump in first-half prof-it, helped by contracts for majorsporting events.

Aggreko said events such as theVancouver Winter Olympics and thesoccer World Cup, for which it provid-ed generators and chillers, brought itslocal business unit 48m in revenuesin the first half.

We believe that we will make fur-ther good progress in the second halfand the outcome for the year as awhole will be slightly better than ourprevious expectations, chairmanPhilip Rogerson said.

The company, which is supplyingcooling and power equipment to peo-ple cleaning up the Gulf of Mexico oilspill on the Louisiana coast, said italso planned to raise the interim andfinal dividend by 50 per cent each toreflect recent profit growth.

For the six months to the end ofJune, underlying trading profit rose23 per cent to 131.2m on revenue up17 per cent at 585.6m.

Pre-tax profit rose 19 per cent to127.1m and the interim dividend isbeing increased to 6.55p.

A poll of analysts taken before yes-terdays results showed a mean esti-mate of 285m for 2010 pre-tax profit.

Aggreko inboost fromWorld Cup

MEMBERS of American Airlinesmechanics union rejected a contractproposal and authorised union lead-ers to call a strike, the TransportWorkers Union (TWU) said yesterday.

The union said on its website lateon Tuesday that two AmericanAirlines work groups represented by

the TWU -- the mechanics and thestock clerks -- voted against a provi-

sional pay deal.A third bargaining unit -- the tech-

nical specialists -- approved their deal.Our members have spoken loud

and clear, said TWU International vice president Garry Drummond,who heads the unions Air TransportDivision. After four years of negotia-tions, a majority of TWU members ...were not convinced that this agree-

ment represented an adequatereturn, he added.

Airline workers snub dealAVIATION

Serco boss Christopher Hyman says public spending cuts will benefit his firm Picture: GETTY

BYHARRY BANKS

SUPPORT SERVICES

BYHARRY BANKS

BANKING

BYHARRY BANKS

SUPPORT SERVICES

ANALYSIS l Aggreko

1,200

1,300

1,400

1,500

1,600

1,700


p1,343.00

25 Aug

ANALYSIS l SIG

100

110

120

AugJulJun 2010

p93.0025 Aug

8/9/2019 cityam 2010-08-26

12/28

ECONOMIES are pretty resilientthings. Of course output candecline extremely sharply as aresult of negative shocks and

the British economy shrunk 6.4 percent in 2008-9 as a result of the world financial crisis and subse-quent recession. But at some pointthey do usually bounce back todecent growth rates, particularly ifyou are lucky enough to get decentemployment rates. That is the goodnews.

The trouble is that the length oftime it takes and the pace of that

recovery is very uncertain, and is notunder the control of anyone. Andthat is news to make you nervousnot only if you are tending to a busi-ness on the edge or searching for a job, but if you are the chancellortasked with making sure the econo-my comes right in time to win youthe next election.

Of course this last is never explicit-ly stated, but that is what all GeorgeOsbornes colleagues are expectingof him. Indeed he needs to pull it off

a lot faster if the Coalition is to hold.Bewitched by the lure of power, theLiberal Democrats have supportedvery tough fiscal policies despite hav-

ing stood full square against them inthe general election. But that sup-port wont hold for ever if there areno visible signs that the pain isgoing to be worth it.

ITS ABOUT THE WORLD NOT THE UKSo much can go wrong with econom-ic recoveries. The world economy isthe most important factor for amedium sized, open economy likethe UK. So if the US falters, if theGerman obsession with fiscal consol-idation rather than growth is toostrong, if the Greek crisis does spill-over to Portugal and Spain, if Chinastalls, then however low ourexchange rate, a booming export ledrecovery to save the day will notmaterialise.And then there is that elusive driverof domestic demand that Keynescalled animal spirits, and that busi-

ness and the city usually call confi-dence. Osborne staked the house onsome old fashioned, pre Keynesianeconomics in his first Budget.

He bet that getting down spend-ing fast to reduce the deficit wouldallow interest rates to stay low,would get the thumbs up from inter-national markets and would con-vince business decision makers thatnow was the time to invest, toexpand, to hire. In other words he bet that this strategy would boost

not dent confidence.For Osborne this course of action

was not a risk at all. Broadly speak-ing most Conservative economic

thinking sees the deficit and debt asthe root of virtually all our econom-ic problems. In the Tory version ofhistory the harsh Budget of 1981 wasnot an event that prolonged anddeepened the degree of recession,but the vital ingredient in the stronggrowth later on in that decade. Thelesson is cut and cut fast whateverthe external circumstances.

The trouble is that while the pub-lic have never bought into the con-cepts of Keynesian economics (everymythical housewife knows you pullin your belt when in debt, you dontspend more), they know bad timescoming when they stare them in theface and that is what they seem tofeel the first Osborne Budget offeredthem.

CUTTING FOR RECOVERY?It was a categorical rejection of

the idea that the state hasany role in supportingdemand through fiscal pol-icy. Instead, to bring downthe deficit swiftly, thou-sands of jobs are to go directly in the publicsector and indi-rectly fromthe firms which sup-ply themand from the

The old guard offers Osborne advice


CITY COMMENT

DAN CORRY

consequent fall in spending power.And VAT is to go up steeply.

And to add to that thisweek Martin Weale, the

newest member of theMPC, has said there isstill a real risk of a dou-ble dip recession whilecentre-right thinktank, Policy Exchange,has claimed that infla-tion may take off forcinginterest rates to rise toeight per cent. No won-der confidence indicatorsare not looking healthy.

George Osborne and histeam will be sweating overeach and every economicstatistic, looking forsigns of life andmomentum.

T h e y may pull

through and he will be a hero.Or he may just prove thatyou cannot cut your way out

of a recession.

Both the economy andthe future politics ofBritain will be heavilyinfluenced by the gam- ble he has taken and by events he cannotcontrol.

That indeed is thelot of a chancellor.Dan Corry, ex-senior advis-

er on the economy to former Prime Minister Gordon

Brown

8/9/2019 cityam 2010-08-26

13/28

Economic News 13CITYA.M. 26 AUGUST 2010

FEARS of a double-dip in the US hous-ing market intensified yesterdayafter data showed that new homesales fell at the sharpest monthlypace in July since records began.

Sales of new homes plummeted12.4 per cent to an annual rate of276,000 the lowest since the data

was first recorded in 1963 and wellbelow the markets expectations of arate of 330,000 homes. TheCommerce Department also reviseddown Junes annual sales pace to315,000 units.

New home sales have struggled topick up over the past few monthsand the annual pace is only a quarterof what was seen in the boom years

of the early 2000s.New York-based Steven Ricchiuto at

Mizuho Securities said: It is a badreport through and through, there isnothing in the details to tell you that

things are improving whatsoever.The odds of the dreaded double-dipare increasing.

The downbeat data initialweighed on US equities but buyingactivity capped losses.

Analysts expect the pace of newhome sales to remain depressed forsome months to come and predictedpossible years of excess supply.

INGs Teunis Brosens said: Salesmay recover slightly in the comingmonths, as the demand fallout fol-lowing the expiry of the homebuyertax credit fades. But we expect themto remain low.

Homebuilders continue to facetough competition from distressedsales. These typically sell at a dis-count and currently make up about30 per cent of total sales. Moreover,

while the building spree peaked in2006, the housing market is still bur-dened with substantial excess supply.It may take several years to clear thisexcess, he warned.

US new homesales slumpBY JESSICAMEAD

US ECONOMY

GERMAN businesses have this monthshrugged off weak markets and con-cerns about the health of the UnitedStates and are now as confident asthey were in June 2007, according tothe Ifo institutes business climateindex, which was published yesterday.

The headline index rose to 106.7from 106.2 in July while firms assess-ment of the current situation contin-ued to rise to 108.2, from 106.8.

Although the expectations indexdipped slightly in August to 105.2from 105.5, it remains far above itshistorical average, indicating that themanufacturing-led recovery inEuropes largest economy is showinglittle sign of losing momentum.

Hans-Werner Sinn, president of the

German economic thinktank, said:Manufacturing firms have reporteda better business situation than in

July. With regard to the six-month business outlook they are still veryconfident.

Societe Generales Klaus Baadersaid: There is no sign whatsoever of acyclical downturn in this survey

which has historically provided a veryreliable guide to growth.

Carsten Brzeski, economist at INGagreed:

The Ifo index reflects untarnishedconfidence and bodes very well fornear-term growth prospects. Secondquarter growth will remain excep-tional. However, even with aninevitable shift into a lower gear inthe second half of the year, theEurozones growth engine will con-tinue to run smoothly.

BY JESSICAMEAD

EUROPEAN ECONOMY

German businessesremain confident

ONLY a surge in orders for commer-cial aircraft kept durable goods ordersin positive territory last month, cast-ing yet further doubt over theresilience of the US recovery.

Durable goods orders only man-aged to grow by 0.3 per cent on theprevious month but the more closely-

watched core capital goods orders fig-ure slumped eight per cent on June.Consequently, the three-monthgrowth rate dropped to just 19.8 percent from 30.9 per cent.

Paul Ashworth, senior US econo-mist at Capital Economics, said:Julys durable goods report adds tothe recent evidence from numerousactivity surveys that the manufactur-ing recovery has lost nearly all of theconsiderable momentum it had.

He added: The rebound in manu-

facturing was one of the bright spotsin an otherwise disappointing recov-ery. Take it away, throw in a renewedcollapse in housing, and you donthave much left.

Durable ordersfuel doubt overrecoverys legs

US ECONOMY

The pace of new home sales dropped sharply in July. Picture: GETTY

THE Swiss franc surged to an all-timehigh against the euro yesterday asfears over the potential for a double-dip recession continued to driveinvestors into perceived safe-havenassets.

The franc traded at 1.300 yester-day, within sight of the record level of1.2968 hit earlier in the session. And yields on 10-year Swiss bonds fell to1.02 per cent as weaker-than-expectedUS new-home sales and durablegoods orders intensified the flight

out of equity markets. The francs rise accelerated after

the Swiss National Bank dropped itspledge to intervene in the currencymarkets at its June meeting, sayingthat deflation risks had largely disap-peared and the economy was on trackfor a healthy recovery.

The Dow Jones was off as much as103 points at one stage, before rally-ing to close up 19.6 points or 0.2 percent at 10,060, while the broaderS&P 500 index gained 0.3 per cent,ending four straight days of losses.

The FTSE 100 index closed 0.9 percent down at 5,109.40, GermanysDAX fell 0.6 per cent and Tokyo

Nikkei dropped 1.7 per cent to hit a16-month low of 8845.39.

Swiss franc surges to arecord high against euroCURRENCIES

8/9/2019 cityam 2010-08-26

14/28

ADMIRAL GROUP could bid forSpanish insurer Linea Directa and iseyeing an expansion into the house-hold market after growing its interimprofit by more than a fifth to 127m.

Admiral, which specialises in carinsurance, said an offer for LineaDirecta was a possibility at the right valuation. The Spanish businesscould be worth around 850m(700m) based on the price at whichits parent, Bankinter, bought out

joint venture partner Royal Bank ofScotlands 50 per cent share last year.

Admiral finance director KevinChidwick told City A.M.: Its a maybeif it was at a very good price, but weve got fantastic growth on theorganic side too.

Separately, Chidwick said Admiralwould launch a household insurancepilot project toward the second halfof next year. The FTSE 100 companyhas a large database of motoringcover customers and would hope to

leverage its brand to enter the homeinsurance space, Chidwick said.

His comments came as rising salesand prices boosted Admirals pre-taxprofit 20.5 per cent to 126.9m. Thegroup, run by Henry Engelhardt,increased its half-year dividend 18 percent to 32.6p and announced plans tohand out 1,500 free shares to eachemployee worth 6m in total.

One dark spot was Confused.com, Admirals comparison website,which saw profits drop 20 per centas it was outgunned byComparethemarket.com.

Admiral looksat Linea dealas profits rise

Admiral boss Henry Engelhardt is looking for growth Picture: Micha Theiner/ CITY A.M

BYOLIVERSHAH

INSURANCEs

Focus on Admiral14 CITYA.M. 26 AUGUST 2010

ANALYSIS l Admiral Group

7 Jun

p

25 Jun 15 Jul 4 Jul

1512.0025 Aug

550

500

450

400

350

300

250

200

Strong tradingbut the stockhas had its dayWITH a moniker reserved for the

highest-serving officers in theNavy, youd expect Admiral to besailing ahead of its competitors. Atfirst glance, yesterdays numbersdont disappoint. It was UK motor-ing, where insurance rates grew 14per cent, which put in thestrongest performance. Customernumbers were up 23 per centwhile the combined ratio a keyindicator of performance for insur-ers held stable at 89 per cent(numbers under 100 indicate prof-itably). However, the main driverwas growth in profit commission(the amount Admiral earns fromsharing in the profits of the firmsit underwrites for); this was upfrom 23m to 37m, but doesntreflect Admirals performance, just improving conditions foreveryone in the industry.

Elsewhere things were less rosy.

Confused.com profit fell from11m to 9m after rival Comparethe Markets meerkat campaignwon the marketing battle. Alreadytrading on a hefty 20.3 times earn-ings, these shares have had theirday. Investors should reduce.

BOTTOMLINEAnalysis by David Crow

ADMIRAL'S HALF-YEAR RESULTS:

Pre-tax profit s20.5% to 126.9m

Interim dividend s18% to 32.6p per share

Turnover s33% to 720.5m

Customers s23% to 2.37m

Shares in Admiral s2.7% to 15.12

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PADDYPower reported soaring profits yesterday, despite admitting tradingin its Irish home-market is tough.

The firm saw pre-tax profits grow54 per cent to 52.5m (43m), buoyedby strong performances in its interna-tional divisions.

The bookmaker says it expects full-year earnings to rise by up to 30 percent after an exceptional World Cuphelped it to smash profit expectations.

Chief executive Patrick Kennedytold City A.M. the firm has performed well across the board but admittedIrish customers have been spookedby the countrys precarious financialsituation.

He said: We are continuing togrow in Ireland and our market sharehas risen by seven per cent to 32 percent since the recession. We are trad-ing there harder than ever. But cus-tomer confidence is not great. Thegovernment finances have spookedcustomers and trading is tough.

Most of our expansion is cominginternationally now. Our customers inAustralia have shot up 84 per cent andwe are now launching in France.

Three quarters of our online rev-enue comes from the UK, which isour biggest market.

However, he added that changingthe firms domicile to London toreflect its increasingly internationalbusiness model is not on our imme-diate agenda.

The firm also acknowledged newtaxes and fees in the UK and Irelandcould affect earnings going forward.

Paddy Power

sees profitssoar by 54pc

Johnston Press back in black

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EMBATTLED Scotsman owner Johnston Press breathed a sign of

relief yesterday as it limped to its firstprofit since 2006. The Scotsman owner arrested its

declining revenue amid a remarkableturnaround in the advertising market.

Total advertising income fell by 6.3per cent after plummeting 18 percent during the darkest days of theadvertising drought in 2009.

But stringent cost cutting in the

wake of the financial crisis allowed Johnston to post a first-half pre-taxprofit of 26.1m on revenue of207.3m.

Chief executive John Fry said:

These industry leading trends along with our continued focus on costs,efficiencies and debt reduction, givethe board confidence, in the absenceof a further deterioration in the UKeconomy, that the outcome for thegroup in 2010 will be in line with cur-rent market expectations.

The results follow a remarkablerecovery for advertising giant WPP,

which saw first-half profits jump 36per cent.

BY STEVE DINNEEN

GAMING

BY STEVE DINNEEN

MEDIA

DELL is planning to submit a morecompetitive bid for data storage firm3PAR, challenging Hewlett-Packardsoffer of $24 per share, a source famil-iar with the talks said yesterday.

3PAR said on Tuesday it would startmerger talks with HP after HPs$1.6bn offer topped Dells previous,$1.15bn bid.

HP has more cash and cash equiva-lents than Dell but with $15bn and

$11bn, respectively, both could easilyafford to buy 3Par.Dell is following HPs expansion

into services and is increasing itsforay into smartphones.

Analysts are expecting a fierce bid-ding war between the two firms for3PAR.

Dell and HP both declined to com-ment yesterday.

Dell to challenge HP withan improved bid for 3PAR


ANALYSIS l Paddy Power

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Richard Desmond (above) hopesFive will post a second half prof-it, while Dawn Airey (below)will take up a post with thechannels former owner RTL.

FORMER Five owner RTL expects theloss-making broadcaster to swing back into profit this year, despiteclocking a first half loss of 49m(40m) on the channel.

The venture was sold to Expressowner Richard Desmond last monthfor 103.5m. Its operating loss wasjust 6m but RTL wrote down a fur-ther36m before offloading it.

Desmond plans to streamline theoperation, with 80 of its 300 staffexpected to be out of a job.

Among the most high profile leaversis Five chair and chief executive DawnAirey, who actioned a clause in her con-tract guaranteeing her a job with RTL ifFive was sold. RTL would not comment yesterday on what role Dawn wouldtake with the firm.

The news comes as RTL posted rev-enue growth of 7.5 per cent in its firsthalf, with advertising income finallybeginning to pick up.

This allowed the media giant toswing to a profit of257m, a remark-able turnaround after posting lossesof105m the year before.

Chief executive Gerhard Zeiler said:The stronger than expected reboundseen in the Western European TVadvertising markets is the result ofthe overall economic recovery.

RTL: Five shouldmake a profitlater this year

BY STEVE DINNEEN

MEDIA

ANALYSIS l Johnston Press

7 Jun

p

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BY STEVE DINNEEN

TECHNOLOGY

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BELGIAN insurer Ageas reported asurge of cash coming into its businessin the first half, particularly in Asia,and strong earnings from its lifeinsurance business.

The company, formerly known asFortis, said yesterday that inflowsgrew by 22 per cent during the firstsix months of 2010 and by 59 per centin Asia.

Insurance net profit dropped to180.5m (145m) from 260.4m a yearago, when it booked a 94m one-offtax benefit in Belgium. Almost all of

the insurance net profit came from itslife business.

The overall net profit, a difficult f ig-ure to forecast because of legacy issuesrelated to its previous incarnation asFortis, was 455m, higher than the261m average forecast.

Ageas, which operates as AGInsurance in Belgium and sells insur-ance for the supermarket giant Tesco,reiterated its forecast that the amountof cash coming into the business in2010 should be higher than in 2009. Ithalved its exposure to southernEuropean sovereign bonds in the firsthalf of the year to 8.9bn.

Fortis successor Ageasreports strong earnings

INSURANCE

CHINAS Geely, whose parent boughtFords Volvo unit this month, warned

of tougher competition and slowersales after its record first-half earningsbeat forecasts yesterday.

China overtook the United Stateslast year to become the worlds biggestcar market, as Beijing rolled outincentives to boost spending duringthe global downturn.

But that growth is expected towane in the second half as the govern-ment presses the brakes to keep theeconomy from overheating.

Geely, which has been trying tomove up the value chain by launching

bigger and better quality cars inChina, posted a 804.85m yuan(76.61m) net profit for the first sixmonths of this year against 595.91myuan a year earlier.

The record profit topped an averageforecast of 756.4m yuan from ana-lysts.

The company sold 195,734 cars inthe first six months, up 42 per centfrom a year earlier. But its July salesgrowth turned negative, falling 12 percent to 21,684 year-on-year.

Competition is rising in China assome car makers cut prices to boostsales, which have been slowing downfrom last years breakneck pace.

Founded by chairman Li Shufu,dubbed the Henry Ford of China,

Geely said it will launch new andhigher end car models this year andfocus on building its export businessto making it less vulnerable to Chinasvolatile domestic market.

Despite the dimming outlook forChinas car market, there is a poten-tial bright spot for the carmaker -- itsparents new Volvo unit.

If the Geelys parent, Zhejiang Geely,can turn Volvo around, that couldallow Geely to benefit from technolo-gy transfers and eventually take overthe premium brand, said Man.

Volvo has been profitable since thestart of the year, said Li Shufu, a bigchange for the luxury brand, whichposted a $653m (423m) pre-tax losslast year.

Geely warns of tough outlookBY HARRY BANKSAUTOMOTIVE


HEINEKEN, the worlds third-largest brewer, reported a higher thanexpected rise in first-half net profit yesterday after cost savings helpedoffset lower beer sales in Europe andthe United States.

The Dutch-based brewer, whosechief brands are Heineken and Amstel, Europes number one andthree beers, said group beer volumesfell 2.3 per cent on a like-for-likebasis.

But costs savings, lower raw mate-rial and interest costs and its jointventures led to a 17 per cent rise innet earnings.

The company said it remained cau-tious about beer consumption inEurope and the United States due tocontinued weak consumer spendingand planned austerity measures, butexpected volumes to grow in LatinAmerica, Africa and Asia.

Heinekens first-half results includ-ed two months from the beer busi-ness of Mexicos Femsa, bought to boost exposure to faster-growing

emerging markets. Just over half of Heinekens rev-

enue last year came from westernEurope. Heineken said the integra-tion of FEMSA Cerveza was on track,with synergies due in the second half.

For the full-year, Heineken forecastthe percentage growth of net profitto be at least in low double digits with further cost savings and pricehikes continuing to have someimpact.

Heinekens net profit before one-offs increased to 621m (508m).Analysts had on average expected anet profit of595m.

Cost savings

help Heinekenboost profitsBY HARRY BANKS

LEISURE

THE Financial Services Authority(FSA) regulator fined French bankSociete Generale 1.575m yesterdayfor failing to provide accurate transac-tion reports.

The fine handed out to SocGen, which in 2008 lost around 5bn(4.1bn) in a trading scandal, followsprevious penalties handed out toBarclays, Credit Suisse and

Commerzbank for similar failings. The FSA said that between

November 2007 and February 2010,SocGen had either failed to report, orinaccurately reported, 18.8m of its23.5m reportable transactions.

It added that the SocGen breachesoccurred despite the FSA sending outrepeated reminders to companies oftheir obligations to provide accuratedata, and of the importance of com-plying with FSA rules concerning the

reporting of transactions.SocGen failed to accurately report

a very high proportion of its transac-tions for a significant length of time,Margaret Cole, FSA director ofenforcement and financial crime,said.

This failure is a serious breach ofour rules as it can have a damagingimpact on our ability to detect andinvestigate suspected market abuse,she added.

Watchdog slaps 1.6m fine on SocGenREGULATION

BEST OF THE BROKERS

ANALYSIS lAmlin

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380

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p 408.2025 Aug

AMLINThe insurers underlying performanceremained solid despite results at the bot-tom end of consensus estimates, accordingto Jefferies. The broker added that Amlinshould see the benefits of pruning its port-folio in 2011. Jeffries kept its EPS forecastsfor 2011 unchanged at 6.3 times after highacquisition costs, but kept its buy rating.

ANALYSIS l Persimmon

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350

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p

347.20

25 Aug

PERSIMMONThe housebuilders margins jumped in itsinterim results this week, said Citi, thoughits asset writeback remains conservative ataround 23p per share. The broker wasimpressed by Persimmons improving bal-ance sheet, with gearing of just seven percent. Citi said the firms land bank wouldprovide continued support. Buy at 650p.

ANALYSIS l WPP Group

620

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p634.00

25 Aug

WPPDeutsche Bank said buying shares in theadvertiser is a balanced way of gainingexposure to the recovery in media budgets,after upgrading its full year EPS forecastsby 4.5 per cent. The broker said the gapbetween WPP and rival Omnicom is clos-ing, thanks to organic revenue growth ofseven per cent in July. Buy at 860p.

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

NetplayTim Mickley joins the board of theinteractive TV gaming company as non-executive director, replacing the outgo-

ing Moshe Edree. Mickley still holdsnumerous directorships, including atTSM Consultancy and BrickingtonTrading and recently left a role in cor-

porate finance as a managing directorwith Collins Stewart, where he led thegaming team and advised on significanttransactions in the sector.

Tullow OilTutu Agyare has been appointed non-executive director of the oil explorerwith immediate effect. He has heldnumerous senior positions at UBS, mostrecently as the head of EuropeanEmerging Markets. He joins fromNubuke Investments, a company hefounded in 2007, and will maintain hisrole of managing partner. His newcapacity will see him assist in Tullowsexpansion in Africa.

HermesZu Cowperthwaite has been appoint-ed as a portfolio manager in thecompanys global equities team. She

joins from Loomis Sayles where shemanaged a global consumerlong/short hedge fund containingboth domestic and internationalequities. The move is designed toboost the asset management firmsBoston-based global equities team.Cowperthwaite has previously heldposts at Evergreen Investments andDavid L. Babson & Co as a senioranalyst and has 17 years of experi-ence in market research and man-agement.

Fortis Global Liquidity FundsMarc Raynaud has joined the fundmanager as a director, with immedi-ate effect. He remains chairman ofBNP Paribas Partners in Luxembourg.He also became head of global fundsolutions at the bank in 2010, and hasheld several managerial roles in thecompany since he joined in 1979. Hiswork for BNP Paribas has taken himto Italy, France and the USA. Raynaudstudied Italian and Russian at theUniversity of Paris Sorbonne, andholds a Master of Sciences inManagement from the EcoleSuprieure des Sciences Economiqueset Commerciales.

CITY MOVES | WHOS SWITCHING JOBSEdited by Tom Day

BorroPaul Gratton, formerly chief executive of Egg,has been elected to the board of the onlinepawnbroker. Gratton, who founded the survey-or Shepherd Direct, was part of the foundingteam at First Direct. His experience in the mort-gage broking market is intended to assistBorros new venture, which will launch at somepoint during the autumn. He joins Sportingbetfounder Mark Blandford, who was appointed tothe board in April.

+44 (0)20 7557 7245morganmckinley.com

To appear in CITYMOVES please email your career

updates and pictures to [email protected] SPECIALISTS IN GLOBAL PROFESSIONAL RECRUITMENT

in association with

ANALYSIS l Heineken

7 Jun

28 Jun 12 Jul 2 Aug

35.2020 Aug

37

36.50

36

35.50

35

34.50

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33.50

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To register for this event, visit:

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DEEPWATER Horizon-ownerTransocean changed a locking mecha-nism on the blow out preventer,resulting in a severe delay in respond-ing after the Gulf Oil rig exploded,according to a BP vice president.

Harry Thierens, executive vice pres-ident for drilling and completions atthe oil major, told a panel of federalinvestigators that crucial hours afterthe 20 April explosion were wasted

after it became apparent thatTransocean had made the changes.

The Texas-based panel heard fromThierens, who had a personal role intrying to stop the leak, yesterday thatit took between 12 and 24 hours tolocate drawings of the changes.

His testimony is part of a joint inves-tigation by the US Coast Guard andthe Interior Department into the caus-es of the Deepwater Horizon explo-sion, which killed 11 people and led toone of the worst oil spills in history.

Thierens testified alongside BillyStringfellow a subsea superintendentfor Transocean and Halliburtons

Vincent Tabler.On Tuesday, Jesse Gagliano, a

Halliburton technical adviser told thepanel that BP had ignored his con-cerns that a cement seal inside itsMacondo well might fail.

He also alleged that the oil majorhad argued with him when he sug-gested that more devices used to plugthe well were needed.

However, BPs lawyers disputed hisallegations after producing email evi-

dence that Gagliano had said that hewas happy with the procedure.

BP hired Halliburton to performand design the cement jobs on theMacondo well.

The oil giant is currently attempt-ing to retrieve the damaged blow outpreventer from the floor of the Gulf.

Meanwhile, BP confirmed yester-day that it has withdrawn its applica-tion for an exploration licence inGreenland, currently the centre of anew oil rush.

Crucial timewasted afterrig explosion OFFICE landlord Derwent Londonreported sustained growth in thevalue of its portfolio to 2.2bn yester-day, easing fears of a new real estate

slump as Britains economicprospects wilt.

Chief executive John Burns saidDerwents signature strategy of pro-

viding affordable offices in the capi-tals nascent business hubs wouldhold up as firms budgeted for slowerexpansion and higher rates of infla-tion.

We have a sort of formulaic busi-ness model, operating off the middlemarket for rents between 30-50 asquare foot and Im just very positivethat the momentum has continued.Even over this summer period, we

were making lettings, Burns said.We have been able to deal with all

the crises without having a rightsissue and weve still bought property,

weve got a lot of uncharged propertythats not mortgaged and a lot ofunused facilities, he added.

Derwent marked a long-awaitedreturn to investment with the 146mpurchase of the West Ends CentralCross building in July.

The firm posted a 17 per cent rise infirst-half net asset value to 1,365p ashare, against 18 per cent six monthsearlier.

Derwent postshigher profit onbargain hunters

Halliburtons Jesse Gagliano accused BP of ignoring his concerns over the well

PROPERTY


BYEMMA SADOWSKI

BP IN CRISIS

ANALYSIS l BP

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INVESTORS fed up with volatile, range-

bound markets that apparently havelittle sense of clear direction will becheering the end of the summer and

the dust being swept off the City tradingfloors. But those hoping for an immediatereturn to normality and a bullish reboundare likely to be sorely disappointed.

The FTSE 100 has been drifting down- wards as US economic data disappointsand Hindenburg Omens a little-knownmarket timing gauge which points to animminent market crash have been sight-ed and are hitting the investment pagesand blogs on a disturbingly regular basis.

And things arent expected to get anybetter any time soon. While October mightbe more renowned for market crashes, his-torical data reveals that September is the worst month for market returns in theUnited States the average September lossfor the Dow between 1980 and 2010 was1.25 per cent. In contrast, the much-maligned October enjoys average gains ofabout 1.2 per cent.

But with a choppy September to con-tend with first, what will happen to theFTSE 100 and how should traders be look-ing to play the markets?

After reaching the giddy heights of5,833 back in April, the UK blue-chip index

Be prepared for

the turbulentautumn ahead

take positions that leave you exposed tounlimited losses and use leverage, even ifyou can set stop losses to ensure you dontend up owing thousands of pounds.

By picking a covered warrant, you canbet on the FTSE 100 hitting at least a cer-tain level on a pre-specified date. For exam-ple, if you think that the index is going tosuffer over the next few months, then youcould buy put covered warrants with astrike price of 5,000 with an expiry date of17 December. Providing the index is trad-ing at or below 5,000 on this date, you will

have turned a profit and if it isnt, thenyou only lose your initial investment.

SANTA RALLYHowever, you might be expecting animmediate decline followed by an upturnin the fourth quarter markets tend toperform well at this time year, in what isknown as a Santa rally.

To bet on a rally, you could buy a call cov-ered warrant with a strike price of 5,400with an expiry date of 17 December.

For those investors who are more risk

TOO much choice can be a problemfor investors these days. Online con-sumer champion Which? singled outstructured products as being some of

the most confusing instruments on offerand was particularly unhappy about theirlack of transparency, particularly when itcomes to counterparty risk. The UKStructured Products Association hit back atthe research saying that listed products areregulated by the FSA and praising the stan-dard of educational material produced bythe providers. This argument doesnt exact-ly help investors who are trying to findreturns in an environment of low interestrates. So to help our readers, we havelooked in depth at some of these productsto de-bunk some myths and figure outwhat the lingo actually means. These prod-

ucts are complex, but not impossible for aretail investor to understand.

Investing is gettingmore complex, says

Kathleen Brooks

is now is struggling to stay above the psy-chologically important 5,000 level.

Richard Perry, chief market strategist atCentral Markets, reckons that the FTSEcould see further falls towards the mid-4000s once the market comes back towork: A lot of people are talking about themarket having a poor September andOctober; this seems to be supported by thecharts and the fundamentals that are com-

ing out.

PRECARIOUS POSITIONHe explains: From a chart perspective theoverriding feeling is that there continuesto be a bearish look about the FTSE 100Index. Although the original head andshoulders top pattern may have beenrecently aborted [which saw the indexdrop briefly below 5,000 in July] the lon

cityam 2010-08-26

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