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FTSE 100 t5,707.30 -44.68 DOW 11,169.46 +5.41 NASDAQ 2,497.29 +6.44 /$ 1.58 +0.01 / 1.14 +0.01 /$ 1.39unc Certified Distribution30/08/10 03/10/10 is 110,015

www.cityam.comIssue 1,250 Wednesday 27 October 2010 FREE

UBS SHOCKSCITY

INVESTMENT

BANK PERFORMS

POORLY P6

WHY THE LICENCE FEESDAYS ARE NUMBEREDGREG DYKE SPEAKS OUT P26

BUSINESS WITH PERSONALITY

THE private equity industry yesterdayrailed against an EU directive which

will subject alternative investmentfunds to draconian new rules.

While the compromise deal wontbe as bad for hedge funds as originallyfeared, the spotlight turned yesterdayon private equity firms, which nowappear to have been one of the greatlosers from the agreement.

New rules against asset strippingwill be imposed on the industry, limit-ing the selling of assets immediatelyafter a takeover, a development whichmany believe will simply discourageinvestment and make it harder for pri-

vate equity to improve the perform-ance of weak firms. Funds will alsohave to inform employees of portfoliocompanies of their plans.

The head of the British VentureCapital Association (BVCA) warned

the directive, which will also imposerestrictions on remuneration andtough new capital requirements, risksundermining the economic recovery.

The Alternative Investment FundManagers (AIFM) directive will alsoforce hedge funds and private equityhouses to comply with a costly regis-tration regime before they can marketfunds in the EU.

Simon Walker slammed the defec-tive directive, saying Brussels shouldinstead be fostering the industry as ameans of shoring up the economy.

He said the new rules are an act offolly akin to a drowning man wavingaway a rescue boat because he did notlike the colour.

A compromise deal struck meanscompanies that have completed theregistration process will be allowed tomarket their funds across Europe,rather than having to apply to eachindividual country, as France waspushing for.

Walker said: This remains a defec-tive directive. The EU has taken a hos-tile interest in the wrong industry atthe wrong time and for the wrong rea-sons. No serious analyst has conclud-ed that private equity, let alone

venture capital, caused the crisis orserved to enhance it. These regula-tions will needlessly increase costs.

The directive is expected to beapproved by the European Parliamentnext month. The final draft was

bogged down for months as EU gov-ernments and the EuropeanParliament fail to agree on a commontext, with the UKs laissez-faire atti-tude clashing with Frances approach.

London scored a partial victory, with the legislation allowing non-European domiciled funds includ-ing most UK funds, which are basedoffshore for tax purposes to applyfor a passport allowing them thesame pan-European marketing rightsas their EU-based counterparts.

THE UKs unexpectedly strong growthlast quarter will mean the Bank of

England will keep the presses off anddelay any restart to quantitative easing(QE), according to City economists.

Preliminary growth figures released

yesterday showed that the economysmashed consensus forecasts of 0.4 percent to surge 0.8 per cent from July toSeptember. The news promptednumerous City economists to up their

growth forecasts for 2010 to around1.7-1.8 per cent. Above-trend growth coupled with

above-target inflation will leave the

Bank with little reason to resume assetpurchases, strengthening AndrewSentances hawkish stance that theMonetary Policy Committee (MPC)should instead raise interest rates.

Barclays Capitals Simon Hayes says:It will be difficult to motivate mone-tary loosening this month its offthe cards for the rest of 2010.

But with PMI surveys trendingdownwards and the housing marketuncertain, the fourth quarter is widelyexpected to bring a slowdown andrenewed calls for QE. IHS Global

Insights Howard Archer says that itremains a serious possibility shouldgrowth slow markedly over the com-ing months.

Critics suggest that it is not clearthat QE would effectively stimulatethe economy, especially with high lev-els of inflation but chancellor GeorgeOsborne has made it clear that he

would support a decision by the Bankto complement fiscal cuts with mone-tary expansion.ALLISTER HEATH: P2;NEWS: P10; INVESTMENT: P28, P30

BY JULIET SAMUEL

ECONOMICS

STRONG GDP GROWTH DASHES CHANCES OF FURTHER QE

DEFECTIVE DIRECTIVE

Draconian rules from Brussels (pictured) drew scorn from BVCA head Simon Walker (inset)

As controversial EU rules on alternative funds were finally agreed in Brusselsyesterday, fears are mounting that they will cripple the private equity industry

BY STEVE DINNEEN

PRIVATE EQUITY

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News2 CITYA.M. 27 OCTOBER 2010

Court dramaover EMI dealCITIGROUP banker David Wormsleyyesterday testified that he could notremember specifics of any of thephone calls that are at the heart of acivil fraud trial over Terra Firma pri-vate equity chief Guy Handss $6.4bn(4.2bn) purchase of EMI in 2007.

In the first full day of court battle between the two former friends, Wormsley also told the US DistrictCourt jury that Hands had misrepre-sented him to EMI during the biddingfor the music company.

The banker also denied advisingHands to bid high, an assertion madeby Terra Firma in suing the bank inDecember 2009 for fraud and seekingup to $8bn in damages.

I dont remember any of the callsspecifically, soft-spoken Wormsley

said. I remember speaking to himover the weekend on the subject offinancing.

Hands has testified that Wormsley,50, had lied to him in three phonecalls on the weekend of May 18-20,2007 about a rival bid for EMI fromCerberus Capital Management at262p per share. In fact, there was norival bid, and Terra Firma's bid of 265pence per share was the only one atauction on May 21.]

The label, known for musicians likethe Beatles and Pink Floyd, is strug-gling under the weight of its debt.

BYHARRY BANKS

COURTS

Strong recovery requires a rate hike

So much for the merchants of doomand all of those who, desperate foranother fix of cheap money, havebeen calling for a resumption of quan-titative easing. They have all beenproved completely wrong. Yesterdaysexcellent GDP growth numbers con-firm what I have long been arguing:that far from being on the brink of avicious double-dip recession, the UKeconomy is doing surprisingly well,despite weak credit growth, a flaggingconsumer and a declining housingmarket. Further monetary looseningnow would be madness.

Bizarrely, some were still claiminglast night that the reduction in theUKs rate of growth from 1.2 per centin the second quarter to 0.8 per cent inthe third quarter was something to

worry about. Given that even annu-alised growth of 3.2 per cent, as wesaw in the most recent three months,is unsustainably strong, it is hard tosee how anybody could possibly haveexpected the UK to have continued toexpand at the even more extremeannualised rate of 4.8 per cent seen inthe second quarter. Economic literacyis evidently a rare commodity.

The expansion will now slow. It hasto. Next year will be tough, as the statestarts to retrench in earnest; at somepoint the UK will revert to its nowmuch lower trend rate of growth oftwo per cent a year or so. But so fareven economic realists have been con-founded by the speed of the recovery.GDP has now recovered 40 per cent ofits loss between the first quarter of2008 and the third quarter of 2009,according to analysis from

Hendersons Simon Ward. Evenassuming that growth slows to 0.4 percent in the fourth quarter, GDP willincrease by 1.8 per cent in 2010, easilysmashing the consensus forecast of 1.3

per cent made by economists at thestart of the year.Of course, the economy remains

smaller than it was at the peak of thebubble: third-quarter GDP was 3.9 percent below its first quarter of 2008record, compared with a maximumdecline of 6.5 per cent in the thirdquarter of last year. But at the equiva-lent stage in the early 1980s recovery,ten quarters after output peaked in1979, GDP was still 4.4 per cent lower.We are doing remarkably well.

Yesterdays figures reveal that GDPgrowth hit 2.8 per cent year on year,above the 1998-08 average of 2.6 percent, according to Citigroup esti-mates. The figures were substantiallystronger than the Bank of Englandsmonetary policy committee hadexpected: it had estimated thatgrowth by now would only be around

2.3-2.5 per cent year on year. The Bankhas argued that the aim of its ultra-loose monetary policy is to boost nom-inal GDP growth actual growth plusinflation to five per cent a year; we

are well above that today, especiallywith price rises at elevated levels.One reason why the economy did

better than many feared in the thirdquarter is that most analysts have mis-understood what is happening to theall-important money supply. Whilethe total amount of money in theeconomy has been growing at a slug-gish rate, it has been circulating muchmore quickly, boosting demand.

The economy will probably grow by1.8 per cent this year. Next year will betough but the private sectors momen-tum should allow it to cope with pub-lic sector cuts; these may even proveexpansionary if they reassure compa-nies that the UK is once again a safeplace in which to invest. The debateneeds to move on: it is time for theBank to start hiking interest rates.

[email protected]

A FORMER chief executive of a Cityfirm who admitted paying bribes towin contracts overseas has been jailedfor 21 months.

Julian Messent, 50, resigned in2006 as chief executive officer atinsurance firm PWS founded by for-mer UKIP leader Lord Pearson afteradmitting to funnelling 1.2m worthof corrupt payments to governmentofficials in Costa Rica between

February 1999 and June 2002. The payments were made while

Messent was a director of the compa-nys international property divisionand his pay was directly linked to theamount of business he won,Southwark Crown Court heard. In2003, he became the companys CEO.

Sentencing him to 21 months inprison, Judge Rivlin said: It is plain,Mr Messent, that you were deeplyinvolved in the decision making andthe process of these crimes. Youorchestrated them.

BYHARRY BANKS

FINANCIAL CRIME

Ex-insurance boss is jailedThe Serious Fraud Office (SFO) brought the case against Julian Messent

NEWS | IN BRIEF

Indonesia facing double disasterIndonesia is facing the double disasterof a volcanic eruption and a tsunami.Yesterdays eruption of Mount Merapikilled at least 18 perople and forcedthousands to flee their homes as the vol-cano spewed burning ash above theisland of Java. About 1,300 km west,

rescuers raced for Indonesias Mentawaiislands, which was hit by an earthquakeon Monday night. At least 113 died andmore than 500 are missing after 3mwaves swept away hundreds of homes.

PayPal expects $1bn paymentsOnline payments system PayPal saidyesterday that $1bn (631m) in transac-tions will flow through its developers'platform this year, driven largely by pay-ments made over cellphones. PayPalopened its platform to outside develop-ers last year and has so far attracted50,000 worldwide. Some 1,000 outsideapplications have been launched for useon the platform, said PayPal PresidentScott Thompson, speaking at the sec-ond-annual developer conference in SanFrancisco. Of that $1bn, some $700m isexpected to come from mobile pay-ments, said Thompson.

EDITORS LETTER

ALLISTER HEATH

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 CrowBusiness Features Editor Marc SidwellLifestyle Editor Zoe StrimpelPictures 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

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

Guy Hands (left) claimsCitigroup banker DavidWormsley misled himduring the bidding formusic firm EMI

CHINA AND US CLOSER ON TRADETARGETSChina and the US have the basis foran agreement at the summit of theGroup of 20 leading nations nextmonth on setting targets to cut tradeimbalances, according to an adviserto the Chinese central bank. LiDaokui, a member of the central banks monetary policy committeeand professor at Tsinghua University,said on Tuesday there had been goodprogress at the weekend meeting ofG20 finance ministers in South Korea which had moved debate from thesurface issue of nominal exchangerates to talking about the substanceof rebalancing world trade.

UBS WANTS WATCHDOG TO WAIVE$1M CAP ON CASH BONUSESUBS, one of the banks hardest hit by

the financial crisis, is lobbying Swissregulators to scrap a $1m cap on cash

bonuses paid to its top bankers, amidcomplaints it has strained some exec-

utives personal finances. The Swissbanking group wants to pay out morecash to top earners, most of whomwork in London, New York, and otherplaces with relatively high rates ofpersonal income tax, say peoplefamiliar with the situation. Under thebanks existing pay structure agreedlast year with Finma, Switzerlandsfinancial regulator, the cash compo-nent of bonuses is limited to $1m, with the remainder paid out indeferred cash and share awards thatvest over several years.

SCOPE OF FEDS QE2 COMES UNDERSCRUTINYThe US Federal Reserves meeting nextweek is likely to result in a new dollopof quantitative easing nicknamedQE2 but how many assets it shouldultimately buy remains a hot topic fordebate within the Fed.Markets think

the Fed initially will announce$500bn in asset purchases.

BUFFETT, 80, BETS ON A RISING STARLESS THAN HALF HIS AGEWarren Buffetts latest hot pick could be one of his most daring gamblesyet. In hiring the little-known hedgefund manager Todd Combs to man-age a big part of BerkshireHathaways investments, the billion-aire investor has added a new nameto the list of runners and riderstipped to succeed him. At 39, MrCombs could stay at Berkshire fordecades.

RURAL DISABLED GET MOBILEM-Pesa has provided a spur for eco-nomic growth in Tanzania, but themobile money transfer service is alsobeing harnessed to help to save lives.The CCBRT Disability Hospital in Dares Salaam is using the system to payto transport women suffering from

fistula and children with cleft palatesor club feet to the city for surgery.

GERMAN BOOM CREATES ECB POLICYNIGHTMARE AS SOUTH LAGSBlistering growth in Germany isaggravating the growing gap betweenthe eurozone's North and South andmay force the European Central Bankto tighten monetary policy longbefore the high-debt states are ready,Standard & Poors has warned. A sepa-rate report by Simon Ward fromHenderson Global Investors saidEurozone indicators are showingunprecedented divergence.

PENGUIN TO LAUNCH A SOCIAL NET-WORK FOR BOOKWORMSPenguin is set to launch a social net-work for teenage bookworms calledSpinebreakers, in an effort to keepyoung people interested in reading.Penguin views Spinebreakers, thesocial network, as a crucial part of

future-proofing the book industry.The site exists as a content website.

SENATOR ASKS FACEBOOK, MYSPACETO DETAIL PRIVACY SAFEGUARDS The chairman of the SenatCommerce Committee asked topexecutives of Facebook and MySpaceto detail how they safeguard informa-tion about users, in the wake of WallStreet Journal articles revealing priva-cy breaches on the social-networkingsites. Sen. Jay Rockefeller, D-W. Va.,sought the information in lettersTuesday to Facebook Chief ExecutiveMark Zuckerberg and MySpacePresident Michael Jones.

OIL MAJORS CRITICISE BP'S WELLDESIGNSenior executives at major oil compa-nies Total and Chevron yesterday crit-icised the safety of the design BPused on its Macondo well in the Gulfof Mexico, which spilled millions of

barrels of oil earlier this year follow-ing a blowout.

WHAT THE OTHER PAPERS SAY THIS MORNING

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For BT residential customers, calls to 0845 numbers will cost no more than 4p per minute, plus 9.9p call set-up fee (current at June 2010). The price on non-BT phone lines may be different. Calls may be monitored or recorded for security and training purposes. Barclays Bank PLC is

authorised and regulated by the Financial Services Authority. Registered in England. Registered No. 1026167. Registered Office: 1 Churchill Place, London, E14 5HP.

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If you withdraw your moneyearly you are likely to get backless than you deposited

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GLAXOSMITHKLINE yesterdayagreed to pay $750m (473m)after pleading guilty to manufac-turing and distributing adulter-ated drugs from a plant inPuerto Rico.

The company admitted in Julyit had reached an agreement inprinciple relating to problems atthe plant and would pay out toresolve the allegations.

The case centred around theanti-nausea medicine Kytril, skinointment Bactroban, anti-depres-sant Paxil CR and diabetes drugAvandamet, which were made atthe plant between 2001 and2005.

Of the $750m, Glaxo will pay$600m to settle allegations that,because the drugs were adulter-ated, false claims for reimburse-ment were submitted togovernment healthcare pro-grams.

SB Pharmco Puerto Rico, theplant where the drugs were man-ufactured, will plead guilty toreleasing adulterated medicinesand pay a $150m, including for-feiture of $10m in assets.

The whistleblower who filed a

lawsuit under the US FalseClaims Act will receive about$96m from the federal share ofthe settlement, the JusticeDepartment said.

A federal judge must approvethe plea agreement.

Glaxo expressed regret thatits factory did not operate with-in the necessary standards andpractices.

A company spokesman said:We worked hard to resolve fullythe manufacturing issues at thefacility prior to its closure in2009 and we are committed tocontinuous improvement in ourmanufacturing processes.

The company no longer ownsthe facility.

GSK hit with$750m fineBY STEVE DINNEEN

PHARMACEUTICALS

NewsCITYA.M. 27 OCTOBER 2010

THE chairman of British Airways has attacked US air-port security checks and hascalled for the UK to stop kow-towing to US securitydemands.

Practices such as forcingpeople to take off their shoes,and checking laptops separate-ly, should be abandoned,Martin Broughton said.

Speaking at the UK AirportOperators Association annualconference, Broughton whois also chairman of LiverpoolFC said the UK should onlyagree to security checks thatthe US requires for passengers

on domestic flights.America does not do inter-

nally a lot of the things theydemand that we do, he wasquoted as saying in the FT.We shouldnt stand for that.

Broughtons outburst cameas it emerged yesterday thatBA may face a fine of up to70m for allegedly fixingcargo prices with other air-lines.

The European Commissionis understood to be consider-ing fining BA between 60m(53m) and 80m, although itis thought it has not made afinal decision and talks arecontinuing.

The commission chargedBA, Franco-Dutch airline AirFrance-KLM and several otherairlines in December 2007

with allegedly taking part inan airfreight cartel, following

raids on both sides of theAtlantic a year earlier that alsoinvolved the US Departmentof Justice.

At the time, Lufthansa, SAS, Air France-KLM, Japan Airlines, Hong Kong carrierCathay Pacific, All Nippon Airways, Air Canada and Alitalia said they had beeninvestigated. The EU watchdogis expected to announce penal-ties for the carriers on 9November, although the com-mission said it had not set adate for an announcement.

A BA spokesman said theairline was co-operating withthe commission on its investi-gation, but declined to com-ment further. Weve not said

anything at all on this, hesaid.

BAs chairman attackssecurity checks in US

GSK, whose UK headquarters are inBrentford, (pictured), will pay$750m for problems in Puerto Rico

BYPHILIPWALLER

AVIATION

5

CHIP designer ARMs confidence thatit would see more growth, after third-quarter revenue beat expectations,was overshadowed by a warning fromone of its chipmaking customers thatdemand could be weakening.

Its shares, which have risen by 120per cent since the start of the year, fell5.9 per cent to close at 366.20p afterTexas Instruments said end-demandfor chips could be weakening.

Execution Noble analysts said ARMwould not be immune to a slowdown.But ARM was positive, saying it wouldcontinue to outgrow the market.

ARM reported a 60 per cent rise in

pre-tax profit to 38.8m on revenue of100.4m.

Warning ondemand

dents ARMBYHARRY BANKS

TECHNOLOGY

THE government yesterday saidit would introduce a new taxfree savings account for chil-dren, to replace the child trustfund it scrapped when it cameinto office.

Funds in the so-called JuniorISA will be deposited by par-ents, but the account will beowned by the child and will belocked until they reach adult-hood. The accounts are expectedto be available from autumn2011.

Investments can be made in both cash and stocks and allreturns will be tax free, butannual contributions will becapped.

The government has not yet

decided the annual contribu-tion cap, although Treasurysources indicated it would likelybe the same as that for an adultindividual savings account (ISA).

In 2011-12, adult investors willbe able to put 10,680 in an ISA,after the limit rose by 480 inline with inflation.

Unlike the child trust fund, which will be scrapped in January 2011, the governmentwill not make any contributionsto the account.

Mark Hoban, financial secre-tary to the Treasury, said: Theintroduction of this newaccount means that we can stilloffer people a clear way of sav-ing for their children, while sav-ing the half a billion pounds ayear that we currently spend onChild Trust Funds.

BYDAVID CROW

POLITICS

Government launchesjunior ISA for children

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p

ANALYSIS l GlaxoSmithKline

1,265.0026 Oct

WPP enjoyed its strongest

quarterly organic revenuegrowth for ten years, accord-ing to chief executiveMartin Sorrell.

However, Sorrell saidthere is a tremendousamount of uncertaintyamong company bossesabout the future directionof the world economy.

He said: Everything wesee in the rear view mirroris good, adding growth washelped by a recovery in theUS and in traditional media.

Weve seen sequentialimprovement, month bymonth improvement,through to September, withthe exception of June.

However, Sorrell said

there was a high degree ofuncertainty about the con-tinued economic recovery,

especially in the US.The worlds biggest adver-tising group by sales saw itspre-tax profit surge a stag-gering 36 per cent in its sec-ond quarter, with its USoperations enjoying a betterthan expected recovery.

This was largely driven bya spike in traditional media, which grew by more thansix per cent after a drop ofalmost 10 per cent last year.

The firm hailed the per-formance of televisionadvertising, a medium itsays is often far too easilywritten off by critics.

Sorrell said the budgethas not yet been set for nextyear.

WPP sees best organicgrowth in over 10 years

CONSUMER

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BRIT Insurance yesterday accepted aformal offer from private equityfirms Apollo Management and CVCCapital Partners, which values Brit atup to 888m.

The offer from Apollo and CVC,which have formed a new companycalled Achilles to make the offer, val-ues the Lloyds of London insurer at10.75 per share but includes a provi-sion through which shareholders willreceive a futher 25p per share if Brits

net tangible asset value is higherthan 11 per share by the end of theyear. The offer represents a premiumof 47 to 51 per cent to the insurersclosing price of 7.29 on 10 June, thelast day before the beginning of theoffer period.

John Barton, chairman of BritInsurance, said: Having given fullconsideration to the offer from Achilles, the independent directorsbelieve it represents good value forBrit shareholders and recommend

that they accept the offer.Brit Insurance said in a separate

statement yesterday that overall gross written premiums for the ninemonth period to 25 October fell 8.5per cent to 1.22bn, compared to1,334.4bn a year earlier, as under-writing conditions remained compet-itive.

Dane Douetil, chief executive, saidtrends in the third quarter were simi-lar to those in the first half of theyear.

Brits shares closed 2.7 per centhigher yesterday at 1,045p.

Brit insurancehas accepted888m offer ROBERT Benmosche the chief execu-tive of US insurance giant AmericanInternational Group (AIG) hasrevealed he has cancer and is current-

ly undergoing aggressive chemother-apy to fight the disease.

The 66-year-old said in a letter toemployees on Monday that he begantreatment last week and felt fine,although the long-term prognosiswould be clearer over the next coupleof months.

Benmosche, who has said he plansto retire sometime in 2012, took overas chief executive in August last year,as AIG was struggling to sell assets torepay the US government after receiv-ing a $182.3bn (115.4bn) taxpayer-funded bailout during the crisis. Hewas the fourth person to take the topjob at AIG in just over a year.

Since then, he has led a surprisingturnaround for AIG, bringing theinsurer to a point where the govern-ment has an accelerated path out ofits investment in the company.

AIG chief exec

reveals he has

cancer to staff

BYMATTHEWWEST

M&A

INSURANCE


Brit insurance chief executive Dane Douetil has accepted a formal offer Picture: PA

BRIT Insurance has been advised byLexicon Partners over the takeover bid

from Achilles. Co-founded in 2000 byAndrew Sibbald and Angus Winther,Lexicon Partners is a corporate finan-cial advisory and investment bankingfirm that focuses on financial servicesand utilities sectors.The firm provides advice on mergersand acquisitions, public takeovers,management buyouts, joint ventures,IPOs, debt finance, equity placing, andalternative finance.In its first three years Lexicon advised

on 45 deals. It has since grown from aLondon-based financial services bou-tique into a corporate finance advisercovering a number of specialist sectorswith offices in London, New York andHong Kong.The firm has advised on a number ofdeals and IPOs this year including thelisting of Jupiter Asset Management inJune. It also advised on deals including

the acquisition of Thames River Capitalby F&C Asset Management in Apriland the merger of Coventry and Stoud& Swindon building societies in March.Previously Sibbald has said the bou-tique partnership model means "cre-ative, bright people who are unfetteredby all the woes of the big banks can

just get out there and find business."The firms clients include 3i, Aviva,Gartmore, ISIS, the Blackstone Group,Barclays, Rubicon, QBE, and Prudential.

Robert Benmosche hasled AIG through itstoughest period todate and to a surpriseturnaround in fortune.

1,000

960

920

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p

ANALYSIS lBrit insurance

1,045.0026 Oct

ANDREW SIBBALD

LEXICON

PARTNERS

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THE UK economy has confoundedforecasts by growing 0.8 per cent dur-ing the third quarter of this year.Consensus was for an expansion of 0.4per cent, on the basis of slowdowns inconsumer spending, house prices anddeclining sentiment in PMI surveys.

Unexpectedly strong figures for theconstruction sector were one reasonfor the surprise: the sector accountedfor a quarter of the overall 0.8 per centrise, despite making up only six percent of the economy.

Construction grew four per centquarter-on-quarter, faster than servic-es or manufacturing, which eachgrew 0.6 per cent. Services account for76 per cent of GDP.

Government output growth

expanded 0.6 per cent, also aboveexpectations. It is not yet clear whether the construction sectorsstrong performance is due to privateor public investment and therefore

what effect government spendingcuts will have.

The figure means that the economyas a whole has now grown 2.8 percent since the end of the recession, inline with recovery speeds after previ-ous downturns. It has prompted econ-omists to revise their overall forecastsfor GDP growth to around two percent for the year, up from many previ-ous estimates of 1.5 per cent.

The data release came as ratingsagency Standard & Poors raised theoutlook on the UKs AAA credit ratingto stable from negative, citingreduced uncertainty about the coali-tions deficit reduction plan.

But economists warned that the

strong growth might be only a tempo-rary respite.

RBSs Ross Walker, whose GDPtracker correctly forecast the surprisefigure, thinks that the fourth quarter

will see growth halve to 0.4 per cent.The recent headline growth rates

are obviously not sustainable, hesays. The construction sector was hithard during the recession so this ispartly a private-sector rebound. Theservices PMI is the chink in the third-quarter GDP armour, with risk of fur-ther moderation or sluggish growth.

But he says the distribution of thegrowth raises the possibility that theeconomy could rebalance away froma concentration in services.Expectations are now that the Bank ofEngland (BoE) will wait for more data

before kicking off any quantitative

easing (QE) programme. Some hadanticipated a possible resumption ofasset purchases next month.

Schroders Azad Zangana says:Even using pre-crisis measures oftrend growth, this figure is abovetrend. With inflation still runningabove the BoEs three per cent upperlimit, it will be incredibly difficult to

justify resuming QE in November.

STANDARD & Poors (S&P) yesterdayaffirmed the UKs governments AAAcredit rating and upgraded its outlookfrom negative to stable. The ratingsagency cited George Osbornes spend-ing review as the main reason for theupgrade, in particular the coalitionshigh degree of cohesion in puttingthe UKs finance onto a more sustain-able footing.

It predicts that gross governmentdebt will peak at 84 per cent of GDP

in 2014 and that the current 11.2 percent structural deficit could narrow to

three per cent by 2014. This is stillhigher than official forecasts by theOffice of Budgetary Responsibility(OBR) that the deficit will narrow to2.2 per cent by 2014.

This difference is in part becauseS&P thinks the OBRs average GDPgrowth figure of 2.4 per cent is overlyoptimistic. The agency noted thatrebalancing of the economy will like-ly proceed more slowly than the OBRassumes.

S&P cites spending cutsin upgrade for UK outlookECONOMICS

GEORGE Osborne yesterday hailed adouble dose of good news as proof

his austerity cuts will underpin confi-dence in the British company. The chancellors comments came

after the latest GDP figures showedthe British economy grew by 0.8 percent in the third quarter, much fasterthan economists predicted.

Meanwhile, Standard & Poorsrevised its outlook for the UK economyto stable from negative, citingOsbornes spending cuts as the mainreason for its decision. It also reaf-

firmed Britains coveted AAA ratingfor sovereign debt.

Osborne said both pieces of newswere a vote of confidence in the gov-ernments economic policies and said

Britain now had the confidence tolook to the future with some opti-mism.

The chancellor also dismissed talkof a double-dip recession. I think

what you see today, in an uncertainglobal economic environment, isBritain growing, growing strongly the strongest growth weve seen in thispart of the year for a decade, he said.

And Osborne said the electorateunderstood that Britains deficit need-

ed to be urgently dealt with, despitepolls showing the public thinks thegovernment is going too fast withspending cuts.

The GDP figures and statement

from Standard & Poors put the Labourparty on the back foot. It argues thatthe economy is too weak to withstandOsbornes austerity measures, butstrong growth numbers blunt thatline of attack.

Theres no sign yet in the privatesector of the kind of momentum weneed to create jobs to replace the mil-lion or so that will be lost as a result ofthe cuts, said shadow chancellor Alan

Johnson. INVESTMENT: P28-30

Osborne: News vindicates cutsBYDAVID CROW

POLITICS

Broad based

recovery asGDP growthstuns critics

Focus on GDP10 CITYA.M. 27 OCTOBER 2010

ROSS WALKER | RBS

These things are never linear its not unusual to get erratic data at a turning point. We aregoing to see a rebalancing of the economy, which is an awfully good thing but also involves a bit ofpain.

The widely anticipated collapse in growth wasnowhere in sight as preliminary figures showedthe UK grew 0.8 per cent, writes Juliet Samuel

GRAEME LEACH | INSTITUTE OF DIRECTORS

The GDP numbers are better than expected given indicators suggesting a much weaker per-formance. The key question is will it last and that's where Im more cautious the economy is aboutto sail through choppy waters.

SIMON HAYES | BARCLAYS CAPITAL

People arent getting too excited about the GDP number because the construction growth isnot something we expect to see continue. Were not inclined to extrapolate forwards from two quar-ters of above-trend growth.

JONATHAN LOYNES | CAPITAL ECONOMICS

These numbers will clearly ease near-term concerns over a possible double-dip in the UKeconomy and suggest GDP growth this year of over 1.5 per cent, but they dont transform theoutlook of a pretty weak recovery.

IAN MCCAFFERTY | CBI

The timing of the VAT rise in the new year will help to bolster spending over the fourth quar-ter, but this is also likely to slow growth more noticeably through the winter and early next year.

Quarter-on-quarter growth figures shows that construction led the way in boosting third quarter GDP

85

90

95

100

105

2007 2008 2009 2010

ANALYSIS l GDP Output

Total

+0.6%Services

+4.0%Construction

+0.6%Industry

ECONOMIST VIEWS: WILL GDP GROWTH HOLD UP DURING THE REST OF 2010?Interviews by Juliet Samuel

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PUBLICITY STUNTTodd Combs, the hedge fund manager ele-vated by billionaire investor Warren Buffettto oversee a significant part of his firmBerkshire Hathaways investment portfolio,might need to get himself a spot of mediatraining if hes going to become prime can-didate to succeed the Sage of Omaha him-self.

Buffett, speaking to Fortune magazineabout the appointment, described Combsas an all-American type who shuns pub-licity. Thats hardly a phrase you could useto describe Buffett himself, who has previ-ously gone as far as to dress up in a wigand bandanna and perform as rock starAxl Rose in a television commercial to pro-mote one of Berkshire Hathaways portfo-lio companies, Geico all in the name ofpublicity.

TOP MARKS FOR EFFORT Where graduates once sweated overonline applications in the elusive searchfor that first job, the students of todayhave become ever more enterprising.

In the depths of the crisis, we had job-seekers walking around cities with billboards around their necksand one memorable candidatestanding on the Fourth Plinthat Trafalgar Square advertis-ing his skills.

That trend continues oneyoung chap, Matthew Riley,tells The Capitalisthe plans tostand outside Bank stationthis morning handing out1,000 copies of his CV to com-muters, in the hope of land-ing an internship.

Apparently, the second-year student is interested inopportunities in investorrelations or client manage-ment and not so long agotried a similar stunt atCanary Wharf, when thedistribution of less thanhalf that number of CVs landedhim an interview at Shell.

PARADISE FOUND Tempting stuff, this, at a time when uncertainty is rife and

many jobs in the financial services sectorare looking less than 100 per cent secure.

Escape The City the website set up bytwo former management consultants dur-ing the economic crisis, in order to helpworkers pursue their dream careers hasteamed up with holiday group ParadiseHunter to launch a competition to landthe job of a lifetime.

Said job involves being paid $60,000(37,900) to travel around the world for 52weeks, presenting a TV series for ParadiseHunter taking in the sights and culture

of no fewer than 12 countries, includingBelize, Costa Rica, the British Virgin

Islands, New Zealand, Thailand andIndia, along the way.

Whats more, the successful jobapplicant will be given a property

worth up to $150,000 at the end of theyear in their favourite paradise

country. Are they for real?

LEADING LIGHT Well-deserved kudos yester-day for Morgan Stanleysinternational treasurer DavidBuckley, who was honoured with the Walker Award forCommitment to Diversity inFinancial Services anaward established in memo-ry of Tory peer and formerchairman of Kleinwort

Benson Lord Walker, a com-mitted campaigner for greater

diversity for the City, who diedearlier this year.

The award was set up by anorganisation called The CityFellowships in Financial Services,founded to help American minor-

ity financiers living in London,which applauded Buckleys career-long dedication and outstandingcommitment to the empowermentof women and ethnic minorities inthe City. Hear, hear.

ROUX BUSYEXPANDING

WHITEHALLWAISTLINESITS been a busy few months for masterchef Michel Roux Jr, splitting his time between fostering his burgeoning TVcareer and appointing a new chef for hislatest venture, Roux at Parliament Square.

In addition to his ongoing judges spoton Masterchef, Roux has also been busyfilming a series set to hit our screens nextyear Michel Rouxs Service, a BBC pro-duction where a bunch of youngsters willfight it out to be trained in the almost-for-gotten skills of restaurant front of house.(Roux, of course, is used to nothing butthe best, having worked with the godfa-ther of London maitre ds, Silvano

Giraldin, for years and years at LeGavroche.)

Meanwhile, over at Parliament Square,The Capitalisthears hes just installed TobyStuart as his new chef, fresh out of hisposition as senior sous-chef at theMichelin-starred Galvin at Windows.

Eagle-eyed spies tell me that Stuart who originally sharpened his kitchenknives at some of the f inest eateries in theworld, including The Square, LEscargotand Auberge du Lac has been givensomething of a baptism of fire with thedistinguished patrons frequenting thejoint. Just a stones throw from the Houseof Commons, hes already cooked for thelikes of defence secretary Liam Fox, shad-ow chancellor Alan Johnson and chancel-lor George Osborne though Im told PMDavid Cameron has yet to make anappearance

Chef Michel Roux hasbeen filming a new BBC series teaching youngsters the art ofbeing a maitre d

Picture:REX

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The Capitalist12 CITYA.M. 27 OCTOBER 2010

EDITED BY

VICTORIA BATESGOT A STORY? [email protected]

Fancy a year of waking up to this?

Michel RouxJr has beensplitting his

time betweena burgeoningTV careerand his newrestaurant inWestminster

CITY EYE

The lights of CanaryWharfs skyscrapersglow against theevening skyline, seen

from the cabin of aboat chugging alongthe Thames

Picture:Micha Theiner

/City A.M.

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STEEL giant ArcelorMittal said muteddemand for steel will continue to theend of the year, following a weak thirdquarter for the firm.

ArcelorMittal, the worlds largeststeelmaker, also warned yesterday thatgovernment austerity measures andenergy conservation plans continue tohit global steel production.

Clearly this is the big news of thiscall, how the demand remains mutedinto the fourth quarter of this year,

chief financial officer Aditya Mittalsaid yesterday on a conference call.

ArcelorMittal said pre-tax profit forthe three months to 30 September was$1.35bn (851m) compared to $910min the same quarter of 2009. Sales roseto $21bn from $16.17bn last year.

The firm said underlying earnings will be between $1.5bn and $1.9bnover the next three months, on theback of a drop in average steel sellingprices. This would be a 25 per cent fallon the third quarter, and lower than

consensus estimates of $2.4bn.While we are confident that the

underlying recovery is real and willcontinue, uncertainty has meant thatdemand conditions are tough, saidchairman and chief executive LakshmiMittal.

He added that states should step into kickstart the world economy: I stilldont see any really positive trends inthe world economy and I think thisprovides some evidence that furtheraction by governments is necessary.

Mittal also said government plans toreduce energy consumption have also

dented production, with the companyestimates putting the likely impact at20m tonnes of steel, or three per centof total output.

ArcelorMittalwarns of low

steel demandLONDONS 5,600 firefighters havebeen heavily criticised for their plansto walk out on strike on Bonfire Nightnext Friday.

Fire Brigades Union (FBU) membersare set to stage a 47 hour strike from 5to 7 November unless the London FireBrigade (LFB) withdraws what theunion has described as a sacking let-ter sent to all staff.

However, the Prime Ministersspokesman yesterday described thestrike plans as reckless, adding: Thepublic would not think this is aresponsible way of conducting indus-trial action to choose this particularday for a strike.

LFB chairman Brian Coleman dis-puted the unions claims, saying yes-terday: There are no cuts, no joblosses, this is about reducing a 15 hour

night shift, adding those hours to theday shift and doing more communitysafety work and firefighter training.

FBU general secretary Matt Wracksaid workers had no choice but tostrike, and added in a statement:Theres still nearly two weeks for theLondon Fire Brigade to get this right.Show a little respect for your firefight-ers.

London mayor Boris Johnson saidthere are contingency plans in place todeal with further strikes.

PM condemnsfiremen BonfireNight strike plan

ArcelorMittal boss Lakshmi Mittal expects muted demand for steel Picture: REUTERSBYMARION DAKERS

COMMODITIES

PUBLIC SECTOR

Founded by Lakshmi Mittal in 1994, the firmis now the worlds largest steelmaker, makingup six per cent of global production. The company has branches working on ironore mining, real estate and car manufacturing.

FAST FACTS | ARCELORMITTAL


LAKSHMI Mittal answered the age-

old question of what to buy the manwho has everything in April, when hespent 16m on a 400-foot high, brightred steel sculpture named Orbit.Mittal, chief executive and chairman ofArcelorMittal and the UKs richestman for the last five years, funded theartwork to commemorate the 2012London Olympics.

Mittal has little else to spend hismoney on he already owns Britainsmost expensive house (having paid

Formula 1 boss Bernie Ecclestone70m for the 12-bedroom property in2003), a 20 per cent stake in QPRfootball club, and the worlds biggeststeelmaker.

Since branching out from the familybusiness in 1994, Mittal has steadilybought up steel plants around theworld, culminating in a 22bn mergerwith Luxembourg-based steelmaker

Arcelor in 2006. His son Aditya, aged34, is the firms chief financial officer.

Before the recession, Mittal was thethird richest man in the world, behindMicrosofts Bill Gates and hedge fundtycoon Warren Buffett. Though tum-bling steel prices knocked billions offhis fortune, he has nevertheless spentfive years at the top of the SundayTimes UK Rich List, which estimatedhis personal wealth in March at22.45bn.

LAKSHMI MITTAL

ARCELORMITTAL

CHAIRMAN AND

CHIEF EXECUTIVE

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TRANSPORT group Go-Ahead report-ed a good performance in rail despiteeconomic woes and indicated farehikes and cost cuts should protect itfrom public spending reductions.

Go-Ahead, which runs theSoutheastern, Southern and LondonMidland rail franchises and buses inthe UK, said train passengers and rev-enue increased despite the tougheconomy between July and October.

Revenue at Southern rose more

than six per cent, London Midlandlifted over seven per cent andSoutheastern got a boost of morethan a tenth against last year.

The government last week unveiledrises of inflation plus three per centin regulated fares for three years from2012, with fares in January also set torise above inflation, but ministersconfirmed plans for projects includ-ing Londons Crossrail.

Go-Ahead expects to meet annualprofit expectations and said the

spending review should not directlyaffect the group this year.

Finance director Nick Swift said itwould manage a planned 20 per centfall in government support for buses

by better buying of parts and fuel.He said the firm, which shed about

100 jobs from Southeastern about 18months ago, was not replacing staff

who leave, but big job cuts wereunlikely. Its not as bad as someinvestors feared. Clearly (fare rises)are not fantastic if youre a com-muter, but the government needs tosave some money.

Go-Ahead inbullish mood

as defies cutsTHE recovery in the global air travelmarket gathered pace last month, butfalling freight has sparked concernabout the impact on the economicrecovery of spending cuts.

Passenger numbers rose 10.5 percent year-on-year in September, signif-icantly stronger than the 6.5 per centincrease in August, according to fig-ures from the International Air

Transport Association (IATA).IATA said the better passenger

growth could be due to normal travel volatility boosted by factors such asthe religious festival of Ramadan.

Freight traffic rose 14.8 per cent,down from the 19 per cent in Augustand a larger fall than expected.

IATA voiced concern about thedrop in freight, saying consumer and

business confidence was weak in

many parts of the world.Spending to boost the economic

recovery had failed to follow a lift incargo earlier this year.

IATA director general GiovanniBisignani said the passenger recovery

was good news, but the freight num-bers were worrying.

Freight activity has fallen six percent since Mays post-crisis peak.

What we see in air cargo markets isinevitably reflected in the broadereconomy, he said.

Air travel picksup but cargogrowth slips

The global air travel recovery is taking off Picture: REUTERS

BY PHILIPWALLER

TRANSPORT

AVIATION


1,200

1,150

1,100

1,250


p

ANALYSIS l Go-Ahead

1,358.0026 Oct

5

0

10

15

20 %

Sep 2010 Sep 2010Aug 2010 Aug 2010

ANALYSIS l September traffic: Strongpassenger, weak freight

Passangertraffic

10.5

6.5

14.8

19.0Freighttraffic

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Focus on Prosperity IndexCITYA.M. 27 OCTOBER 2010 17

Health, schools and security keep UK down

THERE is a simple reason whythe UK has not performed bet-ter in the 2010 LegatumProsperity Index published yes-

terday, failing to break into the top

ten countries. To do better, the UKmust continue to improve not just itseconomy, but also its performance onhealth, education and security.

The Legatum index is unique, because it provides the only globalassessment of national prosperitybased on both wealth and wellbeing.It examines over 90 per cent of the worlds population and gives eachcountry an overall prosperity rank-ing. This ranking is calculated fromthe average of that countrys scoresacross eight different sub-indexes each of which represents a funda-mental pillar of prosperity: the econo-my, entrepreneurship and

opportunity, education, governance,health, safety and security, personalfreedom, and social capital.

The UKs position was static this

year: in 13th place it remains just outof reach of a top ten position. Thegood news is that the UK does verywell on entrepreneurship and oppor-tunity, where it ranks fifth globally,as well as in the areas of governanceand social capital where it ranksninth on both. This is crucial becausethe data from the index shows thatoverall prosperity is more closely cor-related to entrepreneurship andopportunity than to any other pillar.

The UK has a strong infrastructure

for entrepreneurship. However, thegovernment will need to work hard toimprove confidence: in 2009 only 67per cent of Britons said they believe

the entrepreneurial environment isstrong, and just 78 per cent believedthat hard work will get them aheadin life, below the global average.

The sobering news is that if the UKwishes to better its ranking, and keeppace with its European peers, it willneed to improve heavily in areasincluding the economy, where itranks 18th, health (20th), education(22nd), and safety and security (23rd).For the economy, confidence is againkey. Despite relatively strong objective

economic fundamentals such as lowinflation rates, only 36.6 per cent ofBritish citizens in 2009 had confi-dence in financial institutions the

ninth lowest rate in the index. Iftrends indicated by Tuesdays GDPdata are any indication, confidence inthe UK financial sector shouldimprove over the next year. In theareas of health and education, howev-er, decent levels of citizen satisfaction belie relatively low enrolment andimmunisation rates. If the UK is tosurpass its peers, it will need to solvethese underappreciated problems.

Ashley Lenihan is senior fellow of theLegatum Institute

CITY COMMENT

ASHLEY LENIHAN

THE UK finished a miserable 13th inthe latest Prosperity Index, trailingbehind even beleaguered Iceland and

Ireland. The Legatum Institute table wasdominated by Scandinavian coun-tries, with Norway, Denmark andFinland taking the top three slots.Sweden finished sixth in the poll,which measures wealth and prosperi-ty, taking into account factors includ-ing health care, wealth, freedom andsocial capital.

The UK was buoyed by strong resultsin the entrepreneurship (ranked fifth),governance (ranked ninth) and socialcapital categories. However, of the 110countries covered by the survey, it

ranks a staggering 101st on public con-fidence in financial institutions, 98thon optimism about job prospects and93rd on expectations of future eco-nomic performance the kind of rat-ings usually found in the worldspoorest countries.

The Antipodean nations bothranked highly, with Australia infourth place and New Zealand fifth.

Zimbabwe finished bottom of thepoll, with Pakistan in penultimateplace after a year dominated by ter-rorist attacks and natural disasters.

The US clung to a top ten placing

despite ranking poorly in the econo-my and safety categories. However,the poll seems to favour small coun-tries, with the US the only superpow-er to make the top 10.

Former Labour business secretaryPeter Mandelson defended Labourslegacy, saying the data was collectedat the onset of the financial crisis andwas disproportionately gloomy.

UK 13th in Prosperity IndexWORLD ECONOMY

OVERALL COUNTRYRANK

1 Norway 1 6 12 4 4 2 2 1

2 Denmark 4 1 2 5 17 6 6 2

3 Finland 9 4 7 3 10 3 12 7

4 Australia 8 13 8 2 15 13 4 4

5 New Zealand 17 14 4 1 19 7 3 3

6 Sweden 7 2 6 10 9 8 5 11

7 Canada 5 10 5 12 11 16 1 8

8 Switzerland 2 11 1 29 3 12 19 6

9 Netherlands 3 12 10 13 13 18 13 5

10 United States 14 3 3 9 1 25 9 12

ECONOMY

ENTREPRENEURSHIP

&OPPORTUNITY

GOVERNANCE

EDUCATION

HEALTH

SAFETY&SECURITY

PERSONALFREEDOM

SOCIALCAPITAL

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Economic News 19CITYA.M. 27 OCTOBER 2010

THE Irish government has doubledthe amount of money it reckons isneeded to bring the countrysdeficit under control to 15bn(13.1bn) over the next four years.

That is twice the level outlinedin last years budget.

The key reasons for the signifi-cant increase from the figureannounced in the 2010 budget arelower growth prospects both athome and abroad and higher debt

interest costs, the governmentsaid in a statement sent via e-mail

yesterday. The announcement followed

two days of cabinet discussions onhow Ireland can get the worst

budget shortfall in Europe backwithin a limit of three per cent ofgross domestic product (GDP) by2014. Further details will be set outin a four-year plan next month.

Speaking to national broadcasterRTE, Minister for Justice Dermort

Ahern said the 15bn figure was based on a projection of averagegrowth of 2.75 per cent per year

over the next four years.Its based on the fact growth

both internationally and domesti-cally is no longer going to be asgood as what we expected this timelast year, he said.

Finance minister Brian Lenihanforecast growth of 3.3 per cent for2011 when he unveiled the 2010

budget. But economists polled byReuters expect 2.8 per cent and thecentral bank has said its forecast of

just 2.4 per cent is in danger ofbeing trimmed.

Ahern said the government has yet to decide what proportion of

the cuts would be front-loaded into2011.

Ireland doubles its budget target to15bn as outlines push for austerity

WORLD ECONOMY

David Frost will step down as head of the BCC next year

BUSINESS lobby group the CBI has written to chancellor GeorgeOsborne and business secretary

Vince Cable to call for furtheraction to stimulate short term eco-nomic growth, in order to offsetthe effects of the governments80bn spending cuts.

CBI director-general RichardLambert said the UK economyneeds a fundamental rebalanc-ing in order to achieve thatgrowth, with exports and invest-ment playing a greater part than inthe past.

He identified four separatepotential sources of growth in theletter.

These included supporting vibrant and growing SMEs byextending the Enterprise FinanceGuarantee scheme and promotingnon-bank and equity financing tothe sector with support servicesrefocused.

Lambert said the governmentshould also make it easier for busi-nesses to export their goods andservices, including by providinginformation, contacts and finan-cial backing and removing con-

straints to trade.Lamberts third suggestion was

exploiting pent-up demand for cru-cial domestic infrastructure proj-ects, particularly where the privatesector sees opportunities in areassuch as energy, transport, wasteand water.

Lambert also called for thereform of public service delivery

by increasing competition amongproviders.

There is a need for a policyfocus on those measures that canhave the greatest impact on growthperformance in a relatively shorttimeframe, Lambert says in theletter.

The CBIs submission comesahead of the publication of a gov-ernment white paper on growth.

CBI urges Osborneto focus on growthBYVICTORIA BATE

UK ECONOMY

THE US economic recovery is still frag-ile, according to data published yester-day, which showed house prices fell forthe second consecutive month andconsumer confidence remained weak.

The Standard & Poors (S&P)/CaseShiller index of US 20 cities showedproperty prices fell 0.3 per cent in

August. The dip followed a decline of0.2 per cent in July. S&P put the fall inhouse prices down to the withdrawalof the government backed homebuy-er tax credit in April.

Property prices in the 20 citiesindex were 1.7 per cent higher than a

year before but this figure alsoshowed house price growth hadalmost halved in one month theannual increase in property prices in

July had been 3.2 per cent.

David Blitzer, chairman of theindex committee at S&P said 17 of the20 cities in the index saw a fall inproperty prices compared to July.

Over the last four months boththe 10 and 20 city composites showslowing growth, after sustaining con-sistent gains since their April 2009troughs, he said.

Meanwhile, the Conference Boardsindex of US consumer confidenceshowed a slight increase in sentimentto 50.2 in October from a revised 48.6in September. But confidence wasstill at historically low levels.

Lynn Franco, director of theConference Boards consumer confi-dence centre said: Consumers

assessment of the current state of theeconomy is relatively unchanged, pri-marily because labour market condi-tions have yet to significantlyimprove.

US recovery stillfragile as house

prices fall againBYMATTHEWWEST

US ECONOMY

DAVID Frost, director general of theBritish Chambers of Commerce (BCC),announced yesterday that he intendsstep down in 2011, after eight years inthe role.

Frost said he was leaving the BCC inbetter shape that he had found it say-ing he was brought in to raise theorganisations profile and level ofinfluence, a job he said he felt wasnow done.

I have developed relationships with the new government and thelong awaited spending review hasnow been delivered a long-termroad map for re-balancing the UKeconomy, he said.

Frost added he had agreed with theboard of the BCC to leave in the sec-ond half of 2011. They will begin thesearch for his replacement in the

coming months.Prior to taking the helm at the BCC

Frost was chief executive of Coventryand Warwickshire Chamber ofCommerce and Business Link.

David Froststands down ashead of BCC

REGULATION

CBI director-generalRichard lambert saysthe UK needs moremeasures to spurshort-term growth

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MUSIC, games and books retailerHMV says releases of films such as Sexand the City 2 and Toy Story 3 willhelp its key Christmas period as ittries to bounce back from a disap-pointing start to the year.

All I can say about Christmas isthat the release schedule in particu-lar is looking healthy, chief executiveSimon Fox said on the sidelines of the

World Retail Congress in Berlin. Ourlike-for-likes were very disappointingin the first 18 weeks. Its a tough yearfor us.

HMV, which also owns live music venues, in September reported aworse than expected 15 per cent dropin first-quarter sales in Britain andIreland.

Fox said live music bookings at itsvenues for the period up to Christmaswere also looking healthy and that itsforay into clothing sales had started

well.So far, so good, but its early days,

he said, pointing out that the linewas only launched in September. Hedeclined to comment on the outlookfor 2011 although was looking for-

ward to the launch of NintendosDAlema player, which he said would

be a huge product.Nintendo had said last month that

it was putting the Japan launch datefor the product, which can be used

without special glasses, back to lateFebruary from November, close to theUS March launch date. However, Foxsaid: As far as I am concerned theydid not delay the launch. We alwaysexpected an Easter launch.

CORSET-MAKER to the Queen, Rigby& Peller has become the latest lin-

gerie chain to be hit by cash-strappedBrits reining in their spending. The luxury retailer, whose fans

include Gwyneth Paltrow, Lady Gagaand Nick Cleggs wife MiriamGonzlez Durntez, dived into thered by 214,000 in the 12 months tothe end of January, compared with apre-tax profit of 168,000 a year earli-

er. Sales slipped one per cent to9.8m, despite the opening of a newstore. In accounts just filed atCompanies House, Rigby & Peller said

that the results were disappointingbut that it is well positioned to bene-fit from an upturn in the overalleconomy. Initially, underwear

brands reported strong trading in therecession. Rival Agent Provocateurmade a pre-tax loss of 1.1m in the

year to March 2009 as it was also hitby the downturn.

Rigby & Peller slides into the redas Brits cut back on luxury items

RETAIL

TESCO has added a barcode reader toits Groceries iPhone app that can add

items to a customers online homedelivery order.Customers can scan any grocery

item and add it to a home deliveryorder instantly.

The barcode reader, which wasadded to the existing Tesco Groceriesapp available on the iPhone yesterday,is being targeted at busy parents and

time-poor professionals who want tobe able to add specific items to theironline shopping basket at any time.

Tesco envisages that it will be par-ticularly useful for those times when

a customer tries a new food at afriends house that they want to buyor a child has finished the last oftheir favourite yoghurt while out andabout a quick scan will see the itemadded to a shopping basket where it

will remain until the customer isready to checkout.

Laura Wade-Gery, chief executive of

Tesco.com and Tesco Direct, said:Were always looking for ways tomake life easier for customers and for

busy mums in particular.The barcode scanner will make

online ordering much quicker forthose that have an iPhone.Customers can simply scan the

barcode of grocery products stockedby Tesco whilst on the go.

The supermarket chain already hasClubcard, Store Finder and WineFinder apps in an attempt to pull inmore customers.

Tesco launches barcode appBYHARRY BANKS

RETAIL

HMV pins itshopes on DVDXmas salesBYHARRY BANKSRETAIL

Consumer News22 CITYA.M. 27 OCTOBER 2010

HMV is relying on film releases to boost its Xmas period Picture: Micha Theiner/ CITY A.M

NEWS | IN BRIEF

Reckitt shares soar on takeoverShares in Reckitt Benckiser rose 31p to3,449p at one stage yesterday beforeclosing 114p lower at 3,436p after EUcompetition watchdogs gave the greenlight to its takeover of Durex condomsmaker SSL. The Cillit Bang to Nurofenpainkiller group is disposing of SSLs

brands for mouth pain relief products inthe UK and Ireland to ease regulatorconcerns. Reckitt announced the2.54bn takeover in July. The decisionto allow the takeover is conditional uponReckitt Benckisers commitments todivest SSLs brands for mouth pain reliefproducts in the UK and Ireland, wherethe merged entity would have had avery strong market position.

Beer sales drop by 9.7pcThe amount of beer drunk in Britain fell by9.7 per cent in the last three months,dashing hopes of a comeback by thebrewing industry. Sales of beer in super-markets and off-licences were down by 12per cent in the third quarter, while sales inpubs dropped by 7.8 per cent. The latestfigures are in stark contrast to those forthe second quarter of 2010, in which salesrose by 2.9 per cent their first quarterlyincrease for four years. But the latestresults show that the industry is still indecline and second quarter results were ablip, caused in part by the World Cup, Ashas occurred after every World Cup, thebeer market hit a bump in the road, nothelped by a wet summer, said BrigidSimmonds, chief executive of the BBPA.

CITY VIEWS: WILL THE ONE NEW CHANGE SHOPPING CENTRE ATTRACT SHOPPERS TO THE CITY? Interviews by Marion Dakers

I think it will be good for workers inthe City - its quite close by and itgives us something to do in ourlunch breaks. It also means we canshop during the week, so the week-ends are free for other things. Im notsure people will come in at theweekend specifically to shop. Itmight be good for people wholive nearby.

HARRIETTE DERBYSHIRE |HAMPTONS INTERNATIONAL

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45

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p

ANALYSIS l HMV Group

46.2526 Oct

I think it will be good for the area,although people generally are still quitereluctant to spend as much as they usedto. Retailers are probably going to find ithard this Christmas. I think tourists willbring in a lot of money, especially atthe weekends. I probablywouldnt travel into the Cityto shop, as there are good

places near where I live.

MARIA BERNARDI |GROCERS COMPANY

I will probably walk over there in mylunch break to do a bit of shopping inthe run-up to Christmas, as its not thatfar to go. I would consider comingdown at the weekend to shop,although there are places near-er to where I live. I thinkits a good idea to opensome more shops in

the City.

SPENCER JAMES | GLENCAIRN

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CINEWORLD yesterday reportedbooming sales as filmgoers f locked tosee the latest 3D Blockbusters includ-ing Toy Story 3.

Total sales for the 42 weeks ending21 October were up 8.5 per cent, com-pared with the same period the previ-ous year. Box office takings wereahead 8.3 per cent as moviegoers went in their numbers to its 801screens.

The companys results for the firsthalf of 2010 saw revenues up 3.8 percent to 162m and box office takingsup 4.1 per cent to 111.7m. Cineworldsaid films like Shrek Forever and ToyStory 3 had been hits and that it hadenjoyed a healthy performance sincethe end of June. The final quarter of

the financial year has a film line-up,including Harry Potter and theDeathly Hallows; Chronicles ofNarnia: Voyage of the Dawn Treaderand Tron. The company added: Theremaining 2010 film line-up gives usconfidence in delivering continuedgrowth for the full-year.

AUSTRALIAN brewer Fosters said ithas held no further talks with the pri-vate equity suitor that made a $2.5bnoffer for its wine business inSeptember but set an April deadlineon bids.

Chairman David Crawford said yes-terday that an approach reportedly by Cerberus Capital was totally

inadequate, but said the companywould consider any further offers for

its $3bn wine business. We have saidfrom the day we announced the pro-posal to consider a demerger that wewere still prepared to consider all pos-sibilities, and that includes considera-tion of any offers if they are made,hesaid. Crawford told the companysannual general meeting that the situ-ation should be resolved by April.

Fosters places deadlineon its wine unit bidders

CONSUMERGERMAN sporting goods company

Puma hiked its sales outlook and

posted solid third-quarter profits, fol-lowing in the footsteps of rivalsAdidas and Nike.

The company said yesterday itexpects the sales outlook to improvein the fourth quarter as it reporteddemand in North America and Latin America helped boost third-quartersales by 6.5 per cent. It forecast 4bn

(3.5bn) of sales by 2015 and said itaimed to keep its gross profit mar-gin a measure of profitability -- sta-ble until then.

Puma, which is controlled byFrances PPR, said it now sees 2010sales growing by a medium to highsingle-digit percentage. It previouslysaid it saw sales growing by a low tomedium single-digit percentage thisyear.

The second half of the year contin-ues to show solid sales growth which

should more than offset the flat per-formance in the first half of the year,Puma said in a statement.

Sales surged 27 per cent in the

Americas but were broadly flat inAsia Pacific and Europe, Middle Eastand Africa.

The Herzogenaurach, Germany-based sporting goods company postedthird-quarter net profit of77.6m upfrom 67.9m in the year-earlier peri-od and broadly in line with 78.7mforecast in a Reuters poll.

Upbeat Puma lifts forecastBY HARRY BANKS

RETAIL

Cineworld insales boostfrom 3D filmsBY JOHN DUNNE

LEISURE

Consumer News 23CITYA.M. 27 OCTOBER 2010

Cineworlds rise inmoviegoers hasbeen fuelled by 3Dfilms such as ToyStory 3.

ANALYST VIEWS: CAN CINEWORLD MAINTAIN ITS PROGRESS?

SIMON FRENCH |PANMURE

The company is confident ofdelivering continued growth for the fullyear at least in line with expectations.We dont anticipate any change to ournumbers at this stage, but clearly therisk to forecasts lies on theupside.

NIGEL PARSON | EVOLUTION SECURITIES

The slate of films for the next 15 months should continue to draw in the crowds and the con-tinuing shift to the digital platform should result in further market share gains. We are increasing ourtarget price to 245p from 235p to reflect the upgrade.

KEITH BOWMAN |HARGREAVES LANSDOWN

The groups investment in tech-nology, conservative expansion andexposure to an improving advertisingmarket provide potential earningsgrowth ... market consensus opinioncurrently denotes a strong buy.

The Carlyle GroupThe private equity group has appointedBenjamin Du Boulay as a director inLondon, reporting to Robert Hodgesand Mark Harris, managing directorand director respectively of the UK realestate team.

Du Boulay joins from Invista RealEstate, where he was a director andhead of the central London offices.

In his new role, he will work acrossCarlyles UK portfolio, but will hold spe-

cific responsibility for the White Towerportfolio of six London properties, whichthe firm acquired for 671m in July.

HSBCAnthony Hingley and Hicham Najemhave been appointed as directors of theLondon-based investment advisorygroup at HSBCs private banking arm.

Hingley was previously an invest-ment adviser at HSBC Private Bank inDoha, Qatar, having joined in 1999.

Najem joins from Tactical GlobalManagement and has also previouslyworked at Brevan Howard.

FiveTenThe recruitment group has hired AidanAnglin as the new chief executive of itsEuropean and Middle Eastern opera-tions, effective from 1 November.

Anglin moves over from Adecco,where he was managing director of thegroups technology brands.

CITY MOVES | WHOS SWITCHING JOBS Edited by Victoria Bates

Lloyds Banking GroupLloyds TSB Corporate Markets has hired threenew senior members to its global financial insti-tutions team. Adam Daniels, pictured, joins ashead of specialist finance and intermediariesfrom Ernst & Young, where he was an M&Apartner. Mandeep Ahluwalia moves over fromStandard Bank to become managing director ofrelationships for the global banks team. RichardHerder joins the US team from Deutsche Bankas head of insurance for North America.

+44 (0)20 7557 7245morganmckinley.comTo appear in CITYMOVESplease email your careerupdates and pictures to [email protected] SPECIALISTS IN GLOBAL PROFESSIONAL RECRUITMENT

in association with

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CAIRN Energy stopped drilling inGreenland before completing an oil well after Greenpeace protestersdelayed work, potentially incurringmillions of pounds in extra costs andhitting the explorers shares.

The Edinburgh-based group yester-day said the Alpha-1S1 well in BaffinBay did not reach the depth it was aim-ing for before it was forced to haltdrilling by the ending of the narrowArctic drilling season.

Activists from environmental groupGreenpeace had in August boardedthe Stena Don rig which was drillingthe well and halted work in the hopeof stopping Cairn from reaching itsobjective before the end of the season.

Shares in Cairn plunged 8.9 per cent

to 382.5p in early trading, hitting theirlowest level since the end of May andmaking the company the biggest faller

in the benchmark FTSE 100 index.Cairns exploration campaign was

the first drilling in a decade inGreenland, which energy consultancy Wood Mackenzie said could havereserves of 20bn barrels.

Oil majors including Exxon MobilCorp, Chevron Corp and Husky Energyare queuing up to drill in the Arcticterritory but, invigorated by the BP oilspill, environmentalists have vowed tofrustrate them.

Cairn halts itsArctic drillingBYHARRY BANKS

ENERGY

GREECES effort to cut deficits mustrely on curbing spending, tax evasionand waste as there is no more roomfor higher taxes, the countrys central bank said in an interim monetarypolicy report yesterday.

There is no more room to raise taxrates on businesses and individuals

and the spearhead of policy to boostrevenues must aim for a widening of

the tax base and capturing tax eva-sion, the central banks report said.

Greece is aiming to cut its budgetshortfall to 7.8 per cent of grossdomestic product (GDP) this yearfrom 13.8 per cent in 2009, a deficitthat is expected to be revised upwardsby the EUs statistics body Eurostat.

The overborrowed country mustmeet ambitious fiscal adjustment tar-

gets to keep receiving emergencyfunding under a 110bn IMF package.

Greece will have to cut spendingas tax rates peak, says central bank

WORLD ECONOMY

GOOGLE is building stronger con-trols to safeguard privacy, a seniorexecutive said yesterday after thesearch engine giants admission toinadvertently gathering emails andpasswords across the globe.

Peter Fleischer, Googles global pri-vacy counsel, told reporters at a con-ference on Internet security he waspuzzled that users had made scant

use of privacy controls made avail-able on the site months ago, andGoogle would try to improve them.

We are building stronger con-trols, Fleischer said, adding thatdevelopers were seeking to constructa privacy design document to barany abuses of user information.

Google said in a blog published onits website on Friday that its StreetView cars around the world had acci-dentally collected more personal datathan previously thought, opening the

door to new potential probes.The breach had been discovered byregulators in Germany, and Canadasprivacy watchdog has also chargedGoogle with violating the rights ofthousands of Canadians.

In Britain, the InformationCommissioners Office ICO pledgedto reinvestigate how much data hadbeen collected.

Six months ago the ICO was grant-ed new powers. It can impose fines ofup to 500,000 for privacy breaches.

Google set to build strongercontrols to safeguard privacyBYHARRY BANKS

TECHNOLOGY


Chief executive Sir Bill Gammell saw Cairn Energy shares slide yesterday Picture: GETTY

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ANALYSIS l Cairn

382.5026 Oct

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NOW FLY TOEVEN MOREPLACES FROMTHE HEARTOF THE CITYAs the reception sponsor of the

first City AM awards, British Airways

are proud to be spending an evening

with the Citys other high flyers.

News 25CITYA.M. 27 OCTOBER 2010

CAR giant Ford yesterday posted ahigher-than-expected quarterly profitand pulled forward by a year a debt-reduction forecast seen as key toreturning the automaker to an invest-ment-grade credit rating.

Ford, which expects to be solidlyprofitable this year, said it repaid$2bn (1.26bn) of debt in the thirdquarter, expects to pay down a debt toa union retiree healthcare trust fund

on Friday, and has launched a con- vertible note offering to reduce itsdebt.

The automaker said it now expectscash on hand in its automotive busi-ness to at least match its debt by theend of 2010 a year ahead of a fore-cast it gave in July.

Ford chief Alan Mulally said thatnew cars and aggressive cost-cuttinghad helped to boost profits. Ford,which posted losses totalling $30bnfrom 2006 through 2008, borrowed

$23.5bn in late 2006 to support itsturnaround, leaving it with muchheavier debt loads than rivals GeneralMotors and Chrysler.

Dearborn, Michigan-based Ford lasthad an investment-grade credit ratingin May 2005. It has not been cash flowpositive in its automotive businesssince the second quarter of 2008.

Third-quarter net profit rose to$1.7bn, or 43 cents per share, from$997m, or 29 cents per share, a yearearlier. Excluding the Volvo unit itsold in August, revenue rose $1.7bn to

$29bn. Ford reported earnings of 48cents per share excluding one-timeitems. Analysts on average expected38 cents a share.

Ford motorsto a recoveryas profit rises CIT GROUP, the US commerciallender that last year emerged frombankruptcy, reported a forecast-beat-ing quarterly profit yesterday, and

revised upwards its profit for thefirst half of the year after an account-ing review.

The bailed-out US lender said netincome for the third quarter was$131.5m (83m), taking the totalincome for the nine months to theend of September to 418.3m.

New York-based CIT lost $1.07bn inthe run-up to the bankruptcy andfinancial restructuring in the com-parable year-earlier period.

The company said its latest third-quarter results reflect increased business activity as funded volumeexceeded $1bn.

Our balance sheet remains strong

and capital ratios rose, as we paiddown high-cost debt, further opti-mised our portfolio and improvedour funding flexibility, said chiefexecutive John Thain, who has soldoff many of the firms non-coreassets and cut jobs since joining inJanuary 2009.

CIT filed one of the largest bank-ruptcies in US history in November2009, causing the government tolose $2.3bn of federal cash used tobail out the firm in December 2008.

CIT Groupsbounce-backaccelerates

BYHARRY BANKS

AUTOMOTIVE

BANKING

After its fifth consecutive quaterly profit,Ford now aims to achieve zero net debt byDecember. Third quarter net profit rose to $1.7bn from$997m a year earlier a rise of 68 per cent.

FAST FACTS | FORD

BEST OF THE BROKERS

ANALYSIS l Tullow oil

1,320

1,280

1,240

1,200

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p 1,210.0026 Oct

TULLOW OILBNP Paribas has cut its valuation of the oilgroup by 10 per cent to a fair value targetprice of 11.65, and rates the stock neu-tral. The broker says disappointing drillingresults in Ghana and continuing uncertain-ty over its Ugandan operations leaves the

company depending on future drilling suc-cess. It adds that Premier Oil is a better betin the sector, with further potential in itsNorth Sea portfolio.

ANALYSIS l AstraZeneca

3,400

3,350

3,300

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p 3263.0026 Oct

ASTRAZENECAEvolution Securities rates the pharmaceuti-cal firm a sell, with a target price of28.05. Evo expects AZ to maintain itsearnings at between $6.35 and $6.55 ashare in its third quarter results onThursday, as the company gets closer toseeing several patents expire in the US. Onthe other hand, the broker says there ispotential for seasonal flu vaccine sales toincrease.

ANALYSIS l Daily mail & General trust

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p 525.5026 Oct

DAILY MAIL & GENERAL TRUSTNumis rates the media group a buy with

a target price of 707p. The broker believesthe media sector has made more opera-tional progress than is reflected in shareprices, and adds that DMGT can achieve2011 earnings per share of 58p, rising to80p by 2013. It adds that the firm has sev-eral growing businesses, though its region-al portfolio is unlikely to regain its historicmargins.

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

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A vintage performer relives a yearwhen he made 7m in just one dayGreg Dyke explainsthat the BBC has cutitself a good deal butthe licence fee cantsurvive much longer

AS THE wine is poured, Greg Dyke

winces slightly: just a little forme. Thats nothing to do with thewine, which is one of the worlds

best a 1991 Penfolds Grange but Dyke, whose stint as Director-General of theBBC ended in controversy in 2004 whenhe resigned on the publication of the

Hutton Report, is now chair of the BritishFilm Institute (BFI) and, caught in thewhirl of the London Film Festival, he isout for premieres and drinks every night.

Still, that doesnt dent his enthusiasm:The film I saw last night, The KingsSpeech, was wonderful, an absolute sen-sation. At 63, Dyke still gives off a irre-pressible and infectious energy, and as hecheerfully approves the abolition of theFilm Council I dont mourn their pass-ing they never funded the BFI properly and reaches for his glass, the note ofcaution is swiftly set aside.

We are tasti

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