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EU finance ministersset to meet today foremergency talks

Greece revises deficitup for a third time as itbreaches bailout terms

Portuguese financeminister warns crisiswill spread across Europe

EUROZONE DUO URGEIRELAND TO SEEK AID

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Portuguese finance minister Fernando Teixeira dos Santos said there was a high risk his country would need aid Pictures:GETTY

IRELAND was under mounting pres-sure last night to accept a Europeanor International Monetary Fund (IMF)

bailout as both Portugal and Spain warned contagion from its crippledbanking sector could spread.

Portuguese finance ministerFernando Teixeira dos Santos said hiscountry faced the real danger ofrequiring a bailout from Brusselsafter Ireland confirmed it had begunpreliminary talks over its debt prob-lems.

There is a risk of contagion. Therisk is high because we are not facingonly a national problem. It is theproblems of Greece, Portugal andIreland. This has to do with theEurozone and the stability of theEurozone, and that is why contagionin this framework is more likely.

His comments sent the euro loweragainst the dollar, with German chan-cellor Angela Merkel raising the spec-tre of the euro collapsing as she

warned: If the euro fails, thenEurope fails.

Meanwhile, Bank of Spain gover-nor, Miguel ngel FernndezOrdez, a member of the EuropeanCentral Bank, added to mountingpressure on Ireland to accept helptelling a banking conference in

Madrid that he expected an appro-priate reaction by Ireland to calmmarkets.

Ordez said: The situation in the

BY MATTHEW WESTWORLD ECONOMY

www.cityam.comIssue 1,264 Tuesday 16 November 2010 FREEBUSINESS WITH PERSONALITY

markets has been negative due insome part to the lack of a decision byIreland. Its not up to me to make adecision on Ireland, its Ireland thatshould take the decision at the rightmoment.

Both men were speaking ahead of ameeting of finance ministers, sched-

uled for today in Brussels to discussthe growing economic crisis. Yesterday, Irish ministers contin-

ued to insist publicly that they did

not require a European bailout tohelp meet the cost of repaying thecountrys debts. Irelands Europeminister said such rumours werevery, very dangerous. But he admit-ted: There is continuous talk going

backwards and forwards about thelevel of our debt but the suggestion

that constitutes going to the IMF or abailout is just irresponsible. And Irish minister for enterprise,

trade and innovation Batt OKeeffe,

insisted the government had not dis-cussed a bailout with the EU and hadfunding until mid-2011.

But Michael Noonan, financespokesman of Irelands oppositionFine Gael party, piled on further pres-sure by suggesting the rumours thatthe government had already sought

European help were true saying: Ithink there is a European interven-tion underway.

The Republic was also hindered by

the revelation that Irelands banksreceived an additional 20bn (17bn)in emergency liquidity funding fromthe Irish central bank between 27

August and 29 October. At the sametime Irish banks have seen supportfrom the European Central Bank

jump to 90bn.Portugal, Spain, Greece and Italy

have all seen the spreads on their bond yields widen over the lastmonth on the back of continuinguncertainty about Irelands financialstability. But the reports that Ireland

was holding bailout talks with the EUhelped ease pressure on Irish borrow-ing costs yesterday, with the yield on

benchmark 10-year Irish bonds easingto 8.1 per cent from a peak of overnine per cent last week. The premiumthat investors demand to hold Irish10-year bonds over benchmarkGerman bunds also fell to 545 basispoints, down from a record 652 basispoints last Thursday.

The news came as the EUs statis-tics agency Eurostat revised Greeces2009 deficit up for a third time, to15.4 per cent of GDP compared with aprevious 13.6 per cent estimate.

Greek Prime Minister GeorgePapandreou said the country wouldstick to its deficit reduction pro-gramme but also warned Germanysinsistence on a future mechanism for

banks and bond markets to share the

pain of any Eurozone sovereign debtdefault from 2013 could break someEU economies.

SOVEREIGN DEBT CRISIS: P18-P19

CITY SPEECH:

CAMERON P7

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News2 CITYA.M. 16 NOVEMBER 2010

Virgin chasesUS train dealVIRGIN Group has joined the race to build and run the first high-speedrailway line in the US.

The transport operator, owned bySir Richard Branson, has joined oneof eight consortia bidding to operatethe 168mph rail-link, set to open forbids early next year with a comple-tion date slated for 2015.

Virgins partners include Alstomand Vinci of France as well as SpainsObrascn Huarte Lain. NationalExpress is also bidding for the con-tract as part of a team that includesCanadas Bombardier and Kiewit ofthe US.

The $2.6bn (1.6bn) route will run between Tampa and Orlando inFlorida which Virgin already servesthough with Virgin Atlantic, its long-

haul airline.The first phase of the route from

Tampa to Orlando InternationalAirport is 84 miles long, with a stopat Disney World.

The second stage of the link, a 240-mile line from Orlando to Miami, hasnot received stimulus funding but$8m is being invested in a feasibilitystudy. Florida has secured $2bn of the$2.6bn budget from the govern-ments stimulus fund. The comple-tion of the project would see USPresident Barack Obama also fulfillone of his transport priorities.

BYMATTHEWWEST

TRANSPORT

EU not City dictates capitals future

THERE is something magical about theLord Mayors annual banquet at theGuildhall. One is surrounded by pompand pageantry; all the guests aredecked out in white tie and tails, anddozen upon dozen of Britains top busi-ness executives make the time to listento the Prime Minister, the Lord Mayor,the Lord Chancellor and all the others.So it made sense, I suppose, for DavidCameron to use his first speech to thisaugust gathering to try and mendfences with the City and talk upBritains economy and place in theworld.

Yet it didnt quite work. Everybodyknows the UK retains a large economyand that Londons financial servicesindustry remains huge. But anybodycould have said that at any time dur-

ing the past decade. Stating the obvi-ous isnt clever. The real point is thatpower is seeping away from the UK.For hundreds of years, the buckstopped with the people in the roomlast night, London-based merchantsand politicians; increasingly, however,it is moving to European Union institu-tions and others who dont have theUKs best interests at heart. Take thelooming Irish bailout. Under theEuropean Financial StabilisationMechanism, Britain must stamp up for13.6 per cent of any monies channelledto Ireland. This could cost UK taxpayers8bn more if Portugal and Greecealso require funds. Or take the rowover bonuses: the real power now liesin the hands of the Committee ofEuropean Banking Supervisors, notthe FSA or even the government. Thenew EU rules will be published next

month and come into effect on 1January 2011. The new sheriffs in towninclude the European Banking Authority (London-based but aEuropean body on which the UK will

only have a tiny voice); the EuropeanSecurities and Markets Authority inParis; and the Occupational Pensions Authority in Frankfurt. Perhaps infuture years, they too will be given star-ring roles at Guildhall banquets (mykind of nightmare). Private equity andhedge funds are now regulated fromBrussels. We are also facing a review ofthe market in financial instrumentsdirective. With the EU in charge, thepeople around me in the Guildhall lastnight have been downgraded to therole of lobbyists. Some claim that theEU must take control because Britainfailed. It is true UK monetary, regulato-ry and fiscal policies were a disgrace;the Labour government paid the pricefor its incompetence. But that doesnt justify handing power to unaccount-able bureaucracies. European coun-tries and Brussels itself failed even

more miserably on every count. Thesingle currency was one of the driversof boom and bust; continental bankswere destroyed in far greater numbersthan UK institutions; European gov-

ernments borrowed even more reck-lessly than Northern Rock. The realanswer is to decentralise power, andmake governing structures as localand accountable as possible. Somecoordination is necessary, of course.But competition and experimentationwork for companies; they should also be made to work for nations. If any-thing, London itself should gain morepowers, just as City-states such asSingapore and Hong Kong governthemselves. We need a new localism infinancial and economic regulation,just as we need it everywhere else, toallow fresh solutions to emerge. Top-down pan-European policies will onlykill off our prosperity. Until we relearnthis truth, the tragedy is that gather-ings such as last nights will progres-sively be robbed of their meaning.

[email protected]

THE Beatles are expected to maketheir music available for the firsttime on Apples iTunes online musicstore, the company is expected toannounce today, suggesting its dis-putes with the band are finally at anend.

The copyrights to the Beatles earli-est recordings start expiring from theend of 2012, 50 years after their firstsingle Love Me Do was released.

Apple Corps, the Beatles recordlabel, waged a trademark battle withthe computer maker arguing it hadagreed in 1991 not to use the Applebrand in connection with music con-tent.

Expectations of a music-relatedannouncement from Apples digitalstore were raised yesterday by a teas-ing notice on its website homepage,which read: Tomorrow is just anoth-er day that youll never forget. Checkback here tomorrow for an excitingannouncement from iTunes.

BYMATTHEWWEST

MEDIA

iTunes puts Beatles onlineAfter a long-running dispute the Beatles will now be available on iTunes

NEWS | IN BRIEF

2bn rescue for Dubai HoldingThe Dubai government has taken controlof the financial restructure of DubaiHolding, putting $2bn (1.2bn) into thetroubled conglomerate. Last weekthe government announced DubaiGroup, a unit of conglomerate DubaiHolding, had set up a committee of

banks to discuss its debt commitments.Those discussions have led to the com-mittee leading a restructuring deal ofabout $12bn in debts at the group ofcompanies owned by SheikhMohammed bin Rashid al-Maktoum,Dubais ruler. The same committee over-saw the $25bn shake up of governmentowned Dubai World.

Glazers to repay Man Utd loansThe Glazer family is believed to bepreparing to pay off around 220m inhigh-interest payment-in-kind loansborrowed to fund the purchase ofManchester United. In a letter to theholders of the loans, Joel Glazer isthought to have committed to pay offthe loans on 22 November. It is unclearhow the Glazers have raised the funds topay off the loans but club funds will notbe used.

EDITORS LETTER

ALLISTER HEATH

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EditorialEditor Allister HeathDeputy Editor David HellierNews Editor Ben GriffithsNight Editor Katie HopeAssociate Editor David CrowBusiness Features Editor Marc SidwellLifestyle Editor Zoe StrimpelPictures Alex Ridley

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Editorial StatementThis newspaper adheres to the system of

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Sir Richard Bransonoperates long haulflights to Orlando andis planning commericalspace flights soon.

INVESTORS SCEPTICAL OF UNILEVERGROWTH PLANFor a company whose products clut-ter the shelves of virtually every homein the UK not to mention plenty inBrazil, Indonesia and China Unilevers shares are not in demand.The maker of Dove soap, Persil deter-gent and PG Tips tea managed to con-found analyst expectations thismonth by expanding rather than con-tracting operating margins in thethird quarter but that appears tohave made little difference.

LOW YIELDS LURE BLUE CHIPS TO USCORPORATE BOND MARKET

Companies from UPS to TimeWarner Cable have rushed to lock inthe low interest rates still available inthe US bond markets, using themoney to plug pension fund gaps,

buy back shares or build up rainy-daycash piles. The amount of money bor-

rowed in the corporate bond marketsso far this month has been greater

than during any previous November,according to data provider Dealogic.Blue-chip companies with investmentgrade ratings sold more than $41bnof new bonds in the past two weeks,Dealogic said.

CLUB ASPIRES TO GIVE WOMEN 30PER CENT VOTEThe gentlemens club is usually citedas the epitome of dyed-in-the-woolconservative values. But the chair-men of The 30 per cent Club aim toshake up male-dominated board-rooms rather than entrench them.The initiative sets out an aspirationthat at least 30 per cent of each UKcompany board should be women by2015. Seven UK-based chairmen arefounder members of the club. Itslaunch comes as Lord Davies ofAbersoch, former trade minister andex-chairman of Standard Chartered,

the bank, completes his governmentconsultation on the topic.

UNION FEARS JOB CUTS AS E.ONDISCUSSES SALE OF CENTRALNETWORKSUp to 1,000 jobs could be at risk ifE.ON presses ahead with the 3.5 bil-lion sale of its Central Networks elec-tricity distribution business, Britainslargest union warned yesterday.The claim from Unite came one weekafter E.ON, the German companythat is the worlds largest utility byrevenues, confirmed that it was con-sidering a range of strategic optionsfor the unit.

BERNANKE QE2 PLAN SHOULD BERECONSIDERED AND DISCONTINUEDA group of 23 economists and financeexecutives plan to run an open letterin full-page advertisements in the Wall Street Journal and New York Times this week, calling for Ben

Bernanke to rethink his plan to buyhuge amounts of Treasury bonds.

PENSIONS DECIMATED BYLOW INTEREST RATES, WARNS SAGARecord low interest rates and risinginflation are damaging pensions andwill push more pensioners into pover-ty, a leading expert has warned.Speaking at the Bank of Englandtoday, Ros Altmann, director-generalof the Saga Group, warned that histor-ically low interest rates could lead toanother financial crash that wouldleave pension pots decimated.

SURPRISE RISE IN JAPAN'S GDP WILLNOT LAST LONGJapan announced higher than expect-ed economic growth, but economists warned that the nascent recoverywould be short lived. GDP grew 0.9 percent in the third quarter, up from 0.4per cet in the second quarter.Consensus forecasts had been for a 0.6

per cent rise. But many economistsexpect growth to stall.

BERKSHIRE DISCLOSES STAKE INBANK OF NEW YORKWarren Buffetts Berkshire Hathawaytook a $52m stake in Bank of New York Mellon in the third quarter,while reducing or eliminating posi-tions in other stocks, a regulatory fil-ing showed. Berkshire appeared tohave sold all shares it held of HomeDepot, CarMax, Iron Mountain, NRGEnergy, and Republic Services.

EUROZONE SWINGS TO TRADESURPLUS The Eurozones balance in trade ingoods with the rest of the worldswung into surplus in Septemberdata from the European Union's sta-tistics agency showed Monday. The 16countries that use the euro had acombined surplus in their trade ingoods of 2.9bn ($3.97 billion), com-

pared with a deficit of 5bn inAugust and a 1.4bn surplus last year.

WHAT THE OTHER PAPERS SAY THIS MORNING

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CITY law firm Norton Rose has takenover two rival firms, in a move thatadds more than 650 lawyers to itspayroll and takes annual turnoverabove $1bn (622m) for the firsttime.

Canadian firm Ogilvy Renaultand Deneys Reitz, which is based inSouth Africa, will adopt the NortonRose name from 1 June 2011, tak-ing the total number of lawyers inthe group to 2,500, with 750 part-ners across 38 offices on five conti-nents.

There will be no immediate stafftransfers, but the firm expects largenumbers of staff to move betweenoffices in the long term, echoingNorton Roses merger with Australia- based Deacons at the start of theyear. Partners at both firms approvedthe deal in June.

The managing partner of OgilvyRenault, John Coleman, and thedeputy chairman of Deneys Reitz,Rob Otty, will join the groups execu-tive committee.

Norton Rose chief executive PeterMartyr said: Canada and South

Africa are increasingly influentialeconomies for our clients in theenergy and natural resources, infra-structure, technology and financialinstitutions sectors.

Ogilvy Renault and Deneys Reitzgive the group increased strengthand depth of resource and expertisein these sectors, he added.

Several London law firms have apresence in Africa, includingEversheds and DLA Piper, though thedeal is thought to be the first fullmerger between a UK and a SouthAfrican firm.

Deneys Reitz is one of the largestcommercial law firms in the coun-try, with a particular focus on inter-national financial services.

Norton Rose announced a nine percent increase in revenue for the firsthalf of the financial year last week,with fee income rising to 155m, fol-lowing last years two per cent dropin annual revenue to 307m.

The group said strong perform-ance in the Middle East and Asia haddriven growth.

Norton Rose also announced a tie-up with Australias eighth largestlaw firm Deacons in Australia lastJune.

Norton Rose

expands asbuys up rivals

GENERAL Motors (GM) is consideringraising the size of its common stockoffering in its recently announcedinitial public offering (IPO) by 20 percent to about $12bn (7.4bn), a sourceclose to the company said yesterday.

GM initially filed to sell about$10bn in common stock and another$3bn in preferred stock.

The increase in the common stockoffering is in response to exceptionalinvestor demand, the source said,adding no final decision had yet beenmade.

The GM IPO is currently expectedto price between $32 and $33 pershare, above the initially proposed$26 to $29 per share, another sourcefamiliar with the matter said.

The price range is preliminary andhas not yet been formally set.

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a) Forget about Corfu thissummer and book Ibiza.

b) Go long of Sterling inanticipation of Euroweakness.

Euro looks vulnerableafter Greece and Italy

default on IMF Loanpayments. Do you:

GM to increase itsIPO by up to $2bn

GOOGLE called on Western nations tochallenge restrictions in China andother countries yesterday on the freeflow of information over the internetas a threat to free trade.

In a policy statement the searchengine firm said: More than 40 gov-ernments now engage in broad-scalerestriction of online information, atenfold increase from just a decadeago. These actions unnecessarilyrestrict trade, and left unchecked,they will almost certainly get worse.

With worldwide internet com-

merce projected to reach $1 trillionsoon, it is important to thousands of

US companies that China and othernations be allowed to censor orrestrict information only in excep-tional circumstances, Google said.

David Weller, a lawyer who helpedGoogle prepare the paper, said thecompany hoped to get countriesthinking about government restric-tions on the internet in economic aswell as human rights terms.

Weller added that more companiesnow relied on the ability to movedata around the world with a mini-mum of government restriction.

Google has had rocky relations with China since it announced in

January it would no longer censorsearch results.

Google calls for Western nationsto challenge Chinese censorship

BYMARION DAKERS

LEGAL

TECHNOLOGY

Norton Rose chiefexecutive PeterMartyr has cutdeals to take overrival law firms inCanada and SouthAfrica

BYMATTHEWWESTAUTOMOTIVE

News 3CITYA.M. 16 NOVEMBER 2010

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40N New York, USAVODAFONE was yesterday told it mustpay 350m in relation to its Indian taxdispute within the next three weeks.

The telecoms giant must also makea bank guarantee worth 1.2bn withineight weeks.

Vodafone is embroiled in a legal bat-tle with Indian authorities over a dis-puted capital gains tax bill relating toits 2007 purchase of Hutchison

Whampoas mobile business. A Vodafone spokesman told City

A.M.: This is part of the legal processand Vodafone will comply with theruling. As we understand it the money

will be paid back with interest if thecase goes in our favour.

He added: We are confident thereis no tax liability resulting from thistransaction and all the tax and legaladvice it has received remains consis-tent with this view.

The Supreme Court will hold itsnext hearing for the case on 24February, although Vodafone is desper-

ate to settle the matter out of court. Vodafone has placed India at thecentre of its growth plans as it pursues

fast-growing markets.It recently offloaded its 3.1bn stake

in Japanese carrier SoftBank. It alsodisposed of its 4.3bn interests inChina Mobile.

Last week Vodafone chief executive Vittorio Colao predicted its Indian business will eventually eclipse itsEuropean ventures in terms of rev-enue. He pointed to the relatively lowlevel of data penetration in the marketas a potential goldmine as smart-phones continue their shift to themainstream. This year Vodafone wasforced to take a 2.3bn impairmentcharge on the division thanks tofierce competition and rapidly esca-lating spectrum costs.

Vodafone setto pay 350min tax disputeBY STEVE DINNEEN

TELECOMS

BARCLAYS is experimenting with anew contingent convertible (CoCo) ina bid to prepare itself for newEuropean capital rules.

It has devised a new CoCo that would not only convert to equity ifthe banks capital ratio declined, butconvert back again if things improvedagain.

The debt instruments will counttowards capital buffers required ofglobal systemically important finan-cial institutions (GSifis).

High-yielding CoCos are riskierthan bonds but are in great demandas the chance of banks capital ratiosdeclining to levels that would triggerthe equity switch decline.

Barclays finance director ChrisLucas is believed to be interested in

blazing the trail, which could make it

the industry leader in the financialinstrument. A Barclays spokesman declined to

comment. However, a source close toBarclays told City A.M.: We believe wehave enough extra capital to meet thenew rules. However, given thechanges coming up with Basel we arelooking at a range of possible routes

we can follow to shore up our posi-tion. It would be a surprise to share-holders if we werent doing this.

Barclays hopes its new CoCowill prove a hit with investorsBY STEVE DINNEENBANKING


Vodafone boss Vittorio Colao has high hopes for growth in India Picture: REUTERS

1995Hutchison Essar is founded under thename Max Touch, renaming to Orange in2000.

February 2007Vodafone acquires Hutchison Essar for$11bn (7.5bn).

December 2008An Indian court dismisses a petitionagainst a $2bn tax bill relating toVodafones purchase.

February 2010

Vodafone is forced to take a 2.3bn

impairment charge on the division thanksto fierce competition and spectrum costs.

May 2010Vodafone pays 1.74bn for a section ofthe Indian mobile phone spectrum toprovide 3G services. The telecoms giantwas involved in a fierce bidding war thatpushed the price far higher than it hopedto pay three times the predictions ofsome analysts.

November 2010Vodafone solidifies India in its strategywhen it announces it will offload its stake

in Japans Softbank

TIME LINE | VODAFONE IN INDIA

175

165

155

24 Sep6 Sep16 Aug 14 Oct 3 Nov

ANALYSIS l Vodafone

p

174.0515 Nov

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DAVID Cameron defied those thatbelieve Britain is a fading power as hegave his first speech as Prime Ministerto the City at Mansion House arguinginstead that Britain remained agreat economic power.

The Prime Minister said: We havethe resources commercial, militaryand cultural to remain a major play-er.

Far from looking back, starry-eyed, on a glorious past this country

can look forward, clear-eyed, to agreat future.

Cameron told the Lord Mayors banquet Britain was still open forbusiness adding: Show me a city inthe world with stronger credentialsthan the City of London.

And he promised the governmentwould at each and every turn standup for the financial services and Cityof London. London is Europes pre-eminent financial centre, he added.With this government I am deter-

mined it will remain so.The Prime Minister said there was

no reason why the rise of new eco-nomic powers should lead to a loss ofBritish influence globally reiteratingthe fact that the UK remained thefourth largest economy in the world.

We have the relationships withthe most established powers and thefastest-growing nations that willbenefit our economy, he added.

He also said Britains militarypower would not be diminished inspite of the recent cuts to the defencebudget under the Strategic Defence

Review last month.While putting forward a generally

upbeat message about Britains posi-tion in the world, Cameron warnedthere were changes that needed to bemade to maintain this standing.

The Prime Minister warned eco-nomic weakness at home wouldtranslate into political weaknessabroad adding: The faster we can getour domestic house in order themore substantial and credible ourinternational impact is going to be.

Cameron tellsCity: UK is stilla world forceBYMATTHEWWEST

POLITICS

Focus on Mansion House Speech 7CITYA.M. 16 NOVEMBER 2010

From top left clock-wise: Xavier Rolet,London StockExchange chiefexecutive, DavidCameron and LordMayor MichaelBear and wife,Gerald Ronson, Heron chief execu-tive, Bob Wigley,Yell chairman, SirMike Rake, BTchairman, StuartPopham,TheCityUKand Ken Costa,

Lazard chairman

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MINING giant BHP Billitons shares roseyesterday following its decision to aban-don its hostile takeover of Potash Corpand begin a $4.2bn (2.6bn) share buy-back, as analysts pored over the worldslargest mining groups next move.

BHPs London-listed shares closed 1.8per cent up at 24.06, outperforming a0.4 per cent gain in the FTSE 100.

Rating agency Fitch repeated its A+rating of BHP and said the companywas no longer on its negative watch listyesterday following the collapse of the$39bn takeover.

BHP said it will book $350m costs forthe Potash Corp bid, mainly due to the$45bn financing facility it lined up.

The failed Potash Corp deal is a blowto BHPs investment banks JP Morgan,Royal Bank of Scotland and Barclays.Potash Corp was advised by Bank ofAmerica Merrill Lynch, Goldman Sachsand RBC Capital Markets.

BHP released a statement yesterdaymorning revealing details of the con-cessions it offered the Canadian gov-

ernment before it rejected its advances.The firm said it had offered to list on

the Toronto Stock Exchange to prove itscommitment, as well as offering$370m towards Canadian infrastruc-ture and to forfeit some of its taxadvantages as an offshore company.

Chief executive Marius Kloppers saidthe firm would now finish its suspend-ed $13bn share buyback plan andinvest $15bn in existing operations.

Analysts yesterday turned theirattention to other acquisition targets.For us the two most obvious potentialtargets are Woodside Petroleum and Anardarko Petroleum, while outsideof oil and gas we also feel an acquisi-tion of Freeport would have its merits,said Dominic OKane at LiberumCapital.

Analysts at Morgan Stanley namedWoodside as a plausible plan B lastweek, when oil firm Shell disposed ofsome of its stake in the firm. BHP has been linked with Woodside for adecade through joint venture proj-ects, though other observers includ-ing Macquarie Bank were doubtful ofa full-blown takeover.

BHP moves on

from Potashtakeover bidBYMARION DAKERS

M&A

BHP boss Marius Kloppers has again seen another deal slip through his fingers Picture: REUTERS

Focus on BHP Billiton 9CITYA.M. 16 NOVEMBER 2010

A $4bn buyback is small beer

when you have this much cashIT is the twelve billion dollar ques-tion: how do you spend your mas-sive cash pile when every bid youmake goes wrong? BHP Billitonblew $350m (218m) of fees on itsfailed pursuit of Potash, havingalready spent some $75m on itsaborted iron ore joint venture withRio Tinto. Once bitten but twice shy,the mining giant has now decidedto restart its $4.2bn share buybackprogramme.

Some investors will be relievedthat the miner walked away fromthe Potash deal: many were con-cerned that Marius Kloppers wouldsweeten his of fer too much, kickingearnings accretion well into thefuture. Canada and Potash hadextracted so many concessions and

guarantees on jobs, domicile, and

investment that BHP had littleroom for manoeuvre on cost cuts.

BHP has to do something withthe cash that is burning a hole in itsbalance sheet, but the $4.2bn buy-back is comparatively small beer: atthe end of June, BHP had a cash pileof $12.5bn.

Analysts expect further buybacksin the future, but we hope this isnta long-term strategy. Buying backshares or debt suggests that man-agement has lost its appetite for bigdeals which add more value in thelong run or at least that acquisi-tions have been put on the back-burner. Heres hoping its the latter.

BOTTOMLINEAnalysis by David Crow

17 AugustPotashs shares jump 26 per cent after BHPannounces a $39bn hostile takeover bid.

16 SeptemberPotash begins a poison pill shareholder rights issueto dilute BHPs share holding.

22 September

Potash launches a lawsuit in Chicago against BHP,claiming it misled investors.

24 SeptemberUS Federal Trade Commission gives the bid the greenlight.

4 OctoberReport by Conference Board of Canada supportsBHPs bid but warns against a Chinese rival offer.

10 OctoberOntario Teachers Pension Plan reported to be intalks with Temasek to spoil BHPs bid.

21 OctoberSaskatchewan provincial government opposes BHPsbid, with premier Brad Wall threatening to sue thefederal government if the deal goes through.

3 NovemberCanadian industry minister rejects the bid under theInvestment Canada Act, saying the deal offeredinsufficient benefit to the country. Tony Clementthen gives BHP 30 days to amend its of fer.

15 NovemberBHP officially withdraws the bid after further talkswith the Canadian government, and revives its sharebuyback.

TIME LINE | BHP BILLITONS THREE-MONTH LOSING BATTLE TO BUY POTASH

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UK banks have denied they areinvolved in a coordinated effort toslash bankers bonuses by almosthalf.

Banks are under pressure to trimmore than 3bn from the estimated7bn bonus pot, which is due to beannounced in March.

However, the four main UK banksdenied rumours they are workingwith the British Bankers Association(BBA) to meet the target.

A BBA spokesman told City A.M.:Were not doing anything specificon this. Bonuses inevitably come up whenever we meet but there is notaskforce and there are no targets weare working towards.

Bankers bonuses are alreadyexpected to tumble from last years10bn to 7bn after a poor year forinvestment banking.

Royal Bank of Scotland (RBS) chair-man Philip Hampton earlier thismonth confirmed the amount it willpay will almost certainly drop fromlast years 1.3bn.

He said: It would be strange ifmarket forces did not play a part inreducing bonuses because this has been a weaker year for investment

banking markets than last year andso, if the word bonus means any-thing, it means payouts should belower than last year.

However, a source close to thebank said the government would nothave the same influence over it aslast year, when UKFI, the bodyresponsible for the public stake inRBS, had the right to veto its bonuspot.

Banks and politicians look set toclash over the issue for the secondyear running, with many in govern-ment said to be baulking at even a4bn total bonus pot.

A Treasury spokesman said: Thegovernments objective is to extractthe maximum sustainable tax rev-enues from financial services. Payshould reward long-term, sustain-able wealth creation, not unsustain-able short-term performance.

Bankers will be determined totake home the highest possible sumafter new European proposalsthreaten to give them an initial losson deferred bonuses.

Thanks to new deferred paymentrules, bankers receiving a bonus ofmore than 1m will get less than200,000 up front but could faceimmediate taxes totalling aroundthe same amount.

Banks deny

BBA talks tocut bonuses

BBC Worldwide is selling its 50 percent interest in Animal Planet to itspartner Discovery Channel for$156m.

The agreement, which also sees Worldwide exit Liv, will allow theBBCs commercial arm to concentrateon wholly owned channel brandsincluding BBC America, BBC

Entertainment, BBC Knowledge, BBCLifestyle, BBC HD and CBeebies. The deal, which comes almost a

year after the BBC Trust recommend-ed that the corporation should sell itsinterests in non-BBC branded interna-tional channels, brings to an end a 13-year partnership

John Smith, chief executive of BBCWorldwide, said the sale of the 50 percent interest in Animal Planet and Liv will enable us to bring increased

focus to these fast-growing channelsand to progress a number of otherstrategic priorities.

Animal Planet was launched as a joint venture between BBC Worldwide and Discovery on 1October 1996 . Worldwide sold its 20per cent interest in the channel in2006, but maintained shareholdingsin Europe (excluding the UK), Asia,Australia & New Zealand, the MiddleEast, Africa and Canada.

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BY STEVE DINNEEN

BANKING

The sale of Animal Planet will allow the BBC to focus on its wholly owned channels

BYKATIE HOPEMEDIA


ITS impossible to have a rationaldebate on bankers bonuses, especiallysince politicians became involved.Yesterdays suggestion that UK banks,under the stewardship of the industrytrade body, were planning to capbonuses to placate public ire wasquickly denied. Several industrysources think the story originated inWhitehall.

What the coalition likely wanted todo was to take credit for bonuses that

would already be lower than last

years. This year hasnt been as strongfor investment banks, meaning bonuspots will be naturally smaller.

And new European rules, coupledwith regulations from the FSA, forcebankers to take big chunks of per-formance-related awards in deferredshares, will see the cash componentfall dramatically. The coalition willclaim responsibility, arguing it has suc-ceeded where Labour failed by con-vincing the banks to put their ownhouses in order.

George Osborne is also likely tocome under fire when he unveils plansfor a bank levy, which will be set at amuch lower rate than previouslythought (although it will still raise2.5bn). He is hoping that by takingcredit for lower bonuses, he candefuse Labours attacks on the levy.

By David Crow

BANKERS BONUSES

POLITICAL

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BANK of Tokyo-Mitsubishi UFJ saidyesterday it had agreed to buy a proj-ect finance loan book owned by RoyalBank of Scotland (RBS) for 3.8bn.

Earlier this month City A.M. report-ed RBS had entered into talks withthe subsidiary of Japans MitsubishiUFJ (MUFG) Financial Group over thepossible sale of the book whichincludes loans for the M25 motorwayand a gas pipeline between Russiaand Germany.

The sale is intended to boost the 84per cent taxpayer owned banks bal-ance sheet while also meetingEuropean Union demands to sellassets.

The proposal would include atransfer of employees, MUFG said,adding the deal is expected to befinalised by the end of the year, sub-

ject to regulatory approval.If completed, the deal would be oneof the biggest acquisitions for MUFG

since it paid $9bn for a 21 per centstake in US bank Morgan Stanley atthe height of the financial crisis.

RBS, led by chief executive StephenHester, has been shedding non-coreassets over the past year including thesale of 300 branches to Santanderduring the summer.

Besides a loan RBS extended last year for the widening of LondonsM25 orbital motorway, the portfolioincludes financing for a pipeline that will ship 55bn cubic metres ofRussian gas to Germany and theEuropean Union in 2011 and 2012.

Just last week RBS announced pre-tax losses of 1.38bn for the threemonths to the end of September say-ing market conditions remained chal-lenging.

Hester said the bank was makinggood progress in its recovery, but warned highly volatile accountingcharges could obscure our underly-

ing story. Since October 2008, thebank has announced 23,000 job lossesworldwide.

MUFG buysRBS projectfinance bookBYMATTHEWWEST

BANKING

AUSTRALIAN wealth manager AMPlaunched a fresh 8.15bn bid for AxaAsia Pacific Holdings yesterday in ajoint deal with French parent Axa, ayear after its original approach.

The move comes after rival bidderNational Australia Bank pulled out ofa deal to buy Axaa Asian unit after

the Australian competition regulatorblocked the deal.

The complex deal will allow Axa toexit Australia and help it to focus onits stated goal of growing in Asia,where businesses in eight countriescontributed 60 per cent of its operat-ing earnings in the f irst half of 2010.

AMP will pay A$4.15bn (25.6bn)for Axa Asia Pacifics Australian andNew Zealand business, while Axa willpay A$10.4bn for the Asian assets,

including taking over A$1.3bn indebt.

AMP and Axa offer 8.2bn in asecond bid for Axas Asian unit

BANKING

JOHN Cridland was yesterday appoint-ed to the 310,000 a year job as theCBIs new director-general, succeedingthe outgoing Richard Lambert.

The current deputy director-gener-al, Cridland becomes the CBIs 10thdirector-general but the first to beappointed to that position from with-in the organisation.

The CBI was at pains to point outthat the appointment was no shoe-in.The successful candidate fended offcompetition from 44 other candi-dates, 17 of whom were interviewed aspart of the process. One woman andfive men made it down to the final sixcandidates, the CBI said yesterday.Announcing Mr Cridlands selection,Helen Alexander, CBI President, said:With all eyes on the business com-munity to lead our countrys econom-

ic recovery, the role of CBI director-general has never been more impor-tant. Cridland, 49, was educated atBoston Grammar School and has anMA in History from Christs College,Cambridge. He joined the CBI as a pol-icy adviser in 1982 and became theCBIs youngest-ever director in 1991,when he took over the environmentalaffairs brief. He moved on to humanresources policy in 1995, and has beenDeputy Director-General since 2000.

CBI interviews 45 but thengives top job to an insiderBYDAVID HELLIER

UK ECONOMY

John Cridland will be the new CBI director-general Picture: REUTERS

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WARREN Buffetts BerkshireHathaway sold shares in indus-trial, consumer and capitalgoods companies during thethird quarter and added topositions in financial shares,according to a regulatory filingyesteday that gave a small peakinto his latest thinking.

Buffett no longer held stakesin used car retailer Carmax,home improvement retailerHome Depot or waste managerRepublic Services as of 30September, according to a quar-terly holdings report with theUS Securities and ExchangeCommission.

Berkshire did not show stakesin information manager IronMountain or power companyNRG Energy either. All five com-panies were listed in his second-quarter filing.

I think that his reduction ofpositions like Home Depot andCarmax ... suggests a little bit ofa change in a cyclical perspec-tive, said Michael Yoshikami,president of YCMNET Advisorsin Walnut Creek, California.

Yoshikami, who invests $1bnand owns Berkshire stock, said itcould indicate a more muted out-look on the economy.

Buffett, the Oracle of Omaha,is one of historys most famedstock pickers. The moves made bythe 80-year-old investor are scru-tinized in minute detail, particu-larly by adherents to his style ofvalue investing.

While Buffett largely reducedor sold holdings in consumerand capital goods companies inthe quarter, he added to his posi-tion in bank Wells Fargo andtook a new stake in Bank of NewYork Mellon.

Buffetts holdings in his fivelargest positions remained most-ly the same during the quarter,except for the increase in hisWells Fargo stake and a decreasein Procter & Gamble Co shares.

Its pretty clear to me he isbullish on the IS and being prettydefensive, and thinks financialsare an undervalued sector,Yoshikami said.

The report showed a value ofUS equity holdings of $48.56bnat 30 September, up from$46.44bn at 30 June.

Buffett buysinto financials

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KEN Clarke, the justice secre-tary, yesterday unveiled plansto slash Britains ballooninglegal aid bill by 350m.

In the future, the benefitwill be scrapped for civil casesinvolving divorce, medical neg-ligence and school admissions.

Clarke said the proposedreforms would save 350m by2014-15.

The current legal aid bill inEngland and Wales is a stagger-ing 2bn making it one of themost expensive in the world.

Legal aid for criminal cases would not be affected by thechanges, Clarke said.

It cannot be right that thetaxpayer is footing the bill forunnecessary court cases whichwould never have even reached

the courtroom door, were itnot for the fact that somebody

else was paying, he told parlia-ment.

Cases involving domestic vio-lence, forced marriage, orwhere children might be takeninto care would still attractlegal aid and bereaved fami-lies, including those of servicepersonnel, would also be eligi-ble for assistance at inquests.

However, private familycases, issues of clinical negli-gence, education, employ-ment, and welfare benefits would be excluded except inextreme cases where peopleslives, liberty or homes were atstake.

Under the new system, allthose with assets of 1,000 ormore would have to pay a min-imum of 100 towards theirlegal costs should their casesbe successful.

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Buffett, the Oracle ofOmaha, is one of his-torys most famedstock pickers.

LLOYDS of London insurerBeazley threatened to pull its bidapproach for rival HardyUnderwriting after a sweetenedoffer worth 174m was rejected.

Dublin-based Beazley said yes-terday it would walk away unlessHardy agreed to discuss itsrevised 330p per share proposal,up from an initial 300p lastmonth.

Hardy said the new proposalstill substantially undervaluesthe company, describing it as anattempt to acquire the companyopportunistically.

Beazley chief executiveAndrew Horton has indicated he will discuss the latest proposaldirectly with Hardys sharehold-

ers this week. Horton has saidthe offer will be withdrawn ifshareholders do not bite at oraround the 330p level.

Lloyds of London insurershave been at the centre oftakeover speculation because anunpromising trading environ-ment has weighed on their shareprices, opening up potentiallyattractive acquisition opportuni-ties. Brit Insurance last monthaccepted a $1.4bn (872m) offerfrom buyout firms ApolloManagement and CVC CapitalPartners after a four-monthtakeover battle.

Buying Hardy would diversifyBeazleys predominantly US-focused business, while giving itaccess to more lucrative catastro-phe insurance business.

BYHARRY BANKS

INSURANCE

Beazley sweetens itsoffer for rival Hardy

LORD Turner, chairman ofCity watchdog the FinancialServices Authority, and UScounterpart Mary Schapiromet yesterday to discuss co-ordinated oversight of over-the-counter derivativestrading, high-frequency-trading and other regulatoryinitiatives.Schapiro, chairman of theUS Securities and ExchangeCommission (SEC), andTurner were meeting as partof a cross-border dialogue setup in 2006. The pair restatedtheir agencies commitmentto working together toimprove regulation and theoversight of securities mar-kets, particularly over global-

ly active regulated firmswith a presence on both Wall

Street and in the City.Lord Turner said: As regu-lators, we all now face issuesthat cross borders andrequire international co-ordi-nation. It is important thatwe are able to find commonground in approaching theseissues and this continuingdialogue with the SEC formsa key part of this process.

Schapiro said the SEC andFSA were in the process ofdrafting vital new rules at atime of challenging prob-lems following the recentfinancial crisis. The FSA isseeking to reform OTC deriv-atives markets to ensuregreater transparency and cre-ate a harmonised approachglobally.

BYBEN GRIFFITHS

REGULATION

FSAs Turner meetswith US counterpart


BYHARRY BANKSINVESTMENT

Ken Clarke says the current legal aid bill is 2bn PICTURE: REUTERS

BYDAVID CROW

POLITICS

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THE great and good of the British lux-ury brands industry gathered for oneof the biggest events of the year lastnight, as its lobbying group, Walpole,held its annual awards.

In Whitehalls Banqueting Hall,under the glow of a delicately lit ceil-ing of Rubens masterpieces and nearthe site where King Charles I was exe-cuted, ten brands won gongs for theirsuccess in serving an elite top slice ofthe market. Burberry carried thenight with two awards, while other

winners included Hublot, HackettLondon and Six Senses Spas.

Walpole CEO Julia Carrick whoassured The Capitalistthat she takes a

very hands-on approach to organis-ing the event opened the ceremony,speaking without notes. Wearing asparkling, crystal-encrusted, pinkgown and fending off compliments,she oversaw proceedings as Burberryscooped two prizes and GoodwoodsLord March picked up the highesthonour: a personal award for hisachievements.

Speaking with him before theawards, The Capitalist asked whatmakes a luxury brand successful: Theauthenticity of something is prettyimportant, he said sagely. Just mak-ing it up doesnt carry weight. As for

which brands fit into which category,March was far too polite to comment.

MOUTHS TO FEEDHeres hoping the insurance brokersof Allianz Global Corporate &Specialty have been stoking up theirappetites this autumn. Fresh food spe-cialist caterer Lusso has just moved into the atrium of the insurersGracechurch Street office, stocking acaf and a brand new restaurant forthose who are just too busy to ventureoutside for their snacks. The 315,000contract makes Allianz Lussos 22ndCity firm, with others includingfinancial advisory BDO and Investec.

So what can lucky Allianz workersexpect? The Investec canteens hotroast bar on Thursdays gets specialpraise, Im told, and theyre reviewedoverall as generally pretty good.

Visitors to Investecs CEO conference,meanwhile, held this week and next,

can expect a kind of posh food courtas the caterer ships Borough marketgoodies into the lobby. As for CityChristmas parties, if youre attendingone in the next month, theres a goodchance that trays of delectable Lussocanaps will be sliding past youreager gaze: MD Paul Hurren says thefirm is catering for thousands of Cityfolk in just the next month.

LAWS-LESSFinally! Right-wing City politicos havea home again thanks to the tirelessefforts of one Alan Mak of CliffordChance. Mak reconvened the long-dormant Conservative City network-ing group City Future in Canary

Wharf last week, as exchequer secre-tary to the treasury David Gauke MPcame to address a gathering of 150

young professionals.Speaking on the 30th floor of

Clifford Chance, overlooking theshimmering facades of HSBC,Barclays and Citigroup, Gauke calledBritish financials a vital industryand said it was good to be back insidea City law firm without having tothink about filling in a time sheet.

Despite eager curiosity from hisaudience, Gauke claimed that any

budget secrets were above my paygrade but that he definitely knewmore than first secretary Danny

Alexander. Alas, it seems the Treasury is still

mourning the loss of short-lived firstsecretary David Laws.

JEDWARD RETURNSEver wondered how wacky brotherdouble act Jedward are making aquick buck these days, nearly a yearafter the last X Factor season ended?

Well, neither did we, until an invite tothe Christmas party of newly merged

best pals Orange and T-Mobile poppedinto the inbox. The guest of honour?

The indomitable tuneless twins them-selves. Whats more, in order to hon-our the new-minted merger and toprove the strapline that two is betterthan one, theyll be dyeing their

hair: one bright orange, the otherpink. The futures trite, it seems.

RUBENS AND CHARLES IWATCH LUXURY GONGS

Burberry CEO Angela Ahrendts picked up two awards for best British brand and online brand

The Capitalist14 CITYA.M. 16 NOVEMBER 2010

EDITED BY

JULIET SAMUELGOT A STORY? [email protected]

Left: Walpole CEO Julia Carrick and Martin de Heaver, above, left toright: Harrods CEO Michael Ward, Cartier UK MD Arnaud Bambergerand Goodwood Estates Lord March. Pictures: Juliet Samuel/City A.M.

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HOUSEBUILDER Persimmon warned yesterday that the housing marketremained flat throughout autumn, with a lack of available mortgagesand mounting consumer worriesstunting sales.

Persimmon, which posted a 27 percent jump in annual revenue inAugust, said it has reached sales tar-gets for the year and has homes

worth 460m reserved for 2011.However, reservations are eight percent below the same time last year,and the company said the expectedspring rush will be a crucial indicatorfor the state of the market.

The company admitted it had notexperienced a boom in autumn, a tra-ditionally busy time as potential buy-ers return from summer breaks.Mortgage availability remains amajor obstacle for customers, thefirm said in a trading update.

Persimmon added it expected tocomplete 9,400 homes this year, a fiveper cent rise on last year.

The business added its sales areexpected to rise 10 per cent this year. The firm said its core margins areexpected to double in 2010 to eightper cent. It will reduce its borrowingsto less than 80m by the end of theyear, which is 20m ahead of its pre-vious guidance.

Shares closed down 0.8 per cent upat 357p yesterday.

.com

Persimmon wary as UKhousing market strugglesBYMARION DAKERSPROPERTY


Group chief executive Mike Farley (inset) says the housing market is flat Picture: REUTERS

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Economic News 17CITYA.M. 16 NOVEMBER 2010

JAPANS economic growth acceleratedin the third quarter as expiring gov-ernment incentives gave consumptiona last-minute boost before a long-antic-ipated slowdown that analysts say isalready under way.

Indeed, many expect the economyto stall or even contract slightly in thenext two quarters as the strong yensdamage to exports becomes more evi-dent and factory output slumps afterincentives for buyers of low-emission

cars expired in September. Japans GDP grew 0.9 per cent in

July to September from the previousquarter, accelerating from a 0.4 percent rise in the second quarter andbeating a median forecast for a 0.6 percent rise, official data showed on yes-terday.

While few expect Japan to slip backinto recession, policymakers remainalert to risks to the fragile economy.

The yen was trading below its 15- year peak yesterday, but its renewedclimb toward record highs couldprompt the Bank of Japan to ease mon-etary policy further by spending more

on government bonds and other assetsto avoid a prolonged downturn.

SALES at US retailers rose more thanexpected in October to post theirlargest gain in seven months, provid-ing further evidence the economywas regaining strength after hitting asoft patch in the summer.

But yesterdays upbeat report fromthe Commerce Department was tem-pered somewhat by news that a man-ufacturing gauge in New York statefell this month to its lowest levelsince April 2009.

The sturdy retail sale report offeredhope for the holiday season and the broader economy, whose recoveryfrom the worst recession since the1930s had slowed in the summer.

Total retail sales increased 1.2 percent, boosted by purchases of motorvehicles and building materials, afteradvancing by 0.7 per cent inSeptember. The rise last month wasalmost double market expectationsfor a 0.7 per cent gain.

It was the fourth monthly increasein retail sales and was the latest in aseries of data to suggest a pick-up ineconomic growth momentum.

Although the New York FederalReserves Empire State general busi-ness conditions index fell to -11.1 inNovember from 15.7 in October, econ-omists were little worried and point-ed out that the survey was not abellwether for the rest of the US econ-omy.

Economists had expected the indexto tick down to 14 this month. Thesurveys forward-looking index of business conditions six monthsahead was more upbeat, rising to 54.6from 40 in October.

A loss of momentum in the USrecovery prompted the FederalReserve this month to launch a con-troversial $600bn (374bn) round ofbond buying, known as quantitativeeasing, to provide additional stimu-lus. Analysts said the US central bankcould shift toward a smaller stimuluspackage if economic data continuesto show underlying strength in therecovery.

A second report from theCommerce Department showed busi-ness inventories rose 0.9 per cent to$1.40 trillion, the highest level sinceMarch 2009, after increasing by arevised 0.9 per cent in August.

US retail sales

jump on solidmotor sales

THERE is no compelling case to changemonetary policy right now given theuncertainty about the degree of slackin the economy and stubborn above-target inflation, Bank of England poli-cymaker Martin Weale said.

In comments published yesterday,Weale struck a balanced tone and sug-gested he was in no rush to either raise

interest rates from their record low of0.5 per cent or expand the Banksquantitative easing to stimulate theeconomy.

At the present time a majority ofthe Committee does not see a com-pelling case either for slackening orfor tightening policy, Weale said.This does not mean of course that wecannot make up our minds... we think,at least for the time being, that theright course is to leave policy

unchanged. The central bank haskept interest rates steady for almosttwo years and pumped 200bn of newmoney into the economy by buying upbonds, but policymakers are now spliton what to do next.

Last month Adam Posen voted for a50bn expansion of QE, while AndrewSentance repeated his call for a 25basis point rise in interest rates.

The minutes of this months meet-ing are released tomorrow.

Bank of Englands Weale saysno need to change policy yet

Japans economic growthpicks up in third quarter

BYHARRY BANKS

WORLD ECONOMY

WORLD ECONOMY

BYHARRY BANKSECONOMY

MPC member Martin Weale said it was the right course to leave Bank policy unchanged

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Focus on Sovereign Debt Crisis18 CITYA.M. 16 NOVEMBER 2010

No cheap fixes for Irelands woes

NO ONE wants to pay forIreland to be bailed out. ButBritain must face, along

with its European partners,the danger that an Irish defaultpresents.

Britain is liable for 13.6 per centof the 60bn (50bn) EuropeanFinancial Stabilisation Mechanism.

An Irish bailout from the fundcould therefore cost Britain asmuch as 7bn, and perhaps anoth-er 3bn through its IMF commit-ments. That may seem arbitraryand unfair, especially for a countrysensible or fortunate enough not tohave become enmeshed in theeuros internal tensions.

Yet Britain is hardly isolatedfrom the Irish or the wider

European economy. Recall howIcelands crisis imposed real costson the UK, where British councilsalone had 1bn invested inIcelandic banks. Today, Britains

banks are heavily exposed toIreland. At the end of last year,

Bank of England figures show thatBritish banks held 107bn of Irishdebt. RBS revealed a 4.28bn expo-sure as recently as July. That is noteven to consider the impact ontrade with one of our nearestneighbours Ireland is Britainsfifth-biggest trading partner, receiv-ing 7 per cent of our exports.Irelands problems are ours too.

But the real problem here is thelack of a mechanism for failure.

Angela Merkels comment yester-day that if the euro fails, thenEurope fails, might not alwayssound so catastrophic to Britishears, but the fallout from aEuropean collapse could scarcelyfail to injure us too. Ireland is areminder that we lack a suitable

way to manage sovereign failure. We need to find an alternative tothe kind of system we have now,

rife with moral hazard, where noone is prepared to accept losses are

possible without risking cripplingeconomic contagion from thedebts that moral hazard hasalready allowed to accumulate. Asolution is proving intractable.

Euro-area finance ministers aremeeting in Brussels today, but yes-

terday, even as Portugals financeminister Teixera dos Santos urgedthem to do what is most appropri-ate together for Ireland and theeuro, the Irish government calledrumours of an EU bailout fiction.

Whatever happens next, it is atale without a happy ending, and

without heroes. Irelands politicalclass has landed the country in acalamitous economic situation, to

which Europe and the euro alsomade a substantial contribution. Inthe short term, Angela Merkelscomments helped to precipitatethe Irish bond anxieties that

brought this crisis to a head. And inthe long term, it was Irelandsmembership of the euro thatforced it to accept the low interestrates that inflated the bubble thathas now exploded. We are all left toface the consequences. There are

no easy answers here, and no cheapfixes either.

BUSINESS COMMENT

MARC SIDWELL

Tory MPsurge againstIrish bailout

BYMATTHEWWEST

POLITICS

EUROSCEPTIC Conservative MPsurged David Cameron not to usetaxpayers money to contribute to a

bailout fund for Ireland last night. The MPs spoke out ahead of a

meeting of European finance min-isters today amid speculationIreland could ask for financial help.and leave British taxpayers with a

bill of up to 7bn.Most vocal was Bill Cash, chair of

the Commons European scrutinycommittee and a well knownEurosceptic who said: Not a pennyof British taxpayers money should

HOW WOULD AN IRISH BAILOUT WORK?

Q.WHAT FINANCING OPTIONS AREAVAILABLE?A.The European Union safety net con-sists of the European FinancialStability Mechanism (EFSM), which canlend up to 60bn and the EuropeanFinancial Stability Facility (EFSF), whichis backed by 440bn worth of Eurozonegovernment guarantees.

On top of that, the InternationalMonetary Fund (IFMF) can lend addition-al money and the IMF has said it wasready to provide up to 50 per cent of whatEurope was providing.

Q.WHO WOULD LEND IRELAND MONEYFIRST?A. If Ireland asks for and is granted afinancing package, it would be fromall three sources. Money from the EFSM

would be paid out first, but EFSF cashand the IMF would also be involved,

because the EU wants to avoid a situa-tion where one country uses up all thefunds available under the EFSM. TheEFSM is available to all 27 EU members

while the EFSF will lend only to the 16countries of the Eurozone.

Q.HOW LONG WOULD IT TAKE TOEFFECT A RESCUE?

A.The mechanism has never been

used before, but EU officials esti-mate it would take between three andfive weeks from the application for assis-tance and the first disbursement ofmoney.

Q.WHAT CONDITIONSWOULD AID CARRY?A.The EU could insistDublin reneges on an agreement

with public sector unions not to cut jobsor push through further wage cuts.Brussels may also demand Ireland raisesits corporation tax rate, viewed as sacro-sanct by Dublin, from its current low

level of 12.5 per cent.

Q.HOW MUCH MONEY WOULDIRELAND NEED?A.Any bailout needs to be big enoughto bring to a close uncertainty over

whether future Irish bank loan lossescould rattle the sovereign and desta-

bilise the Eurozone. Eurozone sourcesestimate45 to 90bn depending on

whether Dublin needs money for itsbanking sector, or not.

Q.CAN IRELAND USE THE MONEY TOSUPPORT ITS BANKS?A.Yes. While the EU funds cannot beaccessed by Irish banks directly, theIrish government can borrow from theEFSM or EFSF and use the cash to sup-port its banking sector.

Q.WHY IS IRELAND NOT KEEN ON EUHELP?A.

An EU bailout would mean a bigloss of face for a country once feted

for its rags to riches transformation andproud of its struggle for independencefrom Britain.

QA&

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Focus on Sovereign Debt Crisis 19CITYA.M. 16 NOVEMBER 2010

PRIVATE VIEW

If you are unable to attend in person you can preview works at www.givinglots.co.uk

from 1-17 November. The Silent Auction closes at 4pm on Saturday 20 November

go to bail out Ireland.Cash claimed Ireland was being

bullied by European institutionsinto accepting a rescue package.

Meanwhile, Tory MP ChrisHeaton-Harris said: We have hadguarantees in the past that UK tax-payers would not bail out Greeceand other Eurozone countries.

Meanwhile, Tory MP Peter Tapsell warned the potentialknock-on effect of the Irish crisiscould pose as great a threat to the

world economy as did LehmanBrothers, AIG and Goldman Sachsin September 2008

UKIPs economics spokesman

Tim Congdon went further stillclaiming Ireland fatally compro-mised its economic and politicalindependence by joining theEurozone in 1999. The yields on itsgovernment bonds have been buf-feted around in the last few weeks

by announcements from Germanand French politicians, over whichthe Irish government has no con-trol, he said

This is not the UKs doing, andyet we will have to pick up the tab because of Browns duplicity andCamerons weakness in the face ofthe Brussels massif.

However, a Treasury spokesman

said: There has been no applica-tion to either fund and it is nothelpful to speculate.

As a member of the EuropeanUnion (EU) Britain has to con-tribute towards a 50bn communi-ty bailout fund controlled by theEuropean Commission. Britain isresponsible for 13.6 per cent of thefund in line with its contributionsto the EU. However, Britain will nothave to contribute towards a further372bn fund which Eurozonemembers are required to contributetowards the overall 637bn emer-gency fund created after the Greeksovereign debt crisis.

From left clockwise:David Cameron is fac-ing pressure not to usetaxpayers money tohelp bailout Ireland,The Irish governmenttook over Anglo Irish Bank in 2009, EUfinance ministers willmeet today in Brusselsto discuss the crisis

THE EUs statistics agency Eurostatrevised Greeces 2009 deficit upwardsfor a third time yesterday, to 15.4 per-cent of gross domestic product (GDP)compared with a previous 13.6 per centestimate.

Greeces finance ministry said itwould still manage to bring the short-fall below the e]urozones three per centof GDP ceiling in 2014, despite the revi-sion, starting with a 6-point cut this

year to 9.4 per cent of GDP.Greeces debt, however, is now seen

swelling to 144 per cent of GDP this yearfrom 126.8 per cent of GDP in 2009.Under previous estimates published lastmonth in the countrys 2011 draft budg-et, the debt figure was supposed to riseto 133 per cent of GDP this year from115 per cent of GDP in 2009.

The revised figures suggest thatGreece will find it hard to avoid a debtrestructuring, some analysts said.

Greek Prime Minister GeorgePapandreou said Germanys insistenceon a future mechanism for banks and

bond markets to share the pain of anyeuro zone sovereign debt default from

2013 could break some EU economies.This could break backs. This could

force economies towards bankruptcy,Papandreou said during a visit to Paris.Bond yield spreads of deficit-ridden

nations such as Greece, Ireland andPortugal have soared since GermanChancellor Angela Merkel last monthkicked off a debate about a debt restruc-turing mechanism for troubledEurozone nations, although EU financeministers have since said it would notapply to existing bonds.

It created a spiral of higher interestrates for countries that seemed to be ina difficult position, such as Ireland orPortugal, Papandreou said. This couldcreate a self-fulfilling prophecy.

While worries increased in the euro-zone countries, EU and IMF officialsarrived in Athens for an inspection visitof the countrys finances yesterday.

Greeces 2009 deficit isrevised up for third time

WORLD ECONOMY

Greek Prime Minister

George Papandreou isnot happy with recentremarks from hisGerman counterparts

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MAJESTIC Wine said yesterday itshalf-year profits had jumped by afifth as it said it continued to benefitfrom slashing its minimum orderfrom 12 bottles to six.

Reduced competition on HighStreet sales had a positive impactafter the First Quench group whose

brands included Threshers plungedinto administration.

Majestic made pre-tax profits of7.3m in the six months to 27September.

Overall group sales rose 10.2 percent to 117.6m.

The firm saw a strong rise indemand for its more expensive

wine priced at over 20 per bottle despite the tough consumer climate.

Chief executive Steve Lewis said:People are prepared to spend quite a

bit on a good, interesting, compellingbottle of wine.

If you spend 20 in a restaurant,youll get quite an ordinary bottle ofwine, so were seeing people buyinggood quality wine to drink at home.

Lewis said that it was a mistake tothink that everyone is in austerity,citing an enduring British love affair

with food and wine.Majestic said that, despite reducing

its minimum order in September, theaverage transaction had onlydecreased by 7.2 per cent to 122.

The group has 160 UK stores, plus aFrench business Wine and Beer

World which has two outlets inFrance, one in Calais and the other inCherbourg.

Total sales were boosted at thesestores by the introduction of a guar-antee that its wine prices were atleast 2 per bottle cheaper than in itsUK stores.

Lewis added: We have seen a sub-stantial increase in the number ofcustomers on our database who haveshopped in the past year, up 14 percent to 496,000.

FASHION giant H&M yesterdayposted a slight rise in sales at estab-

lished stores, up three per cent lastmonth from 2009s figure. The Swedish retailer said total

sales, which includes newly openedstores, were up 13 per cent inOctober.

Figures for overall sales and forstores open a year or more wereexactly in line with analysts fore-casts.

H&M, the worlds third-biggestclothing retailer by turnover, does

not release absolute sales figures,only the percentage change in localcurrencies. It does not comment onsales figures.

H&M said tuxedos for men and tail-

coats for women were the must-haveproducts for this season.The global recovery has helped the

worlds third-biggest clothing firm bysales in recent months. Septembersame store sales were up eight percent while August saw a 14 per centrise.

However, there are concerns thatconsumers will be worried by resur-gent problems with government debtin the Eurozone, while recovery in

the United States remains uncertaindespite a new quantitative easingpackage by the Federal Reserve.

H&M is also seen facing furtherpressure from rising input costs

which pushed its gross margin in thethird quarter below market expecta-tions.

Pre-tax profit in its fiscal thirdquarter June to August rose to5.74bn Swedish crowns (520m).Hennes has 76,000 employees world-

wide and buys its goods from around700 independent suppliers.

There are 2,000 Hennes stores intotal. Meanwhile, the company has ateam of 100 in-house designers.

H&M hits its revenue targetsBY JOHN DUNNERETAIL

Majestic sees

its wine salesflow fasterBY JOHN DUNNERETAIL

Consumer News20 CITYA.M. 16 NOVEMBER 2010

Majestic has benefited from customers buying more expensive wines.

NEWS | IN BRIEF

Halfords finance chief unveiledHalfords unveiled its new chief financialofficer yesterday poaching AndrewFindlay from Marks & Spencer to befinance director. He replaces Nick

Wharton, who is heading to furnishingsgroup Dunelm. Findlay, presently direc-tor of finance, tax and treasury at M&S,will start in February. Halfords reportsits half-year results tomorrow. Profit forthe half-year has been estimated at67m-69m. The company has weath-ered the downturn well but has been hitby a decline in the sale of satnavs, whichis a key seller for the retailer.

Paul to open 50 shops in capitalFrench bakery Paul will open 50 shops inLondon over the next four years, creat-ing 1,000 jobs. The chain, which sellsbread, pastries and sandwiches,revealed the plans as it appointed a newchief executive to its British arm, JamesFleming. The first of its new stores willopen within six weeks as Paul looks tobuild on its 23-strong chain before theend of 2014. The company said it wouldrecruit across the board from servicestaff to shop managers, bakers and driv-ers. Fleming joined Paul as managingdirector in April from Pizza Express. Hewill replace outgoing chief executiveDavid Belhassen. He said: I have thor-oughly enjoyed my time at Paul so farand I'm looking forward to driving theUK business through these excitingtimes.

Aston Martin hits HarrodsAston Martins latest luxury car, theCygnet, has gone on display at Harrodsin Knightsbridge. The car takes pride ofplace in the luxury retailers window,and will be on display until 11 December.The car goes into full production in 2011,with a price tag of around 30,000.The car is aimed at being a city runaround. It has a 1.33-litre engine and amanual gearbox.

CITY VIEWS: WILL RETAILERS HAVE A BETTER CHRISTMAS THIS YEAR ? Interviews by Marion Dakers

I definitely think people will be worriedabout what they spend this year and willdecide to cut back. Peopleusually get into debt topay for Christmas andworry about it inJanuary, but I thinkpeople will try andavoid that thisyear.

ALEX READ | BDB BROKERS

Ive bought most of my presents onlinealready, and I think Ive spent about thesame as last year. More people are unem-ployed this year, whichmight affect sales, but Idont imagine it willhave a huge impact.

LUKE GARRATT | DWF SOLICITORS

I think people are generally quite cautiousat the moment as the effects of the recessionreally start to trickle down and affect normalpeoples lives. I thinkChristmas this year andnext year are going to bereally difficult as morepeople lose their jobs. Imcertainly going to bespending less.

PARDEEP KALSI | INTERNATIONALPOWER

I should imagine people will be quite wor-ried this Christmas, though it clearly dependson peoples circumstances plenty of people willhave enough money tosplash out. I dont thinkI will be cutting back anawful lot. People will bea lot more aware of get-ting into debt thisyear, and mightnot use theircredit cards.

TOM OBOYLE |KAJIMA CORPORATION OF JAPAN

WHAT HAS ENABLED MAJESTIC TO BUCK THETOUGH CONSUMER TREND? Interviews by John Dunne

KEITH BOWMAN | HARGREAVES LANSDOWN

The half-year performance has been underwrittenby a management decision to reduce the minimum orderfrom twelve to six bottles, with the initiative proving popular

with both existing and new customers.

KATHARINE WYNNE | INVESTEC

Majestics move to the six-bottle minimum appearsto have added another gear to what was already a well-honed and finely tuned customer-orientated business.It has also upped its game in the online space.

DAVID STODDART | FINNCAP

We have argued that one of the attractions of roll-out stories at this point in the cycle is their ability to sourcenew property at attractive rates. The underlying perform-ance was even stronger.

380

360

340

320

24 Sep6 Sep16 Aug 14 Oct 3 Nov

ANALYSIS l Majestic Winesp 385.00

15 Nov

Total sales, whichincludes newly

opened stores, were up

13%in October.

520mpre-tax profit in

the third quarter.

76,000employees

2,000stores

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FACEBOOK is now worth a stagger-ing $41bn (25.5bn), valuing it aheadof online auction site eBay.

The valuation, based on sharestraded on SecondMarket, anexchange for privately held compa-nies, makes Facebook the thirdlargest online firm in the US.

It still trails in the wake of Google, which is worth $192.9bn, and Amazon, worth $74.4bn, but sails

past eBay, which is worth $39.4bn.Zuckerberg has repeatedly

claimed the firm could be headingfor a stock market flotation in thesecond half of 2012, which couldlight a fire under one of the biggestIPOs of the decade.

The news came as Facebook chiefexecutive Mark Zuckerbergannounced his firm will launch anemail service to rival Googles Gmail.

Zuckerberg said the new servicewill be based on the principal that

messaging should be instant, plac-ing it in direct competition withGmails conversation-led email plat-form.

However, Facebook will also betaking on the likes of MicrosoftsHotmail, and MySpace email, both ofwhich have seen a steady decline inuser numbers in recent years.

Over the weekend, AOL announceda preview of another new email serv-ice dubbed Project Phoenix a tacitacknowledgment of just how far theinternet giant has slipped as a major

player in the online world. AOLsemail audience has been dwindlingbut it still accounts for 45 per cent ofpage views on the AOL network.

Facebook eyesemail serviceas beats eBay MOTOROLA is aiming to split thecompany into two separate units asearly as January, according to co-chiefexecutive Greg Brown, who will take

the top job at its government andbusiness division.

Motorola previously said it wouldsplit in two in the first quarter creat-ing Motorola Mobility, which will sellmobile phones and television set-topboxes and Motorola Solutions, whichsells wireless technology to govern-ments and businesses.

Brown, who will head MotorolaSolutions, said he expects revenuegrowth in a range of four per cent tofive per cent in 2011 and set a long-term growth target of five per cent toeight per cent.

This is a slower growth rate thanMotorola Solutions target for growth

in a seven per cent to eight per centrange for 2010 as this years projectedrevenue of $7.7bn (4.8bn) to $7.8bn,looks unusually strong in comparisonwith very weak 2009 sales because ofeconomic weakness last year.

The company expects revenue at itsproprietary iDen network equipmentbusiness to fall to $300m in 2011 from$400m in 2010. It had previouslyexpected a decline in sales as US oper-ator Sprint Nextel Corp cuts spendingon its iDen network.

Motorola eyessplitting thefirm in January

Facebook CEO Mark Zuckerberg announces a new email service Picture: GETTY

BY STEVE DINNEEN

TECHNOLOGY

TELECOMS

The social networking site now has morethan 500m users and has set its sight on 1bn. It is the top social networking site in almostevery market. Nations where Facebook is nottop include China and Russia.

FAST FACTS | FACEBOOK

NewsCITYA.M. 16 NOVEMBER 2010 21

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LONMIN, the worlds third-biggestplatinum producer, is to resume divi-dend payments after posting a better-than-expected swing to full-year profit

yesterday as prices and output recov-ered.

Investors were heartened that theLondon-listed company met its annualsales target despite repeated process-ing problems and targeted platinumsales growth of seven per cent this f is-cal year.

Shareholders had suffered repeateddisappointments over the past several

years as a troublesome furnace keptcausing shutdowns and new mecha-nised mining failed to meet targets.

The time is now right to recom-mence dividends, said chief executiveIan Farmer.

Lonmin, which operates in SouthAfrica, recommended a payout of 15cents per share and launched a newdividend policy.

The company will pay one dividenda year, seeking to maintain the initiallevel and increase payouts throughspecial dividends.

Lonmin posted earnings per shareof 70.2 cents (43.7p) for the financial

year to the end of September com-pared with a loss of 59 cents last year.

Lonmin sold 706,000 ounces ofrefined platinum compared with guid-ance of 700,000 ounces and last yearslevel of 682,955 ounces.

It met its sales target despite beingforced to close its troublesome num-

ber one furnace again in May shortlyafter being repaired and had to sendmaterial to be processed by rivals,adding to costs.

The furnace, which was rebuilt last year, has a history of problems andshutdowns and has often forced thefirm to cut sales guidance.

Lonmin set a sales target of 750,000ounces for the current f iscal year, but

warned that costs would be a chal-lenge.

DIGGER maker Caterpillar is snap-ping up mining equipment groupBucyrus International for $7.6bn(4.7bn) to cash in on the demand forminerals in tiger economies.

Caterpillar is buying Wisconsin-based Bucyrus to create a huge globalsupplier of trucks, hydraulic shovels,

blasting drills and coal-mining equip-

ment in a deal worth $8.6bn includ-ing $1bn of Bucyrus debt. The

combined firms hope to cut costs bysome $400m, starting in 2015.

The Illinois-based company isincreasing its exposure to the miner-als sector when rapid development inemerging markets like China andIndia is spurring demand for materi-als ranging from iron ore to coal.

Caterpillar already makes a widerange of mining equipment. Earlierthis year it said it hoped to expandthe line to meet demand from min-

ing customers, who are scrambling totake advantage of rebounding prices

for copper and other minerals. The deal is the biggest in

Cater

cityam 2010-11-16

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