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Where is the optimal balance between fund manager incentivesand risk management in order to maximise investor value?Suleyman Basak, Professor of Finance

Masters in Finance (full-time and weekend formats available)Learn more about the programme at an information event where you can speak with alumni, students and admissions staff:

Wednesday 8 December 2010, 19.00 Wednesday 12 January 2011, 19.00Call +44 (0)20 7000 7514 email [email protected] or visit www.london.edu/mif/ Leading Financial Thinking

www.london.edu/mif/

Leading FinancialThinking

FTSE 100 5,770.28 +24.96 DOW 11,362.19 -19.90 NASDAQ 2,594.92 +3.46 /$ 1.57 -0.01 / 1.18 unc /$ 1.33 -0.01 Certified Distribution04/10/10 - 31/10/10 is 110,406

Carr lined

up for topCBI post

FORMER Cadbury chairman Roger Carr will be the next CBI president if itsregional council members approve himthis week, sources said yesterday.

Respected industrialist Carr is set toreplace current president Helen

Alexander, who steps down at the end ofher two-year term next June.

The CBIs regional council members, who number more than a hundred,have been consulted by email andshould give their decision tomorrow,sources said. If they are supportive ofCarr, a formal announcement will bemade on Thursday, subject to agreementat the annual meeting. Carr would then

become CBI deputy president in Januaryfor six months before becoming presi-dent. Carr, currently chairman of energygiant Centrica and a non-executive direc-tor of the Bank of England among otherroles, is respected in the City due to histenure as chief executive of Williams,

which he built to an industrial conglom-erate before de-merging a number of itscompanies. He then took board roles infirms such as Chubb and Bass.

He is the second CBI president-electnamed recently after HSBC chairmanStephen Green stepped down inSeptember to become trade minister.

BY ALISON LOCK

INDUSTRY

David Gauke said the government had been forced to act by persistent avoidance Picture: GETTY

THE government yesterdayannounced a clampdown on taxavoidance which it said would raise2bn, drawing fierce criticism from

business groups.David Gauke, the Treasury minister

in charge of taxation, announced araft of measures, including two that

will come into force with immediateeffect. He said the changes wouldraise 2bn by the end of the parlia-ment.

Businesses slammed the govern-ment for failing to give them prior

warning of the changes, insisting theknee-jerk action was at odds with itsoft-repeated aim of providing a stabletax environment.

Neal Todd, tax partner at law firmBerwin Leighton Paisner said: Whatis disappointing is that the govern-ment wants to bring these changes in

with immediate effect.If you wake up in the morning

and the law is not the same as whenyou went to bed, then its not good forbusinesses which want to plan.

In a written statement to the Houseof Commons, Gauke said the govern-ment was introducing legislation tocrack down on firms which manipu-

late intra-group loans or derivatives toreduce their corporation tax bills, aprocedure known as mismatching.

The second piece of legislation,

FIRMS UP IN ARMSAT 2BN TAX RAIDBY DAVID CROWPOLITICS

www.cityam.comIssue 1,279 Tuesday 7 December 2010 FREE

HSBC SUEDFOR $9BNMADOFF TRUSTEEFILES LAWSUIT IN

THE US P11

CARPHONE TO STOCK GOOGLEPHONE IN EXCLUSIVE DEALSMARTPHONE WARS HEAT UP P3

BUSINESS WITH PERSONALITY

which also came into effect yesterday,will clamp down on schemes wherefirms do not include taxable loans orderivative contracts in their accounts.

As a result of persistent avoid-ance the government is announcingthat the legislation will now apply...

wherever a company is a party to taxavoidance arrangements, Gaukesaid.

There are other measures in thepipeline, designed to crack down on: the use of trusts to avoid paying

income tax or national insurance on

an employees pay; the creation of foreign exchange

losses or gains in the accounts ofinvestment firms;

and the manipulation of VATrules in so-called supply splitting.

But it was the prospect of a newGeneral Anti-Avoidance Rule (GAAR)that caused the most alarm. The rule,

which was dismissed by the Labour

government as unworkable, wouldgive HMRC much more freedom todecide what constitutes tax avoidance.

Will Morris, head of the CBI tax

committee, said a GAAR would intro-duce a very unwelcome element ofuncertainty to the tax system.

Chancellor George Osborne rushedout the anti-avoidance measures as asop to his Liberal Democrat coalitionpartners, who are under siege afterreneging on a landmark pledge tooppose a hike in tuition fees.

An aide to Clegg told City A.M.: The

tax avoidance crackdown is a Lib Dempolicy through and through. It showswe are making a difference by being ingovernment.

Roger Carr, chairmanof Centrica and formerchairman of Cadbury,

has a broad range ofCity experience

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News2 CITYA.M. 7 DECEMBER 2010

Seymour inUS deal talksLONDON broker Seymour Pierce may be finalising a 40m takeover dealthat will see it merge with at leastone other US company, reports sug-gested yesterday.

Seymour Pierces executive chair-man, Keith Harris, is reportedly indiscussions with Gerova FinancialGroup, a US reinsurance firm, toengineer a reverse takeover-typetransaction with a third company,Ticonderoga Securities.

Gerova would buy Ticonderoga, aNew York-based equities trader found-ed by ex-Collins Stewart executives Joel Plasco and Shawn McLoughlin,and Seymour Pierce, then merge thetwo brokers into one with Harrisappointed chairman of the Gerovagroup, the Sky News report said.

The combined group would then be renamed Seymour Pierce, thereport said, and could be valued at upto 400m, with a NYSE listing. Plascowould become chief executive of thenew firms investment banking arm.

Harris, the former Football Leaguechairman involved in takeover dealsat clubs such as Chelsea and Aston Villa, reputedly owns about 25 percent of Seymour Pierce, leaving himeligible to make up to 10m if thisdeal goes ahead. It is not yet finalised but an announcement is expected.this week, the report said.

BYALISON LOCK

FINANCIAL SERVICES

US is about to shoot itself in the foot

IT is not just Britain and Europe thatare shooting themselves in the footwith stupid, job and wealth-destroyingpolicies. The same is true of America, where investors, entrepreneurs and business leaders face the threat of awave of new taxes. This ought to mat-ter to everybody who works in London,because the health of our economy islinked so closely to that of the US.

Despite signs that a deal betweenDemocrats and Republicans may be onthe cards, tax cuts passed a few yearsago may still be about to be reversed. The uncertainty is debilitating

investors and firms, and for good rea-son. The top rate of federal income taxwould go up from 35 per cent to 39.6per cent on New Years Day; this would-nt raise much but would hit the deci-

sion-makers who will determinewhether or not the US bounces backnext year. There would also be taxhikes lower down the income scale.

The plan is also for a one thirdincrease (from 15 per cent to 20 percent) in the top capital gains tax rate;the top federal estate tax rate wouldjump from 0 per cent to 55 per cent;and the top dividend tax would jumpfrom 15 per cent to 39.6 per cent, anincrease of 164 per cent (the tax is slat-ed to rise again to 43.4 per cent by2013).

All of this would be a disaster forinvestors and entrepreneurs (andhence job-creation): higher capitalgains taxes would slash post-taxreturns, cutting expected gains fromthe stock market, the creation of newfirms and other investments. Thiswould reduce the demand for equities

and discourage the creation of newcompanies. An increase in the tax ondividends would also depress the valueof US equities: shares are valued as thediscounted net present value of future

cash flows, namely dividends andshare buy-backs, both of which will becut post-tax. Thus expect the stockmarket to take a hit.

America faces a crippling budgetdeficit and an exploding nationaldebt; unless it acts, it too will end upfacing a sovereign debt catastrophe.Yet even if all the tax cuts were extend-ed, revenues would gradually recoverover the next couple of years to exceedtheir historical average of 18 per centof GDP. But federal expenditure is pre-dicted to jump from its historical aver-age of 20 per cent of GDP to 26 per centby the end of this decade. The govern-ment is suffering from a temporaryrevenue problem but a long-term,structural over-spending problemcaused primarily by middle-class enti-tlements. It should tackle the latter,not the former.

The Heritage Foundation has usedthe IHS Global Insight model to workout what would happen if taxes werehiked next month. GDP would grow ata much slower rate; the US economy

would be $145bn smaller than itwould otherwise be by 2018. Around693,000 fewer jobs would be created.

To this should be added the fact thatthe extreme uncertainty facing USinvestors and firms right now is pre-venting a real recovery. It is not just thepossibility of huge tax hikes. As Donald J Boudreaux of George MasonUniversity points out, the hyper-franticFed, fears about the dollar and anxietyover what Obamacare and Dodd-Frankwill actually mean are all contributingto the malaise.

Unless America finds the courage totackle its out of control entitlementsculture and increasingly bloated andwasteful government, it too will con-demn itself to a future of ever highertaxes, weaker growth and generaliseddecline. Investors have been warned.

[email protected]

US private equity firm Carlyle Groupis considering an initial public offer-ing (IPO) next year to grow its fundscapital base, sources said yesterday.

Sources said Carlyle is makingprogress towards an IPO but waitingto decide the details.

The proceeds of a share sale couldbe invested into its funds in additionto the $3.7bn (2.3bn) of its ownmoney already committed.

The company, co-founded by DavidRubenstein, said that holding moreof its own capital would bring signif-icant advantages to the firm asinvestors currently commit less.

Carlyles spokesman Chris Ullmansaid the firm had not made any deci-sions regarding if or when we mightgo public.

Sources said it is possible thatCarlyle could file the documents togo public at the end of 2011. Otherreports said the stock would beunlikely to trade before 2012.

BYALISON LOCK

PRIVATE EQUITY

Carlyle mulls IPO in 2011Carlyle Co-founder David Rubenstein is weighing up his float options Picture: PA

NEWS | IN BRIEF

Chinas Bright Foods eyeing GNCChina's Bright Food Group is close to adeal to buy US vitamin retail chain GNCHoldings for $2.5bn to $3bn, a sourcefamiliar with the situation said yester-day. The potential acquisition ofPittsburgh-based GNC, which is ownedby Ares Management and the Ontario

Teachers Pension Plan Board, could beannounced in the next few days, said thesource. GNC, which sells nutrition sup-plements, vitamins, sports drinks andother diet products through 7,100 storesworldwide, had been exploring an initialpublic offering for which it registeredpapers in September, as well as an out-right purchase.

Pension investments limitedThe ability of pension funds to invest inriskier assets, including certain shares, isset to be curtailed under plans by thePensions regulator. In a speech today,David Norgrove, chairman of the regula-tor, will detail his proposals which areaimed at preventing companies withlarge pension shortfalls taking on toomuch risk. The scheme, aimed at stoppingabuse of the industry-funded PensionProtection fund, will target weaker funds.

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 David CrowNight Editor Katie HopeBusiness Features Editor Marc SidwellLifestyle Editor Zoe StrimpelArt Director Craig GaymerPictures Alex Ridley

CommercialSales Director Jeremy SlatteryCommercial Director Harry OwenHead of Distribution Nick Owen

Editorial StatementThis newspaper adheres to the system of

self-regulation overseen by the Press ComplaintsCommission. The PCC takes complaints about theeditorial content of publications under the EditorsCode of Practice, a copy of which can be found atwww.pcc.org.uk

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

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

Keith Harris paid7.4m to take SeymourPierce private in 2003with buyout firmAlchemy Partners

EMPLOYER OPTIMISM INCREASES INBIG ECONOMIESHiring in the US and half a dozenother leading economies willincrease for the first time in morethan two years during the first quar-ter of 2011, according to a reportreleased on Monday by Manpower, aglobal recruiting firm. ManpowersEmployment Outlook Survey showsplans are stable or improving in theUS, Japan, Germany, UK, Canada,France and Italy.

ACKMAN FILING LIFTS BARNES & NOBLEShares in Barnes & Noble jumpedmore than 15 per cent on Mondayafter Bill Ackman, the activistinvestor, said he would be prepared tosupport a bid for the company byrival Borders, in which he holds a 37per cent stake. Ackmans Pershing

Square fund said it would back anoffer of $16 a share.

EDF QUITS GERMANY WITH ENBWSALE

EDF insisted its international strategywas unchanged after announcing itswithdrawal from Germany throughthe surprise sale of its politically con-troversial stake in the German utilityEnBW. The state of Baden-Wrttemberg is buying EDFs 45 percent stake for 4.7bn in cash. HenriProglio, chief executive of the Frenchstate-controlled utility, said EDF wasnot turning its back on Europesbiggest economy.

BTG PACTUAL LURES $1.8BN CAPITALINVESTMENTBTG Pactual, the independentBrazilian investment bank, hassecured a $1.8bn injection of freshcapital from a consortium of banks,led by three of the worlds biggest sov-ereign wealth funds. The investmentmarks the biggest ever sovereign wealth fund commitment in Brazil

and underlines the shift in the fundsfocus towards emerging markets.

BEGBIES WAITS AS COMPANIES LIVETO FIGHT ANOTHER DAYBegbies Traynor has warned thatfirst-half profits will fall by 16 percent because a predicted surge in cor-porate collapses triggered by therecession had failed to happen.Shares in the AIM-listed insolvencyspecialist fell 6 per cent yesterdayafter it said in a trading update thatadjusted pre-tax profits would drop to3.6 million for the six months toOctober 31.

SWISS BANK CLOSES ASSANGEACCOUNTA Swiss bank became the latest inter-national company to turn againstWikiLeaks as it froze an account inthe name of the websites founder.PostFinance closed the account because it claimed that Julian

Assange had given false informationabout where he lived.

AFRICA'S DANGOTE CEMENT PLANS$5BN UK SHARE SALEDangote Cement is said to be look at aLondon sale of global depositaryreceipts in the region of $3bn to $5bn, valuing the company at around$20bn. Goldman Sachs, JPMorganChase and Morgan Stanley are help-ing to prepare the sale, which isreportedly slated for next year.

QATAR SHARES HIT TWO-YEAR HIGHON WINNING WORLD CUP BIDQatar's stock market index surged to atwo-year high on Sunday, the firsttrading day after the Gulf state wonthe bid to host the 2022 footballWorld Cup. The Qatar Exchange indexopened up 7per cent but fell backslightly later to close up 3.6 per cent -or 292 points - at 8,477.32 points. Realestate firm Barwa was up 6.19 per

cent and Al Khalij Holdings, incement making, 6.2 per cent.

DEAL NEAR TO CUT PAYROLL TAX The White House and Republicanlawmakers were close to an agree-ment on a broad tax package thatwould extend the Bush-era rate cuts,reduce worker payroll taxes for one year and give more favorable treat-ment to new business investments.Other possible elements include atemporary reinstatement of theestate tax at 35 per cent.

BIG BANK SITTING ON A BIG PILE OFCOPPERJ.P. Morgan Chase & Co. has emergedas the mystery buyer of more than $1 billion of copper, accounting formore than 50 per cent of all themetal stored in official London ware-houses and stoking worries about animpending supply shortage. The New York bank's purchases have caused

a stir in commodities circles in recentweeks.

WHAT THE OTHER PAPERS SAY THIS MORNING

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CARPHONE Warehouse yesterday con-firmed it will exclusively stock thenew Google-phone, as revealed in CityA.M. in October (see right).

Industry sources say Google isexperimenting with its distributionmodel after releasing the previousNexus model through a deal with car-rier Vodafone in the UK.

Googles initial distribution model, which sold the handset exclusivelythrough its website, was heavily criti-

cised by users who had nowhere todirect questions. Google found its

website swamped with complaintsand was eventually forced to stock thephone in carriers stores to overcomethe problem.

Carphone Warehouse chief operat-ing officer Andrew Harrison said:Im absolutely delighted that theCarphone Warehouse is working withGoogle to offer such a strong productexclusively to our customers.

The Nexus S the first phone to

Carphone inexclusive dealwith Google THE cost of regulatory changes favour-ing exchange-traded derivatives couldcost billions in collateral, according toresearch firm TABB Group.

The firm says the trend of ongoingchanges to the law, which will promptthe transfer of many over-the-counterderivatives such as interest rate swapsonto centralised exchanges, couldincur a massive cost for the financialderivatives market.

TABB estimates that moving $42trillion (26.8 trillion) of simple inter-est rate swaps onto exchanges, forexample, would cost $240bn in collat-eral.

The drive to open up the derivativesmarket to scrutiny and regulation inthe wake of the financial crisismeans in practice [that there] is amajor push to centralised clearing,

optimal use of collateral, and mecha-nisms to promote greater pre- andpost-trade transparency, says thereports authors.

Despite the cost of moving deriva-tives onto more traditional tradingplatforms, however, the research con-cludes that the move would be most-ly for the better.

The report also says that over-the-counter and exchange-traded deriva-tives markets together have an annualturnover of $3.7 quadrillion.

Cost of laws on

derivatives to

reach billions

BY STEVE DINNEEN

TELECOMS

News 3CITYA.M. 7 DECEMBER 2010

run on the latest version of GooglesAndroid platform will feature a con-toured screen that the firm says willfit the shape of a users face, as well aslimiting glare.

It will also come with Near FieldCommunication (NFC) technology,

which allows the phone to readinformation from smart objects bytouching the handset to anythingembedded with a special microchip.

The phone, manufactured bySamsung, will be available free witha contract. The Nexus One, built byHTC, failed to make a splash when it

was released earlier this year, butGoogles Android software is nowgrowing faster than phones pow-ered by Apple or RIM.

Separately, Google yesterdaylaunched its first eBookstore in theUS, in a direct attempt to challenge

Amazon and Apples dominance ofthe e-books market. It said its storeincluded all of the current New

York Times bestseller list, andoffered 3m books for free. The storeis expected in Europe next year.

DERIVATIVES

Google chief executiveEric Schmidt unveiledthe Nexus S last month.

Picture: REUTERS

GoogleandCarphoneinmobiledeal

THE SECOND Google-branded mobilephone will hit the UK in time forChristmas through anexclusive dealwithCarphone Warehouse,CityA.M.has learned.

Its predecessor, the Nexus One, istheflagship device for the search giant,which is desperately trying to wrestmarketshare fromApples iPhone.Thedeal with Carphone representsa majorrethinkofGoogles sales strat-egy, with the Nexus One releasedexclusively in the UK throughVodafone.An industry source said: It lookslikeGoogleis experimentingwiththefuture ofitsmobilemodel in theUK.It tried releasingthrough a singlecar-rier, nowitis tryinga single retailer.Itcouldbea solution to theprob-lems itexperienced when ittriedto

SS

BYSTEVE DINNEEN

EXCLUSIVE

The Nexus S is positioned as a "pureGoogle smartphone". It has similar

specifications to the tablet Galaxy S,but runs Android 2.3 (Gingerbread).The deal with Carphone Warehouseunderlines the importance of inde-pendent distributors beyond opera-tors to Google. Despite the initialfailure of the Nexus One, Googlesintent clearly remains unchanged.However, it seems like an opportunistmove by Samsung, with only short-term gain potential, as more Android2.3 devices are expected in January.

ANALYSIS BY

BEN WOOD

CCS INSIGHT

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EU finance ministers clashed yester-day over how to tackle the Eurozonedebt crisis.

At a crunch meeting in Brussels yes-terday ministers from the 16 Eurozonecountries discussed how to reassuremarkets following the bailouts inIreland and Greece and persistentfears over Portugal and Spain.

German chancellor Angela Merkelrebuffed calls for a bigger financialsafety net, setting a collision course

with the International MonetaryFund (IMF), with its chief DominiqueStrauss-Kahn urging ministers toincrease the size of the 500bn(424bn) bailout mechanism for debt-stricken states.

The IMF said: The recovery couldstill stay the course, but this scenariocould now easily be derailed by therenewed financial market turmoil.

There is a strong case for increasingthe resources available for this safetynet and making their use more flexi-

ble, including for the purpose of providing more effective support tobanking systems.

But Merkel was adamant she willnot explore the possibility of inject-ing more cash into the EuropeanFinancial Stability Facility. She said: Isee no need at this time to increasethe fund. Only a very small percent-age of it has been used.

Some diplomats say putting moremoney on the table now might beinterpreted as a sign that the EU ispreparing for a possible bailout ofSpain, the Eurozones fourth largesteconomy, and could aggravate mar-ket tensions.

She was supported by Dutchfinance minister Jan Kees de Jager,

who said it was premature to discuss what would happen if the fund ranout of money. He said: Only onetenth of the of the total volume isnow being accessed through the pro-gram so I think it is a little bit prema-ture to already talk about what wouldhappen if there are no more fundsavailable. We have already stated that

we will stand behind the euro and wewill do everything to defend it.

CREDIT rating agency Moodys cutHungarys sovereign rating by twonotches, to just above junk grade

yesterday and said it may cut furtherif the government fails to get a gripon public finances.

Hungarys government has reject-ed austerity and aims to close its

budget deficit with hefty new taxeson banks and other businesses as well

as a diversion of private pension sav-ings into state coffers.

Moodys Investors Service analystDietmar Hornung said: The down-grade is primarily driven by theHungarian governments gradual butsignificant loss of financial strength.

The negative outlook reflects theuncertainties regarding the govern-ments financial strength, as thecountrys structural budget deficit isset to increase and external vulnera-

bilities make the country susceptibleto event risk.

Hungarian assets have been hit inthe last month as the spreading

Eurozone debt crisis has driven adecline in global appetite for risk.

While expected, the two-notchdowngrade, which puts the Moodysrating on a par with that of rivalStandard & Poors, is another signalthat markets are not happy with thegovernments unorthodox economicpolicies.

Fitch Ratings -- whose BBB ratingfor Hungary is now the highest of thethree big rating agencies -- has said it

expects to conclude a review onHungary soon.

Hungary punished by credit agenciesfor failure to embrace austerity cuts

IRELAND is braced for a crucial voteon its 2011 budget today.

Embattled Prime Minister BrianCowen is clinging to the hope that hecan pass the budget by the narrowestof margins.

His government, which is almostcertain to lose a general electionscheduled for early next year, has amajority of just three seats, with a

number of its own MPs expressingconcerns about the depth of the aus-

terity cuts.However, the pressure is less

intense now Ireland has alreadyagreed to the 85bn (72bn) EU res-cue package.

Meanwhile, US private equity bossChristopher Flowers said Irelandcould struggle to attract the neces-sary level of investment to its trou-

bled banks. He said an investor wouldneed to be pretty brave to move innow. Ireland hopes a credit enhance-

ment scheme will help to reassureinvestors.

Ireland braced for budgetvote as investors baulk

EUROZONE CRISIS

SPAIN is braced to extend its state ofemergency after a strike by air trafficcontrollers last week shut down thecountry last week.

The army took over the running ofcontrol towers until the threat of jailforced the controllers back to work.

They were protesting the proposed pri-vatisation of Spains airports as part ofa package of debt-busting measures.

Prime Minister Jose Luis RodriguezZapatero said the state of emergencycould continue depending on howthe circumstances evolve.

Ever since Ireland applied for bailout aid, the pressure has beenturned up on Spain and Portugal, withtheir borrowing costs rising steadily.

And in comments that could fuelmarket pressure on Madrid, Austrianchancellor Werner Faymann was quot-ed as saying that Spain would resist tothe last but may not be able to avoidseeking a bailout.

Portugal, widely seen as the nextEurozone domino at risk of a

bailout, has resisted announcing newmeasures on top of a tough 2011 budg-et approved last month.

Greece is also struggling to meettough deficit targets agreed as part ofits110bn (93bn) rescue and is underpressure to do more. Its central bankgovernor urged the government tostep up the pace of reform, saying

Athens should be striving to beat thefiscal goals set for it.

Spain relieson troops to

keep orderEUROZONE CRISIS

EUROZONE leaders are locked in a dis-pute about whether to issue region-

wide bonds, even as the EuropeanCentral Bank (ECB) steps up its inter-vention in the bond markets to try andstem the rise of gilt yields.

Luxembourg Prime Minister Jean-Claude Juncker and Italian financeminister Giulio Tremonti yesterdaycalled for the creation of Eurozone

bonds to shore up the irreversibilityof the euro, but the idea immediatelydrew heavy fire.

German chancellor Angela Merkel

declared that the idea would goagainst current EU treaties while

Austrian finance minister Josef Proellsaid: I am very, very critical of theeurobond idea. It cant be that each

country, which like Austria has run adisciplined economy, has to pay up. The argument follows the

announcement last week that theEurozones bailout fund will issue5bn-8bn (4.2bn-6.8bn) of euro-denominatd bonds in January. Somesee the action as a precursor to the cre-ation of a single Eurozone sovereigndebt market.

But Germany is likely to stronglyresist: its borrowing costs are currently

2.85 per cent for 10-year debt, versus4.5 per cent for Italy, while a Eurozone

bond yield would be likely to sit inbetween, increasing German costs.

Meanwhile, the ECB continued its

intervention in secondary bond mar-kets in a desperate bid to stop the riseof peripheral Eurozone debt yields.Figures released yesterday reveal thatit bought 1.97bns worth of bonds inthe week up to 3 December.

However, the intervention is a farcry from its dramatic actions in May,

when it soaked up 16.5bn of bonds inone week. Economists are doubtfulthat the Bank can achieve anythingmore than a temporary respite.

Eurobond argument ignitesBY JULIET SAMUEL

EUROZONE CRISIS

Germans say

no to beefingup euro fundBY STEVE DINNEEN

EUROZONE CRISIS

Focus on Eurozone debt crisis 5CITYA.M. 7 DECEMBER 2010

IMF chief Dominique Strauss-Kahn wants to increase the Eurozone bailout fund Picture: GETTY

EU ECONOMY

EUROZONE BONDS

Q.WHY ARE SOME LEADERSCALLING FOR EUROZONE BONDS?A.Leaders in Luxembourg and Italyhave called on the Eurozone toissue joint bonds in order to stop theeuro crisis in its tracks and signal thepolitical commitment to the singlecurrency. They see fusing theEurozones debt markets as a way to

combat the punitive bond markets.

Q.WHAT ARE THE LEGALBARRIERS TO EURO BONDS?A.Recent treaties do give theEuropean Commission power toissue joint bonds in cases of emer-gency, but there is no reference tothe creation of permanent euro-

bonds for everyday sovereign fund-ing. German chancellor AngelaMerkel has said that current EU

treaties dont allowfor single Eurozone

bonds.

Q.WHAT ARE THE POLITICALBARRIERS?A.The Netherlands, Germany andAustria are all firmly opposedto the idea. It is likely to be a politi-

cal hot potato domestically becauseit would involve more fiscally disci-plined states paying more whilemore indebted countries would payless, on top of having to pay forinternational bailouts. It would alsorequire governments to surrenderfurther powers over their budgets toEurozone governance because coun-tries with large deficits would raisethe cost of borrowing for everyoneelse.

QA&

German chancellorAngela Merkelrebuffed IMF calls toincrease the size of theEurozone bailout fund

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CANDOVER Investments will spin offits private equity management arm toa group of its directors as part of itswider plan to wind down the firm.

It will offload Candover PartnersLimited (CPL) to new entity ArleCapital Partners, an investment advi-sory firm set up by the group of itsexecutives, for a nominal sum and sell29 per cent of its investment portfolioto an entity backed by Arle and privateequity group Pantheon.

The value of the sale is expected tocome in at around 60m a heavy dis-count to the carrying value of theassets. The funds will be returned toits investors as the firm seeks to clawback losses incurred during the f inan-cial crisis.

Candover also announced long-standing chairman Gerry Grimstoneplans to step down after the sale clos-es, adding the search for a successorhas begun.

Malcolm Fallen, Candovers chiefexecutive, said: This is the last signifi-cant step in implementing our plans toreturn cash to shareholders over time.

The sale of CPL to its executiveswill create an independent, motivatedand incentivised manager focused onmaximising and realising the value inthe portfolio.

Candovers move to sell its portfolioof companies and return cash toinvestors follows a failed attempt tosell the business in August.

The firm was undone by a series ofill-judged acquisitions at the height ofthe boom. But when the market wentsour, Candover saw the net value of itsassets fall by half and was forced toallow investors a chance to cancel out-standing commitments to the fund.

The Candover Partners sale comesafter an announcement in Septemberthat it had agreed the sale of its Equity Trust unit to private equity rivalDoughty Hanson, in a deal valuing thebusiness at 297m.

It also said in October a deal to sellits Ontex nappy-making business toUS buyout firm TPG and the privateequity unit of Goldman Sachs hadgained EU regulatory approval.

The sale of the remainder ofCandovers assets could still take yearsto complete, with the firm insistingthere will be no fire-sale.

Candover to

sell CPL to itsmanagementBY STEVE DINNEEN

PRIVATE EQUITY


Investors can see clearly nowCANDOVER Investments decisionto spin off its private equity armprovides some much-needed clarityfor investors, who have longbemoaned the existing set-up.

It is not hard to see why. All pri-vate equity firms have struggled inthe post-financial crisis world, asevidenced by their notable absencefrom the M&A activity.

However, Candovers complexstructure with a listed parent thatco-invests alongside an independ-ent but wholly-owned fund manag-er, Candover Partners, over which ithas no say perturbed investors.Most couldnt even explain thearrangement in a single breath, letalone trust it.

Now the uncertainty over the

firms structure has been partiallyput to rest, the firm has relatively better prospects, despite havingessentially given up by going intorealisation mode and returningcash to clients.

However, the firm still has toomany eggs in the one basket, with ahighly concentrated portfolio(Expro International represents 44per cent of assets).

For those investors wanting totake a punt in the listed privateequity space, there are betteroptions, such as SVG Capital andConversus Capital.

[email protected]

BOTTOMLINEAnalysis by David Crow

CHARISMATIC chairman GerryGrimstone will soon sever his relation-

ship with Candover that has lastedover a decade.The 60-year-old announced yester-

day he will step down when the sale ofCandover Partners Limited to a groupof its executives closes next year. Histime at the firm has been tumultuous for many years Candover was a roar-ing success story, wielding a Midastouch that was the envy of the privateequity industry.

But Grimstone experienced the flipside of the coin when the financial cri-sis hit and the value of its portfolioplummeted. He received criticism for anumber of acquisitions at the firm thatwere deemed ill-judged.

Grimstone, though, is no stranger tocriticism. He came under fire from theleft for his role in the privatisationdrive of the early 1980s.

As assistant secretary at the

Treasury from 1982 to 1986, he was akey adviser to Margaret Thatcher dur-ing her landmark 5.4bn asset sales.He oversaw 20 major sell-offs includ-ing offloading the water companiesand privatising BT. While the saleswere lauded in the City, it was famous-ly described as selling off the familysilver by Harold Macmillan.

He later went on to advise theLabour government as it attempted to

GERRY GRIMSTONE

CANDOVER

claw back funds during the financialcrisis by selling off state assets.

While he made his name as a civilservant, he made his fortune as aninvestment banker. He joined Schrodersin 1986, where he rose to vice chair-man of worldwide investment banking,splitting his time between London,Hong Kong and New York.

He maintains an interest in the civilservice, holding the position of chair-

man of the Nominations Committeeand member of the RemunerationCommittee. He was overlooked for thechairmanship of the court of directorsat the Bank of England.

The physically imposing Grimstonehas a reputation for being both intelli-gent and combative.

The divorcee with three children hasalso been a member of the StandardLife board since 2003.

Gerry Grimstone is standing down after a decade at the firm

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BANKNOTE printer De La Rue hasrejected a 900m takeover approachmade last month from French rivalOberthur Technologies.

De La Rue, which has been investi-gating suspected wrongdoing bysome staff over production irregulari-ties, said the proposal pitched at905p a 43 per cent premium to DeLa Rues closing share price on 10November failed to reflect the truevalue of the company.

Consequently the board was unan-imous in rejecting this opportunisticapproach, De La Rue said in a state-ment released late yesterday.

Oberthur brought its 10 Novemberoffer out in the open yesterday with astatement aimed at putting pressureon De La Rue to engage in talks. Thegroup, which is run by chairman Jean-Pierre Savare and ThomasSavare, its chief executive, called onthe board to enter into substantivediscussions.

Oberthur Technologies prints ban-knotes and makes card systems and

cash and identity protection technol-ogy. Oberthur said it didnt believe DeLa Rues results backed the claim thatits approach undervalued the busi-ness.

De La Rue is thought to be open to asale but at a much higher price thanthe French are offering. It is believedthat it might consider an offer ofaround 10.00 a share, or about 1bn, its share price before the produc-tion problems came to light.

De La Ruea shares have fallen near-ly 40 per cent since March over paperproduction irregularities earlier thisyear. De La Rue shares soared 30 percent yesterday to 841p.

De La Rue: No

to French bidBY PHILIPWALLER

FINANCIAL SERVICES

Focus on De La Rue8 CITYA.M. 7 DECEMBER 2010

De La Rue chairman Nicholas Brookes said the bid from privately-held French rivalOberthur undervalues the business Picture: BBC

MICHAEL Wentworth-Stanley at JPMorgan Cazenove is De La Rues bro-ker and Crispin Wright atRothschild is the companys finan-cial adviser.

Wentworth-Stanley, 58, has beenmanaging director at JP MorganCazenove since 2005. He began hiscareer as a chartered accountant in1974, joined Cazenove & Co in 1975and was a partner at the firm between 1982 and 2001 before

becoming the managing director of

Cazenove & Co in 2001 until 2005.He also did a spell at Cazenovebetween 1981 and 1983.

Wright led a Rothschild teamthat helped the former brewer andpub group Wolverhampton &Dudley Breweries, now known asMarstons, fend off a hostile bidfrom rival pub group Pubmaster.He also advised Arriva on the busand train groups sale to Germanstate railway Deutsche Bahn.

Wright has also advised airportoperator BAA and is understood tohave been involved in helpingGeneral Electric buy a quarterstake in Turkish bank Garanpi,and in selling IT services companySema to Schlumberger for $2.5bn.

He was also involved in advisingP&O on the 3.5bn sale of the

group to Dubai Ports.

MICHAEL WENTWORTH-STANLEYJP MORGAN CAZENOVE

ANALYST VIEWS: WHAT NOW FOR DE LA RUE? Interviews by Philip Waller

PAUL JONES | PANMURE GORDON

We believe this represents a fair level given our ongoing concerns regarding reputationaldamage. As we await further details, we switch our recommendation from sell to hold.

ADRIAN KEARSEY |

EVOLUTION

This will be the catalyst that switches investor attention away from the short term problems sur-rounding Paper-gate (and print volumes) towards the long term underlying value of the company.

GUY HEWETT | INVESTEC

The 900-1,000p range is likely to be necessary in order to get support. De La Rue has a very strongmarket position, in a market that has little spare capacity, to produce an obviously valuable product.

550

650

750

14 Oct 12 Nov15 Sep

ANALYSIS lDe La Ruep

841.0006 Dec

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HAYWARD:THIS YEARS

HIGHESTPROFILE CEOCAUSE for former BP boss Tony Hayward totake comfort from the old adage, all newsis good news if he can. Data from mediaanalysis firm Sweet & Maxwell reveals thathe was the most high profile FTSE 100 chiefexecutive in the last year.

The beleaguered Hayward, who was ban-ished from BP to Siberia in July, was men-tioned in 1,931 pieces of press coverage

between September 2009 and Septemberthis year and it wasnt to compliment hischoice of tie. To put that in perspective,Haywards numbers compare to an averagemention count of just 151 for his FTSE 100peers.

But who else can claim the lucky acco-

lade of such fame? British Airways Willie Walsh comes in second at 1,560 afterspending much of the year locked in tradedisputes with the Unite union.

In at third place is outgoing Marks andSpencer boss Sir Stuart Rose with 1,223pieces of coverage. And Rose was no doubthappier with his placing than famouslymedia-shy Royal Bank of Scotland bossStephen Hester, whom he beat by oneplace. Hester bagged runner-up positionlast year to Sir Fred Goodwin, but this year,he dropped to fourth with only 1,082

over the next offices water cooler? Its asmall world, after all.

HIGH FIDELITY Another reason to hire more women.Research firm Equiniti says its researchshows that women are more loyal to theiremployers than men. The research foundthat 83 per cent of women asked would callthemselves either somewhat or very loyalto their workplace versus 72 per cent formen. And, contrary to expectations, those

below aged 30 are just as loyal as their

older peers: one in four fit into the some-what or very loyal category, the same pro-portion as for over-60s.

As for how to tackle those disloyal mid-dle-aged men, you could try anemployee share plan programme letting them buy shares at a dis-count. But the figures show thatshare plans actually work better

with women: loyalty improves bythreefold more among women

offered shares than among men. Itseems female stock is rising.

pieces of coverage.But if Stephen is missing the limelight

theres an easy solution: crack out his oldhunting coat and tails outfit, the subject ofa much-reprinted photo.

MOULTON GROUNDEDAside from depressed high street retailers,there was another victim of the past weeks

weather shenanigans: Better Capital chair-man Jon Moulton. Having planned a quicktrip up to Edinburgh yesterday to check upon an investment and give a talk at theEdinburgh Chamber of Commerce, hefound himself facing airport closures.

Particularly unfortunate given theintriguing title of his speech, to tackle thetopic of government: Cuts, Scratches and

Wounds. The coalition had better beware.

ALL IN THE FAMILYThe Capitalisthas learned that, like his one-time political master Lord Mandelson,loyal Labour servant Dan Corry will shortly

be back in business, taking up a position inthe New Year with the consultancy firm

FTI. Corry, who spent the last three years working on policy and economics inDowning Street and whose former bossesinclude ex-Cabinet ministers StephenByers, Margaret Beckett andRuth Kelly, will be workinglower down the hierarchythan former governmenteconomist Vicky Pryce (alsothe estranged wife of environ-ment secretary Chris Huhne). Butsurely politicos are used to catchingup on their time in government

The Capitalist10 CITYA.M. 7 DECEMBER 2010

EDITED BY

JULIET SAMUELGOT A STORY? [email protected]

Beating lastyears winnerSir Fred

Goodwin, ex-BP boss TonyHayward is2010s mostcovered CEOin the media.

A dubious honour: Hayward might not be surprised to find he tops the list Picture: GETTY

Better Capitals Jon Moulton was stranded

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HSBC is being sued for at least $9bn(5.7bn) for allegedly aiding BernardMadoffs $65bn Ponzi scheme.

Irving Picard, the court-appointedtrustee charged with liquidatingMadoffs investment firm and recov-ering funds for its victims, alleges 24counts of financial fraud and miscon-duct against HSBC and its affiliates.

The lawsuit filed on Sunday claimsHSBC helped establish an interna-

tional network of feeder companiesthat diverted funds to Madoffsinvestment advisory business.

This helped fuel and extendMadoff's Ponzi scheme across inter-national borders, a statement fromPicards office says.

He has named a series of defen-dants, including directors and man-agers in the funds managementcompanies, accused of aiding andabetting the fraud. He alleges thedefendants, who include Sonja Kohn,

Genevalor, Mario Benbassat and hissons Albert and Stephane, BankMedici and Unicredit, were wellaware of signals that the deals werefraudulent.

Had HSBC and the defendantsreacted appropriately to such warn-ings and other obvious badges offraud outlined in the complaint, theMadoff Ponzi scheme would have col-lapsed years, billions of dollars, andcountless victims sooner, Picard said.

HSBC had both flagged concerns with and received warnings about

Madoffs investment practices fromKPMG, its accountant, he said. Thesuit claims the institutions involvedhad the sophistication to understandthe fraud and participated knowingly.

HSBC said it was defending itselfvigorouslyagainst the claims. HSBCbelieves that the US court-appointedtrustees claims of wrong-doing areunfounded, a spokesman said.

Picard has filed Madoff-relatedsuits against several banks, includingUBS and JP Morgan, to date.

HSBC in $9bnsuit over

Madoff fraudKRAFT escalated its battle withStarbucks yesterday, asking a federalcourt to stop Starbucks from tryingto sell its packaged coffee through adifferent distributor.

Krafts request is the latest salvo ina fight over Starbucks desire to endtheir 12-year-old partnership sellingbags of Starbucks coffee at supermar-kets and other retailers.

Kraft, North Americas largestpackaged food maker, filed a prelim-inary injunction in US District Courtin New York yesterday to stopStarbucks from proceeding as if theagreement has been terminated,when, in fact, the contract is still inforce.

Starbucks is proceeding with fla-grant indifference to the terms of thecontract and customary business

practices, said Kraft general counselMarc Firestone.

Starbucks called Krafts move adelaying tactic, saying it risked cre-ating unnecessary confusion fortheir shared customers and, in turn,consumers.

Starbucks will vigorously opposeany action on Krafts part that wouldprevent Starbucks from rightfullyassuming full control of our brandand business, the company said in astatement.

MINER Rio Tinto yesterday made a$3.5bn (2.2bn) bid approach for Africa-focused Riversdale Mining,sending the target firms shares surg-ing 16 per cent and setting up a poten-tial takeover battle.

Rios move on Australias Riversdaleis likely to spark a bidding war, as thecompany has hard coking-coal proj-ects in Mozambique that could even-tually supply five to ten per cent of theglobal market for the key steel-makingmaterial.

Brazils Vale is seen by some analystsas the most likely rival bidder, as italready has coal mines nearby inMozambique. Indias Tata Steel,Riversdales top shareholder, was also

seen as a potential bidder.Tata said it regarded its Riversdale

stake as a strategic investment. TataSteel will continue to monitor the situ-ation and will take appropriate actionas deemed necessary, the companysaid.

Xstrata, Anglo American andPeabody Energy could also be interest-ed. Top coking-coal exporter BHPBilliton is seen as a less likely con-tender, as it has its own growthoptions in Australia.

Kraft Foods andStarbucks rowheads for court

Rio to splash $3.5bn on bidRio chief executive Tom Albaneses bid for Riversdale is expected to be contested Picture: GETTY

BYALISON LOCK

FINANCIAL CRIME

CONSUMER

NewsCITYA.M. 7 DECEMBER 2010

BYHARRY BANKS

MINING

11

3,400

3,800

4,200

4,400

14 Oct 12 Nov15 Sep

ANALYSIS l Rio Tinto

p

4,456.50

06 Dec

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CONSUMER spending showedanother month of modest growthin November, according to datareleased today.

Yet shop vacancies have risencompared with last year as thehigh street cuts back on costs.

Prospects for Christmas salesremain delicately poised follow-ing the early winter freeze, said theBritish Retail Consortium (BRC),

which conducted the survey withaccountants KPMG.

Sales were up 2.8 per cent inNovember, compared to the same

time last year, similar to growthseen in recent months.

And like-for-like sales whichexclude the effects of shop floorexpansion were up just 0.7 percent for November.

Given that VAT pushed upannual inflation, boosting sales val-ues, underlying volume growth is

virtually zero, said StephenRobertson of BRC.

Sales of big ticket items wereaffected by low consumer confi-dence, the report said.

British consumer confidencetumbled to an 18-month low inNovember, figures from theEuropean Commission revealed

last week. Yet retailers remain confident

that shoppers will boost spendingin the final weeks of the holidayseason. A recent survey by theConfederation of British Industryshowed that 59 per cent of retailersexpected higher December salesthan last year.

And the governments spendingcuts, outlined in November, havenot made things worse, saidRobertson.

West End stores are extendingtheir opening hours on theMonday after Christmas, in a bid totempt shoppers into stocking up

before the VAT rise on 4 January.

Retailers look forChristmas sales liftBY JULIAN HARRIS

RETAIL

Economics12 CITYA.M. 7 DECEMBER 2010

Critics of QE should consider the risks of not acting, said Bernanke Picture: REX

SALES of new cars in the UK fell againin November despite a looming VATrise in January.

Registrations were down 11.5 percent to 139,875 compared with thesame month last year, according tofigures from the Society of MotorManufacturers and Traders (SMMT).

That represented the fifth consecu-tive monthly fall after the end of thescrappage scheme which helped toinflate figures in May.

The VAT rise, which is due to comeinto place in January, has so far failedto trigger a rush of buyers to take

advantage of the lower rate.However, stripping out previous car

sales linked to the scrappage scheme,the SMMT claimed underlying sales

were up 14 per cent.

Diesel car sales continue to overtakethose of petrol cars, accounting for 53per cent of the market in November.

SMMT chief executive Paul Everittsaid: Registrations are expected tofall next month, but demand may ben-efit from motorists looking to avoidthe January VAT rise.

Next year will continue to be chal-lenging as consumer spending tight-ens and the governments austeritymeasures take effect.

Sales for the first 11 months of 2010now stand at 1,907,029 a 3.4 percent rise on the January to November2009 period.

The SMMT expects car sales to be uptwo per cent overall next year, to be

boosted by a strong December.However, it is forecasting a five per

cent drop next year. The SMMT saidthere had been an upturn in the saleof fleet vehicles.

New car sales fallfor a fifth month

as buyers still waryBY JOHN DUNNE

AUTOMOTIVE

CITY VIEWS: WILL YOU BUY NOW TO AVOID THE VAT RISE? Interviews by Chris Barker

No, I wont make any big purchases because I dont have any big purchases to makebefore then. Im not really bothered by the 2.5 per cent increase in costs to my every-day life. The post-Christmas sales might help to counter the effect as well.

MARK RODDIS | HISCOX

I just bought a new car because of the increase in VAT in January. I dont mind in myeveryday life though. It doesnt bother me that the government is going to bring in theincrease in VAT.

ASHLEY STRATTAN | CRS YACHTS

Im not going to make any big purchases, so it doesnt really bother me. Unless youre buy-ing a car its not that much of a problem. The government has to pay for the deficitsomehow, and its only adding 2.5 per cent.

DAVID HALLMARK | RK HARRISON

AMERICA may need a third dose ofquantitative easing (QE) to avoid itseconomy slumping back into reces-sion, Federal Reserve chairman BenBernanke predicted as he reported agloomy outlook for the economy.

Americas recovery would sufferdeflation and fail to become self sus-taining without the Feds interven-tions, he claimed in a rare televisioninterview broadcast on Sunday.

It could be four or five years beforewe are back to a more normal unem-ployment rate, he said.

Bernanke appeared keen to use hisappearance on 60 Minutes tohammer home the message that

Americas recovery is fragile.But further QE was cautioned

against by Federal Reserve Bank ofRichmond President Jeffrey Lacker

yesterday evening. Unemploymentfears must not steer monetary policy,he said.

QE3 is a realpossibility, saysFed chairmanBen Bernanke

US ECONOMY

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OIL explorer Desire Petroleum hasfailed to strike oil in the FalklandsIslands, days after it said it believedit had, denting hopes that the terri-tory will become a major new oilprovince.

The company said extra analysisof data from a key well in the Britishislands over which Argentina claimssovereignty did not support initialindications of an oil discovery,

which saw the stock close 47 percent down at 70.5p.

This is a major blow to Desire,broker Evolution said yesterday.

Desire said last Thursday it

believed it had made the second oilfind at its Rachel North well in the

North Falkland basin, after rivalRockhopper made the first at its SeaLion prospect in May, raising hopesof more finds.

Desires disappointing well atRachel, however, is the latest set-

back to cool excitement sparked bythe controversial Falklands explo-ration, to which Argentina objects.

Another blow came last Fridaywhen it emerged that ExxonMobilhad said there was inadequate oil inthe islands to be profitable.

Desires share price more thandoubled in one day in October with-out the group issuing any news.

They were obviously under a lotof pressure from the stock marketto announce something last week

and they hadnt finished acquiringthe data ... in a normal course of

events you wouldnt put a pressrelease out until you finished doingall the data acquisition,said an ana-lyst who declined to be named.

Desire said the Rachel North well would now be plugged and aban-doned and the rig would be movedto drill its Dawn/Jacinta prospect.

Desire draws blank

in Falkland IslandsBY PHILIPWALLEROIL & GAS

BLOOMBERG, the financialmedia giant, yesterday said ithad reached an agreement withLegal & General for the purchaseof the Walbrook Square site tobuild a new European headquar-ters located in the heart of theCity.

Bloomberg will construct twonew buildings, one that willcontain in excess of 500,000square feet and one speculativebuilding.

The site, which is 3.2 acres,

will also include public spacesand retail units.

The company said it hadcommissioned architectNorman Foster of Foster to pre-pare plans for the building,which are in the early stages ofdevelopment.

Foster said: The project is anopportunity to create a bespoke,sustainable new headquartersbuilding for Bloomberg, while atthe same time creating anopportunity to improve the pub-lic realm in the very heart of theCity of London.

Bloombergs current Londonheadquarters in Finsbury Squarehas served as the companys hubfor Europe since 1987.

Walbrook Square is one ofthe prime locations in London,said Daniel Doctoroff, presidentof Bloomberg

Our commitment to excel-lence in design will ensure that we create something excitingand yet respectful especiallygiven the sites proximity to theBank of England, St. Pauls andMansion House, among otherLondon landmarks.

Bloomberg asks Foster to design itsnew London HQ at Walbrook Square

PROPERTY

Rolls wins energy dealsTurbine maker Rolls-Royce has wonnew orders worth more than $110m(69.9m) for energy projects in Europe,Africa, India and the Middle East. Rollswill deliver both power generation andpipeline transmission products andservices. Oil group Total has ordered

two RB211 gas turbine power genera-tion systems to power an oil plant inthe Middle East. Rolls will also supplytwo extra RB211 turbines, poweringgas compression packages, toSlovensk plynrensk priemysel foruse in a compressor station, part oftheir gas transmission network inCentral Europe.

3M snaps up Swiss tool firmDiversified US manufacturer 3M willbuy Winterthur Technologies, a Swissmaker of grinding tools, for about$448m (284.9m) in a move that willfill out its already sizable abrasivesbusiness. The deal is the latest in astring of nearly a dozen acquisitionsthis year for 3M, which has spent near-ly $2.5bn in just the four deals whoseterms the company has disclosed. Thepurchases have taken 3M, whichalready has a broad lineup of con-

sumer, industrial and medical products,into new businesses like biometrics andelectronic people-monitoring, even asthey have bolstered its presence in oth-ers, like healthcare.Continental Airlines pledged to appeal after a French court fined it200,000

Continental foundguilty at Concorde

crash trial in France

NEWS | IN BRIEF

90

120

160

180

14 Oct 12 Nov15 Sep

ANALYSIS l Desire Petroleump

67.2506 Dec

A FRENCH court yesterday foundContinental Airlines and a mechanicat the airline guilty of involuntarymanslaughter for their part in the2000 Concorde crash that spelled theend of the supersonic airliner.

In a ruling that could affect the way planes are maintained andinspected, the court said the US air-line and a welder were to blame for asmall metal strip that dropped off aContinental aircraft onto the runway,rupturing a tyre and causing the

crash that killed 113 people. The airline, now United

Continental Holdings following amerger, and aerospace group EADSmust split 70-30 any damages payable

to families of victims, it said. The verdict exposes Continental

and EADS to damage claims thatcould run to tens of millions of eurosif insurance companies seek reim-

bursement for sums already paid.The crash ended an era of superson-

ic travel between London, Paris andNew York. Operators Air France andBritish Airways took Concorde out ofservice in 2003 after safety concernshit passenger numbers.

Continental was fined 200,000(169,400) and ordered to payConcordes operator Air France 1m indamages. Welder John Taylor was given

a 15-month suspended prison sentencefor having gone against industrynorms and used titanium to forge thepiece that dropped off the plane.Continental said it would appeal.

BY PHILIPWALLER

AVIATION

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PUNCH Taverns, the heavily indebtedpubs group, has been urged by a Cityanalyst to default on two securitisedloans worth around 2.6bn.

The loans, known as A and B, havebeen securitised against 5,300 pubs.They currently require increasing lev-els of financial support from the par-ent company, currently around 43m ayear, and yesterday Peel Hunt analystPaul Hickman said Punch would dobest for shareholders by walking awayfrom its commitment.

Hickman said: It is quite clear thatthe bond structure that finances mostof the tenancies is unsustainable.

It is now crucial that a clear solu-tion is imposed. Having consideredalternatives, we believe the preferableoutcome is to allow the A and B securi-tisations to default.

We believe shareholders should usetheir influence to press for this out-come. Once this issue is resolved, thevalue in Spirit and group assets, whichwe put at 91p, will be apparent.

Punch chief executive Ian Dyson iscurrently undertaking a review withthe objective of exploring options tocreate value for our shareholders.

Yesterday Punch said it was consider-ing all its options, which appear toinclude some form of debt write-off onbehalf of the bondholders.

Sources close to the company said itwas unlikely there would be a conclu-sion to Dysons review before February.

Dyson is being advised by GoldmanSachs, with Anthony Gutman leadingthe team, and Citigroup. Blackstone isalso advising on its capital structure.

Hickman acknowledged that adefault by Punch would be trickyfrom the bondholder institutionspoint of view and would make ittricky for the group to raise furtherbonds.

But Hickman said it was crucial forthe group to make the move so that itwould focus minds on the value of thegroups other assets and especially itsSpirit estate.

Continuation of the present A andB bond structures is not an option.They would need increasing levels offinancial support, currently 43m perannum, and equity shareholderswould not be well served by the medi-um-term drain on value.

Shares in Punch Taverns rose 6.62per cent to 69.25p on the back ofHickmans comments and talk thatthe group could attract a bid.

CITY watchdog the Financial ServicesAuthority (FSA) yesterday appointedtwo new senior advisers to strength-en its investment banking and riskmanagement expertise.

Simon Prior-Palmer, who willadvise on investment banking issues,has more than 30 years experience,including as managing director of

Credit Suisses UK investment bank-ing division.

Robert Stansbury, who will adviseon risk management, has been a con-sultant on risk governance to finan-cial services companies since 1993.Before that he was a director at for-mer merchant bank Hill Samuel.

FSA chief executive Hector Santssaid Prior-Palmer and Stansbury bothhad considerable experience to bring to bear on the regulatorychanges and issues we face.

Before working at Credit Suisse,

Prior-Palmer was a vice president at JPMorgan and spent four years at the

postal industry regulator Postcommas a board commissioner from 2006.He is currently a non-executive direc-tor of Toronto-listed mining houseGabriel Resources.

The FSA currently employs aboutnine part-time senior advisers tobring specific industry expertise andexternal knowledge.

Senior advisers are a core part ofthe FSAs delivery of intensive supervi-sion. The team provides experience

on regulatory, market and consumermatters, Sants said.

FSA recruits two new senior advisersto boost banking and risk departments

FRANCES President Nicolas Sarkozyyesterday said he had clinched deals worth about $20bn (12.6bn) withIndia, becoming the latest among astring of world leaders jostling for ashare of Asias third biggest economy.

The business deals, which spannedatomic energy, defence and civil avia-tion, comfortably bettered the $10bnUS President Barack Obama securedon his November visit. They come aday before Sarkozy is due to end his

four-day visit.Chinese premier Wen Jiabao and

Russian President Dmitry Medvedevare also due to visit India this month,a sign of how major powers are vyingfor the worlds biggest new defenceand power markets, long closed tooutside investors.

India is trying to boost its powergeneration capability and defence,wary it is falling behind China.

India is forecast to see economicgrowth of almost nine per cent thisyear.

Sarkozy signs $20bn indeals on Indian trade trip

WORLD TRADE

THE government is expected to ordercloser ties between train operatorsand Network Rail (NR) as part of ashake-up of the rail industry due to beunveiled this week.

Ministers are understood to beplanning to allow train companiesand the track and signals operator toshare financial risks and rewards

from modernisation projects.Operators would be allowed to take

control of stations usually run by NRand they would be expected to worktogether more closely in a so-calledteam approach.

Officials are understood to be plan-ning to pilot the project on lines fromLondon to East Anglia, Ipswich andNorwich run by National Express East Anglia, handing NXEA a new short

term contract to enable the pilot.They are thought to have concerns

about proposals from some trainfirms to take full control of tracks,signals and stations as well as trains.

The Department for Transport isexpected to unveil the plans as partof a wider announcement coveringthe interim findings of a review ofthe industry and of a study onreforming franchises.

Ministers to demand closer workingbetween Network Rail and train firms

TRANSPORT

SBERBANK, Russias biggest lender, yesterday beat forecasts for third-

quarter net profit, helped by a biggerloan portfolio and lower provisions,putting it on course for a record year.

We expect fourth-quarter resultsto be no worse than in the third quar-ter, chief financial officer AntonKaramzin said on a conference callyesterday, adding full-year net profitwas likely to be at least 150bn roubles(3.06bn).

State-controlled VTB last week post-ed 13.7bn roubles net profit for the

third quarter, and said it was hoping toearn 50-60bn roubles for the full-year.

Sberbanks results... beat marketexpectations thanks to significantgrowth in the loan portfolio, Bank of

Moscow analysts said in a researchnote after the bank released a ten-foldincrease in profits.

Sberbank chief executive GermanGref said last week Sberbank coulddecide on whether to expand intoinvestment banking early in 2011.Sources say that Sberbank has heldinformal talks with investment banks Troika Dialog and RenaissanceCapital about buying a stake.

The bank is eyeing some of the

business enjoyed by its main rival VTB, which dominates the Moscowdeal-making scene working onalmost all major IPOs and Russias$3bn Eurobond issue.

Karamzin denied the bank hadidentified specific targets for a possible acquisition but VTB analystMikhail Shlemov said that funds for adeal could be found from a cut in badloan provisions, likely to fall signifi-cantly in 2011.

Sberbanks loan portfolio grew by7.7 per cent for the first nine monthsof 2010, the bank said. Corporateloans rose by 7.9 per cent while retailcredits were up by seven per cent.

Sberbank set for record yearBYHARRY BANKS

BANKING

Punch Taverns

urged to makedebt defaultBYDAVID HELLIER

LEISURE

BYALISON LOCK

FINANCIAL SERVICES

LOREAL FAMILY ENDS FEUD

FRANCES richestwoman, L'Orealheiress LilianeBettencourt (farleft), and her

daughter said yes-terday they had set-tled a family feudthat had led to taxand political fund-ing investigations.Investment ana-lysts said the agree-ment should endmonths of feudingthat had on occa-sion raised ques-tions over thelong-term solidityof the Bettencourtfamily as coreshareholders.

Picture: GETTY

News: Continued on page 18 15CITYA.M. 7 DECEMBER 2010

SAGA, which specialises in offeringservices to the over 50s in the UK, said yesterday it would buy NestorHealthcare for about 124m.

Nestor investors will receive 110pin cash for each share, a premium ofabout four per cent to the stocksFriday close, the companies said.

Under the terms, Nestor will pay a

second interim dividend of 2.5p pershare for the year ending 31

December in lieu of a final dividend.Nestor provides services to health

and social care customers in the UK.Saga, which is owned by private

equity group Acromas, had first madean offer for Nestor in August andsweetened its bid in October andNovember. Saga said it had the sup-port of over half of Nestors share-holders, including the companysdirectors.Nestor shares were up 3.8 per cent at

109.75p immediately after theannouncement.

Saga nets Nestor in asweetened 124m deal

BYDAVID HELLIER

FINANCIAL SERVICES

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16

Markets&InvestmentCITYA.M. 7 DECEMBER 2010

3i Group 319.5 -0.25 326 2503i Infrastructure 119 1 119 97A.B. Foods 1110 16 1110 804.5Aberdeen Asset.Man. 197.5 2 197.5 112.75Admiral Group 1610 4 1693 1084Aegis Group 142 1.75 142 103.5

Afren 140 5.5 140 79African Barrick Gold 565.5 6.5 670 503Aggreko 1563 8 1685 788Alliance Trust 362.5 3 363.75 293.5Amec 1139 17 1154 733.5Amlin 393 -0.5 433 357.25Anglo American 3062 11.5 3062 2254Antofagasta 1457 21 1472 761Aquarius Platinum 362 7.25 458 227ARM Holdings 398.5 -4.25 414.5 163.25Ashmore Group 371.25 -0.5 383.75 218Ashtead Group 150 6 150 66.25AstraZeneca 3034 -12.5 3385 2732Atkins (WS) 736.5 10.5 792.5 556.5Autonomy 1351 7 1975 1271Aveva Group 1567 1 1575 942.5Aviva 380.5 1 423.5 294.25Babcock International 547 -2.5 635 492.75BAE Systems 325.5 -0.75 388.75 294.75Balfour Beatty 287.75 3 303 229.75Barclays 263 -5 383.25 255.25Barratt Development 78.75 0.75 142 70BBA Aviation 202.75 0.25 217.25 152Bellway 558 2.5 826 511Berkeley Grp Hldgs 879 1 879.5 742BG Group 1267 32.5 1296 984BHP Billiton 2439.5 16 2469 1684.5BlackRock Mining 757 9 757 492BlueBay 484.5 1.5 489.25 258B lue Crest A llB lue 173 - 0. 75 174 .5 152Booker Group 58.25 0 58.25 38.75BP 450 14.75 655.5 303Brit Insurance 1036 1 1045 720British Airways 272.5 1 286 184.25British Amer.Tob 2356.5 -8.5 2464.5 1917British Empire Tst 490 2 495.5 394British Land 507 2 520 418.25

Britvic 470.5 8.5 518 373Brown (N.) Group 296.5 1.5 301 206.5BSkyB 729.5 2.5 729.5 524.5BT Group 177.5 2.25 177.5 110Bunzl 728 6 777 616.5Burberry Group 1109 30 1109 564C&W Comms 48 1.25 63.75 44.25C&W Worlwide 65.25 0.75 100 60.5Cairn Energy 408 10.25 493.25 303.5Caledonia Inv. 1804 -6 1827 1511Capita Group 669.5 34 826 635.5Capital & Counties 147.5 -0.5 157 100Capital Shop Centre 411.5 3 411.5 301Carillion 349.5 5.25 357 273Carnival 2687 -12 2920 2037Catlin Group 346.25 1.75 393 320Centamin Egypt 180.25 -0.25 197 106.75Centrica 316.5 -1.5 346 257Charter 757.5 6 848.5 567Chemring Group 3000 -22 3663 2598Close Brothers 810.5 -2 821.5 664Cobham 194.5 -4.75 276 192.25

Colt Telecom 129 0.75 142.5 109Compass Group 585.5 12 585.5 425Cookson Group 599 3.5 607 367.5Croda International 1588 19 1588 749.5Daily Mail & Gen 531.5 -7.5 567.5 404Davis Service 406.75 1.75 435 360.25

De La Rue 841 193.5 1005 549.5Debenhams 75.75 1 84.25 53Derwent London 1506 -8 1605 1208Dexion Abs 138.5 -1 148 131.25Diageo 1142 -4 1193 1000Dixons Retail 25.5 -0.25 38 23.75Dominos Pizza 552.5 4 552.5 280.75Drax Group 373.5 4.25 444 326.25DS Smith 192.25 -3 200.75 104Dunelm 525 1 532 325.25easyJet 434.5 7 496.5 341.5Edin.Inv.Tst. 443 0.5 464.25 351.5Electrocomponents 27 7.5 4.5 277.5 161.75Enquest 145 1 145 89.25Essar Energy 554 4 554 383Eurasian Nat Res 914 -19 1266 818Euromoney Inst. 700 5 708 405Experian Group 782.5 -2.5 789 572Ferrexpo 368.25 -2.5 396 179.5FirstGroup 383.5 6.25 426 336For.&Col.Inv.Tst 299.5 -0.25 300.5 251.5Fresnillo 1574 6 1574 669.5G4S 238.75 0.25 283.5 237.75Genesis E.m.f. 540 0.5 540.5 399GKN 206.5 -2.5 210.5 102GlaxoSmithKline 1237 4.5 1339.5 1095Great Portland Est. 350.25 -2.75 364 268Greene King 472.25 6.25 472.25 376.25Halfords Group 417.5 -2.5 550 372.75Halma 340 2.5 343 223Hammerson 418 -3.25 434.5 336.25Hargreaves Lansdown 504 7 504 265.25Hays 114 0 123.5 88.5Henderson Group 125.5 -0.5 151.75 112.75Heritage Oil 400 20 581 296.75Hikma 790 -5 804.5 505Hiscox 360 -9.5 370 300

Hochschild Mining 621 7.5 621 234Ho me Ret ail Gro up 20 5.25 0.2 5 3 09.75 201 .5Homeserve 462.75 6.5 487.5 322.75HSBC Holdings 666.75 1 740.5 596.25Hunting 655 24 658.5 439.5ICAP 528 9.5 528 294IG Group 518 4 553 340Imagination Tech 402 2.25 441.75 215IMI 914 0 914 504.5Imperial Tobacco 1900 7 2154 1753Inchcape 352.25 5.5 357 237Informa 409.25 -4 448 285Inmarsat 666 13 821 606.5InterContinental Htl 1224 12 1225 867Intermediate Cap.Grp 315.75 -1.5 351 240.5International Pers Fin 340 20 340 183.25International Power 420 1.5 436.75 283.25Intertek Group 1989 8 2000 1150Invensys 337.5 -3.25 349 230.25Investec 506.5 -7 562 413.25ITV 68.5 -2.25 72 48.25Jardine Lloyd 595 4.5 600 445.75

John Wood Group 503 5 503.5 285Johnson Matthey 1945 19 1973 1446JPM Flem.Emerg Mkt. 616.5 1.5 621 450.5Jupiter Fund Man 303.25 -1.75 306 180.25Kazakhmys 1524 13 1630 965Kesa Electricals 170.5 -3.5 174 99.25

Kingfisher 254 -0.75 255 198.5Ladbrokes 126.75 1 162.75 123.5Lancashire 605 -5 647 422.25Land Securities 647.5 -4 696.5 545Legal & General 97.5 -0.75 106.25 69.75Lloyds Banking Grp 66 -0.25 77.5 46.5Logica 121 1.25 148 101.75London Stock Ex. 786.5 -3 798 544Lonmin 1825 3 2157 1355Man Group 276.75 -2.25 327.5 202Marks & Spencer 384.75 -0.25 427.5 323.5Meggitt 367.5 3.75 367.5 239.25Melrose 294 -1 304.25 162Mercantile Inv Tst 1034 5 1037 822.5Michael Page 506.5 -7 513.5 346.5Micro Focus 356 0 546.5 276Millennium & Cop. 548 7 570 342Misys 300 2.5 303.75 200.5Mit che lls & B ut le rs 35 5. 25 2. 25 3 57. 25 24 7.5Mitie Group 219.5 1 241 188.75Mondi 496.25 -5.25 557.5 321.5Monks Inv.tst. 351.25 5.5 351.25 265.5Morrison (Wm) 270.25 -0.75 306.25 257.5Murray Int.Tst 933.5 3 936 720National Express 233.5 4 259.5 181National Grid 552.5 -1.5 613.25 484.25Next 2062 -3 2344 1817No rt hum br ian Wate r 32 8. 75 1 .75 3 61 .5 252. 75Ocado Group 164.75 -5.25 170 123.5Old Mutual 119 -1.25 145.25 97.25PartyGaming 254.25 -3.5 334.5 206Pearson 978.5 -16 1051 848.5Pennon Group 633.5 0.5 639 483Persimmon 382.75 4.5 507.5 336.5Petrofac 1500 0 1540 876.5Petropavlovsk 1140 10 1365 852Phoenix Group Hldgs 650 0 758 557.5

Premier Farnell 303 6.75 303 158.5Premier Oil 1915 33 1915 1017Provident Financial 806.5 -3.5 974 728.5Prudential 608.5 8 653 487.5PZ Cussons 409 18 409 234.75QinetiQ Group 120.5 0.5 167 96.75Randgold Res 5885 -145 6655 4209RDS A 2023 5.5 2100.5 1624RDS B 2005.5 5.5 2064.5 1554Reckitt Benckiser 3458 4 3655 3037Reed Elsevier 516 -8.5 563 460.5Regus 80 1.25 120 66Renishaw 1175 -7 1235 516.5Rentokil Initial 91.25 0 138.5 87.75Resolution 215 3.25 349 211.25Rexam 309 -2.25 346.75 272.5Rightmove 759 0 810 464Rio Tinto 4456.5 40.5 4456.5 2812RIT Capital Partners 1178 -5 1210 948.5Rolls-Royce Group 640.5 13 654.5 473.5Rotork 1720 -6 1895 1145Royal Bank of Scot 41 -0.25 58 28.5

RSA Insurance Grp 123 -2 136.5 114.75SABMiller 2145 7.5 2157 1650Sage Group 279.25 -0.5 289 220Sainsbury (J) 357.5 -4.5 395 313Schroders 1748 3 1748 1116Schroders NV 1382 4 1382 929.5

Scot.& Sth. Energy 1120 -5 1198 1010Scottish Mortgage 698 9.5 698 475SEGRO 288.75 -3 352 250.25Serco Group 571.5 6 651 494.25Severn Trent 1433 6 1468 1010Shaftesbury 437.5 -2 460 349.25Shire 1488 -17 1567 1159SIG 117 1.25 137.75 90.75Smith & Nephew 596 -1 696.5 537.5Smiths Group 1217 5 1285 954Soco International 355.5 11.5 484.25 292Spectris 1210 4 1222 691.5Spirax-Sarco 1870 20 1870 1094Spirent 155 -0.5 160.25 92Sports Direct 139.75 4 152.75 92.25St Jamess Place 270 2 292 204.25Stagecoach Group 208.5 4.25 224 150S tan dard Ch arte re d 1837. 5 - 0.5 195 0 1 351 .75Standard Life 204.25 -1.75 236 173Supergroup 1581 -34 1638 535TalkTalk 161.75 0.75 161.75 108.5Talvivaara Mining 534 -1.5 581 342.5Tate & Lyle 541 11 541 388.75Taylor Wimpey 27.25 0.75 44 22.25Telecity Group 474.75 8.25 532.5 335Templeton Emrg. 654 -6.5 685 471.5Tesco 420 -7 454.5 377.5Thomas Cook Group 178.75 -0.75 272 171.75Travis Perkins 906.5 13 912 664.5TUI Travel 230.5 1.5 308.5 190Tullett Prebon 369 10.5 417.25 262Tullow Oil 1197 19 1369 991.5UK Commercial Prop 75 -1 85 72.75Ultra Electronics 1677 -3 1895 1265Unilever 1853 -2 2015 1688United Utilities 590 -0.5 628.5 488.25

Utd Business Media 648.5 -7.5 682.5 409.75Vedanta 2143 -49 2934 1839Victrex 1312 -17 1338 788Vodafone Group 165 1 175 129.5Weir Group 1842 -2 1861 669Wellstream Holdings 746 -3 789 436WH Smith 508.5 4.5 537.5 398.25Whitbread 1784 2 1797 1266William Hill 163 1.75 216.5 155.5Witan Inv Trust 492 1 492 410WOLSELEY 1830 37 1830 1166WPP Group 750 -5 755 572.5Xstrata 1437 47 1437 845.75

LONDONS TOP 250

LONDON TOP 250 BY MARKET CAPITALISATIONPOWERED BY

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Investment | Foreign Exchange 17CITYA.M. 7 DECEMBER 2010

Bernankes cautionworries Wall Street

US stocks ended little changed

yesterday, held in check by worries about Europes debt

crisis, which frustratedinvestors looking for a reason totake shares to new highs for theyear.

Germany rejected a call forEurozone finance ministers toincrease the size of a 750bn safetynet for debt-stricken members.

A decline in the euro limited USstocks advance as the two havehave moved in a tight correlationrecently, with the euro acting as aproxy for debt concerns overseas.

Further adding to conflicting sen-timent were downbeat commentsfrom US Federal Reserve chairmanBen Bernanke about the economy, which offset his attempts to reas-sure markets the Fed could step upits economic stimulus efforts if nec-essary.

The tone of his voice made menervous. As a trader and a manager,

it made me nervous, said PaulMendelsohn, chief investment

strategist at Windham FinancialServices in Charlotte, Vermont.

I think he was trying to sell the American people because he hasbeen under pressure.

The Dow Jones industrial averagedropped 19.90 points, or 0.17 percent, to 11,362.19. The Standard &Poors 500 Index shed 1.59 points, or0.13 per cent, to 1,223.12. TheNasdaq Composite Index gained 3.46

points, or 0.13 per cent, to 2,594.92. Technology shares limideclines after positive brokeragecomments on Cisco Systems andCognizant Technology Solutions.Cisco rose 1.9 per cent to $19.43after Oppenheimer raised the stockto outperform, and Cognizantadded 0.7 per cent to $69.80 afterGoldman Sachs boosted it to buy.

Despite the days dip, analysts seethe S&P 500 soon breaking out of itsrecent range and surpassing its cur-rent intraday high for the year justabove 1,227 reached on 5 November.

Analysts view key resistance forthe benchmark index at 1,228 because its just above the yearshigh and coincides with the 61.8 percent Fibonacci retracement of the2007-2009 bear market slide.Volume was light with about 6.27bnshares traded on the New York Stock

Exchange and Nasdaq, well belowthe year-to-date average of 8.62bn.

BRITAINS top share indexclosed higher yesterday, buoyed by oil stocks after crudereached a two-year peak, while

banks fell on fears over Eurozonedebt as EU ministers met to discussways of preventing debt contagion.

The FTSE 100 ended up 24.96points, or 0.4 per cent, higher at5,770.28, for its highest close since 15November after a choppy sessionwhich saw the index dip to 5,728.46.

Integrated oil stocks were thestandout gainers after the crudeprice neared $90 earlier in the ses-sion.

Analysts said cold weather inEurope and in parts of the UnitedStates should limit the downside forprices because of greater heating oildemand.

But some weakness was seenamong risk sensitive banks, withinvestors rattled after MoodysInvestors Service cut Hungarys cred-it rating. Eurozone finance ministersmeeting yesterday faced IMF pressure

to increase the size of a 750bn(635.1bn) safety net for debt-stricken

members to halt contagion in thesingle currency bloc.

The UK market does appear to beoutperforming many of the othercontinental European markets,which perhaps suggests that the UKsgetting a slight boost from not being within the Eurozone, said PeterDixon, economist at Commerzbank.

The European financial ministersmeeting is not going to be that

important, because the real big one(the EUs heads of government meet-ing) is on the 16th and 17thDecember.BP led energy stocks higher, adding3.4 per cent, as investors welcomedfurther developments on the compa-nys asset sale aimed at raising cashto pay for its massive oil spill in theGulf of Mexico. Pakistans Oil andGas Development said it will make a joint bid for BPs assets in Pakistanwith Pakistan Petroleum.

Sentiment surrounding the Britishoil major was also helped after WhiteHouse oil spill commission staff saidon Friday that BP believes the spillsactual flow rate may have been asmuch as 50 per cent below the gov-ernments final estimate.

Miners found favour, following met-als prices higher after US FederalReserve chairman Ben Bernanke said

more quantitative easing was possible.Xstrata was the best sector per-

former, up 3.4 per cent, followingreports that Glencore, which holds astake of nearly 35 per cent in theminer, is preparing for a 6.3bnLondon Stock Exchange debut asearly as April next year.

But gold miner RandgoldResources, off 2.4 per cent despite afirmer gold price, with traders citingpolitical turmoil in the Ivory Coast.

Upbeat broker sentiment helped

Rolls-Royce, up two per cent, withBofA Merrill Lynch lifting its ratingon the company to buy from neu-tral. Aerospace electronics groupCobham, however, fell 1.9 per cent, asthe same broker cut its rating on thestock to neutral from buy, andafter the company agreed to buy USsurveillance company RVision for$28m. A UBS downgrade to neutralhit Tesco, off 1.6 per cent, ahead ofthe retailers third-quarter salesupdate today.

Receding fears over Eurozonedebt levels hand FTSE a boostTHELONDONREPORT

THENEW YORKREPORT

ANALYSIS l FTSE

5,600

5,800

5,900

5,400

14 Oct24 Sep6 Sep 3 Nov 23 Nov

5,770.286 Dec

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FOR a commodity used to grabbingthe headlines, crude oil has beenovershadowed by its cousins formuch of 2010. Unlike copper, coffee

or cotton, which have climbed steeply, oilremained entrenched in its trading rangebetween $70 and $85 a barrel.

Not any longer. Cold weather sweepingacross Europe, strong energy demandfrom emerging markets, and QE2-fuelledliquidity last week prompted crude oil to

hit its highest level in more than twoyears. Traders shrugged off worries aboutthe sovereign debt crisis in the Eurozoneand policy tightening in China andbought into the black gold. Front-monthBrent crude oil hit its highest level sinceOctober 2008, edging above $91 a barrel.Meanwhile, West Texas Intermediate(WTI) crude oil for January delivery rose tomore than $88 per barrel.

Contracts for difference (CFD) tradersare already starting to go long now inanticipation of further price rises nextyear. And they are not alone in their posi-tive mood.

Such is the optimism among analyststhat we are already hearing talk of a secu-lar bull market in oil. Goldman Sachs ana-lysts led by David Greely said last week:Looking toward 2012, the stage is set fora return to a structural bull market in oil, with a new 2012 WTI price forecast of$110 a barrel. They are also upbeat aboutthe outlook for 2011, reiterating their$100 a barrel average 2011 price forecastfor WTI, based on the expected draw onOPEC spare capacity next year.

Koen Straetmans, real estate and com-modities senior strategist at INGInvestment Management, is not as bullishas Goldman but nonetheless reckons thatoil could be trading between $80 and$100, thanks to the recent additional QEin the developed world and the expectedsubsequent capital flows towards theemerging markets as well as a cyclicalrebound in China. (continued overleaf)

Global recovery andstrong demand lookset to outweigh risks,suggests Jessica Mead

Cracking through the freeze in oil prices Picture:GETTY

Bet on black: Oil pricesdiscover fresh energy

THE LAST few weeks have seen an overallimprovement in reported economic data,especially in the US. We have seen a pick-up in a number of influential reports,

including the Richmond Fed manufacturing sur-vey, the Chicago Fed National Activity index,Chicago PMI and consumer confidence. This ledto a feeling that the economy had finally turneda corner, dispelling worries about a double-diprecession. In fact, the recent pick-up led a num-ber of investors to question just why the FederalOpen Markets Committee voted for anotherround of quantitative easing at all.

So last weeks data managed to confuse theoutlook. The manufacturing PMI was weakerthan expected yet non-manufacturing PMI beatestimates. Factory orders were sharply lower,while the weekly jobless claims number alsoturned wrong after recent improvements.

But the big news came on Friday with thehuge miss in November non-farm payrolls and arise in the unemployment rate to 9.8 per cent.Yet equities still managed to end in positive ter-ritory thanks to reports about a CBS interviewwith Ben Bernanke, in which the Fed Chairmansaid he could see further quantitative easing ifunemployment didnt improve.

This week we can expect the focus to turnback to Europe. Last week, Irish and Portuguesebond yields moved back down as the ECB took aleaf out of the Feds book and purchased debt.But this is highly controversial and can onlybring temporary relief. Today well hear whetherthe Irish government is successful in passing itsbudget for 2011, while European finance minis-ters wrap up two days of meetings amid talkthat the EU/IMF bailout fund will be boosted.

In the meantime, gold and silver continue tosoar. Investors are betting that governmentsand central bankers will attempt to inflate awaytheir liabilities and protect bondholders fromany kind of haircut. As the Fed prints dollars andother countries take action to mitigate the infla-tionary effects, precious metals should continueto benefit as investors move to the worlds ulti-mate store of value and medium of exchange.

AN ODD MIXOF SIGNALS,SO BUY GOLD

DAVID MORRISONCFD MARKET STRATEGIST, GFT

Investment | Contracts for Difference 19CITYA.M. 7 DECEMBER 2010

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