cityam 2010-12-23

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FTSE 100 5,983.49 +31.69 DOW 11,559.49 +26.33 NASDAQ 2,671.48 +3.87 /$ 1.54-0.01 / 1.17-0.01 /$ 1.31unc Certified Distribution1/11/10 - 28/11/10 is 113,348

A FORMER New York state attorneyhas said the lawsuit filed against Ernst& Young (E&Y) for allegedly assistingLehman Brothers financial fraud islikely to be based on strong evidenceand have a high chance of success.

Attorney general Andrew Cuomo'soffice will have made sure they havea slam dunk for a settlement at the

very least, lawyer and former stateprosecutor Stuart Meissner told City

A.M. last night.US lawyers havetypically got sig-

nificant email correspondence toback up the attorney generals case,Meissner said, largely as it has onlylimited resources and attorneys at itsdisposal so must be highly selectiveabout the cases it pursues.

Ernst & Young faces a civil com-plaint of misleading investors about

Lehmans financial health, by filingclean audits despite being aware thatthe bank was using an accountingloophole, Repo 105, to remove billionsof dollars of risky assets from its bal-ance sheet at the end of each quarter.

Ernst & Young has rebuffed thecomplaint, issuing a statement todaysaying it would vigorously defenditself against the civil claims alleged.

There is no factual or legal basisfor a claim to be brought against an

auditor where the accounting for theunderlying transaction is in accor-dance with the Generally Accepted

Accounting Principles, it said.

Meissner said the case may also haveimplications for other auditors of

banks that subsequently failed orreceived bailouts.It is certainly a shot across the bowsof any large public auditing firmauditing financial services firms, hesaid, as it showed they could be prose-cuted not just by civil litigants, but bythe attorney general.Meissner was a New York state attorneyon financial cases under Eliot Spitzer.

BY ALISON LOCK

ENFORCEMENT

Cabinet secretary Gus ODonnell (l) said that he was satisfied with Jeremy Hunts position (r) Pictures: REX

CULTURE secretary Jeremy Huntssuitability for taking over the mediaregulation brief was called intoquestion yesterday as cabinet secre-tary Gus ODonnell said that he hadtaken legal advice regarding Huntsimpartiality.

Hunt has found himself thrustinto the controversy surrounding

business secretary Vince Cable afterDavid Cameron transferred all ofCables responsibilities relating toregulation of the media to him.

The changeover means that Hunt will be responsible for decidingwhether News Corporations proposedbuyout of Sky is allowed to go ahead.

But he was embroiled in a row overhis past expression of support forNews Corp, in light of Cables demo-tion over his hostility to the firm. Hunthas in the past spoken in favour ofMurdoch, saying that he has probablydone more to create variety and choicein British TV than any other single per-son.

Shadow business secretary JohnDenham said that Hunts praise forMurdoch makes him unsuitable forhis new role: It is very hard to see howany decision Jeremy Hunt makes willenjoy complete confidence, he said.

In a letter addressing Denhams con-

cerns, ODonnell said that he had beenforced to take into account Hunts pastcomments on News Corp in consulta-

tions with lawyers over the transfer of

powers.In the remarks Denham cited, Hunt

said: We would be the poorer and

wouldnt be saying that British TV is

the envy of the world if it hadnt beenfor Murdoch being prepared to takethat commercial risk (by investing in

Sky).

But ODonnell said that he was ulti-mately satisfied that those state-ments do not amount to apre-judgment of the case in question.

It also emerged that Hunt had metprivately with News Internationalchief executive James Murdoch uponhis appointment as culture secretary.

There were reports yesterday thatNews Corp is now so confident thatthe buyout will be passed by regulatorsthat it has cancelled a planned adver-tising campaign aimed at promotingthe bid.

Lord Fowler, the veteran conserva-tive, said that the News Corp bid forSky should be decided by an independ-ent body.

Meanwhile, Cable was under contin-ued pressure to quit in the wake of hisremarks that he is at war with RupertMurdoch. He was stripped of his regu-latory powers over the media due tothe remarks but MPs on both sides ofthe House have called for him toresign.

Backbench Tory MP ChristopherChope told City A.M. that Cable has dis-credited his position. The PrimeMinister and deputy prime ministerrecognise that hes a failure and nor-mally what happens is if youre a fail-ure then youd get the boot.

Jeremy Hunt declined to commentyesterday.

MORE LIB DEM MPS EXPOSED: P2

HUNT UNDER PRESSUREOVER MURDOCH LINKS

BY JULIET SAMUELPOLITICS

US attorney generalAndrew Cuomos officeis pursuing a civilcomplaint againstauditor Ernst & Young

www.cityam.comIssue 1,291 Thursday 23 December 2010 FREE

Top lawyer: US has a strong case against E&Y

BUSINESS WITH PERSONALITY

MERRY XMAS &A HAPPY NEW YEAR

CITY A.M. WILL RETURN ON 4 JANUARY 2011

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News2 CITYA.M. 23 DECEMBER 2010

BAA chief willgive up bonus

BAA chief Colin Matthews will relin-quish his 2010 bonus, following criti-cism of the operators handling of badweather at Heathrow airport.

Matthews refused to confirm theamount of money involved when heannounced his decision yesterday, butcompany accounts put his total earn-ings including bonus at 944,000 forlast year.

Despite Heathrows second runwayreopening yesterday, two thirds offlights using the airport are still facingdelays, and Matthews admitted thatthe response had been insufficient.Passengers have been hugely disrupt-ed, he said in a statement. I want tofocus entirely on getting them wherethey want to be.

Gatwick airport, which BAA sold to

Global Infrastructure Partners last year, has fared better during therecent cold weather. The operatorshave put this down to increased invest-ment in snow-clearing equipmentused by airports in Switzerland, withsix new snowploughs ordered fromZurich in the past month.

As BAA denied that a shortage of de-icer was to blame for the delay in clear-ing runways, UK road officials warnedthat more than half of the countryssalt stocks had already been used, andthat rationing could be introduced tomaintain supplies.

BY ELIZABETH FOURNIER

TRANSPORT

Happy Christmas to all our readers

AS another year draws to a close we atCity A.M. have good reason to feel for-tunate about the way things turnedout in 2010.

Firstly, it was a sensational year fornews, both financial and political.

In the financial sphere, there wasthe takeover of Cadbury by Kraft,which brought all sorts of calls at theend of it for a reform of the Citystakeover rules.

Then there were the deals that didnot go ahead, like BHPs hostile bidfor Potash and the Prudentials bid forAIA.

As we showed by the people weincluded in the CityJet/City A.M. PowerHundred it was the year that the Citytruly got back to work after the peri-od of the credit crunch .

Politically, 2010 has been a trulydramatic year, with the general elec-tion ending in a stalemate and ulti-mately a coalition government.

For us, it was a historic occasionsince we published our first ever after-noon edition on the day after the elec-tion vote, with reporters workingthrough the night here to give read-ers our insight into the results andwhat they meant for the City and thefinancial markets.

Also in 2010 we held our first annu-al awards ceremony, attended bymore than 450 people, at which LordCoe made a truly inspiring speechabout London and the run-up to theOlympic Games in 2012. The eventattracted a host of high profile figuresfrom the City and was generally con-sidered a success.

And most recently we have been

extending the distribution ofCity A.M.so that more of our readers get thechance to see the newspaper at the beginning rather than the end oftheir journeys.

Last, but not least, the newspaper,now in its sixth year, is currently mak-ing a profit, thanks to the tremen-dous support of our advertisers andsponsors. So a big thanks all round,most of all to our readers whom wehope enjoy the best of health overchristmas and the New Year.

As we head into 2011 much of theearly focus of the financial marketswill be on the effects of the public sec-tor cuts on the private sector and theeconomy as a whole. As a newspaper we dont believe the economy willtake a nosedive, all things beingequal. But given that all things arerarely equal, any number of eventscould derail the success of the auster-ity programme.

Ill be looking with interest at thedirection the Labour party takes. Thepresent government does not think it

needs a Plan B in case its measuresfail to grow the economy but it is cru-cial for Labour that it gets in place aneconomic Plan that provides the pub-lic with an alternative to current poli-

cy. Otherwise opponents and thereare many, of course have nowhere tohead but to demonstrations andprotest marches (of which there willbe plenty).

Observing the paucity of ideas fromthe opposition now on the economy,it seems hard to believe that for alarge part of the partys 13 years inpower it rubbed along with the busi-ness community rather well and thatfor much of that period the UK was agood place to do business in.

Today Ed Milibands party lookssidelined, content to watch on as theLib Dems and Tories fight amongstthemselves but as yet offering very lit-tle of their own. Its time to do some-thing about it. If the economy takes awrong turn now, we could be headingfor an election sooner than we think.

[email protected]

FURTHER lurid comments emergedfrom Liberal Democrat ministerssecretly-taped conversations yesterday.

Ministers criticised Prime MinisterDavid Cameron and chancellorGeorge Osborne's privileged back-grounds and described them asuntrustworthy, new exerpts fromconversations with undercoverTelegraph reporters revealed.

Deputy leader of the House David

Heath, said Osborne had a capacityto get up ones nose and had noexperience of how ordinary peoplelive, while local government minis-ter Andrew Stunell said he did notknow where the Prime Minister stoodon the sincerity monitor.

I dont want you to trust DavidCameron, care minister Paul Burstowsaid. The revelations were the thirdday of embarrassment for the govern-ment after comments from VinceCable threatening to bring down thecoalition were published.

BYALISON LOCK

POLITICS

More Lib Dems exposedDavid Heath, deputy leader of the House, has been recorded criticising George Osborne

NEWS | IN BRIEF

The Power Hundred draw resultsCongratulations to seven of our readerswho have each won a pair of flights fromCityJet airport after taking part in ourcompetition to help choose theCityJet/City A.M. Power Hundred, pub-lished yesterday. The winners are: PaulSchofield, Andrew Burke Walsh, Michael

Ellis, David Doumani, Natalia Poupar,Alice Burden and Natalie Block. Therewere 176 valid entries in total.The readers entries for the three mostpowerful people in the City lookedremarkably similar to our own choice,with Bank of England governor MervynKing topping our list.

US GDP growth revised upwardsAmerican GDP growth was revised onlyslightly upwards for the three months toSeptember, it was revealed yesterday.Compared to the same time the previousyear, the economy grew by 2.6 per cent,up just 0.1 per cent from the previousestimate. Economists had expected alarger revision, yet weak consumerspending deflated the figures. And thenumber of US home sales for Novemberalso showed lower than expectedgrowth 4.68m sales. ECONOMICS: P8

DEPUTY EDITORS LETTER

DAVID HELLIER

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

EditorialEditor Allister HeathDeputy Editor David HellierNews Editor David CrowNight Editor Katie HopeBusiness Features Editor Marc SidwellLifestyle Editor Zoe StrimpelSports Editor Frank DalleresArt Director Craig GaymerPictures Alex Ridley

CommercialSales Director Jeremy SlatteryCommercial Director Harry Owen

Head 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]

BAA chief ColinMatthews will forgohis 2010 bonusfollowing disruptionat Heathrow airport

PATTEN TOPS LIST TO CHAIR BBCTRUSTSix people are on the shortlist to bethe next chairman of the BBC Trust,according to two insiders who haveseen the document. Lord Patten, for-mer Conservative party chairmanand the last governor of Hong Kong,is clear favourite. But Sir HowardDavies, director of the London Schoolof Economics, might be preferred ifthe BBC were to be subject to morestringent reforms, the pair said.

ONION CRISIS ADDS TO INDIAN PMSWOESManmohan Singh, Indias PrimeMinister, already under fire over amultibillion-dollar telecoms corrup-tion scandal, suddenly has a moredown-to-earth problem on his plate

the skyrocketing price of onions.Their price at Indias retail vegetable

markets has doubled from Rs35($0.78) per kg to Rs80 in the past few

days, angering consumers alreadyfeeling the pinch from a year of foodprice inflation and rising fuel prices.

WALL STREET POISED FOR EARNINGSHIT Wall Streets fourth-quarter resultsare set to be dogged by sluggish trad-ing activity as Europes economicwoes and rising competition deprived banks such as Goldman Sachs andMorgan Stanley of a key source ofprofits, executives and analysts said.Lacklustre earnings in fixed incometrading in the past two quarters of2010 after a robust first half will putpressure on banks to pay smallerbonuses to traders. Last year, as thefinancial crisis receded, star tradersin the bond, foreign exchange andcommodities markets received largepay-outs on the back of surging prof-

its. Several analysts have already cuttheir fourth quarter profit forecasts.

LET RIVALS JOIN THE WHITEHALLCLUB, FOX WARNS DEFENCE ELITELiam Fox has demanded that Britainsmost powerful grouping of defencecompanies become more representa-tive and less clubby or risk beingfrozen out of government circles.The defence secretary is understoodto be concerned that while theDefence Industries Council has accessto the highest levels of his ministry, itrepresents only nine of the 9,000companies in the sector.

TYCOON SET TO TEST APPETITE FORREDBACKHong Kongs wealthiest tycoon ispoised to test the citys appetite forrenminbi-denominated shares with a10bn renminbi (977m) of stock in aREIT as the former British colonyseeks to make itself the global launchpad for the Chinese redback.

UK ECONOMY COULD CONTRACT IN2011, WARNS BANK OF ENGLAND'S PAULFISHERA senior Bank of England official haswarned that the economy may sufferanother period of contraction in 2011,more than a year after the recessionofficially ended. Paul Fisher, executivedirector of markets and a member ofthe Monetary Policy Committee(MPC), warned: Its not impossiblethat we would see a quarter of nega-tive growth.

RECORD 10BN DROP IN UK EXPORTSBLAMED ON BANKER BASHINGOfficial figures show the biggest everdrop in UK exports of f inancial servic-es down by 10bn or one fifth in ayear according to a leading econo-mist who blames banker bashing crit-ics in government and the media. Tim

Congdon has based his analysis onCentral Statistical Office figures.

WALGREEN PROFIT RISES 19 PER CENTWalgreens earnings rose 19 per centas the drugstore operator benefitedfrom cost controls and its slowing ofnew-store openings. The USs largestdrugstore chain has seen its monthlyresults mostly buck the sectors gen-eral weakness, with pharmacy opera-tions that far outpaced its rivals.

AIG NEARS CHOICE OF BUYER FORTAIWAN LIFE INSURERDirectors of American InternationalGroup are expected to confer todaytotry to agree on a preferred bidder forits Taiwan business, according to peo-ple familiar with the situation. Thatchoice likely will be announced nextweek, the people said. AIG has beenstruggling to raise more than $2bn byselling Nan Shan Life Insurance. Thecompany has been winnowing the

list of suitors based on who is likely towin approval from a local regulator

WHAT THE OTHER PAPERS SAY THIS MORNING

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TWO of Europes biggest alternativeequity trading venues are in exclusivetalks, it was announced yesterday, ina sign that the sector is starting toconsolidate.

BATS Global Markets, which oper-ates the third-largest US stockexchange and Europes second-biggest alternative trading platform,is in talks to buy Chi-X Europe,Europes second-largest stockexchange. The two platforms combined would create the biggestexchange in Europe by volume.

In a statement, the companies saidthey had entered exclusive negotia-tions regarding the potential sale ofChi-X Europe to BATS Global Markets.

Chi-X, which facilitated trading of372.2bn (315.4bn) turnover in thethird quarter of this year, has beeneffectively up for sale since Augustwhen it announced a third party hadenquired about buying it.

The exchange, established in 2007,hired London-based investment bankLexicon Partners to advise it andreportedly discussed a takeover deal with US exchange Nasdaq and the

NYSE Euronext among other biddersbefore settling on BATS.

Sources told City A.M. that atakeover of Chi-X Europe should bewelcomed by shareholders, as neitherexchange is currently profitable, dueto the competition for trades betweenup to 40 alternative platforms inEurope. They dont make any moneyso it would make sense for the two toconsolidate, one said.

BATS Europe has a weekly turnoverof about 10-15bn and about a 12 percent market share of FTSE100 trading,data from technology providerFidessa shows, while Chi-X Europehas about a 25 per cent share ofFTSE100 trading. BATS US exchangehas weekly turnover of about $15-20bn, according to Fidessas data.

Equity trading in Europe has frag-mented since European regulationremoved national stock exchangesmonopolies over where stocks couldbe bought and sold in November 2007.

Alternative trading venues haveflourished, but their high runningcosts and the limit on total trading volumes mean they are fightingfor a shrinking pool, and manyhave an unsustainable model, thesource added.

Chi-X Europe

and BATS inexclusive talks

ASTON Martin is in talks withDaimler over a potential partnershipthat would see the British luxury car-maker design and build the Germancompanys Maybach brand.

Aston Martin, renowned for mak-ing vehicles driven by James Bond, isexpected to take engine technologyfrom Daimler in exchange for build-

ing cars potentially halving the costof developing the new car.Daimler has already commissioned

a mock-up of the new car whichcould feature at the Frankfurt CarShow in 2011.

Daimler manufactures the upmar-ket Mercedes-Benz car range from fac-tories in Germany and the US.

Despite sluggish sales, Daimlerrecently denied rumours that it wasplanning to drop the Maybach.

Aston Martin joinsDaimler on new car

FORMER BP chief Lord Browne is con-sidering buying businesses from hisformer firm as BP divests assets toraise cash for its US lawsuit.

Riverstone, the US private equityhouse at which Browne is now a part-ner, is reportedly considering bids forBP businesses being auctioned.

Assets include its Canadian naturalgas liquids processing facilities worth$2bn (1.3bn), recently put up for sale.

The move would mark a return tomanaging assets that Browne man-aged during his tenure at BPs helm,

Sky News reported yesterday. Browneis credited with building BP into a

global energy player before handingit over to Tony Hayward in 2007.

There is no guarantee thatRiverstone will make any formal bids,the report said.

The assets have been put up for saleto raise an estimated $30bn for use asBP fights a $21bn US government law-suit resulting from the Gulf of Mexicooil spill this year. BP announced last week that it will sell oil-producing blocks in Pakistan to a Hong Konginvestor, UEG, for $775m, in a movethat will take its total raised to $22bn.

New York-based Riverstone, whichspecialises in energy investments, has

also reportedly been mulling a bid forShell-owned oil fields in Nigeria.

Lord Brownes US fund is mullinga bid for auctioned BP assets

BYALISON LOCK

FINANCIAL MARKETS

ENERGY

BATS chief execu-tive Joe Ratterman(l) and Alasdair

Haynes (r), chiefexecutive of Chi-X

Europe, are now inexclusive talks

BYKATIE HOPEAUTOMOTIVE

News 3CITYA.M. 23 DECEMBER 2010

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NORTHERN Foods yesterday con-firmed it had been approached byrival Boparan Holdings about a pos-sible cash takeover offer, less than amonth after it agreed to a merger

with Irish food manufacturerGreencore.

Boparan, the owner of HarryRamsdens restaurants and the

biggest chicken producer in Europe,has been granted access to Northernsfinancials after writing to the compa-ny last week.

Ranjit Boparan, the millionaire behind the interest, has hiredRothschild to advise on a possibleoffer. He has increased his sharehold-ing in Northern Foods from less thanthree per cent to 6.6 per cent since

the Greencore merger wasannounced on 17 November.The current merger represents a nil

premium to shareholders, which sev-eral insiders said would likely be bet-tered if a rival proposal does emerge.

Northern and Greencore bothreleased statements reiterating their

boards support for the existing dealto create a new firm, Essenta. An EGMto approve the deal is scheduled for31 January.

Northern Foods bounced up 4.1 percent to close at 63p yesterday, whileGreencore fell 6.5 per cent to 1.25.

Boparan eyesNorthern bidBYMARION DAKERS

M&A

AUSTRALIAS Qantas Airways plans toreturn more of its Airbus A380 super-

jumbos to service after disruptioncaused by the blow-out of a Rolls-Royce engine on one of its jets lastmonth.

The carrier said it will have five A380s in service by the end of the week as it prepares to handle peaktraffic at the start of the Southern

hemisphere holiday season.Qantas was forced to ground its sixsuperjumbos after a Rolls Trent 900engine on one of its A380s partly dis-integrated mid-flight on 4 November,forcing an emergency landing.

Qantas will have four of its older A380s in service this week and willalso add a new A380 to the fleet. Itadded that another new superjumbois expected to arrive in January.

One of its older A380s remainsunder inspection while the aircraft

involved in the November incident isbeing repaired.Qantas has threatened legal action

against Rolls to secure compensationfor costs incurred as a result of theengine failure on the Singapore toSydney flight.

Air regulators said that checksimposed on all A380s run by Qantas,Lufthansa and Singapore Airlines

were being reduced after investiga-tors moved closer to identifying thecause of the accident.

Qantas to put more A380sback in the air after accidentBY PHILIPWALLERAVIATION


BATTERSEA REDEVELOPMENT GETS OKAY

MAYOR of London Boris Johnson gave the go-ahead yesterday for the redevelopment ofBattersea Power Station and its surrounding area. The new scheme is part of a wider5.5bn development that involves an extension to the Northern Line and the constructionof thousands of homes, plus retail and office space. The proposal will now go before thesecretary of state for communities and local government. Picture: GETTY

46

50

54

58

62

4 Nov 25 Nov 17 Dec28 Sep 19 Oct

ANALYSIS l Northern Foods

p

63.0022 Dec

Management should stick to Plan ARANJIT Boparans plan to bid forNorthern Foods might be audacious, butthe odds are stacked against it. Analready-planned merger betweenNorthern Foods and Irish rival Greencoreis still the best deal on the table.The marriage of Northern and Greencore the two leading chilled players in theUK market would bring significantbenefits; cost synergies are expected tototal some 40m. However, the mainadvantage would be the extra clout thatthe pair could expect as the number oneplayer in private label ready meals.Currently, the market is too fragmented;

smallish firms lack the scale required to

extract a decent return from increasing-ly powerful supermarkets.As a specialist in raw rather than pre-pared chicken, Boparans 2 Sisters foodwould be a less suitable partner; the syn-ergies would be smaller and the bargain-ing power less strong. It could alsostruggle to swallow Northerns 140mpension deficit, which is one of the keyparts of its merger structure withGreencore. For that reason, manage-ment should stick with Plan A.

BOTTOMLINEAnalysis by David Crow

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GROWTH in the middle of the yearwas slightly less than previously esti-mated, the Office for NationalStatistics (ONS) revealed yesterday.

The economy expanded by 0.7 percent in the third quarter of 2010, and

by 1.1 per cent in the second. Yet theONS revised both levels down by 0.1per cent on their November estimates.

The declines are nothing to be tooconcerned about, according to

Andrew Goodwin, economist at the

Ernst and Young Item Club. Growthat that level is certainly not to besniffed at -- six months ago we wouldhave happily taken that, he added.

And investment for the threemonths to September grew by 3.4 percent on the previous quarter, a hugerise from the previous estimate of 0.6per cent driven largely by businessinvestment, which totalled 30.2bn.

We expect to see a steady recoveryin investment in the quarters ahead,said Hetal Mehta of Daiwa CapitalMarkets.

And personal savings were healthierthan expected. On average householdssaved five per cent of their disposableincome, up from Novembers estimateof 3.5 per cent, while households dis-posable incomes grew by 1.1 per cent.

The higher level of saving is com-

forting, said Philip Shaw of Investec.It gives households a bigger buffer ofunspent disposable income to with-stand next years spending cuts andany further increases in costs such asfood prices.

The UK recovery is still strong andconfirms our assessment that theeconomy will be able to cope with thedeficit cutting programme without amajor relapse, said David Kern of theBritish Chambers of Commerce.

However, there was also an increasein less sustainable elements of growth,such as stockbuilding. Growth in stock-

building for the three months toSeptember tripled, to 0.3 per cent.

And the contribution of govern-ment expenditure fell by 0.4 per centin the third quarter, a downward revi-sion from the previous estimate,

which showed a 0.6 per cent rise. Although on Tuesday the ONS

released figures for November show-ing an surge in government spending,sending the deficit back to worryinglevels for chancellor George Osborne.

Yet economists at least remain confi-dent of private sector performance.

Manufacturing is still growing at astrong pace, said Chris Williamson ofMarkit. It is likely to lead the economygoing into 2011, taking advantage ofrising demand in key export marketssuch as the US, Germany, France,China and the Middle East.

Pace of UKsgrowth startsto slow downBY JULIAN HARRIS

UK ECONOMY

NET migration will not fall by muchnext year despite the Conservativespledge to reduce it to tens of thou-sands, the Institute for Public PolicyResearch (IPPR) said today.

And the governments measuresto restrict immigration face legalchallenges from opponents and

attacks from business groups.Entrepreneurs and investors will

no longer be able to enter the UK onTier 1 applications, the govern-ment suddenly declared yesterday.

The early closure of the currentroute will be an extra hurdle for

business ahead of the permanentcap, responded Baroness Jo

Valentine of London First.The government wants to reduce

the annual number of non EU eco-nomic migrants to 21,700.

But last week the High Courtupheld a challenge to the currentcap on non EU immigration.

And immigration from within EUperipheral countries is likely toincrease, the IPPR said.

The cap on skilled migrationfrom outside the EU could hurt theeconomic recovery, it said.

Crisis for government migration capBY JULIAN HARRIS

UK ECONOMY

Economics8 CITYA.M. 22 DECEMBER 2010

WILL THE WEATHER AFFECT YOUR HOLIDAY PLANS?Interviews by Tom Chatfield

No, I dont think it will.Ill be fine thisChristmas. Im stayingat home so the weath-er doesnt affect myplans.

MARTIN ZETTER |LLOYDS

ALAN DIXON |INTER HANNOVER

JACK MANDUIT |DELOITTE

Ill be absolutely fine,I am at home thisChristmas. Its gettingto work that is hard!

Hopefully the weatherwont affect my plans. Iam coming into Londonfrom the south east sothe weather couldaffect the trains.

ECONOMIST VIEWS: ARE YOU CONCERNED BYTHE DOWNWARD REVISIONS? Interviews by Julian Harris

HOWARD ARCHER | IHS GLOBAL INSIGHT

While disappointing, it does not fundamentally changethe picture that economic activity held up well in the thirdquarter after robust growth in the second quarter.

Chancellor George Osborne hopes the economy will continue to recover

PHILIP SHAW | INVESTEC

Well the broad picture remains the same, which is thatGDP growth was impressively robust over the second quarterand third quarter of the year.

VICKY REDWOOD | CAPITAL ECONOMICS

The raft of UK data do little to improve the prospectsfor the economy next year, although the detail contained bothencouraging and worrying aspects.

Picture:MichaTheiner/CityA.M.

INFLATION could well reach four percent by the spring according to theBank of Englands Monetary PolicyCommittee (MPC) minutes, released

yesterday.The forecast is higher than the rate-

setting body predicted just onemonth earlier, yet interest rates areunlikely to be increased in the shortterm, after eight of the committeemaintained their opposition to ahike.

Andrew Sentance remains the onlymember proposing a rise in rates, by0.25 per cent, with Adam Posen theonly member to propose more quanti-tative easing.

Yet the MPC is more hawkish than before, according to the minutes,released yesterday, from its meetingin early December.

The minutes hint that even theseven of the nine members who votedto hold policy steady now believeinflation may endure. Its medium-term target for annual prices rises istwo per cent.

The minutes said that most ofthose MPC members who thoughtthe current policy stance appropriateconsidered that the accumulation ofnews over recent months had proba-

bly shifted the balance of risks toinflation in the medium termupwards.

This marks a subtle shift fromNovembers minutes, in which onlysome MPC members thought risks toinflation expectations had risen.

The minutes said MPC members were ready to act if the balance ofrisks changed significantly.

MPC forecastsinflation to hitfour per cent

UK ECONOMY

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over 40 colours at no extra

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double savings.

998Was 1998 Sale 1498

The Samuel 3 seater sofa 399. Or take 4 years interest free credit with nothing to pay for the first year. No deposit and 36 equal monthly payments of 11.08 starting 12 months from date of order. Total 399. 0% APR.

Credit subject to acceptance. Delivery charges apply. Redhouse Interchange, Doncaster, DN6 7NA. DFS may alter or extend promotion at any time. Mobile charges may apply when calling 0800 110 5000.

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For your nearest store details call 0800 110 5000.Also atBasildon, Colchester, Hove, Luton, Maidstone, Milton Keynes, Peterborough, Reading, Slough, Stevenage, Tunbridge Wells

CroydonValley Park, off Purley Way, Daniell Way CR0 4YJ. 020 8688 0083EnfieldGreat Cambridge Road EN1 1SQ. 020 8364 5404Brent CrossBX Shopping Park, Tilling Road NW2 1LJ. 020 8452 1560SidcupCrittalls Corner, Sidcup Bypass DA14 6LX. 020 8308 9177South RuislipVictoria Retail Park, Victoria Road HA4 0AJ. 020 8842 2503New MaldenShannon Retail Park, Shannons Corner KT3 4RP. 020 8949 7066BecktonBeckton Triangle Retail Park, Clapsgate Lane, E6 6LH. 020 8507 3880RomfordGallows Corner Retail Park RM3 0AD. 01708 335588WatfordColne Valley Retail Park WD17 2JZ. 01923 219693

8/8/2019 Cityam 2010-12-23

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banks 500m outlay, but the 2.7mrestaurant will do its best to serve theinflux of new bankers. It will feature notonly a full Scottish menu along the lines

of its Bishopsgate and Belgravia branch-es, but is also boasting of plans to buildthe worlds largest whisky bar, with aselection of over 1,000 whiskys.

The Scotch drinkers will need a decentaccompaniment for their glasses, to besupplied in the form of a cigar shop fea-turing a range of Cuban cigars and a1000-foot, heated smoking terrace and

walk-in humidor.

MERRY RISK-MASYouve got to applaud the effort. In a des-perate attempt to make insurance festive,Lloyds of London has announced theappointment of a Christmas risk officer.

The new CRO, Mrs Santa Claus, is believed to be unhappy about theappointment but accepts that someonehas to do it, said Lloyds in a release on

Tuesday, calling Father Christmas deliv-ery strategy an inherently hyper-risky

business model.The Capitalist understands that Claus

will be responsible for polishing Rudolfsnose on misty nights and making sure it islit with the right wattage.

Santas reputation is based on hims u c c e s s f u l l y making everydelivery on

time, on theday, says a consultant. He

misses a delivery; he loses the franchise. And so on. Time for a holiday,

methinks.

WE NEED YOUDo you enjoy lunching, partying andmeeting the best and brightest in the

City? If so, City A.M.wants you to becomethe new Capitalist.

Were looking to hire someone whosalready familiar with the ebb and flow

of City life, with its constant stream ofparties, champagne receptions andgalas.

You will already know some of theCitys biggest characters, and will needto quickly learn the names and faces ofthe rest.

You dont need formal experience as a journalist, but must have a knack forpicking up gossip, an eye for the comicand curious and potential as a witty

wordsmith.Those interested should apply by writ-

ing a sample article for the Capitalistpage, based on a good party or an inter-

esting snippet of news, along with a CVand covering letter.

Applications should be sent [email protected]

TEMPERSFLARE AT

PWC CAROLSERVICE

YOU might think that playing the organat the office Christmas carol service is apretty uncontroversial activity.

Not so for a professional organist (astheyre called) engaged forPricewaterhouseCoopers annual festivesingsong. The stage was set, the decora-tions tweaked and the set list compiled

when all went awry.It seems that Philip Mills, the organis-

er of the event and a director in thefirms legal division, had a very defini-tive vision of how it should all go down.

The problem being that the organist didas well.

Details are hard to come by, but weunderstand that the two had a creativedifference about the mist machine thathad been hired to give the event anatmospheric feel.

The result was a full-on strop by ourorgan player, who was so incensed byMills cramping his style that he stormedout five minutes before the show wasdue to start, leaving the choir of twodozen PwC workers without theirChristmas accompaniment.

What to do, as the first of the 200attendees filed in through the beautiful-ly arranged mist?

Luckily, a hero was on hand: PwC con-sulting expert Charles Hildebrandt

bravely stepped up to the plate. He had-nt played an organ in seven years, but aquick read-through of the score, and hesettled in for a f lawless concert.

The audience was none the wiser until now.

CANARY WHARF COUPIts not just JP Morgan planning a biginvestment in Canary Wharf real estate.Boisdale restaurant, the smokers haven,known for its extensive range ofcigars for sale, is alsoopening up shop in theSquare Miles rivallocale, with a branchcoming to Cabot Place in

April.It might not be on the scale of the

A back-up organistfrom PwCs consultingarm saved the day

Pictures:GETTY, REX, SXC

The Sunday Jazz Brunch is served from

12.00 am to 5.00 pm.

Live jazz is performed 1.00 pm - 3.00 pm.

Bookings: 020 7730 6922 or

[email protected].

Boisdale of Belgravia,

15 Eccleston Street,

Belgravia, London SW1W 9LX

Tel: 020 7730 6922 Fax: 020 7259 1257

www.boisdale.co.uk

OPEN AFTER THECHRISTMAS PERIOD

BOISDALEOF

BELGRAVIASUNDAYJAZZBRUNCH

Santas deliveries: a hyper-risky business model

It isunderstoodthe organist

and theorganiser hada creativedifferenceabout themist machine

CITY EYE

A businessmanstands at the top ofthe Gherkin sky-scraper in the City.

Picture: Rex

The Capitalist10 CITYA.M. 23 DECEMBER 2010

EDITED BY

JULIET SAMUELGOT A STORY? [email protected]

8/8/2019 Cityam 2010-12-23

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SUPPORT services group Mouchel hasrebuffed a 119m takeover approachfrom building company Costain.

Mouchel, which was the target ofan unsuccessful takeover attempt

by former rival VT Group last year,said Costains 105.8p per share pro-posal significantly undervalued the

business.Costain, which made its approach

on 2 December, said Mouchel rejectedthe all-share offer on 6 December andthere were currently no discussionstaking place between the pair.

Costain chairman David Allvey saidhe believed there was a compellingstrategic rationale behind combin-ing the two businesses.

He said the deal would create value for both companies share-holders by bringing together two ofthe UKs premium brands in con-sulting, construction and care,

which would have a combinedorder book of more than 4bn.

He said the deal would create sig-nificant savings, would improve earn-ings and dividend income and wouldprovide the potential for a re-rating ofthe combined business.

Mouchels shares rose 23.5p to96.5p while Costains stock dropped

by a penny to 205p.Mouchel, whose operations range

from highway maintenance to con-sulting for local authorities, has beenhit hard by government cutbacks.Earlier this month it embarked upona strategic review of its business.

Rival support services firm VTGroup, which is now part of defencegroup Babcock, tried to buy Mouchellast year before dropping its interestto try to fight Babcocks takeover bid.

Costain is boosting consultancyand maintenance operations along-side building and engineering.

At the end of June, 14 per cent of its2.5bn order book was in operationsand maintenance.

Under the terms of the deal,Mouchel shareholders would ownabout 48 per cent of the combinedgroup.

Mouchel says

no to 119mtakeover bidBY PHILIPWALLER

SUPPORT SERVICES


INVESTEC is acting as financial advis-er and broker to Costain while RBSHoare Govett is representing Mouchel.

Charles Batten, James Rudd andDavid Anderson at Investec act forCostain and Neil Collingridge, SaraHale, Stephen Bowler and JohnMacGowan at RBS Hoare Govett repre-sent Mouchel.

Stephen Bowler is an executivedirector at RBS Hoare Govett focus-ing on oil and gas and mid-cap busi-

nesses. He specialises in domestic

and cross-border M&A, equity fundraisings and listings of UK compa-nies.

Bowler was a manager at ToucheRoss from November 1995 toNovember 1999 and joined RBS inDecember 1999.

Bowler is a veteran of several dealssuch as a 350m fundraising by pri-

vate equity lender IntermediateCapital last year.

Bowler and RBS colleague JohnMacGowan advised Dana Petroleumon its 1.8bn takeover by KoreanNational Oil Corp.

MacGowan also advised the oilexplorer on its 270m purchase ofDutch oil company Petro CanadaNetherlands in June and guidedplumbing specialist BSS on its pur-chase by builders merchant Travis

Perkins.

INVESTEC

RBS HOAREGOVETT

40

120

80

160


ANALYSIS l Mouchel Group

p

96.5023 Dec

The UK will pay for US net neutrality rules

THE US Federal CommunicationsCommission (FCC) announcedon Tuesday that it wouldenforce the controversial princi-

ple of net neutrality in the US. The

issue of whether or not it has thelegal mandate for this statement willno doubt bring on a multitude of law-suits, as Republican federal commu-nications commissioner RobertMcDowell said over the weekend. But

what, if anything, does this mean forthe UK and the EU in general?Net neutrality is a confused term

that means all internet traffic shouldbe treated equally by internet serviceproviders (ISP). That sounds like agood idea, but in practice ISPs usetraffic management every day toensure timely delivery of email to onecustomer and video streaming toanother. Without traffic manage-ment, the internet as we know it

today would suffer from greater con-gestion and issues with content deliv-ery. Net neutrality attempts toregulate the internet, but by impos-ing limits on the way ISPs do businessit risks making it harder to use.

Both the EU and UK support a lighttouch approach to internet regula-tion. They believe transparency in

both business offerings and practices will leave room for innovation andinvestment in next generation inter-net technology. That stance isntexpected to change immediately, butthe FCCs announcement willinevitably influence decisions anddiscussions as the 2009 TelecomDirective is implemented next year

for all EU member states.Meanwhile, US ISPs changing how

they do business will impact the UKin a variety of ways. First, content cre-ators like the BBC and ITV (which usemany small production companies

from London) wont be able to strikedeals with ISPs in the US because theFCC has banned ISPs from doing so todifferentiate their content offerings.

There is also now no guaranteethat the BBCs international iPlayer,due to launch next year, will not faceprogrammes delivered with delays orsevere buffering because all content

will have to be treated the same.Major ISPs with an international

presence in the UK and the EU will

now have to invest in managing theFCC rules in the US.

This will mean slower innovation,fewer jobs created and less invest-ment in their international business,as ISPs review their internal processes

and put more time and effort intoachieving neutrality.Though this might sound grim, the

good news is that the FCC hasntapplied such strict measures to wire-less broadband. So in the US we willsee more investment in wireless

broadband, the fruits of which willbenefit their businesses in the UK andthe EU as well.

Dominique Lazanski is technology policyanalyst for the Taxpayers Alliance

BUSINESS COMMENT

DOMINIQUE LAZANSKI

8/8/2019 Cityam 2010-12-23

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MINING group Rio Tinto couldannounce its A$3.8bn (2.5bn) offerfor Riversdale Mining today, beforetime runs out on Riversdales trad-ing suspension on the Australianstock exchange.

Talks between the two companies were ongoing yesterday, with Riounderstood to be offering around

A$16 a share for Mozambique-focused Riversdale.

Riversdale could insteadannounce a longer suspension fromthe stock exchange this morning if adeal is not finalised before the mar-kets open, in accordance withAustralian trading rules.

Rio entered talks with Riversdaleat the start of the month, when Rio was said to have offered A$15 ashare. The new offer represents a13.5 per cent premium toRiversdales share price before the

talks were announced.If Rio succeeds, the purchase will

boost its presence in the coking coalmarket, in which rival BHP Billitonalready has a large holding.

Meanwhile, Rio was yesterdaylinked to Russian diamond miner Alrosa, with Russian media report-ing that the London-listed giant waslooking to spend $400m (259.9m)on a 49 per cent stake in the firm.

A spokesperson for Rio declined tocomment on either company yester-day, while Riversdale also declined to

comment. State-owned Alrosa wasunavailable for comment.

Rio Tinto gets ready to offer 2.5bn totake over Australias Riversdale Mining

FORMER Hewlett Packard (HP) chiefexecutive Mark Hurd is fighting tokeep private the letter that led to hisresignation from the technologygiant and has triggered an investiga-tion by the Securities and ExchangeCommission into his departure.

The eight-page letter, in which for-mer HP contractor Jodie Fisher isbelieved to have accused Hurd of sex-

ual harassment, is currently underseal in Delawares Court of Chancery

as part of a shareholder suit filedagainst HP over the executives exit.

The law firm for the shareholdersuit said last month it would publi-cise the letter, but Hurds lawyershave filed a motion to keep the letterprivate.

Hurd has denied having an inap-propriate relationship with Fisher.

His spokesman said on Mondaythat Mark acted properly in allrespects.

After leaving HP, Hurd joined rivalOracle as a co-president.

Ex-HP boss Hurd in bid tokeep Fisher letter private

TECHNOLOGY

CARLYLE Group is in talks to buyAlpInvest Partners, one of the worldslargest private equity investors withmore than 40bn (34.1bn) undermanagement.

Buying AlpInvest, which managesthe private equity investments forDutch asset managers APG and PGGMInvestments, would help Carlylediversify its businesses as it preparesto follow rivals Blackstone Group andKohlberg Kravis Roberts to a publiclisting.

Carlyle, one of the worlds largest buyout firms with $97.7bn undermanagement and investments incompanies such as Dunkin Brands,has been considering an initial publicoffering for years and is expected thatto file papers to go public late nextyear.

On a broad level you can under-stand the motivation, said JoshLerner, a Harvard Business Schoolprofessor specialising in private equi-ty. Private equity has many virtues but one of the downsides is that ittends to be a pretty cyclical business --it has a boom-bust flavor.

It is believed that a deal forAlpInvest could be reached in the firstquarter, although talks have not offi-cially been made public yet.

A sale of the firm has been in theworks for several months, accordingto media reports. APG and PGGMeach own 50 per cent of AlpInvest.

Carlyle is intalks to buy

AlpInvestPRIVATE EQUITY

DUBAIS DP World yesterday movedto cut its debt and focus on emergingmarkets by selling 75 per cent of itsAustralian port operations for $1.5bn(970m) to private equity firm CitiInfrastructure Investors (CII).

DP World considered one of themore profitable units of debt-ladenDubai World said yesterday that it will keep 25 per cent of DP WorldAustralia and will retain earnings bycontinuing to manage the operations.

The ports operator, which said ithad a net debt of $5.9bn, was exclud-

ed from Dubai Worlds $25bn debtrestructuring plan.Creditors gave the plan final

approval in October, a milestone inthe Gulf emirates attempt to dig itselfout of an estimated $115bn debt hole.

DP World chief executiveMohammed Sharaf said all the pro-ceeds will go to reducing net debt andhe had no plans to sell other assets.

DP World has been mullingoptions for the port since 2008.

DP World cuts debt with$1.5bn Australian port sale

M&ASHARES in microchip manufacturer

ARM Holdings jumped yesterday on

reports that Microsoft is working on anew version of Windows for tabletcomputers that would use the UKfirms processors.

The electronics giant is expected touse the Consumer Electronics Show inLas Vegas in January to unveil the soft-ware.

ARMs shares surged 36.75p to anine-year high of 440.25p a rise ofnine per cent.

An ARM spokesman said: ARMs

position is that we never comment onspeculation about our products.

ARM chips are already used in prod-ucts that use Windows operating sys-tems such as the Windows Phone and

satellite navigation technology usingWindows software.But it is understood it would be the

first time they would be used in a prod-uct such as a tablet computer usingWindows software.

Microsoft is thought to be hoping touse the technology to regain an advan-tage lost to rivals Apple and Google inthe pad and smartphone markets.

It only became clear that ARM-designed chips were used in Apples

iPad following its launch in April aftertechnology enthusiasts had taken theiPad apart and identified the parts.

Microsoft took out a licence on ARMtechnology in July, allowing it to use its

designs for its own purposes.The two companies have co-operatedsince 1997 but the new licence wasseen as an expansion of their links.

Broker RBS said Windows Phone 7runs exclusively on Arm, but Windows7 runs exclusively on Intels architec-ture. The broker said it believed ARMchips in a Windows tablet computermay pave the way for them to be usedin notebook, desktop and server com-puters.

ARM surges on Microsoft dealBY PHILIPWALLER

TECHNOLOGY

BYMARION DAKERS

MINING


PROPERTY and casualty insurer Catlinpublished its losses linked to the NewZealand earthquake yesterday, whichwere $10m (6.5m) more than previ-ously thought.

The Lloyds of London insurer saidthe quake in September leaves itexposed to around $45m of claims,net of reinsurance $10m more thanthe groups earlier f igures.

The firm said it has reviewed all itsinsurance contracts and collecteddata from brokers and clients toarrive at the sum.

The vast majority of the loss is dueto property reinsurance contracts written by underwriting hubs inLondon and Bermuda, Catlin said.

Catlin currently puts the totalinsured losses resulting from theearthquake at between $5.5bn and$6bn.

The magnitude seven earthquakeon New Zealands South Islanddemolished shops and homes when itstruck in the early hours of 4September.

The quake brought down powerlines and bridges, and wrecked roadsand building facades but did not

result in any deaths.In its November interim manage-

ment statement, Catlin said claimsfrom the quake were not material.

Earlier this year the firms profitswere dented by $180m losses arisingfrom the Chilean earthquake and theDeepwater Horizon explosion.

The Lloyds market saw its profitcut in half to 628m in the first half ofthe year thanks to the spate of disas-ters. The groups total claims ratiostood at 98.7 per cent of premiums forthe period, up from 91.6 per cent ayear ago.

London-listed shares in Catlinclosed down 1.25 per cent at 369.9p yesterday, giving the firm a marketcap of 1.34bn.

Catlin reveals

losses for NewZealand quakeBYMARION DAKERS

INSURANCE

ANALYST VIEWS: WHAT DO THE NEW ZEALANDLOSSES MEAN FOR CATLIN? By Marion Dakers

BEN COHEN | COLLINS STEWART

It looks manageable from the annual estimates, so the

figures shouldnt change. It seems like Catlin is heading offquestions about the quake before they arrive.

Catlin chief executive Stephen Catlin said losses from the New Zealand quake would total $45m

NICK JOHNSON | NUMIS SECURITIES

The loss is relatively small scale at 7p per share aftertax. Catlin is so far one of the few UK stocks to have pub-lished an estimate for the New Zealand earthquake.

JOANNA PARSONS | RBS

Im not surprised to see the New Zealand lossesgoing up. It will probably affect Catlins figures but I dontthink it will have a fundamental impact.

340

320

360

380


ANALYSIS lCatlin

p369.90

23 Dec

8/8/2019 Cityam 2010-12-23

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NIKE shares fell almost six per centyesterday after it posted future ordersresults that missed analysts expecta-tions and said it may have to raise itsprices.

The worlds largest sportswear firmsaid a jump in cotton costs could trig-ger a rise in the price of its goods.

Orders for Nike shoes and clothingfor delivery between December andApril were $7.7bn (4.98bn), a rise of11 per cent.

Analysts said Wall Street wasexpecting a figure of 12 or 13 percent.

They didnt beat rising expecta-tions for future orders and thats whythe stocks down, said Jon Fisher,portfolio manager with Fifth ThirdAsset Management, which owns Nikeshares.

Nike executives repeated com-ments from the previous quarter that

rising cotton, labour and transportcosts would hurt profit margins inthe second half of the year despite ris-ing demand.

They said the cost pressures wouldease over the next 12 to 18 months asthe world economy picked up.

Chief executive Mark Parker said:As supply and demand find a newnormal in the recovering economy,our industry is going to experiencemargin pressure due to rising inputcosts. Nikes shares closed 5.8 percent lower at $86.78.

Nike in pricerise warningas costs jumpBY JOHN DUNNERETAIL


Bank of Tokyo-MitsubishiAndrew Jameson has been appointed

to head Structured Finance, Europe,Middle East and Africa (EMEA)

following BTMUs acquisition of a port-folio of project finance assets from RBScomprising loans and related assets ofapproximately 3.3bn and principallyconsists of natural resources, powerand other infrastructure assets inEMEA. Jameson takes over the rolefrom Stephen Crane.

Sucden FinancialAndy Wilkins from BBVA GlobalMarkets has been appointed to headSucden Financials new service gearedtowards institutions to capture broker-age opportunities in the Delta One andEquity derivatives and finance arena

with effect from 3 January 2011.At BBVA Global Markets, Wilkins

established the Spanish banks Equityoptions business in London.

NomuraNomura, the global investment bank,has appointed Sir Andrew Cahn as vicechairman of public policy EMEA, effec-tive from April.

Sir Andrew is currently chief execu-tive of UK Trade & Investment, a role towhich he was appointed in 2006. Hewill step down at the end of the year.Prior to his current role, he worked forBA as director of government and

Industry Affairs from 2000 to 2006.

AstraZenecaBaroness Shriti Vadera is to join thepharmaceutical companys board ofdirectors as a non-executive director,with effect from 1 January 2011. Shewill also become a member of theboards audit committee.

Baroness Vadera has recentlyundertaken a number of advisoryroles, including senior adviser to theKorean Presidency of the Group ofTwenty (G20), adviser to TemasekHoldings, Singapore as well as anadviser to the government of Dubai.

CITY MOVES | WHOS SWITCHING JOBS Edited by Victoria Bates

KKRKaveh Samie is joining KKR as managing direc-tor and head of Middle East and North Africato support the firms growth strategy in theregion. Previously, Samie was a managingdirector and head of equities for HSBC MiddleEast & North Africa. The appointment takeseffect from 6 January 2011. Samie will workclosely with ambassador Ford M. Fraker, chair-man of KKR Middle East and North Africa.

+44 (0)20 7557 7245morganmckinley.com

To appear in CITYMOVESplease email your careerupdates and pictures to [email protected] SPECIALISTS IN GLOBAL PROFESSIONAL RECRUITMENT

in association with

82

78

90

86

94


ANALYSIS l Nike

$ 86.7823 Dec

BEST OF THE BROKERS

ANALYSIS lFirst Group

355

365

375

385

395

405

19Oct 4 Nov 17 Dec25 Nov28 Sep

p

398.0022 Dec

FIRST GROUPMorgan Stanley rates the transport groupequalweight with a target price of 420p.The broker has raised its target price from385p following a review ofthe transportsector, in which it has also boosted targetprices for rivals Go-Ahead, NationalExpress and Stagecoach. It predicts amodest outlook for the industry in 2011.

ANALYSIS lRandgold Resources Ltd.

5,600

6,000

6,400

6,800 p

5,500.0023 Dec

RANDGOLD RESOURCESGoldman Sachs has a sell rating on theminer with a 12-month target price of62.50. The broker has taken Randgold offits conviction sell list, but has maintainedits rating due to uncertainty surroundingthe Cote dIvoire where the firm has majoroperations. It adds that Randgold trades ataround 2.9 times price to net asset value.

ANALYSIS lSports Direct

126

132

138

144

150

19 Oct 4 Nov 17 Dec25 Nov28 Sep

p

162.0022 Dec

SPORTS DIRECTCitigroup rates the retailer buy with araised target price of 200p, up from 165p,to reflect better than expected first halfresults. The broker notes the firms recentnews that wholesale gross profit is nowexpected to cover the cost base in itsbrands division, which drives a 1.5 per centincrease in Citis full-year EBITDA forecasts.

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

JOHN Lewis yesterday warned thatthe first quarter of trading in the new year will be tough but said thatthings will pick up later in 2011.

The retailer, considered a bell-wether for how the retail sector hasbeen performing, is relying on strong

Christmas sales boosted by electron-ic gadgets like the iPad as well asitems like coffee machines.

Sales director Nat Wakeley said thecompany had seen sales hold up rela-tively well in a tough climate.

We expect a tough start to theyear. After Christmas there will prob-

ably be a bit of a dip with things get-ting better later in the year, he said.

He said the retailers Olympicshop which includes sports geardesigned by Stella McCartney and col-lectibles to commemorate Londons2012 games would help to boostsales as the games get closer.

John Lewis admits that 2011 trading will be toughRETAIL

Dont miss Breaking Newswith our FREE, DAILY EMAILStarting on Tuesday 4th January, City A.M. will deliver a free,

mid-morning update straight to your inbox.

Each day well cover the mornings breaking news, give you currentmarket analysis and the most up-to-date financial headlines.

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Paperchase

Paul (Jubilee Place)

Phase Eight

ReissReiss Womenswear

Robert Dyas

Starbucks (One Canada Square)

Square Pie

Sweaty Betty

Ted Baker

Thomas Pink

T.M. Lewin

Topshop

Wagamama

Wallis

Wasabi

Waterstones

Whistles

Zara

Zaz(Canada Place & Jubilee Place)

* Please check with individual shops, cafs, bars and restaurants for Boxing Day and New Years Day opening and closing times.

getting here: London Underground to Canary Wharf | Docklands Light Railwayto Canary Wharf | London Buses

3 hours free parking:At weekends and Bank Holidays when you spend 10 at any shop,caf, bar or restaurant in Canary Wharf.Ask at point of purchase for a parking token. One token per visit, terms & conditions apply.

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IN THE United States, there is anexchange-traded fund (ETF) for every-thing you ever wanted to trade andplenty more that you had never even

considered. While the likes of ophthalmol-ogy and nanotech ETFs have not yet madeit across the pond, European investorsshould certainly be satisfied with therange of ETF products on offer. If you areafter diversified exposure to a sector or anindex, then you are likely to find an ETFthat will meet your needs. They dont quitetrack a portfolio of nanotech stocks, buthere are four of the more esoteric funds onoffer for UK investors.

1PRIVATE EQUITYDeutsche Banks db x-trackers listed its LPXMM private equity ETF almost two yearsago on 17 January 2008 and it now has justover 103m in assets under management

(AUM). Traditionally, private equity is anilliquid asset class and has been difficultfor retail investors to access.

The ETF tracks an index operated byBasel-based LPX, a member organisation oflisted private equity firms. It is designed toreflect the risk and return characteristicsof the 25 global most liquid listed privateequity companies covered by LPX. Theindex is diversified across regions, invest-ment styles and currencies and there is acap of 10 per cent for any single con-stituent. The total expense ratio (TER) isquite high at 0.7 per cent a year.

2ASIAN PROPERTY

There has been plenty in the press aboutan Asian property bubble but if you thinkthese concerns have been overdone,theres an Asian property ETF for you.

BlackRocks iShares offers a FTSE

EPRA/NAREIT Asia Property Yield Fund,which offers exposure to listed real estatecompanies and real estate investmenttrusts (REITS) from developed Asian coun-tries such as Hong Kong and Australia,

which have a one-year forecast dividendyield of 2 per cent or greater. This year theETF has risen 24.03 per cent, underper-forming the underlying index by 0.49 percent after the TER of 0.59 per cent has beentaken into account.

3LEVERAGED CURRENCY PAIR ETPSThink the Aussie dollar has further to riseagainst the US dollar? ETF Securities offersa triple leveraged long Aussie, short US

dollar exchange-traded currency ETF. Ittracks a Morgan Stanley FX index, whichaims to reflect three times the daily per-centage change between the two curren-cies, plus generates a collateral yield onthe cash invested. The exchange-tradedcurrency is 100 per cent collateralised andthey are all backed by currency transac-tions entered into with counterparties. Ithas a management fee of 0.98 per cent.

4ASIAN CONSUMERThe rise of the middle classes in emergingAsia has been one of 2010s big themesand this is unlikely to change next year.For investors seeking exposure to the

Whatever youwant to investin, theres anETF availableTheres more to these products than index

trackers. Traders can now access a wholerange of markets, writes Jessica Mead

You can invest inAsian propertythrough ETFs

Picture: GETTY

Spain: better to be safe than sorryCheck exposure toIberian financials,says Donata Huggins

IT IS still too soon to say whether theSpanish governments austerity

budget will be enough to calm themarkets and quell fears that an econ-

omy twice the size of Greece, Ireland andPortugal combined will need a bailout.

But even if the legislation does resolveSpains problems, exchange-traded fund(ETF) investors with exposure to Europestill need to be concerned. While it isextremely important that Spain sorts outits public finances, the real crisis forinvestors lies in the health of the Spanish

banking sector.Safe in the knowledge that Spain only

makes up a sliver of their exposure toEurope, investors might be less on edge.

However they should not rest so easy.The chart to the right shows the levels ofinternational investment in Spanish

banks. Europe as a whole could take a

substantial hit if the Spanish banks donot take action on the bad loans made to

the construction industry during thehousing market bubble.

Morningstar data shows that there are23 ETFs offering exposure to Europeanfinancials with combined total net assetsunder management close to 1.7bn. All of

these funds could suffer quite substantial-ly if the Spanish banks were to comeunder fire.

These ETFs have exposure in differentways. Nine of the 23 are tracking indicesoffering exposure to European banks(accounting for 67 per cent of net assets);eight are tracking indices exposed toinsurance stocks (accounting for 7 percent of assets); six are tracking indicesexposed to the whole financial sector

both banks and insurance whichaccounts for the remaining 27 per cent ofassets.

Ben Johnson, Morningstars director ofETF research says that if the crisis were tooccur, these ETFs will be at the very epi-centre of the crisis and will sufferseverely. He strongly urges investors toexamine the sector breakdown of theirEurope ETF to avoid any nasty surprises:So often you see people treating theirETFs like cans they pick off the shelf in

the supermarket. They dont read thelabel, so they end up getting something

very different from what they thoughtthey put in their cart.

While the problems of the Spanish banking sector are not as extreme asthose recently experienced in Ireland, themarket operates in tunnel-vision, boorish-

ly focusing on one problem at a time.Should it turn to Spain, the banking sec-

Are you brave enoughto take on the Spanishmarket?

Picture: GETTY

ANALYSIS l Foreign bank exposure to Spanish debt (dollar bn)

200

180

160

140

120

100

80

60

40

20

G ER FRA UK N DL US I TA I RE POR J PY B EL S WI AUT SWE

Source:Morningstar

USD bn

16

Markets&Investment| Listed ProductsCITYA.M. 23 DECEMBER 2010

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DB X-TRACKERS LISTS GLOBAL SECTOR ETFSDeutsche Banks ETF division db x-trackersyesterday announced that it had launched 10global equity sector-based ETFs, listed on theLondon Stock Exchange (LSE). All 10 prod-ucts will track the various MSCI World sec-tor indices, which give access to developedworld equity sectors. This launch enhancesdb x-trackers offering of sector ETFs theprovider already has European equity sectorETFs available. These new products are avail-able in both sterling and dollar share classes

and carry a total expense ratio (TER) of 0.45per cent.

US ETF AND ETP ASSETS EXCEED $1 TRILLIONAssets under management held in US-listedETFs and exchange-traded products (ETPs)broke through the $1 trillion milestone forthe first time on 16 December, according toBlackRock research. As of 16 December, inthe US there were 894 ETFs with assets of$887.2bn from 28 providers on twoexchanges. This compares to 772 ETFs withassets of $705.5bn, from 29 providers ontwo exchanges at the end of last year.BlackRock says that there are another 828

ETFs in the pipeline while only 49 have delist-ed in 2010.

ETF TRADING JUMPS ON THE LSEThere was a sharp increase in both the valueand volume of ETFs and exchange-tradedproducts (ETP) traded on the LSE inNovember. Value traded and volume were up37 per cent and 15 per cent respectively fromOctober, according to data published earlierthis week by the exchange. In a year-on-yearcomparison, the value traded in November2010 is more than double that of the sameperiod in 2009. In terms of the number oftrades, the iShares FTSE 100 ETF was the

most popular in November followed by ETFSecurities physical gold ETF.

LISTED PRODUCT NEWSBY JESSICA MEAD

Deutsche Bank lists global sector ETFs Picture: REX

growth of the middle class in the devel-oping world, Lyxor ETF launched itsrange of Asia ex-Japan sector ETFs inSeptember this year. With an AUM of$48.7m, its emerging Asia consumerstaples sector ETF tracks the MSCI AC Asia ex-Japan consumer staples TRNindex.

The ETF has a fifth of assets exposedto China. Its largest holding is WilmarInternational, an agribusiness grouplisted on the Singapore exchange.

The ETF has a TER of 0.65 per cent.Lyxor says it is in the process ofapplying for UK distributor status,which would make investors liable forcapital gains tax (CGT) at 18 or 28 percent on profits.

ALTHOUGH BSkyB and News Corphave been in the news recentlybecause of political upheavals, thebig decision has been announced

and News Corp has received EC approvalfor a 7.8bn buyout of BSkyB. BSkyBsshares have already jumped in response tothe news, confirming investor approval.Along with strong promotions such as threemonths of free Sky broadband, this is a signthat there could be further upside to itsprice. Capital Spreads quotes 740.6p-741.9pfor BSkyBs shares.

Microsofts share price has been on a

steady upward trend since the turn of themonth. This is possibly in anticipation of itsnew operating system, which is scheduledto be launched in January. The system willrun on chips that require less power, sothey can be used in products like smartphones and tablets. Along with its financialresults due on 27 January, investors in theIT giant may see a further push into thenew year. Capital CFDs quotes $28.05-$28.10.

PartyGaming shares have slumped neartheir 2010 lows and sit on a strong sup-port at the 210p level following an earn-ings update earlier this week. The firm saidthat although earnings should be in linewith expectations, poker revenues had fall-en. The 20 per cent sell-off this monthseems a bit excessive and with the supportholding, this might be a stock to put inyour stocking for 2011. Spread Co offers aspread on PartyGaming of 210.24p-211.06p.

The seasonally-named US-listed petro-chemicals refiner Holly Corporation con-tinues to find new highs for the year, withthe stock clearly finding support off theback of the improving economic outlookfor 2011. While it may be wallowing wellbelow the 2007 highs, continuing demandfor refined products will provide cheerwhile its low price-earnings (p/e) ratio isalso attracting interest. The current IGIndex price on Holly Corporation is $39.21-$39.29.

The Turkish benchmark index has seenno shortage of volatility in recent yearswith annual moves of 50 per cent in eitherdirection being far from unusual. Selling inthe last couple of months has taken theshine off what could have otherwise been abumper 2010 for the index. However, thevolatility is unlikely to disappear any timesoon as the country continues to build onits key location between Europe and Asia.

The current IG Index price for the Turkey30 index (December 2010 contract) is81,400-81,525

Jessica Mead

THE

TIPSTER

FURTHER UPSIDE FOR

BSKYB AFTER BUYOUT

Rupert Murdochsapproved takeoverhas boosted BSkyBsshares

Picture: REUTERS

tor will no doubt feel the hit. There are methods, however, for

hedging against this. Jos Garcia-Zarate,a European ETF analyst withMorningstar, says: The obvious firstport of call would be to roll out a shortSpain strategy, choosing Spanish-centric equity ETFs such as the BBVAAccion Ibex 35, Amundi MSCI Spain orLyxor Ibex 35. These are all heavilyexposed to the banking sector.

While we cant know yet whether themarket will turn its attention to Spainstroubles, or how the Eurozone crisis

will play out in 2011, investors withEuropean exposure should examine thesector breakdown of their ETF carefully,looking closely for European financials just in case.

Dont let tough conditions stop your

portfolio growing, find out more

at www.rbs.co.uk/markets or

call 0800 121 6286

Inflation Multiplier BondObtain enhanced returns

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CITYA.M. 23 DECEMBER 201017

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Bullish mood helpsto drive Wall St up

THE S&P 500 rose yesterday to itshighest level since the collapseof Lehman Brothers, led by bankstocks that have leapfrogged

other sectors in December.The banks epicentre of the credit

crisis two years ago led indexes high-

er as a December run helped keep themarket's year-end rally afloat. TheKBW Bank Index rose 1.9 per cent, ledby regional institutions.

The financial sector is unique inthat it has spent two consecutive years in the performance base-ment,"said Lawrence Creatura, port-folio manager at Federated CloverInvestment Advisers in Rochester,New York.

Today financials look a little bitmore investable than they did 18 or24 months ago because the price isright and some risk has has beenextracted.

The S&P 500 has risen for five ses-sions in a row but gains have beenmodest and on light volume. Thebenchmarks relative strength indexpoints to a pullback in the near term,but for now investors don't seem wor-ried. The CBOE Volatility Index,

known as Wall Streets fear gauge, fell6.3 per cent to 15.45, its lowest closing

level since July 2007.Bank of America rose 3.1 per centto $13.38 and JPMorgan Chaseclimbed 2.8 per cent to $42.16, givingthe greatest boost to the Dow indus-trials.

Regional banks outpaced their larg-er counterparts after recent mergeractivity in the sector boosted hopesfor more M&A to come. HancockHolding agreed to buy WhitneyHolding on the heels of last weekstakeover ofMarshall & Ilsley byBankof Montreal.

The KBW regional bank index was

up 3.7 per cent and is now up 19.4 percent for the month. Whitney Holdingsurged 28.8 per cent to $14. UnitedBankshares jumped 4.6 per cent to$29.80 after KBW raised its price tar-get to $28 from $23.

The Dow Jones industrial averageadded 26.33 points, or 0.23 per cent,to 11,559.49. The Standard & Poors500 Index gained 4.24 points, or 0.34per cent, to 1,258.84. The NasdaqComposite Index edged up 3.87points, or 0.15 per cent, at 2,671.48.

The S&P 500 climbed above1,255.08 where the index closed justdays after Lehman filed for bankrupt-cy in September 2008. For the year,the index is up 12.9 per cent, includ-ing a 6.6 per cent December run.

Energy shares rose as crude oilfutures settled 0.7 per cent higher at$90.48 a barrel. Chevron added 0.7per cent to $89.89. Walgreen roseafter the drugstore chain posted high-er profit.

BRITAINS leading share indexpushed higher yesterday, sup-ported by gains from banks asreports China is ready to buy

Portuguese bonds eased Europeandebt concerns.

At the close, the FTSE 100 was up31.69 points, or 0.5 per cent, at

5,983.49, edging ever closer towardsthe 6,000 level last seen in June 2008.The blue chip index has gained 8.2

per cent in December, on track for its biggest monthly percentage gainsince July 2009.

Its just a pretty broad-based mar-ket rally as Christmas approaches. Ofcourse, volumes are very low and itsreally just tidying up at the year-end,said David Morrison, market strate-gist at GFT Global.

Trading volumes were 62 per centof the 90-day average.

Banks were the best performingblue chips as a sector, rallying as wor-ries about exposure to European debteased after the Jornal de Negociosdaily reported that China is ready tobuy4 to 5bn of Portuguese sovereigndebt to help it ward off pressure indebt markets. Royal Bank of Scotlandwas the strongest lender, up 1.3 per

cent, while Lloyds Banking Groupgained 0.7 per cent.

Strength in heavyweight minersand oils also provided a prop for bluechips as commodity prices firmed,with Eurasian Natural Resources 2per cent higher.ARM Holdings was the top bluechip riser, up 9.1 percent on reportsMicrosoft is working on a new versionof its core Windows operating systemfor devices such as tablets, markingthe first time that the software wouldrun on processors designed by theBritish firm.

Both Microsoft and ARM declinedto comment.

BSkyB took on two per cent, havingearlier touched its highest sinceMarch 2004, as prospects improved ofregulatory approval for NewsInternationals bid to buy the pay-TVoperator.Carnival rose 5.3 per cent as bro-kers raised target prices and esti-mates for the worlds largest cruiseoperator following its fourth-quarterresults on Tuesday.

And British Airways rebounded 1.9per cent as travel services limped backtowards normal in parts of Europeafter ice and snow caused widespreadchaos.

Oil prices also pushed higher above $90 a barrel again, hitting two year highs as crude inventoriesdeclined by more than expected by5.3m barrels as a result of the coldweather, while gold prices continuedto push marginally higher around

the $1,369 level after the IMF com-pleted its recent gold sales.

Investors are entering 2011 in a rel-atively bullish mood, raising equityholdings to a 10-month high, increas-ing exposure to high-yield credit andcutting back on government debt, aReuters polls showed yesterday.

US blue chips were 0.1 per centhigher by Londons close as above-forecast US existing home sales datacountered a below-estimate finalreading for third-quarter US GDP.

British GDP data was also a depres-sant, with the economy growing byless than expected in the third quar-ter, while the second quarter reading

was lower than first reported. And the Bank of EnglandsMonetary Policy Committee retainedits three-way split at December'smeeting, with growing worries aboutrising medium-term inflation risks.

The Santa Rally continues. Despitethe thin volumes currently out there,Londons leading index is still mak-ing gains in the run up to the holi-days, said Ben Critchley, sales traderat IG Index.

Banks give FTSE a boost aspre-Christmas rally continuesTHELONDONREPORT

THENEW YORKREPORT

ANALYSIS l FTSE

5,700

5,800

5,900

6,000

5,600

4 Nov15 Oct27 Sep 24 Nov 14 Dec

5983.4923 Dec

Markets& Investment18 CITYA.M. 23 DECEMBER 2010

3i Group 330 -5.25 335.25 2503i Infrastructure 121 1 121.50 100.75A.B. Foods 1160 11 1160 819Ab erd een As set .Man . 202. 50 0.5 0 205 112.75Admiral Group 1547 -6 1693 1114Aegis Group 140.50 0.75 145.50 103.50Afren 144.25 1.50 144.25 79African Barrick Gold 591 -4 670 503Aggreko 1516 -8 1685 882Alliance Trust 374.25 -0.75 375 293.50Amec 1159 -9 1168 733.50

Amlin 405 3 433 357.25Anglo American 3310 37.50 3310 2254Antofagasta 1605 11 1605 761Aquarius Platinum 341.25 -3.75 458 227ARM Holdings 440.25 36.75 440.25 173.25Ashmore Group 345 -2.75 383.75 218Ashtead Group 171 2 171 76AstraZeneca 2955 1.50 3385 2732Atkins (WS) 718.50 -9 792.50 556.50Autonomy 1546 18 1975 1271Aveva Group 1604 2 1604 980.50Aviva 395.25 0.25 423.50 294.25A Z E le ct ro ni c M at er ia ls S A ( WI )3 02 2 .5 0 3 02 24 9Babcock International 564 0.50 635 492.75BAE Systems 332.75 -2.25 388.75 294.75Balfour Beatty 317 1.25 317 229.75Barclays 267.50 -0.75 383.25 255.25Barratt Development 87.75 1 142 70BBA Aviation 214 -0.25 217.25 158Bellway 662 21 826 511Berkeley Grp Hldgs 902.50 3 932.50 742Betfair Group 970 -24 1550 970BG Group 1323 6 1333.50 984BHP Billiton 2606 22 2606 1684.50BlackRock Mining 806.50 7 806.50 492B lu eC re st A ll Bl ue 1 70 2 .2 5 174 .5 0 1 56. 25Booker Group 60 0 60.25 38.75BP 470 -2.50 655.50 303Brit Insurance 1038 -3 1045 728British Airways 273.50 5.25 286 184.25British Amer.Tob 2505 20 2505 1959British Empire Tst 496 3 498.50 396.50

British Land 529.50 7 529.50 418.25Britvic 480.50 -4 518 389Brown (N.) Group 296.50 2 301.75 206.50BSkyB 743 14.50 743 524.50BT Group 187.75 2 187.75 110Bunzl 738 2 777 616.50Burberry Group 1144 2 1156 581C&W Comms 52.75 0.75 63.75 44.25C&W Worlw id e 68.75 -0 .5 0 10 0 60. 50Cairn Energy 416.75 1.75 493.25 318.25Caledonia Inv. 1897 -13 1910 1512Capita Group 705 -1.50 826 635.50Capital & Counties 146.75 0.25 157 100Capital Shop Centre 418 1.25 420 301Carillion 382 8.25 382 273Carnival 3059 154 3059 2037Catlin Group 370 -4.75 393 320Centamin Egypt 173 0.50 197 106.75Centrica 338 1 346 264Charter 834 5 848.50 567Chemring Group 2905 -54 3663 2598Close Brothers 855.50 7 861.50 664

COBHAM 207.75 1.25 276 192.25Colt Telecom 132.75 1.25 142.50 109Compass Group 588 4 588.50 425Cookson Group 659.50 15 659.50 367.50Croda International 1580 -15 1610 751Daily Mail & Gen 570 1.50 570 414.25Davis Service 426.50 2.50 435 360.25De La Rue 837 0 1005 549.50Debenhams 70.25 -0.50 80 53Derwent London 1528 -8 1605 1208Diageo 1208 9 1208 1000

Dixons Retail 23 -0.25 38 22.75Dominos Pizza 547.50 -10 560.50 293.25Drax Group 383.50 6.50 444 326.25DS Smith 205.50 0.75 210 104Dunelm 540 2.50 550 325.25easyJet 428.50 -0.50 496.50 348.50Edin.Inv.Tst.

cityam 2010-12-23

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