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FTSE 100 5,957.82 +94.88 DOW 12,040.16 +148.23 NASDAQ 2,751.19 +51.11 /$ 1.61 unc / 1.17 unc /$ 1.38 +0.01 Certified Distribution29/11/10 till 02/01/11 is 98,444

Russians

freeze BPs$16bn deal

OIL giant BP has been forced to halt work on its historic venture withRosneft, after its billionaire Russianpartners won an injunction.

Four Russian oligarchs, using thename AAR, convinced the High Courtto stall BP and Rosnefts plan to swap$16bn (10bn) worth of shares and drillin the Arctic until 25 February.

BP had already scheduled fast-trackarbitration with AAR in Sweden in anattempt to smooth relations with theRussians, who claim the Rosneft dealbreaches their right to first refusal inBPs operations in the country throughtheir 50 per cent stake in TNK-BP.

BP claims it honoured itsdeal with TNK-BP and AAR, but they didnot wish to take part in Arctic explo-ration.

BP chief executive Bob Dudley said hehoped for a business-like resolution

BPS RESULTS DISAPPOINT: P4

BY MARION DAKERS

ENERGY

INTEREST rates must be steadilyincreased now to avoid a sudden andheavier rise down the line that wouldjolt the recovery, Bank of Englandmonetary policy committee memberAndrew Sentance told City A.M. in anexclusive interview yesterday.

If the inflation genie comes out ofthe bottle, he said, the UK would face ahard and painful job of reassertingprice stability.

The longer we delay [monetarytightening] the more there is a risk thatinterest rate rises when they come willhave to be larger, and then there will bea bigger risk of a shock to confidence,Sentance said.

Yet the Banks rate setting committeeis starting to move closer to Sentances view that inflation must be tackled with a small but immediate rise inrates, he suggested. The minutes of our

last two meetings reflect a growing con-cern about inflationary pressures thatare coming through, he said. InJanuary Martin Weale joined Sentancein voting for a 0.25 per cent rise in rates.

Sentance added that the Banks poli-cy of quantitative easing (QE) -- current-ly paused at 200bn could be reversedthrough gilt sales. If we start raisinginterest rates over a period of time thenwe probably need to review whetherthe amount of stimulus being providedby QE is also appropriate, he revealed.

The Banks inflation report, out thismonth, is a chance for the committeeto update its overall assessment of thethreat from price pressures, he said.

Rates were only dragged so low tocombat worries about deflation andrecession in the middle of 2009,Sentance argued.

Sentance, who will retire as a mem-ber of the monetary policy committee(MPC) in May, questioned the groupstrack record of predicting inflation.Theres been a tendency to overesti-mate the dampening impact of sparecapacity, and underestimate theupward pressure from a strong globaleconomy. The argument that we dontneed to raise interest rates seems to reston [the MPC] continuing to do that.

The Bank must be careful to retain itshard won credibility by keeping infla-

tion in check, he claimed. Consumerprice inflation hit 3.7 per cent inDecember, with Bank governor MervynKing warning that it could jump ashigh as five per cent this year.

And economists should heed thehealth warning that came with lastweeks shock figures showing a contrac-tion in the economy at the end of 2010,Sentance advised. The Office forNational Statistics (ONS) dont have verycomplete information [for December]so anything that theyre saying about

that at the moment is very provisional.Its pretty clear from most peoples

experience that economic life was dis-rupted with the snow -- we saw airportsclosed and people unable to get towork, he said, while pointing to busi-ness surveys that continue to show asteady economic recovery, such as yes-terdays purchasing managers indexwhich showed British manufacturinghitting a record high of 62.0 in January.

ALLISTER HEATH: P2FULL INTERVIEW: P13

SENTANCE: ACTNOW ON RATES...

www.cityam.comIssue 1,313 Wednesday 2 February 2011 FREE

FSA INSIDERDEAL CASEHOW THE CRIMEWAS UNCOVERED

BY WATCHDOG P10

BUSINESS WITH PERSONALITY

Citigroup winscontrol of EMI

GUY Hands battle to retain ownership

of iconic record company EMI endedyesterday after Citigroup, provider ofits 3.4bn debt mountain, took con-trol of the firm.

Hands private equity firm TerraFirma was forced to cede ownershipafter failing to keep up EMIs debtrepayments to the investment bank.

Terra Firma bought EMI, home ofartists such as Robbie Williams andLily Allen, in 2007 using 2.6bn ofdebt from Citi, but struggled to makethe company profitable.

Citi has written off 65 per cent ofEMIs debt, reducing it to 1.2bn. TerraFirma has lost all 1.7bn it invested.

Hands fought an acrimonious UScourt case over EMI last year, accusingCiti of tricking him into paying morefor EMI than it was worth.

POTENTIAL BUYERS FOR EMI: P3

BY ALISON LOCK

MEDIA

Sentance, who retires from the MPC in May, says interest rates must be steadily increased now Picture: Micha Theiner/City A.M.

or risk sharp hike in futureBY JULIAN HARRIS

EXCLUSIVE

MUBARAK TO STEP DOWNAT SEPTEMBER ELECTIONPROTESTS SET TO CONTINUE P7

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News2 CITYA.M. 2 FEBRUARY 2011

HSBC: Londonlosing to Asia THERE is quite a noticeable migra-tion of business from London to Asia,according to HSBC chairman DouglasFlint.

Speaking before the House ofCommons Treasury committee, hepointed to three 200,000 square footbuildings being taken by international banks in Singapore at the momentthat might have gone somewhereelse.

Two of the buildings in question arethought to be a 513,000-square footbuilding taken by Standard Charteredrecently and 250,000-square foot ofoffice space signed by Citi Singapore.

Flint added that business that wewould have had is instead moving toHong Kong and Singapore, erodingLondons competitive advantage from

a cluster effect of business in thecapital.

While affirming HSBCs currentcommitment to its London HQ, hewarned that the bank will this yearconduct one of its three-yearly reviewson whether to re-locate.

Any regulatory break-up of bankingactivities would be a factor in the deci-sion, he said, calling the UK levy onglobal balance sheets a tax on beingheadquartered here. He added: Weare finding institutional investors rou-tinely meeting to ask us to explain thecost of being in the UK.

BY JULIET SAMUEL

BANKING

Sentance is right he will be missed

INTEREST rates must rise: that is themessage from Andrew Sentance, thedistinguished monetary policy com-mittee member, in his exclusive inter-view in todays City A.M. (p1 and p13). Itis good to see that Sentance, whoseprincipled and intellectually rigorouswarnings against inflation have beenentirely vindicated, hasnt changedhis mind, despite the fourth quartersshock contraction in reported GDP.

To Sentance, the problem is thatinflationary expectations could soonbecome entrenched, leading to a self-fulfilling spiral of higher wages and

prices as everyone seeks protectionfrom higher expected costs.Manufacturers are already awardingtheir staff larger pay hikes, while theirinput costs are rocketing. If and when

the inflationary genie finally comesout of its bottle, the only way to damp-en prices down would be much sharp-er and painful rate hikes than wouldbe necessary today.

I agree with Sentance. The currentultra-low interest rates were designedto cope with an emergency: a near-depression, the possibility of deflationand an implosion of the financial sys-tem. These are no longer on the agen-da (barring a catastrophe, of course).

The MPCs refusal to do anything oninterest rates, despite a gradualchange of mood towards Sentancesposition, is beginning to have a seri-ous effect. Ten-year gilt yields hit theirhighest level in eight months yester-day: with prices inversely related to yields, investors are now nursing anasty 1.9 per cent loss so far this year.This performance is the worst of any

of Europes top economies: there areUK-specific reasons for this bondbloodbath, not least rising inflation-ary expectations and growing fearsthat pressure from the Labour party

will force the coalition to downgradeits austerity measures.Yet as yesterdays strong UK manu-

facturing survey demonstrates, theeconomy is rebalancing at last.Manufacturing is booming, thanks tobuoyant global demand and a weakerpound; export-orientated services arealso bound to recover. Profits are soar-ing, debt is down and firms are sittingon cash piles. The ratio of sterlingbank deposits to sterling bank debt fornon-financial companies rose to itshighest level since 2005 in December,suggesting imminent corporate-driv-en investment and job creation.

At the same time, house prices con-tinue to slide, as values fall back intoline with earnings. Limited housingtransactions, combined with lowerprices, suggest construction willremain weak and this is an area

where cuts to the governments capexprogrammes will bite. And with realincomes falling thanks to tax hikesand inflation, consumer spendingwill remain depressed.

We wont know whether we are outof the woods until Thursday, when theservice sector purchasing managersindex is published. A decent recoverywould be a relief; a poor reading a dis-aster, signalling a double-dip reces-sion. Fortunately, while money supplygrowth remains weak, it is probablystrong enough to underpin a moder-ate economic expansion.

Sentances tour of duty is coming toan end; he will be retiring in May andsorely missed. We must hope that hisdeparture doesnt delay rate hikes toomuch. One thing is clear: there hasbeen too much misplaced consensuson the MPC in recent years. Whoeveris appointed to fill Sentances shoesmust be another free-thinker withexperience of the real world.

allister.heath@cityam.comTwitter: @allisterheath

CASH-strapped sports retailer JJBSports is in takeover talks with itsrival, JD Sports Fashion, the compa-nies confirmed yesterday.

JJB, which plans to raise an emer-gency 31.5m from investors, and itsfar more successful competitor saidmerger discussions had started butthere was no certainty of a deal. Ifcombined, the two chains would cre-ate a significant UK high street player.

JJB Sports plc confirms that it is ininitial discussions with JD SportsFashion plc in relation to a potentialoffer, JJBs statement said. The high-ly preliminary nature of these discus-sions is such that there can be nocertainty that any offer will be madeor as to the terms of any offer.

JD Sports is valued at about 400m,compared with JBB at about 30m,and whereas JD beat its own forecastsfor Decembers trading, loss-makingJJB saw sales fall 15.7 per cent fromNovember to December last year.

BYALISON LOCK

M&A

Sport chains mull mergerJD Sports chief executive Peter Cowgill (left) and JJB Sports chief executive Keith Jones

NEWS | IN BRIEF

Dow and S&P hit 31-month highThe Dow and S&P 500 closed at theirhighest levels since June 2008 yester-day after reports of strong earnings andsigns of a surge in US manufacturing.The Dow closed at 12,040.16 abovethe critical 12,000 level while theStandard & Poors 500 Index rose 21.45

points, or 1.67 per cent, to 1,307.57.MARKET REPORT: P15

BlackRock head paid $13m stockPrivate equity firm BlackRock awardedits founder and chief executive LarryFink $13m (8m) in shares yesterday aspart of his 2010 bonus. The award, morethan double the $6m he received instock in 2009, follows Finks successintegrating Barclays US arm into thefirm after buying it for $15bn in 2009.

Google says Bing copied searchesGoogle accused Microsofts Bing searchplatform of copying its search resultsyesterday, after Google faked searchanswers and said it found the sameresponses on its rivals site in seven tonine out of 100 searches. Microsoft saidthe allegations were misleading but hasnot denied them.

EDITORS LETTER

ALLISTER HEATH

7th Floor, Centurion House,24 Monument Street, London, EC3R 8AJTel: 020 7015 1200 Fax: 020 7283 5334Email: news@cityam.com 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 emaildistribution@cityam.com

HSBC chairmanDouglas Flint said thatbanks are rentingoffices in Singporeinstead of London.

INVESTORS WARN OVER DEEP WATERDRILLING RISKSOil companies operating in deep water must do much more to reas-sure shareholders that they are nottaking excessive risks that could putthem out of business, representativesof investors with $2,500bn undermanagement have warned. US andEuropean share holders, includingstate employees pension funds fromCalifornia, New York, Florida and theUK, have joined an effort to push oilcompany boards to improve safetyperformance and disclosure, follow-ing last years BP spill in the Gulf ofMexico.

SMALLER STORES TO PROPEL TESCO USEXPANSION Tesco, the supermarket group, isplanning to extend its Fresh & Easy

store chain into smaller locations, asit pushes to acquire the scale envi-

sioned by its large upfront invest-ment in US expansion.

NOKIA GIVEN SECOND RATING CUTWARNINGNokia is facing a possible credit down-grade after Standard & Poors joinedMoodys in putting the mobile phonemakers rating under review. S&P said yesterday that a one-notch down-grade was likely because of mount-ing competitive pressure from theApple iPhone and a growing range ofdevices using Googles Android oper-ating system.

HEAD OF GAP IN N AMERICA TO STEPDOWNGap, the US clothing retailer, said yes-terday that Marka Hansen, head of itsnamesake brand in North America,would step down amid signs of trou-ble in the drive to return the compa-nys core business to growth. Theretailer said an internal replacement

for Ms Hansen would be named todayand she would leave on Friday.

FINANCIAL TERRORISTS POSE GRAVERISK TO USThe US financial system remains vul-nerable to a co-ordinated act offinancial terrorism that risks tak-ing down the US economy and col-lapsing the dollar, according to aconfidential report commissioned bythe Department of Defence in Washington. The document warnsthat forces hostile to the US couldmount a focused effort to collapsethe dollar by dumping Treasurybonds and urges the security servic-es to conduct a further risk assess-ment outside of traditionalWashington and Wall Street circles.

CHANNEL 6, FIRST IN THE QUEUE TOBRING YOU LOCAL TVThe Governments plan to launch anetwork of local television stations

has attracted the first bidder hopingto run the new channel.

IMF RAISES SPECTRE OF CIVIL WARSAS GLOBAL INEQUALITIES WORSEN The International Monetary Fund(IMF) has warned that dangerousimbalances have emerged that threat-en to derail global recovery and stoketensions that may ultimately set offcivil wars in deeply unequal coun-tries. Dominique Strauss-Kahn, theIMFs chief, said the economicrebound across the world is built onunstable foundations, with many richnations still strapped in job slumps while the rising powers of China,India and Brazil already facing thethreat of overheating.

BEST BUY EUROPE BOSS SCOTTWHEWAY QUITSScott Wheway, the chief executive ofBest Buy Europe, has given up run-ning the electricals retailer just nine

months after the UK's first Best Buystore opened.

EUROPEAN EMISSIONS MARKETS TOREOPEN GRADUALLYEuropean markets for permits toemit carbon dioxide will start reopen-ing in the next week after a shut-down following the dramaticcybertheft of permits valued at tensof millions of euros two weeks ago,EU officials said yesterday. The theft,by a ring of hackers who phoned in a bomb threat to the Czech carbonexchange and stole permits duringthe ensuing confusion, was the latestin a series of security breaches in themarket, which has turnover of $100bn a year.

WEB RUNNING OUT OF ADDRESSES The Internet is about to run out ofnew addresses, a milestone that isspurring Web giants like Facebookand Google to develop new versions

of their sites and prompting carrierslike AT&T to upgrade networks.

WHAT THE OTHER PAPERS SAY THIS MORNING

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BANK of America Merrill Lynch haspoached Peter Bell, a star investment

banker, from Nomura.Bell (right) will join Merrill in the

spring after a spell of gardeningleave where he will team up withformer Nomura head of M&AChristian Meissner, as well as former

banking colleagues Adrian Mee and Antonin Baladi, who both recentlybailed out of Nomura.

Bells departure will fuel City fears

that Nomura, which took on many ofLehmans UK employees when the

bank crashed, is finding it difficult torecruit and maintain a powerfulinvestment banking team.

As well as the exodus to MerrillLynch, the Japanese bank also recent-ly lost its financial services managingdirector Matt Cannon, who departedfor Morgan Stanley.

When Nomura took on theLehman teams, they did so with gold-en handcuff arrangements which

have been expiring.However, in a bid to boost its repu-

tation in the M&A market, lastmonth Nomura hired the seasonedrainmaker Piero Novelli as its newhead of global mergers and acquisi-tions.

Novelli has previously held posi-tions as head of European M&A andhead of global M&A at Merrill Lynchand UBS respectively.

Last night a source close to Nomurasaid the bank had replaced those thathad gone with people better suitedfor the job.

Weve got an attrition rate that ishigh by industry standards, thesource said.

Merrills latest recruit Bell hasacted on a number of high profiledeals recently.

He advised Doughty Hanson on theacquisition of Vue Cinemas andadvised KKR on its acquisition of Petsat Home.

He has advised a host of otherclients, including WH Smith and Net-a-Porter.

Nomura losesfourth star toMerrill LynchBYDAVID HELLIER

BANKING

News 3CITYA.M. 2 FEBRUARY 2011

EMI in fresh sale talksNext twist in music companys ownership saga begins now

GUY Hands had barely surrenderedcontrol of EMI to Citigroup lastnight before speculation startedover who its next owner might be.

Citi, which took EMI from Handsprivate equity firm Terra Firma lastnight after declaring its 3.4bn debtmountain unsustainable, denied ithad solicited interest from poten-tial buyers.

There is no sales process under- way at this point, a spokesman

said. We arein no rushand haven o tr e a c h e dout to anypotential-ly inter-

e s t e dparties atthis point.

We are pre-pared

to hold onto EMI until thetime and/or valuation isright.

But with 1.2bn ofloans still extendedto EMI and 2.2bnof its own money

written off in thetakeover, Citi is like-ly to want to recoupits funds soon.

That would leave EMI,home to a stable of starsincluding Lily Allen, KylieMinogue, Coldplay and The Beatles,up for sale again.

Interested buyers potentiallyinclude US rival Warner Music andGerman music rights managerBMG, which is owned by privateequity house KKR.

But private-equity-backed Warner, which courted EMI in 2007, is

already looking for investors inorder to sell its own music publish-ing arm, Warner/Chappell.

Warner has called inGoldman Sachs to negoti-

ate with its potential buy-ers after interest fromBMG but Goldman isalso now consideringhow Warner mightacquire EMI.

A joint bid

between KKR and Warnermay also be on the cards,as Warners chairmanand key shareholderEdgar Bronfman iskeen to bid for EMI.

Citi is reputedlyseeking a sale priceof about 1.8bn.

Other potential bid-ders are Simon Cowells

Syco venture; Sony Musicand Universal, although the

two major music companies arelikely to face competition concernsover a takeover.

EMI has endured a turbulentperiod under Terra Firmas manage-ment, as Hands fell out with Citiover EMIs debt burden.

Hands asked Citi repeatedly torenegotiate the debt terms as EMIstruggled in the recession, but the

bank refused, instead pressuringHands to sell it.

The battle for EMI was soured fur-ther by an acrimonious US courtcase last year in which Handsaccused Citi of tricking him intopaying far more for the companythan it was worth. US judges foundin favour of Citi but Hands lodgedan appeal last month, a step seen asdesigned to repair his reputation asmuch as affect EMIs ownership.

Terra Firma founderGuy Hands (Picture:Getty) and pop starLily Allen (Picture: PA)

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BP POSTED its first annual loss inalmost 20 years yesterday, but granteda dividend to shareholders as itattempts to move on from last AprilsGulf of Mexico disaster.

BP lost $4.9bn (3bn) in 2010 due tomounting Gulf spill clean-up and com-pensation costs, though the firmmade a $4.4bn profit in the fourthquarter of the year once the changingcost of oil was stripped out.

BP will pay dividends for the first

time since the Gulf spill, with share-holders receiving a reduced paymentworth 4.3p, in line with forecasts.

The oil giant produced 3.67m bar-rels of oil equivalent per day duringthe last three months of the year,down nine per cent on the previous

year due to asset sales and the ongoingdrilling moratorium in the Gulf.

New chief executive Bob Dudley said2011 would be a year of consolidationfor the firm, warning that productionlevels are likely to remain lower as itcontinues to sell off parts of the busi-ness. BP hopes to start 32 new explo-ration projects over five years.

BP promiseschange after$4.9bn losses

Moultons Better Capitalbuys parts of Connaught

VENTURE capitalist Jon Moultonhas bought parts of collapsed hous-ing repair group Connaught, asadministrator KPMG nears the endof dismantling the firm.

Moultons private equity groupBetter Capital said yesterday is willpay 15m to buy and restructureConnaughts risk management sub-sidiary, which did not collapse butwas held by KPMG as one of the par-ent firms assets.

Another branch of Connaughtscompliance business will be sold to aseparate buyer this week, one sourceclose to the situation said yesterday.

Connaughts lenders, led by RoyalBank of Scotland, will take over itsenvironmental division using a sepa-rate investment vehicle over the nexttwo weeks.

Connaught collapsed inSeptember after failing to agree anew business plan with its lenders.

Morgan Sindall, Mears and BritishGas parent Centrica have all pickedup contracts and assets from theresulting sell-off.

Meanwhile, Rentokil Initial, one ofthe worlds biggest services groups,is in talks to buy the services arm ofConnaught, including its pest con-trol operations, Sky News reportedlast night.

BYMARION DAKERS

ENERGY

PROPERTY

News4 CITYA.M. 2 FEBRUARY 2011

ANALYSIS lBP

440

480

520

19 Nov 9 Dec 31 Dec 21 Jan1 Nov

p80.46

31 Jan

BP REVEALED yesterday that it plans tosell off half its US refinery business,including the Texas City refinery that was the site of an explosion in 2005that killed 15 workers.

BP said several interested buyershave already enquired about the oper-ations, which the firm plans to sell offbefore the end of 2012.

While the sale is part of BPs drive todivest of assets worth $30bn to helpfund the Gulf of Mexico clean-up, newchief executive Bob Dudley said thefirm will consider selling more assetseven after it meets this target.

We are past the point where weneed to make divestments we aremaking them because we think itunlocks value, he told reporters yes-terday.

Dudley said the plants had few mar-keting and storage benefits for BP.

BP has sold off $17bn-worth of assetssince the Gulf spill, knocking three percent off the firms total production inthe three months to February.

It plans to open 32 new explorationsites in the next five years to try andrebuild its production capabilities.

Oil major tosell off half itsUS refineriesENERGY

ANALYST VIEWS: IS BP SHOWING SIGNS OF RECOVERY? Interviews by Marion Dakers

STUART JOYNER | INVESTEC

The figures are below forecasts, with disappointment in refining and marketing in particular.The dividend is in line, though it has been set this low for political rather than business reasons. Thedeal with Rosnef has a long-term future, though the dispute has potential to rumble on.

IVOR PETHER | ROYAL LONDON ASSET MANAGEMENT

The dividend could have been higher the payout ratio is only around 25 per cent of earn-ings. There is also the question of why BP has only sold half of the US refinery business. It goes tothe heart of what benefits come from the integrated business model.

RICHARD GRIFFITH | EVOLUTION SECURITIES

In many respects the BP plan looks remarkably similar in its effects to the Shell plan post itsreserves downgrade in 2004: downstream is to shrink while upstream receives increased investment.With Macondo an ongoing issue it may be too early for BP to implement more radical plans.

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1 pip, 1% depositand no re-quotes.

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News 7CITYA.M. 2 FEBRUARY 2011

OVER-ZEALOUS disclosure require-ments for short-sellers are drivingtrades away from Europe and erodingliquidity, according to a report byOliver Wyman commissioned by theAlternative Investment Management Association (AIMA), a hedge fundindustry group.

The study comes as Steve Maijoor,

the newly appointed chair of theEuropean Securities and MarketsAuthority (ESMA) said: Shortsellingin itself is not a negative thing. Itresults in liquidity.

The AIMA report looks into thepotential effect of forcing short-sellers to publish the details of anyposition they take amounting to over0.5 per cent of a companys oustand-ing shares, regulations proposedrecently by the European

Commission (EC).It finds that most investors expectthe rules to cause an exodus of trades:We have seen the beginning... ofinvestors voting more with theirfeet, it says.

In place of the EC proposals, AIMArecommends publishing aggregateshort positions, with the potential formore detailed disclosure to regula-tors, measures it says are sufficient tosupervise macro-economic risk.

Report: short-seller disclosurerules dont make market saferBY JULIET SAMUEL

HEDGE FUNDS

AS civil unrest spread to Jordan yes-terday, markets reacted to the newsthat a change of government couldaffect the countrys zero per centexport tax and the companies thatrely on it.

Early yesterday Jordans KingAbdullah dismissed his government

and announced his intention to bringabout genuine political reform.

Jordan-based HikmaPharmaceuticals, which has closelinks to the incumbent governmentand makes significant exports to theUS and across the Middle East, hasalready been highlighted as a poten-tional loser in the shake-up.

Peel Hunt downgraded the compa-ny to to sell and lowered its targetprice to 720p, with shares in the

group having already fallen 4.7 percent the previous day.

Zero per cent tax rate threatenedas civil unrest spreads to Jordan

EGYPT CRISIS

EGYPT IN CRISIS

Egypt President

finally agreesto stand down

EGYPTIAN President Hosni Mubarak finally bowed to massive collectivepressure yesterday, saying he would step down at the September elec-tion, once a successor is elected.

His move followed eight consecutive days of protests, culminatingwith more than a million citizens taking to the streets yesterday callingfor the former general to step aside.

In Cairos Tahrir, or Liberation, Square, there was cheering after the82-year-old leaders pugnacious broadcast on state television but alsoquestioning about whether a transition of many months will be some-thing the opposition will agree to.

Looking calm in suit and tie, Mubarak said: I say in all honesty and

regardless of the current situation, that I did not intend to nominatemyself for a new presidential term. Ive spent enough years of my life inthe service of Egypt and its people.

I am now absolutely determined to finish my work for the nation ina way that ensures handing over its safekeeping and banner ... preserv-ing its legitimacy and respecting the constitution ... I will work in theremaining months of my term to take the steps to ensure peacefultransfer of power.

The crisis yesterday continued to have an impact on global markets,with commentators warning of upward pressure

on agricultural commodity prices as govern-ments in the Middle East limit exports andincrease imports to add to precautionarystockpiles. Rising food prices have been oneof the catalysts for protests in both Tunisia

and Egypt, and the added pressure is likely tocompound fears of contagion across the

region.But the hike in oil prices slowed yes-

terday, with brent crude futuresclimbing just nine cents or 0.1 per

cent, compared to a jump of $1.59the previous day. Concerns oversupply disruptions from the SuezCanal eased as it remained opento shipping, despite the closure of

several ports in nearbyEgypt.

Away from com-modities, the unresthas also disruptedEgypts plans to raise$683m (423m) of

debt this week, asa u c t i o n s

s che d ule dfor Mondayw e r ed e l a y e dindefinitelyuntil order isr e s u m e d .International

businessesare also scal-

ing backoperations.

BY ELIZABETH FOURNIER

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SHARES in British chip manufac-turer ARM Holdings, the firmbehind Apples iPad, rose followinga 72 per cent increase in full-yearprofits, despite warnings of a dotcom bubble from analysts.

Profits for the FTSE 100 chipmak-er rose to 167.4m before tax in the year to 31 December, up from96.8m the year before.

Revenues increased to 406.6min the year to December for theCambridge-based f irm.

ARMs chips, which feature inthe iPhone and iPad, consume lesspower than traditional PC micro-processors, vital for battery-pow-ered devices.

Shares rose 6.10 per cent to547.5p yesterday, raising concernamongst analysts as to whether the

stock is over-priced. Analyst James Cranshaw said:

Its one of these shares thattraders and momentum investorssee as going up so they buy it as itsgoing up.

We think that theres a bubblein the share price. It doesnt reflectreality and it could take a longtime before the market wakes upto this.

He added: It seems to be thatthe prices of chips just keep ongoing down and down. If you wantto expect good revenue growth forARM, its not quite good enough tojustify the valuation that its trad-ing at.

However, Standard and Poorsupgraded its rating from strongsell to sell following the betterthan expected fourth quarter results.

Earlier this month, ARM tied upa deal to provide chips forMicrosofts next version of itsWindows operating system.

The Windows software will bedesigned for battery-powered prod-

ucts such as tablets and smart-phones, for which ARM will startreceiving royalties in about twoyears.

Chief executive Warren Eastsaid: ARM continues to signlicenses with influential marketleaders in an increasingly digitalworld, and as the industry choos-es ARM technology in a broaden-ing range of electronic products,it further drives our long-termroyalty opportunities.

Chip producer ARMboosted by resultsBYRICHARD PARTINGTON

TECHNOLOGY

News8 CITYA.M. 2 FEBRUARY 2011

NEWS | IN BRIEF

Tate & Lyle to meet expectationsTate & Lyle expects to make progress forits full-year after seeing broadly similarmargins, having fixed prices for its 2011North American pricing round for its cornsweeteners and starches. The companyalso said yesterday that it had raised theprice of its corn sweeteners by up to a

fifth to offset soaring corn costs and holdprofit margins steady. The London-basedgroup, which makes sweeteners likeSplenda, starches and ethanol, said it wason track to meet its expectations for itsyear to the end of March 2011.

Wagers up at SportingbetBritish online gaming firm Sportingbetsaid yesterday that amounts wageredin the first half of the year were up 11per cent on strong trading, especiallyin Australia and emerging markets.Sportingbet shares, which have lostnearly a quarter of their value over thepast year, closed up 0.2 per cent at 50p.

Utilities performing wellNorthumbrian Water Group said trad-ing in the second half had been in linewith estimates, putting it on track fora sound performance for the year toMarch 2011. Scottish & Southern

Energy meanwhile said that its house-hold customers used more gas in thelast 10 months, and that it expectedprofits to be in line with analyst fore-casts.

SOFTWARE specialist Autonomysshares gained more than six per centto close at 1,590p yesterday after itreported record profits and revenuesfor 2010.

Double-digit sales rises for its keyservers and cloud computing systemsgenerated an 18 per cent growth inrevenue to $870m (547m), from$740m in 2009.

Full-year pre-tax profits of $379m were 17 per cent higher than the$323m recorded in 2009.

The results beat analysts forecastsafter brokers downgraded their profit

expectations from 21 per cent to 17per cent last year in anticipation ofpoor fourth-quarter trading.

There were a number of analystswho expected a profit warning prior

to the results coming out so the head-line numbers are reassuring, saidSinger Capital analyst TintinStormont.

Earnings per share rose 24 per centon 2009s level to $1.20, helped by alower tax rate, while net cash genera-tion also rose to $363m from $287min 2009.

Autonomy chief executive MikeLynch said 2010 was a year of transi-tion for us, as customers moved tocloud computing systems faster thanexpected.

He also marked an end to the defer-rals and delays in customer ordersthat caused it to issue a profit warn-ing last October.

In the third quarter of 2010, wealso saw volatility in customer assess-ment of the macro environment,which now seems to have reduced,he said.

Autonomy stocksoars after record

sales and profitsBYALISON LOCK

TECHNOLOGY

ANALYSIS lArm Holdings525

475

425

375

325 24 Nov 13 Dec 31 Dec 27 Jan8 Nov

p

547.5001 Feb

Shares might be too hot to handleIT is hard to f ind fault with ARMsresults, which beat expectations onjust about every count. Revenues of$180m (112m) were nine per centahead of consensus; ebit marginsof 41.1 per cent were higher thanthe expected 39.4 per cent; andadjusted EPS was 2.9p, 27 per centahead of consensus at 2.28p.

The outlook is also lookinggood. ARMs order backlog a keymeasure of its future prospects was up 35 per cent quarter-on-quarter in the last three months ofthe year.

While it is hard to argue with

ARMs performance, the invest-ment case is less clear cut. Severalanalysts might have nudged uptheir guidance yesterday, but thestock already trades on around 51.7times estimated earnings in 2011.That is a stratospheric valuationwhich is almost impossible to justi-fy on the current facts.

The valuation is based on hugelyoptimistic assumptions about com-pound growth over the nextdecade or so. The bulls argumentgoes like this. The number ofdevices that carry an ARM chip is

growing exponentially; virtually

every household appliance from washing machine to clock radionow contains a microchip. And thenumber of ARM chips in mobilephones is also growing fast, hitting2.5 in 2010 compared to 1.5 fouryears earlier.

The bears still wince at the P/Eratio and its easy to see why. Noone is doubting how hot ARM is, but its stock should be handledwith care.

BOTTOMLINEAnalysis by David Crow

DR MIKE Lynch, 45, began work-ing on the mathematics behindAutonomys software in the early1990s, when he was writing hispost-doctoral thesis at CambridgeUniversity.

He was studying the work of an18th Century

vicar, ThomasBayes, whospent his lifetrying to provethe existenceof Godthrough math-ematics.

H e

never succeeded, Lynch once

quipped, although he probablyhas an answer by now.In 1996, Lynch founded

Autonomy, a firm he has sincetransformed into a FTSE 100 giant with 16,000 clients that rangefrom Nestle and the BBC to NASAand the US Department ofHomeland Security.

Simply put, the technologyenables computers to understandhuman interaction. It can spot when traders are perpetuating afraud, or when a call centre opera-tive is giving a customer thewrong answer.

Lynch, born to a fireman fatherin Ireland in 1965, was brought upin Essex, where he won a scholar-ship to the nearby public schoolBancrofts.

Quintessentially English andincredibly low-key, he cuts a

strange figure on the global techstage, which is dominated bybrash Americans in the mould ofMicrosoft founder Bill Gates.

BYDAVID CROW

PROFILE

The ex-university profwho built a tech giant

DR MIKE LYNCH

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Consumer News 9CITYA.M. 2 FEBRUARY 2011

CARPETRIGHT, the UKs biggest floorcoverings retailer, yesterday warnedon profits after a third-quarter salesslump, showing how a weak housingmarket, tax hikes and governmentcuts have hit consumer confidence.

The retailer also said customers would face double-digit price risesthis year due to the soaring cost ofraw materials.

It is the first time in 22 yearsCarpetrights been going that we havegot really big inflation, said chiefexecutive Philip Harris.

He said that wool prices had beensoaring.

ONLINE grocery delivery companyOcado yesterday said its losses hadnarrowed in 2010 after it weatheredthe storm following a controversialstock market float.

The internet retailer halved its pre-tax loss to 12.2m.

Meanwhile it made pre-tax profitof 300,000 for the final quarter thefirst profit it has recorded.

Ocado chief executive Tim Steiner,a former Goldman Sachs banker, toldCity A.M.: We are ahead of our fore-casts and are doing well because weare so customer focused. During theharsh winter weather our vans were

well equipped to continue deliveries.Also our delivery service via

mobile phone apps has been extreme-ly successful.

Ocado was formed in 2000 bySteiner and two other Goldman Sachs

bankers and floated in July, much tothe derision of some analysts whoclaimed the 1bn value being touted

was excessive. Its shares finally float-ed at 180p each, lower than hoped.

The company spent 3.5m on get-ting the float away, including a bill to

public relations specialists helping toargue Ocados case for expansion.

Steiner added: We understandthat because our business model isnew some analysts were not sureabout the float.

However we were confident andwe are doing what we said. People areentitled to their opinions and wehave no problem with that. Ocadoshares surged 13.6 per cent yesterday.

But some sceptics remain, withPhilip Dorgan at Altium saying in anote yesterday: The 2010 results areirrelevant to the valuation argu-ment... We have set out our stall withthe bears because we dont believethat Ocado is capable of generatingsuperior returns.

Ocado losses

narrow aftershaky float

SHARES in Walker Greenbank rose5.7 per cent after the wallpaper andfabrics maker said yesterday itexpects full-year profit to beat marketexpectations, helped by a strong per-formance across all its brands.

Walker Greenbank has an impres-sive track record, growing at 16 per-cent per annum over the last three

years, Seymour Pierce analyst KateCalvert said yesterday.

It has a unique range of thebrands in the luxury interior furnish-ings market and we expect opera-

tional gearing to come through inearnings over the next three years.

Greenbank tobeat forecastsCarpetright inprofit warning

BY JOHN DUNNE

RETAIL

RETAIL

RETAIL

ANALYSIS lOcado Group240

220

180

160

120

19 Nov 20 Dec 12 Jan 1 Feb1 Nov

p

247.7001 Feb

INVESTMENT bankers took around12m in fees for advising on the flota-tion of Ocado.

They will no doubt be breathing a

sigh of relief that the company is livingup to its forecasts after a jittery start,with its float price slashed at theeleventh hour.

Goldman Sachs, as main adviser,will be the chief beneficiary while JPMorgan Cazenove and UBS alsopitched in to help the float get off thelaunchpad despite scepticism amongsome analysts.

The remainder was split between

Barclays, Lloyds Banking Group,HSBC, Numis Securities and Jefferies.

Ocados float plan was attacked bysome institutional investors whoinsisted that the business was overval-ued.

But with big hitters among theadvisers, the online retailer was in astrong position to win over the biggerinvestors.

Two of the banks that were advis-

ing Ocado, Goldman and UBS, areamong the shareholders in the firm.Ocado floated on the stock market

last July at 180p, but the sharesquickly tanked.

However, the price has since risen.The shares surged 13.6 per cent to247.7p at the close of trading yester-day and the latest figures are beingused as evidence that the companyhas a bright future.

GOLDMAN

SACHS

ANALYSIS lOcado

100

200

300

400

500

600

-100

0

Revenues

Pre-tax losses

515.6m

515m

401.9m

321.3m

321.3m

33m

402m

Net sales

2008 2009 2010

25m 12m

m

m

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Focus on insider dealing probe10 CITYA.M. 2 FEBRUARY 2011

The case of the banker, hiswife and their accomplice

for each of the three suspects.The case against a banker, his wifeand their accomplice was a flagshipinvestigation for the FSA a warningshot to the City that insider tradingwill not be tolerated.

But it had a wider significance; thefuture of the FSA is unclear, its respon-sibilities soon to be subsumed into theConsumer and Markets Protection Authority, with few guarantees onhow this will affect the organisationscurrent employees. The collapse ofsuch a high profile case, which haseaten thousands of man-hours andhundreds of thousands of pounds,would have played very badly indeed.

The investigation was sparked froma fairly commonplace suspicious tradeflagged up by a broker, relating toshares traded in Highway Insurance in2008, then a possible takeover target.

An investigator from the FSAs mon-

itoring team predominantly madeup of people who have had experienceworking in markets uncovered evi-dence of suspicious trades from fourdistinct accounts. In each case thetrader bought shares before the dealwas announced and sold them over atwo week period after it had closed. The account holder in all four caseswas one Helmy Omar Saaid.

THE INVESTIGATIONDelving into Saaids transaction histo-ry, the FSA found accounts datingback to 2002, with 22 trades followinga similar pattern. Of those, 15 wereadvised by investment bank DresdnerKleinwort. However, no link could befound between Dresdner and theHighway deal that had sparked theinvestigation.

Correlating data on the hundreds ofpeople listed as having inside informa-tion on the flagged deals threw up the vital clue one banker had leftDresdner for rival Shore Capital, which had worked on the Highwaydeal; Christian Littlewood, a well-heeled, Bristol-educated (then) 35-year-old who specialised in advising onmid-market corporate finance deals.

After establishing him as the primesuspect, the case was passed to theFSAs enforcement team. The first step was to establish a link betweenLittlewood and Saaid.

This involved meticulously data-mining information about the sus-pect. An early sign they were on theright track was the discovery thatLittlewoods wife, Angie Lew, andSaaid were both Singaporean nation-als, hinting at a possible connection.

Moreover, significant payments were made from Littlewood to one

Siew Yoon Lew, which marriagerecords would later prove was Angiesmaiden name. Obtaining access toLittlewoods email account provided adirect link between the banker andSaaid, whose name was discovered inhis contacts. It also emerged Lew had written an employers reference toSaaids common law wife proving arelationship between the two.

Lew and Saaid were implicated indozens of suspicious trades, oftenapparently acting on the same infor-mation. Littlewood would later arguein his mitigation that he was unawareof the extent of his wifes trading.

With enough evidence prepared,the FSA raided Littlewoods house andtwo addresses registered to Saaid.Littlewood and Lew were dragged offfor questioning but their accomplicewas nowhere to be seen.

THE SMOKING GUNNeither husband nor wife would com-

ment but a search of the house uncov-ered a wealth of evidence. What hadappeared to be a sophisticated schemecrumbled.

Perhaps the most outrageous findwas a stash of disks hidden in the gar-den shed that detailed companies thatLew had interests in (some of whichthe FSA had not then linked to thecase), profits she had booked and evenhandy notes scribbled in pencil divid-ing the spoils into three even piles.

When laid bare the evidence wasdamning. Sophisticated software plot-ted the exact times of phone conversa-tions between Littlewood and his wife,follow-up calls between Lew and Saaidand the subsequent share placements,usually split into several transactionsof under 10,000.

Bank statements and chequesshowed Lew acting as the conduit forcash between her husband and Saaid,

some totalling as much as 140,000.

SIX MONTHS HARD GRAFTWith the case falling into place, thenext six months were dedicated to sift-ing through and categorising the vastcache of disks, phone records, comput-er drives and documents dating backover 10 years. The computer filesalone, if printed onto A4 paper, wouldhave dwarfed One Canada Square. Onemistake at this point could have beenenough to destroy the carefully con-structed case.

Meanwhile, an investigation withthe Monetary Authority of Singaporehad tracked Saaid down to the islandof Mayotte, a French territory located between Mozambique Madagascar. He was found throughimport receipts for a pizza business he

was setting up presumably planninga life of luxury on the island frequent-ed by rich ex-pats and foreign digni-

taries. The FSA worked with Frenchauthorities and, jetting off to theisland, apprehended Saaid the firsttime extradition has been sought forinsider dealing.

THE END GAMEOf the 51 suspicious transactions iden-tified, the FSA pressed ahead with 13charges, plus an over-arching charge ofconspiracy. The total trades investigat-ed totalled more than 5.5m, while the13 that made up the prosecution casewere worth 2.1m and booked a profitof 590,000.

Littlewood and Lew both pleadedguilty but Saaid maintained he wasinnocent until the first day of his trial,last month, when he finally admittedhis role in the ring.

Today it is all but certain the three will face prison. Saaid has seen600,000 of his assets frozen; his

dream of a life of luxury in the IndianOcean swapped for time behind bars.

Christian Littlewood and his wife Angie. Inset: A cheque used as evidence Pictures: REX

Notes on a scandal: FSA evidence

The anatomy of aninsider dealing ringbySteve DinneenAN extraordinary insider dealing casethat took investigators from thewindswept towers of Canary Wharf tothe sun-kissed tropics of Mayotte isexpected to end today with jail terms

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1,256 SAFEDAYS FOR

ALL AT BPSLONDON HQFULL steam ahead for the BP safety train.Following The Capitalists story two weeksago about how the oil giant has been beef-ing up elf n safety procedures in stairwelluse, a source has sent in this picture (seeright).

Yes, thats right, a count-down (or count-up) calendar from BPs London HQ boast-ing of how many safe days the buildinghas gone without a day away from workcase that is, an injury that has caused anabsence from work.

HQ workers must have felt particularlygrateful for the proud safety notice duringthe Gulf of Mexico spill some 200 or so daysago, but it begs the question: what hap-

pened on that fateful date, 1,257 days ago?We called our helpful safety captain at

the BP press office for a briefing. Thepoint of putting that sign in this buildingis that we have the same philosophy, thesame rules of safety here as in our opera-tional buildings, he said solemnly. (Hmm...so perhaps the sign wasnt such a comfortlast May after all).

As for the timeline, it turns out it marksthe very day the sign itself was hung safelyon the wall.

And pending any improper use of the

Racecourse is holding a special royal wed-ding celebration day on 20 April, when thefirst Investec Derby trial takes place, givingfree entry to anyone with the first nameWilliam, Kate or Catherine. Buttheres no faking it: the offer requires offi-cial photo ID.

The day promises to be a great previewof the Investec Derby Festival itself, for

which City A.M. is the official newspaperpartner. Its happening at Epsom 3-4 June.

GLAMOUR SIXAnd finally, a sneak preview of Glamourspower list for 2010. The magazine names35 over-achieving women under 35 every

year for including in its power list, withsix in the business and law category. This

years six feature four entrepreneurs Holly Tucker, Jessica Grosvenor, JessicaHuie and Nik Done a solicitor (LisaMorgan) and the head of a showbiz agency(Suzie Norton). The list shows theres plen-ty of female talent in the pipeline when itcomes to rebalancing that pesky maledominance of company boards.

bannisters, methane gas bubbles (of theearthly, not human, variety), and angryinvasions from the firms Russian partners,one sure fact is that you can set your calen-dar by BPs safe days signage.

PUT IT ON HRMS TABEyebrows have been raised after disgracedexpenses MP David Chaytor left

Wandsworth prison for the low securitySpring Hill jail after just two weeks.Perhaps the disgraced MP will make themost of his time at the open prison, whereinmates are free to come and go as theyplease, providing theyre back by a 10pmcurfew. According to the HM Prison Service

website, prisoners can take advantage of a

number of training courses. Given his falseclaims for IT support services in May2006 when the services had not been pro-

vided or charged for, perhaps the classesin computer studies would be worthwhile.

Were sure the former Labour MP forBury will find the new accommodationmore amenable. Rooms are equipped withthe kinds of facilities that cant be found in

budget hotel chains like Travelodge, includ-ing a mini-fridge, TV and Sony PlayStation.If thats too dull, theres always the on-sitesports centre, with its soft-tennis courts.

ROYAL FLUTTERGood news for anyone sharing a first name

with the happy royal couple. Epsom Downs

The sign hangs proudly on the wall in BPs main London office, reminding staff to tread carefully

Holly Tucker, one of Glamours power 35 ladies

The CapitalistWe have thesamephilosophy of

safety in thisbuilding aswe do in allour buildings,said the BPspokesman.

EDITED BY

JULIET SAMUELGOT A STORY? EMAILthecapitalist@cityam.com

11CITYA.M. 2 FEBRUARY 2011

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HOUSE prices and mortgageapprovals both fell in the firstmonth of 2011 sparking fears of asluggish year for the property mar-ket, according to closely watcheddata published yesterday.

Mortgage lender Nationwide, thefirst to publish figures for January,indicated that house pricesdeclined by a seasonally adjusted

0.1 per cent last month afterDecembers 0.4 per cent rise. Prices

were 1.1 per cent lower last monthcompared to January last year, pro-ducing an average house price of161,602. This is 1,161 lower thanDecembers average and takeshouse prices back to below theirSeptember 2009 level. The proper-ty market entered 2011 with awhimper rather than a bang, saidNationwide chief economist RobertGardner. He added that the outlookremained highly uncertain.

But, its data suggested that the

pace of decline appeared to be sta-bilising as the three-month decline

in prices, which smoothes outmonthly price volatility, eased to0.5 per cent in January from oneper cent in December.

Meanwhile, the Bank of Englandsaid the number of mortgagesapproved for house purchasesshowed a sudden dip in Decemberto their lowest level since March2009. There were 42,563 approvals,showing a relatively sudden dip ofnearly 5,000 from the previousmonth. Analysts said that

Decembers drop may have beenexacerbated by harsh weather.

MANUFACTURING around the worldsurged powerfully ahead last month,but inflationary pressures also pickedup speed heightening fears that cen-tral banks would be forced to beginhiking interest rates.

Britains closely watchedMarkit/CIPS monthly purchasingmangers index rose to 62 for the firstmonth of 2011, up from 58.7 inDecember the highest reading sincethe survey began in 1992. The PMI hasremained above the 50.0 mark thatmarks expansion from contractionthroughout the past year-and-a-halfboosted by a 25 per cent fall in the

pound.The rise, higher than economists

had expected, shows that manufac-turing is growing at an annualisedpace of 2.5 per cent a year, accordingto Capital Economics. It brings for-ward the risk of a rate rise soonerrather than later, and brings Februaryinto play as a possibility, said RossWalker, economist at RBS.

But economists yesterday said thatthe equivalent PMI data for the servic-es sector on Thursday whichaccounts for 75 per cent of GDP com-pared to the manufacturings 13 percent would be the key considerationfor the BoE.

Meanwhile, data from the USshowed its manufacturing sector

grew at its fastest pace in nearly seven years in January, The Institute forSupply Managements key indexclimbed to 60.8 in January, the high-est reading since May 2004 and wellabove analysts expectations, while itsemployment index reached its high-est level since April 1973.

In Europe, the Markit EurozoneManufacturing PurchasingManagers Index (PMI), which recordsmanufacturing activity across all themajor euro area economies, rose to57.3 in January from 57.1 inDecember.

In China, official PMI fell to a five-month low in January, but was likelydistorted by the closure of factoriesahead of Chinas Lunar New Year.

Global output risesat a record speedBYKATIE HOPE

WORLD ECONOMY

BYKATIE HOPE

UK ECONOMY

House prices and mortgageapprovals drop in January

PARCEL delivery firm UPS surprisedmarkets by delivering almost a 50 percent jump in its 2010 operating profityesterday.

UPS generated $5.8bn (3.65bn)full-year adjusted operating profit, a47 per cent jump on 2009, while full- year revenues rose 9.4 per cent to$49.5bn as the company delivered3.9bn packages over the year.

The results were boosted by anexceptional final quarter. UPS deliv-ered 1.1m packages amid strongdemand for festive and online shop-ping.

Fourth-quarter adjusted operatingprofit rose to $1.08 per share, up 44per cent from a year ago and toppingthe $1.05 per share expected by ana-lysts. The gain was three cents-per-share more when factoring in a gain

from the sale of a logistics unit.Revenue rose to $13.42bn from$12.38bn in the quarter.

Chief financial officer Kurt Kuehnadded 2011 earnings per share areexpected to go up by 16-22 per cent.

UPS delivers asurprisingly highprofit package

SUPPORT SERVICES

DRUGMAKER Pfizer plans to close aplant in Kent where 2,400 of itsresearch and development team are based, as part of a move to cut itsresearch budget by 1.2bn a year.

The news came as Pfizer adjustedits sales forecast for 2012, the firstyear that the patent will expire on itsprofit-driving cholesterol pill Lipitor.

To offset the downside Pfizer willcut its 2012 research and develop-ment spending by as much as $2bn(1.24bn) from a planned $8bn-$8.5bn. It will also increase its sharebuyback programme by $5bn extra.

Vince Cable called the closure ofthe site, where key Pfizer productsViagra and hypertension pill Norvasc were discovered, extremely disap-pointing, and said that the govern-ment would be meeting with Pfizer

to discuss alternative uses for theabandoned facilities.

Pfizer chief executive Ian Read saidthat the company would also improveaccountability around its researchspending, having faced criticism inthe past for poor investment choices.

We need a focus at each stage, hesaid. If we dont have the data, wewont continue to invest.

Shadow chancellor Ed Balls tookthe opportunity to attack the UK gov-ernments investment in manufactur-ing. While praising strongmanufacturing figures he also reiter-ated the importance of investment tojob creation for the UK.

The government needs to explain

why they are cutting Labours invest-ment allowances for manufacturersby 75,000 and using the money togive a corporation tax cut which willoverwhelmingly benefit the banks,he said.

Slump for UK homeof Viagra as Pfizer

shuts plant in Kent

News12 CITYA.M. 2 FEBRUARY 2011

NEWS | IN BRIEF

US car sales surge 18pc in JanuaryUS car sales jumped by about 18 per cent inJanuary, led by gains for General Motorsand Chrysler as the two Detroit carmakersrestructured by the US government tookshare from rivals. GM posted a 22 per centsales gain, pushing its market share above20 per cent. Chrysler, which is pushingtoward an initial public offering of stock inthe second half of 2011, had a 23 per centsales gain. Other major carmakers trailedwith double-digit sales gains: Toyota Motorsales jumped 17 per cent; Honda Motor andNissan Motor sales were up 15 per cent andFord Motor sales improved by 13 per cent.

UK money supply indicates expansionUK money supply figures for December,released yesterday by the Bank of England,suggest moderate economic expansion dur-ing the first half of 2011. Broad money roseby three per cent annualised in the threemonths to December while annual growthmoved up to 2.3 per cent. However, narrow

money remained sluggish with M1, accountingfor currency plus overnight deposits, up by only1.3 per cent in the 12 months to December,down from five per cent in December 2009.

Pressure on personal finances risesThe proportion of people saying they have nospare cash has risen to 27 per cent, accord-ing to the latest consumer confidence survey,released today. This was six percentagepoints higher at the end of 2010 than a yearearlier and the highest since the survey beganin 2005, according to the Nielsen Companyand the British Retail Consortium which pub-lish the survey. The poll also revealed thatconsumer confidence overall was lower at theend of 2010 than the beginning.

American construction spend dropsUS construction spending fell 2.5 per cent inDecember, marking the second decline in a row,the Commerce Department reported yesterday.For all of last year, construction spending endedup 10.3 per cent lower compared to 2009.

BY ELIZABETH FOURNIER

PHARMACEUTICALS

No I think it only applies to high earners. Itsright that the rich should pay more, althoughits not the answer to everything. I would bevery surprised if it changes this year.

CHRIS PEREGRINE| COLT

Not at the moment. Everyone needs to make acontribution to getting the debt down. Everyoneshould share the pain in the bad times and every-one should share in the gain in the good times.

Yes, I dont think its fair, you are being penalisedfor doing well. It should be changed as soon aspossible. If you work hard and do well, youshouldnt be penalised.

PHIL MORALEE | REAL GLOBAL MARKETS

NICK DONOVAN | RSA GROUP

CITYVIEWS: SHOULDTHE50P TAXRATEBE CUT?Interviews by Richard Partington

IN ASSOCIATION WITH

www.RateSetter.com Customer Phoneline: 08442490115

Save or Borrow peer to peer at RateSetter.com

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News 13CITYA.M. 2 FEBRUARY 2011

Banks chief hawk says businesseswill grow Britain out of recession

Allister Heath and

Julian Harris head to

Threadneedle Street

to meet the MPCs

Andrew Sentance

FOR seven months Andrew Sentancestood alone, the only Bank ofEngland rate-setter brave enough tocall out for a gradual rise in rates.

Yet in January he was finally joined byone of his eight colleagues, Martin Weale,in his appeal for a gradual tightening inthe central banks rates.

I dont want to comment on the viewsof individual members, he told us yester-day from his majestic Bank of Englandoffice overlooking the Royal Exchange,but as a general observation, the last twosets of minutes have reflected a growingconcern about inflationary pressures.

Last week the pairs stance faced scruti-ny when preliminary figures signalled amajor setback for the economy at the endof 2010. Some said this proved monetarypolicy should remain ultra-accomodative.

But Sentance remains unfazed.They did put a health warning around

the data, I think people should pay atten-tion to this, he said, referring to theincomplete nature of the Office forNational Statistics provisional figures.

And one thing we can pretty clearly sayabout the fourth quarter data is that itsheavily snow affected. And we need to beprepared to look through fluctuations inGDP growth when were recovering fromrecessions; growth figures are never linearand smooth in recoveries, he added.

Whether or not Sentance can convincemore of the monetary policy committee(MPC) to vote for a rate rise this month, hisone man inflation-fighting campaigncomes to an end in May, at least fromwithin the Banks hallowed halls.

The former Confederation of BritishIndustry (CBI) economist is departing theMPC, which he first joined in October2006 (he marked his entrance back thenwith an instant call for an interest raterise; once a hawk, always a hawk).

Sentance would prefer his successor,like him, to have a background in busi-ness. Ive certainly drawn on my businessexperience in fulfilling my role, he said,referring to his time at British Airways.Thats very important for the MPC, to

have input that can directly draw on busi-ness Ive found it particularly helpful. After all, the processes that were dis-cussing are very much about how busi-nesses operate in the real world.

And Sentance echoed the calls of busi-ness groups for the government to domore to allow private sector growth.

At a time when were looking for theprivate sector to pull the economy for-ward, its important for government poli-cy to be seeking to reinforce that, he said,citing the CBIs call for a positive growthstrategy from the coalition government.

Emphasising the need to combat infla-

tion, Sentance empathised with theeffects on businesses and everyday con-sumers. Those are the communities whosuffer from high inflation, he said.

The consensus against inflation is stillvery much alive in the commercial world,he insisted. I dont see theres any lack ofconcern [about inflation] because weveseen a lot of media stories about it.

The things that have really disruptedthe UK economy in the past have been let-ting that inflation genie get out of the bot-tle, and if expectations do rise and peopledo start to expect higher inflation, it is ahard and painful job of reasserting stabili-ty, he warned.

The Bank enjoys a hard won stock ofcredibility from years of keeping infla-tion low and on target, Sentance said,while stressing that it must not squanderthis reputation by allowing inflation tothreaten the economy again.

Im concerned from my time on the

MPC that we make sure that we are keep-ing that stock of credibility topped up by

acting consistently with our target. I thinkthe longer the situation goes on wherewere not prepared to take any monetarypolicy action against rising inflation, thebigger the threat to credibility becomes,he said. Over a period of time if the MPCappears not to act when there are things itcould do to at least moderate the infla-tionary pressures then that [loss of credi-bility] is a risk.

The fact is that measures of inflationexpectations have moved upwards, thedirection of travel of these measures ispretty clear and thats something the MPCshould look at very carefully, and be con-

cerned about, he said.And the Bank must bear in mind thestrength of the global recovery, Sentancewarned. Were a very international econ-omy, a lot of our inflationary processesare also influenced by the internationaleconomy so we need to take that intoaccount in setting UK interest rates.

What is happening is were havingthese external and cost pressures on infla-tion but the demand climate for the UK isallowing them to come through to theconsumer, and I think the worry is thebeginning of a change in the pricing cli-mate that weve seen in the UK, away froma pricing climate based on low and stableinflation.

All the big shocks that the MPC hashad to deal with in its life have been driv-en by the international economy, he said,listing the Asian crisis and bursting of thedotcom bubble as two examples. Weshould be reflecting on that experience,

and taking the current external factorsseriously.

But what of claims that inflation ismerely caused by temporary and externaleffects commodity prices, the rise inVAT? Sentance is unconvinced.

I dont think you can compartmen-talise inflation in that way, he responded.

In the current climate weve seen thedemand situation in the UK economy hasimproved very considerably. The growth ofnominal demand is almost the strongestthat weve seen even if we compare to the1990s and 2000s before the crisis.

Nominal domestic demand spendingby UK consumers, businesses and govern-ment, in total money terms was up 6.8

per cent year-on-year in the third quarterof 2010, Sentance said.One of the indicators that worries me

most is the price expectations measure inthe CBIs industrial trends survey, whichjumped between October and January the biggest jump theyve seen in that sur-vey since the late 1960s.

And Sentance rejects the claim thatspending cuts will halt the recovery, citingthe fiscal consolidation of the 1990s as aprecedent. There was a big fall in govern-ment spending as a percentage of GDPand there were some selective tax rises aswere now seeing and the economy grewthrough that period, he said.

Sentance remains as willing as ever toput his neck on the line: I still believe thetime to have started raising rates was themiddle of last year. His colleagues on theMPC didnt agree, but it seems inevitablethey will be forced to raise rates at somepoint this year. Let us hope this wont turn

out to be a case of closing the stable doorsafter the horses have bolted.

Age: 51Work: Former senior economist at theConfederation of British Industry (CBI). AtLondon Business School, became directorof the centre for economic forecasting. In1998 joined British Airways, where hebecame chief economist and head of envi-ronmental affairs.

Education: Educated at Eltham College;Clare College, Cambridge University; andthe London School of Economics, where hegained his PhD. He holds a visiting profes-sorship at Royal Holloway, University ofLondon and is a Fellow and former chair-man of the Society of BusinessEconomists.

Family: Married, two children.

CV | ANDREW SENTANCE

Andrew Sentance,pictured in his Bank ofEngland office, insistsinterest rates shouldhave begun rising lastsummer.

Picture:Micha Theiner/

City A.M.

Its veryimportant forthe Bankscommittee tohave inputthat drawsdirectly onbusinessexperience.

Measures ofinflation havemovedupwards, andthat issomethingthe Bankshould lookat very

carefully.

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MINER Xstrata said coal productionfell six per cent in 2010 with thermalcoal output affected by severe weatherin the first quarter and in December.

Total consolidated coal productionfell to 79.9m tonnes even as the Anglo-Swiss miner posted annual productionrecords for coking coal and semi-softcoking coal.

The production report did notinclude any comments on the minerscurrent operations in Queenslandafter the Australian state was hit bysevere flooding this month. Xstratahas coal, copper and zinc operations inQueensland.

Total mined copper productionclimbed 0.7 per cent to 913,500 tonneseven amid challenging operating con-

ditions at some of its South Americanoperations.

Coal and copper are Xstratas mostprofitable products.

The Anglo-Swiss miner is expectedto post around a 90 per cent surge infull-year net profit to $5.23bn (3.3bn),

when it reports its results on 8February.

Floods dragXstrata coalfigures downBYHARRY BANKS

MINING

NEWS | IN BRIEF

Arcelor joins Mongolia coal bidSteelmaker ArcelorMittal and miner Valeare among 15 groups that applied to takepart in the bidding to develop MongoliasTavan Tolgoi coal mine. The mine isregarded as one of the worlds biggestuntapped reserves with an estimatedreserve of 6bn tonnes. Two groups led byJapanese trading houses, one by Mitsui &Co and another by Itochu, have alsoapplied to be part of the bidding. Amongother applicants are Xstrata, PeabodyEnergy, Russian tycoon Oleg DeripaskasEn+ Group, and Indias International CoalVentures. The bidding process has notbeen made public.

First Daiwa profit for four yearsDaiwa Securities yesterday reported itsfirst profit in four quarters as a rebound inJapanese share prices lifted fees fromstock trading. Daiwa also unveiled plans tocut 30bn yen (227m) in costs over threeyears by merging its two brokerage units.It reported net profit of 1.18bn yen forOctober to December, compared with aprofit of 26.4bn yen a year ago.

Hyundai leads Asia motor reboundAsian automakers got off to a strong startfor 2011 with robust January sales asthey gear up for the sectors broad recov-ery. Hyundai and its affiliate Kia Motorsare set to report strong sales and earningsthis year, driven by improved brand imageand quality and new models, analysts said.Hyundai saw its global sales jump 14 percent in January.

ANALYSIS lXstrata

1,350

1,250

1,450

1,550

19 Nov 9 Dec 31 Dec 21 Jan1 Nov

p

1412.001 Feb

COCA-COLA has made its first billion dollar brand from a product developed andlaunched in an emerging market. Minute Maid Pulpy, which was launched in China, joinsCokes lineup of 13 other brands that have achieved sales of at least $1bn, including DietCoke and Coke Zero. Pictures: REUTERS

COKE ADDS TO BILLION DOLLAR BRANDS

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The very best grass fed Aberdeenshire beef dry aged for flavour by Aubrey Allen served with barnaise sauce, chips, watercress and tomato

7 Great British cheeses &1963 Croft port 15

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Please mention City A.M. to take advantage of this offer

News14 CITYA.M. 2 FEBRUARY 2011

How the sexism row hurt Skys brand

FOLLOWING last weeks sexismscandal that saw Andy Gray andRichard Keys leave Sky Sports

weve taken a look at how the con-troversy has impacted on perceptionsof their former employers brand. Onthe Friday before the Wolves versusLiverpool match Sky Sports had a buzzscore of -3.2.

The initial story barely impacted on

that with a drop to -5.6 on Monday butas the story gathered pace so did thedecline in the Sky Sports buzz scoreand by Thursday it was as low as -47.

The parent brand was also impactedwith Sky dropping from -1 to -17. Both

have started the recovery already witha pick-up at the end of last week con-tinuing on Monday to see Sky Sportsreturn to -30 and Sky to -8.

Buzz tends to be a leader of generalperceptions and Sky will hope thatrealising it had a problem and actingfast will mitigate the damage to its

brand.The recovery in the buzz scores is

positive news on that front as is thefact that despite the high levels ofawareness of the bad publicity it had a

very limited impact on overall percep-tions and the decline was reversed

before it had had time to gather pace.

Sky Sports did drop on the overallindex but much less dramatically,from +3 to -10 and is now back at -5and Sky continued to fluctuate eitherside of the +5 line.

Spontaneous TellYouGov comments

reveal how tricky a problem this wasfor Sky. There was a clear split between those that believed the

Grey/Keys comments were disgracefuland those who thought there had

been an over-reaction. The next couple of weeks will be

important for Sky, but early indica-tions are that this was an effective

piece of crisis management.Stephan Shakespeare is founder and chiefexecutive of YouGov.

BRANDINDEX

STEPHAN SHAKESPEARE ANALYSIS lSky vs Sky Sports Buzz0.0

-10.0

-20.0

-30.0

-40.0

-50.023 Jan

Sky

25 Jan 27 Jan 29 Jan 31 Jan21 Jan

Sky Sports

ANALYSIS lSky vs Sky Sports Index10.0

5.0

0.0

-5.0

-10.0

-15.023 Jan

Sky

25 Jan 27 Jan 29 Jan 31 Jan21 Jan

Sky Sports

THE Financial Services Authority (FSA)yesterday said its funding requirement which is paid for by the City firms itregulates would increase to 505.5min 2011-12, up from 454.7m in 2010-11.

Big institutions will bear the bruntof the increase, the FSA said, due to theextra resources needed for intensivesupervision of high impact firms.

But the FSA said because of a surgein fines for market abuse which arereturned to the industry as discountsagainst their fees firms will pay twoper cent less than last year overall.

FSA costsjumpto fund rigorousbank oversight

FINANCIAL SERVICES

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DeloitteThe accounting firm has made a new

appointment to its electronic crimeteam with James Rendell joining as adirector. He has worked in the security

industry for 25 years, focusing on sys-tems and infrastructure security. He

joins Deloitte from Arcot Systems andhas also worked at IBM InternetSecurity Systems.

SWIP

Scottish Widows InvestmentPartnershp has appointed Emilio Canoas an investment manager, reportingto Ken Adams. Cano will be focused onasset allocation for clients.

He joins the company from PopularBanca Privada in Madrid, where hewas in charge of asset allocation.Previously, he has worked with Arcalia,

the private banking arm of GrupoBancaja.

BPPhuthuma Nhleko has joined the boardof the oil company as a non-executivedirector. He is currently president and

chief executive of MTN Group, theSouth African telecoms company, arole he will hold until March this yearwhen he will then become a non-execu-tive for the group.

Barclays CorporateKarl Nolson has moved from the syndi-cate team at Barclays Capital to

Barclays Corporate. He has worked atthe group for more than 20 years over-all. He will now be in charge of tailor-ing syndicated loans to the divisionsclient base and will report to AlanTurner.

HawkpointColin Christie has been appointed man-aging director at the corporate adviso-ry. He moves over from UBS.

Norton RoseThe law firm has announced that PeterBurrows will head up the firmsMoscow office from 24 January.

CITY MOVES | WHOS SWITCHING JOBS Edited by Juliet Samuel

Financial Risk ManagementAnthony Simpson (pictured) has joined thehedge fund specialist as co-head of global busi-ness development. He will be based in Londonworking in partnership with Akio Shimazu andwill also join FRMs executive committee.Formerly, Simpson has worked in a similar role

for Ramius, the alternative investment manage-ment business of Cowen Group. He also spent adecade working for Merrill Lynch in Londonand six years at Goldman Sachs.

+44 (0)20 7557 7245morganmckinley.com

To appear in CITYMOVESplease email your careerupdates and pictures to citymoves@cityam.com SPECIALISTS IN GLOBAL PROFESSIONAL RECRUITMENT

in association with

News 15CITYA.M. 2 FEBRUARY 2011

Dow and S&P closeat a 31-month high

THE Dow and S&P 500 closed attheir highest levels since June2008 yesterday and lookedpoised for more gains after

strong earnings and signs of a surgein US manufacturing.

Data showing improved factory

activity and strong results from ship-ping companyUPS, seen as a gaugefor economic activity, bolstered thegrowing impression among investorsthat a recovery was broadening.

The rising sentiment drew in addi-tional buyers on a well-traded day asfears that Egypts turmoil couldspread elsewhere lessened.

Volume was above lasts years dailyaverage with 8.71bn shares traded onthe NYSE, Amex, and Nasdaq amidreports of some large scale buyingfrom institutional investors.

The Dow closed above the psycho-logically important 12,000 level forthe first time since June 2008.

Scott Marcouiller, chief technicalmarket strategist at Wells FargoAdvisors in St. Louis, said the biggestpullback in six months on Friday hadlured investors. There was an oppor-tunity for that money that had

missed out to jump in, he said.The Dow Jones industrial average

gained 148.23 points, or 1.25 per cent,to 12,040.16. The Standard & Poors500 Index rose 21.45 points, or 1.67per cent, to 1,307.57. The NasdaqComposite Index added 51.11 points,or 1.89 per cent, to 2,751.19.

The S&P 500 closed above 1,300 forthe first time since August 2008.

Risk is coming back into the mar-ket, said David Lutz, managing direc-tor of trading, Stifel Nicolaus CapitalMarkets, Baltimore. A lot of it is block volume which suggests itsinstitutional.Pfizer shares rose 5.5 per cent to$19.22 after the Dow componentsincome and revenue topped esti-mates. Pfizer also announced a newshare-repurchase programme of up to$5bn of its common stock.United Parcel Service rose 4.1 percent to $74.59 after profit at theworlds largest package deliverer beatestimates and it forecast record-highearnings in 2011.

Signalling improvement in eco-nomic growth, the US manufacturingsector expanded at its fastest pace innearly seven years in January, accord-ing to the Institute for SupplyManagement. The indexs employ-ment component rose to its highestsince 1973.

That chimed with other manufac-turing reports released around theworld yesterday.

The euro hit a 2-1/2 month highabove $1.38, boosted by the solid glob-

al manufacturing data and easingconcerns about public debt.

COMMODITY stocks and bankshelped drive Britains top shareindex to a higher close yester-day, as investors shifted their

focus from political unrest in Egypt toupbeat US economic data.

The FTSE 100 index closed up 94.88points, or 1.6 per cent, at 5,957.82,

recouping nearly all the 1.7 per centlost over the previous two sessions onthe fallout from Egypt.

The mood was brightened afterdata showed that the US manufactur-ing sector expanded in January at itsfastest pace since May 2004, and thatprices paid jumped more than expect-ed.

Buyers came in for miners aftercopper hit a record high, helped bythe strong US data and a backdrop ofconstrained supply.

Copper miners Kazakhmys andAntofagasta were among the top blue-chip risers, up 4.8 and 4.7 percent.

At least 1m people rallied acrossEgypt yesterday clamouring forPresident Hosni Mubarak to give uppower.

The first (market) reaction (to suchsituations) is naturally caution. It

then takes 24 to 48 hours (for properanalysis) and I think having come

through that exercise, the market has become comfortable the impact wont necessarily be too bad, PaulKavanagh, a partner at Killik & Co,said.

Energy stocks were in demand asoil hovered around $101 per barrel yesterday, after a rally on Mondaysupported by port disruptions inEgypt, a weakening dollar and con-cerns about the growing social unrestin north Africa.BP rebounded 1.3 per cent. Traderssaid its share price fall earlier in thesession, in reaction to the oil compa-

nys below-forecast profit, was over-done.The oil major said it was watching

Egypt carefully, while the head of theInternational Energy Agency said theglobal oil market does not face anyemergency as Brent crude pushedbeyond $100.

Investors shrugged off a UK courtinjunction halting BPs plannedArctic exploration partnership withRosneft, Russias state oil group.

Technology stocks were hot picksamong investors, with Autonomy up6.3 per cent after the enterprisesearch software maker reportedfourth-quarter results which analystssaid should provide near-term sup-port for the shares.ARM Holdings rose 6.1 per centafter the British chip designersfourth-quarter results beat expecta-tions, leading Numis Securities to

raise its target price.Risk-sensitive banks firmed, with

Standard Chartered up 2.8 per cent,helped by Exane BNP Paribas upgrad-ing its rating to outperform fromunderperform.

I think the (fears over Egypt) havedwindled a bit. Sentiment is definite-ly on the up, Mark Priest, senior equi-ties trader at ETX Capital, said.

The ISM (U.S. manufacturing) datahas generally added to a rally in theUS. With the Dow rallying, I thinkwell always see the FTSE follow on.

Travel firms InterContinentalHotels andTUI Travel shed 0.9 and 0.6per cent respectively, while midcap

Thomas Cook dropped 1.4 per cent.Manufacturing activity grew at arecord pace in January and price pres-sures also picked up, reigniting specu-lation the Bank of England may haveto raise interest rates sooner ratherthan later to tame inflation.

The Markit/CIPS purchasing man-agers index showed factory activity,employment and new orders all grewat their fastest clip since the surveybegan almost 20 years ago.

FTSE shrugs off Egypt dramaand rises on upbeat US dataTHELONDONREPORT

THENEW YORKREPORT

ANALYSIS l FTSE6,100

5,900

5,700

5,5001 Nov 19 Nov 9 Dec 31 Dec 21 Jan

5957.821 Feb

BEST OF THE BROKERS To appear in Best of the Brokers email your research to notes@cityam.com

ANALYSIS lBetfair

1,300

900

1,100

1,500

19 Nov 21 Jan9 Dec 31 Dec

p

925.501 Feb

BETFAIRJP Morgan has started covering the online gambling group with a neu-tral rating and a target price of 10.24. The broker points out the regula-tory risks of the firm, warning that 27 per cent of its revenues aregenerated in countries where the firm is vulnerable to changes in regula-tion. But it believes that this is offset by excellent cross-selling opportuni-ties from licensed sports and potential for a tax-saving move offshore.

ANALYSIS lCapital Shopping Centres

400

320

360

440

19 Nov 21 Jan9 Dec 31 Dec

p

373.001 Feb

CAPITAL SHOPPING CENTRESUBS rates the retail property owner neutral with a 12-month targetprice of 395p. The broker estimates that CSCs recent purchase of theTrafford Centre could add seven per cent to earnings per share, based onlast years earnings, though the share dilution could drag on EPS momen-tum in the medium term. UBS also warns that the share price may proveweak now that the firm is less susceptible to takeover approaches.

ANALYSIS lVodafone

175

155

165

185

19 Nov 21 Jan9 Dec 31 Dec

p177.00

1 Feb

VODAFONEGoldman Sachs rates the telecoms group neutral with a target price of183p. The broker expects the firm to report 2.9 per cent year-on-yearorganic growth when it reports tomorrow, with total group revenues of11.7bn. It believes the firm is unlikely to return to sustainable growth inEurope, however, or maintain predictable dividend payments from itswireless partner Verizon.

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Beware: the Japanese

could intervene again

FURTHER GAINSFOR CABLE ARE

UNLIKELYBORIS SCHLOSSBERGDIRECTOR OF CURRENCY RESEARCH, GFT Dollar-yen is edging

towards historic lows,says Donata HugginsI

F YOU ever wanted to see a classic example of ashort squeeze you simply need to look at therecent chart of sterling-dollar. Less than 10 daysago, currency traders could not give away the pair

fast enough in the aftermath of the disastrous fourthquarter UK GDP figures, which contracted by -0.5 percent versus forecasts of 0.4 per cent rise. But then justa day later unexpectedly tough Bank of England (BoE)minutes suddenly changed the markets mind as a newmember Martin Weale joined the perennial hawk,Andrew Sentance, in voting for a 25 basis point ratehike.

Yesterday the think tank the National Institute ofEconomic and Social Research came out with a reportstating that the BoE will need to raise rates at least

three times this year in order to tame inflation whichhas been running well above the 2 per cent target levelfor more than year. That news along with a record highreading in the latest purchasing managers index (PMI)sent sterling soaring to a fresh yearly high of 1.6140.

Despite the widespread optimism, I remain scepticalthat the pound can climb much above the 1.6200level given the current state of affairs. Manufacturinghas indeed been the lynchpin of the UK economicrecovery and yesterdays data confirmed that itremains the best performing sector of the UK economy.But manufacturing makes up only 13 per cent of theUK GDP and therefore will have limited impact on over-all growth. Meanwhile the service sector continues tosuffer from lacklustre retail demand and a weak hous-ing market.

Therefore this Thursdays UK PMI services reportmay be the make or break data point for the pound thisweek. Markets are anticipating a rise back above the50 boom/bust level to 51.1. If PMI services does sur-prise to the upside, the pair could extend its rally to1.6200 and beyond. However, if the data misses, as Isuspect it will, cable could finally head toward groundas reality sinks in. Currently, the forward market is pric-ing in at least two rate hikes before the end of the year.I believe that is wildly optimistic and rates will likelyremain at 50 basis points for the rest of 2011.

were recouped in full the next day withthe market concluding that no newinsight about the Japanese economy hademerged.

But some have questioned whether theBoJ will intervene again if the yenregained strength so quickly, deeming theprevious action unsuccessful. Derrickthinks it will: You have to think about itin relative terms. It has actually been quiteeffective. In comparison to the euro, theyens value has remained quite low. Euro-dollar was $1.27 at the time of the last BoJintervention, its $1.37 now.

So traders could take the strategicadvice that Musashi would give: to expectthe unexpected, but then again traders

might find that there are easy profits to bemade from betting on the BoJ reactingpredictably.

THE famous samurai and militarystrategist Miyamoto Musashi oncesaid: If the enemy thinks