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News2 CITYA.M. 16 MARCH 2011

Fear and loathingstalk the global

financial markets

EVERYTHING always seems to gowrong at the same time. Globalinvestors are always extraordinarilynave about geopolitics and naturaldisasters; they have suddenly awokenfrom their stupor and realised that the

world is a much more dangerous placethat they thought. The earthquake inJapan, a devastating catastrophe forthat country, was the tipping point; ithas sent shockwaves through markets,knocking equities, commodities andoil and boosting everything from theprice of carbon credits to the demandfor Swiss francs.

It is not just Japans deeply worryingleakage of radiation that is rattlinginvestors. Last nights downgrade ofPortugal by Moodys comes as a starkreminder that the Eurozones fiscalcrisis hasnt gone away. MuammarGaddafi, Libyas dictator, is slowlycrushing the rebel uprising, making ajoke of what passes for the Wests for-eign policy. Calls for a no-fly zone arelooking increasingly like a case of toolittle, too late; there is zero appetite forany Western intervention post-Iraq.

Middle Eastern powers have no suchqualms: 1,000 Saudi troops and 500UAE police officers have enteredBahrain, now in a state of emergency.There is a real possibility that the fight-ing between Sunnis and Shias inBahrain could spiral out of control,triggering a long-dreaded confronta-

EDITORS LETTER

ALLISTER HEATH

THE PROSPECT of a nuclear-freeEurope was raised yesterday, after theEU official in charge of energy saidstress tests needed to be undertaken.

The development marks a dramat-ic turnaround for the EuropeanUnion, whose member states havebeen at the forefront of a nuclearenergy revival.

Yet the unravelling nuclear crisis inJapan has highlighted how quicklyevents can run out of control, and notonly after an earthquake.

European ministers and diplomatsagreed that the continents 143nuclear power plants must be putthrough stress tests, following a high-level emergencymeeting.

EU energy commissioner Guenther

Oettinger said: This a reassessmentof all potential risks in the wake ofwhat has happened in Japan - earth-quakes, tsunamis, terror attacks...hazards including power cuts.

He added: We must also raise thequestion -- if we in Europe, in the fore-seeable future, can secure our energyneeds without nuclear energy,

In the heat of the crisis yesterday,the German government ordered thesuspension of operations at all sevenof its pre-1980 nuclear plants.

However, the nuclear industrybody Foratom warned against knee-jerk reactions, and other supportersof nuclear power pointed out thatEurope is much less geologicallyactive than Japan.

But critics countered that otherthreats, such as terrorism, could cut areactors power supply with similarconsequences.

World weighs nuclearpower amid concerns

tion with Iran, plunging the wholeregion into bloody chaos and threaten-ing oil supplies. Meanwhile, it remainsto be seen what actually comes of therevolutions in Tunisia and Egypt,whether anything really changes andif it does, who ends up having theupper arm, liberals or extremists.

Everywhere one looks, the geopolit-ical situation is fragile. The horrificcatastrophe in Japan has crystallisedinvestors latent fears. Risk aversion isback with a vengeance, after a periodof post-financial crisis complacency. Itwont be going away in a hurry.

TAX AND SPENDONE of the biggest conundrums at the

heart of public spending is how themiddle classes are capturing an ever-increasing chunk of welfare spending,even though the system was originallydesigned to help the poor. At the sametime, the middle classes are also pay-ing more tax their right hand ishanding money to the state whiletheir left hand is simultaneously tak-ing back from it. Its a strange andrather inefficient money-go-round.

Around 31.8bn is spent on provid-ing benefits to the middle classes, aquarter of the spending on cash bene-fits, according to a report fromReform, the think-tank. Around23.8bn of this is received by people ofworking age, so this phenomenon haslittle to do with pensions. Over the tenyears to 2008-09, the share of middleclass welfare jumped from 17 per centof total welfare spending to 24 percent, while their share of benefits inkind rose from 31 per cent to 40 percent. The increase in tax was equiva-lent to around 99 per cent of theincrease in benefits it was all a ratherpointless exercise that has benefitedfew people other than those paid toadminister the system. Taxes are high-er than they ought to be: large num-bers of people could pay less tax andreceive fewer benefits and yet not beany worse off. Yet higher taxes alwaysgo hand in hand with higher adminis-trative and economic costs, includingreduced incentives.

Reforms report also sheds somemuch-needed light on the tax gap the difference between what the gov-ernment thinks it is due in tax, givenrates, and what it actually collects.Perhaps surprisingly, big companiesonly account for a quarter of it three-quarters of the 40bn tax gap is due to

VAT, income tax, national insuranceand capital gains tax all mainly paidby individuals and small companies.Reducing the tax gap not only requiresa focus on big firms but even moreimportantly on small companies andfamilies. The real answer, of course, isto come up with a much more effi-cient tax system which no longerwages war on wealth but isnt riddledwith thousands of reliefs and loop-holes. Unfortunately, the system is get-ting worse, rather than simpler. TheOffice for Tax Simplifications recom-mendations werent exactly exciting,though it did float the potentially rad-ical idea of merging income tax andnational insurance and ceasing to pre-tend that the latter is somehow differ-ent or used to pay for pensions. Let ushope that George Osborne tackles atleast some of these issues in nextweeks Budget.

[email protected] me on Twitter: @allisterheath

Japanese healthofficials checkradiation levelsamid public safetyconcerns followingthe Fukushimapower plant explo-sion. The countrysprime ministerNaoto Kan hasurged calm, yethas also orderedan evacuation

within 13 miles ofthe station.Pictures: AP

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 Hope

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JAPANESE DISASTER

BYRICHARD PARTINGTON

ENERGY Meanwhile in the United States,

President Barack Obamas adminis-tration pressed ahead with plans fornew nuclear power plants, despite thecrisis in Japan.

Energy secretary Steven Chu saidlessons could be learned from Japanbut that it was not a reason to delayexpansion in the US.

I think those things can proceed,he said.

President Obama has given hisbacking to building more nuclearpower plants to meet US energyneeds, fight climate change andreduce dependence on fossil fuels.

His budget requests up to $36bn(22.4bn) for loan guarantees to helpbuild new nuclear reactors. Nuclearenergy currently provides about 20per cent of the countrys electricityand that nuclear energy productionresults in virtually zero emissions.

FEARS MOMENT PASSED FOR LIBYAINTERVENTIONThe UK and France have lost all hopeof launching military action to haltMuammer Gaddafis attack on rebelsin Libya, according to seniorEuropean officials who acknowledgethe regime may be in a position tocrush the uprising within weeks.

CAMERON RULES OUT TORY RETREATON HEALTH REFORMThere will be no retreat on the gov-ernments plans for the NationalHealth Service, the prime ministerhas told Conservative MPs, as theBritish Medical Association com-pounded the governments political

difficulties by demanding that thebill to implement them be dropped.

GALLEON'S RAJ RAJARATNAM TOLDOF BANK DEAL TALKSHedge fund manager Raj Rajaratnamwas told in mid-2008 of boardroomtalks at Goldman Sachs aboutwhether takeovers of Wachovia orAIG made sense, jurors have heard athis criminal trial. Prosecutors playeda secretly recorded call between MrRajaratnam and Rajat Gupta.

SPORT WILL TAKE 3D TVMAINSTREAM, SAYS AVATAR DIRECTORSport is what is going to bring 3D intothe home but the current means ofdelivery is a poor business model,says Avatar creator James Cameronand James Murdoch, the chief execu-

tive of News Corporation in Europeand Asia.

HEADS MUST ROLL AT AMATEURISTRENAULTRenaults attempt to draw a lineunder its bungled response to bogusallegations of industrial espionagethat cost three innocent executivestheir jobs appeared likely to fail todayas the French Government steppedup pressure for high level resigna-tions.

LLOYDS BOWS TO INVESTORS OVERBONUS FOR EX-CHIEFLloyds Banking Group is understoodto have all but ruled out paying for-mer chief executive Eric Daniels abonus for this year after shareholdersobjected to any payment. Mr Daniels

was replaced on 1 March by formerSantander boss Antnio Horta-Osrio.

WHAT THE OTHER PAPERS SAY THIS MORNING

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RADIATION leaked from one of thedamaged Fukushima Daiichi nuclearplants yesterday, as Japanese authori-ties tried to settle squabbles over thehandling of the unfolding crisis.

A blaze at reactor 4 released radia-tion yesterday morning, the

International Atomic Energy Agency(IAEA) confirmed, with levels spikingat 400 millisievert per hour near thereactor buildings.

Last night a second fire broke out atthe reactor because the initial fire hadnot been properly extinguished. TheJapanese government claimed theflames were under control.

A storage pond with almost 800spent fuel assemblies which arehighly radioactive was on fire for twohours yesterday morning and the rooflater cracked.

This is a high dose-level value, butit is a local value at a single locationand at a certain point in time, saidthe IAEA in a statement.

Reactors 5 and 6 could be partiallydismantled today to prevent a similarhydrogen-fuelled explosion.

The possibility of further radioac-tive leakage is heightening, said

Prime Minister Naoto Kan in anaddress to the nation yesterday.

The government said it could usehelicopters to pour water on reactor 4within two to three days.

Shares in Tokyo Electric PowerCompany (TEPCO), which operates theplants, have tanked 42 per cent in thelast two days after criticism that thefirm has not kept the public informedabout explosions.

Our communication needs to be

strengthened and I am asking theJapanese counterparts to furtherstrengthen and facilitate communica-tion, said IAEA director generalYukiya Amano at a press conference.

Seawater is still being pumped in tocool reactors 1,2 and 3.

Yesterdays 6.1 magnitude earth-quake at Eastern Honshu, 75 milessouth-west of Tokyo, has not affectednearby Hamaoka nuclear power plant,which continues to operate normally.

BYMARION DAKERS

ENERGY

OnagawaRadioactivityexceeds normallevels butreactors undercontrol.

NUCLEAR

POWER

STATION

NUCLEAR

POWER

STATION

NUCLEARPOWERSTATION

xxxxxxxxxxxxxxxxxxxxxx

Fukushima

Fire at Daiichi reactor 4

Radiation hits 400millisieverts per hour

150 people tested for

exposure to radiation

Fukushima

Fire at Daiichi reactor 4

Radiation hits 400millisieverts per hour

150 people tested for

exposure to radiation

Fukushima Fire at Daiichi reactor 4 Radiation hits 400millisieverts per hour 150 people tested forexposure to radiation

xxxxxxxxxx

TokaiTwo of threecoolinggenerators outof order.

TOKYOTOKYO

Eastern Honshu

Magnitude 6.1 aftershock.Eastern Honshu

Magnitude 6.1 aftershock.Eastern HonshuMagnitude 6.1 aftershock.

ANALYSIS l JAPANS NUCLEAR WOES

News 3CITYA.M. 16 MARCH 2011

Radiation leak

confirmed atFukushima

RADIATION LEAKS IN JAPAN

Q.HOW MUCH RADIATION HASBEEN RELEASED?A.The fire at FukushimasDaiichi reactor 4 is thought tohave released the most radiation sofar, with readings after the blaze

showing 400 millisievert (mSv)per hour.For comparison, a chest X-ray will

give a 0.2 mSv dose and the legal limitin the UK for nuclear workers is20mSv per year.

The levels later dropped to 0.6 mSvper hour but radiation is believed tohave entered the atmosphere.

Q.WHO HAS BEEN AFFECTEDSO FAR?

A.The International Atomic EnergyAgency (IAEA) said 23 people nearDaiichi have tested positive for radia-tion and have been decontaminated.140,000 people within 30km ofFukushima have been ordered to stay

indoors, but one expert said the riskis limited to a small area. Radioactivematerial will reach Tokyo but it is notharmful to human bodies because itwill be dissipated by the time it getsto Tokyo, said Koji Yamazaki, profes-sor at Hokkaido University.

Q.COULD MORE RADIATIONBE RELEASED?A.Fukushimas reactor 2 is the mostpressing concern, with authori-

ties unsure aboutwhether the reactorscasing is damaged. Reactor 4s statusis still unclear. But Fukushima Daini,Onagawa and Tokai plants are now ina safe condition, authorities say.

Q.HOW ARE HUMANS AFFECTEDBY RADIATION?A.In the short term, exposure toradiation can cause temporaryradiation sickness, with vomiting,bleeding, burns and diarrhoea. Largedoses of radiation or a long exposurecan increase the risk of certain can-cers. Sources: IAEA, Reuters, TEPCO, Nuclearand Industrial Safety Agency, NHS

QA&

ANALYSIS l Tokyo Electric power company

FebJan Mar

2,000

1,800

1,600

1,400

1,22115 Mar

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FEARS over a significant shortage ofcomponents needed by manufacturersworldwide due to Japans devastatingearthquake and tsunami saw pricesfor key technology parts surge higheryesterday.

Japan is a dominant chip industryplayer, with around one-fifth of theworlds semiconductor production.

Spot prices of NAND flash memorychips used in the fast-growing mobiledevices market, rose nearly three percent yesterday after a 20 per cent jumpon Monday, while dynamic randomaccess memory (DRAM), microcon-trollers chip prices gained 0.2 per centon top of a seven per cent rise onMonday.

Demand for NAND flash memorychips has been surging, led by mobiledevices and tablets like Apples iPad 2.Apple said yesterday it was delayingthe launch of its iPad 2 tablet in Japanafter the disaster, but it did not say itwas due to supply problems.

The disaster has struck transportand power supplies in the countryhard, resulting in factory closures anddisrupted deliveries.

Research provider IHS iSuppliwarned of significant shortages forcertain components and a knock onimpact for companies worldwide.

Analyst Dale Ford said: While thereare few reports of actual damage atelectronic production facilities,impacts on the transportation andpower infrastructure will result in dis-ruptions of supply, resulting in shortsupply and rising prices.

Japan quake

hits productsupply chainBYRICHARD PARTINGTON

JAPAN CRISIS

LOSSES from the Japanese earthquakewill reduce insurers capital reserves,insurance brokers said yesterday, assector shares continued their sharpdeclines on fears the disasters sizecould grow.

The cost of the quake to the indus-

try, expected to range up to $35bn(21.7bn) according to AIR Worldwide,will be in addition to some $20bn incatastrophe claims over the past sixmonths, wiping out its budget for nat-ural disasters, said David Flandro,global head of business intelligence atGuy Carpenter, the worlds second-largest reinsurance broker.

Disaster could wipe outinsurers capital reserves

JAPAN CRISIS


Passengers flocked to Japanese airports amid fears of nuclear contamination Picture: PA

My feelings about nuclear power haventchanged. Obviously we need to takeanother look at safety measures, but we

need to get power from somewhere in thefuture.

ALEXANDER JUDD | HARLEY DAVIDSON

In hindsight it seems a bit naive tohave built nuclear plants so close toa fault line. It shouldnt have a big

effect on what we do, even thoughIm not particularly pro-nuclear.

Whats happening in Japan is a complete disaster, but nuclear power needs to form part of our countrysenergy production, in combination with fossil fuels and renewables. Theres always an element of nervous-ness after something on this scale, but nuclear has worked for decades without an accident.

TIM SULLIVAN | GLOBAL REACH PARTNERS

CITY VIEWS: SHOULD THE UK RECONSIDER ITS NUCLEAR SCHEME?Interviews by Phoebe Torrence and Marion Dakers

JAPANESE DISASTER

RICHARD CAHILL | AMLIN

FIRMS began pulling employees outof Tokyo amid fears of spreadingnuclear contamination yesterday.

Banks, legal firms and manufactur-ers closed Tokyo offices, offered toevacuate staff to unaffected parts ofJapan and sent expatriates to HongKong and Singapore after explosionsand fires at a Fukushima Daiichi reac-tor yesterday sent a cloud of radioac-tive material towards Tokyo.

Investment bank West LB said itwas evacuating all staff yesterday,while Commerzbank and auto manu-facturer BMW offered to move staff tosafer locations in the south.

Law firms including Freshfields andClifford Chance closed their Tokyooffices. Insurer Chartis said its officeswould be open in business hours butstaff may not be able to get to theoffice given planned power outages,reduced commuting options, as wellas limited supplies of food.

But Japans International BankersAssociation listed 16 banks includingBarclays, Goldman Sachs and CreditSuisse in Japan that were continuingto operate business as usual.

Despite rumours to the contrary,none of the undersigned firms hasannounced any business closures orevacuation of staff, it said.

Firms pull outstaff and closeTokyo offices

JAPAN CRISIS

ANALYSIS l Apple

$

20 Dec 10 Jan 31 Jan 18 Feb 11 Mar

370

350

330

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VINCENT Tchenguiz, who has blamedthe recent Serious Fraud Office (SFO)raids at his offices for one of his com-panies falling into administration,yesterday appointed Stephen Pollard(pictured), rogue trader NickLeesons former lawyer, as hisnew legal adviser.

Pollard, who is one of theCitys most experienced crimi-nal lawyers, takes the reinsfrom John Martin of Stephens

Innocent, who advised VincentTchenguiz during last weeksquestioning by the SFO andthe City of Londonpolice.

Pollard hasconsiderableexperience indefending alle-gations offraud, particu-

larly those prosecuted by the SFO andemanating from the City of London.He has represented the formerBarings trader Leeson, and individualemployees (often traders) from manyinternational banks.

Pollard joined Kingsley Napley in1989, having previously had a short

spell with the Crown ProsecutionService. He became a partner i

1990. He is a regular speakerin the City on regulatoryand criminal issues.

On Monday the holdingcompany of Vincent

Tchenguizs property man-agement arm Peverel wasforced into administration by

its board after itfailed to meet ademand byBank ofA m e r i c aMerrill Lynchto repay a125m loan.

Tchenguiz tohire Leesonsstar lawyer

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BoE boardcritical ofKings politics

MEMBERS of the Bank of Englandsoversight board voiced their unease atits politicisation at a parliamentarymeeting yesterday.

Four members of the supervisoryCourt of the Bank of England admit-ted they were uncomfortable withhow the Bank had been drawn intopolitics and governor Mervyn Kingswords had been used by ministers.

Former industrialist Sir Roger Carrtold a Treasury Select Committeemeeting it was of paramount impor-tance to him that the Bank did notbecome involved in politics.

The integrity and credibility of theBank are absolutely dependent on itnot being seen as having a political

axe to grind, he said. We have madethat very clear to the governor.

Carr also disagreed with ministersusing Kings words to make it appearhe is giving political support.

Court chairman Sir David Lees saidhe was also not terribly comfortablewith Kings comments in a Januaryspeech in which he appeared to sup-port the governments fiscal consoli-dation measures.

BYALISON LOCK

REGULATION

Vincent Tchenguiz has hired a new lawyer for the SFO case Picture: Micha Theiner

w

ww.cityam.com

NEWS | IN BRIEF

KBC cancels bank sale to HindujasBelgian bancassurer KBC Group yester-day cancelled the proposed 1.35bn(1.2bn) sale of its private banking arm toIndian group Hinduja after failing to winregulatory approval for the deal. The col-lapse of the deal sets back KBCs plan tofree up capital to pay back state aid andmeans any eventual sale could be done ata lower price. KBC had agreed in May tosell KBL to the Hinduja Group. It neededantitrust clearance in Luxembourg andnine other countries. KBC's shares closed6.2 per cent lower after the news. Thesale to Indian family-owned investmentfirm Hinduja Group would have been thelargest of KBC's divestments to date.

Openreach hires new chief execBTs local access network business,Openreach, has promoted OliviaGarfield to chief executive, taking overfrom Steve Robertson who hasled Openreach since it was founded in2005. Garfield has been adirector for the group covering strategyand regulation since2005. Inher new role as

Openreach CEO, shewill be in charge ofa network witharound 500 con-tracts with com-municationsproviders with theaim ofincreasing accessto BT's super-fast broadbandbeyond 4m premises. Last year, the divi-sion had an income of over 5bn.

Too big to fail firms face new rulesUS regulators yesterday laid out plans fordismantling too big to fail financial firmsto avoid future bailouts or bankruptcies.The Dodd-Frank financial-overhaul law isaimed at giving government powers theylacked in 2008 when big financial firmsthat weren't organised as banks were col-lapsing. Under new rules the Federal

Deposit Insurance Corp can take over fail-ing firms, set criteria for paying creditorsand fire company management.

BYDAVID HELLIER

EXCLUSIVE

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MID-CAP broker Collins Stewart is tore-brand itself to reflect its growingnumber of joint mandates with itsrecent acquisition, Hawkpoint.

The resulting entity, Collins StewartHawkpoint, would only use the newname for specific advisory work and is

subject to shareholder approval.The announcement came as the bro-

ker posted a moderate increase inearnings yesterday, with pre-tax profitsedging up three per cent to 19m.

The improvement was more markedin measures that exclude one-off costslike the firms purchase of an office inFrankfurt, with operating profit rising16.9 per cent to 25.6m.

The rise was driven particularly bythe firms securities business, where

profits rose 50 per cent in contrast tosimilar business lines at larger banks,

which suffered from low trading vol-umes last year.

Chief executive Mark Brown toldCity A.M. that the broker was activelyseeking more acquisitions after itssuccessful integration of two wealthmanagement businesses last year. ButBrown added: Its about beingpatient. We are very wary aboutacquiring outside wealth manage-

ment. Wealth management offers astable, even revenue source, he said.

Collins Stewart brand to add Hawkpoint

INVESTORS ditched UBS shares yester-day after the banks annual report said

that it is being investigated for possiblemanipulation of data submitted to theBritish Bankers Association (BBA).

The banks stock closed down 2.34per cent at SwFr16.7 after the shockrevelation that it has been subpoenaed

by the US Securities and ExchangeCommission (SEC) and the USCommity Futures TradingCommission regarding whether therewere improper attempts by UBS, either

acting on its own or together with oth-ers, to manipulate Libor rates at certaintimes.

It also said it was being investigatedby the Japan Financial SupervisoryAgency concerning similar matters.

The banks annual report alsorevealed that Castern Kengeter, head ofits investment banking division, was itshighest-paid board member, pocketinga total of SwFr9.32m (6.32m) in total

pay last year, down from SwFr13.19m in2009. Oswald Grbel, group chief execu-tive, gave up his bonus to take home asalary of SwFr3.03m, but overall boardpay jumped by SwFr22.3m to an averageof SwFr7m for each of its 13 members.

UBS subpoenaed by SECBY JULIET SAMUEL

BANKING

REGULATORS could try to forceBarclays to shift a raft of toxic assetsback onto its balance sheet, the banksannual report revealed yesterday.

In a section regarding the specialpurpose vehicle (SPV) Protium, whichBarclays created last year for account-ing purposes, the bank said: Theongoing review of Barclays financialstatements by regulators includes con-sideration of the non-consolidation ofProtium.

Non-consolidation would involveformally bringing the vehicle backonto the banks balance sheet, forcingit to once again mark the assets to mar-ket. Although this would not make adifference to its underlying profitabil-ity, stringent capital requirementsbrought in since Protiums creationmake Barclays keen to exit mostlikely through a sale of the vehicle before this happens.

Chief executive Bob Diamond saidlast month that Basel III capital ruleshave made Protium uneconomical.Converting the vehicle from a loanback into on-balance sheet assets couldrequire the bank to put aside a largeramount of capital against it than ithad originally anticipated.

As a result, analysts think the bankis accelerating a sale of Protium to thevehicles current management by writ-ing off chunks of the loan tied up in it.Last month, it wrote off 532m of the7.5bn loan, and further impairmentscould follow. Such write-offs makeProtium a more attractive prospect fora management buy-out.

The banks annual report alsorevealed that it paid 1.6bn in corpo-rate tax globally last year. It paid

1.38bn in UK taxes, but would not saywhat proportion of that was in corpo-ration tax.

Barclays and the FSA declined tocomment yesterday.

Barclays inrush to exitProtium

DEUTSCHE Bank paid the head of itsinvestment banking division,Anshuman Jain, just under 12m(6.57m) in salary, bonus and bene-fits last year, more than chief execu-tive Josef Ackermanns 9mcompensation

The banks annual report, pub-lished yesterday, reveals that boardsalaries and bonuses alone amount-ed to 32.43m last year, of which9.41m was salary and the rest wasin bonus. This marks a 5.1 per centdrop in overall pay costs on 2009, buta 36.8 per cent jump in board basesalaries.

The increase in salaries versusbonuses will feed concerns that banksare shifting more of their compensa-tion to fixed pay in response to strin-gent rules on bonuses. About a thirdof the awards, 12.35m, is in deferredlong-term incentive pay, which willonly vest if board members hit per-formance targets.

The annual report also showedthat Deutsche substantiallyincreased its headcount last yearfrom 77,000 in 2009 to 102,000 lastyear. Most of the increase was inGermany, which saw 21,900 jobsadded.

The bank said that the vast majori-ty of the increase was due to theacquisition of Deutsche Postbank AG.

DeutschesJain trumpsAckermann

INVESTMENT bank Close Brothersgrew its pre-tax profit by five per centand funds under management by afifth to 8.3bn in the six months toJanuary 2011, it said yesterday.

Banking division profits its coreactivity rose by a third as it extend-ed more lending, pushing its loan

book up nine per cent to 3.2bn.First-half operating profit increased

to 65.4m from 62m in the sameperiod in 2009. But its asset manage-ment division, currently beingrestructured, made a 4m loss andthe group took a 24.7m writedownon the 29.1m sale of its offshorefund administration company.

Chief executive Preben Prebensensaid he expected a good perform-ance in the second half of the year

with a modest improvement in baddebts.

Profits up at Close BrosBANKING

Oswald Grbel is chief of UBS, whose report is being investigated Picture: REUTERS

BY JULIET SAMUEL

BANKING

BY JULIET SAMUEL

FINANCIAL SERVICES

BY JULIET SAMUEL

BANKING

ANALYSIS l Deutsche Bank


50

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AUSTRIAN finance minister JosefProell warned yesterday that Irelandwill have to give ground if it expectsEurope to reduce the punitive 5.8 percent interest rate it is paying on its85bn (74bn) bailout funds.

If Ireland wants anything, it has todeliver something. Greece showedthat, said Proell at a meeting ofEurozone finance ministers (knownas ECOFIN). Ireland must say nowwhat it wants and... what it can give.

His comments will inflame senti-ment in Ireland, where voters wereangered by French presidentSarkozys demand that the countryraise its low 12.5 per cent corporatetax rate in order to qualify for anyrelief on its debt interest. New IrishPrime Minister Enda Kenny flatlyrefused the demand.

Newedge bonds strategist Bill Blainsaid: Picking a fight with the Irish bythreatening their sovereignty, ormaking demands they cant possibly

back away from, is never a positivething. They can be quite belligerent.

Eurozone leaders pointedly restruc-tured Greeces 110bn debt but notIrelands on Saturday, cutting intereston Greeks bailout funds by one percent and extending its maturity by3.5 years.

Observers still think that Greeceand Ireland run high risks of default,however.

ECOFIN announced yesterday thatit will agree on the details of how itwill boost the Eurozones mainbailout fund by next week.

They agreed on Saturday toincrease the funds ability to lendfrom 250bn to its full 440bn, butdid not specify how this would beachieved while maintaining its AAArating.

EU leaders also agreed to strength-en the Stability and Growth Pact,mandating that indebted countriesfront-load fiscal consolidation andincrease competitiveness by increas-ing the efficiency of their labourmarkets.

Austria: Irish

must make

concessionsONLINE gaming companyPartyGaming has moved closer to itsagreed merger with Austrian rivalBwin, confirming that the tie-up isplanned to complete on 31 March.

The merger was formally enteredinto the Vienna companies registeryesterday, in a filing by Bwin. TheAustrian companys shares will ceasetrading on 25 March in anticipationof completion, though approval isstill pending from the SupremeCourt in Gibraltar, wherePartyGaming is headquartered.

The new company, to be known asbwin.party digital entertainment,will also be based in Gibraltar, a pop-ular location for online gaming com-panies due to its relaxed tax lawsand well-regulated gambling system.

Rumours of a merger between the

two companies began in Novemberlast year, with final approvalachieved at an extraordinary generalmeeting in Januray this year. Underthe terms of the deal, bwin share-holders will receive 12.23PartyGaming shares for each exist-ing share.

Shares in both companies fellslightly in yesterdays trading, withPartyGaming closing 1.36 per centdown at 174.6p, and Bwin closing2.04 per cent down at 24.45 (21.28).

Partygamingmoves closer toBwin merger

PartyGaming, led by Jim Ryan, will merge with Bwin by the end of March

BY JULIET SAMUEL

EUROZONE CRISIS

BETTING


CHARLES Wilkinson, co-head of cor-porate broking at Deutsche Bank, isadvising PartyGaming on its mergerwith Bwin. Also working on theDeutsche Bank team is MumtazNaseem, who recently advised ReckittBenckiser on its acquisition of condommaker SSL. Tim Lloyd-Hughes, whoheads up coverage of the leisure sectorin corporate finance at Deutsche Bank,

is also working on the deal.Bwin is being advised by McQueen.George Fleet, a managing director atthe corporate finance advisory firm, istaking the lead for McQueen, whichalso advised on Bay RestaurantGroups sale of Ha Ha Bar & Grill to

Mitchells & Butlers for 19.5m inSeptember. McQueen also recentlyadvised Wm Morrison on its acquisi-tion of Simply Fresh Foods in July.Fleet, who joined McQueen fromWasserstein Perella, was joined on thedeal by Simon Croft-Baker, also amanaging director at the firm. Croft-Baker joined McQueen in 2002, short-ly after its launch. Previously, heworked in the UK M&A team atJPMorgan. David Crow

CHARLES

WILKINSON

CO-HEAD OF

CORPORATE

BROKING

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KRAFT executives came under firefrom MPs yesterday after chief execu-tive Irene Rosenfeld refused toappear before a committee lookingat the US food-makers takeover ofCadbury.

Three underlings were left todefend Krafts behaviour during its11.5bn hostile takeover last year.

Kraft bosses told the businessselect committee that they couldntguarantee that manufacturing inthe UK will stay in place after 2012.

The firm was previously slammed

by the committee and the TakeoverPanel for announcing the closure of

Somerdale factory near Bristol justdays after the takeover was finalised.

Marc Firestone, executive vicepresident at Kraft, said Rosenfeldwas very interested in the hearings,though committee chairman AdrianBailey MP said her no-show was aslap in the face for MPs andCadburys 5,500 employees in theUK.

Firestone admitted that he had noauthority to shut down factories,when asked about his competence toanswer the panels questions.

The government is currently look-ing at introducing a Cadbury law

to protect UK companies from preda-tory takeovers.

CHANGES to the UKs libel laws willmake it more difficult for overseasclaimants to pursue a case in the UKcourts, in an effort to clamp down onso-called libel tourism.

The new Defamation Bill,released in draft form by justicesecretary Kenneth Clarke (pic-tured) yesterday, will requireclaimants to prove substantialharm, and proposes thatclaims should only bebrought against the firstpublication of a statement,preventing separate claimseach time it is repeated.

The new jurisdictionalrules mean cases willonly be heard in the UKcourts if it can be shownas clearly the mostappropriate place foran action. Earlier thisyear a case was thrownout of the High Courtafter Ukraines Kyiv Postattempted to pursue acase over an article that was

downloaded from the internet by just21 UK users.

A defence of honest opinion willalso replace the current fair com-ment justification, applicable wherea statement is an expression of opin-ion rather than an assertion of fact.

Clarke said that the proposedreforms would balance free speech

with a just treatment ofclaimants, and address theincreased threat of costly libel

actions [which] has begun to havea chilling effect on scientif-

ic and academic debate,and investigative jour-nalism.

Lawyers welcomedthe consultation,which runs until 10June, but RodDadak, head ofdefamation at lawfirm Lewis Silkinsaid that the Billsstructure meantthere was a dan-ger that costs toclaimants will beincreased signifi-

cantly.

New UK laws

tougher onlibel tourism

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11-14 Apr 2011

Kraft chief exec snubs requestto appear before the Commons

BY ELIZABETH FOURNIER

LAW

M&A


High street brands popular for legal advice

WITH the implementation ofthe Tesco law looming, anew report from YouGovinto the legal services sector

provides positive news for big brandslooking to diversify into this sector.

It reveals that consumer willing-ness to seek legal advice from retail-ers or high street brands is high; 60per cent of consumers would consid-er using consumer brands if theywere to provide legal services as

Alternative Business Structures(ABSs).The report sounds a cautionary

note for legal services brands in a newera where brand is likely to carry agreater weight than in the past andthe likes of Irwin Mitchell, onlyknown by one in 10 as a legal brand,will have to compete with ABSsalready established in banking orretail. These ABSs have the ability tochannel loyalty data and current user

recognition from their respectivemarkets to consolidate their positionsin the legal services sector.

In this vein, YouGovs report ranksexisting banking/retailer brands inthe context of their consumer appeal

vis--vis the provision of legal services.For instance, 16 per cent would con-sider turning to Tesco for the purposeof receiving legal services; one in fiveconsumers would choose bankinggiant Barclays; while the AA also rateshighly with a score of 18 per cent.

Interestingly, within sectors, thebiggest correlation between interestin legal services and BrandIndexmeasures is with attention, so it isnot necessarily what people think

about a brand that is important inthis context but the fact that theyhave knowledge of the brand.

The chart shows Brandindex atten-tion in the same order as legal servic-es interest for Tesco (16 per cent

interest), Sainsburys (10 per centinterest) and Waitrose (six per centinterest) and an identical pattern isseen in the banking sector.

Stephan Shakespeare is chief executive ofYouGov.

BRANDINDEX

STEPHAN SHAKESPEARE

ANALYSIS l Interest in legal services

%

Waitrose

20

16

12

8

4

0

BUPA

Sainsburys

TescoA

A

Barclays

ANALYSIS l Attention

2011 - 01 - 03 2011 - 02 - 04 2011 - 03 - 06

50.0

40.0

30.0

20.0

10.0Sainsburys Tesco Waitrose

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HRH Zara Phillips was among the bignames picking their favourite horses at thefirst day of Cheltenham yesterday. Fellowpunters included England rugby playerJames Simpson-Daniel and the minister forracing, the Right Hon John Penrose MP.

Also cheering on the jockeys in yester-days seven races were Denis Kelly andBijan Khezri, the chief executive and chair-man of bookmaker Stan James, which wasthe biggest sponsor of the opening day ofthe festival, as part of the companys 2.5mRoad to Cheltenham series.

So no-one cheered louder than Kelly andKhezri when Al Ferof helped the bookies

clean up by beating the favourite, CueCard, in the Stan James Supreme NovicesHurdles Race although the tide turnedback in favour of the punters when heavilybacked Hurricane Fly won the days biggest

race, the Stan James Champion Hurdle.The Capitalistcaught up with Kelly in the

winners enclosure shortly after the pres-entation of the 60,000 Champion HurdleTrophy, where he said of the companys2.5m sponsorship deal: Stan James bene-fits from racing and we felt we had to give

something back. Cheltenham is the festivalof the year for racing.

The festival of the year, that is, eventhough Kelly lost money on every personalbet he had made so far that day. The book-

BIG NAMESTURN OUT AT

CHELTENHAMFIRST RACES

The Capitalist10 CITYA.M. 16 MARCH 2011

EDITED BY

HARRIET DENNYSGot A Story? [email protected] The Capitaliston Twitter: @citycapitalist

makers have no more judgment than thenormal punter when it comes toCheltenham, he confessed.

RUBY TUESDAYIN a strange twist of fate, both races spon-

sored by Stan James were won by champi-on jockey Ruby Walsh, back on form afterreturning to racing earlier this month.

But Walshs winning streak didnt stopthere he went on to win a third victory,resulting in ashen faces at Racing UK,which had perhaps rashly launched a pro-motion offering anyone who signed up forthe pay-TV channel on Ruby Tuesday afree subscription for a year if Walsh wasthe lead rider at the end of the day.

We wont have a box at Cheltenhamnext year, said one Racing UK source ashe eyed the Guinness Village, while anoth-er estimated the broadcaster would haveto pay out six figures in free subscrip-tions, which usually sell for 240.

The only consolation is that whenRacing UK ran a similar promotion withFrankie Dettori, 95 per cent of the sub-scribers who received a free deal renewedtheir annual subscription.

So everyones a winner. Sort of.

SOUND AND VISIONTHE first day of the festival alsomarked the debut of Channel 4sbroadcast of the sport in high-defini-tion, thanks to the smart new blueHD trucks that graced the side ofthe course.

As a result, the images of thehorses and riders were of spectac-ular quality but only for puntersat home watching on HD-ready

sets. Because none of the racecourse mon-itors at Cheltenham have yet been upgrad-ed to HD, it was pretty much a case ofbusiness as usual for visitors at the actualevent.

With 1,400 racecourse monitors in needof being upgraded at Ascot alone, accord-

ing to a former technolology partner ofChannel 4, it seems slow and steady willwin the race towards fully HD racing.

TOP TIPSTERWHO was the most successful gamblerat the first day of Cheltenham?Stand up John Motson, the BBCs foot-ball pundit otherwise known as Motty(pictured in his favourite sheepskincoat), who won every single race he beton.

Motty made a swift exit by car afterrace number five, keen not to spoil hisunbroken run of winners.But before he dashed forthe door, he graciouslyshared his top tips withreaders ofThe Capitalist.

According to the ora-cle, Time for Rupert,who races thisafternoon, is thebest bet of thefestival, whileI m p e r i a lC o mmanderwill win theCheltenhamGold Cup forthe secondyear onFriday.

Place yourbets now.

The Stan Jamesteam (above) had aday of mixed for-tunes, while jockeyRuby Walsh (aboveright and left) hada winning streak of

three victories.HRH Zara Phillips(below) was perus-ing the form guidebefore racesPICTURES: RacingPost Photos, REX

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DEBENHAMS yesterday buoyed theretail sector as it said it was on targetto meet forecasts despite economicheadwinds.

The chain forecast first half pre-taxprofit in line with a market consensusof about 128m but said trading acrossthe high street was likely to be diffi-cult in its second half.

Like-for-like sales in the six monthsto 26 February were down 1.5 percent, as consumer spending cameunder pressure from an increase inVAT.

Debenhams chief executive RobTempleman said: We believe that ourfocus on driving cash margin ratherthan just chasing sales will continueto benefit our P&L (profit and loss) overthe next few years.

Templeman said he expected cloth-ing prices across the high street to risesix to eight per cent this year as inputcost inflation was passed on.

In the short term, we believe retail-ers are not going to get much helpfrom the macro-economy, he added.

The firm said it would invest innew store openings and store refits, aswell as growth online and overseas.

Last week a survey showed retail salesin February fell at their fastest annualpace in ten months. Debenhams tradesfrom 166 stores in Britain, Ireland andDenmark and about 60 franchised out-lets in 23 countries.

Debenhams shares closed lower yes-terday, ending 1.1 per cent down at58.05p.

Debenhams

on track withsolid resultsBY JOHN DUNNE

RETAIL

LUMINAR, thestruggling night-club group report-ed same outletsales down 18.6 percent for the year to26 February. Thecompany said yes-

terday a drop inthe number ofadmissions to clubshad taken its toll.However, Britainsbiggest nightclubgroup, which oper-ates 80 large-scalelate-night venues,said trade hadpicked up sinceJanuary.

Consumer News 11CITYA.M. 16 MARCH 2011

NEWS | IN BRIEF

JJB unveils rescue planJJB Sports yesterday said it has securedkey support from its bank and majorshareholders as it battles to avoid admin-istration. The loss-making retailer saidinvestors including the Bill and MelindaGates Foundation had agreed to back itslatest 65m fundraising, while Bank of

Scotland is also prepared to extend25m in working capital. However, thesupport is conditional on a key vote nextweek when JJB will ask landlords andshareholders to back controversial pro-posals to close up to 89 unprofitablestores.

Morrisons ditches MBLHome entertainment distributor MBLGroup has warned of job losses formany of its employees after supermar-

ket Morrisons pulled the plug on a 14-year relationship with the firm. MBL,which supplies Morrisons with CDs andDVDs, has put itself up for sale in thehope of securing a rescue deal.Morrisons the UKs fourth largestsupermarket accounted for 78 per centof MBL's turnover.

Novus completes Balls Bros dealNovus Leisure, the privately-owned barand club group, has acquired the BallsBrothers and Lewis & Clarke businessesout of administration, for a fee that couldeventually exceed 7.8m. Novus hasacquired 17 of the 19 Balls Brothers bars,of which 14 are in the City of Londonwith the remaining three bars in Victoria,Brook Street in the West End, and HaysGalleria.

ANALYSIS l Debenhams

p

125 Feb 22 Feb 1 Mar 8 Mar 15Mar

64

63

62

61

60

59

58

57

58.0515 Mar

ANALYST VIEWS: IS DEBENHAMS HEADING INTHE RIGHT DIRECTION? Interviews by John Dunne

HONOR WESTNEDGE | VERDICT RESEARCH

Despite rising commodity prices and high levels of promotional activityon the rest of the UK high street, Debenhams has managed to improve its grossmargin on the previous year. Through focusing on its own-bought product, theretailer is in a better financial position to face a tough second-half.

JONATHAN PRITCHARD | ORIEL SECURITIES

Given the headwinds which face the UK consumer this is a good resultfor Debenhams. As petrol prices have soared, so consumer confidence has waned.But Debenhams ranges and its consistent focus on innovation will haveensured market gains since Christmas.

KEITH BOWMAN | HARGREAVES LANSDOWN

In all, the shadow of the group's debt bearing private equity past hasreceded, with management continuing to fortify investor confidence and theshares retaining their positive (buy) market consensus opinion. A focus on profit

margins as opposed to sales remains central to management strategy.

LUMINAR LOSES OUT AS CLUBBERS STAY HOME

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LONDONS housing market is buckingthe trend of falling prices that contin-ues to affect much of the rest of theUK, official data showed yesterday.

Average prices across the countrywere down 1.4 per cent in Januarycompared to December, leading to anannual increase of just half a per cent.

However, in the capital prices roseby 3.7 per cent compared to the sametime last year. Only the east of Englandrecorded a greater jump in prices, ris-ing by four per cent.

While the average UK house price isnow 208,552, in London it is now 64per cent higher, at 342,642, theDepartment for Communities andLocal Government (DCLG) said.

There is huge inward investmentinto central, affluent areas of London,and a general lack of stock, saidRobert Bartlett of estate agent

Chesterton Humberts.And were anticipating a consider-

able surge of middle eastern moneyinto London on the back of problemsin that region, Bartlett added.

Sterling weakness and the perceptionof London as a safe place to invest con-tinue to attract foreign funds, he said.

The cheapest prices in the UK arestill in the north east, where the aver-age fell by 2.4 per cent from Decemberto January, to 132,195 per property.

Northern Ireland was the worst hitregion, with prices falling by 14.1 percent across the year. House prices alsofell in Wales, down 1.8 per cent onJanuary 2010.

Across the UK, the underlying trendwas for heavier falls as 2010 pro-gressed. Average prices were down 0.4per cent in the three months toJanuary, compared to the previousthree months. In the three months toOctober, prices fell by 0.2 per cent onthe previous quarter.

London house

prices defythe UK slump

DATING websites and smart phoneapplications are among new itemsincluded in the calculation of UK infla-tion rates, the Office for NationalStatistics (ONS) revealed yesterday.

The basket of goods used to meas-ure changes in prices reflects techno-logical shifts in Britons spendinghabits. Out go mobile phone down-

loads (such as ring-tones and wallpa-pers) and in come smart phone apps.Similarly, oven-ready joints of meat

are replacing the traditional butcher-prepared pork shoulder, as peoplemove towards convenience foods.

Large flat screen televisions are alsobeing added, along with sparklingwines. People still want to enjoythemselves, the ONS said.

Cigarette vending machines are out,as are rose bushes, the ONS said.

New goods basketto measure prices

BY JULIAN HARRIS

HOUSING

BY JULIAN HARRISUK ECONOMY

Economics 13CITYA.M. 16 MARCH 2011

NEWS | IN BRIEF

Banks Weale: Tax hikes to comeRising government spending on pensionsand healthcare will require a large shift inUK fiscal policies, according to a study co-

authored by Bank of England policymakerMartin Weale. Taxes and spending willneed to adjust by around 6.5 per cent ofGDP to ensure different age groups aretreated fairly, the report said.

Help UK entrepreneurs, says FSBThe government must nurture a culture ofentrepreneurialism by cutting barriersand red tape for the self-employed, theFederation of Small Businesses said yes-terday. The current system, whichinvolves burdensome check ups on theself-employed, is overly complex andimposes unfair taxes, the FSB said.

Reform tax system, IoD demandsEntrepreneurial investments should beexempt from capital gains tax, and thegovernment must commit to abolish the50p rate of income tax, the Institute ofDirectors said yesterday. The IoD calledfor several changes to the tax system to

improve the UKs competitiveness.

Euro employment steadily risingEurozone employment climbed 0.1 percent quarter-by-quarter in the final threemonths of 2010 after being stagnant in

the third quarter. Meanwhile, theOrganisation for Economic Co-operationand Development (OECD) said unemploy-ment fell across its member states for thesecond consecutive month, down 0.1 percent to 8.4 per cent in January.

German investor morale declinesThe German Zew index of investor confi-dence unexpectedly fell from 15.7 percent to 14.1 per cent in March, on worriesover Japan's disaster and an expectedrise in Eurozone interest rates. The indexslong-term average is 26.7 per cent.

Inflation stays steady in FranceFrench consumer price inflation remainedsteady at 1.7 per cent year-on-year inFebruary after increasing 0.47 per centmonth-on-month. Despite higher oilprices, inflation is easing marginally forthe second month in a row, commentedeconomist Dominique Barbet of BNP

Paribas.

Text

Stocks Ma p s We a ther

Calenda r P h o t os Camera

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TELECOMS regulator Ofcom willreduce the amount mobile operatorscan bill for connecting to their net-works, cutting charges by 80 per centover four years among the main play-ers.

Ofcom said that from 1 April thefour national network operators 3UK,O2, Everything Everywhere andVodafone faced a reduction in so-called termination rates the whole-sale charges that mobile operatorsimpose to connect calls to their net-works.

The changes would, among otherthings, reduce the cost to landlinecompanies of connecting calls tomobile networks, the regulator saidyesterday.

Ofcom expects these savings to bepassed on to consumers in the com-petitive UK landline market, it said in

a statement. Some operators havealready promised to lower theircharges.

Ofcom said the new rules shouldalso result in more choice, introducingmore pricing flexibility into the mar-ket and resulting in a greater range ofpackages available to customers.

For the four main operators, Ofcomsaid it would set rates by only takinginto account the costs incurred direct-ly from accepting calls from other net-works.

Ofcom ruling

to hit mobilecall revenuesBY HARRY BANKS

TELECOMS


Merrill Lynch WealthThe private banking and investmentgroup has appointed Jeremy Brown ashead of investment solutions. Brown,joins from UBS with 25 years experi-ence in the financial sector.

Astbury MarsdenThe international recruitment firm hasappointed Mark Farris and John Reganto the board of directors. Farris found-ed Judd Farris and built it to becomethe largest privately owned propertyrecruitment specialist in the world.

Regan joined Astbury Marsden asfinance director in December 2007.

Barclays WealthThe UKs largest global wealth manag-er has appointed Tony Marsh as a

wealth adviser. Marsh joins from FullCircle Asset management a privately-owned, independent wealth manage-ment firm where he was associatedirector.

Panmure GordonThe independent institutional stockbro-

ker and investment bank, has appoint-ed Brett Jacobs as a director in thefirms corporate broking team. Jacobsjoins the firm from RBC CapitalMarkets and has over 15 years experi-ence within the industry.

Aon HewittThe global human resources consultingan outsourcing business of Aon corpo-ration has appointed Duncan brown toits UK Reward team. Brown has over20 years experience in both consultingorganisations and research bodies.

CITY MOVES | WHOS SWITCHING JOBS Edited by Phoebe Torrance

Jeffrey Green RussellThe full service commercial law firm has promot-ed Kamran Rehman as partner to its banking andfinance litigation team. With expertise in all corelegal fields, the firm also boasts a number of

leading industry-specific teams. Rehmans workincludes banking and commercial disputesincluding professional negligence claims andmortgage fraud claims. He has worked both inindustry and private practice. Rehman is also amember of the Professional Negligence LawyersAssociation.

+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

ANALYSIS l Vodafone

p

20 Dec 12 Jan 1 Feb 21 Feb 11 Mar

185

175

165

171.7515 Mar

Customers could suffer in long runOFCOM likes to present itself as acustomer champion. Yesterday, itsaid its decision to slash mobile ter-mination rates (MTRs) would bene-

fit consumers. But despite thequangos well-meant intentions,many consumers will soon be worseoff as a result of these changes.

Thats because MTRs the whole-sale charges made by mobile opera-tors on those who piggyback ontheir network disproportionatelyhit landline customers. Mobile cus-tomers will also benefit to a certaindegree especially if their friendsand family are on other networks although any gain is likely to be out-weighed by costs elsewhere, asmobile operators operators hikeother charges to protect their rev-enues.

Currently, the UK still makesmore landline calls than mobileones, but only just: 53 per cent ofcalls were made on a landline in thesecond-quarter of 2010, the mostrecently available figures. So Ofcom

can claim to be on the side of the

majority.However, as everyone knows, con-

sumers are increasingly using theirmobile phone as the primary

means of making voice calls.According to Ofcoms own statistics,mobiles will account for a highervolume of voice calls than landlinesby the first quarter of 2012, if notsooner.

Meanwhile, Pay as You Go mobileusers who make very few calls butearn revenues for the operator byreceiving them will get less gooddeals. These are normally children,who are given safety mobiles bytheir parents, and the less well-off.That will be compounded by theincreasingly long contracts that cus-tomers are being forced into, as net-work operators seek to claw backthe costs of ever more sophisticatedcontracts. Maybe Ofcom shouldhave left well alone.

BOTTOMLINEAnalysis by David Crow

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BRITAINS top share index fell toits lowest closing level in 15weeks yesterday as fears about anuclear catastrophe in Japan

prompted investors to shun riskyassets.

The FTSE 100 ended down for afifth consecutive session, off 79.96points, or 1.4 per cent, at 5,695.28,wiping nearly 21bn off the market.

The index has declined almost fiveper cent in March.

A crippled reactor at the nuclearcomplex in Fukushima exploded andsent low levels of radiation floatingtoward Tokyo, prompting some peo-ple to flee the capital and others tostock up on essential supplies.

Radiation levels in the city ofMaebashi, 100 kilometre (60 miles)north of the capital, Tokyo, were upto 10 times normal, Kyodo newsagency said, quoting the city govern-ment.

Obviously the markets are domi-nated by the situation in Japan. Withexplosions at the Fukushima reactor,

the newsflow is taking quite a nega-tive turn with regards to contamina-tion, said Ed Woolfitt, head oftrading at Galvan Research.

I think all news flow and marketmoves in the short term are going tobe driven by events there whetheror not they get it stabilised andcalmed, or indeed whether it takes aturn again for the worse.

Miners bore the brunt of the sell-off, though traders did see upside forthe sector longer-term given its lack-lustre start to the year and the needfor Japan to rebuild.

London-listed uranium explorerKalahari Minerals shed 11.6 per centon concerns over the future of theglobal nuclear power plant construc-tion programme after the events inJapan.

Luxury goods companies wereamong other major fallers as Japan isone of their major markets. Burberryfell 1.2 per cent, as investors sold thestock on concerns over Japanesedemand for its goods.

Nomura analysts said the firmslicencing agreements in Japan intotal generated around 17 per cent ofgroup core profit.ARM Holdings lost 1.5 per cent asthe chip designer suffered from dis-ruption to production as a result of

the Japan quake.Some analysts said the FTSE indexs

depressed levels could be seen as abuying opportunity.

If the market heads towards 5,000,then it is getting towards a prospec-tive PE (price-earnings ratio) of about12 times, and that means that theyield of the market is getting toaround 4 per cent, said JeremyBrowne, an analyst from Fairfax.

Now, 10-year bond yields are 3.7(per cent) and cash returns are about1/2 a per cent. It can be a real sign forbuying of the market when the yieldof the equity markets gets greaterthan the 10-year bond yield market.

He added that a move towards the5,000 level could go hand in handwith a pick-up in M&A activity andwhen you get big cash deals, that willget the stock market rising.

FTSE falls to a 15-week lowover Japanese nuclear fearsTHELONDONREPORT

p


6,100

5,800

5,900

6,000

ANALYSIS l FTSE

5,850

6,950

6,050

5,695.2815 Mar


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#"#"

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BEST OF THE BROKERS To appear in Best of the Brokers email your research to [email protected]

ANALYSIS lDiageo1280


p

1200

1120

1,139.0015 Mar

DIAGEOSociete Generale rates the drinks group buy with a 12-month targetprice of 14.10. The broker sees Diageos reported bid for Polish spiritsfirm Stock as in line with the f irms emerging markets expansion plan, say-ing the firm is well-placed to make medium-sized purchases while rivalsfocus on deleveraging. Soc Gen also sees the company as a front-runner tosnap up Fortune Brands when it splits off some operations later this year.

ANALYSIS lE.on

26


22

23

24

25

21

21.2515 Mar

E.ONGoldman Sachs reiterates its neutral rating on the energy group with atarget price of 23.08. The broker estimates that German nuclear powermakes up 28 per cent of the firms 2011 clean net income, meaning a 4per share hit if the government decides to accelerate nuclear closureswithout any compensation. However, Goldman has not altered its earningsforecasts since it thinks higher power prices will likely offset any losses.

ANALYSIS lDignity740


p

690

640

720.0015 Mar

DIGNITYPanmure rates the funeral services firm buy with a target price of 872pfollowing the companys full-year results last week. The firm reportedadjusted pre-tax profit six per cent above Panmures forecasts, with 15 percent earnings growth year-on-year. The broker has raised its earnings pershare forecasts by six per cent and four per cent for 2011 and 2012respectively as margins continue to improve.

Fed update helps tolimit Wall Sts losses

US stocks fell one per cent butended far from session lows yes-terday on the Federal Reservesmore upbeat economic view

and growing sentiment that Japansnuclear crisis would only temporarilydepress shares.

In a second straight day of lossestied to Japan, the S&P 500 fell to with-in four points of support at 1,257, its2010 close.

The benchmark index fell morethan two per cent in early tradingand the Nasdaq briefly turned nega-tive for the year.

Equities nearly halved their lossesafter the Fed stuck with its ultra-loosemonetary policy and said the econo-my was gaining traction.

The Dow Jones industrial averagewas down 137.74 points, or 1.15 percent, at 11,855.42. The Standard &Poors 500 Index was down 14.52points, or 1.12 per cent, at 1,281.87.The Nasdaq Composite Index wasdown 33.64 points, or 1.25 per cent,

at 2,667.33.Volume was high, with about

10.05bn shares traded on the NewYork Stock Exchange, the AmericanStock Exchange and Nasdaq, abovelast year's daily average of 8.47bn.

Options activity on the iSharesMSCI Japan Index fund suggestedthat some investors believe the selloffsince Japans worst recorded earth-quake was overdone. The investorsclosed out recent long put positionsor opened bullish bets.

The fund, which has a market capof about $5.58bn, ended 0.2 per centlower on record high volume and wasthe most actively traded ETF.

While the outlook of nuclear acci-dents is justifiably scary, othernuclear issues have had small impactson US stocks and thats the most like-ly scenario here, said Jim McDonald,chief investment strategist atChicago-based Northern Trust GlobalInvestments, which has about $650bnin assets under management.

It is our view at this stage thatthere shouldnt be sustained disrup-tions, and this shouldnt be morethan a short-term drag on the UnitedStates.

Dollar-denominated Nikkei futuresfell 4.9 per cent and are down morethan 10 per cent for the year.

THENEW YORKREPORT

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The essential

dates for thediary of everyforex traderForget your wedding anniversary, central bank

announcement dates are key, saysCraig Drake

Yesterday, in an attempt to keep theyen from surging against the dollar, andto keep interest rates low, Japans centralbank, the Bank of Japan (BoJ), offered tomake 20 trillion available in order tomake sure that banks had suff icient liq-uidity to deal with the huge spike indemand for funds inevitably followingthe tragedy.

The BoJ said it will also buy about 2trillion of Japanese government bondsvia a reverse repurchase agreement. Atthe same time it also offered to provide5 trillion each of one-week and one-month loans against pooled collateral.

Societe Generale predicts that the eco-nomic damage to Japan from the disaster

will be between 10 and 20 trillion ($125-250bn). Though the figures may seemextreme, as a net exporter, the BoJ willsee itself as having no choice but to carryout these injections of liquidity into acountry which relies on a low yen againstthe currencies of major importingeconomies.

Under the current monetary system,employed for better or for worse in themajority of economies, the central bankhas as its main tasks the manipulation ofcurrency prices and interest rates. Assuch, central banks are the most influen-tial actors in the forex market. Anincrease in interest rates will encouragetraders to invest in that market asdemand rises, the currency becomesscarcer and consequently more valuable.Investors are drawn to the currency, caus-

THE US Federal Reserve announcedyesterday evening that it would bemaking no changes to its $600bnTreasury bond purchase program

and would not be making any alterationsto its interest rate. The Fed made no refer-ence to the crisis in Japan, however itspredictable continuation of its currentinterest rates will maintain the painbeing inflicted on Japan by the crucialyen-dollar pairing.

The forex news is constantly dominat-ed by announcements made by centralbanks, in times of relative calm as wellas, in the case of Japan or the EuropeanCentral Bank (ECB) this week, times of cri-sis.

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Wealth Management | Foreign Exchange16 CITYA.M. 16 MARCH 2011

ABNORMAL YENSTRENGTH MAY

NOT LAST LONGBORIS SCHLOSSBERGDIRECTOR OF CURRENCY RESEARCH, GFT

IMAGINE a country with a debt-to-GDP ratio inexcess of 200 per cent, faced with a massive nat-ural disaster that leads to a nuclear emergency.The situation deteriorates further as a third of the

countrys energys production is lost. Under normalconditions, that countrys currency would come undersustained selling pressure. However, there is nothingnormal about the Japanese yen.

Turning all of the logical market assumptionsupside down, the Japanese yen remained well bidthis week even as other financial assets such asJapanese stocks plunged. The Nikkei recorded itsworst two-day decline since 1987 in the wake of anexplosion at the troubled Fukushima nuclear powerplant that may have released dangerous levels of

radiation into the air. As the Nikkei plumbed its lows,dropping below the 9,000 level, yen was withinstriking distance of its all time highs with dollar-yentrading below the 81.00 figure.

Whats been going on? Why did the yen challengeall conventional wisdom this week? Although yensrecent price action may appear confusing, there ismethod to the madness of the currency markets.

The yen has been rallying for two primary reasons repatriation and risk aversion. Currency tradershave been speculating that the huge casualty dam-age caused by the earthquake and the tsunami willforce Japanese insurance companies to repatriatefunds in order to pay out the claims. At the sametime, the unwinding of many speculative carrytrades such as Australian dollar-yen, euro-yen andCanadian dollar-yen created a natural bid for theunit despite the horrible news from the land of therising sun.

However, given the severity of the situation atFukushima and the very real possibility that thehuman and economic tragedy may be far greaterthan the consensus view, yen could start to weakenas the focus shifts away from repatriation flows tothe economic cost of recovery. For now, dollar-yencontinues to drift towards its all time lows, but if thesituation at Fukushima turns into a full blownnuclear emergency, yens strength may not last.

Yesterday

US Federal Reserve's Federal Open

Market Committee meeting.

Today

European Central Bank governing

council will meet in Frankfurt.

No rate announcements

are scheduled.

7 April

Bank of Japan monetary

policy decision.

Bank of England monetary policy

decision announcement.

European Central Bank

interest rate decision.

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AT TIMES of worry, investors will natu-rally flock to safe havens and thisexplains the rise in the Swiss franc.Japanese stocks saw the worst two-day

decline since 1987, brought on by the combinedevents of the tsunami, earthquake and now theradiation leak. This encouraged investors topile in to the Swiss franc and out of riskier cur-rencies like the euro. With the risk of nuclearfallout still a major concern, less risky assetsmust be favoured. Capital Spreads quoteseuro-Swiss franc at SFr1.2790-SFr1.2794.

Safe haven flows continue to boost theSwiss franc in the light of the deterioratingsituation in Japan. However, with the yenalso benefiting from safe haven inflows thetwo currencies are indulging in a tug of warfor best performing currency. CMC Markets

spread for Swiss franc-yen is 88.087-88.127.

It wasnt just the euro and the dollar thathave been killed against the yen over the lastfew days, the carry trades have also beensmashed lower on risk aversion and yen buy-ing. Australian dollar-yen has plummeted 322basis points since Friday to test a significantsupport-resistance level at 79.710 and isnow hundreds of points below all major mov-ing averages. Spread Co offers a spread onAustralian dollar-yen of 79.745-79.785.

The fiscal impact of the Japanese crisis willbe significant given the enormous debt bur-den, yet the currency impact should be lessprofound. Commodity currencies will struggleagainst the yen due to event risk, but itsupward trend probably wont be broken sincemost central banks are actively looking toraise rates. Alpari UK offers a spread of113.01-113.04 on euro-yen and 81.47-81.49 on dollar-yen.

Donata Huggins

THE

TIPSTER

INVESTORS

FLOCK TOSAFEHAVENS

FOREX ANALYST PICKS

FOREX STRATEGISTILYA SPIVAK

My pick: Remain short on New Zealand dollar-dollarExpertise: Global MacroAverage time frame of trades: 1 week to 6 months

FOREX STRATEGISTJOEL KRUGER

My pick: Short euro-dollar at $1.3925Expertise: Technical AnalysisAverage time frame of trades: 1 week to 6 weeks

The latest topside failure above $1.4000 and ahead of $1 .4035 sug-gests that the market has stalled for now and is in the process of carv-

ing out some form of a top. Tuesdays break back below Mondays lowconfirms this and now opens the door for a potential double top forma-tion to be confirmed on a break below neckline support at $1.3750.Below $1.3750 then accelerates towards a measured move objectiveat $1.3500. Short at $1.3925 for a $1.3525 objective; stop at $1.4125.

I sold New Zealand dollar-dollar on Feb 28 at $0.7516. The subsequentselloff has met my initial soft target at $0.7362 and I have now moved mystop-loss to the break-even point. A strong correlation between NewZealand dollar-dollar and the MSCI World Stock index points to continuedlosses amid increasingly widespread risk aversion. I will look for a dailyclose below $0.7322 to trail my stop lower to lock in a portion of floatingprofits and revise my soft target to $0.7160.

FOREX STRATEGISTJOHN KICKLIGHTER

My pick: Short Aussie dollar-dollar, Short Aussie dollar-Canadian dollarExpertise: Fundamental and Technical Analysis with Risk ManagementAverage time frame of trades: 1 day to 1 week

The picture of risk trends and individual fundamental paths haveblurred significantly this past week, following the devastatingJapanese quake and the EUs summit. Despite this, I maintain my shortentry order on Austrailian dollar-dollar once it breaks $0.99. As a morerisk-neutral pair that will take a little more time to play out, I also like

the Australian dollar-Canadian dollar on a large head-and-shouldersreversal below $0.97 with a 200 point initial stop and first target.

ing it to appreciate, because they willgain a higher yield on their investments.In order to purchase the countrys assets(stocks or bonds), investors will have toconvert their domestic currency to the

target countrys currency, which in turnwill also increase demand. Conversely, afall in interest rates dissuades investorsfrom purchasing assets in that economy,as the return on their investment is now

smaller. The economys currency willdepreciate as a result of this weakerdemand.

Whereas the scale of the events inJapan make an easy case for the behav-iour of the central banks and their injec-tion of huge funds into the economy, thepolicies of the US Federal Reserve and theECB are not such a black and white pic-ture.

A key date in the diary for forex tradersought to be the meeting of the governingcouncil of the ECB on 7 April when aninterest rate announcement is set to bemade. Analysts predict that the fund willincrease its interest rates, which somewill see as a big mistake. MichaelHewson, market analyst at CMC Markets,says: Raising the interest rate will really

hit the struggling peripheral eurozonecountries hard, reducing liquidity andreally making them feel the pinch. It isastonishing that the ECB is considering araise when the likes of Portugal, Irelandand Greece are recording a negative GDP.It will further widen the gap between thelikes of Spain, who will likely be tappingthe bailout fund for money, and thosewith more solid economies, such asGermany, who will be expected to under-write them.

The role of central banks will always bea divisive issue, but unless Americas RonPaul is elected in a shock landslide in2012, they are here to stay. As such, giventheir huge influence, anybody watchingthe forex markets should have the sched-ule of the central bank meetings of allthe major economies printed out andtaped to their fridge, their bathroom mir-ror and their desk.

Central banks have amonopoly on currencycontrol.

Picture: REX

Raising of the [ECB] interestrate will reduce liquidity, reallyhitting struggling peripheral

eurozone nations hard

CITYA.M. 16 MARCH 2011 17

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SUCCESS was declared at the week-end, as European politicians cameto an early agreement on increas-ing the size and scope of the

European Financial Stability Facility(EFSF). In response, the euro rose 0.7 percent against the dollar on Monday to

$1.40, while yields have fallen in theperipheral bond markets of Greece andIreland. However, this glimmer of hopeis likely to be only the briefest ofrespites, with voter sentiment turningaway from euro-solidarity and politi-cians across the continent standing onplatforms that threaten this temporaryaccord.

As a short-term fix, allowing the EFSFto spend its total 440bn on buyingbonds directly from governments, whileeasing the terms of Greek rescue loanshas worked. The markets were notexpecting an agreement to be workedout until later this month. AlistairCotton of Currencies Direct says itcalmed very volatile eurozone capitalmarkets, buying Ireland and Greecetime to get their houses in order. RishiPatel of Fair FX goes further, arguingthat not only has the EFSF created thestability the eurozone so desperatelyneeded, but that it also makes a case forthe euro to be a global safe haven cur-rency.

But despite the short-term respite thatthe EFSF affords, there are systemicproblems that have yet to be dealt with.For Cotton, huge public sector debt inGreece and massive private sector liabili-ties in Ireland and Spain have yet to beaddressed. He also points out that notenough reflection has taken place onfactors like the negative real interestrates that were coming out of theEuropean Central Bank during the

Agreement on theeuro bailout fundmight have easedimmediate pressure,but crises loom,writes Philip Salter

boom. Angus Campbell of LondonCapital Group suggests there is still noguarantee that either country will notdefault on their loans, while there isalso still the chance that Portugal oreven Spain might need a bailout.

Politics threatens to upset the apple-cart. An unlikely broadside might comefrom Finland, where the anti-euro TrueFinns party are expected to come topower on 17 April. Timo Soini, its leader,is not keen on the bailouts, or the eurofor that matter, philosophising that if amelon and an apple each wear the samesize baseball cap, everyone can see thatjust doesnt work. Chancellor AngelaMerkel, despite insisting upon severeterms in bailouts, is still out of favourwith the German public. Losing theHamburg regional election might be

repeated in three more state electionsthis month. Also, following the Japaneseearthquake, the German public is evenmore likely to turn against their pro-nuclear Chancellor. Portugal is also like-ly to throw up its own troubles.Elections will probably be called withthe main opposition party, PartidoSocial Democrata, refusing to consent toJose Socratess cuts.

The debt crisis will not be solved withmore debt and nothing announced sofar is going to stave off the troubles onthe tracks. Voters of nations on thebrink of bankruptcy are not happy pay-ing the bill, while those being asked tohelp are equally disobliging. The currentbatch of politicians might be keen todefend the euro project at any cost, butthe next lot look a lot less cooperative.

Wealth Management | Foreign Exchange18 CITYA.M. 16 MARCH 2011

ADEAR child has many names. The strategybelow is called lost momentum in my vocabu-lary, but it no doubt has other names too. It is inessence a form of trend following strategy.

INGREDIENT NO. 1: DEFINE THE TRENDI recommend using a simple or exponential movingaverage (MA) of more than 50 bars. Some havereported good results with the 62 period MA. I dontwant you to get too bogged down with rigid defini-tions. You are looking for a trending market, whichtrades above your chosen MA, and the MA is pointingup (for long positions reverse the instructions below

for short positions).

INGREDIENT NO. 2: DEFINE YOUR TIME FRAMEYou can use this technique on any time frame. I find itlends itself very well to day trading on the 15 minutechart, and swing trading on the four hour chart.

SET-UP FOR BUY SIGNAL:Your chosen market is trading above your MA indica-tor and the MA is pointing up. If you observe that themarket is taking out a previous low (that previous lowmust be at least 8 bars prior to the current bar), younow wait until the market closes back above the pricepoint of the previous low. That is your buy signal.

EXAMPLE:Euro-dollar yesterday made a low at midnight at$1.3920. However the trend was up on my 30 minutechart. At 8.30am the euro dipped below $1.3920 byabout 10 points. It closed below $1.3920 too but onthe very next 30 minute bar, the euro closed backabove $1.3920. That is my signal to buy euro-dollar,with a stop-loss below $1.3920.

The technique stems from the observation thateven in a trending market you will often find thatprice dips below a previous low, only to immediatelyresume its trend higher. All I attempt to do is to tradein the direction of the trend defined by the movingaverage. I reverse the instruction above for sellingshort.

Happy Trading.The views and comments in this article are not the

views of InterTrader.com. The provision of this infor-mation should not be construed in any circumstancesas a recommendation or solicitation to buy or sell anysecurity or financial instrument.

TRADE TRENDS

IF MOMENTUM

TAKES A LOSS

TOM HOUGAARDCONSULTING ANALYST, INTERTRADER

They stand united, butthey will fall divided

Angela Merkel is one of a number of politicians facing pressure from voters Picture : REUTERS

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Women graduates arestill in the shadow ofmale contemporaries

Picture: GETTY

Around one fifth of senior finance rolesare held by women: it is still far too few

LAST Tuesday was InternationalWomens Day, the hundredthInternational Womens Day, to be pre-cise. Did you notice? Did it matter?

There are, after all, multiple daysrecognised throughout the year. I hopeyouve all got World Post Day (9 October)and World TV Day (21 November) in yourdiaries too. Both are recognised by the UN;theres an International Mens Day cele-brating its twelfth anniversary this year.

An International Day probably doesntmean as much as it should, but day infla-tion aside, recognising the persisting gen-der inequality that exists in the 21stcentury is important. With women mak-ing up over half the worlds population,that we are still dealing with the issue ofgender inequality is a little bizarre. Thatweve just had the hundredth annual dayrecognising ongoing gender inequalityjust goes to show how infuriatingly slowprogress has been.

Few sectors in the economy have animpressive record on equality. The statis-tics are depressingly familiar: women holdonly 12.5 per cent of FTSE 100 director-ships, shrinking to 7.8 per cent for the FTSE250. According to Lord Daviess recentreport on women in the boardroom, 18FTSE 100 companies have no female boarddirectors at all; this rises to nearly halfwhen looking at the FTSE 250. In Thailand,30 per cent of companies have femaleCEOs; this shrinks to 9 per cent and 5 percent in the EU and US.

The problem is particularly acute in theCity. Compare the FTSEs 12.5 per cent rep-resentation of women to the civil service,where 34 per cent of senior managers arefemale.

BAD FOR BUSINESSEntrenched inequality isnt just bad newsfor women, but bad news for businessestoo. Theres a wealth of research thatshows diverse boards out-perform all-maleboards. The University of Colognes 2005Sex matters looked at the differencesbetween male and female fund managersand found that women took less extremerisks with their investments.

Thats not to say women are inherentlybetter than men at managing risk, butthat by shutting women out of the board-room (intentionally or not) businesses aremissing out on different perspectives. A2008 Columbia University report, GirlPower, provides data suggesting that com-

panies with women in senior positions areable to use the different skills and perspec-

tives on offer to outperform male-runrivals.

Its not just that businesses are denyingthemselves different perspectives, but theyare denying themselves talent, full stop.Roughly half of US and UK finance gradu-ates are female 49 per cent of ACCA stu-dents are female but only about 20 per

cent of senior finance positions are held bywomen. Where do all the female grads go?Are male graduates smarter than theirfemale counter-parts?

No. But they are men, which gives thema bit of an edge. For young women enter-ing the male-dominated financial servicesworld it can be difficult to find otherwomen to look to as role-models or findpeers that they

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