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FTSE 100 5,718.13 +22.02 DOW 11,858.52 +83.93 NASDAQ 2,643 +7.62 /$ 1.62 +0.01 / t1.14 -0.01 /$ 1.42 +0.02 Certified Distribution31/01/11 - 27/02/11 is 107,265

Osborne tosoften blowof fuel costs

GEORGE Osbornes Budget will con-tain a raft of measures designed tomitigate the soaring cost of fuel.

The chancellor has scrapped plansto raise air passenger duty (APD) forthe fourth time in three years, City A.M.understands.

He had been expected to increasethe tax on holidaymakers and busi-ness travellers in line with the retailprice index (RPI) measure of inflation.

That would have brought the APDon a business class ticket to Australiato 179, a 9 increase.

But with airlines already planningto raise their fuel surcharges inresponse to surging oil prices, thechancellor decided to remove theincrease from Wednesdays Budget.

The decision to freeze APD at cur-rent levels essentially a real-terms taxcut will cost the Treasury around150m, although Osborne could miti-gate the cost by widening the APD netto include private and corporate jets.

Meanwhile, Osborne is expected toscrap a planned above-inflationincrease in fuel duty, which wouldhave added up to 5p to a litre of petrol.

Yesterday, he said he was lookingvery carefully at whether he couldafford to do something about theduty hike.

The chancellor is keen to neutralise

attacks from Labour opponent EdBalls, who has put rising fuel prices atthe centre of an attack on the risingcost of living. BUDGET: P4-5

LIBYAN capital Tripoli burned lastnight after a second wave of air strikesby Allied forces.

Anti-aircraft fire could be heardthroughout the night despiteGaddafis government claiming tohave ordered an unlikely ceasefire.

RAF Tornados and US stealthbombers rained down missiles onLibyan tanks and anti-aircraft muni-tions, killing dozens of Gaddafi troops.

Loyalists closing in on the rebelstronghold of Benghazi turned andfled after a wave of devastating strikescrippled a battery of tanks.

Smoke was seen billowing out of abuilding inside Gaddafis personalcompound in Tripoli, with the dicta-tors whereabouts unknown.

US officials insisted they are notspecifically targeting the despoticleader, saying a direct attack would gobeyond mandates in the UnitedNations Security Council resolution.

Nato has been unable to agree onaction against Gaddafi, with nationsincluding Germany and Turkey raisingdoubts about the validity of an attack.

David Cameron last night chaired ameeting of the governments Cobraemergencies committee in Downing

Street to discuss the UKs next move.Meanwhile the Arab League votedagain in favour of the Allied actiondespite appearing to waver in its sup-

AIR STRIKES RAINDOWN ON GADDAFIBY STEVE DINNEEN

LIBYA CONFLICT

www.cityam.comIssue 1,346 Monday 21 March 2011 FREE

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port for the attacks, which its chiefcalled the bombardment of civilians.At least four Qatari planes joined UK,French and American air forcespatrolling the no-fly zone.

Stocks across the Middle East rosedespite the raids after Saudi KingAbdullah pledged to hand out a fur-

ther 57bn to his citizens in anattempt to quell simmering tensionsin the country.

The move follows a separate 22.8bn

decree last month after tensions inneighbouring Bahrain threatened tospill into the country.

The Saudi index rose by more than4.5 per cent to 6343.8, while Dubai andQatar both gained 2.6 per cent. AbuDhabi made a small gain but conflictin Bahrain dragged its stocks 1.6 per

cent lower.Meanwhile, Yemeni president AliAbdullah Sale, who has been in powerfor more than three decades, sacked

his cabinet after continuing protests.At least 45 people were killed in

Yemen on Friday after plain-clothesgunmen fired on protesters in thebloodiest clashes to date.

Brent crude for May delivery rose ashigh as $116.19 a barrel last night.Crude for April rose as much as $2.12

to $103.19.Meanwhile Hamas fired 50 rocketsinto Israel, its heaviest barrage in twoyears. Israel responded with air strikes.

BUDGET 2011BYDAVID CROW

Vehicles belonging to forces loyal to Libyan dictator Muammar Gaddafi explode after an air strike by coalition forces Picture:REUTERS

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News2 CITYA.M. 21 MARCH 2011

Plans to slashsafety red tape

HEALTH and safety inspections areto be cut by a third in a bid to cutcosts for low-risk businesses.

As part of a raft of rule changes tobe announced by employment min-ister Chris Grayling today, the gov-ernment will instruct inspectors toconcentrate their efforts on highrisk locations, like major energyfacilities, and employers with poorhealth and safety records.

The government has also prom-ised a comprehensive review ofhealth and safety laws, with a viewto cutting out unnecessary red tape.

Meanwhile, a new register of qual-ified consultants will be brought into cut out untrained cowboys,along with a new online scheme tohelp small, low risk employers.

Grayling will say: Of course it isright to protect employees in theworkplace, but Britains health andsafety culture is also stifling busi-ness and holding back economicgrowth... These measures will helproot out the needless burden ofbureaucracy.

British Chamber of CommerceDirector General David Frost said:Simplifying and codifying healthand safety laws will help employersspend less time on tick box exercises,and more time focusing on growingtheir businesses.

BY JENNY FORSYTH

POLITICS

How to reverse Britains slow decline

GEORGE Osbornes Budget must deliv-er a range of market-friendly policiesto increase the rate of return on invest-ment in the UK. That is the messagefrom a group of economists, includingDerek Scott, for years Tony Blairs eco-nomic adviser, in a paper for theReform think-tank. Their analysis ofBritains accelerating relative decline,which started even before the bubbleburst, is sobering. Scott is a gifted econ-omist who spent years battling GordonBrown and Ed Balls; had Labour lis-tened to Scott, Britain today would be avery different, much wealthier place.

His explanation of the financial crisisas a massive intellectual error by cen-tral banks draws on the work ofBernard Connolly (now of ConnollyGlobal Macro Advisors, the London-

based economist who most preciselysaw the crisis coming) and theAustrian economics of F.A. Hayek. It ishighly compelling.

Between 1974 and 1997, the UK wentfrom being the 18th largest economymeasured by GDP per capita to the16th, out of 25 OECD countries. Thiswas a dramatic break with decades ofdecline; the legacy of the supply-sidereforms of the 1980s meant that theUK continued to improve its perform-ance for several more years after that.By 2005, the UK ranked 12th out of 34OECD countries, having overtaken theUnited States, Germany, France andItaly, though this performance waspartly inflated by the bubble.Crucially, the UKs renewed declinewas apparent even before the bubbleburst, with tax, spend, educationaland regulatory policies emerging as a

drag on GDP per capita: Britains rela-tive position has dropped every yearsince 2005. By 2009, the UK had fallenback to 16th, overtaken by Sweden,Finland, Germany and Belgium, with

the effects of the crisis kicking in.There are other fascinating revela-tions in the report. Out of the 27 OECDcountries, only Greece, Estonia andDenmark had worse household sav-ings ratios during 1995-2008.Manufacturing has declined so muchin Britain because wage costs per unitof output have gone up (in partbecause of regulations and wage rises)at a time when they were falling in theUKs main rivals, including Germany,the US and Japan. Financial services, bycontrast, are the most productive sec-tor of the UK economy at 308,000 ineconomic value per head (the reasonwhy wages are so high in that indus-try). Finance has become increasinglyproductive, with employment remain-ing constant as a percentage of totalUK employment since 1978 (at roughly4 per cent), while the sectors contribu-

tion to GDP has increased by 6 per centin the last 15 years. But finances eco-nomic value per employee may nothold up as leverage declines to a morereasonable level.

What of the crisis? Interest rateswere kept too low by central banks,while the launch of the euro andChinas manipulation of exchangerates helped fuel asset bubbles. Forinterest rates to return to normal and for them to rationally balance thecost of spending today with that ofspending in the future, rather thandistort everything anticipated ratesof return on investments need to riseto ensure profitability at the new,higher, interest rates. This requireslower tax rates, reduced employmentregulations, a less restrictive planningsystem and more besides. The answer,Scott and his colleagues argue, ismore capitalism, not less. Brownignored Scott let us hope Osbornedoesnt make the same mistake.

[email protected] me on Twitter: @allisterheath

FORMER Lloyds chief executive EricDaniels has been dropped from theshortlist for insurance group Avivaschairmanship after an outcry fromshareholders.

Some of the companys biggestinvestors complained after news lastweek that Daniels, who stepped downfrom Lloyds last month, could suc-ceed Lord Sharman when he leaves in2013.

Daniels has been criticised for hisrole in Lloyds disastrous takeover ofthe debt-laden HBOS. The govern-ment now has a 41 per cent stake inLloyds Banking Group.

Other names who have reportedlybeen considered for the role includeformer Labour ministers Lord Daviesof Abersoch and Lord Myners.

Aviva, the UKs biggest insurer, isnow believed to have narrowed itsshortlist to three candidates, with aformal decision expected in a coupleof weeks.

BY JENNY FORSYTH

INSURANCE

Daniels cut from Aviva listEric Daniels has been cut from the Aviva shortlist after investor complaint

NEWS | IN BRIEF

Japans Nikkei 225 opens upThe Nikkei 225 opened up 2.72 per centin early trading in Tokyo to hit 9,206.75.The positive reaction followed newsyesterday the Japanese governmentplans to dedicate up to 10 trillion yen(78bn) in crisis lending to businessesto help them finance day-to-day opera-

tions and repair damage from lastweeks deadly earthquake and tsunami.The government can provide specialfinancing in the form of low-interestloans or interest payment subsidiesbacked by public funds when a naturaldisaster or other event triggers majoreconomic instability. SEE JAPAN P9

Facebook buys Londons SnaptuFacebook has agreed to buy Snaptu, aLondon-based application developer formobile devices that have fewer capabili-ties than smartphones, for up to $70mas the worlds largest social networkfocuses on expanding its mobile servic-es. The site has been increasingly focus-ing on building up its mobile phoneservices for its 500m users, last weekhiring a member of Googles corporatedevelopment team to lead its M&Aactivities.

EDITORS LETTER

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Employment ministerChris Grayling hasordered a review ofBritains health andsafety laws

RIO PLANS RUSSIAN DIAMOND PUSHAS IT EYES ALROSA TIE-UPRio Tinto is planning a push intoRussian diamond mining, eyeing atie-up with Alrosa, the state-ownedminer, as the global industry looksahead to rising demand from Chinaamid tight supply constraints. Thecompany declined to comment on itsintentions or on wider reports thatTom Albanese, chief executive, hadtravelled repeatedly over the past yearto Russia, a country where Rio has nooperations.

UKAR TO SEEK MORTGAGES ADMINROLEUK Asset Resolution, the companycharged with shrinking the troubledloan books of Northern rock andBradford & Bingley is hoping tosecure a future beyond winding down

the 80bn portfolio by running mort-gages for other lenders.

EU PLANS FRESH TRANSPARENCYRULES

Europe is set to impose mandatorytransparency measures for ming andforestry companies, requiring themto detail their financial relationshipswith foreign governments, a topEuropean Union official has told theFinancial Times. In an interview,Michel Barnier, the EU internal mar-ket commissioner, said the movewould come as Brussels revised exist-ing rules on transparency in autumn.

MILLER IN REFINANCE TALKS AS ITEYES FLOTATIONThe UKs biggest privately ownedhousebuilding and construction com-pany has started refinancing talkswith its lenders in a move that pavesthe way for a possible stock marketdebut. Miller Group, which built1,915 homes across the UK in 2010and had sales of 631m, has been pri-vately owned throughout its 77-year

history, but appears to be consideringa public listing.

IMF CHIEF FEARS FISCAL CRISIS IFSOARING DEBT IS NOT REINED INWestern governments face a sharpsurge in borrowing costs as their debtmountains hit the highest levelssince the Second World War, theInternational Monetary Fund saidyesterday. In a blunt speech, JohnLipsky, the IMFs first deputy manag-ing director, said that advancednations ran the risk of a fiscal crisis.

THORNTONS SHRINKS PRODUCTS TOBATTLE COMMODITY PRICESThorntons has become the latest con-fectioner to shrink the size of itsproducts to help to guard profitsagainst ever higher commodityprices. The company has begun toreduce the weight of some of itsinlaid box chocolates sold in super-markets and its own shops, meaning

that an average sized box containsone or two fewer chocolates.

MOST BRITONS DESCRIBE THEMSELVESAS MIDDLE CLASSMost Britons now claim to be middleclass, as research shows that the pro-portion of people who describe them-selves as working class has dropped toless than a quarter. Seven out of 10people view themselves as belongingto middle Britain, compared with aquarter a generation ago. Only 24 percent of people describe themselves asworking class, according to the surveycarried out by the new research com-pany BritainThinks.

SAFE NUCLEAR DOES EXIST AND CHINAIS LEADING THE WAY WITH THORIUMA few weeks before the tsunamistruck Fukushimas uranium reactorsand shattered public faith in nuclearpower, China revealed that it waslaunching a rival technology to build

a safer, cleaner, and cheaper networkof reactors based on thorium.

METS OWNERS ACCUSE MADOFFTRUSTEE OF DISTORTING EVIDENCEThe owners of the New York Metsstruck back at the trustee recoveringmoney for Bernard Madoff's victimslate yesterday, accusing him in courtof ignoring evidence and fabricatingallegations that they overlookedwarnings about the Ponzi scheme.Team owners Fred Wilpon and SaulKatz and their associates issued a 107-page response to the $1bn lawsuitfiled by trustee Irving Picard.

FERRERO MAY CONSIDER STAKE INPARMALATItalian candy maker Ferrero is eyeinga potential investment in Parmalat aspart of a push by Italys business andpolitical establishment to keep thedairy firm, once at the centre ofEuropes biggest-ever corporate scan-

dal, in Italian hands, according toItalian bankers.

WHAT THE OTHER PAPERS SAY THIS MORNING

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JJB creditors will vote tomorrow onrestructuring plans that could decidewhether it can stay in business.

It is expected to get the seal ofapproval after its biggest landlord,FTSE 100 firm Hammerson, threw itsweight behind proposals in a companyvoluntary arrangement (CVA).

Under the terms of the deal land-lords who lose out through long-termcontracts being cancelled will receivebetween 25p and 29.2p for everypound they are owed, with up to7.5m being paid out depending on

JJBs performance over the next twoyears.

DRINKS group Diageo is consideringa bid for tequila firm Jose Cuervo,people with knowledge of the compa-ny confirmed yesterday, as part ofchief executive Paul Walshs multi-bil-lion pound acquisition spree.

Diageo, which already distributesCuervo on behalf of the Beckmannfamily that owns the brand, is said tobe considering a $2bn (1.2bn)takeover offer.

The move comes just a week afterthe company was linked to Polishspirits group Stock, as it attempts tobroaden its reach in emerging mar-kets to offset f lagging domestic sales.

Diageo, the maker of JohnnieWalker whisky and Smirnoff vodka,last month also agreed to buyTurkish spirits firm Mey Icki for1.3bn.

Walsh halted Diageos share buy-back programme in 2009 to helpfund the companys war chest.

Cuervo has been tightly held by theBeckmann dynasty for six genera-tions, but is now said to be in talks toappoint Barclays Capital to help it selloff the company. BarCap declined to

comment yesterday.Cuervo and Diageo signed a joint

venture in 2003, with the former pay-ing $100m for a 50 per cent stake inDiageos Don Julio tequila brand.

Drinks firms have undertaken aspate of takeovers and consolidationin recent months as companies lookto shelter from faltering sales.

The spirits arms of consumergoods group Fortune Brands isexpected to be put on the block laterthis year, while Frances RmyCointreau told the market lastmonth it was in exclusive talks to sellits champagne business to EPI.

Diageo declined to comment yes-terday, while Jose Cuervos headoffice was not available for comment.

Diageo turns

to tequila forits next buy

AT&T will buy the US arm of T-Mobilein $39bn (24bn) deal that will seeDeutsche Telekom receive aroundeight per cent of AT&Ts equity and$25bn in cash.

The deal will give AT&T an extra34m customers, making it the biggestnetwork in the US and surpassing bit-ter rival Verizon, in which Vodafone

has a stake.It is understood AT&T can increasethe cash component of the deal aslong as Deutsche Telekom accepts atleast five per cent of AT&Ts shares. ADeutsche Telekom executive will jointhe AT&T board as part of the deal.

The announcement will mean abumper payday for AT&Ts advisersGreenhill, JP Morgan and EvercorePartners. The deal is not expected tofully close for another 12 months.

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ENTERTAINMENT giant HMV is con-sidering selling its book chainWaterstones as part of a rescue planto be revealed to its banks this week.

The group is thought to be consid-ering the options of sellingWaterstones, which could be worthup to 75m, a share issue and morestore closures.

HMV has issued four profit warn-ings since September and has toldlenders it is in danger of breaching itsbanking conditions after the end ofthe financial year in April.

It forecast it would finish the yearwith net debts of 130m.

HMV to set outits rescue planJJB preparesfor crunch vote

BYMARION DAKERS

M&A

RETAIL

RETAIL

Diageo chief execu-tive Paul Walsh isconsidering buyingtequila brand JoseCuervo as part ofthe firms globalacquisition spree.

Picture: GETTY

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News 3CITYA.M. 21 MARCH 2011

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BRITAINS projected rate of economic

recovery will be downgraded by thegovernments fiscal watchdog thisweek, analysts expect.

In November the Office for BudgetResponsibility (OBR) predicted 2.1 percent growth for 2011 considerablyabove most recent independent fore-casts.

We suspect that the OBR will lowerits shorter-term GDP projections,

commented Investecs Philip Shaw.The Organisation for Economic Co-

operation and Development (OECD)last week revised down its estimate of

British growth, from 1.7 per cent to 1.5per cent for this year.However, the OECD insisted that the

chancellor is right to continue withimmediate spending cuts the policydubbed Plan A.

And today another group of leadingeconomists is expected to urge furtherausterity.

Chancellor George Osborne must

resist the temptation to grant anygive-aways in this weeks budget, theErnst and Young Item Club will say.

The deficit for the whole fiscal year

will come in at 140.2bn, Item expects around 8bn below the Office forBudget Responsibilitys (OBR) officialforecast.

However, the slowdown in growthrisks the very small margin for errorin achieving the governments fiscalmandate over the whole course of par-liament, it believes.

It is still very early days on the long

and challenging road to fiscal bal-ance, according to Items chief econo-mist Andrew Goodwin.

The governments net borrowing up

to this month is released tomorrow,one day ahead of the chancellorsbudget and the OBRs new forecasts.

Total government debt will peak at69.1 per cent of British GDP, accordingto the latest OBR projections.

Item is also expected to call todayfor the chancellor to commit toremove the 50p tax rate once publicfinances have sufficiently improved.

Growth forecasts to be cutBY JULIAN HARRIS

UK ECONOMY

Focus on Budget4 CITYA.M. 21 MARCH 2011

CHANCELLOR George Osborne yester-day indicated he would not put uptaxes or make further spending cutsin the Budget on Wednesday.

He said that last years Budget hadbeen a rescue mission that hadtaken the country out of the fiscaldanger zone.

Osborne added: But now weve gotto move from rescue to recovery andreform... I dont have to come backand ask for more this year. So I cansay in the Budget later this week, Im

not going to be asking for more taxincreases or more spending cuts.

The chancellor batted away sugges-tions from the Labour party that heshould cut spending less quickly inthe face of lower growth forecasts,insisting it would be a huge mis-take to halt the deficit reductionprogramme.

But shadow chancellor Ed Ballsaccused Osborne of being a brashand cocky gambler who was makingdecisions that were good for short-term politics but bad for long-termgrowth.

Chancellor: no tax hikesor extra spending cuts

POLITICS

ECONOMISTS VIEWS: HOW SHOULD THEBUDGET ENCOURAGE GROWTH? Interviews by Julian Harris

DAVID KERN | BRITISH CHAMBERS OF COMMERCE

Make recruitment easier and allow faster planning decisions. Lower theyouth minimum wage and scrap employment regulation, to encourage jobs.

TOM CLOUGHERTY | ADAM SMITH INSTITUTE

Cutting red tape is like a free tax cut so we need a lot of that espe-cially for small businesses that cannot simply suck up regulatory burdens.

HOWARD ARCHER | IHS GLOBAL INSIGHT

A raft of small reforms could still be perceived in total as pro-business inthe long term. Plus more to come once the fiscal situation improves.

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GEORGE Osborne is set to step up hisattempts to tackle tax avoidance inthe Budget on Wednesday, City A.M.understands, as part of a raft of meas-ures designed to prove he is tough on

the wealthy.A Treasury source yesterday saidthere would be all sorts of antiavoidance measures in the Budgetincluding plans to crack down ondisguised remuneration.

Osborne is expected to target akind of offshore trust used by somehigh earners to top up their pen-sions.

These so-called Employer-FundedRetirement Benefit Schemes (EFRBS)are currently not subject to the samepensions taxation regime as regis-tered schemes, although Osborne islikely to subject them to income taxat 50 per cent.

The chancellor is also expected toannounce a fresh assault on non-doms, people who come from over-seas and pay UK tax on their UKearnings but no tax on their foreignincome.

Currently, non-doms must pay anannual levy of 30,000 after they

have lived in the UK for seven years,but Osborne is considering wideningthe net to include those who havebeen in the UK for less than sevenyears.

However, the chancellor is likely toearn plaudits from Britains corpo-rates when he unveils plans toreform the regime governing taxa-tion of foreign-earned profits.

He is expected to overhaul the so-called Controlled Foreign Companies(CFCs) regime so that multinationalcorporations can keep the lionsshare of profits they make overseas.

It would be a huge coup if thechancellor could prove that hisreforms of the CFCs system had con-vinced a multinational that quit theUK in recent years to move backonshore.

WPP, Shire and UBM have left theUK for Ireland in recent years, whileplumbers merchant Wolseley andInforma went to Switzerland.

Last night, sources close to WPPscotched suggestions that chief exec-utive Martin Sorrell was poised toannounce plans to bring the advertis-ing and marketing giant back toBritish shores.

They argued that there could benothing in Osbornes reforms that

would hold future governments tomaintaining a similar regime.

Osborne plans

crackdown ontax avoidance

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Focus on Budget 5CITYA.M. 21 MARCH 2011

Chancellor GeorgeOsborne is likely totake a tough line ontax avoidance whenhe delivers theBudget this week.Picture: GETTY

BUDGET 2011BYDAVID CROW

National insurance to be mergedwith income taxThe chancellor is expected to signal hisintention to allow employers to pay nation-al insurance and income tax in a singlecombined payment.

ApprenticeshipsIn a bid to tackle the

high number of youngNEETS (not in employ-ment, education or train-ing) 50,000apprenticeships could befunded by the state.

Freeze on fuel dutyIn response to escalating fuel prices, stillfacing upward pressure from instability in

the Middle East, the planned increase of 1pon a litre on petrol may be put on hold.

Air passenger duty frozenThe chancellor is also expected to freezeair passenger duty, although he could apply

it to corporate and private jets.

Personal allowance increase

The tax free allowance could get anincremental rise to around 8,000.

Non-domiciles to be targetedThe government may turn to higher

taxes on so called non-doms.

Planning regulations relaxedThe construction industry could get aboost from a cut in planning restrictions,

designed to encourage business growth.

Public sector reformPrivate companies could be allowed agreater role in the running of somegovernment sector services, in an attemptto stimulate enterprise and efficiency.

Foreign-earned profits left alone

Large corporations may be tempted backto these shores by a pledge totax less from overseas profits.

Cigarettes and alcoholSmokers and drinkers are like-ly, yet again, to face even highertaxes. However, the ailing pubindustry could be helped bylower taxes on weak beer.

A BUDGET FOR GROWTH | WHAT MEASURES COULD THE CHANCELLOR INTRODUCE THIS WEEK?

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THE Independent Commission onBanking (ICB) has dismissed an indus-try estimate that breaking up whole-sale and retail business activitieswould cost the UKs main banks12bn-15bn, City A.M. has learned.

A report produced by Oliver Wymanas part of a bank lobbying effort andsubmitted to the ICB as evidence hassaid that the cost of implementing asubsidiarisation model wherebybanks must capitalise their retail and

wholesale operations separately would cost the UKs five major banks atotal of 12bn-15bn.

But the ICB thinks the figure isntreasonable, said an insider, and thatit contradicts other more reliable costestimates submitted as evidence.

The Commission is due to publishan interim report revealing itsthoughts so far on 11 April. The inter-im report will be the first window intoits thinking since a speech by Sir JohnVickers in January, which showed that

the ICB had moved away from break-ing up ownership of banks but ismulling the costs and benefits of asubsidiarisation model.

The news that Vickers Commissionhas shrugged off the Oliver Wymanreport will disappoint banking chiefs,who have been keen to emphasise thatrising costs of capital from regulationsare likely to be passed on to con-sumers. Oliver Wyman also producedevidence for Lloyds submission on thecompetitiveness of the high streetbanking industry.

The ICB declined to comment.

Vickers notconvinced bybank lobbying INVESTIGATIONS into the possiblemanipulation of data relating to theLondon Interbank Offered Rate (Libor)

are likely to focus on banks that werenet borrowers during the financial cri-sis rather than lenders, an industrysource told City A.M. yesterday.

UBS has said that it was subpoenaedby US and Japanese regulators regard-ing Libor investigations. Barclays, Bankof America and Citi are also thought tohave been subpoenaed.

But banks that were net lenderswould have no reason to falsify theirborrowing costs, according to thesource. Banks with heavy borrowingrequirements, by contrast, may havehad a motive to give falsely low esti-mates of their costs in order to avoidspooking investors. Of course, this

doesnt mean they actually did this.Libor is calculated from data sub-

mitted to the British BankersAssociation (BBA), all of which is pub-lished. Its publication means the inves-tigation will consider whethercollusion between banks took place,because it would have been risky forany firm to submit faulty numbersthat it knew others might challenge.

Since UBS was subpoenaed, therehas been widespread speculation overwhich other banks are being probed.

Net borrowerbanks targetedin Libor probe

BY JULIET SAMUEL

REGULATION

US BANK investors are set to benefitfrom a wave of dividends and sharebuybacks after the Federal Reservefinally lifted its blanket ban onincreased capital distributions byfinancial institutions.

American banking stocks were upacross the board on Friday after theFed concluded its review of their capi-tal plans and gave permission for divi-

dend hikes, share buybacks and pay-backs of government aid.

Firms queued to take advantage ofthe decision: JP Morgan, GoldmanSachs, Wells Fargo, State Street andBank of New York Mellon allannounced share purchases or increas-es in their dividends.

But Citigroup has so far stayed alooffrom the rush to spend its accrued cap-ital. BoA said that it would request per-mission for a modest dividend hikein the summer.

Fed ruling sees US banksrush to increase dividends

The Feds Ben Bernanke has given the go-ahead for capital spending Picture:REUTERS

BY JULIET SAMUELBANKING

BY JULIET SAMUELBANKING

ANALYSIS l Barclays


340

330

320

310

300

290

280

270

260

250

282.1018 Mar

p


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ARCUS Infrastructure Partners aimsto announce a formal 744m takeoveroffer for FTSE 250-listed Forth Portstomorrow, alongside the targets full-year results, a source familiar withthe company confirmed yesterday.

Arcus, which already owns a 22.8per cent stake in Forth, is likely tokeep its offer in line with the 16.30per share indicative bid announcedearlier this month after undertakingtwo weeks of due diligence.

The indicative offer included a 20pper share dividend, taking the totalpayment per share to 16.50.

Forth rejected a 14 per sharetakeover bid from a consortium led

by Arcus last May before the due dili-gence stage.

Forth, which runs a string of portsin Scotland and owns 400 acres ofland in Edinburgh, saw its sharesclose at 16.07 on Friday, valuing thefirm at 733m.

Arcus aims to

bid for Forth

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M&A

INVESTORS in fire engine ownerAssetCo are expected to rally roundthe firm today as it puts the finishingtouches on its 26m share sale.

The company held a board meetingyesterday to work out the details ofthe fund-raising, which is needed topay creditors and top up capital.

Shareholders are due to meet withmanagement at broker Arden

Partners offices this morning tocount the votes for the latest cashinjection, and are expected toapprove the plan.

AssetCo warned on Friday that itneeded more funds despite itsplanned 16m share placing andemergency funding from LloydsBanking Group.

The firm recently rejected takeover

interest from a Middle Easterninvestor, calling it opportunistic.

AssetCo expected to get greenlight for another cash injection

SUPPORT SERVICES


Japanese disasters shook markets too much

The ongoing sequence oftragedies in Japan has under-standably shaken investor senti-ment heavily. In two days last

week the Nikkei lost 17 per cent andmarkets around the world fell accord-

ingly, with the FTSE 100 droppingover six per cent in six sessions beforeshowing some composure at the tailend of the week.

The question though as to whether

such a rapid fall as this was rational isnot so easily answered.Looking at the pure economic ties

between Japan and the UK forinstance, its hard to justify why UKstocks should fall so heavily.According to Jefferies Fixed Income,the UK has an exposure to Japanequivalent to one per cent of GDP,made up of exporting goods and serv-ices, in addition to income derivedfrom investments.

On another level the UK, as of the

end of 2008, had 398bn of outstand-ing assets in Japan. How much of thathas been endangered by events thathave affected at most eight per centof Japans economic output?

You might ask if the UK will be hitby the breakdown of the Japaneseexport leviathan that has been inter-rupted more by ensuing power cutsthan the earthquake, tsunami andongoing nuclear crisis? Maybe butyou have to remember times havechanged. In 1990 the UK was thenumber five global destination forJapanese goods. By 2009 it wasnt inthe top ten, according to an HSBCreport looking at IMF trade statistics.

Some economists have argued that

in the medium to longer term therebuilding of Japans north east willbe a source of GDP positivity andcould help draw the country out of itslong term deflationary malaise.

Wont British companies figure in thereconstruction in some ways?So why did global markets fall so

aggressively? The pragmatic answer isthat nerves were already frayed byevents in the Middle East and NorthAfrica, ongoing unanswered ques-tions over the sustainability ofEuropean and US debt levels and per-haps by the fact that the equity mar-kets had in some cases doubled offtheir March 2009 lows. Japan mayjust have been the last straw.

In fact, Ive been surprised by thenumber of commentators who, whileacknowledging the enormity of thehuman tragedy and devastatingdestruction of economic capacity in

Japan, have welcomed the opportuni-ty to take a look at the valuation ofequities following the rout in shareprices. Some of the most cautiousinvestors have been waiting for anentry point for months now and arepicking up stocks across the board.

As HSBCs Stephen King puts it:Knee-jerk economic and financialreactions to shocks and disaster oftenfall wide of the mark.

Steve Sedgwick co-anchors Squawk BoxEurope weekday mornings on CNBC

CNBC COMMENT

STEVE SEDGWICK

Commerzbank, which steered ForthPorts through takeover interest lastyear, is advising the company duringthe latest indicative bid from Arcus.

M&A vice chairman RosalindHedley-Miller leads the advisoryteam at Commerzbank. Hedley-Millerwas with the banks predecessor

Dresdner since 1979, and movedwith the firm when it merged with

Commerzbank in 2009.The St Hughs College, Oxford

graduate worked with Terra Firmaduring its 2007 acquisition of EMI,Irish real estate developer GreenProperty during a 1bn (874m)move to take the firm private in2002 and Somerfield when it wasbought for 1.1bn by the Tchenguizbrothers, Barclays Capital and ApaxPartners in 2005.

She also worked for the financecommittee of Oxford UniversityPress from 1995 to 2009, and cur-rently sits on the board of trusteesfor the Rhodes Trust, the educationalcharity.

Investment bank GleecherShacklock also advise Forth Ports.

ROSALIND HEDLEY-MILLER

COMMERZBANK

ANALYSIS l Forth Ports

p

20 Dec 12 Jan 1 Feb 21 Feb 11 Mar

1,650

1,550

1,450

1,350

1,607.0018 Mar

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EDFs chief executive insisted yester-day that the firms plans for nuclearpower in the UK would not be delayedafter the crisis at the earthquake-hitFukushima plant in Japan.

[O]ur plans, to be clear, areundimmed because UK needs nuclear.And the question for me is not tomake a pause. Vincent de Rivaz toldthe Andrew Marr show.

What we have said through yearsof debate - and it was a very open

debate is that nuclear is not the sin-gle solution, but there is no solutionwithout nuclear.

EDF owns 14 nuclear reactors in theUK and hopes to bring four moreonline from 2017.

However, energy secretary ChrisHuhne reiterated that nuclear powercould become more difficult to fundin the UK in the wake of the crisis inJapan.

In Japan, white smoke was stillescaping from reactor 3 at the

Fukushima Daiichi nuclear plant, andthe International Atomic EnergyAgency said the situation remainsvery serious.

Workers successfully linked severalreactors to power cables last night,raising hopes that the internal cool-ing systems can be brought back intouse.

More than 21,000 people are nowofficially dead or missing, and fears ofcontamination grew after the author-ities found higher than normalradioactivity in raw milk and spinachplants in the Fukushima area.

EDF chief saysno delay to UKnuclear plans FOREIGN exchange traders will beclosely watching the yens movementtoday following the G7s dramaticintervention to stem the currencys

gains late last week.Traders are on alert for further cen-

tral bank moves to ease any runawayincreases in the yen, which if leftunchecked would make Japansexports more expensive and put fur-ther pressure on its economy.

Fridays move by the G7, in whichthe countries poured in an estimated$25bn, was the first joint interventionin currency markets since the G7came to the aid of the newly launchedeuro in 2000.

Some analysts feared that a massiverepatriation of Japanese money to payfor the repairs needed would putupward pressure on the yen.

Meanwhile, Societe Generale ana-lysts said in a note yesterday they wereconfident in the Japanese economyseventual recovery.

We still find the most likely out-come to be a V-shaped profile with theupcoming data seeing a very sharpdecline followed by a sharp accelera-tion as reconstruction and thereplacement of consumer durablesgets on the way, they said.

Tokyos markets remain closed for aholiday today.

Countries couldintervene againto help the yen

Burnt-out cars in Sendai after the 9.0 magnitude earthquake Picture: GETTYBYMARION DAKERS

ENERGY

CURRENCIES

ANALYSIS l EDF

20 Dec 7 Jan 27 Jan 16 Feb 8 Mar

33

31

29

27.4618 Mar

Quake could cost Japans top carfirms 600m in lost production

DISRUPTION from the Japanese earth-quake and tsunami could cost the

countrys top four carmakers up to600m, according to Goldman Sachsestimates.

Toyota, Honda, Nissan and Suzukiare unlikely to suffer any major oppor-tunity loss, said GS analyst KotaYuzawa in a note, but production stop-pages are set to dent profits by 45m,or 6bn yen, a day for Toyota and15.2m a day for the rest.

The loss of finished cars in the disas-ter could also cost several billion yen.

An estimated 155,000 cars would

AUTOMOTIVE have been built during the stoppages,

though Goldman thinks the firms cango some way to catching up, giventhat the plants were not running at

full capacity before the disaster.Nissan resumed production on

Friday, while Toyota and Honda hopeto restart on Wednesday. Suzuki is dueto start work again today.

General Motors said at the week-end that it would suspend all non-essential spending and cutproduction in Spain and Germany inresponse to the quake on 11 March, asthe effects are felt throughout thesupply chain.

WEALTH MANAGEMENT: P18


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11

The Capitalist

A WELL-EARNED lunch for fourCity lawyers also provided aboost to Fridays Red Nose Day,when the hungry fundraisersmatched the amount of their billat Vivat Bacchus with a donationto the Comic Relief appeal.Fresh from a sponsored five-milerun around the City, which raisedmore than 3,000, the lawyersdescended on the Farringdonbranch to replenish their energyreserves with a late lunch. Dining

on main courses includingguinea fowl and Springbok, theyensured hydration levels weretopped up with a 600 bottle ofChteau Latour 95. The mealwas finished off with a round ofthe restaurants special RedNose Day desserts a delicatepraline mousse topped withcaramelised nasturtium flowers with profits from the dishgoing straight to the ComicRelief appeal.

BILL OF THE WEEK

FRIDAY night saw big hitters from LondonsAsian community come together for theAsian Business Awards, which celebratedthe UKs most successful Asian entrepre-

neurs and their business success storieswith dinner and a discussion forum at thePark Plaza Westminster Bridge.

The top award of the night for Asianbusiness of the year went to telecoms

operator Lebara, which allows low-costinternational calls to be made direct frommobile phones. Chief executiveYoganathan Ratheesan picked up his com-panys award from business secretaryVince Cable.

Also honoured at the annual event wereex-steel magnate and City restaurateurDinu Bhattessa, the owner of the Mint Leaflounges and winner of this years AsianBusiness Restaurant of the Year.

The night also saw the launch of the2011 Asian Rich List, put together by the

Asian Media and Marketing Group, whichprovided a fascinating insight into the con-tribution that Asian businesses make to theUK economy. The list was unsurprisinglytopped by steel billionaire Lakshmi Mittal,

who runs the ArcelorMittal empire fromhis Berkeley Square offices and is estimatedto be worth more than 15bn.

Second on the list was the Hinduja fami-ly, whose diverse business interests rangefrom wealth management to energy anddefence. Gopi Hinduja joint owner of thefamily group alongside brother Sri attend-ed Fridays award ceremony, and gave atten-dees an insight into his success on anafter-dinner panel discussion alongsideArora hotels founder Surinder Arora andformer Priory Group chief Dr Chai Patel.

A NIGHT TO

CELEBRATEASIANS INBUSINESS

Dinu Bhatessa, founder of Mint Leaf restaurants

The Hinduja Groups Gopi HindujaL-R Business secretary Vince Cable with Ratheesan Yoganathan, CEO of Lebara Mobile; Ramniklal Solanki,editor-in-chief of Eastern Eye; TV presenter Nikki Bedi; and Zarir Cama, group general manager of HSBC

EDITED BY

ELIZABETH FOURNIERGOT A STORY? [email protected]

CITYA.M. 21 MARCH 2011

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DEBT-SADDLED pub chain PunchTaverns will announce plans to splin-ter off its best-performing venturestomorrow, a person familiar with thecompany said yesterday.

Chief executive Ian Dysons long-awaited review of the firm is said tohave considered several options,including spinning off the directlymanaged pubs under the Spirit Group

banner into a separate listed company.This would leave Punch witharound 6,000 leased pubs, whichcould then be closed or sold off to helptackle its 3bn debt pile.

Punchs bondholders and theiradviser Rothschild are also lining upbuyers in case Dyson decides to simplydefault on the loans and hand over thesecuritised pubs.

Spokespeople for the bank andPunch both declined to comment yes-terday.

Dyson expected to splitPunch Taverns into twoBYMARION DAKERSLEISURE


Punch Taverns boss Ian Dyson will unveil a strategic review tomorrow

ANALYSIS l Punch Taverns


78

76

74

72

70

68

66

64

68.9518 Mar

p

Pub group is a tale of two halvesWHICH PUNCH Taverns would youbuy shares in if Ian Dyson goesthrough with his plan to split thefirm in two? The manageddivision which would be renamedSpirits performed admirably inthe twelve weeks to 5 March. Like-for-like sales were up 8.6 per cent,with food adding 11.7 per cent anddrinks 7 per cent. The tradingupdate for the second quarter was

peppered with words like invest-ment, excellence and refurbish-ment.

The leased division tells a moredownbeat tale. Like-for-like net

income was down by 6.1 per cent inthe quarter and 7 per cent over 28weeks, while the trading statementspeaks of disposals and decline.

By way of excuse, the firm prom-ises a strategic review tomorrow.It is clear that Dyson has oneoption: to unleash the managedpubs business, which is well-posi-tioned to capitalise on growing foodsales, while managing the decline

of the tired leased division.

BOTTOMLINEAnalysis by David Crow

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THE Bank of England has defended itspolicy of quantitative easing, arguing

that the 200bn asset-buying pro-gramme successfully propped up themoney supply following the financialcrisis.

Sectoral evidence suggests thatasset purchases are broadly workingvia the balance sheets of householdsand companies to contribute to anincrease in nominal spending, theBank said in its latest quarterly report,published today.

At the start of the recession, banks

licked their wounds by repairing capi-tal and liquidity positions on balancesheets. Such banking sector stabilisa-tion prompted a negative shock tothe money supply to the tune of

160bn, the Bank estimates.Along with post-credit crunch cau-tion over lending, the reduction inmoney movement was offset by thepositive impact of asset purchases onbroad money.

The Banks monetary policy com-mittee (MPC) undertook the purchas-ing of assets in order to increasenominal demand and so inflation,the report says.

The Bank also noted a sharp uptick

in velocity the speed of money circu-lation which some analysts haveclaimed could hold an inflationarythreat for the UK.

Velocity has indeed picked up,

climbing 2.1 per cent during 2010 the largest annual rise since 1979,said Hendersons Simon Ward.

The sudden upturn is in contrast tothe long run downward trendobserved in velocity since the 1980s,the Banks report says.

Meanwhile, banks remain ahead ofschedule in their repayments of loansmade under the Special LiquidityScheme in 2008. Over 94bn of the185bn has already been repaid.

Bank defends success of QEBY JULIAN HARRIS

UK ECONOMY

NEWS | IN BRIEF

Squeeze tightens on householdsHousehold finances have plummeted atthe sharpest rate for two years andthe average amount of cash Britonshave available to spend dropped at arecord rate in March, according to theMarkit household finance index releasedtoday. The slump left households at

their most pessimistic since the surveybegan in February 2009, Markit said.There was also worrying news for thejobs market, as the survey reported thesharpest decline in job security for eightmonths. Furthermore, price pressurescontinue to squeeze British households,with around 82 per cent of respondentsreporting a monthly increase in pricespaid for goods and services. Inflationexpectations dipped only slightly com-pared to Januarys record high.

Rush to avoid hike in stamp dutyMillionaires in London are scrambling tosnap up properties before the rise instamp duty, according to the latestRightmove house price index releasedtoday. Across the whole market in thecapital, asking prices were down 1.5 percent in March on the previous month yet are still up 3.8 per across the quarteras a whole, the survey said. Bonus driv-en buyers and stamp duty savers looking

to invest in bricks and mortar, saidMiles Shipside of Rightmove. Shortagesof quality property remain, resulting inkeen competition and speedy sales in thecapital its a performance thatstruggling estate agents in the rest ofthe country are watching with jealousy.Annualised asking prices rose by just 0.9per cent across the UK, compared to 1.6per cent in London. Average prices in theUK are 231,790, compared to424,307 in the capital.

millionaires:

40,0002008-2010 growth

of millionaires:

18%

millionaires:

14,0002008-2010 growth

of millionaires:

17%

millionaires:

92,0002008-2010 growth

of millionaires:

15%millionaires:

78,0002008-2010 growth

of millionaires:

16%

millionaires:

64,0002008-2010 growth

of millionaires:

16%

millionaires:

44,0002008-2010 growth

of millionaires:

16%

millionaires:

287,0002008-2010 growth

of millionaires:

19%

There are now 619,000 million-aires in the UK, up from528,000 in 2008, new figures

from Barclays Wealth revealedtoday. And 86,000 people in theUK have wealth in excess of5m, its wealth map shows. Themajority (46 per cent) of UK-based millionaires live in Londonand the South East. The numberof millionaires will grow by onethird by 2020, Barclays expects.

Population with wealth in excess of 5mLondon, East and South East:

47,000 peopleSouth West & Wales: 10,000 people

North West: 9,000 people

Yorkshire: 7,000 people

Scotland: 7,000 people

Midlands: 5,000 people

North East: 1,000 people

The number of millionaires in the UK has risen

by 17 per cent since 2008, new data reveals

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City tipped to become UKs biggest recruiter

REPORTS that recruitment acrossthe financial and business servic-es sector will pick up in comingmonths are particularly welcome

given that unemployment hit a 17-year

high last week.It is a sign of increasing confidence

that a new survey indicates the City willbe the UKs biggest recruiter over thenext quarter. Over 1m people already

work in financial services (and a further600,000 in related professional services)with around two-thirds employed out-side London.

The City is playing a vital role in driv-ing the UK recovery and helping createjobs needed to address cutbacks in thepublic sector.

In my visits overseas I am delightedthat we are generally held in highesteem but the City can not be compla-cent if we are to remain strategic part-

ners with key growth markets.That is why, in line with the govern-

ments emphasis on commercial diplo-macy, I am currently promoting ourservices alongside a senior business del-

egation in South East Asia.We have much to offer, and thestakes are high. The City accounts for42bn in net exports, half the UKsdeficit on trade and goods. This positivefigure could increase considerably if westrengthen our financial ties withdeveloping markets such as Malaysia,Taiwan and Vietnam.

There are particularly strong oppor-tunities in green infrastructure and car-bon trading, especially as these

countries have set out to meet strictemissions targets without compromis-ing economic growth.

The UK has valuable experience tooffer across the whole spectrum of

green finance, encompassing banking,investment, legal, consulting andaccounting services. By working togeth-er, we can deliver the mechanismsneeded to overcome bottlenecks thatcould constrain future growth acrossSouth East Asia.

But while I am in the region, of morepressing concern is the current situa-tion in Japan following the recentearthquake and tsunami.

Many people in the City work daily

with colleagues and clients in Japanand our thoughts and prayers are withall those affected. As an engineer mycharity appeal this year supports RedR,the disaster relief charity that trains

and provides experienced humanitari-ans to help in such emergencies. RedRsmembers are currently offering reliefprogrammes on the ground, and tech-nical and relief worker recruitmentservices to organisations responding.

It will be incredibly difficult but I amsure that with international assistancethe Japanese people will recover fromthis terrible tragedy.Michael Bear is Lord Mayor of the City ofLondon

CITY COMMENT

MICHAEL BEAR

BEST OF THE BROKERSANALYSIS lTaylor Wimpey

43

42

41

40

39

38

35

36

37

21 Feb 28 Feb 7 Mar 14 Mar

p39.8818 Mar

TAYLOR WIMPEYDeutsche Bank rates the housebuilderbuy with a target price of 53p. The bro-ker says in its review of the UK buildingsector that the firms recent mortgagedeals with 95 per cent loan to valuecould pave the way for others, easinglending conditions for buyers this year.

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

ANALYSIS lLegal & General Group

124

120

108

112

116

21 Feb 28 Feb 7 Mar 14 Mar

p

109.9018 Mar

LEGAL & GENERALStandard & Poors rates the insurer holdwith a target price of 126p. The brokerexpects cash generation to make only mar-ginal progress in 2011, with the UK deliver-ing flat growth at best. However, it thinksL&Gs invesment management operationhas long-term growth potential.

AFTER the extreme volatilityexperienced last week in theequity, forex and commoditymarkets, following on from the

disastrous earthquake, tsunami andensuing nuclear crisis in Japan, welook set to take another hit on theopen this morning, on the first day oftrading after military action waslaunched against Libya after aceasefire was broken by Gaddafi.

In out-of-hours trading, GFT is fore-casting the UKs FTSE 100 index toopen down 12 points from Fridaysclose at 5,706. The German DAX isquoted to open down 15 points at6,649 and the French CAC is calleddown 10 points at 3,800.

The European bourses had theirbiggest weekly drop since July in the

aftermath of the tragedy in Japan.Despite a joint intervention by the

G7 in the foreign exchange market forthe first time since 2000 in a successfulattempt to halt Japans soaring curren-cy, investors are unlikely to rush backinto equities just yet. Theuncertainties surrounding unrest inthe Middle East and North Africa are

still very much a factor, not least theanxiety that the UK could be enteringa prolonged drawn-out war followingthe commencement of an air assaulton Libya by the Allies. Investors will bewatching developments closely fornews of any retaliation.

The UK budget is announced onWednesday, and although ChancellorOsborne is unlikely to introduce anymaterial changes to existing policy,there is scope for some surprise by wayof a rumoured fuel duty stabiliser oreven merging income tax andNational Insurance.

Elsewhere a plethora of economicdata from the US is scheduled for thenext few days, with existing and newhome sales, durable goods orders, job-less claims and finally GDP on Fridayall adding to the volatile mix.

Martin Slaney is director of globaldealing operations for GFT.

MARTINONTHE MARKETS

MARTIN SLANEY

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INDEBTED companies face a scramblefor capital as they try to refinance$11.5 trillion (7.15 trillion) of loansglobally in the next five years, areport showed today.

But the supply of capital is likely tobe limited, as banks hold nearly$6 trillion of maturing debt and willbe negotiating their own refinancingefforts alongside raising extra regula-tory capital, Deloittes A tale of twocapital markets study found.

UK banks alone hold 500bn ofwholesale term debt due for renewalby the end of 2012 and need to raisetheir core Tier 1 capital ratios to sevenper cent by 2013 to comply with the

Basel III ruling.The collapse of markets for debt

instruments such as collateraliseddebt obligations has also hamperedbanks efforts to lend.

Increased regulatory pressureswill constrain banks abilities to fundtheir lending activities as cheaply asbefore, and will require greater capi-tal to be held against liabilities, saidDeloitte partner and head of debtadvisory, James Douglas.

Almost two-thirds of the debt owedby global banks is due by 2015.

A spike in highly-leveraged buyoutand takeover deals in 2006 and 2007immediately before the financial cri-sis has left many companies bur-dened with high levels of bank debton five-year maturity cycles.

Companies face 7 trilliondebt pile due in five years

BY ALISON LOCKBANKING


EvershedsClive Jones, a partner at the law firm,has been promoted to head of tax in itsLondon office, a role he will take upfrom the start of May this year.

He joined Eversheds in February2008 after 14 years with CliffordChance. He will replace Sue Taylor,who is retiring at the end of this finan-cial year. Jones has particular experi-ence in advising on the tax issuesinvolved in UK and international real

estate and investment structures.

CapcoThe financial services business andtech consultancy has hired GaryGoldberg as a director in its capital

markets team. He will join the firm inorder to develop its prime services andhedge fund clients in the UK.

Goldberg has worked in financialservices for the last 16 years, mostrecently as head of front office tech-nology for BlueCrest Capital.

Ocado GroupSimon Belsham has joined the onlinesupermarket as head of non-food, mov-ing from Tesco, where he was a direc-tor of multichannel development with

a focus on non-food products.At Ocado, Belsham will sit on thegroups management committee andreport to the executive board.

He has also worked previously as aconsultant for Capgemini and receivedan MBA from Harvard Business School.

CITY MOVES | WHOS SWITCHING JOBS Edited by Juliet Samuel

BAE SystemsPaula Rosput Reynolds (pictured) has joined thedefence firms board as a non-executive, anappointment that will take effect from 1 April.Reynolds has spent more than 20 years in the

energy sector, including roles as president andchief executive of AGL Resources in 2002 andSafeco Corporation. She took on the job of vice-chairman and chief restructuring officer ofAmerican International Group in 2008 and isalso a former non-exec of Coca-Cola.

+44 (0)20 7557 7245morganmckinley.com

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

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News 17CITYA.M. 21 MARCH 2011 WORDS BY ROGER BAIRD

The new British Airways boss saysthe business is ready for take-offAfter years of costcutting, and theIberia merger, KeithWilliams wants tofocus on growth

IT is time for a fresh start. That was themessage from Keith Williams, the newboss of British Airways, as he gave City A.M.his first ever interview since becomingchief executive of Britains 37-year-old flag-carrier. One can forgive Williams for want-ing to turn a page: his predecessor WillieWalsh, who has moved upstairs to run BAowner International Airlines Group (IAG),

will be a tough act to follow.Famously pugnacious, Walsh took on

the trade unions in his drive to cut cabincrew costs and piloted the massive mergerwith Iberia, which led to the birth of IAG.

But Williams, who has spent the lastfive years as Walshs chief financial offi-cer, insists there is much work to be done.The airline, he says, is on the cusp of greatthings.

BA is on the edge of some tremendousopportunities due to our merger withIberia and partnership with AmericanAirlines (AA), he says when we meet in asmall pine meeting room in the firmsWaterside headquarters near Heathrow.

BA has not grown for some consider-able period of time. Its time to put somegrowth back into this business.

Williams is in a good position to takethe long view. He first joined the businessin 1998 as group treasurer, and helpedsteady the countrys largest airline duringthe industry slump after the 9/11 terrorattacks three years later.

As CFO, he helped Walsh sell loss-mak-ing units, negotiate BAs tie-ups withIberia and AA, and work out a complexsettlement to pay down its 3.7bn pensiondeficit.

He officially took over from Walsh on 21January. But Williams is keen to explainwhy the business must look beyond theWalsh era.

This has been a ten-year journey, saysWilliams, a small, wiry man with an easymanner.

Over that time the company has beenshrinking. BA had not grown in an indus-try that, despite recessions, has grownglobally at about three to five per cent ayear over the long term.

He points out that when he joined the

firm it employed 65,000; he now heads aworkforce of 36,000.

Over the last decade the business hassold off its German unit, Deutsche BA, itsFrench business, Air Libert, and itsdomestic business BA Connect to concen-trate on what it does best flying businessand first class passengers long- and short-haul. The business is now 15 per centsmaller that it was a decade ago, he says.

But after years of downsizing, Williamsis determined to grow the airline, and hasa 5.5bn pot of cash earmarked for invest-ment over the next five years.

It has put in orders for 24 state-of-the-artBoeing 787 Dreamliners which made itsfirst flight yesterday and 12 AirbusA380s. The firm is also revamping all of itsfirst, business and economy cabins, whichwill include new in-flight entertainmentsystems in all parts of the plane.

There will be new routes as well, includ-

ing a new long-haul flight to Rio deJaneiro and another to Buenos Aires.These two routes provide an insight into

how the BA-Iberia merger will work. Priorto the merger, observers wondered if BAwould leave South American routes toIberia, who are strong in this region.

But Williams is clear that if BA can runa profitable direct route from London itwill do so.

Rio and Buenos Aires are strong point-to-point routes. Demand from London tothese cities is strong. But other routes to,say, Chile, may see passengers fromLondon transfer in Madrid and then fly onfrom there, he expains.

It seems that Williams relationshipwith his opposite number at Iberia, RafaelSnchez, is set to be one that mixes coop-eration with a healthy dose of competi-tion.

BA has its own business plan, andIberia has its own plans, which will be

reviewed by IAG. To some degree I amfighting for resources with Rafael at

Iberia, he says, with a glint in his eye thatsuggests he will relish the battle.

Williams will also be working moreclosely than ever before with AmericanAirlines. Together the pair will run anhourly service between London and NewYork at peak times.

Williams role will be to run the airlineday-to-day and improve its premium prod-ucts, but the allocation of funds and merg-ers and acquisitions will be handled byWalsh and his IAG chairman AntonioVazquez.

As Williams shows us around theWaterside offices, he shares a joke withseveral members of staff along the wayand its easy to believe the reports that heis more easy-going than the combativeWalsh. Is his management style more con-sensual? I think I am fair.

But one issue that will test his equanim-ity to its limits is the two-year cabin crew

strike over pay and manning levels thathas so far led to 22 days of strikes that costthe airline 150m.

Some of the Unite-backed strikers havewelcomed Williams replacement ofWalsh, who has become a hate figure forsome workers.

Williams says he wants to establish aworking relationship with all of thetrade unions, but for those who think hewill be a soft-touch he has a stark warn-ing: I agreed with Willies position on thestrike. The pay and conditions of our cabincrew must be put on a equal footing withthe rest of the industry.

Unite began its fourth ballot for indus-trial action at the start of this month. Thepoll will close at the end of the month,and is expected to come out in favour ofmore strike action.

Williams and his negotiating team metUnite earlier this month for the first timesince the vote was launched. He described

the talks as constructive. But thereseems little sign of a solution in sight. The

truth, though, is that with each strike theairline is able to run increasingly more ofits network. The talks did not includeWalsh, but Williams says, I can call onhim whenever I like. But we have decidedthat industrial issues should lie in theoperating companies.

After two years of record losses, due tothe economic crisis, which saw the firmlose 531m last May and 401m the yearbefore, the airlines finances are now mov-ing in the right direction.

In the first nine months of this finan-cial year, the business turned a pre-taxprofit of 157m, compared to a 531m lossfor the 12 months period last year.

Williams believes this puts the airlinein a strong position. Global airlines tendto closely mirror the world economy. Andto that end he sees strong growthprospects in Latin America, Asia and theMiddle East this year, where the crisis has

had the least impact and where increasingnumbers are flying more regularly.He adds that he sees some growth in

the US but muted growth in Europe ofaround one to two per cent over the next12 months.

But this still provides opportunitiesboth at BA and its parent IAG, saysWilliams. The industry needs consolida-tion, and I hope IAG will be part of that.The industry has to become more global.

In the past, governments have guardedthe independence of flag carriers as sym-bols of national pride. But Williams saysgovernments are less willing to keep writ-ing cheques in these tough economictimes. That could lead to more opportuni-ties for BA as it picks off troubled nationalcarriers.

It has taken ten tough years butWilliams is adamant that BA is ready forthe next stage of its evolution. He wants itto become a predator again. If he and

Walsh pull it off, we will be seeing a lotmore of IAG in the years ahead.

Age: Early fiftiesWork: A chartered accountant at ArthurAndersen and then worked at Boots;Reckitt and Colman; Apple Europe; joinedBritish Airways in 1998 as group treasur-er and tax, promoted to chief financialofficer, became chief executive in 2011

Education: Liverpool University, read his-tory and archaeology and obtained a firstclass honours degree

Family: Married, with two grown up chil-dren

Lives: WindsorHobbies: Works out at his local councilgym, goes to the theatre, movies

CV | KEITH WILLIAMS

British Airways chiefexecutive KeithWilliams in thegrounds outside theairlines Watersideheadquarters nearHeathrow

Picture:Micha Theiner

/City A.M.

BA is on theedge of sometremendousopportunities.Its time toput somegrowth backinto thisbusiness.

BA has itsown businessplan, Iberiahas its ownplans. Tosome degreeI am fightingfor resources

with Iberia.

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THE WEEK AHEAD in association with

COMPANY NEWS

l Campari will be hoping

for a good mix of resultson Monday.

l On Tuesday, CairenEnergy will announce. Theoil and gas explorationand production companywill be hoping to strikegreat results from the ris-ing energy prices.

l The fashion groupInditex will announce onThursday.

l On Thursday,Resolution, the Guernseyinvestment vehicle,announces its results.

l Koenig & Bauerannounces on Friday. It isthe oldest printing press

manufacturer in theworld, founded in 1817.

ECONOMICS NEWS

l Today, US existing

home sales for Februarywill be released, while onWednesday US new homesales will be released.

l CPI figures and publicsector net borrowing fig-ures for February will bereleased on Tuesday.

l Minutes from the 10and 11 March Bank ofEngland meeting will bereleased on Wednesday.With a split established inthe MPC, they will makeinteresting reading.

l On Friday, Germany willrelease its monthly IFOBusiness Climate Surveyfor March. The IFO is oneof the country's and the

wider Eurozones key busi-ness sentiment surveys.

POLITICAL NEWS

l Today, there will be a

public accounts meetingon the 2012 Olympics.Expect more questionsthan answers.

lMembers salaries willbe discussed in the Houseof Commons on Monday.Turkeys wont vote forChristmas.

l The main event is onWednesday when theChancellor GeorgeOsborne delivers thebudget. Expect heateddebate across the floor.

l Lord Lawson of Blabywill lead a debate in theHouse of Lords optimisti-cally titled: Governmentpolicies to promote enter-

prise, growth and rebal-ancing of the economy.

THE TIPSTER

RICE, PIGSOIL AND

CARS

WITH world soft commodityprices rising, there is one thathas been difficult to get expo-sure to rice. Origo, a private

equity investor in China, has acquiredapproximately a 25 per cent stake inChina Rice. This firm, a processing anddistribution group, plans to create anationwide brand associated with goodmargins.

Exposure to the rice market mustsurely be a good thing, with rising Asiandemand and dwindling fresh water sup-plies. It takes 5,000 litres of water togrow a kilo of rice. Spreadex offers aJune price of 41.1p-44.54p.

Entertainment One produces thePeppa Pig cartoons, which generatedover 200m in retail sales in 2010, mak-

ing it the best selling cartoon character.Broker estimates are positive, and couldbe somewhat conservative if Peppa Pigtakes off in the US, where ETO has anagreement with Nick Jr, a kids channel.ETO isn't a one trick pony though, withother popular cartoons such as Ben andHolly's Little Kingdom and police dramaRookie Blue. Spreadex offers a Junequote of 151.3p-153.9p.

AIM-listed oil explorer Gulf KeystonePetroleum saw its share price rocket toan eight month high after significant ini-tial oil flows from its Shaikan block wellin Kurdistan. The stock has since movedover 20 percent to 153p, however moredetailed results will show the true valua-tion of the well. With these fundamen-tals in mind there could be furtherupside. Capital Spreads quotes 151.8p-153.0p.

The impact of the Japanese earth-quake, tsunami and ongoing nuclear cri-sis is starting to be felt on a truly globalscale as supply chain disruption begins tobite. Reports are now circulating thatGeneral Motors has had to suspend pro-duction at some of its factories owing toa parts shortage but with the sharesnow trading below last years IPO price,will cavalier traders be tempted to seekthe buying opportunities? Current IGIndex price on GM is $31.40-$31.48.

Craig Drake

Technology companies reliant onJapanese components could be hit bycurrent uncertainty, says Philip Salter

W

ith nuclear uncertaintyhanging over Japan, sup-ply chains reliant upontechnological compo-

nents made there have been severe-ly disrupted. Japanese exportershave suffered, while companiesreliant upon the country areweighing up their exposure andsearching out alternative suppliers.These are uncertain times for tech-nology companies across theworld.

Sony, Hitachi, Fujitsu, and manyother Japanese technology compa-nies have taken a serious hit, shut-ting factories across the country. Itis not just a matter of productionbut physically being able to getthem out, as the country facespower cuts and transport prob-lems says Angus Campbell ofLondon Capital Group. Across Asia,companies reliant on Japan havebeen impacted Toyota Motor inThailand has slowed productiondue to a bottleneck of supplies.

Beyond the region, focus hasshifted to technology companiesreliant upon components fromJapan. Protective polarizer film forLCDs is only made in Japan, whilefor many other componentsJapanese production dominates.The country makes 90 per cent ofthe worlds Bismaleimide Triazine(BT) resin, used in chips and circuitboards and so important in mobile

devices, which is of particular con-cern. Companies reliant on NANDflash chips, DRAM microcon-trollers and LCD panels are also

being evaluated.The Dax index has been hit by

the crisis. As Alastair McCaig ofWorldSpreads says, the DAX isseen as an indirect way of invest-ing in Asia because of the exten-sive exports of the Germantmanufacturers that make up thisindex. The aftermath of the earth-quake has added to existing con-cerns of rising oil prices with theDax down 9.5 per cent from its 18February high. The Dax volatilityindex hit its highest level in ninemonths last Tuesday.

The Nasdaq 100, the tech heavyUS stock index, should also bewatched closely. Last Monday itdropped a little (0.5 per cent),although it has since recovered. Ifsentiment changes, or events inJapan take a turn for the worse,both could take a tumble.

The Fukushima Daiichi nuclearplants alert level was upgraded onFriday, with Frances nuclear safetyauthority especially worried. Therewere some signs of improvementon Sunday, however. Hopefully, thetechnologically savvy Japanese willbe able to contain the crisis. If itgets worse, however, global tech-nology firms will suffer even moredisruption in their supply chains.

Wealth Management | Spread Betting18 CITYA.M. 21 MARCH 2011

Nuclear risk

threatenssupply chain

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THE latest turmoil in the Middle East has sparkeda rally in oil prices, introducing daily changes andoverall volatility we havent seen since 2008. Itsonly in the last few years that oil trading became

readily available to retail traders, allowing us to bene-fit from changes in price, if we get it right.

Oil prices are driven by both technical and funda-

mental factors. The difference between oil productionand consumption is around 1 per cent thats it.Therefore any potential change to supply or demandhas an immediate effect on price, especially when acountry like Saudi Arabia producing around 10 percent of the worlds oil suffers from internal unrest.

We have two main oil contracts traded on worldexchanges. West Texas Intermediate (WTI) oil,sourced in the US for domestic consumption, andBrent crude, sourced in the North Sea and serving asthe global benchmark for the physical trading of oil.

As a result, one strategy that can be employed iscalled the WTI-Brent arb. When trading is in busi-ness-as-usual mode the difference between the twocontracts tends to remain roughly constant. Thatmeans it is possible for a diligent trader to identifywhen this equilibrium is broken and accordingly tradethe two contracts in different directions until equilibri-um is restored and extract a profit.

Another way, which may bear more risk, is to chal-lenge this equilibrium based on fundamental events.The current turmoil in the Middle East may affect pro-duction and therefore could cause the Brent price torise, but why would WTI rise with it when the latteris produced and consumed in the US? WTI might beexpected to go up, yet should it rise at the same rateas Brent?

If you want to learn more, join us this Wednesdayat 2.30pm for

cityam 2011-03-21

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