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www.cityam.comIssue 1,360 Friday 8 April 2011 FREE

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Dimon wins

$21m in payJPMORGAN Chase chief executiveJamie Dimon received $20.8m(12.7m) in pay and benefits includ-ing a $5m cash bonus last year, regu-latory f ilings showed yesterday.

Dimons base salary stayed at $1mbut he received $14.2m in shares, giv-ing him an overall 51 per cent payrise from the $15.2m he received in2009.

Filings with US regulator theSecurities and Exchange Commissiondisclosed that Dimon received $8min stock awards and options worth$6.2m.

The bonus is his first since 2007,after JP Morgan bowed to pressurefrom regulators and US authoritiesduring the financial crisis. JPMorgans net income jumped 48 percent to $17.4bn in 2010 as its invest-ment banking performanceimproved.

BY ALISON LOCK

BANKING

Ed Milibandslams banks

LABOUR leader Ed Miliband accused

banks of failing British industry andexploiting their customers in anincendiary speech yesterday.

Calling on the government toreform the banking system, Milibandattacked banks as institutions thatderive massive profits from specula-tion and said they were failing to pro-vide funding to businesses.

His speech to the British Chambersof Commerce, just days before theIndependent Banking Commissionpublishes its recommendations, setout clearly Labours continuingappetite for bashing the UKs banks.

British industry has been failed bythe banking system for too long, hesaid. Britains banking sector hasbecome just too disconnected fromthe communities and businesses itserves. BCC CONFERENCE: P7

BY ALISON LOCK

POLITICS

DEFAULT ZONFRESH worries about the viabilityof the euro surfaced yesterday asthe ECB became the first majorcentral bank to hike interest ratesfrom historic lows, raising the baserate from one to 1.25 per cent.

The Institute of Directors (IoD)said that a euro break-up is proba-bly the number one macroeconom-ic risk to the world economy atpresent, adding that bailouts willbe in vain if peripheral economiescannot improve their competitive-ness quickly enough to avoiddefaulting and exiting the euro.

Portuguese banks closed up butmarkets reversed part of an initialrelief rally in Portuguese bonds yes-terday: yields on Lisbons five-yeardebt fell to 9.65 per cent beforeending the day at 9.85 per cent.

And Spanish economy ministerElena Salgado was forced to declarethat further contagion wasabsolutely ruled out as Madridsold 4.13bn of three-year debt.

Spain saw yields fall, but econo-mists warned that the Eurozonecrisis is far from over, with IoDchief economist Graeme Leach say-ing that the euro would now face aday of reckoning and that fiveyears from now, the euro is veryunlikely to have survived in its cur-rent form.

There are fears that Jean-ClaudeTrichets rate hike will expose thegulf between the Eurozones high-growth core in Germany and itscash-strapped peripheraleconomies where high unemploy-ment, rising inflation and a hang-over of mortgage exposure arepiling pressure onto consumers.

Debt investors are still pricing ina high probability of default in

Portugal, Ireland and Greece.Credit default swap markets see a58 per cent chance of a Greekdefault; 37 per cent of an Irishdefault; and 33 per cent of aPortuguese default in the next fiveyears.

But Brussels is still in denialabout the possibility of restructur-ing: Its unmentionable for policy-makers, says Kevin Dunning of theEconomist Intelligence Unit. Theirline is that restructuring is nothappening because theyre terri-fied of a new financial crisis.

A default among any of theperipheral economies wouldalmost certainly trigger the needfor a recapitalisation of domesticbanks due to their heavy exposureto sovereign debt.

And Europe does not have a planfor how to handle a default, withmany sceptical that it will be possi-ble to unwind a sovereign state inan orderly fashion without sendingthe single currency into turmoil,even after the establishment of apermanent bailout fund in 2013.

Policy Exchanges Andrew Lilicohas even suggested that the ECBitself could be in danger: We areapproaching the point at which abank will become at risk that even Iwould support bailing out: theECB, he said.

As sovereign debt in the bailed-out economies matures, the EUwill become liable for an increas-ing load of their debt, whichmeans that any defaults will hitthe finances of the Eurosystemdirectly.

A restructuring of debt is a polit-ical decision, says Dunning.Ultimately, someone has to pay,whether its the Germans, thePortuguese or the ECB.

MORE: P2-P3

BY JULIET SAMUELEUROZONE CRISIS

Trichet hikes interestrates and signals morerises in the near future

Growing fears thatdebt crisis could provedeadly for Eurozone

All eyes on Spain asMadrid insists there isno need for a bailout

HOW TO MAKE MONEYFROM THE OLYMPICS

ECB president Jean-Claude Trichet hiked interest rates by one quarter of a per cent

GUIDE TO RENTING OUT YOUR HOUSE P20

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INTEREST rates in the UK have nowbeen kept at a historic low for over twoyears, after the Bank of England votedfor no change yesterday.

The Banks monetary policy commit-tee voted to keep rates at their emer-gency low of 0.5 per cent. Its policy onquantitative easing also remainsunchanged.

Despite inflation of 4.4 per cent well above the 2.6 per cent in theEurozone Mervyn Kings committeecontinues to resist any normalisationof the Bank rate.

Nevertheless, we continue to expectthe committee to hike in the next fewmonths, said Citigroups MichaelSaunders.

Eurozone in crisis2 CITYA.M. 8 APRIL 2011

One size fits allEurozone is set

for total failure

WHAT a horrible mess. Portugal isbroke and begging for a bailout, yetJean-Claude Trichet, the EuropeanCentral Banks (ECB) president, choseyesterday to hike interest rates by aquarter point. It hasnt exactly been a

good week for the Eurozone, which isfacing a slow-motion, ever worseningexistential crisis that could end updestroying it and triggering anotherrecession. While the euro was alwaysa f lawed idea, its uncontrolled implo-sion would not be good news for theUK, which would get caught up in thechaos. Already, the UK governmentsliabilities could hit 4bn in aPortuguese bail-out, including addi-tional UK IMF contributions. WhileUK taxpayers are tightening theirbelts, they are now being asked tobail-out their Portuguese counter-parts, who have refused to pushthrough an austerity package. This iswrong and should be resisted.

Given the fragile state of theregion, why did Trichet hike rates?Simple: the ECBs mission is to stopinflation. The March estimate showedEurozone prices increasing by 2.6 percent in March, well ahead of the ECBsinflation target. The ECB was especial-ly worried about evidence of upwardpressure on German wages.

Germanys economy is booming,with GDP increasing 3.5 per cent in2010. Yet the Irish economy contract-

EDITORS LETTER

ALLISTER HEATH

FEARS for the Eurozones strugglingperipheral nations were heightenedyesterday, after the European CentralBank hiked interest rates by onequarter of a per cent.

Even a small rise in rates and itseffect in supporting the euroexchange rate will onlypile furtherpressure on the uncompetitive, debt-laden peripheral economies, com-mented Ben May of Capital

Economics.The potential hit to the weaker

Eurozone states was reflected in apoll of Irish businesses. Almost three-quarters (73 per cent) expect to behurt by higher rates, a survey by KBCBank and Chartered Accountants ofIreland revealed yesterday.

Monetary policy remains accom-modative, ECB president Trichet

said yesterday, stressing that theBank will monitor very closelyprice risks.

However, Trichet said hiking themain refinancing rate to 1.25 percent was not necessarily a first inthe series. Rates had been at theirhistoric low of one per cent for closeto two years, and were widely antici-pated to rise at yesterdays meeting.

The euro initially dipped againstthe dollar after Trichets comments,yet subsequently recovered

There is increasing risk that the

ECB might go with the next 0.25 percent hike before July and that fur-ther rate hikes might follow in thereminder of the year, commentedCitigroup economist Jrgen Michels.

Consumer price inflation is run-ning at 2.6 per cent across the singlecurrency area, while core economiessuch as in Germany and France arerecovering strongly.

ECB rate hikepiles pressureon periphery

Spain

Portugal

Ireland

ed by 1.6 per cent in the final quarterof 2010 and is forecast to grow by lessthan one per cent this year. The out-look for Greece is worse: GDP shrunkby 3.9 per cent last year. The situationin Portugal is grim. It makes sense tohike rates in Germany. But it makesno sense to do so in Portugal orIreland. Because of the euros one sizefits all interest rates, the peripherycountries are being sacrificed.

The creation of the euro alsohelped contribute to the bubble.During the noughties, the yield pre-mium to compensate for the risk ofinvesting in euro-denominated bondsissued by a weak country comparedwith those issued by a strong country

kept on narrowing. Investors startedto believe that there was a singleEuropean government, and that thismeant than any debt denominated ineuros was safe. It was thus claimedthat the single currency had achieveda beautiful free lunch: lower interestrates for all countries, without dam-aging the credit of strong countriessuch as Germany. But the low rates inperiphery countries, including Spainand Ireland, helped fuel propertybubbles. They certainly explain mostof Irelands problems. In the case ofPortugal, as well as Italy, the issue islabour costs: those countries havepriced themselves out of global mar-kets. The only solution is to do whatGermany did over the past 15 yearsand to tighten their belts, reducetheir wage costs and boost their pro-ductivity. In the past, this could beachieved by devaluing (as the UK isdoing at the present time) but mem-bership of the euro rules that out.

The last thing we need is a tempo-rary, bridge loan to Portugal. Thiswould be a recipe for disaster: no con-ditions could credibly be imposedgiven the temporary nature ofPortugals government, and it wouldbe seen as the necessary precursor toa larger financial package. By increas-ing the amount of debt Portugal istaking on, it would bolster the moralhazard of the whole exercise withoutsolving any problems. The ECBs pur-chases of junk sovereign bonds tokeep yields under control is equallydangerous: it has already bought77bn but any haircut would triggermassive losses for the ECB, jeopardis-ing its solvency and requiring addi-tional equity from governments. Thiswould likely trigger a constitutional

crisis and force another treaty.There is only one viable way for-ward. The UK should refuse to bailout Portugal. The Eurozone shouldacknowledge that Portugal, Greeceand Ireland stand no hope of repay-ing all their debt. A plan should bedevised to allow a controlled, gradualwrite-off of a large chunk of the debt.Financial institutions ought to begiven time to raise more capital; inextremis, the authorities shouldimpose compulsory debt to equityswaps, triggering bail-ins and recapi-talising without requiring taxpayerscash. The weaker Eurozone countriesshould then be given a choice: eitherthey push through radical measuresto liberalise their economies, balancetheir budgets and boost their compet-itiveness or they are kicked out ofthe euro. It is high time we stoppedthrowing good money after bad.

[email protected] me on Twitter: @allisterheath

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

Business Features Editor Marc SidwellLifestyle Editor Zoe StrimpelSports Editor Frank DalleresArt Director Craig GaymerPictures Alice Hepple

CommercialSales Director Jeremy SlatteryCommercial Director Harry OwenHead of Distribution Nick Owen

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BY JULIAN HARRIS

EUROZONE ECONOMY

MADOFF SEEKS TO SPREAD BLAMEFOR FRAUDBernard Madoff sought to spreadblame for his $65bn Ponzi scheme tobanks, regulators and some of his old-est business associates in a ramblingjailhouse interview with the FT. Thedisgraced financier offered little evi-dence for his claims and admitted hehad lied to investors and relatives forat least 16 years.

TOP TOGNUM INVESTORS REJECT3.2BN OFFERTognums largest institutionalinvestors have dismissed Daimlersand Rolls-Royces 3.2bn (2.8bn) offerfor the German engine maker, inten-

sifying the pressure on the bidders toraise their price.

LIBYA FORCES DAVID CAMERON TORETHINK DEFENCE CUTSDavid Cameron is reconsidering theCoalitions defence cuts in the lightof the conflict in Libya, The DailyTelegraph has learnt. The PrimeMinister is actively engaged in areassessment of Britains militarycapabilities and planned reductionsin equipment and manpower.

BP AIMS TO BREAK RUSSIA DEADLOCKBP and its four Russian billionairepartners will hold a board meeting oftheir joint venture, TNK-BP, in anattempt to break the deadlock over abitter dispute. The two sides havebeen fighting over BPs attempt to

swap 5bn of shares and explore theArctic with Rosneft.

MINISTERS DEFY THEIR EXPERTS TOKILL SERIOUS FRAUD OFFICEThe Government is pushing aheadwith plans to abolish the SeriousFraud Office and hand responsibili-ties to the Crown Prosecution Service,despite fears among City lawyers thatthe move would undermine confi-dence in Londons financial markets,according to documents seen by TheTimes.

YOUTUBE PLANS ONLINE TV CHANNELSYouTube is planning to spend tens ofmillions of dollars producing originalonline content, catering to the grow-ing numbers of people who watchtheir television through their com-

puter rather than their living-roomtelevision sets.

WHAT THE OTHER PAPERS SAY THIS MORNING

THE Spanish arm of Barclays is toundertake a 1.3bn (1.1bn) capitalhike to meet new Bank of Spain mini-mum solvency ratios, the bank saidyesterday.

The parent bank will subscribe tothe entire increase, a spokesman forBarclays Spain said.

The board approved the capitalincrease to meet new capital require-ments in Spain, said a spokesman forBarclays in London.

Spain has demanded banks raisetheir core capital solvency ratios toreassure markets of the stability of itsfinancial system after a housingboom and bust left bankrupt proper-ty developers owing billions of euros.

Spains Central Bank said in Marchthat among a number of lendersBarclays Spain did not meet new cap-ital requirements, falling short by552m.

Barclays said at the time that itwould be in compliance by theSeptember deadline and that therewould be no need to raise any exter-nal capital.

Barclays opened its first office inSpain in 1974. It is the countryslargest foreign bank with more than590 branches and nearly 1m cus-tomers.

Barclays Corporate made heavylosses in Spain last year, where corpo-rate bad debts more than trebled to898m due to losses in the propertyand construction sector.

Barclays to add 1.3bnto Spanish units capital

BANKING

BoE holds at0.5 per cent

PORTUGALJOSE Socrates (pictured) asked the

European Commission for financial h

deal with the countrys soar

pile yesterday. Eurozone f

UK ECONOMY

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Greece

Eurozone in crisis 3CITYA.M. 8 APRIL 2011

Q.WHAT HAPPENSNEXT?A.As with Greeceand Ireland, theEurogroup ofEurozone finance min-isters will send the Troika represen-tatives of the European Central Bank,the International Monetary Fund andthe European Commission to

Portugal. Over three to four weeksthey will assess the size of the bailoutneeded and any conditions likely tobe placed on it.

Q.HOW MUCH WILL IT NEED?

A.An85bn (74bn) bailout isexpected. This includes 60bn tomop up government bonds and avoidfurther refinancing until 2013; 10bnto recapitalise its banks and 14bn tofinance state-owned companies.

Q.WHEN IS THE FUNDING LIKELY TOBE GIVEN?A.It should take two weeks fromapproval of funding to receipt ofthe money so Portugal shouldreceive the aid by the end of May.

Q.WHAT WOULD HAPPEN IFPORTUGAL DEFAULTED?A.

Its estimated $200bn (123bn) ofexternal debt would become

worthless. This could cause diff icul-ties for holders of the debt such asbanks in Spain, Germany, France andthe UK. A default may also hinder theinter-bank lending markets, whichcould again cause problems forEuropean banks. Portugals banks aremost vulnerable they own almost20bn of government debt. This haslargely been funded through borrow-ing from the ECB, which means it toowould bear losses.

QA&

FACT CHECKER | WITH JULIET SAMUEL

IS SPAIN next? seemed to be thequestion on every economists lipsthis week even before Portugal bowedto the inevitable. A Spanish bailoutwould swamp the current 440bnbailout fund and could take the sin-gle currency with it.

But there are good reasons to thinkthat the debt contagion will stopshort of Madrid. Spain has begun aconvincing crackdown on spendingand brought its deficit down to 9.2per cent of GDP last year (only five percent of which was from central gov-ernment, the rest being regional)from 11.1 per cent in 2009. It has tar-geted three per cent in 2013.

And markets are abuzz with talk of

Spain decoupling from the rest ofthe floundering periphery: whileLisbons five-year yields were scalingnew heights at 10.2 per cent this week,Spains equivalent interest rose onlyslightly to 4.4 per cent, a trend that hasprompted suggestions that Madrid hasbroken free of the peripherals curse.

But there is still at least one bigunknown hanging over Spains recov-ery: the banks. While the nationalbanks are only 15bn short of thecapital needed to meet Basel III rules,the cajas are said to be short 50bn.And there are fears that as higher ECBrates pile pressure onto mortgage-holders, this could multiply to as highas 120bn, or eight per cent of GDP.

THE VERDICT | NOT YET

Optimists point out that eight percent is a far cry from the yawninghole in Irelands bank balance sheetsthat has reached a stunning 45 percent of GDP. Evolution Securities callsSpanish banks shortfalls manage-able, even with some slowdown ingrowth. But the true size of the holein Ireland only became apparent over

months of upwards revisions andproclamations that it surely could notget any worse.

Newedges Bill Blain says he is wor-ried: We suspect the countrys banksare going to struggle with propertylending... and that Spains optimisticestimates of a mere 15bn bank capi-tal will prove well short of the mark.

PORTUGALS capitulation has boughtbreathing space for the Eurozone,and an immediate spread of thepanic to Spain is unlikely.

But the sovereign crisis is far fromover, with markets still anticipatingperipheral defaults.

After months of over-promising

and delivering half-measures, the keyquestion euro leaders have to answeris why Spain shouldnt be next.

Even deficit reduction and steadygrowth wont save Madrid from amarket panic if the insolvent periph-erals exhaust the patience and fundsof Europes paymaster economies.

THE CLAIM: SPAIN WILL BE BAILED OUT NEXT

CITY VIEWS: SHOULD THE UK CONTRIBUTE TO A PORTUGAL BAILOUT?Interviews by Robert Leedham

No. They are part of theEurozone so I expect theEurozone to bail them

out, not us.

ADAM WHITE | BANK OF IRELAND

No. I think countries should look afterthemselves. Individuals pay taxes andvote for their laws: why help them

out for bad choices?

CAJETAN FURTADO | JUBILEE INSURANCE

No. We are trying to put our house in order at the moment. We shouldn't have to be doingthe same for someone else. The timing of it on Black Wednesday wasn't great either.

NEIL MCMANUS | TOWERGATE

EUROSCEPTICS have told PrimeMinister David Cameron to find a way

to avoid stumping up billions forPortugals bailout costs.

Backbench Tory MP DouglasCarswell has said that the cost is unac-ceptable in the context of cuts athome: Therell be many MPs on theirEaster recess this month explaining tovoters on the doorstep why there aregoing to be cutbacks in public servicesto save a few million pounds. So why

the heck are we handing over billionsto Portugal? he said.

Britain is liable for up to an estimat-ed 4bn under article 122 of the

Lisbon treaty, which was originallymeant to aid other countries in theevent of natural disasters. It has nowbeen stretched to include economiccatastrophes.

Tory MEP Martin Callanan has alsosaid that the situation with Portugal isvery different from Irelands predica-ment because Lisbon is a minor tradepartner for the UK, unlike Ireland.

Fury over UK Lisbon costPOLITICS

IRELAND

PRIME minister Enda Kenny said his government was in talks

with the EU over renegotiating the terms of its 67.5bn (59bn)

bailout yesterday. Ireland is paying six per cent interest on the

loans, which were negotiated by the previous government.

The news added to concern that the European Central

Banks interest rate rise could make it harder for Ireland

to meet its debt repayments.

SPAIN

SPAIN, led by Jos Luis Rodrguez Zapatero (pictured) r ubbished

claims it would be the next Eurozone state to need a bailout yester-

day. Economy minister Elena Salgado said tough economic reforms

would stop it following Portugal. With 20.5 per cent unem-

ployment and a yawning budget deficit there are grow-

ing concerns about its fi nances, but governments

praised steps taken to cut its public spending to date.

GREECE

GREECE, led by George Papandreou,

said it hoped sweeping reforms and

its mid-term budget would convince

markets of its economic recovery

yesterday. Investors have called for it

to restructure 340bn

(298bn) sovereign debt

but the government ruled

out the option as the cost

would be prohibitive. It is

seen as vulnerable

to interest rate

rises that could

push borrowing

costs unsustain-

ably high.

will discuss the request at a meeting in

and severe austerity measures are expected to

d on the country as conditions of the rescue.

current caretaker government may have to be

bridging loan until an election is held in June.

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EXECUTIVES at Barclays are preparingfor a disaster scenario when theIndependent Commission on Banking(ICB) releases its interim report onMonday, which could involve an ultrahard-line ring-fencing of bank func-tions.

Banks are said to be petrified thatthe report could signal a major indus-try overhaul. In pre-briefings thisweek, analysts have been told that ahard-line model could stop just shortof breaking up ownership of retail and

investment banks, but could imposerestrictions on cross-selling financialproducts between subsidiaries.

That would mean, for example, thata retail bank would not be able tohedge its sale of a variable-rate mort-gage by buying an interest rate swapfrom its investment banking arm, orthat it would have to demonstrate thatit was doing so on the products meritsalone, rather than because of a wide-spread culture of cross-selling.

Analysts at Societe Generale estimat-

ed this week that full subsidiarisa-tion... could reduce [Barclays] groupprofits by circa 30 per cent slic-ing 2bn off the banks bottomline.

However, other analysts thinkthat such a harsh approach is ulti-mately unlikely, even if the ICB laysout the possibility on Monday.

The banks have secured a minorconcession that allows them toview the report half an hour beforeit is published at 7am, but this willprobably not give them time to pro-duce much more than a genericstatement before markets open.

JAPAN was hit by another seriousearthquake yesterday, causing a tsuna-mi warning to be issued and shockingstock markets.

The 7.4 magnitude aftershock hitthe same devastated north-easterncoastal area as the 11 March quake.

Stocks slumped in London andEurope as news of the quake reachedmarkets, but the retreat seemed to beoverblown, as reports showed little fur-ther damage to the region.

Japan tremorworries markets

BY JULIET SAMUEL

BANKING

WORLD ECONOMY

News4 CITYA.M. 8 APRIL 2011

ANALYSIS l Barclaysp

27 Jan 16 Feb 7 Mar 25 Mar

340

320

300

280

302.307 Apr

Top to bottom: RBS chief Stephen Hester, Barclays chief Bob Diamond and HSBC chiefStuart Gulliver are on tenterhooks awaiting the interim findings of the commission

Banks said tobe petrifiedby ICB report

THE MERGER between NYSE Euronextand German exchange Deutsche

Boerse would leave Europe bearingthe bulk of cost cuts, regulatory fil-ings showed yesterday.

The filings with US regulator theSecurities and Exchange Commissionshowed talks between the two chiefexecutives started in August last year.

But it showed that most of the300m of cost savings would comefrom cuts to European cash and deriv-atives trading markets, such asAmsterdam and Lisbon.

Exchange mergerwould hit Europe

FINANCIAL MARKETS

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Jobless claims down in the USThe US economy appears to be holdingsteadily to its growth path, as initialclaims for unemployment benefits fell by10,000 to 382,000, official datarevealed yesterday.

Migration rules could hit financeFive in ten financial executives plan tohire a non-EU migrant worker in the firsthalf of 2011 and four in ten think that theimmigration cap will negatively impacttheir business, according to a survey byRobert Half, a financial recruitment con-sultancy.

Real UK debt is 3.6 trillionThe true level of the UK government debtincluding hidden liabilities (public pen-

sions, PFI and Network Rail) peaked at3.6 trillion in February - the equivalentof 138,359 for every household in thecountry, the Centre for Policies Studiesclaimed yesterday.

Denmark mirrors ECB rates hikeDenmarks central bank hiked its lendingrate by 0.25 to 1.30 per cent yesterday,mirroring the European Central Banksinterest rate increase on the main re-financing operations by 0.25 per cent to1.25 per cent.

US consumer debt rises 3.8pcConsumer debt in the United States roseat an annual rate of 3.8 per cent duringFebruary, the Federal Reserve said yes-terday - up from 2.2 per cent in January.

CHANCELLOR George Osborne clashedwith opposition leader Ed Milibandyesterday over the cuts to the UKsannual government deficit.

If you hear the stories about thecuts and still wonder why our countryneeds to take these difficult decisions,then look at what is happening

around us first Greece, then Ireland,today Portugal, Osborne told theBritish Chambers of Commerce (BCC)conference in Westminster yesterday.

Those in our country who deny theurgent need to deal with our deficitare playing Russian roulette withBritains national sovereignty, thechancellor added.

Miliband hit back: If we were inGovernment we would have halved

the deficit over four years, he said.Slower cuts would boost growth and

help businesses, Miliband argued,although his stance was rejected bythe BCC.

There are those that say we shouldtake longer to bring down our nation-al debt. I dont think so, and neitherdo the businesses I talk to the lengthand breadth of the country, said BCCchief David Frost.

Portugal crisis showsthreat to UK: OsborneBY JULIAN HARRIS

UK ECONOMY

GERMANYS economy is growing atalmost twice the Eurozone average in2011, economists forecast yesterday,after another week of positive data.

Industrial output was up 1.4 percent in February compared toJanuary, official data from theGerman ministry of economy showedyesterday.

The good news for Germany con-

tinues, said Markits ChrisWilliamson. The country looks to beon course for its economy to havegrown by 1.5 per cent in the firstquarter, almost double the 0.8 percent growth rate we expect to see forthe Eurozone as a whole.

In neighbouring France, the tradedeficit for February increased for thefourth consecutive month, reaching arecord high of6.55bn (5.73bn), fig-ures showed yesterday.

Industrial output anotherboon for German growth

EUROZONE ECONOMY

News 7CITYA.M. 8 APRIL 2011

NEWS | IN BRIEF

EXCESSIVE regulation was widelyattacked at a meeting of businessgroups yesterday in Westminster, asthe coalition launched its red tapechallenge in a move to boost growth.

Business secretary Vince Cableurged businesses to direct the govern-ment towards harmful legislation.

If a minister cannot then justifythe regulations, theyve got to go,Cable told the British Chambers ofCommerce (BCC) conference.

Yet moments after Cable addressed

the conference, his coalition govern-ment announced a hike to the mini-

mum wage, drawing criticism fromthe BCC.

The rise of 15p an hour, to 6.08,was the wrong increase, at thewrong time, BCC chief David Frostsaid. Minimum rates for young peo-ple were also moved up. We cantafford to price young people out ofwork, Frost said.

Meanwhile, planning restrictionswere described as the biggest singledrag on growth by communitiesminister Eric Pickles.

Pledge to cut red tape yetminimum wage increased

UK ECONOMY

UK productivityfell at 2010 end

UK ECONOMY

PRODUCTIVITY in the UK fell by 0.3per cent in the final three months ofthe year compared to the previousquarter, officials said yesterday.

Compared to the final quarter of2009, productivity was up by 0.8 percent, according to the measure of out-put per worker.

Meanwhile, separate data fromExperian showed that insolvenciesfell by 12.5 per cent in February on anannualised basis.

Chancellor George Osborne (left) andLabour leader Ed Miliband (above) clashedover the deficit, while Vince Cable (right)launched the Red Tape Challenge scheme

Lord Wolfson (right) attacked the UKsslow, Luddite planning scheme, whichEric Pickles MP (above) described as thesingle biggest drag on economic growth

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DRASTIC reforms to gambling laws inGermany caused online sports mediafirm Perform to delay the pricing of itsLondon listing yesterday, though thefirm is still due to begin trading today.

The group last night priced its initialpublic offering (IPO) at 260p per share,after stalling to consult investors overthe German ruling.

Germanys proposals set out earlierthis week include plans to tax sportsbetting from next year at 16 per centof turnover, and a ban on in-gamewagers.

Perform, which provides onlinebookmakers with live video streams ofsporting events, told investors its rev-enues would not be hit in the short to

medium term by the plans.Germany was forced to make

changes to its gambling laws, whichcurrently protect its states Lotto bet-ting monopolies, following a European

Court of Justice decision.Private firms can now apply

for seven national licensesfor sports bets, with theadded tax caveat and ban onlive-play bets.

Perform had tightened theprice range to between 260pand 280p per share, aftertough market conditionsforced it to abandon ahigher bracket ofbetween 255pand 325p.

The firmwill bring innet proceedsof 67.5mthrough ap r i m a r yshare offer,

increasingits marketcapitalisa-tion to586m.

Russian-American billionaireLen Blavatniks Access Industries,which owns 58 per cent of thefirm, will net up to 40mthrough the sale of some of itsexisting stock.

Access will retain 45.3 percent, while management willown a 23.1 per cent stake in the

company.Performs chief

executive OliverSlipper said:This is theright time inour develop-ment to moveto the publicmarkets.

Perform lists despiteeleventh hour delayBYRICHARD PARTINGTON

MEDIA

SHARES in the newly merged onlinebetting group Bwin.party plunged yes-terday, after it lashed out at theGerman government for its proposedgambling laws.

Trading in London as a united entityfollowing the tie-up between Austrianbookmaker Bwin and online poker sitePartyGaming since just last week, thegroup fell by almost 15 per cent yester-day.

The chief executive of the bookmak-er Norbert Teufelberger hit out at theGerman government, saying reformsfail to deliver a successful regulatoryframework for online gaming becauseof an uncommercial fiscal regime.

He said a plans for a tax on sportsbetting from next year at 16 per cent ofturnover, as well as a ban on in-gamewagers, would make it impossible forthe firm to be competitive in the coun-

try.He added: We trust that these pro-posals will undergo the necessary cor-rections so that the new regulationswill govern the entire German marketin a coherent and consistent manner

in line with EU law.Analyst at Daniel Stewart Michael

Campbell said: Nowhere in the mar-ket is there an operator that makesthat sort of margin on their sportsbook.

I remain hopeful that things willchange. Hopefully well see a sensibleregime that will head in sensible direc-tion in taxing online operations.

Campbell added that he still viewedBwin.party as an attractive stock,despite any impact the German regula-tory regime could have.

I think its pretty cheap, I think itsstill attractive even if you stripGermany out, he said.

BYRICHARD PARTINGTON

LEISURE

Bookmaker blastsGerman betting law


NEWS | IN BRIEF

US wine sales boost ConstellationWine and spirits maker ConstellationBrands yesterday forecast full-year profitabove Wall Streets view and announced anew stock buyback program. The worldslargest branded winemaker, whose portfo-lio includes Robert Mondavi and Clos duBois, also said growth in its NorthAmerican wine business and strong salesof Svedka vodka contributed to better-than-expected results for the fiscal fourthquarter. Constellation forecast adjusted

earnings per share of $1.90-$2 (1.16-1.22) for the year ending February 2012.

Newmont pays gold price dividendGold producer Newmont Mining will paya dividend linked to gold prices toattract investors who have been flockingto exchange traded funds (ETFs) as bul-lion prices soar, its chief executive saidyesterday. Newmont said it expects topay its first such dividend on 29 June,based on the No. 2 gold producers aver-age realised gold price for the precedingquarter. It paid a quarterly dividend of15 cents (9p) per share on 30 March.

Newmont also said it aims to raise goldoutput by more than a third by 2017.

Online gamblers hit by regulatoryminefield and populist politiciansBEFORE banker-bashing came along,gambling was the populist issue thatmost politicians turned to whenthey wanted a boost in the polls.

One of the first things GordonBrown did on becoming PrimeMinister was ditch plans for a LasVegas-style super-casino inManchester, earning him plauditsfrom reactionaries everywhere.

Now Germanys 16 Lander or fed-eral states are discussing newonline legislation that proposes,among other restrictions, a 16.7 percent sports wager tax that wouldeffectively prevent Bwin from mak-ing a decent return. It will bemonths maybe years until theeffect of the new rules on Bwin isfully known.

The legislation is sure to be chal-lenged by Bwin and its rivals, andmaybe even the EU, although therules could still be adopted by nextyear.

However, one thing is clear: theonline gambling business will

always be laced with regulatorymines that could be detonated atany minute by opportunist politi-cians.

In the US, online gambling hasbeen banned since 2006, with veryfew exceptions despite the WorldTrade Organisation ruling that it is

in violation of its treaty obligations.There are attempts to ease rules inNevada, along with Iowa, Californiaand Florida, although there is noguarantee that any changes will belong-lived.

Elsewhere, there is little chance ofany real relaxation of rules. InAustralia, interactive gambling isillegal, while any form of gamblingin Russia, China or Japan is notallowed. In India where the gam-bling market is worth some $60bn ayear around half of bets are techni-cally illegal.

In the EU, the situation is muchbetter, but Germanys decision to tryand go it alone with tougher rules isa portent of things to come.

It is somewhat fitting that a playon Bwin is to some degree a gambleon factors outside an investors con-trol.

BOTTOMLINEAnalysis by David Crow

ANALYSIS l Bwin.party Digital Entertainment

p

10 Jan 8 Feb 28 Feb 18 Mar 7 Apr

220

190

180

210

200

170

160

150

140

142.007 Apr

US billionaire

Len Blavatnikwill retain a45.3 per centstake inPerform

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The Capitalist10 CITYA.M. 8 APRIL 2011

EDITED BY

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

tape, its not looking good for Lib Deminterns hoping to receive the mini-mum wage: even at the central office,anything additional to expenses and

travel for the degree-educated work-horses is unlikely to happen this yearand only possibly in 2012, accordingto a Lib Dem spokesperson.

In the future, we hope to make surepeople get paid, but there is no settimescale, he said. Dont hold yourbreath.

SHARKS ON THE MOVETHE next set of tenants to move intoproperty developer Gerald Ronsonslandmark Heron Tower have beenkeeping a rather low profile mostlybecause they cant talk.

At the end of this month, 1,200 fish chosen to recreate the marinespecies around Heron Island in thePacific will travel from the NationalMarine Aquarium in Plymouth to thegleaming aquarium in the buildingsground-floor lobby, the largest pri-vately owned fishtank in Britain at12m long and 3.6m high.

The star attractions will be theBamboo Sharks, which grow to1,200mm, and Heron is taking

their welfare so seriously thatnot only will the sharks be fedup to three times a day, butRonson has even put twofull-time divers on the com-pany payroll to monitortheir living conditions 365days a year.

Lets hope Heronshuman tenants receivethe same around-the-clock attention.

LIGHTS

OUTHUNDREDS of busi-ness delegates wereforced to feel their waythrough a gloomymorning session at theBritish Chambers of

Commerce annual con-ference yesterday, after a

power cut plunged the Westminsterauditorium into darkness.

We were going to remind theChancellor of cuts, but not quite so

drastically, bellowed former BBC pre-senter and conference chair SueMacGregor into the darkness.

Yet big names were on their way.Surely the BCC wouldnt makeChancellor George Osborne and busi-ness secretary Vince Cable shout theirpledges to the business community inthe dark? We phoned the EDF pressoffice, an energetic public relationsexecutive reassured The Capitalist.And in ten minutes there were fourmen in bright yellow jackets outside.

The race was on, as BCC directorgeneral David Frost projected hisvoice through the still-electricity-freetheatre for his opening comments.Ive got a sore throat, he said. ButIll fight through.

But there was no need to panic. AsOsborne appeared minutes later, sud-denly there was light, the micro-phones came alive and the Chancellorwas able to inflame the audiencewith his rhetoric. This government isunashamedly pro-enterprise, heroared. Pro-business and pro-aspira-tion. Crisis? What crisis?

MEDIA PIONEERSIT TOOK Google four years to hit $1bnin revenue and Facebook managed itin three-and-a-half, but elsewhere inthe advertising economy, firms arereeling from the end of Labours hugeadvertising budget, which wasslashed by the coalition.

However, the message from NicolaMendelsohn, the first female presi-dent of the trade body the Institute of

Practitioners in Advertising inher inaugural address at The

Savoy, was one of opti-mism.

As she pointed out tomedia bosses includingLord Black ofBrentwood, executivedirector of TelegraphMedia Group andChannel 4s chiefexecutive DavidAbraham, Britain is

second-only toJapan in the use of

the mobile internet,and it has thefastest-growingsmartphone mar-ket in the devel-oped world. Weare a pioneeringcountry andwe, as anindustry, needto rediscoverour pioneer-

ing spirit, sheclaimed.

NO CASH FOR LIB DEM INTERNS ASCENTRAL OFFICE PASSES THE BUCKJUST days after Nick Clegg made anearnest pledge to improve expenses forthe Liberal Democrats army of unpaidinterns, The Capitalistwas amused tosee three job ads for internships at theparty on the Work for an MP (w4mp)website offering barely a cup of tea.

The short volunteer opportunityto work in the offices of GregMulholland, MP for the Leeds NorthWest, offers no financial reward at all,

while the internship at the offices ofBradford Easts MP David Ward sayssome expenses can be met by agree-ment. And a school-leaver helpingout on the local campaign trail for theLewes Liberal Democrats would pre-sumably want a roof over their head atthe end of the working day but lodg-ings for the lucky candidate are onlypossibly an option if required.

In a jargon-filled display of passing

the buck, the party said it could onlydirectly manage internships at thecentral Cowley Street HQ.

Apparently, the IndependentParliamentary Standards Authoritymust regulate expenses for interns atMPs offices, and local branches haveto make their own rules since they arelegally independent organisationswithin the federal structure.

Thanks to the endless layers of red

Nick Cleggs interns wont be paid the minimum wage until 2012 at the earliest

Fish stock: the Heron Towers shark tank

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MARKS & Spencer chief executiveMarc Bolland has poached one of hisformer Wm Morrison colleagues,Christopher Taylor, to take charge ofhis convenience stores .

Taylor, who was leading Morrisonsexpansion into smaller conveniencestores, is the first of Bollands formerexecutives to be hired by M&S sinceBolland was himself poached as chiefexecutive in May 2010.

Taylor will take charge of running

M&S 360 Simply Food stores and 335restaurants and cafes located withinstores countrywide.

He takes up the new role, titleddirector of Simply Food, franchise andhospitality, on 3 May and will reportto Steve Rowe, M&S director of retail.

He appointment follows an internalreshuffle at M&S that will see NeilHyslop, who currently holds the posi-tion, move to a new roles as director ofspace planning and development.

Hyslop will be responsible for over-

hauling M&S current sites and devel-oping new shops.

Taylors decision to defect will beviewed as a blow to Morrisons, whichplans to open its first smaller stores,branded M Local, this year as it worksto maintain its market share in theUKs fiercely competitive supermarketsector.

But he is not the first high-levelexecutive recruited by Bolland fromM&S rivals. Laura Wade-Gery, formerchief executive of Tescos highly suc-cessful online operation, was lured toM&S by Bolland in January.

M&S poachestop man fromWm Morrison US SHOPPERS bought spring clothingalong with more expensive food andpetrol in March, pushing sales atmany chains up more than expected.

Retailers such as Costco Wholesaleblew past forecasts, but Gap was oneof just four chains to miss expecta-tions.

US retailers overall had beenexpected to show their first same-store sales decline since August 2009,in part because Easter falls threeweeks later than last year, whichdelays some spring purchases.

But sales at stores open at least ayear rose 1.7 per cent in a tally of 25retailers, topping expectations of a0.7 per cent decline.

Gap was a notable outlier. Its same-store sales fell 10 per cent, or 3 per-centage points more than expected.

The clothing retailer blamed someof the weakness on the earthquake inJapan, where it has more than 150stores.

Gap expects the problems in Japanto cut first-quarter earnings by about4 cents per share, bringing thembelow the analysts average estimateof 44 cents.

Costcos sales at stores open atleast a year jumped 13 per cent.Analysts had expected a 7.4 per centincrease.

US customersflocked to theshops in March

Marc Bolland has poached his former colleague from Wm Morrison Picture: GETTY

BYALISON LOCK

RETAIL

RETAIL


ANALYSIS l Wm Morrison

p

10 Jan 28 Jan 17 Feb 9 Mar 29 Mar

290

280

270

279.107 Apr

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CINEMA operator Cineworld hasunveiled its first overseas expansionafter agreeing to buy Spains fifth-biggest movie chain.

Cineworld, which has 78 sites inthe UK, is to buy Cinesur CircuitoSanchez-Ramade for an undisclosedsum.

Cineworld believes Cinesur, whichhas 136 screens in its 11 multiplexsites, has the potential to expand.Chief executive Stephen Wiener saidthe Spanish watch nearly as manyfilms per head as in the UK and the

market, which is already worth800m (699.9m) a year, has good

growth prospects.Cineworld was founded by Wiener

in 1995 and was floated on the stockmarket in 2006, making it the onlypublicly listed cinema company. Itsaid it sold more tickets last year thanany other chain.

Cineworld saw the number ofmovie-goers dip to 47.2m in 2010,from 48.2m the previous year,although this figure was deflated byDecembers Arctic weather condi-tions.

The company recently reported a0.3 per cent increase in pre-tax profitsto 30.4m in the year to 30 December,

as revenues lifted 4.8 per cent to342.8m.

HALFORDS yesterday warned that adip in sales at its Autocentre servicingshops had forced it to lower its profitforecast.

Halfords estimated a year to 1 Aprilpre-tax profit of between 124m and127m, with group sales of 869mand gross margins broadly flat.

The estimate was slightly down onthe 127.6m pencilled in by analysts.

Sales from stores open at least ayear fell by 6.8 per cent in the 13weeks to 1 April.

Like-for-like sales from NationwideAutocentres fell by 1.4 per cent.Within this, like-for-like car mainte-nance sales fell by 11.7 per cent, whilecar enhancement sales fell by 8.8 percent. But the retailer, whose tradition-al bicycle and car parts business waslast year supplemented by the pur-chase of Autocentres, announced ashare buyback of up to 75m.

Chief executive David Wild said:Having to lower a profit forecast isobviously disappointing, The badweather early in the winter meantthat our autocentres were busierthan they have been more recently.

However, the performance overallis flat. We have been encouraged byour cycle sales across premium andother ranges.

He said that the rate of growth thecompany had targeted for theAutocentres would be slower, but hewas still confident it had been ashrewd acquisition. Thirty new cen-tres will open this year, the companyconfirmed, while a new advertisingcampaign will be launched nextweek.

Kate Calvert, analyst at SeymourPierce, said: We remain concernedthat management has pruned thecost base back too far in the retailbusiness and will have to put morecost back in to drive sales.

Halfords hit

by car centresales slump

CARPETRIGHT, Britains biggest f loorcovering retailer, warned on profitsfor the second time in as manymonths yesterday, as shoppers holdback on expensive purchases amidrising bills and government cuts.

The group, which trades fromaround 700 stores in Britain, Ireland,the Netherlands and Belgium, said

profit before tax and one-off items forthe year to 30 April would be broadlyin line with 2008-9s figure of 17.2m.

It had said in February it expectedprofits to be above that level, butbelow 2009-10s 28.2m.

Rod Whitehead of Deutsche Banksaid: The news is not that surprisingin the light of continuing very lowhousing transactions and the profitwarning from Dixons, which showsweak consumer confidence.

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Carpetright in another profitwarning as trade ebbs away

Cineworld buys Spanish moviechain as it hits acquisition trail

BY JOHN DUNNE

RETAIL

LEISURE

Chief executive David Wild is confident the companys profit will bounce back

BYHARRY BANKSRETAIL


ANALYSIS l Carpetrightp


750

700

650

800

850632.00

7 Apr

ANALYSIS l Halfordsp


440

400

360

349.907 Apr

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RECRUITMENT group Hays yester-day posted a 16 per cent jump innet fees, led by its strong interna-tional business, and said its out-look was positive in nearly allmarkets outside of the strugglingUK public sector.

Hays, which specialises in plac-ing office workers such asaccountants and secretaries, saidit had seen excellent growth incontinental Europe, SouthAmerica and Asia for the thirdquarter to the end of March.

The FTSE 250 listed companygenerates nearly two thirds of itsbusiness from outside the UK.

In the UK, an 18 per cent rise in

net fees in the private sector boosted by construction and ITbusinesses contrasted with a 37per cent drop in the public sector,which has been hit by cuts.

Hays finance director PaulVenables said: I think in the [UK]public sector and in our business Iwould expect to see the next twoyears to be bumbling along thebottom, so we dont expect to seegrowth.

He said that public sectorauthorities have not been replac-ing people and candidate confi-dence has been so low that peoplehave not been moving jobs.

Overall we are about 50 percent down [from peak levels], butif you look outside of the frontlineservices of education and health-

care we are about 65 per centdown.

Hays said the combined impactof the natural disasters inAustralia, New Zealand and Japanwas estimated to have reducedgroup net fee growth by one percent this quarter.

Hays UK dip offsetby overseas boostBY JOHN DUNNE

RECRUITMENT

SINCLAIR Pharma and IS Pharma, twoUK-based pharmaceutical groups, yes-terday agreed terms for a recom-mended 130m merger.

Following the merger, the enlargedgroup will be headquartered in theUK with direct distribution opera-tions in the UK, France, Germany,Italy, Spain and Ireland, and its ownmanufacturing and product develop-ment capability.

Sinclair Pharmas shares will movefrom the main market to trade onAIM as Singer IS after the merger.

Sinclair Pharmas directors plan tounanimously recommend that share-holders approve the deal, which wasfirst announced on 14 April, adding

that it will create of the UKs biggestspecialist pharma groups.

The merger is expected to becomeeffective on 20 May. The bid values ISPharma shares at 99.1p.

Sinclair Pharmaheads for 130mmerger deal withrival IS Pharma

PHARMACEUTICALS


Sinclair Pharma chief executive Chris Spooner has an eye on the deal

ICELANDERS look set to reject a deal torepay Britain and the Netherlands fordebts from a bank crash, denting gov-ernment hopes of drawing a lineunder its financial crisis and speedeconomic recovery.

A referendum will be held onSaturday on an agreement to repaythe $5bn (3bn) debt, run up after theBritish and Dutch governmentsrepaid depositors who had money inan online account called Icesave. Theaccount was run by one of the threeIcelandic banks that collapsed in late2008.

Yesterday, one survey showed 57per cent and another poll 55 per centagainst the new deal, which the gov-ernment says is better than one itrejected in March 2010. The readings

came after weeks of polls showingsupport for the deal.

A no vote would be a blow for thecentre-left coalition, which managedIceland out of the depths of its finan-cial crisis, but it has not said it willresign if so.

A no vote is a recipe for uncer-tainty for at least the next one to twoyears, Prime Minister JohannaSigurdardottir said yesterday. Wewould have to review and possiblyrevise the current economic pro-gramme.

Many Icelanders say they are angrythat taxpayers have to bail out irre-sponsible banks.

The government and economists

say solving the Icesave issue will helpIceland get back into the markets tofund itself after a financial rescueprogramme, led by the InternationalMonetary Fund, runs out this year.

Poll: Icelanderslook set to reject

Icesave repaymentBYHARRY BANKS

PERSONAL FINANCE

ANALYSIS l Hays

p


135

130

125

110

115

120

114.107 Apr

ANALYST VIEWS: HOW STRONG ARE HAYS FIGURES? By John Dunne

PAUL JONES |PANMURE

Some decent quarter threegrowth from Hays, with broad-basedprogress in a number of areas and driven byinternational operations. But exposure tothe UK public sector is likely to drag overallprogress for Hays given the ongoing marketchallenges, and the ramifications of theJapanese earthquake is likely to takethe shine off full-year. We say hold.

DAVID OBRIEN |SHORE CAPITAL

We think this was a strong resultfrom Hays, although the combination of thecontinued weakness in the UK public sectorand impact of the three natural disastersleads us to believe that it is unlikely thatexpectations will rise today. We thereforeexpect the shares to tread water for thenear future. We remain positive inthe longer term.

ANDY MURPHY | SINGER CAPITAL MARKETS

Net debt increased modestly to 130m and is expected to remain flat in the next quarter. On 1 AprilHays announced that an OFT fine had been reduced from 30.36m to 5.88m. This has already been providedfor. The weaker performance in the UK is primarily a result of the group's exposure to the public sector.These are solid results.

Shaun Dobson led the transactionfrom the Sinclair Pharma side. He isthe joint head of the corporate financedepartment of Singer Capital Markets.Dobson joined Singers in April 2009

following the integration of a signifi-cant number of senior and front officeemployees from Teathers.

Dobson began his City career in the

1980s at Laing & Cruickshank, whichwas subsequently merged to becomeCredit Lyonnais Securities.

Over recent years he has predomi-nantly focused on the life sciences sec-tor.

On the IS Pharma side, Geoff Nashand Matthew Robinson from FinnCapdrove the deal. FinnCap has workedwith IS Pharma ever since the demiseof its former adviser Piper Jaffray.

FinnCap helped the group raise two

tranches of money last year andhelped introduce the group, which spe-cialises in oncology drugs, to newinvestors. David Hellier

MEET THE ADVISERS

SHAUN DOBSON

SINGER CAPITALMARKETS

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MOVES to do away with the too big tofail problem have prompted Moodysto launch a revaluation of all of its rat-ings for major UK banks.

The ratings agency said yesterdaythat it is embarking upon a reassess-ment of its ratings on all senior bankdebt that could see downgrades of oneto five notches, which would substan-tially raise banks cost of borrowing.

The agency said the review wasprompted by signals from theTreasury, the FSA and the Bank ofEngland that banks that fail in thefuture should not expect capital injec-tions from the public purse, with liv-ing wills to set out how a bank can bewound up in an orderly way if it failslikely to become mandatory in thenext year.

The assessment by Moodys willfocus on the high systemic support

assumptions currently incorporated insenior debt ratings for UK banks.The agency said that whereas before

the crisis, the likelihood of govern-ment support accounted for a ratingsuplift of one to two notches for banks,it now accounts for up to five notches.

But in a sign of the difficulty ofdesigning a regulatory system wherelarge banks are allowed to fail, it saidthat it would continue to assumesome systemic support for the majorUK institutions at least pendinggreater clarity from Europe and theIndependent Commission on Banking.

The review affects all the UKs fivebiggest lenders and major buildingsocieties.

Bank ratingsunder reviewBY JULIET SAMUEL

BANKING

THE LISTING plans of British vacuumtechnology group Edwards were indanger of collapse last night, over fearsa lack of subscription and a low pric-ing could put off its private equitybackers from selling out now.

The board held an eleventh hourmeeting last night to discuss the qual-ity of investors signed up for the initial

public offering (IPO), and to holdlengthy talks with bankers.Investors had been guided by the

bankers to buy shares at the bottomend of expectations before a 3pmdeadline, as joint bookrunners UBS,Deutsche Bank, JP Morgan Cazenoveand Morgan Stanley scrambled tocover the firms order book.

The firm had been looking to priceits IPO at between 200p and 270p pershare, selling 35 per cent of the firm.

Yet at 200p per share, Edwards pri-vate equity backers CCMP Capitaland Unitas Capital will raise just356m, giving the firm a market capi-talisation of about 1bn.

The firm had been valued at 1.5bnlast year, whilst CCMP bought into thefirm in a deal valued at 460m in 2007 with an agreement to pay a further45m should it successfully developthe business and subsequently exit itsinvestment.

Edwards board meets to tryto salvage planned flotationBYRICHARD PARTINGTON

CAPITAL MARKETS


Edwards chairman Nick Rose (top) and chief exec Matthew Taylor Picture: GETTY

ANALYSIS l Royal Bank of Scotland

p


50

48

46

40

42

44

43.087 Apr

NEWS | IN BRIEF

Old Mutual sale approved in USSavings and investment group Old Mutualsaid yesterday that it had received regula-tory approval for the sale of its US Lifebusiness to Harbinger Group, for theaccepted price of $350m (214.5m). Thedeal was agreed in August last year, butwas subject to approval from the NewYork State Insurance Department.

INTL FCStone closes Ambrian buyCommodities advisory INTL FCStoneyesterday announced the completion ofnegotiations to acquire Ambrian

Commodities (ACL), the wholly ownedbroker-dealer subsidiary of Ambrian

Capital. Subject to approval from theFSA, the purchase consideration will beequal to the net asset value of ACL at 31March, estimated at 10.3m including4.3m of the 6m debt owed byAmbrian Capital to ACL.

Lamprell in talks with MaritimeOil rig maker Lamprell is in talks to buyNorways Maritime Industrial Services for38 crowns (4.22) per share, valuing thebusiness at around 203m. Lamprell said ithad entered into a letter of understandingwith MIS on the potential offer, which

would be pitched at a 19 per cent premiumto the MIS share price at its previous close.

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The Investec Derby Festival is one of the most iconic events of the sporting

and social calendars. With an anticipated 125,000 on Investec Derby Day

alone, the Festival is one of the most popular sporting events in Britain. And

for good reason. The Festival attracts a diverse range of people, creating

Investec Derby Festival 3rd & 4th June 2011Featuring the worlds greatest flat race


THE TAX division of the US depart-ment of justice is seeking a summonsfor records about American clients ofHSBC in India, according to a sourcefamiliar with the matter.

The government filed the requestwith a San Francisco federal court yes-terday, seeking permission to getinformation from the bank aboutAmerican residents who might beusing HSBC India accounts to evadefederal income taxes.

The ability to hide accounts in for-eign countries is rapidly dwindling,said John DiCicco, deputy assistantattorney general for the justicedepartments tax unit.

The government says thousands ofUS citizens might have undisclosed

HSBC accounts.The government has been probing

other banks after Swiss bank UBSpaid $780m (477.9m) and admittedit helped wealthy American citizensstash assets overseas tax-free, thoughit has not targeted other banks offi-cially in court documents.

Tax officials have been goingthrough 18,000 accounts gathered ina tax amnesty programme last yearand 4,000 more that UBS handed overto end the US governments civil taxprobe.

In January, the US government

indicted a New Jersey man for con-spiring to hide accounts in India andsaid five bankers, identified as work-ing for HSBC by people familiar withthe probe, as helping him do so.

A representative of HSBC was notimmediately available for comment.

US tax probeturns to HSBCIndia records

AUSTRIAN aluminium group AMAGhas raised 366m (320m) in the firstVienna listing since October 2007.

The manufacturer sold at 19 pershare, at the bottom end of its antici-pated price of between 19 and 24.

The range was narrowed earlierthis week to between 19 and 21,amid tough market conditions for ini-tial public offerings (IPO).

Market volatility worldwide hasalready derailed several otherplanned floats this year.

AMAG placed around 19.3m shares,

including 5.3m new shares with pri-vate domestic investors and interna-tional institutional investors.

The IPO lets its main private equitybacker, CP Group 3, reduce its stake to34.5 per cent before exercise of anover allotment option.

A joint venture between OneEquity Partners and ConstantiaPackaging, CP Group 3 had originallyhoped to raise up to 535m.

Yet the IPO will still hand the firma 100m capital injection to expandits range of products and geographi-cal reach.

Austrian firm listsdespite lower price

BYHARRY BANKS

BANKING

HIGH-TECH plastics firm Victrex saidyesterday its first-half sales volumerose 22 per cent on higher demandfor its polymer products.

Victrex, whose key polymer prod-ucts are used in aircraft components,car parts and surgical instruments,said its sales volume rose to about1,434 tonnes for the six monthsended 31 March from last years 1,171tonnes.

Sales to medical device manufac-turers, surgeons and clinicians roseabout 10 per cent to 24.3m.

Victrex sales upon high demandfor its plastics

CAPITAL MARKETS

MANUFACTURING

BRANSON MULLS VIRGIN ATLANTIC TIE-UP

SIR Richard Branson is considering selling down his 51 per cent stake in Virgin Atlanticin order to keep the airline competitive. The entrepreneur said a possible partnershipmakes sense although it is currently too soon to say whether this will be the final out-come of consultations with Deutsche Bank. He plans to remain a major shareholder.

NEWS | IN BRIEF

Mondi to decouple SA unitUK-based paper maker Mondi plans todecouple its South African packagingbusiness from the group and list it undera new name on the Johannesburg StockExchange, the company announced yes-terday. Mondi, which owns 70 per centof Mondi Packaging South Africa, said

the demerger would provide sharehold-ers and both businesses the opportunityfor growth.

Electrocomponents sales riseElectrocomponents has said it expectsfull-year pre-tax profits to be marginallyabove previous forecasts, with sales top-ping 1bn for the first time. The compa-ny said sales growth has remainedstrong since its interim managementstatement in February despite moredemanding comparatives. Group salesgrew by around 17 per cent in the quar-ter to the end of March with the inter-national business up by around 20 percent and the UK ahead by 10 per cent.

US passes thyroid cancer drugUK pharmaceutical companyAstraZeneca has had a new drug totreat thyroid cancer approved by the USFood and Drug Administration. The drug

is called Vandetanib, and is a daily oralpill to treat adult patients with a rareform of thyroid cancer who are gettingsicker and are not candidates for sur-gery. AstraZeneca runs an oncology andinfectious diseases centre inMassachusetts.

LARS Stiewe led the advisory for BNPParibas as the joint global coordinatorand bookrunner on the AMAG initialpublic offering (IPO).

Based in London, the managing direc-tor is head of equity capital markets forGermany, Austria and Switzerland.

He has over 16 years of experience incorporate finance, having worked forBNP Paribas for the past 10 years.

Stiewe played a key role in raisingalmost 5bn (4.4bn) capital forGerman car manufacturer Porsche, aswell as deals for tyre maker Continentaland Heidelberg Cement.

Before joining BNP Paribas he

worked for Dresdner Kleinwort.He was joined on the AMAG deal by

Dimitri Boulanger, a metals and miningspecialist for the bank.

Boulanger previously advised on theattempted merger between mininggiants BHP Billiton and Rio Tinto, andacted as adviser to Arcelor in its dealwith Mittal Steel in 2006 to create theworlds largest steel producer. Based inLondon, he joined BNP Paribas in 2004from HSBC, where he worked in Parisfor four years. He previously worked forNatWest Markets in London.

Berthold Muller, head of corporatefinance for BNP Paribas in Germany,worked on the deal in the banksFrankfurt office.

JP Morgan joined the French bank asjoint global coordinator and bookrunner.Raiffeisen Centrobank and UniCreditBank Austria were co-lead managerson the deal.

MEET THE ADVISERS

LARS STIEWE

BNP PARIBAS

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an exhilarating carnival atmosphere. This years Investec Derby Festival will be no exception. The twoday Festival

starts with Investec Ladies Day on Friday 3rd June, followed by Investec Derby Day on Saturday 4th June.

Hospitality packages are available. Book ahead and you can be there for the whole show.

Book now: 0844 848 3256 | epsomdowns.co.uk


Vedanta extends Cairn offer

VEDANTA pushed on with its of fer totake over 20 per cent of Cairn India

yesterday, despite the Indian govern-ments decision on Wednesday to fur-ther scrutinise the deal.

Vedanta and Cairn have extendedthe offer period by a month to 20 Mayto try and get the deal out of the dol-drums, after more than sevenmonths of wrangling with the gov-ernment over royalty payments.

Cairn agreed in August to sell most

of its subsidiary Cairn India toVedanta for up to $9.6bn (5.9bn).

Cairn and Vedanta shares contin-ued to slide yesterday, with the for-mer closing down 2.3 per cent at

445.9p and the latter losing 2.6 percent to 24.29.Analysts at UBS said in a note yes-

terday the ongoing delays to the pur-chase, which could be Indias biggestoil and gas deal, could cut up to sevenper cent from Cairns valuation.

But analysts at Oriel and Evolutionwere more optimistic, predicting thatthe deal will go through, with the

delays having little impact on Cairnsother operations.BYMARION DAKERS

M&A

MOBILE phone group Nokia sufferedtwo big knocks yesterday afterTaiwanese rival HTC overtook thefirm in terms of market value andMoodys cut its credit rating.

HTCs shares rose 5.3 per cent tovalue the firm at $33.8bn in Taipeitrading, surpassing Nokias $33.6bnvaluation in a sign of the Finnishgiants changing fortunes as newer

firms eat into its market share.Meanwhile Moodys said Nokias

weakening market position anduncertainty over its transition toMicrosofts Windows Phone softwarehad led to the credit downgrade.

The ratings agency said it was low-ering its rating on Nokias senior debtto A3 from a previous A2. The agencyalso cut the companys short-termdebt ratings to Prime-2 from Prime-1,and said the outlook was negative.

Nokias credit rating cutas rival HTC overtakesTECHNOLOGY

Aftershock upsetsWall Street trading

US STOCKS fell yesterday after amajor aftershock hit Japan,which caused injuries andrenewed concerns about indus-

trial supply disruptions and nuclearpower.

Investors sought protection againstfurther market declines, which sentthe CBOE Volatility Index VIX up 2.2per cent to 17.27. VIX futures also roseas investors bet the index could riseabove 20 by May.

The earthquake, measured at mag-nitude 7.4, caused no tsunami ordetectable damage at the FukushimaDaiichi nuclear plant, but investorsremained cautious after Japans 9.0deadly earthquake and tsunami lastmonth.

It got people thinking that maybethis is not finished yet, and this is of abigger scale than what we had expect-ed, said Jack DeGan, chief invest-ment officer at Harbor Advisory.

The Dow Jones industrial averagewas down 61.91 points, or 0.50 percent, at 12,364.84. The Standard &Poors 500 Index was down 5.35

points, or 0.40 per cent, at 1,330.19.The Nasdaq Composite Index wasdown 5.97 points, or 0.21 per cent, at2,793.85.

Stocks had been mostly flat prior tothe news of the quake, with the S&P500 encountering strong technicalresistance that stymied gains after alarger-than-expected drop in weeklyjobless claims and March retail salesthat topped expectations.

The consumer seems to be hang-ing in there despite higher gasprices, said Donald Selkin, chief mar-ket strategist at National Securities.

Among retailers, Costco Wholesalebeat expectations, and its sharesgained 3.4 per cent to $77.57. Macysrose 0.3 per cent to $25.26 whileTarget fell two per cent to $49.93.Bed Bath and Beyond surged 10.1per cent to $54.37 a day after it fore-cast full-year earnings growth thatwould beat Wall Street expectations.

US-listed shares of Japanese stocksfell, but some analysts said theymight buy on the weakens.

Im looking at auto manufactur-ers, and Im definitely looking to buyHonda if it gets cheap enough, saidTim Hartzell, chief investment officerat Sequent Asset Management. NewYork-traded shares of Honda Motorrose 0.2 per cent on volume thatneared its 50-day average.

BRITAINS top share index fellyesterday after a second largeearthquake to strike Japanwithin a month knocked

investor confidence, with traderswary of further losses once Asianmarkets open.

The FTSE 100, which fell morethan four per cent after the Marchearthquake in Japan, closed down33.76 points or 0.6 per cent at6,007.37.

Investors have fled risk immedi-ately and it will be interesting to seehow Asian markets react overnightas more news filters through, thatcould have a large bearing on howwe open tomorrow, one London-based trader said.

Risk sensitive miners and inte-grated oils were the biggest weightson the index, while the biggest FTSE100 rise was temporary power sup-plier Aggreko, which offered its serv-ices to Japan following Marchsquake. The stock closed up 1.4 percent.

Brent crude pared losses, edging

back towards multi-year highs. Butstrategists said global growthremained on track despite worriesover the economic impact of higheroil prices.

The base case of robust globaleconomic growth remains intactbut uncertainty and downside riskshave considerably increased on theback of the shifting nature of the oilshock, said Koen Straetmans, seniorinvestment strategist at ING.Vedanta Resources and CairnEnergy fell 2.6 per cent and 2.3 percent respectively after they extend-ed the deadline for a $9.6bn (5.9bn)acquisition of Cairns Indian assets,a day after the Indian governmentdeferred a decision on the deal.

Although clearly a disappoint-ment and likely to result in somefurther weakness, the deal is not yetdead, brokerage Collins Stewartsaid in a note on Cairn Energy.

Engineer GKN was the top fallerin the FTSE 100, losing 4.5 per centto break a two-week winning streak.HSBC was one of the top risers,gaining 1.03 per cent. Strength inbanks helped cushion losses on theblue chip index after Portugal fol-lowed Greece and Ireland in askingfor financial aid after months ofwhat many economists said was arefusal to acknowledge economicreality.

At this stage, the admission is arelief ... The delaying was sowing anunnecessary level of uncertainty,said Caroline Vincent, who managesthe 41m European Fund atCavendish Asset Management.

Vincent also discounted the likeli-hood that Spain would follow suit.The sort of pressure that would berequired to push Spain into thesame situation would have to signif-icantly exceed the levels of pressureso far seen to have been exerted onthe three bailout nations.

The Bank of England kept interestrates at a record low of 0.5 per cent,while the European Central Bankraised rates by 25 basis points to 1.25per cent despite debt concernsamong Eurozone countries. Bothdecisions were widely anticipated byinvestors and had little impact onthe market.

Latest Japan quake knocksFTSE despite banking gainsTHELONDONREPORT

THENEW YORKREPORT


6,100

5,800

5,700

5,600

5,900

6,000

ANALYSIS l FTSE6,007.37

7 Apr

ANALYSIS l Vedanta Resources

p


2,550

2,450

2,350

2,250

2,150

2,429.007 Apr

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www.cityam.com

King & SpaldingMartin Hunt has been appointed aspartner in the London office of interna-tional law firm King & Spalding, wherehe will work on the companys globaltransactions team. Hunt, a US and UK

qualified lawyer, moves from Bracewell& Guiliani, where he was a partner.Prior to this he worked in the corporateteam at Slaughter & May.

Colliers InternationalJohn Campbell has been appointed asdirector of Colliers Internationals City

agency team, responsible for handlingoffice disposals and acquisitions.

Campbell, who has 15 years experi-ence in real estate, joins Colliers fromALDAR Properties PJSC, the largestdeveloper in Abu Dhabi.

Aberdeen IMThe international investment manage-ment group has appointed StevenNicholls as its EMEA head of clientportfolio managers. Aberdeen has alsoappointed Andrew Allen as director ofglobal property research.

Royal London AMDarren Bustin has joined Royal LondonAsset Management from Aegon, wherehe will work with senior portfolio man-agers across a range of products.

DTZThe real estate firm has appointed PaulVernham as senior director in its corpo-rate consulting team. Vernham, whojoins from Cushman & Wakefield, willbe providing strategic real estateadvice to corporate and public sectoroccupiers.

CITY MOVES | WHOS SWITCHING JOBS Edited by Harriet Dennys

Ernst & YoungThe professional services firm has appointedSteve Varley as UK and Ireland managing part-ner, effective from 1 July, when he will takeresponsibility for overseeing 11,000 people inthe UK and Ireland. Varley has been a member

of Ernst & Youngs UK and Ireland leadershipteam since 2006, most recently as marketsleader, where he was responsible for strategyacross all service lines, priority sectors andregions of the business. He first joined Ernst &Young from Accenture in 2005 to lead thecompanys advisory department.

+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

BEST OF THE BROKERS

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


ANALYSIS lBritvic

480

440

400

360

p

394.707 Apr

BRITVICGoldman Sachs has downgraded the softdrinks firm to sell and cut its target priceby 77p to 384p. The broker thinks thefirms sales mix will continue to suffer as

UK and Irish customers look for bettervalue. It also expects Britvics managementto admit rising input costs during interimresults next month and has cut its 2011underlying profit forecast by four per cent.


ANALYSIS lMarks & Spencer

390

370

350

330

p

356.907 Apr

MARKS & SPENCERUBS rates the retailer neutral and main-tains its target price of 380p after quarter-ly results on Wednesday. The broker waspleasantly surprised by gross margin guid-ance of up to +0.25 per cent, and expectsto see capital expenditure of 900m thisyear twice that of rival Next as a portionof sales. For this reason, UBS expects M&Sto pay much of 2011s dividend out of debt.


ANALYSIS lResolution

310

290

270

250

p 304.507 Apr

RESOLUTIONJP Morgan rates the insurance groupunderweight with a target price of 282p.The broker has cut its operating earningsestimates by 34 per cent for 2011 and2012, after receiving more informationabout the AXA business and someaccounting changes. However, JP Morganexpects operating profits to return to pre-vious levels of 554m by 2013.

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JUST 476 days until the Olympics,reads the countdown clock inTrafalgar Square. It heralds the floodof millions of people into the city to

watch the games. Preparations are alreadyunderway: the Tube is being renovating sta-diums are being built and hotels are hikingtheir prices. If youre looking at all this andwondering how you might be able to get alucrative slice of the action, you should

look no further than your home. Onlineletting agencies are falling over themselvesto get a cut of the profits that could bemade on renting out your spare room,rental property or whole house if you arewilling to vacate it for weeks on andaround the Olympics. Unsurprising, whenresearch from easyroommate.co.uk showsthat the average Olympic landlord is look-ing to charge a minimum of 399 per week more than four times the current averageUK room rent. In areas close to the OlympicPark, such as Stratford, rooms are going foras much as 600 a week. And these are thecurrent prices. Rates will increase rapidly asthe date draws closer. But before you rushheadlong into marketing your property,make sure you consider these five things.

1. DONT DITCH GOOD TENANTSWhile theres a pretty penny to be madewith short term lets during the Olympics,its not worth missing out on longer termtenants for. Not only is short-term letting alot of administrative work, but even if itmakes you three times the propertys regu-lar income, it might not make up for thelost income before and after the gameswhen the property is vacant. Tony Lam ofletting agency LDG also warns: With shortterm and holiday lets there is a lot more toconsider remember to take into accountadditional costs like bills, which short termlandlords are responsible for. People willexpect a lot for paying over the odds, so youshould be prepared to be on call 24 hours a

Grab a lucrativeslice of the action byletting out your padduring the games,says Donata Huggins

Keston Waterside is a development of eight exclusive

three-bedroom apartments and duplexes including two penthouses

with roof gardens in a breathtaking lakeside setting.

Just 20 minutes by rail from Central London yet a world away.

Apartments range from approx.2,1002,900 sq ftPrices starting from940,000Computer generated image

for illustrative purposes only

www.kestonwaterside.comKeston Waterside Apartments, Keston, BR2 6EA

Savills:01689 860 999

Alan de Maid:01689 813 333

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iewings strictly by appointmentV

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iewings strictly by appointment

Getting Olympic rental prices for your home

lEasyroommate.co.uk: Much like a sophisticatedGumtree, this website allows you to find individualsor groups for your spare room or rental property. Itsfree to register and advertise but it charges you ifyou wish to be put in touch with the interested ten-ants. www.uk.easyroommate.com

lAccommodate London: These guys deal inshort lets for whole homes and charge 15 per centgross rent. The advantage of using them is thatthey market the property for you and can help outif things go wrong. After all, theyve been in thebusiness 25 years. www.accommodatelondon.com.

OLYMPICS | MARKETING YOUR HOME

The closer you are toplaces like this, themore money youcould make.

Living | London20 CITYA.M. 8 APRIL 2011

day for management and maintenanceissues.

2. SECURITYGetting references is not the norm forshort-term tenants, so you have toapproach the idea with a degree of confi-dence in your tenants. That said, youshouldnt be too trusting. You need to con-sider whether you need to clear out yourbelongings, and if you do, where youregoing to store them. For peace of mind,Jonathan Moore, director ofEasyroommate.co.uk, advises that youshould make sure that theres a writtenagreement between y

cityam 2011-04-08

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