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Obama inbid to slashUS deficit

PRESIDENT Barack Obama yesterdayproposed slashing Washingtons budg-et deficit by $4 trillion (2.46 trillion)with a mix of spending cuts and taxrises, after dismissing Republicandemands for deeper cuts as too radical.

In his first speech since announcingthat he would run for re-election nextyear, Obama outlined a 12-year time-frame for the deficit reduction, whichhe said would include $3 in spendingcuts and interest savings for every $1from tax increases. He said this wouldenable the government to collectenough taxes to cover all governmentspending, apart from interest on thedebt.

In a bid to boost investor confidencein the USs deficit cutting plan, Obamaalso pledged a debt fail-safe trigger toforce spending cuts if debt levels do notdecline as planned.

We have to live withinour means, reduce ourdeficit, and get back on apath that will allow us topay down our debt, hesaid.

Republicansargued that itdid not go farenough toreduce the$14 trillionUS debt, and

reiteratedtheir opposi-tion to any taxincreases.

BY KATIE HOPE

US ECONOMY

ofPstota loilreserves areinRussiabarrels ofoilreserve s.ne -fifthofP'sto talreserves8 .6bn

Fo urRuss ianinve stors

ba rrelsofoilreserv es.10trillioncubic metresofgas36 .75bn

of BPs totaloil reserves are

in Russia

barrels of oil reserves.One-fifth of BP's

total reserves

8.6bn

FourRussianinvestors

barrels of oilreserves. 10 trillioncubic metres of gas

36.75bn

BP chief exec Bob Dudley has become tangled in a three-way fight with Russian partners

BPS gamble on Russian oil seemed intatters last night, paving the way foran explosive BP shareholder meetingtoday.

BP had hoped to wow investors withthe final version of its 10bn shareswap with the government-runRosneft at todays meeting, after sign-ing the deal in January.

But Rosneft last night said it wouldnot extend the three-month deadlinefor sealing the deal, meaning BP, bar-ring an 11th hour miracle, will todayrun out of time for its increasingly des-perate talks with existing Russian oilpartner TNK-BP, which BP runs withfour oligarchs who operate under thename Alfa Access Renova (AAR).

BP had offered AAR a reported$27bn (16.6bn) to buy the group outof TNK-BP, which was turned downflat, and talks ended yesterday.

Todays cut-off point means BPneeds to negotiate a fresh deal withRosneft that also keeps AAR sweet although sources close to Rosneft saidthe firm will start the hunt for a differ-ent partner to explore its lucrative butclosely-guarded Arctic oil reserves.

TNK-BP management will not makeit easy for BP to convince them of a

deal in any form, having instructedlawyers to look at launching a lawsuitagainst BP executives for failing touphold the rights of the group.

OLIGARCHS CRUSHBPS 10BN DREAMBY MARION DAKERS

ENERGY

www.cityam.comIssue 1,364 Thursday 14 April 2011 FREE

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One BP shareholder told City A.M.the firm has dismissed criticism of itsattempts to deal with Rosneft and theKremlin without the prior blessing ofthe AAR oligarchs.

We had concerns about the legalrisks as soon as the [Rosneft] deal wasannounced, but BP was quite emphat-ic, both publicly and privately, that themedia were making a lot more of thisthan was justified, said KarinaLitvack, head of governance and sus-tainable investment at F&C.

BPs annual meeting at the ExCelLondon centre today was already set tobe a tumultuous gathering, withshareholders from around the worldflying in to voice their fury at BPs Gulfof Mexico disaster last April, whichbecame the worst spill in US history.

Large investors, including US pen-sions giant Calpers and a raft of small-er ones, have voted against somedirectors appointments and pay.

While proxy votes were registeredbefore the collapse of the Rosneft tie-in, shareholders said the topic will be aflashpoint at the meeting. It will be aparticularly bad-tempered affair,according to one large investor.

But another said last night that BPwill plough on with its attempts to dobusiness with Rosneft, telling City A.M.:BP does not want to be a bid target, so

this was a white knight transaction with BP now put over a barrel, it couldbe very costly to get a deal that satisfiesthe TNK partners.

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News2 CITYA.M. 14 APRIL 2011

Senate reporthits GoldmanA US senate panel yesterday accusedGoldman Sachs of misleading clientsand manipulating markets in the mostdamning official report so far on WallStreets role in the financial crisis.

Carl Levin, chairman of the senatepermanent subcommittee on investi-gations, tore into Goldman at a pressbriefing on his panels 639-pagereport, which is based on a review oftens of millions of documents overtwo years. Levin accused Goldman ofprofiting at clients expense as themortgage market crashed in 2007. Inmy judgment, Goldman clearly mis-led their clients and they misledCongress, he said.

A Goldman Sachs spokesman said:While we disagree with many of theconclusions of the report, we take

seriously the issues explored by thesubcommittee.

The report also criticised DeutscheBank and credit rating agenciesMoodys and Standard & Poors.

Blame for this mess lies every-where from federal regulators whocast a blind eye, Wall Street bankerswho let greed run wild, and membersof Congress who failed to provideoversight, said Republican senatorand report co-author Tom Coburn.

Levin said he would refer the matterto the US Justice Department and theSecurities and Exchange Commission.

BYHARRY BANKS

FINANCIAL MARKETS

Private sector jobs recovery on track

WE are not suffering from a joblessrecovery. That is merely a myth, as yes-terdays jobs figures proved yet again.Employment jumped 390,000 year-on-year in the December to February peri-od, the biggest gain since early 2008.Remarkably, this 1.4 per cent rise injobs was better than the 2000-07 annu-al average of 0.9 per cent, as calculatedby Michael Saunders, CitigroupsEuropean economist. It gets even bet-ter. At the start of the recovery, thebulk of the extra jobs were part-time orfreelance but that is no longer true.The number of full-time, employee

positions surged 198,000 quarter-on-quarter, the second largest gain of thepast 20 years. Redundancies also fell 19per cent quarter-on-quarter to stand 59per cent below peak and 18 per cent

below the 2000-07 average.Public sector employment fell by123,000 year-on-year in December butthat was easily compensated for by the428,000 jobs created by the private sec-tor. Private firms created 3.5 jobs foreach one lost in the public sector.There is little evidence in the jobs datathat the economy is suffering a softpatch especially given that these fig-ures include the December statistics,which were supposedly disastrous.Total hours worked per week rose 0.6per cent in the most recent period,compared with the three months toNovember 2010. Even if productivityper hour only grew a bit, that lookslike a strong rebound to me.

But it isnt all good. Unemploymentis not dropping fast enough: it remainsat 2.48m, down 17,000 from the threemonths to November 2010 and down

5,000 from a year earlier (the real levelof joblessness is probably twice as highonce recipients of other out-of-workbenefits are included). Large numbersof people are joining the labour force

every year, including youngsters, pen-sioners and migrants. Britain needs tobe creating even more jobs to ensuresizeable drops in unemployment.

The number of jobs filled by UKborn workers rose just 39,000 inDecember on a year earlier; thosefilled by non-UK born workers jumped173,000. It seems that the British-borndont have the right skills and atti-tudes to compete. Even more worrying-ly, the young are being squeezed out.Of the 390,000 extra jobs in the year toFebruary, 221,000 went to people aged50 or above. Just 8,000 went to theunder 25s. But the much-reportedclaim that 20.4 per cent of 16-24 yearolds are out of work is misleading.That assumes that there are 963,000unemployed 16-24 year olds but thatincludes students in full time educa-tion who cant manage to find evening

or weekend work. Stripping these out,there were 666,000 unemployed 16-24year olds, down 15,000 from the previ-ous three months.

Its still a disastrous situation for

young people, however, especially forthose with no qualifications or skills.Too many suffer from appallingnumeracy and literacy, weak presenta-tional skills and an inability to fit intothe world of work. Combined with thefact that the labour market is nowmore regulated, and that it is harder tofire staff, many employers have decid-ed that older, more experienced work-ers pose less of a risk. The onlysustainable answer is to sort out theeducation system, and to change theUKs culture, which will take years but speedy action on reducing thecosts and risks of employing youngpeople would also help. For the sake ofthose youngsters whose lives are beingblighted by unemployment, it is timeto tear up the red tape.

[email protected] me on Twitter: @allisterheath

PRIME Minister David Cameron is tooutline harsh new measures to con-trol migration into Britain today.

Cameron will make a dual attackon the large-scale immigration thatled to a spike in public anxiety duringthe election campaign, as well as onthe welfare state that he says feedswork to migrant workers.

Immigration has created a kind ofdiscomfort and disjointedness in

communities, he will say, as migrantsfail to integrate. He will advocategood immigration, not mass immi-gration and pledge to clamp downon student visas, which he blames forover 300,000 arrivals last year.

But he will also focus on reducingUK welfare benefits. Migrants arefilling gaps in the labour market leftwide open by a welfare system thatfor years has paid British people notto work, he will say. Thats wherethe blame lies at the door of ourwoeful welfare system.

BYALISON LOCK

POLITICS

PM warns on migrationPrime Minister David Cameron will reveal tough immigration measures today

NEWS | IN BRIEF

Fears over Greece debt riseGermany acknowledged for the firsttime yesterday that Greece may need torestructure its debt but said such a stepcould only be pursued before 2013 if itwere done on a voluntary basis. In aninterview with Die Welt newspaper,German finance minister Wolfgang

Schaeuble said additional steps wouldhave to be taken to deal with Greeceshuge debt burden if an analysis from theEuropean Central Bank and EuropeanCommission in June showed it is unsus-tainable. His comments were the first bya senior Eurozone official acknowledgingthat some form of restructuring ofGreek debt may be needed.

Commerzbank sells 5bn notesCommerzbank sold convertible notesworth 5.7bn (5bn) yesterday in thefirst of two steps to raise money torepay a state bailout. Germanys secondbiggest lender sold the mandatoryexchangeable notes (CoMEN) at 4.25apiece, it said. Commerzbank plans toissue up to roughly one billion mandato-ry exchangeable notes, which wouldautomatically convert into shares afterits annual general meeting on 6 May.

EDITORS LETTER

ALLISTER HEATH

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

EditorialEditor Allister HeathDeputy Editor David HellierNews Editor David CrowNight Editor Katie HopeBusiness Features Editor Marc SidwellLifestyle Editor Zoe StrimpelSports Editor Frank DalleresArt Director Craig GaymerPictures Alice HeppleCommercialSales Director Jeremy SlatteryCommercial Director Harry Owen

Head of Distribution Nick Owen

Editorial StatementThis newspaper adheres to the system ofself-regulation overseen by the Press ComplaintsCommission. The PCC takes complaints about theeditorial content of publications under the EditorsCode of Practice, a copy of which can be found atwww.pcc.org.uk

Printed by Newsfax International,Beam Reach 5 Business Park,Marsh Way, Rainham, Essex, RM13 8RS

Distribution helplineIf you have any comments about the distributionof City A.M. Please ring 0207 015 1230, or [email protected]

Lloyd Blankfein, chiefexecutive of GoldmanSachs, saw his bankcriticised by a senatepanel yesterday

LANSLEY TAKES NURSES MEDICINEA contrite Andrew Lansley promisednurses a larger role in the commis-sioning of healthcare after the RoyalCollege of Nursing passed the firstvote of no confidence in a healthsecretary in its history. Attending alistening exercise with 65 nurses onthe fringe of the RCNs annual con-gressl, Lansley repeatedly apologisedfor his failure to communicate thegovernments reforms effectively.

REGIONS LOSE OUT IN FIRE SALE OFLANDMinisters were accused of outra-geous bias towards London after thegovernment put up for sale about35m of land and property in theEnglish regions owned by regionaldevelopment agencies. At the sametime it confirmed that those in the

capital would be kept in the publicsector.

HALF OF LAW FIRMS EXPECT TO LOSEWORK UNDER TESCO LAW

About half of law firms have lost orexpect to lose work to non-legal com-petitors in radical reforms that willmake the UK legal market one of themost deregulated in the world,according to a new study. The LegalServices Act, which comes into effectin October, will allow law firms toraise fresh capital by floating on thestock market or to form new businessstructures by bringing in as partnersnon-lawyers such as accountants.

AMERICAN LOOKS TO SPIN OFF EAGLESUBSIDIARYAmerican Airlines is moving towardsa spin-off of its regional airline unitas it tries to reduce costs, but opposi-tion from its pilots threatens to dis-rupt the process.In June 2010 American said it waslooking to divest its American Eaglesubsidiary, reviving a plan first

broached in 2007 but discarded as therecession took hold.

JAPAN DOWNGRADES ITS ECONOMICOUTLOOK AFTER TSUNAMIThe floundering government ofPrime Minister Naoto Kan bowed tothe inevitable today and cut its offi-cial assessment of the Japanese econ-omy for the first time in six monthsdue to the recent natural disasters.The Cabinet Offices April report saidthat while Japans economic situa-tion had been improving before theMarch 11 earthquake, it had sinceshown weakness.

MARKETS LOOK FOR THE NEXT BIGTHING AT ITV AS COWELL STANDS BYTHE EXITThe Citys connoisseurs of popularculture preoccupied themselves withThe X-Factor more precisely, withthe likely severity of any adverseeffect on ITVs share price should

reports prove accurate and SimonCowell leaves its highest-rated show.

RIO TINTO STRIKES GOLD, SILVER ANDBRONZE IN LONDON 2012 OLYMPICSThere is still more than a year untilthe Olympics, but one FTSE 100 com-pany has already struck gold with theLondon Games. Rio Tinto, the mininggroup, has agreed a deal with 2012organisers to supply the metal for theOlympic medals. Tom Albanese, chiefexecutive, said it is a special job forthe company.

BURBERRY LAYS ON MOTHER OF ALLPARTIES TO LAUNCH BEIJING STOREThe 21,500 sq ft sound stage at BeijingTelevision Centre hosted almost 1,000guests for fashion label Burberrysshowcase-cum-celebration featuringKeanes first performance in China.The rational for the showcase wasclear. Spending on luxury goods inChina is forecast to grow from 6.2bn

in 2009 to 17bn by 2015, andBurberry wants a big slice if that.

RWE SEES ENOUGH GAS TO FILLNABUCCO PIPELINEThere is more than enough naturalgas to fill the Nabucco pipeline that isexpected to transport gas from theCaspian and Middle Eastern regionsto Austria through Turkey, and theconsortium isnt considering down-sizing the project, one of the ven-tures partners RWE said in aninterview yesterday.

EU PATENT FILINGS REACH RECORD IN2010he economic recovery has increasedpatent filings to record levels, theEuropean Patent Office said yester-day. The EPO, a Munich-based allianceof the European Unions 27 membersand 11 neighboring nations, received235,000 filings in 2010, up 11 per centfrom 2009, and the highest number

ever in the organizations 34-year his-tory.

WHAT THE OTHER PAPERS SAY THIS MORNING

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BRITAINS labour market has ralliedin recent months, official data unex-pectedly revealed yesterday.

Employment shot up by 143,000from December to February, com-pared to the previous three months,the Office for National Statisticsrevealed. Unemployment is down to7.8 per cent, having dropped by 17,000over the same period.

Plus, the level of redundancies fell19 per cent quarter-on-quarter, which

is 18 per cent below the 2000-07 aver-age, noted Citigroups MichaelSaunders. All this is occurringdespite sizeable cuts in public sectoremployment, he said.

Slightly over two per cent of thegovernment sector workforce was cutlast year, removing 132,000 jobs. Theprivate sector created 428,000 jobsover the same period.

There is little evidence in the jobsdata that the economy is suffering asoft patch, Saunders added.

Claims for unemployment benefitnarrowly increased in March, howev-er, by 700 claims. Over the previous 12months, the claimant count droppedby 88,700.

There are currently 1.45m peopleclaiming benefits in the UK, withmany young people still missing outon the prospects offered by the UKsjob growth.

Of 390,000 extra jobs created fromthe first-quarter of this year, com-pared to the first three months of2010, only 8,000 reflects people agedunder 25 years, Saunders said.

There were 963,000 unemployed 16to 24 year olds in the three months toFebruary -- compared to 974,000 inthe three months to January, mark-ing a slight improvement.

Wage growth, however, remainedvery weak in the three months toFebruary.

Total pay was up just two per centcompared to a year earlier. Regularpay, which excludes bonuses, was upby 2.2 per cent still considerablybelow the rate of inflation.

Green shootsfor Britainsjobs market CONSUMER confidence on the UKhigh street picked up in March, fol-lowing an all time low the previousmonth, a widely regarded

Nationwide survey revealed today.The index picked up five points to a

score of 44, still considerably belowthe same point last year, when theindex recorded 73 points.

While this is a welcome change indirection, we must remember thatthe index remains at a historicallylow level, said Nationwide economistRobert Gardner.

The uptick in March failed toreverse the fall suffered in the previ-ous month, Gardner added.

The index of consumer morale hasa long term average of 80 points.

A slight upturn in respondentseconomic outlooks was credited with

the improvement in the index scorefor March, with 60 per cent believingeconomic conditions will be the sameor better in six months time.

Spending sentiment also sprungback from Februarys all-time low,with a considerable 13 point increasein the spending index.

However, the uptick still failed tofully offset the drop in spending con-fidence seen in February, Nationwidesaid.

ECONOMICS: P16

Morale amongUK consumersstarts to mend

BY JULIAN HARRIS

UK ECONOMY

UK ECONOMY

News 3CITYA.M. 14 APRIL 2011

Dec-FebUnemploymentacross UK .......

7.8%

JoblessBenefits .......

88,700in 12 months

to March

2010 Public SectorJobs .......

132,000(2.1%)

2010 Private Sector

Jobs.......

428,000(1.9%)

2010 TotalEmployment

296,000(1%)

Dec-FebUnemploymentin London ..

9.2%

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JP MORGAN beat expectations yester-day to post a 78 per cent jump in pre-tax profit, with investment bankingrevenues posting a dramatic recoveryfrom a mediocre first-quarter last year.

Overall pre-tax profits soared to$8.06bn (4.95bn), with investmentbanking fees revenue up 23 per cent to$1.79bn.

The investment bank recorded itssecond most profitable quarter ever,having had a particularly strong threemonths for M&A mandates.

JP Morgan was appointed to adviseAT&T on its $39bn purchase of T-Mobile USA and Duke Energys $26bnacquisition of Progress Energy. Thedeals put it at the top of Dealogicsfirst-quarter league table for globalmarket share in M&A.

But the banks consumer business,with its hangover of struggling proper-ty exposure, is still a drag on profits. Itannounced that it will face a $650mpre-tax cost due to foreclosure-related

matters due to an ongoing row overstruggling mortgage-holders beingwrongly evicted from their homes.

Overall, the retail bank saw pre-taxearnings drop five per cent on thesame period last year, coming in at$1.49bn. Retail income was hit particu-larly by a $937m net loss in mortgageand auto lending, although this wasan improvement on last years first-quarter loss of $1.19bn.

The banks real estate portfolio simi-larly remained in the red but saw asubstantial improvement, going from$1.3bn to $162m in net losses.

Profits at JPMorgan soarBY JULIET SAMUEL

BANKING

SWISS commodities giant Glencorewas hit by accusations of tax evasionat its Zambian subsidiary yesterday,just hours before pressing on with its7bn flotation in London today.

Five international non-governmen-tal organisations lodged a complaintwith the Organisation for EconomicCo-operation and Development(OECD) alleging accounting manipu-

lations at Mopani Copper Mines,owned by Glencore.The NGOs said an audit by account-

ants Grant Thornton and Econ Poyryof Mopani from 2006 to 2008, con-ducted at the request of the Zambiangovernment, showed the companyinflating its costs to minimise profitand reporting unusually low levels ofcobalt production. The complaintalleged that this lowered Mopanisnet income by hundreds of millionsof dollars to avoid it paying tax.

The audit allegedly also found evi-dence that Mopani was selling copperto Glencore at artificially low prices, apractice called transfer pricing thatbreaches OECD principles of tradingbetween parent and subsidiary firms.

In a sign that Glencore may not beready for the transparency demandedof public companies, it declined tocomment. It is due to publish itsintention to list a 20 per cent stake inLondon today, which would value itat about 37bn.

Glencore hit by tax evasioncomplaint ahead of listingBYALISON LOCK

CAPITAL MARKETS


JP Morgan chief exec Jamie Dimon has had a good quarter Picture: REUTERS

Think investment banking is dying?This US behemoth prompts a rethink

JP MORGANS impressive first-quarter certainly poses a chal-lenge for anyone convinced thatthe traditional investment

banking model is dead.The bank delivered a 13 per cent

return on equity while revealingthat its core tier one capital ratio inBasel III terms is already above theminimum, at 7.3 per cent.

The bank has at least five years toget to what is likely to be the 10 percent minimum for systemicallyimportant financial institutions,which it should achieve easily if itkeeps up the earnings growth deliv-ered this quarter.

Revenues in fixed income and

equity markets were down slightly,

but the $333m growth in advisoryfees more than made up for thedrop. The investment bank overalldelivered a 24 per cent return onequity over the quarter.

The bank is still being draggeddown by its retail bank and ongoingmortgage and real estate exposure,but although slow, the trend is oneof gradual improvement.

With a run of quarterly earningsreports to follow, the banks rivalsmight be wishing they had gottentheir news out first: JP Morgan couldbe hard to beat.

BOTTOMLINEAnalysis by Juliet Samuel

ANALYSIS l JP Morgan Chase

$48

46

44

24 Jan 11 Feb 4 Mar 24 Mar 13 Apr

46.4213 Apr

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ICELANDS credit ratings could bedowngraded to junk debt statusafter its voters rejected a deal toprovide a state guarantee for repay-ing Britain and the Netherlands forlosses from the Landsbanki bank-ing crash in 2008, Standard &Poors said yesterday.

S&P said it put Iceland on its listfor a possible downgrade due tohigher economic risks in the wakeof the no vote.

The agency has a BBB-/A-3 foreigncurrency rating, meaning it is just

one notch above the so-called junkrating category.

THE worlds banks face a $3.6 trillionwall of maturing debt in the nexttwo years and must compete withdebt-laden governments to securefinancing, the IMF warned yesterday.

Many European banks need biggercapital cushions to restore marketconfidence and assure they can bor-row, and some weak players willneed to be closed, the InternationalMonetary Fund (IMF) said in itsGlobal Financial Stability Report.

The debt rollover requirementsare most acute for Irish and Germanbanks, with as much as half of theiroutstanding debt coming due overthe next two years, the fund said.

These bank funding needs coin-cide with higher sovereign refinanc-ing requirements, heighteningcompetition for scarce fundingresources, the IMF said.

Overall, the IMF said global finan-cial stability has improved over thepast six months, but said the mostpressing challenges in the comingmonths would be funding of banksand sovereigns, particularly in vul-nerable Eurozone countries.

The Eurozones vulnerability tofurther crises following the rescue ofGreece, Ireland and Portugal meansgovernments must ensure multilat-eral support structures are strong,the IMF said.

It said governments should priori-tise fiscal consolidation as the IMFexpects debt costs and interest pay-ments to go up. Banks must alsofocus on balance sheet strength byrecapitalising larger institutions andrestructuring smaller ones to raisecapital buffers, the IMF said.

And the IMF cautioned that newBasel III regulation would be unlike-ly to affect the problem of bankinstability putting unsustainablepressure on financial liquidity.

IMF warns

banks on debtof $3.6 trillion

CHINESE investors including the coun-trys sovereign wealth fund may inject$13bn (8bn) into Spanish banks, agovernment source said yesterdayafter Spains Premier met financialauthorities in Beijing.

Spanish Prime Minister Jose LuisRodriguez Zapatero is visiting Chinaand Singapore this week, promotingSpains sovereign bonds and its finan-cial system as a good investment.

Chinese sovereign wealth fundChina Investment Corporation wasstudying an investment of $9bn, and

private entities might add an addi-tional $4bn, the source said.

China may invest$13bn in SpainS&P could cutIceland to junk

BYALISON LOCK

WORLD ECONOMY

EUROZONE

EUROZONE


London must fight hard to keep headquarters

HAVE you ever played Whac AMole? A menacing, flinty eyedmole pops up out of his hole,and no sooner have you

whacked him down than another

menacing mole pops out of anotherhole. However hard you whack, thatmenace remains.

It is the same for those who defendLondon as a global financial services

centre. The IndependentCommission on Banking molepopped up threatening to force thebreak up of the banks, but saw thelight and ducked back down.

The recommendations balance thecompeting interests of banks, theirshareholders, consumers and taxpay-ers. Banks are still studying the smallprint, but requiring them to ringfence retail deposits so they are notused in investment banking is unlike-

ly to be too great a burden to bear.But now comes another threat

the belief that actually we shouldntworry about whether London losesits banks headquarters to New York,

Hong Kong or Singapore. This line ofthought accompanied theCommissions report, and has beenrepeated by financial commentatorssince, and is in danger of going main-stream.

We shouldnt worry about losingan HQ, the line of thinking goes itjust means you lose a few executivejobs, but the bulk of the business andworkers would stay behind unaffect-ed; and while the government will

lose a little bit of corporation tax, itllkeep the income tax on the workers,which is where the real revenues are.

This is defeatist twaddle. The loca-tion of HQs is very important, which

is why countries fight over them.There is the obvious reputationalimpact on London, which would havelonger-term consequences.

But most importantly, HQs arentjust a few executives and a brassnameplate detached from their oper-ations. When top executives go, theirsenior staff want to go with them theyll never get a promotion if theirbosses never see them. Legal andother professional services firms

must go where their clients are.If the HQs go, our other sectors

that are global centres of excellencestart being unpicked. And the jobsand tax argument fails the reality

test Google set up its European HQin Dublin because of the corporatetax rate, and now it employs threetimes as many people there as inLondon, all paying income tax to theIrish not British government.

The location of HQs matters. Thegood news is we have a strong chanceof keeping them. The danger is thatwe start taking them for granted.

Anthony Browne is an adviser to theMayor of London

VIEW FROM CITY HALL

ANTHONY BROWNE

ANALYSIS l Global bank debt maturity

billions US

dollars

Other G-10Source:Moodys.

20 11 20 12 20 13 20 14 20 15

2,500

2,000

1,500

1,000

500

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CONSUMER goods giants Unileverand Procter & Gamble were yesterdayfined 315.2m (281m) by EU regula-tors for fixing washing powder pricesin eight EU countries.

Germanys Henkel, which alertedthe European Commission to the car-tel in laundry detergents, was notfined. The penalty for Unilever was104m while P&G was fined 211.2m.

As part of the Commissions settle-ment procedure, the EU watchdoghad cut the fines by ten per cent inreturn for the firms admissions thatthey participated in the cartel, whichthe Commission had dubbed purityin its investigation.

By acknowledging their participa-tion in the cartel, the companies

enabled the Commission to swiftlyconclude its investigation, EU com-petition commissioner Joaquin

Almunia said.P&G owns the Tide, Gain and Era

brands of washing powder whileAnglo-Dutch consumer goods groupUnilever makes detergent productsunder the brand names Omo andSurf.

Unilever said it had used the inves-tigations findings to tighten up itsinternal procedures, while addingthat the fine was covered by provi-sions made in its 2010 results.

Unilever finedfor EU price fixBY JOHN DUNNE

CONSUMER

EUROPEAN banks are carrying over1.3 trillion (1.15 trillion) in non coreloans, according to new informationpublished by PwC today.

These loan portfolios consist of bothperforming and non performing loans(NPLs), which PwC says the banks willspend the next 10 years either runningoff or selling.

NPLs in the UK topped 175bn for2010, an increase of 13 per cent from

2009. Germany topped the EuropeanNPL table with 225bn outstanding,

with Ireland in third place with110bn and Spain fourth with 100bn.

The quantity and pace of loan saleswill vary for each country, with thoseunder the most pressure such asIreland and Spain being encouraged toshift loans within 12-36 months.

Richard Thompson, partner at PwC,said: Corporate loan books thataggressively expanded over a shortnumber of years will take the longestto unwind. It is no coincidence that ithas been the more homogeneous,

higher quality, portfolios that havecome to market so far.

EU banks carry vast non-core loansBANKING

INSURANCE giant Prudential said yes-terday it would repay about 4m intotal to 39,000 customers after itadmitted making errors in valuingtheir pension funds.

The Pru failed to return tax creditsto unit-linked pensions funds heldwith Scottish Amicable, which trans-ferred to Prudential in 2008, leavingsome customers who partly sold or

transferred their funds out of pocket.Prudential has written to affectedcustomers confirming it will pay backthe amount needed to return them tothe position had the credit been paid.

Most will receive less than 100,with about 9,000 to receive up to1,000 and 100 to get 2,000 or more.

The oversight was exposed in aninternal audit. Tax deducted frominvestment income earned by thefunds should have been recoveredagainst Prudential Assurances tax lia-

bility. We found there was someinconsistency in the way these taxcredits were paid, the Pru said. Forsome of our legacy Scottish Amicablefunds...the tax refund was not paid,whereas for our other funds it was.

It altered the treatment of the cred-its in June 2008 to price all fundsequally. This payback corrects thevalue of funds that were undervaluedwhen transferred, switched or partial-ly surrendered by customers betweenJune 2004 and December 2008.

Pru repays customers 4mfor undervalued pensionsBYALISON LOCKINSURANCE


BURBERRY UNVEILS FLAGSHIP BEIJING STORE

LUXURY UK clothing brand Burberry launched its f lagship Beijing store yesterdaywith a fashion show and concert in the Chinese capital, including a digital display ofBurberrys classic trench coats and checked umbrellas. The company expanded itsoperations in China last year by taking control of its franchised stores in the country,in a 70m deal which it said could boost earnings by almost 10 per cent.

ANALYSIS l Unilever

p

5 Apr16 Mar24 Feb4 Feb17 Jan

1,940

1,900

1,860

1,820

1,928.0013 Apr

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SHARES in engineering consultan-cy group WS Atkins rose seven percent yesterday after the companysaid it expected its full-year resultsto beat market forecasts, backed bythe strong performance of itsMiddle East operations.

The Surrey-based company,which is the official engineeringdesign services provider for theLondon 2012 Games, announcedits earnings will exceed analystsconsensus forecasts of 92.5m.

The group has been involved in

high profile projects in the MiddleEast over the last year, notably the

revamping of Jeddah airport inSaudi Arabia and a new railscheme in the United ArabEmirates.

The UK business continues toperform in line with expectationsdespite challenging market condi-tions.

The trading update ahead of pre-liminary results to be announcedon 16 June has also highlighted a1,000 reduction in total employeenumbers for the company to17,500.

Shares closed at 737p yesterday,up 48p from 689p the previous day,

valuing the business at around737.53m.

SCHNEIDER Electric continued todeny rumours yesterday that it wasin discussions to purchase TycoInternational, despite contraryreports.

The French-based energy manage-ment group was said to have made apreliminary bid for approximately$30bn (18.46bn) for the Switzerland-based security agency, but Schneiderquickly refuted the reports.

In response to market rumours,Schneider Electric announcedtoday that it is not currently in dis-cussion with Tyco Internationalregarding a potential strategictransaction between the two com-panies, the company said in astatement.

Schneider has made a numberof acquisitions to boost its growth,but this rumoured bid is a surprisedue to the size of the target.

This would be huge comparedto Schneiders size, said BertrandLamielle, head of asset manage-ment at B*Capital.

Tyco had 10.4bn in revenue in

2010, almost two thirds ofSchneiders 17.8bn revenue.

Shares in Schneider have fallenover eight per cent this week onconcerns about a capital hike, andare down 10 per cent since earlyApril.

Analysts from Morgan Stanleyestimate a deal would require up to$17.2bn of fresh equity, suggestingit could also prompt Europesbiggest-ever non-financial shareissue.

Shares in Tyco, which has a mar-ket capitalisation of about $23bn almost two thirds that ofSchneider were more or less flatin Paris trading.

Schneider in

denial of Tycobid rumours

PROPERTY investor Hansteen hasraised 150m through a share issue,as it looks to cash in on cut priceproperties arising from the financialdownturn.

The real estate firm, which spe-cialises in industrial estates and busi-ness parks, said yesterday it hadsuccessfully issued 185m new shares

through a 50m placing with existingshareholders and an 100m openoffer.

It priced the sale at 81p per share,representing a 4.9 per cent discountto the closing mid market price of85.2p per share the company hadbeen trading at on Tuesday this week.

Hansteen said it would use the cashto expand its purchasing programmein the UK and across Europe.

The firm acquired approximately

460m of property in ten transac-tions, purchased from a bank seekingto resolve an impaired loan.

It said the problems being faced bybanks with real estate loans wouldcontinue into next year, posingattractive investment opportuni-ties.

Joint chief executive Ian Watsonsaid: Access to capital and manage-ment expertise will be key to exploit-ing opportunities.

Hansteen completes 150mshare issue to boost expansion

WS Atkins shares rocket as itpromises to beat expectations

BY ERICWILKINS

ENERGY

INDUSTRIALS

BYRICHARD PARTINGTONPROPERTY


SIMON Hayes led the Peel Hunt team

on the Hansteen share offer. As chiefexecutive and head of broking at theboutique firm, he advises a widerange of companies.

Peel Hunt has announced a hattrick of transactions this week, as thebrokerage continues to go fromstrength-to-strength since its man-agement completed a buy out fromKBC last year.

The recent deals include a 12m

placement for online dating businessCupid and a 16m placing forPrimary Health Properties.

The Hansteen deal is one of thebiggest placings in the property sec-tor over the last few years, sinceCapital Shopping Centres raised200m in 2009.

Before becoming chief executive in2006, Hayes was head of corporatefinance. He joined the firm in 1993.

He read classics at Durham andhas an MBA from the CranfieldSchool of Management.

He led the team from Peel Hunt,which acted as sole sponsor, brokerand underwriter. It included CapelIrwin, Simon Brown and KateBarlow.

ADVISER TO HANSTEEN

SIMON HAYES

PEEL HUNT

ANALYSIS l Schneider Electric

125

115

10517 Jan 4 Feb 24 Feb 16 Mar 5 Apr

112.7513 Apr

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is to follow the rules of trading. Themore they follow the rules, the more

likely they are to succeed.However, the conventional wisdom

of buy low and sell high is apparent-ly tantamount to suicide. That iswhy a lot of people lose money,Baghdady instructed. You shouldbuy high and sell even higher.

VERY GOOD CALLSTHE City is mourning the loss ofRichard Crossley, technical strategistat Merchant Securities, who passedaway at home in Spitalfields onTuesday aged 62.

The popular chartist,author of the well-followedMercantalyst daily commen-tary, may not have got togrips with text messages orordering books from Amazon,nor was his usual attire of acardigan and boat shoes what hisCity clients expected.

But he excelled at his chosenfield: calling the top of the markets todevelop a religious following amonghis contacts, who often read no other

technical analysts.

Crossley warned against Marconiand Vodafone when fellow analystswere enthusing about both, gavesome well-timed advice toinvestors in the run-up to thesub-prime mortgage melt-down, and predictedWall Streets imminentdemise before theSeptember 11 terroristattacks by noticing theunusual volumes in air-line stocks.

He made some very,very good calls, saidJohn Coulson, head ofsales at MerchantSecurities, who workedwith Crossley for thelast five years. All hisclients loved his wonderfulcharts and he built up anamazing following. He will be a

hard act to follow.Crossleys family will announce the

funeral arrangements in due course.

TWITTER BUBBLETHE Twitter madness continues, asbrothers Paul and Simon Hawtin ofDerwent Capital have had to delay thelaunch of their Twitter-based hedgefund following overwhelming inter-est from investors.

Last month, The Capitalistrevealedhow the fund will be the first in the

world to use sentimentthreads on Twitter topredict movements inthe Dow Jones

Industrial Average,and the scheme hassince attractedinvestment fromhigh net worth andultra high networth individuals

and well-known fami-ly offices.

From the institu-tional side, we have had

significant interest from fund offunds and small private banks whohave the flexibility to invest in a start-up, Paul Hawtin confirmed.

The brothers are unwilling to quotespecifics prior to the ventures officiallaunch later this month but PaulHawtin indicates investment for theopen-ended Cayman island fund isalready well above the launch tar-get of 25m.

TAILOR-MADE JOBLOSING his job at the start of thebanking crisis was the best thing thatever happened to former BNP Paribastrader James Sleater, who used his sev-erance package to start City suitmak-er Cad & the Dandy.

Sleater founded the company twoyears ago with Ian Meiers, a redun-dant investment banker fromBarclays Capital, and the pair are on

course to turn over 1.5mthis year as the UKslargest bespoke tailor,with shops in Savile Row,the City and CanaryWharf.

Both Ian and I arevery happy with theseries of events, saidSleater, who plans toexpand worldwide atthe end of 2011, start-ing with New York.Its fundamentally

important to enjoywhat you do in life, andwe both like the tailor-

ing business much morethan our banking jobs. I hated hav-

ing to get out of bed every day know-ing I had to head into the office.

CRIME DOES PAY AS TV DETECTIVETURNS 100K HEDGE FUND TRADERWHAT do a professional poker player,a former SAS soldier and actorChristopher Fox, otherwise known asDS Max Carter in The Bill, have incommon?

They are the stand-out contestantsin a Trading Places-style experimentto find the hedge fund stars of thefuture, which has attracted 8,000applications from every walk of life:nannies, tube drivers, doctors and

employees of every major UK bank.The man behind the contest is

Mike Baghdady, the managing direc-tor of Training Traders and winner oflast years Frankfurt World TradingChampionship, who is currentlydoing 200 interviews before narrow-ing the field to a final 20, using psy-chological tests to see if candidateshave the mindset for success.

Baghdady is so confident of his

rules for trading that once he hastrained the 20 novices for six to eightweeks, he will let them loose on thestockmarket with 100,000 each ofhis own money. If they lose morethan 50k they will be terminated,but if they make money, they willtake up to 40 per cent of the profitsand be given a job at the company.

If the traders lose the money, it ismy loss, he said. Their responsibility

Trading places: The Bills Christopher Fox and trader Mike Baghdady (inset) Picture: REX

h ea dl in e s po ns or c ha mp ag ne r ec ep ti on s po ns or

official venue partner sponsored by

What will you say?

Enter the City A.M. Awards 2011 and you could berecognised as one of the Citys great personalitiesor companies of the year.

Visit our website to see how you can enter:www.CityAMAwards.com

or for more information, please contact Jo Pead:020 8267 4043 / [email protected]

Its a privilege to be nominated by arange of other asset managers and

professionals in the cityRichard Swann, Inflexion (Alternative Manager of the Year)

Top-rated chartist Richard Crossley

The Capitalist12 CITYA.M. 14 APRIL 2011

EDITED BY

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

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ONLINE fashion retailer Asos yes-terday said its sales were flying inoverseas markets as the web defiesthe downturn on the high street.

The firm said retail salesincreased 70 per cent to 93.4m inthe three months to 31 March, itsfinancial fourth-quarter.

That compares with a rise of 59per cent in its third-quarter.

UK sales increased 24 per cent to44.9m, while international salessoared 161 per cent to 48.4m,helped by the introduction ofUnited States, French and German

websites in October 2010.Profits for the year will now

come in at the top end of marketexpectations.

Analysts had pencilled in pre-taxprofit of between 24m and 29m.

Total sales across the group rose63 per cent to 97m in the quarter.

Chief executive Nick Roberstonsaid: Sales are flying in Australiaand international growth isimpressive.

Online retail is the future, thereis no doubt about that.

He said the company wouldlaunch operations in three to fivenew overseas markets in the nextyear as the company remained on

the expansion trail.Asos is thriving on the US,

Germany and France, with the UKproving a more difficult market asconsumers rein in their spending.

Asos sees overseasgrowth fuel profitBY JOHN DUNNE

RETAIL

Starting a Hedge Fund?

For more details and to

register go to

http://events.complyport.com

or call 020 7399 4980

Complyports seminar series continues

at 17:30 on 12th May 2011 with a

discussion on the issues surroundingthe establishing o a new Investment

Management frm.

Ater the seminar there

will be a reception andnetworking event, kindly

sponsored by fundlab.

We will have presentations

rom Simmons and

Simmons, Bank o America

Merrill Lynch, Quintillion

and Complyport.

Consumer News14 CITYA.M. 14 APRIL 2011

NEWS | IN BRIEF

Tesco rapped over Asda claimSupermarket giant Tesco has been rep-rimanded for making misleading claimsabout rival Asda prices. In a nationalpress advertisement, Tesco featured aselection of fresh food products display-ing their in-store prices, and those of thesame or equivalent products at Asda.

Tesco was hitting back at Asdas priceguarantee campaign which guaranteesthe price of some staple foods.Upholding the complaint, the ASA ruled:"The ASA welcomed Tesco's acknowl-edgement of the error, their assurancethat they would take action to ensure asimilar error did not occur again andtheir confirmation that the ad would notrun again.

Smiths News sees profit liftNewspaper and magazine distributorSmiths News first-half underlying pre-tax profit rose 11 per cent on cost cuts,and the company said it expected theroyal wedding to boost its magazinesales in the second half. September toFebruary underlying pre-tax profit was19.2m, compared with 17.3m lastyear. Revenue, however, fell 5.2 per centto 872.3m, hurt by lower sales at itsbooks business, Bertrams. The company

has set out a cost-efficiency programmeto save 20m by 2013. Smiths Newsshares have shed 27 per cent since thecompany warned in October that it wascautious about its recovery prospects.

JD Sports saw a jump in profit yester-day but remained downbeat about theoutlook.

The gloomy trading forecast over-shadowed better-than-expected profitfigures for the past year of 81.6m,after analysts had pencilled in 79m.

Same-store sales for the yearincreased by 3.1 per cent, boosted bystrong demand for brands such asAdidas and Nike and the firms ownbrands such as Mckenzie and Carbrini.

However, it warned that despite thestrong trading it was still worriedabout the impact tax rises and public

spending cuts would have.The retail environment has recent-

ly been significantly impacted byadverse fiscal changes in addition tothe multiple current economic pres-

sures, executive chairman PeterCowgill said.

Against that background, there-fore, it is inevitable that the board isextremely cautious in its outlook, par-ticularly when the profits achieved forthe year to 29 January 2011 are effec-tively rebased purely as a result of theimpact of increased VAT.

JD Sports, which last month decidedagainst bidding for struggling rival JJBSports, is paying a total dividend of23p, up 28 per cent.

Analysts at Investec said JD Sportspositively surprised with the results.However, it warned: Management ishighlighting the difficulty of passingon VAT and cost increases to its cus-

tomers, so we are cutting full-year fore-casts by 9m to 72m.

The retailer opened 28 stores andrefurbished a further 24 in the year toJanuary 2011.

JD Sports negativeon growth in 2011

despite sales boostBY JOHN DUNNE

RETAIL

CITY VIEWS: ARE YOU BUYING MORE ONLINE?Interviews by Eric Wilkins and Robert Leedham

IN ASSOCIATION WITH

www.RateSetter.com Customer Phoneline: 08442490115

Save or Borrow peer to peer at RateSetter.com

Yes. It is easier to find stuffonline. I've recently bought ahouse so I go onebay to buy fur-niture. You canfind it faster.It costs more togo toa store.

RUSSELL EADES |RBS

Not particularly. It is easier togo to the shops on my lunchbreak. Deliveryfor online takesa while. Youcan get thesize youwant ina store.

TOM SHORTO |INSIGHT INSURANCE

Yes. It is far more convenientand quicker to find what youare looking for. Ialso use pricecomparisonsites to grab thecheapestmusicetc.

MATTHEW BATES |QBE

ANALYSIS l Asos

p2,000

1,800

1,600

1,40017 Jan 4 Feb 24 Feb 16 Mar 5 Apr

1,924.5613 Apr

GO Outdoors yesterday secured a28m cash injection from privateequity house 3i as it accelerates itsgrowth plans to open 40 new shopsover the next four years.

The deal with 3i values the compa-

ny at 100m.In exchange for its investment 3i

takes a minority stake in the businessowned by Paul Caplan.

The announcement came after

John Lovering, stepped down as chair-man of the company after only eightmonths at the helm.

The outdoor equipment retailer,which is backed by Leeds-based YFM,reported a 57 per cent increase inturnover to 115m in the year endedJanuary 2011.

The figures were boosted by the

nine store openings during the year.Like-for-like sales across the entirecompany grew by 10.6 per cent, whileonline sales grew by 45 per cent, itsaid.

BYHARRY BANKS

PRIVATE EQUITY

3i invests in Go OutdoorsJohn Lovering has stepped down as chairman at Go Outdoors

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AMAZON yesterday announced it willrelease a cheaper model of its Kindle e-reader that will feature adverts.

It will initiallygo on sale in theUS at a $25 (15)discount, sellingfor $114 insteadof the usual$139 price-tag.

Users will,however, haveto accept spe-cial offeradverts ands p o n s o r e dscreensavers.

The firstseries of spe-cially-designedscreensaverswill be from brandsincluding General Motorss Buick,

Procter & Gambles Olay, and Visa.The new Kindle is available for pre-

order for US customers and will shipon 3 May. Amazon yesterday wouldnot confirm a UK release date.

Cheaper Kindlefeaturing adsto go on saleTECHNOLOGY

Technology News 15CITYA.M. 14 APRIL 2011

SHARES in chip designer ARMHoldings rocketed almost seven percent yesterday after Microsoftunveiled its latest round of softwarerunning on its processors.

Microsoft showcased the new ver-sion of its Internet Explorer browserrunning on an ARM-designed chip.

The demonstration followed asimilar announcement earlier thisyear that Microsoft would use ARMprocessors in a new, low-poweredversion of the Windows operatingsystem.

Microsoft is keen to work with

Cambridge-based ARM in a bid togain traction in the next generation

of mobile devices such as smart-phones and tablets.

However, the developments havetechnology analysts speculatingthat ARM could soon break into thePC market an area traditionallydominated by Intel opening up apotentially lucrative new revenuestream for the firm.

ARM has already cornered themarket for low power-usage chipsfor mobile devices but has beenunable to break into the laptop anddesktop markets.

Morgan Stanley responded byissuing a positive note on ARM.Analyst Francois Meunier said: Weare positively surprised that soft-

ware development is already welladvanced. Bears on ARM argue that

Windows on ARM could be lateand/or unstable, which appears notto be the case. ARM continues tomake faster inroads in the PC mar-ket than Intel in tablets and smart-phones.

ARMs shares closed 6.8 per cent

ARM boosted by

Microsoft tie-upBY STEVE DINNEEN

TECHNOLOGY

DUTCH chip equipment maker ASML, a bellwether forthe European tech sector, said yesterday some customerswere holding back on confirming orders because theJapan quake had disrupted their supply chain.

ASML, the worlds largest maker of semiconductorlithography machines, which map out electronic cir-cuits on silicon wafers, reported a record quarterlyprofit on strong demand for the newest chips used intablet computers and smartphones, but reported alower-than-expected order book in the first-quarter.

ASML also sounded a note of caution because of thedevastating 11 March earthquake. Chief f inancial offi-cer Peter Wennink said: There is a level of uncertaintyabout the ability of the entire supply chain.

ASML hit by fearsover supply chainTECHNOLOGY

Former chief executive David Eldridge quit after a profit warning earlier this month

ALTERIAN stock slumped more than athird yesterday after its second profitwarning in just over a week.

The marketing software providersaid its full-year results would bematerially lower than anticipated.

An Alterian spokesman said: Theexpected further shortfall arises fromboth revenue and routine operatingcosts in comparison with marketexpectations.

Earlier this month Alterian shareslost almost a fifth of their value afterissuing a profit warning owing to thedelay of a 4m licensing contract,

which will cut ten per cent off its full-year revenues and profits.

The bombshell led to the resigna-tion of its founder and chief executiveDavid Eldridge, who had led Alterian

since founding it 14 years ago.A smooth changeover looks unlike-

ly, with chief financial officer GuyMillward said to be wary of steppingup.

The company, which countsAstraZeneca and Jaguar Land Roveramong its customers, has seen itsshare price decline rapidly over thelast three months.

Second warning onprofits in week sees

Alterian stock dropBY STEVE DINNEEN

TECHNOLOGY

ANALYSIS l ARM Holdings

p660

620

580

540

500


598.0013 Apr

MAIL order gardening group Flying Brands warnedthat its profit for the year would be well below marketexpectations as its traditional flowers business contin-ues to be hit by increasing competition and weak con-sumer spending.

The Jersey-based company, which provides mailorder flowers, bedding plants and gardening products,said it also saw sales from its bird-food division decline,hit by stiff competition from supermarkets and gardencentres. The company also said it would have to rene-gotiate its banking terms and planned to start talkswith its lenders soon. Flying Brands shares have lost aquarter of their value since the company issued a prof-it warning in January.

Flying Brands innew profit alertGARDENING

ANALYST VIEWS: WHAT DOES THIS PROFITWARNING MEAN FOR ALTERIAN? Interviews by Steve Dinneen

ALEX JARVIS | PEEL HUNT

We have made provisional revisions to the current year and substantial-ly reduced full-year 2012 and 2013 forecasts as evidently it will need to berebased. We provisionally value the company on two times full-year 2011 revisedsales, implying a 135p target price, assuming 8m net cash.

GEORGE O'CONNOR | PANMURE GORDONThere are no encouraging signs in this, but the latest warning will only

raise calls for the company to be sold from a murmur to a cresendo. Yet with thebusiness looking like it is stuck in a hole, buyers are more likely to be cheeky bidsfrom financial buyers. This is very disappointing.

JULIAN YATES | INVESTECWe interpret this as revenues around 2m lower (at 37m) and costs

2m higher, which will reduce earnings to virtually zero. With numbers notfinalised, questions will be raised about budget discipline and we expect thisuncertainty to impact the stock today.

ANALYSIS l Alterian

p210

190

170

150

120


108.0013 Apr

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RETAIL sales in the US rose for theninth straight month in March but at aweaker rate than expected, it wasrevealed yesterday.

On a mixed day of news for the USeconomy, sales were announced at 0.4per cent up on February, largely drivenby higher petrol prices.

Receipts at petrol stations, whichaccounted for about 10.7 per cent ofretail sales last month, increased 2.6per cent after rising 2.4 per cent in

February.However, many other components

also held up, boosting the outlook forthe US high street, INGs Rob Carnellsaid:Taken together, this is a hearten-ing set of numbers.

In another positive data release, job

openings in the US for February weresaid to have risen at the sharpest ratesince December 2004, rising by 352,000to 3.09m.

Business inventories increased inFebruary, a separate survey by theCommerce Department showed edg-ing up by 0.5 per cent to $1.46 trillion.

The ailing US house sector, mean-while, shows little sign of recovery. TheMortgage Bankers Association said itsindex of mortgage application activity,which includes both refinancing andhome purchase demand, fell 6.7 percent in the week ending 8 April.

Meanwhile, in its Beige Book assess-ment, the Federal Reserve said the USeconomy continued to improve overthe past month on gains in manufac-turing but firms were feeling theeffects of higher energy and raw mate-rial costs.

Slow growthfor Americanretail sector

INFLATION could still rise above fiveper cent this year, economists atBarclays claimed yesterday.

The announcement surprised ana-lysts after consumer price inflationsank to four per cent in March, from4.4 per cent the previous month.

However, strong upwards pressuresin food and energy costs will driveinflation to a peak of 5.1 per cent inthe consumer price index, Barclaysforecast.

Hikes in duties on alcohol andtobacco from last months Budget

will also push prices furtherupwards, Barclays said.

The higher inflation profilewe now expect during theremainder of this yearwill make it hardfor the Bank ofEngland to resistpressure to raiserates indefi-nitely, itadded.

B a n k governorM e r v y n

King (pictured) previouslywarned that inflation couldreach the five per cent markin 2011, yet many analysts

now expect price pressures tolinger closer to four per

cent. The dreadedfive per cent ratethat we had oncefeared now looksunlikely to berealised,AndrewGoodwin of theErnst & YoungItem Club said.

Industry in the Eurozonecontinues to edge upward

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INDUSTRIAL production in theEurozone has increased for the fifthmonth in a row, recording a 0.4 percent increase in February and up from0.2 per cent the previous month, theEUs institute of statistics Eurostatannounced yesterday.

The result was weaker than expect-ed, coming in at half the marketexpectations of a 0.8 per cent increase.

Nonetheless, the gain was enoughto push the annual growth rate up onepoint to 7.3 per cent from 6.3 per centin January.

Among the main Eurozone coun-tries, production rose highest inPortugal and Slovenia (1.7 per cent),followed by Germany and Italy (1.4 percent) while France and Spain con-tributed a modest 0.4 per cent.

INGs Martin van Vliet was opti-mistic, commenting: Februarysincrease in Eurozone industrial pro-duction confirms that the industrialrecovery remains firmly on track.

But the combination of high oilprices, a stronger euro and the slow-down in world trade makes us morecautious about industrys prospectsfor the second half of this year, vanVliet added.

Barclays warns that inflationcould soar past five per cent

BY JULIAN HARRIS

US ECONOMY

UK ECONOMY

Economics16 CITYA.M. 14 APRIL 2011

ECBS MERSCH: LOW RATES ARE TEMPORARY

MORE hawkish warnings from the European Central Bank were voiced by senior officialYves Mersch yesterday. A policy of low interest rates can lead to distortions, Merschsaid. Accommodative interest rates can only be temporary, he stressed, warning of thevery negative consequences" of historically low rates. Picture: GETTY

NEWS | IN BRIEF

Swiss prices increase in FebruarySwitzerlands producer and import priceindex grew 0.4 per cent year-on-year inMarch after a 0.5 per cent increase inFebruary, the Federal Statistical Officesaid yesterday. Producer prices weredown 0.1 per cent against the previousyear, while import prices were up 1.6

per cent on an annualised basis.

French inflation climbs upwardsInflation in France climbed to a 32-month high of 2.2 per cent in March,according to the harmonised index ofconsumer prices (HICP). The HICP wasup 0.9 per cent from February due tostrong price increases in clothing (eightper cent), energy (2.4 per cent) and food(0.9 per cent), the national statisticsinstitute INSEE said yesterday.

Divergence in UK housing marketThe UK housing market is increasinglytwo tier, with affluent markets on therise and cheap areas continuing toslump. The most expensive 20 per centof areas saw house prices increase by3.4 per cent over the year, whilst thecheapest fifth declined by 5.1 per cent,according to a survey by ChestertonHumberts and the Centre for Economic

and Business Research (CEBR).

Economists eye Chinese inflationAuthorities in China are failing to controlinflationary pressures which pose a seri-ous risk to its future growth, economistsfrom Legal & General said yesterday.

BY EUGENIOMONTESANO

EUROZONE ECONOMY

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FUJITSU has announced plans todeliver next generation internet serv-ices to 5m homes in rural Britain.

It says it will provide the infrastruc-ture and work with broadbandproviders including Virgin Media andTalkTalk, which will wholesale itsfibre.

Fujitsu says the network is aground breaking and innovativealternative to BT Openreach.

The open access wholesale network

will be underpinned by Cisco technol-ogy. Fujitsu says it will run fibre optic

cabling directly to the home in themajority of areas, rather than to thelocal street cabinet. As a result thenetwork will be capable of speeds ofup to 1Gbps from day one, with thepotential to achieve speeds of over10Gbps.

It will be deployed across bothunderground and overhead infra-structure, meaning it will be possibleto reach areas where broadband pro-vision is poorest.

Fujitsu to roll out fibreinternet to rural BritainTELECOMS

FRESNILLO, the worlds largest pri-mary silver producer, said yester-

day that silver output declined inthe first-quarter due to lower oregrades.

The Mexican precious metalsminer said silver production fell 2.2per cent to 10.1m ounces, includingoutput from the Silverstreamagreement.

The FTSE 100 miner said it wastaking measures to increase the vol-ume of ore processed at Fresnillo,its largest mine, to compensate for

lower grades.We are on track to achieve our

target of producing 44 millionounces of silver, includingSilverstream, in 2011, said chief

executive Jaime Lomelin.Gold output jumped 13.3 percent to 96,407 ounces, a record forthe first-quarter, but fell 4.4 percent from the fourth-quarter of2010.

Lead and zinc productionincreased 16.8 per cent and 16.3 percent from a year earlier.

Fresnillo is looking to overtakeBHP Billiton, which produces moresilver as a by-product from other

metals, as the worlds biggest over-all silver producer.

Shares in Fresnillo closed flat yes-terday at 1,576p.

Output tumbles at FresnilloBYHARRY BANKS

MINING


ANALYSIS l Fresnillop

5 Apr16 Mar24 Feb4 Feb17 Jan

1700

1650

1600

1550

1500

1450

1400

1350

1300

1250

1576.0013 Apr

NEWS | IN BRIEF

Tullow Oil output rises in GhanaUK-based Tullow Oil expects crude oilproduction from its operations in Ghanato reach 80,000 barrels per day bynext week and 120,000 barrels per dayby August, the operator of the companyrevealed yesterday. It said the produc-tion levels were an important mile-stone. Tullow operates Ghanasoffshore Jubilee oil field, which beganproducing oil in December 2010.Production currently stands at about70,000 barrels per day.

Pursuit in tie-up with KaercherPursuit Dynamics said yesterday thatit had signed development and distri-bution agreements with Kaercher tocoordinate and structure the commer-cial cooperation between the twocompanies, which was first announcedin April last year. The two companiesplan to develop and market globaldecontamination and disinfectionproducts. Pursuits net funds for theyear ending 30 September 2010 were10m.

Toyota halts Europe productionAuto makers in Europe are bracing formore supply chain disruption afterToyota Motors announced productioncuts on the continent due to lastmonths earthquake and tsunami inJapan. Toyota said yesterday it wouldstop production in five European plantsfor several days in April and Maybecause of a shortage of supplies fromJapan. Toyota said last week that itwould halve UK production because ofa shortage of some parts.

GLOBAL miner Rio Tinto yesterdayforecast iron ore production toroughly meet market expectationsfor the full-year, despite rain andcyclones denting output of its mostvaluable commodity in the first-quarter.

The worlds second-largest produc-er of the steel-making raw materialreported a three per cent fall in pro-duction for the March quarter, aftercyclones battered its operations innorthwest Australia early this year.

Rios production of hard cokingcoal, also used in steel-making, tum-bled 12 per cent in the first-quarterfrom a year earlier, though this hadbeen expected after major floodingin the countrys main coking-coalregion of northeast Australia.

Our Australian coal, iron ore, ura-nium and alumina operations wereaffected by the extreme weather in

the first-quarter, but most are recov-ering and are benefiting from con-tinued strong prices, chief executiveTom Albanese said in the companysquarterly production report.

Rio, the first of the large minersoperating in this area to report pro-duction, is widely seen as a barome-ter for a sector operating at full tilt,as miners try to satisfy insatiabledemand for industrial metals fromChina and other emerging markets,and take advantage of record prices.

Rio Tinto iron

output hit bycyclones in OzBYHARRY BANKS

MINING

FIRST MG IN SIX YEARS ROLLED OUT AT LONGBRIDGE

THE brand newMG6 rolls off theproduction line atthe Longbridge fac-tory in Warwick.

The MG6 is the firstcar to be manufac-tured on a largescale at the plantsince 2005, whenthe demise of Roverled to 6,000 joblosses. MG is nowowned by ChinesecarmakerShanghaiAutomotiveIndustry. The newcars parts aremade in Chinathen shipped to theUK for assembly.

Picture: GETTY

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THE chief executive of French car-maker Renault has said that thecompany has several possible inter-nal candidates to replace chief oper-ating officer Patrick Pelata, whoresigned this week over an industrialespionage fiasco.

Renault, 15-per cent owned by theFrench state, fired three executivesin January, saying its high-profileelectric vehicle project had been tar-geted by an international spy net-work, but later had to admit it wastricked the men did nothing

wrong and there was no spying.Its too early to give a name, but

have confidence in us, said CarlosGhosn. Renault has a successionplan for all its management. Theinterim period will not drag on butwe will take a few weeks to examinethe different candidatures, Ghosnsaid.

And I think there are several pos-sible candidates internally, headded.

It has been reported that Philippe

Klein, executive vice president ofproduct planning and programmes,and finance chief DominiqueThormann were in the running toreplace Pelata.

Ghosn also said that an investiga-tion into the industrial espionagecase did not implicate him and henever thought of resigning over it.

Nothing in the audit implicatesme, Ghosn said, referring to aninquiry that led to Pelatas resigna-tion.

The group set out a new strategicplan in February that aimed to near-ly double operating margin to morethan five per cent of sales in 2013, as

part of a new growth plan that tar-gets Brazil and Russia as key markets.

Renault could name Pelatas

successor from internal listBYHARRY BANKS

AUTOMOTIVE

MORE NEWSONLINE

www.cityam.com

Dominique Thormann,currently finance chief atRenault, is reported to bein the running to become

chief operating officer

ANALYSIS l Rio Tinto

p4,800

4,400

4,000


4,408.5013 Apr

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Mirae AssetThe Asian asset management companyhas confirmed Betina Tomi as senior

sales manager for German-speakingEurope. Based in Mirae Assets EMEAheadquarters in London, Tomi will be

responsible for marketing the compa-nys SICAV fund range to investors inGermany, Austria and German-speakingSwitzerland.

Jones Lang LaSalleCharles Cresser is returning to Jones

Lang LaSalles English business asleader of the occupier team in the firmsproject and development servicesdepartment. Cresser returns fromRussia, where he spent two years devel-oping LaSalles capability in the region.

Renaissance CapitalThe emerging markets investment bankhas hired Yavuz Uzay as head of Turkish

equity research as it starts trading onthe Instanbul Stock Exchange. Uzayjoins from Goldman Sachs, where hewas executive director in the EMEAfundamental strategies group.

Simmons & Simmons

Simon Barrett has been appointed aspartner of the law firms projects prac-tice. Barrett was previously a seniorlawyer in the infrastructure and projectfinance group at Hogan Lovells Tokyo.

CB Richard EllisAlex Greaves has been confirmed as thereal estate corporations senior salesnegotiator in its London residential

team. A former sales consultant atHarrods Estates, Greaves will expandthe prime residential sales business.

MercerPatrick Race has been promoted tohead of Mercers UK investment con-

sulting business. Race will additionallylead the companys UK executive teamand will sit on the leadership team forMercer UK.

Stadia TrusteesThe boutique investment specialist hasconfirmed Gordon Banks, formerly headof investment development at SuffolkLife, as its new financial controller.

CITY MOVES | WHOS SWITCHING JOBS Edited by Harriet Dennys

PricewaterhouseCoopersAmit Aggarwal has been appointed to lead theretail M&A team at PwCs corporate financebusiness. Aggarwal brings more than 15 yearsexperience in M&A and private equity to therole, having previously held senior positions at

JP Morgan and Baugur. Aggarwal moves fromthe position of partner at Retail Partners, theretail-focused advisory business he co-foundedthat advised clients including Jacques Vert,Lloyds Banking Group and Adams.

+44 (0)20 7092 0053morganmckinley.com

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

in association with

Tech stocks pushWall Street higher

US stocks finished mostly flat ina choppy session yesterday, asinvestors bet on strong technol-ogy earnings even as JPMorgan

Chases numbers weighed on othermarket sectors.

Network equipment maker

Riverbed Technology boosted theindustry and helped buoy the Nasdaqafter its quarterly outlook. The stocksurged 12.4 per cent to $34.74 (21.32)on four times the average daily vol-ume over the last 50 days.

This earnings season is an expecta-tion game, said King Lip, chief invest-ment officer of Baker Avenue AssetManagement in San Francisco.

He said after Riverbeds competitorF5 Networks reported poor earningsin January, analysts pretty muchthought companies like Riverbedwere going to miss. Thats why yousee the strong reaction in their sharestoday. F5 shares gained 3.1 per centto $96.70.JPMorgan Chase shares fell 0.8 percent to $46.25 after earlier risingmore than one per cent. The Dowcomponent beat expectations with itsprofit, but enthusiasm waned after

the banks chief executive said in aconference call there would not be

another dividend hike soon.Most people had expected

JPMorgan to do well. That was fac-tored in already, Lip said.

In an outline of his budget propos-al, US president Barack Obama saidhe would refuse to renew Bush-eratax breaks for wealthier Americans. Adeal to extend those cuts lastDecember propelled the S&P 500 toits highest level in two years.

The Dow Jones industrial averagegained 7.41 points, or 0.06 per cent, to12,270.99. The Standard & Poors 500Index inched up 0.25 of a point, or

0.02 per cent, to 1,314.41. The NasdaqComposite Index added 16.73 points,or 0.61 per cent, to 2,761.52.EMC led tech shares higher after aGoldman Sachs analyst said heexpected a better-than-consensusquarter for the top maker of corpo-rate data storage equipment. EMCsshares gained 3.3 per cent to $26.69.

The S&P Information TechnologyIndex added 0.7 per cent.

From a technical perspective, theS&P 500 weakened as its daily movingaverage convergence-divergence, agauge of short-term relative perform-ance, triggered a sell signal for thefirst time since late March.

Investors seem to be looking aheadto the Federal Reserves policy meet-ing in two weeks, according to BruceBittles, chief investment strategist ofRobert W. Baird in Nashville. The Fedis expected to detail its exit strategy as

a $600bn asset-buying programmecomes to an end.

THE UKs top share indexclosed higher yesterday, boost-ed by retailers and banks aftera sell-off on Tuesday described

as overblown.At the close, the FTSE 100 was up

45.97 points, or 0.8 per cent at6,010.44, recouping half of

Tuesdays 1.5 per cent drop andrecapturing the 6,000 level.Banks gained after better-than-

expected results from US peerJPMorgan provided hope that theearnings season might hold somemore positive surprises.

There is a long way to go, butthe earnings compass has swungback to positive today, helping fuelthe market rally. However, withlow volumes and the Easter holi-days approaching, the needle islikely to continue to bouncearound, said Mic Mills, head ofelectronic trading at ETX Capital.

JPMorgan saw its first-quarterearnings per share top analystsforecasts, with its closest Britishpeer Barclays adding 1.6 per cent.Lloyds Banking Group rose 0.6per cent after recent falls, helpedby positive comment from UBS,

which added the bank to its keycalls list on valuation grounds.

Lloyds shares had hit nine-month lows to trade below its 20-day moving average after anIndependent Commission onBanking (ICB) proposed the sale ofhundreds more of its branches.

Also on the rise were the UKsretailers after online fashion portalASOS and sports retailer JD Sportsboosted the sector with strongresults. ASOS shares closed up 14.3per cent after it forecast 2010-11profit towards the top end of mar-ket expectations.

JD Sports beat expectations with

a 21 per cent rise in underlying2010-11 pretax profit to 81.6m andhiked its dividend 28 per cent.

However, its shares, up 28 percent over the past year, fell 7.1 percent as, in common with otherBritish retailers, it said it wasextremely cautious about theoutlook for 2011-12 followingJanuarys rise in VAT sales tax, ris-ing youth unemployment andhigher input costs.

Integrated oils rose, led byRoyalDutch Shell ahead 0.8 per cent, ascrude prices rose after two days oflosses. BP added 0.9 per cent aheadof its annual general meetingtoday, shrugging aside concernsover its share swap deal withRussias Rosneft.

Miners were mixed after falls onTuesday when Goldman Sachs saidthe recent rise in commodity

prices had run its course.Rio Tinto added 0.1 per cent,

recovering from an initial fall aftera production update.

Chip designer ARM Holdings wasthe top FTSE 100 gainer, ahead 6.8per cent, with traders citing a bull-ish note from Morgan Stanley.

After a presentation byMicrosoftin Las Vegas, showcasing a versionof Internet Explorer 10 running onan ARM-based processor, traderssaid the broker was positively sur-prised that software developmentis already well advanced.

And consumer products firmReckitt Benckiser rose 4.2 per centafter Bernstein upgraded its rating.On the downside, insurer OldMutual fell 4.3 per cent as it tradedex-dividend, and with technicalanalysts at Charles Stanley suggest-ing the stock is likely to remainunder pressure.

Ex-dividend factors knocked 2.43points off the FTSE 100, withAggreko, BG Group, Capita, IMI,Tullow Oil, and John Wood Groupall losing their payout attractions.

FTSE rallies after banks andretailers deliver good newsTHELONDONREPORT

THENEW YORKREPORT


6,100

5,800

5,700

5,600

5,500

5,900

6,000

ANALYSIS l FTSE 6,010.4413 Apr

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

ANALYSIS lITV95

85

75


p 75.3513 Apr

ITVNomura rates the media group buy with a 115p target price. The brokernotes recent press coverage claiming that Simon Cowell might not appearin the X Factor until the final show of the next series, but argues that theshow might not suffer severely as a result. It points to the American Idolseries, which lost 12 per cent of its audience after Cowell left. Nomura pre-dicts a worst-case drop of five per cent in advertising revenue if he quits.

ANALYSIS lNational Grid600

580

560

540


p

599.0013 Apr

NATIONAL GRIDJP Morgan Cazenove rates the energy group overweight with a targetprice of 610p. The broker says it is reassured by a recent meeting with thepresident of National Grid US, who is focusing on improving the branchsperformance through $200m cost cuts and a better cost allocationprocess. JPM expects strong results on 19 May, and has predicted earningsper share of 50.9p around three per cent ahead of consensus estimates.

ANALYSIS lTesco

415

405

395

385


p 406.0013 Apr

TESCOJefferies rates the supermarket hold with a target price of 450p. Thebroker expects Tesco to report solid results next week, the firms first set offull-year figures since new chief executive Philip Clarke joined. It expectsfive per cent underlying growth in the UK, compared to growth of up to 20per cent growth overseas, and some indication of Clarkes plans for thefirm.


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TOM Ewing is the engaging andenergetic manager of FidelitysUK Growth fund, which has overhalf a billion pounds under man-

agement. The 34 year old scours thecountry looking for undervalued com-panies that are able to tap into theincreasing wealth of consumers inemerging markets. From the power-houses of the FTSE, down to smallercompanies in niche sectors, Ewing seesmuch to be optimistic about.

UK companies are not the flavour ofthe month, but this leaves opportuni-ties for a stock picker. Ewing believesthat just because the retail sector in theUK is looking bleak now, investorsshould not be pessimistic about all UKcompanies. With emerging marketsdeveloping apace, he sees an opportu-nity to export our tertiary edge. In hisregular meetings with UK companies,he looks for how his fund can profitfrom their access to these trends.

Rio Tinto and BHP Billiton, withtheir access to the massive iron oredeposits in western Australia, are cash-ing in on the demands of emergingmarkets. Ewing says Australiasdeposits are a better grade thanChinas, so they will be able to continueto mine at a lower cost. He thinks oilcompanies will also profit, despite thetax on oil and gas companiesannounced in the budget. He thinksfinancial service companies are trickyinvestments though, because theshadow of regulation looms large, mak-ing it difficult to get an edge. Despitethese uncertainties, Ewing thinks thevalue of the UK in upholding the ruleof law and its corporate governance is

underplayed.Ewing believes the UKs servicesector is particularly strong. Due to ourcustom of outsourcing core functionsto create shareholder value, we have ahighly developed service sector. Thepress is often consumed by the beliefthat we dont make anything, but inservices we are world leaders. ForEwing, the staffing companies MichaelPage, SThree, Robert Walters and Haysare great examples of this. They areable to utilise the beachhead created bymultinational companies in the devel-oping world. WPP, a world leader inadvertising and marketing services, isanother pick for Ewing. He thinks it hasa great Chinese business and with con-sumers expanding purchasing fromrice and heating to cars and chocolateit is well placed to be the company tosell these goods to them. The UK is alsoa world leader in online retail, skills

that can be invested in within retailersor in pure plays like ASOS and Ocado.These arent massive industries, but

these competencies just dont exist inIndia, China and Brazil, says Ewing.

A UK-listed company in which Ewingsees considerable potential is Diageo.In the last year, Diageo has prettymuch sewn up the scotch industry.Ewings thesis is convincing: Thescotch that is going to be drunk in thebars of Mumbai, Delhi, Shanghai andChengdu in 18 years time, is todaycoming out of the taps of Diageos dis-tilleries. He also likes Pearson becauseof its overlooked education function.Its

cityam 2011-04-14

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