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www.cityam.comIssue 1,378 Tuesday 10 May 2011 FREE

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RETURN OF THEGREEK TRAGEDYGREECE was hammered by multi-ple ratings agencies yesterday fol-lowing the EUs admission onFriday that Athens will not be readyto return to markets for cash next

year, as is required under the termsof its 110bn (96.2bn) bailout.

S&P downgraded Greek debt to B,one notch above Pakistans bonds,

while Moodys threatened a several-notch downgrade imminently andFitch kept the sovereign on a nega-tive outlook rating.

With Greece facing a 27bn fund-ing shortfall next year, a restructur-ing of its bailout funds has becomeinevitable. But S&P says that anyrestructuring is also likely toinvolve burden sharing by privatecreditors, making it a selectivedefault.

The agency also put all ofGreeces major banks on reviewdue to their exposure to the sover-eign.

Greek Labour minister LoukaKatseli yesterday conceded that the

government has returned toBrussels cap in hand after failing tocontrol its spending: The initialplan was to return to markets in2012. At this moment this appearsdifficult, she said.

With yields on Greeces two-yeardebt over 25 per cent and at 15.7per cent on its ten-year notes, diffi-cult looks like an understatementto the markets, which are awash

with rumours that the EU is draw-ing up emergency plans forGreeces exit from the euro.

Athens problems are compound-ed by forecasts that its economy willshrink three per cent this year, inpart due to austerity measures.Portugal is also forecast to stay inrecession, shrinking two per cent.

A second bailout for Athens afterit failed to meet its deficit targetslast year will cause ripples of angeracross the Eurozone, particularly inthe regions paymaster states.

The UK will be on the hook forfive per cent of any cash given bythe International Monetary Fund

and 13.5 per cent of money giventhrough the EUs bailout fund.

Ben May of Capital Economicssaid: Core governments will beunwilling to go on providing

bailouts to Greece indefinitelyand as a result, we continue tothink that a major debt restructur-ing will eventually take place.

Analysis by JP Morgan has con-cluded that the ECB could face a35bn hit from a Greek default, ifhaircuts of 50 per cent wereimposed, a scenario that S&P sayscould eventually be required.

But the impact of an Irish defaulton the Eurosystems finances

would be worse still. Dublin isdetermined to restructure its85bn

bailout loan, which has a higherinterest rate than Greeces rescuefunds or those likely to be lent toPortugal.

There is no doubt that a reduc-tion in the interest rate on the mon-eys we are borrowing from Europe

would be a meaningful and appre-ciated measure, said Irish PrimeMinister Enda Kenny, who waselected on a platform of renegotiat-

ing Dublins bailout package.ALLISTER HEATH: PAGE 2

BY JULIET SAMUELEUROZONE CRISIS EUROZONE | HOW THE BAILOUTS COMPARE

GREECE110bnInterest & Maturity:

5%, revised to 4%.Bailout maturity increasedfrom initial 2013 to 2017.

Conditions:Have had to be revised

repeatedly after Athensfailed to meet targets.

30bn in savings by 2014,including increasing VAT

rate to raise 1bn, freezingpublic sector pensions. 2011

deficit target of 7.6% ofGDP.

PORTUGAL78bnInterest & Maturity:Yet to be decided, but is

likely to be between 3.25%and 4.25%. 2013 maturity.

Conditions:12bn to re-capitalise

banks, 5bns worth of pri-vatisations, extensions ofhigher-VAT rate, freeze onpublic sector wages andpensions, public sector

headcount to be cut. 2011

deficit target of 5.9% ofGDP.

IRELAND85bnInterest & Maturity:5.8%, there is talk of

revising it downwards.2014-2015 maturity.

Conditions:Four year plan for 10bn

in spending cuts, including2.8bn cut in social welfareexpenses and public sector

headcount cuts to 2005levels. 5bn in tax hikes.

2011 deficit target of 9.1%

of GDP, excluding bankcosts.

SAM TORRANCE ON THEINSPIRATIONAL SEVE

REMEMBERING A GOLF ICON P27

BUSINESS WITH PERSONALITY

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News2 CITYA.M. 10 MAY 2011

Haldane hitsout at City ANDREW Haldane, the Bank ofEnglands executive director forfinancial stability, risked the wrath ofthe City yesterday with claims thatshort-termism in capital markets isrobbing the UK of vital social projects.

An increasing belief that long-termreturns are valueless for investors isdriving business leaders to avoid long-term projects such as infrastructureand high-tech plans, he said, describ-ing it as a market failure.

Our evidence suggests short-ter-mism is both statistically and eco-nomically significant in capitalmarkets, he said. It appears also tobe rising.

His analysis, in a speech co-authoredwith economist Richard Davies for aBrussels conference next week, is like-

ly to inflame tensions with the City ascompanies turn to financial marketsto raise billions for fresh investment.

Haldane attacked investors focuson dividends and quarterly marketupdates as causing companies to pri-oritise short-term outcomes.

Short-termism leads to investmentbeing too low and in long-durationprojects suffering disproportionately,he claimed. These projects are oftenfelt to yield the highest long-term pri-vate and social returns.

Policymakers should intervene todeal with the problem, he said.

BYALISON LOCK

ECONOMY

Time to be tougher towards the EU

IT was Europe Day yesterday and no,I wasnt celebrating. The EU is shock-ingly badly managed. It wastes vastamounts, its single currency is in cri-sis (with bailout-hungry Greeces cred-it rating downgraded again), it isbureaucratic and its massive regulato-ry apparatus is crippling, rather thanliberating, Europes economies.

Take two all too typical anecdotes:the Commission will next year spendover 225m on communication cam-paigns, including on the 1,078 staffwho work in the Directorate Generalfor Communications. And the EUs

foreign minister (dont laugh) is for-mally requesting a 5.8 per cent budgethike for the EUs so-called diplomaticcorps, the European External ActionService (EEAS). Its a joke and one in

very bad taste at a time when taxpay-ers in the UK are having to drasticallytighten their belts.

Meanwhile, following their devas-tating defeat on the AV referendumand local elections, the Lib Dems arenow pledging to extract more conces-sions from the government. In prac-tice, this is likely to be over thecoalitions NHS reforms, which the LibDems had originally backed but thateven the Tories (at least top onesaround the PM) now would probablyrather ditch. A climbdown is thuslikely to be engineered.

But the truth is that the Lib Demshave been badly damaged and theirlongstanding policy of trying to be allthings to all people (left-wing in theNorth, centre-right in the South) isexposed. So if David Cameron doesconcede policies, he should do a deal:

the Lib Dems should allow him to betougher on the EU in return. The coali-tion has done nothing yet to reversethe EU juggernaut it is high time forsome action on this important front.

PROFIT BOOMIn a capitalist economy, a key determi-nant of economic growth is the prof-itability of private firms. The moremoney they make, the more they willinvest and hire staff, at least over time,and the more they will return toinvestors. So how does the UK and therest of the developed world stack upon that crucial measure?

In the US, profits have risen 19 percent over the last year for the 379 S&P500 firms that have reported first-quarter results. Profits for the 174European companies reporting wereup 17 per cent, according to Deloitteschief economist Ian Stewart. The cor-porate sector is doing well, whichmeans that the rise in stock prices atleast has some solid foundations(though of course unsustainably loose

public policies have also helped).While firms are continuing to cut

costs, revenues are also growing,albeit not by as much. S&P 500 rev-enues in the first-quarter were 1.7 per

cent ahead of market expectations butprofits came in 6.7 per cent above. Itdoes look like there will be a slow-down in profit growth, however.Earnings as a share of GDP are now very high. Inflation is hitting con-sumers and margins. There has been amassive increase in productivity yetthis has probably largely ran itscourse. Over the course of last year,analysts raised forecasts for FTSE 350profits by 44 per cent and for EuroStoxx 600 firms by 42 per cent. Since January this year, analysts profitsforecasts for these two markets haveremained unchanged. So the pictureisnt bad but it does suggest that theglobal recovery will soon be entering asofter stage, especially as monetarypolicy is tightened.

[email protected] me on Twitter: @allisterheath

MAYOR Boris Johnson has insisted achange in the law is needed to stopindustrial action grinding Londonstransport network to a halt.

His call comes despite criticismfrom ministers over his handling ofunions planning to hold a run ofTube strikes from next week.

Senior cabinet ministers told himto engage with the RMT Union.

But Johnson hit back, calling on

the government to enforce a mini-mum participation on strike ballotsof 50 per cent.

Just 29 per cent of RMT Union driv-ers voted for the latest wave of strikes.

A spokesperson for the mayor said:The mayor has always been willingto engage with any union interestedin making the most of the recordinvestment being made in the capi-tals transport system. Unfortunatelythe RMT leadership has near con-stantly threatened the capital withstrike action since his election.

BYRICHARD PARTINGTON

POLITICS

Boris calls for strike lawBoris Johnson is calling for a change in the law to stop strikes.

NEWS | IN BRIEF

US house prices fall by 3pcUS house prices fell by three per cent inthe first-quarter of the year and willdrop by as much as nine per cent in2011, according to research by realestate website Zillow. In the first quar-ter, homes were on average 8.3 per centless valuable than the same time last

year. The research also said more than28 per cent of US homeowners are innegative equity on their mortgages, withlittle hope for rising values bringingthem back above the water-line in thenext few years. Areas with high unem-ployment such as Detroit and Chicago,where almost half of all homeowners arein negative equity, saw the biggest falls inhouse valuations. ECONOMICS:P15

UKTI picks new chief execUK Trade & Investment (UKTI) has cho-sen Nick Baird to become its new chiefexecutive. The government trade promo-tion branch is expected to announcetoday that the foreign office civil servantand former ambassador to Turkey willtake up the role later this year. Baird isset to replace Sir Andrew Cahn, whostepped down in January after almostfive years in the role.

EDITORS LETTER

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Andrew Haldane, Bankof England director,attacked the capitalmarkets for theirshort-term outlook

SAMOA TO MOVE BACK TO THE FUTURESamoa, the tiny Pacific Ocean islandstate, is travelling through time toimprove its economic prospects. In avote of confidence for the Asian cen-tury, the country has decided to shiftthe jagged International Date Line toits east at the end of this year, whichwill bring it a day closer to Asia andAustralasia. That reverses a decision119 years ago to move the line to thewest, following lobbying by Samoasmerchants who wanted better toaccommodate business with tradingships from the US and Europe.

BANK OF AMERICA TO CUT $850BNBAD LOAN BOOK IN HALFBank of America plans to shrink its$850bn portfolio of troubled homeloans by about half over the nextthree years as it seeks to quicken the

pace with which it resolves problemsrelated to the housing crisis and its

disastrous purchase of CountrywideFinancial. Terry Laughlin, who is

spearheading BofAs mortgage modi-fication and foreclosure pro-grammes, told the Financial Times hehad been given leeway to act quicklyto tackle the growing number of badloans that threaten to overwhelm thebanks overall performance and tar-nish the reputation of BrianMoynihan, its chief executive.

COND NAST SUBSCRIBES TO IPADPLANCond Nast has become the latestleading magazine publisher to say itwill offer subscriptions to its titles onApples iPad. The publisher of titlesincluding Vogue, The New Yorker andWired said on Monday it had reachedan agreement with Apple aftermonths of tension between publish-ers and the technology company overwho would control the relationshipwith customers. The announcement

by Cond Nast follows a similarannouncement last week by Hearst.

CAMERONS BIG SOCIETY BANK ISSTILL WAITING FOR ITS MONEYFour big high street banks remainlocked in talks over the 200m to beinvested in David Camerons BigSociety Bank, it emerged yesterday.The money, announced in February,has yet to be handed over by RoyalBank of Scotland, HSBC, Lloyds andBarclays, which are still deep in nego-tiations with the Treasury over theinvestment and social returns thebank will offer.

GREEN ENTERPRISE STANDS STILLUNTIL PATH AHEAD IS CLEARUncertainty over the Governmentsenergy policy risks creating aninvestment hiatus that will stallBritains renewable sector, accordingto a survey by KPMG. Three quartersof companies said they would have

invested more in Britain over the pastthree years if regulation was clearer.

PENSION SAVERS SHOULD HAVECHANCE TO WIN 1MEveryone who pays into a pensionshould be automatically entered intoa 1 million-a-month lottery draw in a bid to encourage saving for retire-ment, a report has proposed. Theprospect of a lottery bonanza mayprove more of a motivation to buildup a nest-egg than any advertisingand marketing campaign, and couldeven save the state money, said pen-sions expert Ros Altmann, director-general of Saga.

PEOPLE HAVE TWICE AS MANY ONLINEVIRTUAL FRIENDS AS REAL ONESPeople have twice as many friendsonline as they do in real life, says newresearch. Users of sites such asFacebook have double the amount offriends online than they do in real

life, according to research commis-sioned by the Cystic Fibrosis Trust.

WAL-MART'S AFRICA FOOTHOLDSHAKY AS JOB WORRIES MOUNT The South African governmen warned that Wal-Mart Storess $2.4 billion proposed acquisition o African retailer Massmart Holdingscould cause thousands of job lossesand worsen labor conditions, throw-ing cold water on one of the country's biggest potential overseas invest-ments.

CITIGROUP INSTANTLY BECOMES A$40 STOCKCitigroup became a $40 stock for thefirst time since late 2007, as its shareprice appeared to rise more than 850PER CENT from Fridays close. Onecatch: Investors didnt earn a dime onMonday. Citigroup, the heaviest-trad-ed U.S. stock that accounted for 6.8per cent of total US stock trading vol-

ume last year, drastically shrunk itsshare count.

WHAT THE OTHER PAPERS SAY THIS MORNING

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BRITAINS banks bowed to theinevitable and dropped their appealagainst the FSA on the mis-selling ofpayment protection insurance (PPI)

yesterday, as Barclays and RBS becamethe latest lenders to reveal multi-mil-lion pound bills from the debacle.

Barclays said it is putting aside1bn and RBS 850m to pay compen-sation to customers who were mis-sold PPI, an insurance that protects

borrowers who lose their jobs. Theirestimates are in between Lloyds pro-

vision of 3.2bn and HSBCs of270m.

But the banks tried to save face byinsisting that despite dropping theappeal, they will pursue a series of

behind-the-scenes talks with the FSAon the issue of retrospective justice.

The British Bankers Association(BBA) had argued on behalf of the

industry that the FSA was wrong totell banks to apply guidance issued in2010 to their handling of complaintsabout PPI sales made before that date.

The BBA vowed to continue tomake the argument outside of court:We continue to believe that thereare matters of important principle

which we will be taking forward inother ways with the authorities.

But the industrys complaints arelikely to fall on deaf ears. Aspokesman for the FSA told City A.M.:The whole issue of retrospective reg-ulation was what was discussed incourt, so that issue should be fin-ished. The FSA will be discussing theissue further with banks, however to make sure they comply with thenew rules.

RBS, HSBC and Barclays were

forced into a corner after Lloyds chiefexecutive Antnio Horta-Osrio uni-laterally withdraw from the appeallast week.

Banks take hiton mis-sellingBY JULIET SAMUEL

BANKING

ENERGY giant Centrica yesterdaywarned customers to brace themselvesfor bill rises as the Treasurys tax hikeon oil and gas firms starts to eat intothe firms earnings.

The firm said the surprise tax raid would cost the company 300m thisyear, and it expects to report more mod-est growth in the future as a result.

Centrica has already threatened topermanently close its Morecambe Bay

gas field in response to the hike, whichit says might now be unprofitable.

The company said the UK marketwas significantly more challengingthan a year ago, with average residen-tial gas consumption in the first fourmonths of the year 19 per cent lowerthan for the same period in 2010.

The British Gas owner also flaggedthe continuing unrest in the MiddleEast and the Japan nuclear crisis forpushing up power costs. Productionremained strong, however, with thecompany predicting in-line produc-

tion of more than 50m barrels of oilequivalent this year.

Centrica warns surprise tax hikemeans higher bills for customers

ENERGY

HEALTH secretary Andrew Lansleywon the support of backbenchers forchanges to the NHS last night, with

both Tory and some Liberal DemocratMPs helping to defeat a Labour chal-lenge to the reforms by a majority of53.

Lansley told parliament that thereforms of the health service were

not about me but that the coali-tions plans for the NHS would besticking to our principles.

However, the health secretary stillfaces a fight to convince the coali-tions junior partner of the benefits toredistributing the spending power

within the NHS. Nick Cleggs chiefadviser Norman Lamb said yesterdaythat substantial changes to the gov-ernments healthcare blueprint arenow widely expected.

Lib Dem MP Andrew Georgereleased a statement calling for a com-plete rethink: The Bill itself should bestopped rather than paused.

NHS reforms survive Labourchallenge but still face battleBYMARION DAKERS

POLITICS

News 3CITYA.M. 10 MAY 2011

Source: Citi

AN ALY SISl Shar eofP PIM arket

ANALYSIS l Share of PPI Market

The coalitions plans toshake up the NHS, spear-headed by AndrewLansley, made it througha Labour party challenge

FRIDAY"The BBA and its members are careful-ly reviewing the judgment of 20 Apriland considering whether to...appeal.British Bankers Association statementThe legal analysis has not changed...The courts wont pay any attention towhether Lloyds has caved or notcaved. Stephen Hester, RBS

THEN AND NOW: WHAT BANKS SAID ON PPI

YESTERDAYIn the interest of providing certaintyfor their customers, the banks and theBBA have decided that they do notintend to appeal. BBA statement"RBS supports this position... RBS willrecord an additional provision of850m in the second quarter of 2011.Royal Bank of Scotland statement

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RUPERT Murdoch will have to wait alittle longer to get his hands on therest of BSkyB.

The decision to clear News Corpsimpending 7.5bn bid for the 61 percent of Sky it does not already ownhas been delayed for at least twoweeks while details of the concessionto spin-off Sky news are thrashed out.

Culture secretary Jeremy Hunt pro-visionally gave News Corp the greenlight to go ahead with the bid after it

agreed to appoint an independentboard to run Sky News as a complete-ly separate company for ten years inorder to preserve media plurality.

Critics of the bid say Murdoch, whoalso owns the Times and News of the World newspapers, will wield toomuch power over UK media.

BSkyB said it had no update on thematter and would continue to cooper-ate with the regulatory process.

News Corp offered 700p a share forSky last summer, which was rejected

by the board.However, Skys blistering run of

form recently has led to calls fromsome investors for a bid of over 900p ashare. In the last quarter its profitsrose to 261m on sales that shot up to1.65bn from 1.46bn.

Meanwhile, Sky has asked a court tooverrule Ofcoms dramatic interven-tion in setting its wholesale prices forPremier League football. Skys lawyersaid the firm should not be punishedafter investing billions in the sport,and said Ofcom has no right to setprices below the market rate.

Decision onMurdoch Skybid is delayed LINKEDIN is hoping to cash in onwhite hot demand for technology andis aiming for a listing that would giveit a market valuation of more than

$3bn (1.8bn).Management at the firm will

become overnight multi-millionaires ifthe share sale is successful.

LinkedIn yesterday unveiled itsprice range of between $32 to $35 ashare. The company earned $15.4m in2010 on revenues of $243m, meaningit trades on almost 13 times its 2010revenues.

The demand for shares in dotcomfirms has pushed the value ofFacebook to more than $60bn, withsome valuations coming in even high-er. Twitter, Groupon and Zynga havealso generated significant interest andare seeing multi-billion dollar valua-

tions of their shares trading on the sec-ondary markets.

Last week, Renren, one of the biggest social networking sites inChina, made its trading debut after asuccessful IPO. Its stock surged 28.6 percent in its first day. Valued at $6.7bn ittrades at an eye-watering 90 times lastyears sales.

LinkedIn makes money by sellingmembers premium subscription serv-ices and offering businesses marketingsolutions.

LinkedIn hopesto get $3.3bnvaluation at IPO

BY STEVE DINNEEN

MEDIA


ANALYSIS l British Sky Broadcasting Group

p

14 Feb 4 Mar 24 Mar 13 Apr 9 May

860

840

820

800

760

740

780

839.009 May

BY STEVE DINNEEN

MEDIA

LINKEDINS management stand tomake a paper fortune when thefirm floats later this month.

Co-founder and chairman ReidHoffman will be the biggest winner.He will reduce his stake from 21.2per cent to 20.1 per cent, meaninghe could be $660m richer ifLinkedIn hits the top end of itsrange.

The California-born technology wizard studied at

Oxford University before spending

spells workingfor both Appleand Fujitsu.

LinkedIn isnot his firsts ucce s s f ul

start-up. He was a member of the

board when the leading online pay-ment system PayPal was formed. Heworked for the firm until its acqui-sition by eBay, after which heturned his sights to social network-ing. Hoffman will retain a votingshare of more than 20 per cent afterthe flotation.

LinkedIn chief executive Jeffrey Weiner will sell a comparativelymodest $4m worth of shares in theflotation, leaving him with a 2.3 percent stake worth in the region of$77m. He joined the firm in 2008after stints as a vice-president at Yahoo andWarner Bros.

Both menhave alsofounded theirown smalltechnology ventures.

Social network bossesin line for huge windfall

BY STEVE DINNEEN

TECHNOLOGY

REID HOFFMAN JEFF WEINER

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Focus on HSBC 5CITYA.M. 10 MAY 2011

HEDGE funds have failed to advanceahead of stock market indices, asshorting stock hit performance.

The latest performance index byHennessee Group, an adviser tohedge fund investors, found hedgefunds had advanced just 1.36 per centin April.

In contrast, the S&P 500 gained 2.85per cent last month, whilst the Dow

Jones Industrial Average was up 3.98per cent.

Solid corporate profits and contin-ued low interest rates also hit hedgefunds holding short positions.

While managers generated gains inlong portfolios as equity markets con-tinued to rally, shorting continues to work against hedge fund managers,detracting from performance, said

Lee Hennessee, managing principal ofHennessee Group.

Hedge funds fail to make gainsas short positions dont pay off

HEDGE FUNDS

Being the worlds local bank isnt cheapANOTHER bank, another case of soar-ing costs. Investors thought it wasbad enough when HSBC announcedits cost-to-income ratio had hit 58 percent in the second half of 2010.Gulliver tried to assuage shareholderconcern by stating his intention to

reduce it to 52 per cent, although hedid insist it was a long-term target.About that he wasnt wrong. In thefirst-quarter, the cost-to-income ratiohit a whopping 60.9 per cent. Thebanks list of one-off factors was aslong as your arm, including softwarespend, a $1bn provision for the mis-selling of PPI, and various restructur-ing charges. But the bank is bloated.

To find out how the bank intends

to fix things, investors will have towait for tomorrows hotly-anticipatedstrategic review. Much of the costinflation is also hurting HSBCsrivals, especially the Asian-focused

Standard Chartered. These banks areengaged in what Standard Charteredboss Peter Sands calls a war for tal-ent: the demand for top-flightbankers who can speak Cantonese orMandarin is outstripping supply.

There is still room to prune: the

banks 300 or so international man-agers (IMs) many of whom do thesame job in different locations couldbe reduced. Being The Worlds LocalBank is all well and good, but it does-nt need a cost base to match.

ANALYSIS l HSBC

p


740

700

660

620

648.209 May

HSBC spooked investors yesterday byunveiling a sharp jump in costs onthe back of one-off charges andAsian inflation, with chief executiveStuart Gulliver (pictured) warningthat it would take two to three yearsto achieve the necessary efficiencysavings.

Pre-tax profits slumped 9.8 percent compared to the same quarterlast year to $5.5bn (3.35bn) despiterevenues falling only 4.9 per cent to$17.93bn. As a result, the bankscost-to-income ratio a key metricGulliver has picked as a benchmark

for progress soared to 60.9 percent, versus a 48-52 per cent target.

However, Gulliver said that strip-ping out one-off charges, weprobably are hitting flat water interms of our costs.

The charges include a $440mprovision for the cost of payingcompensation to customers whowere mis-sold payment protectioninsurance (PPI) lower than expect-ed because the bank left thePPI market in 2007.

The cost-to-incomeratio also sufferedfrom the expense ofthe banks restructur-ing programme, los-ing $78m on ITchanges in the US,$67m on redundan-cies in Latin Americaand taking a $70maccounting hit dueto new practices ondeclaring deferredbonuses.

The banks bot-tom line was alsohit by the foreclo-sures issue in theUS, stagnantAmerican proper-ty prices ands p i r a l l i n ginflation inemerging mar-kets.

Despite risingprices, however,Gulliver insisted: Isee nothing that givesme concern at themoment that werewriting business into a

bubble.But he added:

Inflation is an issue for us and oneof the reasons well have to be verydisciplined about how we spendmoney in order to grow in emergingmarkets.

Gulliver has promised to outlinethe details of cost control measuresduring a strategic review day forinvestors tomorrow, but remainedtight-lipped yesterday.

He also reiterated his concernabout the UKs bank levy. Asked whether HSBC could relocate itsheadquarters, he said: The issue forus is the bank levy we estimate it will cost us $600m this year, ofwhich $400m applies to our non-UK

operations.

HSBCs one-offcosts eat away

at bottom lineBY JULIET SAMUEL

BANKING

BOTTOMLINEAnalysis by David Crow

HSBC chief executiveStuart Gulliver (left)announced a cost-to-income ratio well abovethe banks target range

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NATIONAL Express reached a com-promise with its activist investorElliott Advisors yesterday to end itscalls for an overhaul of the transportgroup.

The truce prevents Elliott frompublicly calling for change at thegroup for a year, while one ofElliotts three proposed directors,Chris Muntwyler, will join theNational Express board alongsidetwo other company-selected candi-

dates.The peace deal, agreed less than

24 hours before the groups annualgeneral meeting (AGM) this morn-ing, means that Elliott will drop allits proposed resolutions which weredue to be put to todays shareholdervote.

Elliott, National Express largestshareholder, had proposed threedirectors of its choice transportexecutive Muntwyler; Spanish banker Javier Alarco Canosa and

technology entrepreneur MarcMeyohas to join the board toreview its future. Options includedan asset sale or merger with a rivalsuch as Stagecoach.

National Express, which is under-going a turnaround under chiefexecutive Dean Finch, said it hadstarted its own searches for newdirectors and would propose nomi-nees of its own.

One investor source told City A.M. atruce was expected after NationalExpress said it would add three newnames to the board instead of two.

The candidates on the boardsshortlist include at least one high-profile US nominee, they added.

City A.M. understands Muntwyler was given the green light byNational Express searches thanks tohis experience the current presi-dent of transport consultancyConlogic, he spent nine years at DHLExpress including as UK chief execu-tive.

National Express declined to com-ment yesterday.

Truce calledon NationalExpress rejig THE PARTLY government-owned bankRBS has poached Craig Leppard, headof market-making at AltiumSecurities, offering him a big uplift in

salary to change jobs.Leppard, who joined Altium from

Numis Securities, will head up a teamat RBS trading in FTSE 250 stocks.

His move, which was announcedyesterday to Altium staff, will furtherfuel fears amongst the Citys smaller banks about the increased basicsalaries being offered by their largerrivals.

Earlier this year Arden Partners lostits financials team, headed by its for-mer chief executive Jeremy Grime, toRoyal Bank of Canada, which offeredmouth-watering packages to the newrecruits.

Mindful of the public furore over

large bonuses and keen to get on theright side of tighter regulation, manylarger banks have increased the basicelement of employee remuneration,making salary packages look moreattractive.

Altium announced yesterday that ithad made two recruits.

It is hiring Grant Harrison fromLloyds to be a managing director in itscorporate finance team, and FahadChangazi joins to cover the financialssector.

RBS swoops onmarket-makinghead at Altium

BYALISON LOCK

TRANSPORT

BANKING


COMMODITY prices bounced backwith a vengeance yesterday following

last weeks crash with Brent crude oilsurging more than $6.77 a barrel inits second largest one-day gain ever.

The rebound, which saw Brentcrude for June close 6.2 per cent high-er at $115.90 a barrel, erased almost athird of last weeks losses.

Oils resurgence led a broad rally incommodities, with silver jumpingseven per cent higher to above $37 anounce after last weeks 25 per centdive, and gold rising one per cent toregain the $1,500 an ounce level.

Trading volume, however, was lowsuggesting that the resurgence maynot continue.

I think weve broken the back of

the upward market in oil and com-modities in the short term and Ithink this is a more of the correctionof the downward move, said PFGBests Flynn. I dont think weregoing to get back to the highs.

Alex Heath at RBC Capital inLondon echoed that. The pattern isone to sell the rallies at the moment.On the whole, the risk remains to thedownside ... until we see some clarityout of statistics to indicate thatgrowth is back on line.

Commodities bounce backOil lead a broad rally in commodity prices yesterday Picture: REUTERS

+7%Silver

+1%Gold

+6.2%Brent crude oil

BYKATIE HOPE

COMMODITIES

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BOND investors are worried about thesurge in banks issuing secured fund-ing such as covered bonds, which pushother securities down the creditorpecking order, a survey by ratingsagency Fitch has found.

Almost 90 per cent of managersresponsible for an estimated 2.4 tril-lion of fixed income assets are con-cerned that their existing debt will bestructurally subordinated due to theincreasing popularity of asset-backedloans.

Around 71 per cent of those sur-veyed said they were moderately con-cerned by the prospect, with afurther 16 per cent very concerned.

Banks have rushed to issue regula-tor-friendly securities such as coveredbonds in recent months in order to de-leverage their balance sheets.

Covered bonds are particularlysecure, as their underlying assetsremain on the issuers balance sheet,giving the creditor access to the pool ifthe selling bank hits trouble.

The combined value of coveredbonds issued in Europe passed 1bn inthe first-quarter of the year.

BYRICHARD PARTINGTON

CAPITAL MARKETS

WOULD YOU SUPPORT SCOTLANDSSEPARATION FROM THE UK?Interviews by Richard Partington

www.RateSetter.com Customer Phoneline: 08442490115

Save or Borrow peer to peer at RateSetter.com

IN ASSOCIATION WITH

Yes, providing they dont come back to us if it fails. They also need to

stop Scottish MPs coming here. Its not right they get the benefits of the

UK but we dont get the benefits they have.

JACQUELINE CANSELLA |LLOYDS OF LONDON

Yes. Theyve wanted to stand on their own two feet for some time.

Theres a lot of English taxpayer money being sent up there at the

moment that we need right now.

No. The Scots might vote yes but I dont think it would be in their best

interests. I would be surprised if they could support themselves to the

same degree as we do now.

SHAUN PHELAN | RSA

JASON WARD | MARKETRESEARCH.COM

ANNABEL Goldie, leader of theScottish Conservative party, yesterdayannounced her resignation from theparty following the Tories worst everelection result in Scotland.

Goldie was the last of the mainopposition leaders to step down afterlast weeks landslide victory for theSNP, with her Labour and LiberalDemocrat counterparts Iain Gray and

Tavish Scott announcing their resig-nations over the weekend.On Saturday Goldie had insisted

she would stay at the helm of theparty despite its crushing defeat inthe Scottish parliamentary elections.

But yesterday she said she wouldstep down this autumn, leavingdeputy Murdo Fraser to take over.

After Thursdays vote the numberof seats held by the ScottishConservatives fell to 15 from a notion-al total of 20 held since 2007.

I believe that the time has comefor the torch to pass and I can con-firm that I will not be a candidate,said Goldie.

She added that the Conservativeshad run the right campaign inScotland.

SNP leader Alex Salmond praisedGoldie, who had led the Tories formore than five years, saying:Although her party lost ground I believe they would have lost morehad she not been leader.

Scottish Conservative leaderresigns after election disasterBY ELIZABETH FOURNIER

POLITICS

Bond holders fear new debt forms

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LAW firms in central London areshowing signs of recovery, with anaverage increase in practice feeincome of two per cent in 2010, com-pared to a 6.5 per cent reduction theprevious year.

The figures from the annual LawSociety profitability survey show anupturn in fortunes across the 200firms surveyed, with profits per part-ner up from 89,621 last year to106,297 an increase of 18.6 per cent.

Although there are signs of recov-ery, process is slow and firms will belooking at how they can continue togrow as we emerge from the reces-sion, said Law Society president LindaLee.

Firms are also returning to therecruitment market, after a difficultfew years that have seen staff layoffsand incoming trainees asked to defertheir start date. Recruitment costs for2010 ran to 2.1m to hire 1,022 people.

Business models at law firms are

coming under increasing scrutinyahead of the Legal Services Act beingintroduced in October.

The Act aims to open up the sector by introducing alternative businessstructures for law firms, which willallow firms to list on the AlternativeInvestment Market.

The annual survey provides a bench-mark for the financial health of small-er law firms across the country, andcould hint at an upbeat set of majorlaw firm financials during the upcom-ing results season in May and June.

Holman Fenwick Willan and

Osborne Clarke, both top 50 UK lawfirms, have kicked off the latest resultsround by posting revenue increases of12.6 per cent and eight per cent respec-tively.

THE CITYS unparalleled criticalmass of talent and internationalfocus have secured its place as a long-term hub for financial firms, accord-ing to research by Ipsos MORI.

The survey of 40 financial servicesprofessionals from around the worldshowed that firms view proximity toclients, an areas business climateand availability of local skilled staffas the three most important factors

when choosing where to locate abusiness.

London was seen as a long-termpool of talent with the best interna-tional links in the world, partly dueto its timezone.

But the respondents saw bankerbashing, regulatory reform and theUKs strict immigration rules as themost unstable aspects of being based

in London.In an increasingly competitive

global marketplace, where capitaland talent are highly mobile, it is

vital that we pay heed to the way inwhich location decisions are made sothat firms continue to choose to be

based in London and continue to pro-vide huge economic benefits for theUK for many years to come, saidStuart Fraser of the City of LondonCorporation, which commissionedthe research.

City of Londonoffers worldsbest talent pool

BY ELIZABETH FOURNIER

LEGAL SERVICES

BUSINESS


Green shootsas London law

firms recover

median net profit per partner - up 18 per cent

106,297

TWITTERS role in the super injunc-tion saga has come under intensescrutiny after several accounts sprungup which appear to name and givedetails about the alleged affairs ofthose who have taken them out.

Yesterday one Twitter feed, whichhas attracted more than 50,000 fol-lowers, gave details on six supposedsuper-injunction cases. The feed was

still active last night with the compa-ny taking no apparent action.

Socialite Jemima Khan denied onher own Twitter feed that she hastaken out a super injunction to pre-

vent intimate photos of her andJeremy Clarkson leaking out.

A super injunction can make it ille-gal to publish details about a person,or even acknowledge the injunctionexists. While posting details on

Twitter is technically illegal it wouldbe very diff icult to prosecute.

Twitter user reveals detailof celeb super injunctions

Jemima Khan was named on Twitter, but denied ever having an injunction Picture: PA

BY STEVE DINNEENMEDIA

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NEWS | IN BRIEF

Madoff trustee in $1bn pactThe trustee seeking money for BernardMadoff's victims announced a $1bn set-tlement with liquidators for three feed-er funds yesterday, allowing higherpayouts to the swindlers former cus-

tomers. The trustee, Irving Picard, saidhe also decided to stop his pursuit of$3.8bn from the liquidators of theFairfield funds, citing the funds limitedability to pay cash toward any judgment.

Torex chair charged over collapseThe Serious Fraud Office yesterdaycharged the former chairman of TorexRetail with offences in connection with thefirms collapse. Christopher Edward Moorehas been charged with conspiracy to

defraud and false accounting, linked toevents between May 2006 and January2007, when Torex shares were suspendedamid an investigation by the SFO. The firmwent into administration shortly afterward.

Bankers bow to Glasenberg in Glencore float

There are an incredible 23 differ-ent investment banks providingadvice to Glencore on its bumper London/Hong Kong

flotation and yet, according to thoseclose to the discussions, the proceed-ings are being led by only one man,Glencores 54 year-old chief executiveIvan Glasenberg.

Maybe its precisely because thereare so many banks that none in par-ticular have stood out.

There are too many voices andtheres no dominant bank, onebanker told me yesterday.

Equity capital market bankers tendto be, all other things being equal,less high profile than their colleaguesworking down the corridors in merg-ers and acquisitions (M&A).

M&A banking at its most dramatic

(think Andrew Regans unsuccessfulattempt to take over the Co-operativemovement in the 1990s) means cloakand dagger, intrigue and brown paperenvelopes containing secret docu-

ments that provide the recipient withknock-out information about a rival.Those who engage in this field mustbe familiar, if not fluent, with somerough and tumble tactics.

Bankers working on IPOs, especial-ly as large as this one, need to do theirdue diligence but there is obviouslyless adversarialism and therefore thecharacters involved tend to be lesscombative, more involved with theselling of a story.

The most high profile banker onthe Glencore roster is Citis DavidWormsley, an M&A banker but per-haps best known nowadays for hisappearance in court defending him-

self successfully against Guy Hands. It was alleged that Wormsley, or The Worm as he is known inside theSquare Mile, gave misleading adviceon Terra Firmas ultimately disastrousacqusition of EMI.

Wormsley came out on top in thatencounter and this is his first big dealsince then. But anybody expectinghim to have taken a dominant role inthe Glencore issue will be disappoint-ed. Hes not been a dominant force,

says one adviser close to the transac-tion.

There were some who doubtedGlasenbergs desire to subject himselfto the glare of the public markets. But

the talk is that it is Glasenberg thathas so far played a blinder. In particu-lar his passionate address to investorslast week, in which he pledged not tosell any shares, has helped stoke updemand.

If Glencore succeeds it will not onlybe a big boost for London markets butit will be a huge personal achieve-ment for Glasenberg. Helped by 23investment banks, of course.

[email protected]

INSIDE TRACK

DAVID HELLIER

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FSA GIVESGREEN LIGHT

TO TWITTERHEDGE FUNDGOOD news for Paul and Simon Hawtin,the brains behind the worlds first socialmedia-based hedge fund, after the FSA

yesterday gave the venture the green lightto open for business.

The approval for the fund, a spin-offof Derwent Capital that will monitorsentiment threads on Twitter to predictswings in the Dow Jones Industrial

Average, has been a long time coming the brothers submitted the applicationto the FSA back in November.

But it has been worth the wait, as theensuing buzz has rocketed investor inter-est by an additional 35m over thelaunch target of 25m, and when the

social media fund opens for business, the brothers can start formally invitingthose overflow investors.

Things can happen quickly now, saidPaul Hawtin, co-founder of DerwentCapital, although he was unable to givean exact launch date for the fund oreven to confirm its name due to legalreasons given by advisers Reed Smith,

who were locked in talks with the broth-ers yesterday afternoon.

However, he was happy to reveal thatthe 87 per cent accuracy rate predicted by

Insurance Brokers, made sure the groupslife insurance policies were all in order

before they took the plunge.

ROAD TRIP HAT-TRICKCHRISTIAN Wynne of Sanlam Private

Wealth was so moved by the death of hisfriend Steven Ellis from cancer at the age

of 29 he plans to complete two long-distance runs and a bike race toraise money in his memory.

This weekend, Wynne will takepart in the 10k BUPA Great

Manchester run, before mov-ing on to SwedensGothenburg HalfMarathon and the 300kroad bike race inVatternrundan.

Wynne has alreadraised more than 60 percent of his target for TheCancer Vaccine Institute; tohelp him reach the full 5k,please visit www.justgiv-

ing.com/doingitforsteve.

the funds academic partners at IndianaUniversity will translate to a 15 to 20 percent return for investors.

The Twitter fund provides a consistent,low-volatility return, he said. And if

there is another economic downturn, itshouldnt affect our strategy.

TAKING THE PLUNGEORDINARILY, the sight of a senior bankerthrowing himself off one of Canary

Wharfs tallest buildings would be causefor serious alarm.

But not when the banker in questionis Mike Oxby, head of asset finance atSantander Corporate Banking, and thedeath-defying leap from 20 Cabot

Square is a charity feat forLondon Air Ambulance.

Oxby (pictured, centre, withcolleagues Sarah Davies and

Arron Dowie), was joined on

the 230-ft descent by 150City workers from firmsincluding HSBC, Citi andBarclays, which jeopar-dised its payroll by send-ing Harvinder Bhamer,Michelle Broomfield,Stephen Hutchinson,Katy Stratford andNaomi Tomlinson.

No doubt fellowjumper Simon Lovat, divi-sional director of United

The FSA has approved the Twitter-based fund from Simon (left) and Paul Hawtin to open for business

The FSA hasapprovedDerwent

CapitalsTwitter-basedfund, whichhas attracted60m-worthof interest

The Capitalist10 CITYA.M. 10 MAY 2011

EDITED BY

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

On the road: City cyclist Christian Wynne

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CATASTROPHE losses in the firstthree months of 2011 have changedthe market for insurance firms andpushed up rates, Lloyds insurerHiscox said yesterday.

Bermuda-based Hiscox wrote eightper cent less business in the f irst-quar-ter compared with the same period in2010 as it pulled back from insuringrisk at unprofitably low rates.

But it said losses from disasters inJapan, New Zealand and Australia hadstopped reinsurance rates from falling.Rates are already back to 2010 levels inmost areas and are even higher in the

Asia-Pacific region, it said in its inter-im management statement.

Chief executive Bronek Masojadadescribed the market conditions astough but said the pull-back fromunderwriting has allowed us to keepour powder dry.

We are ready to take advantage ofrising reinsurance rates, he said.

It expects to see rate rises whenpolicies are renewed in June and July,

with potential ten per cent gains inUS catastrophe rates.

Gross written premiums in thequarter fell to 453.5m from 504.1min 2010, driven largely by a 19.8 percent fall in the London market as itcut back its reinsurance and profes-sional indemnity exposure.

But its retail UK business saw grosspremiums rise by 9.3 per cent to86.2m, from 79.8m in 2010, and inEurope it raised premium income by3.5 per cent to 64.3m (56.2m).

Hiscox poised

for rate risesafter Japan

GERMAN reinsurer Munich Re took a2.7bn (2.4bn) catastrophe loss inthe first-quarter of 2011, pushing it toa 1.4bn operating loss from a 770mprofit in the same period in 2010, itsaid yesterday.

Chairman Nikolaus von Bomhardwarned that 2011 would place moreof a strain on us than the three pre-

ceding years of global financial andeconomic crisis.But chief finance officer Jrg

Schneider said it still expected toachieve a profit for the year, while thecompany said it expected catastrophepremium rates to rise as a result.

In loss-affected regions such asAustralia and New Zealand, prices arelikely to rise considerably, it said.

It wrote13bn of gross premiums inthe quarter, up 11.3 per cent on 2010.

Munich Re in thered after disasters

BYALISON LOCK

INSURANCE

Japans earthquake and tsunami are expected to cost Hiscox up to 92m Picture: GETTY

BYALISON LOCK

INSURANCE

ANALYSIS l Hiscox

p


420

400

380

360

414.309 May

ANALYST VIEWS: HOW WILL HIGHER RATESAFFECT HISCOX? Interviews by Alison Lock

JOY FERNEYHOUGH | ESPIRITO SANTO

Its discipline at 1 January when rates were falling should afford Hiscoxgreater flexibility to grow into more attractive areas post-Japan. With the UKbusiness strengthening and the market turn in catastrophe business expected, wesee both sides of its business being able to drive increased profitability.

SARAH LEWANDOWSKI | PEEL HUNT

Hiscox sounds optimistic on the rating outlook, expecting rate increasesto become widespread. Underwriting remains disciplined, so it is well placed totake advantage of rising reinsurance rates. We have not assumed rate rises aheadof the June/July renewals and our forecasts could be revised upwards.

NICK JOHNSON | NUMIS

Hiscox is well positioned to benefit from reinsurance rate rises. A disci-plined pull-back in first-quarter exposure means it has capacity in hand to takeadvantage of potential opportunities. The group sees increases of ten per cent

plus for US catastrophe business in the June/July renewal season.

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HUAWEI yesterday announced a dealto enhance the 2G network ofEverything Everywhere, a move thatbrings it closer to realising its ambi-tion of becoming a major player inthe UK.

The four-year contract with thecombined T-Mobile and Orange ven-ture will allow faster mobile servicesover the network. It will allowEverything Everywhere to removeduplicate sites following the merger.

The deal also places Huawei in poleposition to win the contract toupgrade the network for 4G after thegovernment auctions off slices ofmobile spectrum.

The two firms have not said howmuch the contract is worth but it is

understood to run into hundreds ofmillions of pounds.

It will involve replacing up to10,000 base stations as well as otherinfrastructure.

Huawei UK chief executive VictorZhang said: We are committed tobecoming a serious network suppli-er for mobile operators in the UK.

We will offer future-proofed tech-nology that will improve voice qualityand network coverage.

Huawei has been keen to developits UK business, meeting with UKtrade minister Lord Stephen Green at

the Mobile World Congress event inBarcelona.

Its bid to supply infrastructure to aLondon Underground mobile net-work which was dogged by accusa-tions over Huaweis links to theChinese military fell through.

Huawei dealputs firm onthe UK map

MICROPROCESSOR firm CSRs $679m(415m) takeover of Zoran could bescuppered after the video chipmakerwas forced to issue a warning on itsrevenues yesterday.

Zoran has been hit by the Japaneseearthquake and the decision by cus-tomer Cisco to stop making the Flipvideo camera, which uses its proces-sors.

The US-based firm now expects toreport second-quarter revenues of between $80m and $85m, missing

forecasts of $95m to $97m by a longdistance. It said it was already seeingsigns of recovery as optimism builds,but the sentiment was not enough toease CSRs concerns.

If it walks away from the deal, CSRwill be forced to pay a break fee of$12.2m. This was not enough to putoff investors, with CSR shares rising3.7 per cent while Zorans stock tum-bled by more than 11 per cent.

The British chipmaker may nowseek to renegotiate the deal, with ana-lysts saying it would be reluctant toabandon it altogether.

Inmarsat profits jump ongrowth in maritime arm

SATELLITE operator Inmarsat report-ed a 23 per cent rise in first-quarterprofit yesterday, boosted by growth inits maritime unit.

The news eased concerns about itsperformance after a badly receivedstatement in March, which sent itsshares tumbling.

The provider of telecoms services toships, aircraft, military and aid servic-es in remote areas said its profitbefore tax rose 51 per cent to $124.8m(76m). Its revenues rose 15 per centto $323.9m.

Investors were cheered by the per-formance of the companys core mar-

itime business, where revenue rose3.2 per cent to $89m.

Payments from a deal withLightSquared contributed $36.5m.

The company said it expects toachieve growth of between two andfour per cent this year. This growthhas been driven by increasing trendstowards data usage, which is a biggerrevenue driver than voice calls.

Andrew Sukawaty, Inmarsat chair-man and chief executive, said: Thetrend of average daily data usage isincreasing. If usage continues to trackthis trend, usage growth will offsetthe pricing impact of migration overtime.

CSRs Zoran deal isrocked by warning

BY STEVE DINNEEN

TELECOMS

TECHNOLOGY

TELECOMS


Huawei president Ren Zhengfei is keen to make inroads in UK infrastructure

NEWS | IN BRIEF

Telecity upbeat on good demandData-centre firm Telecity Group yester-day reiterated a positive outlook for thefull-year on strong European demand,and said it saw opportunities for smallacquisitions in the region. The group,which operates 24 data centres acrossmajor European cities, said yesterday it

got an additional 100m of debt financ-ing, taking its total credit facility to300m. Analysts are expecting thecompany to post a 2010 pre-tax profitof 63.3m on revenues of 231.8m.

Micro Focus gains on updateMicro Focus International gained 3.7per cent to head Britain's FTSE 250 ris-ers yesterday after the IT firm issued areassuring trading update. Micro Focussaid its revenues and adjusted pre-taxprofits for the 12 months ended 30April were in line with market consen-sus. Micro Focus said on 26 April thatit had received a takeover approach andwas considering its response. Privateequity firm Bain Capital is thought to bebehind the approach.

RTL down on slow TV ad salesEurope's biggest commercial broadcast-er RTL Group posted a decline in first-

quarter core profit yesterday due to asluggish TV advertising market inGermany and higher investments innew programmes. Sales in theNetherlands and France grew signifi-cantly but those in Germany, Europesbiggest TV market, were down, it said.

AT the centre of the possible renego-tiation of CSRs 415m deal forZoran will be Rothschild, which isacting as financial adviser. DominicHollamby is heading up the team forthe bank. He gained a reputation as adealmaker in the healthcare sector,overseeing the auction of the PrioryGroup and Bridgepoint Capitals saleof Alliance Medical Holdings to DubaiInternational Capital for 600m.

JP Morgan is also acting as finan-cial adviser and broker, with RupertSadler heading up the team in theUK, working with James Robinson.UBS is joint broker, with Tim Pratelliheading up the team.

DOMINICHOLLAMBY

ROTHSCHILD

BT 21C NETWORKIt signed a deal in 2005with BT for the deploy-ment of its next genera-

tion multi-service accessnetwork and transmission

equipment for BTs 21stCentury Network.

2G UPGRADEIt yesterdayunveiled a four-yeardeal to enhanceEverythingEverywheres 2G net-work, thought to be worthhundreds of millions of pounds.

LONDON UNDERGROUND MOBILE NETWORKHuawei was involved in the failed bid to bring mobile receptionto the London Underground in time for the 2012 Olympics. Ithad offered a 50m gift to London as the next city to hostthe Olympic Games after Beijing. However, the task was more

difficult than previously expected and the deal fell through earli-er this year.

HUAWEI | THE CHINESE FIRMS UK DEALS

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FRESNILLO, the worlds largest pri-mary silver producer, said an arbi-tration panel had rejected theprincipal demands of MAG Silver, its joint venture partner at theJuanicipio project in Mexico.

The panel rejected MAGs claims

that the FTSE 100 miner was defi-cient in the execution pace or per-

formance of drilling at the explo-ration project, Fresnillo said.

The panel denied the principaldemands that Fresnillo be orderedto pay damages to MAG of up to$61m (37.3m) relating to delays andthat Fresnillo be ordered to disposeof its equity participation in theJuanicipio joint venture to MAG.

However, the panel upheld other

claims, such as one related toFresnillos announcement in 2008

that it intended to make an unso-licited bid for MAG.

It ordered Fresnillo to reimburseMAG for legal fees of $1.86m relatingto that claim.

The Panel ruled that each partyshould pay 50 per cent of the$775,000 arbitration cost and beartheir own legal costs.

Shares in Fresnillo closed 0.14 per

cent higher yesterday, up 2p to14.38.

Fresnillo claims victory in mining dispute

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OUTSOURCING giant Serco has said itis on track with its 2011 expectations

after contract wins and is well-placedto achieve future revenue targets.Serco, which among other things

runs Londons bicycle-hire schemeand Yarls Wood immigration removalcentre, said yesterday it had won

1.6bn worth of work since the startof the year.

The group, which last month wontwo contracts under the govern-ments welfare-to-work scheme,

added it was well-placed to achieverevenue of 5bn and an increase inadjusted operating profit margin to6.3 per cent in 2012.

Revenue for 2010 was 4.33bn.In the UK, Serco said it expected to

benefit from increased contractopportunities in the medium-term asthe government looks to outsourcesome of its national public services.

I am pleased with the resilience

the group has shown in the year todate. Despite headwinds, we expect toachieve a good f inancial performanceand to develop the many opportuni-ties within our 29bn pipeline, saidchief executive Christopher Hyman.

Serco bullish on the public sectorBYHARRY BANKS

SUPPORT SERVICES

MGM China, the joint venturebetween MGM Resorts Internationaland casino mogul Stanley Hos daugh-ter Pansy Ho, has started pre-market-ing for an initial public offering inHong Kong expected to raise between$1bn and $1.5bn.

MGM China kicked off its market-ing campaign for potential investorsafter it passed through a listing hear-ing in Hong Kong, with the IPOexpected to begin on 23 May and atrading debut in early June.

The firm is hoping to capitalise ona gambling boom in Macau. TheChinese territory earned $2.56bn ingambling revenues last month,according to a government report, a45 per cent rise year-on-year that putsit on track to rake in five times asmuch as the Las Vegas strip this year.

MGM Resorts Internationalannounced in April a plan for the ini-tial public offering of its Macau casi-no joint venture, in which MGMresorts would be the majority ownerwith a 51 per cent holding.

Ho will retain a 29 per cent holdingin the company, with the remainderbeing sold in the offering.

The firm plans to sell 760m newshares in a primary offering, or 20 percent of the enlarged companys capi-tal.

MGM China plans to use proceedsof the offering to repay obligationsowed to Grand Paradise Macau.

Bank of America Merrill Lynch,JPMorgan and Morgan Stanley are allthought to be acting as joint globalcoordinators for the stock offering.

Analysts have lauded MGM Resortsplan to take a controlling stake in the

venture, because it will give it afoothold in Macau and exposure toemerging markets. That should allowit to offset tough markets in its homeUS market.

MGM Chinabids to raise$1bn in IPO

PLATINUM producer Lonmin saidoperating profit more than doubledin the first half and reaffirmed itsclosely watched 2011 sales guidance,provided it can avoid safety stoppagesthat have hampered production.

Analysts had been concerned thatthe group could cut its 2011 target of750,000 platinum ounces after it suf-fered increased safety stoppages, likemany rivals in South Africa, andreported six employee deaths in thehalf-year period.

If we have unforeseen stoppages inthe second half that will make ourtarget more difficult, but at this stagewe are prepared to reiterate our guid-ance for the full year, chief executiveIan Farmer said.

Section 54 of South Africas MineHealth and Safety Act allows inspec-tors to halt operations at a mine pend-ing measures to ensure safety.

Lonmin, the worlds third-largestplatinum producer, said it was ontrack with sales of 318,306 ounces forthe six months.

It raised its longer-term target to950,000 ounces for 2015, from850,000 ounces by 2013.

It also stuck to 2011 guidance oncosts, despite a 12.8 per cent jump inrand unit operating costs over thefirst half. It expects costs for the full-year to come in at eight per cent.

Lonmin says2011 salesare on track

PASSENGER numbers on the UKsrailways have grown almost five percent in the first three months of the year, with the steep hike in fuelprices cited as the main reason forthe increase.

Figures from the Association of Train Operating Companies show

that passenger numbers increasedby 4.8 per cent between January and

March of this year, contributing tooverall growth of 6.6 per cent overthe whole financial year.

The number of journeys madeduring the period also increased, ris-ing to 316m from 301m in 2010.

The number of journeys made inLondon and the South East grew by4.7 per cent.

Petrol prices have risen at around

twice the rate of rail fares over thepast twelve months.

Jump in rail passengersTRANSPORT

Serco boss Christopher Hyman said thecompany has a 29bn pipeline Picture:Micha Theiner/CITY A.M

BYHARRY BANKS

MINING

BYHARRY BANKS

MINING

BYHARRY BANKS

CAPITAL MARKETS

ANALYSIS l Serco

p


620

580

540

547.509 May

ANALYSIS l Lonmin

p


1,900

1,800

1,700

1,600

1,500

1,562.009 May

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Consumer News14 CITYA.M. 10 MAY 2011

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TOUR operator Thomas Cook has saidthe impact of unrest in the MiddleEast and North Africa would be worsethan expected as holidaymakers avoid-ed destinations in Egypt, Tunisia andMorocco.

Europes second-biggest travel firmsaid yesterday it expected around35m to be knocked off its profits inthe second half of the year, worse thanits initial projection of 20m.

The impact has been compounded

by challenging trading conditions inthe UK, where Thomas Cook said itexpected its performance to be worsethan last year as inflation, unemploy-ment and fears of higher interest rateshit sentiment.

The company has been offering cut-price deals in Britain to stimulatedemand but still expects its results inthe UK to be worse than last year. Chiefexecutive Manny Fontenla-Novoa said:Its tough in the UK but you put ontop of that what the UKs facing -- a

really tough economic climate. I cer-tainly dont foresee an upturn in con-sumer confidence right now.

The group is looking to ease thedrop in demand for trips to the MiddleEast by offering holidays to other desti-nations such as Turkey and Spain andhas also targeted 30m of cost savingsthis year through a restructuring thatincludes more than 500 job cuts.

The group currently expects to offeraround 60 per cent of its original pro-gramme of holidays to Egypt, Tunisiaand Morocco but said that numbercould be cut further if the political sit-

uation does not improve. ThomasCook said travel restrictions to Egyptand Tunisia had resulted in about160,000 cancellations.

The cost of the disruption in the sec-ond quarter was 22m.

Rival TUI Travels chief executivePeter Long, who is due to report resultstoday, has said the company is factor-ing in a hit of up to 40m each yearfrom conflict and natural disasters toreflect the uncertain situation acrossthe globe.

Thomas Cookpays dear forworld unrest DIY retailer Wickes, owned by TravisPerkins, yesterday said its sales andmarket share were on the rise.Wickes like-for-like sales were up

1.9 per cent over the four months to30 April, while gross marginsimproved.

The company has weathered themarket better than Focus DIY, which went into administration laThursday.

Travis Perkins, a builders mer-chant that also sells DIY equipment,said it was on track to cut year-enddebt to 650m. It reported a 5.9 percent increase in revenue as it pickedup market share from rivals.

Prior to yesterdays update, sharesin Travis Perkins had risen by a overthird in the past year as the market welcomed its 799m purchase of

plumbing and heating group BSSGroup, a deal completed inDecember. Its shares dropped 1.2 percent yesterday.

The combination of strong coreTravis Perkins operations, good man-agement, plus the addition of the BSSbusiness presents good opportunitiesfor the group, said Panmure Gordonanalyst Andy Brown, adding that heexpected very low single digit growthin the merchanting market in 2011and a contraction in the DIY market.

Travis Perkinsmarket shareup as sales rise

Manny Fontenla-Novoa warned of the cost of world unrest. Picture: REX

BY JOHN DUNNE

LEISURE

RETAIL

ANALYSIS l Thomas Cook Group

p


210

200

190

180

160

150

170

165.79 May

ANALYSIS l TUI Travel

p


250

245

240

235

225

220

230

243.69 May

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HOUSE prices continued theirdecline last month despite increas-ing signs of the market stabilising,two separate surveys have shown.

Prices were down 1.4 per cent inApril, the Halifax announced yester-day, while this morning the RoyalInstitution of Chartered Surveyors(RICS) revealed that 29 per cent ofsurveyors are still reporting fallingprices, compared to just 12 per centthat found rising prices.

The negative balance, -16 percent, is a modest improvement onthe previous month (-20 per cent)with the survey revealing improve-ments in both supply and demand.

The return of sellers to the mar-ket is positive, but activity stillremains subdued, said RICS hous-ing spokesperson Michael Newey.

Although there are signs thatsome lenders may be reducing theirgrip on the purse strings, there isstill a long way to go before lendinglevels increase enough to have anyreal impact.

Higher numbers of properties being placed on the market werereported by 18 per cent more char-tered surveyors than those whoreported a fall in supply up from apositive balance of four per cent in

March.

Meanwhile, enquiries stabilised,moving to a net balance of zero percent and taking the series out ofnegative territory for the first timein ten months.

In April good weather led toincreased numbers of viewingsfrom potential buyers in some partsof the UK, some respondentsfound.

London continues to buck thetrend of falling prices, with Aprilmarking yet another month whereit was the only region reporting sig-nificantly rising prices.

Over a third (38 per cent) of sur-veyors in the capital reported high-er prices in April, compared to just15 per cent saying that prices fell.

Meanwhile, according to Halifax,across the UK the average houseprice stood at 160,395 in April down 3.7 per cent from the 168,593average at the same time last year.

The underlying trend, shown by athree monthly comparison ofprices, is down 1.2 per cent, theresearch found.

Interest rates on mortgages arefalling, particularly for high loan tovalue deals, the website Moneyfactsreported yesterday.

The average rate for borrowers with a 10 per cent deposit hasdropped below six per cent (to 5.98per cent) for the first time since

March 2008, it announced.

House prices

slide despitemore activity

Business services crucial to UK

BUSINESS services such as accountan-cy, IT and engineering are the unsung

heroes of economic growth in the UK,a report by The Work Foundation willclaim today.

Despite its recent resurgence, man-ufacturing is no longer the driver ofthe economy, and the chancellorGeorge Osborne is wrong to pin allhopes for recovery on this sector, thefoundation argues.

Business services have become the

lifeblood of the UKs knowledge econ-omy and now account for twice theoutput of the manufacturing sector,said report author Andrew Sissons.

Business services make up over a

fifth of British GDP and 11 per cent ofemployment, the group claims, mak-ing it the largest sub-sector of theeconomy.

Since its rapid growth began in themid-1980s, the sub-sector has created1.8m jobs. Since 1970, 38 per cent ofall growth in the UK has been gener-ated by business services, the researchstates.

It supplies the professional andtechnological support that businessesdepend on for innovation andgrowth, Sissons added. Businessservices take ideas and technologies

and make them useful to businessesacross the economy.The industry is responsible for over

20bn in net exports, yet still requiresa big push in this area, according tothe foundation.

The government must also ensurethat the tax regime encourages busi-nesses to invest in their knowledgebase, Sissons said.

BY JULIAN HARRIS

HOUSING

BY JULIAN HARRIS

UK ECONOMY

Economics 15CITYA.M. 10 MAY 2011

NEWS | IN BRIEF

UKs growth to lag behind peersThe global recovery is set to continue,but countries such as the UK will lagbehind with sluggish growth, theOrganisation for Economic Co-operationand Development (OECD) said yesterday.Along with France the UK will only expe-

rience stable, slow pace of expansiondespite a rosier outlook in countriessuch as Canada, China, the US andGermany. The results are based on theOECDs composite leading indicatorswhich attempt to predict turns in eco-nomic performance six months inadvance. In a separate statement, theOECD said that Italy should embracegreater liberalisation and deficit reduc-tion in order to make its economy morerobust in the future.

German exports surged in MarchGerman exports soared in March by 7.4per cent compared to the previousmonth, official data showed yesterday.The spike saw the German trade surplusreach a six-month high of 15.3bn(13.4bn), up from 11.2bn the thirdsharpest monthly increase in the lastnine years. Imports grew by 3.3 per centcompared to February. Yet according toour preliminary calculation, the contri-bution of net trade real GDP growthshould be zero in the first quarter of thisyear, said Thorsten Polleit of BarclaysCapital.

Business morale drops in FranceFrench business confidence unexpectedlyslipped in April, down from 110 to 107 inthe Banque de France survey. That rep-resents the biggest monthly fall sincelate 2008 during the financial crisis,said Ken Wattret of BNP Paribas.

University offer system is flawedBritish universities reliance on predict-ed exam results harms studentsalready disadvantaged by their back-ground, new research suggests. Thesystem reduces the chance of admis-sion for pupils from poorer households,according to a team of economists

from Warwick University.

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HIGH street sales sprang back to lifelast month, boosted by Aprils extrabank holidays and sunny weather.

Retail sales were up 5.2 per cent onan annualised like-for-like basis, a bigspike from disappointing drops insales seen in the previous twomonths.

Easter and the royal wedding bankholiday provided a badly neededboost to many retailers during April,said Stephen Robertson of the BritishRetail Consortium, which compiled

the data.

The hottest April since records began got people out spending onsummer clothing and footwear,Robertson added.

Total sales, which include increasesin shop floor space, were up 6.9 percent compared to the same time lastyear.

On the three monthly measure,which irons out some volatility, like-for-like sales were up narrowly by 0.1per cent, with total sales up 0.9 percent.

Food sales were up in both meas-ures, yet overall retailers still face adrag from declines in sales of non-

food items.

Hot weather in April seesshoppers return to stores

Sales of clothes have shot up during the warm weather Picture: REX

BY JULIAN HARRIS

RETAIL

ANALYSIS l Share of UK economy in business services, manufacturing and finance

%

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2009200620032000

35

25

15

5

Manufacturing

Financial services

Business services

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SHEILA Bair, one of the most visibleregulators who navigated the recentfinancial crisis, will leave the FederalDeposit Insurance Corp (FDIC) on 8

July, the agency announced yesterday.Bair began her five-year term as

chairman in June 2006 and wasknown for her tough talk against WallStreet excess. Throughout the 2007-2009 financial crisis that rocked the

banking industry, she butted headswith other regulators by at times tak-

ing a firmer stance on taxpayer-backed bailouts.

Yesterday, Bair did not announcewhat she will do next. She previouslysaid she plans to go back to academiaor work at a nonprofit, but not enterthe lobbying world or Wall Street.

Prior to joining the FDIC, Bair was aprofessor at the University ofMassachusetts-Amherst. She has helda variety of jobs in government,including being a top aide to formerSenate Republican leader Robert Dole.

The Obama administration has yetto announce who the president willnominate to replace Bair, but a lead-ing candidate is FDIC vice chairmanMartin Gruenberg, according toindustry and congressional sources.

Gruenberg has been at the FDICsince 2005 and before that was a long-time Democratic aide in Congress,

where he focused on banking issues.Bair has been an outspoken advo-

cate of strongly implementing theDodd-Frank financial oversight law,

which was enacted in July. Under thenew law the government can desig-

nate non-bank financial firms as being systemically important finan-cial institutions because their failurecould roil markets and damage theeconomy.

BYHARRY BANKS

REGULATION


NEWS | IN BRIEF

Great Portland fills W1 officesGreat Portland Estates has said that thewhole of its refurbishment property at160 Great Portland Street will be let tovisual effects company Double Negative.The firm will take a 20-year lease and payrent equivaent to 59.60 per square footon the first to fifth floors of the building.

Shapland leaves SainsburysSainsburys has announced that its groupdevelopment director Darren Shapland isto stand down, with non-food managingdirector Luke Jensen taking on the major-ity of the role from July. The companyalso announced that James Brown would

join from Littlewoods as business unitdirector for clothing, and Robbie Featherwas leaving John Lewis to become unitdirector for general merchandise.

Admiral passes pay resolutionsMotor insurer Admirals annual meetingended with all resolutions passed yester-day and 98.7 per cent support for theremuneration report. Admiral, whichposted a 50 per cent rise in first-quarterrevenues last week, also saw chief execu-tive Henry Engelhardt, finance chief KevinChidwick, operating chief David Stevensand its eight non-executive directors re-

elected.

AIR predicts US storm lossesInsured losses from the tornadoes thatdevastated the US south last month arelikely to reach between $3.7bn (2.3bn)and $5.5bn, risk modelling consultancyAIR Worldwide said yesterday. The wind-storms have killed an estimated 354 peo-ple to date in seven US states. The losswill be predominantly from destruction ofboth residential and commercial property,industrial buildings and cars, AIR said.

BNP Paribas chairman MichelPebereau, who in the course of a decadeturned a state-owned French lenderinto one of the biggest banks in Europe,is expected to announce his retirement

before shareholders tomorrow.Pebereau, 69, was widely expected to

step down before reaching the retire-ment age of 70 next year. Chief execu-tive Baudouin Prot is seen as his likelysuccessor.

A BNP spokeswoman declined to

comment, but said the bank could be

expected to give an update on manage-ment changes at the annual sharehold-ers meeting tomorrow.

It is already known that we havebegun the last year of Pebereau's chair-manship, she said.

BNP chief operating officer Jean-Laurent Bonnafe is now in line to takethe chief executive officer position.

Bonnafe has been seen as the can-didate to replace Prot for some time,

with insiders describing him as hisdauphin.

BNP Paribas chair to retire

BNP Paribas chairman Michel Pebereau is expected to retire Picture: REUTERS

Bair, current chair of theFDIC and advocate of theDodd-Frank law, is due tostep down on 8 July atthe end of her 5-year term

FDIC chair toquit as 5-yearterm finishes

BYHARRY BANKS

BANKING

8/6/2019 Cityam 2011-05-10

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VOLKSWAGEN has kicked off a creep-ing bid for MAN, valuing it at $20bn(12.3bn) and stepping up its drivetowards a goal of merging the Germantruckmaker with Swedish rival Scania.

VW is keen to create Europes biggesttruckmaker to compete more effective-ly with world leader Daimler and num-

ber two Volvo.The German carmaker already owns

a controlling stake in Scania and byincreasing its holding in MAN above 30per cent, from 29.9 per cent, it has trig-gered a mandatory offer.

If yesterdays 95 (83.1) per shareoffer is rejected by shareholders as toolow, German rules allow it to gradually

buy up MAN shares rather than shellout for all of its stock at once, a method

recently used by Spanish constructiongroup ACS in its takeover of Germanrival Hochtief.

We now want to pave the way for acloser cooperation between MAN,Scania and Volkswagen and thereby laythe foundations for generating syner-gies for the benefit of all shareholders,

VW chief executive Martin Winterkornsaid. VWs offer was seen as low by ana-lysts, valuing MAN at about 13.76bn.

At that level it is unlikely to sparkgreat shareholder interest, giving VWtime to gradually build up a

cityam 2011-05-10

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