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FTSE 100 5,674.38 -98.61 DOW 12,050.00 -59.67 NASDAQ 2,686.75 +17.56 /$ 1.60-0.01 / 1.12unc /$ 1.43 unc

FRENZIED trading saw oil drop byover six per cent yesterday, after theInternational Energy Agency (IEA)said it would release 60m barrels ofemergency reserves in the nextmonth, in response to ongoing dis-ruption of oil supplies from Libya.

Brent crude sank to $107.14(75.63) per barrel, close to $7 downon the day, while US crude sankclose to $91 a barrel, down roughlyfive per cent from the days high.

The news sent a chill throughmarkets, helping to send the FTSEdropping 1.7 per cent to its lowestclose since 16 March, when markets were plunging in the aftermath ofthe Japanese earthquake.

The Dow fell over one per cent

immediately after the news, whilethe S&P 500 Index shed 1.4 per cent

to hover dangerously near its 200-daymoving average. Positive news on theGreek budget, however, helped theUS markets pare losses.

Weak employment data for the USalso dented stocks across the pond,

while poor services and manufactur-ing data in the Eurozone was partly

behind the euro crashing to an all-time low against the Swiss franc.

Goldman Sachs said Brent crudecould fall by $10-$12 a barrel by theend of July, after the surpriseannouncement from the IEA.

It marked only the third time thatthe IEA has unlocked emergency

reserves since it was founded in 1974in the wake of the Arab oil embargo.

The Gulf War (1990-1991) andHurricane Katrina (2005) promptedthe two previous occasions whensupply was disrupted enough to con-

vince the IEA to release millions ofbarrels per day in reserves.

The release stoked political feuds,with Republicans and the oil indus-try accusing President Obama of vot-ing for the measure to boostAmericas sluggish recovery.

This action threatens our abilityto respond to a genuine nationalsecurity crisis and means we mustultimately find the resources toreplenish the reserve at significantcost to taxpayers, said Republicanpolitician John Boehner.

The move also puts pressure on oilcartel Opec, which earlier thismonth failed to decide whether torelease more oil into the market.

Some analysts said the releasecould temporarily ease inflationarypressures in the West. Growing infla-tion in Europe and the US has seencentral banks, particularly theFederal Reserve, come under fire.

A drop in the price of oil to $95 perbarrel would wipe half a percentagepoint off inflation forecasts in theUK and Europe over the next 18months, according to Alan Clarke ofScotia Capital. For the Bank, thiscould contribute to further delayingthe first interest rate hike, and mayadd to speculation of another roundof quantitative easing, he said.

ALLISTER HEATH: P2ECONOMICS: P17

www.cityam.comIssue 1,410 Friday 24 June 2011 FREE

BOURSES INBATTLE

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Oil prices plummeted yesterday after the IEA announced it would unlock 60m barrels of emergency reserves in the coming month

International EnergyAgencys emergencysupply tapped for justthird time in 37 years

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News2 CITYA.M. 24 JUNE 2011

IMF endorsesGreek budgetGREECE has agreed on the details of afive-year austerity plan with EU andIMF inspectors hoping to steer thecountry away from bankruptcy.

The beleaguered countrys newfinance minister Evangelos Venizelosmet with a delegation of EU and IMFofficials in Athens yesterday to dis-cuss measures for extra tax rises andspending cuts to plug a 3.8bn fund-ing gap.

In a press conference yesterday,Venizelos announced details of someof the measures including a new sol-idarity levy on all Greek wage earn-ers of between one and five per cent.The budget would also include lower-ing the minimum threshold forincome tax to 8,000 a year from itscurrent level of12,000.

Greek lawmakers must pass thenew new round of austerity measuresthrough parliament next week inexchange for second rescue packageworth120bn that has been agreed toin principle by Eurozone members.

The basic issue of the day is tofinalise the programme, Venizelostold a news conference. Our basicaim is to regain our credibility.

Prime Minister George Papandreou was meeting with European Unionleaders in Brussels last night wheretalks were dominated by talks on pre-venting spread of Greeces debt crisis.

BYKASMIRA JEFFORD

EUROZONE

Lessons to learn from Swiss watches

IT is my favourite fact of the day:exports of Swiss watches jumped by anastonishing 40 per cent in May. Exportsto China were up 41 per cent in May, toSouth Korea by 39 per cent and toSingapore by 35 per cent. EvenWestern demand is recovering, albeitnot by as much. Swiss watches are notexactly a mainstream industry butthey make for a fascinating indicatorand highlight several important les-sons we must all learn.

The first is that countries that spe-cialise in high value added products even manufactured goods can still

do extremely well. Being the best atsomething very special and uniquealmost guarantees success. This can begoods, agricultural products or servic-es such as foreign exchange trading or

private secondary education. The sec-ond lesson is that it confirms the grow-ing importance of Asia; the MerrillLynch Cap Gemini world wealth reportthis week revealed that there are nowmore people with liquid assets of $1mor more in Asia than there are inEurope. This is not a zero sum game:the City has a huge opportunity to sellits wares to Asia. At the moment, thisopportunity is partly being squan-dered by self-inflicted regulatory andtax attacks on our competitiveness.

The third lesson is that while overallconsumer spending is growing onlymarginally in many Westerneconomies, there is plenty of demandfor premium products globally. Thebetter-off have bounced back from therecession because their wealth andincomes are highly leveraged to theeconomic cycle. What is clear is that

the boom in the emerging world isincredibly exciting and is doing won-ders to cut poverty. World trade is setto rise from $37 trillion in 2010 to $150trillion in 2030 (in constant dollars)

and $370 trillion by 2050. The explo-sion in wealth this entails is mind-bog-gling. Intra-emerging markets trade isset to overtake trade within advancedeconomies by 2015 and overtake trade between advanced economies andemerging markets trade by 2030,according to Citi. But the opportuni-ties are immense for individuals, com-panies and countries that are willingto fight for them, as I argued last nightin my speech to the Lord Mayors excel-lent formal dinner for the propertyindustry at Mansion House. We needto be on the right side of history thatmeans being sufficiently competitive,educated and savvy to cash in on thenext few decades of booming trade.

OIL POLITICS GONE MADIT is good news for consumers that theInternational Energy Agency (IEA) has

chosen to release 60m barrels of oilfrom its strategic inventories. At firstsight, the rationale looks clear: the IEAis trying to compensate for the reduc-tion in Libyan supply, though this is a

bit strange given that the soft patch inthe EU, UK and US economies meansthat demand for oil ought to fall.

What is really happening is that theIEA is trying to act like a modern cen-tral bank: it is attempting a hubristicgame of aggregate demand manage-ment, hoping to boost consumer andcorporate spending on non-energyitems by temporarily pushing downthe price of oil. It is a dangerous gameand it wont work though BarackObama will of course be hoping to ben-efit politically. The price of oil wontstay low for long, so the IEA will haveused up a chunk of its reserves for notvery much gain. Rather than going forshort-term bursts of stimulus, the IEAwould be better off holding its fire incase of a real crisis.

[email protected] me on Twitter: @allisterheath

EUROPES banking regulator said thatit has updated its stress test protocolfor the regions banks to factor in apossible Greek default.

The European Banking Authority(EBA) has until now refused to includethe possibility of a sovereign default inits tests.

The EBA said yesterday it was closelymonitoring the perilous financial situ-ation in Greece and that its stress test

of 91 banks will allow an assessmentof current market conditions on sover-eign risk and banks cost of funding.

Haircuts to be applied to trading book assets have been adjusted insome cases to reflect losses related tocurrent market values, the EBA said ina statement.

Results of the latest round of stresstests are expected to be revealed on 13July, following the first tranche of testslast year, which fell short of predictinghow Europes banks would fare underpressure.

BYMARIONDAKERS

EUROZONE

Default a factor in bank testGreek PM George Papandreou still faces an uphill battle to avoid a default

NEWS | IN BRIEF

Williams wades into energy dealUS energy group Williams Companieslast night tried to break up a rivalstakeover deal with pipeline companySouthern Union by making an unsolicit-ed $4.9bn cash bid. Energy TransferEquity had already offered SouthernUnion $4.1bn in a stock deal. Southern

Union shares rose around 15 per cent inafter market trading last night. Barclaysand Citi are advising Williams on its bid.

AIB in talks over capital raisingAllied Irish Banks announced yesterdaythat discussions are continuing with theGovernment over the terms and struc-ture of a capital raising in order to satis-fy recent stress tests. Ireland, whichalready owns 93 per cent of the bank,could end up taking more control of thebank and buying more shares, resultingin potentially significant additional dilu-tion for existing ordinary shareholdersother than the state. It is expected thatdiscussions with the Government willfinalised within a week and AIB thenexpects to be in a position to announcethe final terms and structure of any cap-ital raising transaction with the State.AIB expects to remain as a listed firm.

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 CrowActing Night Editor Marion DakersBusiness 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 of

self-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

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

Greeces new financeminister EvangelosVenizelos unveiled anew levy on workersto help cut debts

CHINESE PREMIER DECLARES VICTORYOVER INFLATIONChinese premier Wen Jiabao hasdeclared victory over domestic infla-tion, saying that the government hassuccessfully reined in price pressures.China has made capping price risesthe priority of macro-economic regu-lation and introduced a host of target-ed policies. These have worked, Mr Wen writes in todays FinancialTimes. We are confident price rises will be firmly under control thisyear. Consumer price inflation hasbeen rising since the middle of lastyear, reaching a 34-month high of 5.5per cent in May.

THREAT TO NAME AND SHAME PFICOMPANIESA Conservative MP is to identify pub-lic finance initiative groups that

refuse to offer the taxpayer a volun-tary rebate on their profits. The same

threat would also apply to those thatdo not sign up to a proposed Treasury

code of conduct aimed at cutting thecost of schemes built under the pri-vate finance initiative, Jesse Norman,the MP for Hereford said.

TWITTER RISKS USER BACKLASHWITH PLAN FOR BOLDER ADVERTS Twitter is looking at introducingadvertisements among the short mes-sages that users see in the most activepart of the social networking service,according to people with directknowledge of its plans. The movecomes as Twitter looks at a widerrange of options to generate revenuesfrom a service that has so far failed tomake money from its audience aseffectively as rivals such as Facebook.The move to place promoted tweetsin the main stream of tweets on theservice is likely to be controversialwith users who have seen only limit-ed and unobtrusive marketing mes-

sages so far in Twitters five-yearhistory.

FSA WARNS OF NEW BREED OF LIARLOANSThe City Watchdog has warned that buy-to-let mortgages designed forlandlords are being misused by bro-kers to get around the rules requiringborrowers prove their income. Beforethe credit crunch, self-certificationmortgages allowed borrowers toobtain a home loan without provingtheir income, but these becameknown as liar loans because they were fraudulently used by somehome owners to exaggerate earnings.

CHEQUE GUARANTEE CARDS TO ENDThe cheque guarantee system will bewithdrawn next Thursday (June 30),despite protests from consumergroups and charities, particularlythose representing older people, sothat it will make it impossible to pay

by cheque at many retailers, petrolstations and restaurants.

MOBEN AND DOLPHIN SHOPS COLLAPSE The parent company of Mobenkitchens and Dolphin bathrooms hasapplied to go into administration, becoming the latest victim of theslowdown on the high street and themoribund housing market.Homeform, owned by Sun CapitalPartners, the US private equity firm,filed an intention to appoint admin-istrators with the courts yesterday.

IRISH DATA REVEALS TWO-SPEEDECONOMYStrong net exports and profits fromIrish-based multinationals saw GDP jump 1.3% in the first quarter. Thedata reverses a 1.4% drop in GDPrecorded in the previous quarter, buteconomists cautioned that the turn-around was more to do with externaldemand than any recovery at home.

Consumer demand dropped 1.9% inthe quarter, the worst in two years.

GOOGLE SERVED WITH SUBPOENAS INBROAD ANTITRUST PROBEThe US Federal Trade Commission ispoised to serve Google Inc. with civilsubpoenas, according to people famil-iar with the matter, signaling thestart of a wide-ranging, formal inves-tigation into whether the Internet-search giant has abused itsdominance on the Web. Google andthe FTC declined to comment.

GEITHNER PRAISES IMF CANDIDATECHRISTINE LAGARDEUS Treasury Secretary TimothyGeithner praised French FinanceMinister Christine Lagarde yesterday,saying through a spokeswoman thatshe is an exceptionally talented can-didate to head the InternationalMonetary Fund. Mr. Geithner has yetto endorse a candidate, though the

US has historically backed a Europeanfor the top IMF job.

WHAT THE OTHER PAPERS SAY THIS MORNING

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News 3CITYA.M. 24 JUNE 2011

Harry Potter and thepublishers of fury

THE government has confirmed it willclose its Central Office of Informationand that its advertising budget hasbeen cut by almost 70 per cent.

The closure of the agency, whichcommissions government advertisingand publicity campaigns, will result inthe loss of up to 400 jobs.

The decision follows a review inMarch by the former permanent secre-tary for government communications,Matt Tee, who proposed replacing COIwith a new body.

Instead, the cabinet office will takeover advertising and marketing activi-

ty, taking on 20 of COIs staff to boostits existing communications teams.

The cabinet office, which publishedits response to the COI review yester-day said the reforms are designed to

consolidate those reductions, whileensuring that the remaining spendand activity on advertising and mar-keting is better coordinated and exe-cuted.

It also said the coalitions public sec-tor spending cuts in June last year hadled to a near-70 per cent cut in advertis-ing and marketing spend from 532min 2009-10 to an estimated 168m inthe past 12 months.

Prospect, the union for profession-als, condemned the move to axe theCOI saying it was in complete breachof the governments declared policy ofpromoting shared services across cen-tral and local government.

The organisation, which was found-

ed in 1946, best known for producingpublic information films, alsoappoints advertising agencies and han-dles media buying on behalf of govern-ment departments.

Coalition closes itsadvertising agency

and slashes budgetBYKASMIRA JEFFORD

POLITICS

MORE NEWSONLINE

www.cityam.com

JK ROWLING yesterday delivered a warning shot to the publishingindustry that it must adapt to therapidly-changing online world orrisk becoming marginalised.

The Harry Potter author revealedshe will offer her record-breakingchildrens books for downloadthrough her own website, circum-venting the need to visit digital book-shops like those owned by the likesof Amazon and Apple.

The Scottish author, wholaunched the venture yesterday atthe Victoria & Albert Museum inLondon, had refused to allow herseries to be released in a digital for-

mat, despite pressure from publish-ers and retailers keen to milk thePottermania cash cow. Rowling hasalways maintained the digitalrights to the books, althoughUK publisher Bloomsburysays it will receive aslice of digital rev-enues.

The website c a l l e dPottermore will give theseries a mas-sive online pres-ence, with featuresallowing fans to playgames and interact withdigital characters from thebooks. It will also coincide witha social networking push,including a Twitter feed.

As well as the existing books,

Rowling will publish around

18,000-words worth ofnew material on theboy-wizard.

In short, it will offerfans an experience,rather than just anoth-er place to buy a book.

The venture, whichhas been two years inthe making by UK digi-tal agency Think, is amajor disappointmentfor ebook retailers, who will miss out on mil-lions worth of down-loads fees.

Rowling joins authors including

horror writer Stephen King in creat-ing their own digital outlet for theirwork. If the trend continues, estab-lished authors could snatch back

power from publishers.Further down the line,

Amazon maybe forced toallow non-p r o p r i -

e t a r y formats

those not

downloaded from its own store onto its Kindle device.

The move has been likened toRadioheads decision to self-publishtheir album In Rainbows through

their own website,forgoing traditionalrecord labels. Theyset up an innovativehonesty box sys-tem after splittingfrom EMI, allowingfans to choose howmuch they paid forthe record.

However, whilethe scheme may work for estab-lished brands likeRowling andRadiohead, it isunlikely to pro-

vide enough income to besustainable for smaller independent

content owners.Im phenomenally lucky that Ihad the resources to be able to do itmyself, Rowling admitted yesterday.

Ebooks are here, and they arehere to stay. I still love a

print and paper book, but I think you canenjoy both. There was really no otherway to do that for thefans or for me than to

just do it myself.That the magic will

work for Potter is all but certain. Whether

it will alter the pub-lishing industry islargely depend-ent on the bigplayers adaptingto the digital world and

fast.

How JK Rowling hopes to change theface of publishing by sidelining thelikes of Amazon, by Steve Dinneen

PRIVATE equity firms in the UK couldbe held liable for bribes paid by offi-cials at companies they own, theSerious Fraud Office has said, follow-ing uncertainty in the sector as towhat it would mean for business.

SFO director Richard Aldermanwarned private equity clients of thelaw firm Debevoise & Plimpton LLP inLondon this week that they could beface prosecution for bribes eventhough they know nothing aboutthem although they will havereceived the benefit through divi-dends or other distribution.

As owners of companies, privateequity, as well as the big institutionalshareholders, has a responsibility tosociety to ensure that the companiesin which they have a shareholdingoperate to the right standards,

Alderman said.The Bribery Act, which will come

into play on 1 July, will make it a cor-porate offence for failing to preventbribes paid in the UK and abroad.

Private equitycould fall foulof Bribery Act

ENFORCEMENT

Russian port operator Global Portshas priced its up to $572m (355m)London initial public offering (IPO)at the lower end of the range, in abid to get the float away amid toughmarket conditions.

The container terminal operator

will price its shares in the lower halfof its $14.70 to $16.10 range, sourcesclose to the deal told City A.M. lastnight.

The list price puts shares in the

company at a deep discount to arecent valuation by analysts, in anindication of the measures firms areprepared to take to successfullyfloat.

Trading of the firms global depos-itory receipts will begin on theLondon Stock Exchange today, aheadof full trading before the end of themonth.

Deutsche Bank, Goldman Sachs,Morgan Stanley and Troika Dialogacted as joint global coordinatorsand joint bookrunners on the publicoffering.

BYRICHARD PARTINGTON

CAPITAL MARKETS

Global Ports prices IPOGlobal Ports chief Nikita Mishin is hoping to get the firms float away smoothly

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THE LONDON Stock Exchangesfriendly merger with Toronto bourseoperator TMX was put under renewedpressure yesterday, after the Maplegroup of Canadian banks and pen-sion funds increased its hostile offer.

Shareholders in TMX now face atough choice, to be settled in a votenext week, over which deal to accept.

Maple has increased its bid to C$50

per share from C$48 per unit andincreased the number of shares itwants to 80 per cent from 70 per cent,giving its approach a total value ofC$3.8bn (2.44bn).

Just one day earlier, the LSE andTMX announced a special dividend inan attempt to sweeten the deal forshareholders. They are offering an84.1p payment for LSE shareholdersand a C$4 special dividend for TMXshareholders, totaling 415m, shouldthe deal be completed.

Influential proxy advisory firmInstitutional Shareholders Servicesyesterday came out in favour of thefriendly merger, despite the improvedMaple bid.

Former TMX director and founderof Canadian research houseForefactor, Renee Colyer, said: Theagreed merger should happen tofacilitate growth. It will put TMX inthe globalisation game, whereas theMaple offer pretty much keeps uswhere we stand.

LSE under fresh pressureto complete TMX mergerBYRICHARD PARTINGTON

FINANCIAL MARKETS


LSE chief Xavier Rolet is under pressure to sew up the TMX merger Pic: Micha Theiner

TIME LINE | THE BATTLE FOR TMX

9 February 2011: The London StockExchange and TMX announce an agreed4.3bn all-share merger; it is billed as afriendly merger of equals. The LSEs share ofthe deal is valued at C$3.2bn (2bn).

14 May 2011: Maple Acquisition Group, aconsortium of nine Canadian banks and pen-sion funds, makes its first approach to theboard of TMX Group. Its deal is valued atC$3.6bn. TMX says it will consider the offer,although later turns it down.

26 May 2011: Maple goes hostile in its bidto take control of TMX.

12 June 2011: Four more Canadian financialinstitutions join the Maple bid.

12 June 2011: Maple tweaks its bid, slightlyimproving its offer. It writes to TMX share-holders calling on them to vote against theLSE merger on 30 June.

22 June 2011: LSE and TMX offer share-holders a special dividend to sweeten their

planned merger.

23 June 2011: Maple immediately hitsback with another improved offer ofC$3.8bn.

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INVESTORS ditched British banksyesterday after a note by influentialanalysts unleashed fears that thegovernments reform plans forlenders could slash their profitabili-ty by 15-25 per cent.

The note estimates that imple-menting the Vickers Commissionsproposal to hive off banks retailfrom their wholesale business couldcost RBS, Lloyds and Barclays up to10bn and raise their wholesalefunding costs by 100 basis points.

In response, Lloyds saw its share

price drop 3.7 per cent, Barclays lost3.55 per cent and RBS plunged 4.9per cent. In total, the three bankssaw their value shrink by over 4bn.

It is also understood that theringfencing threat was a hot topic ata dinner held by RBS for its top private shareholders on Wednesday, with investors anxious about howexecs will mitigate the impact.

The note on ringfencing, byHSBCs Robin Down, Peter Toemanand Ben Ashby, says that investorshave so far not given the ringfenc-ing proposal credibility because thegovernment does not know how it will work. But chancellor George

Osborne has nonetheless vowed toimplement it.

Banks plummet onringfence anxietyBY JULIET SAMUEL

BANKING

NATIONWIDE chief executiveGraham Beale was paid a total of1.88m this year, an increase of350,000 on last years wages.

On top of a base salary of 650,000,Beale received 441,00 in perform-ance related pay, and a 101,000 pen-sion contribution.

His basic pay packet next year willincrease by a further 175,000 to825,000, as the building societyacknowledged that base salary forout executive director roles has fallen below a market competitive rangeover time.

All of Nationwides six executive

directors received more than850,000 in total pay each.

Nationwide bossBeales pay rises

to over 1.88mFINANCIAL SERVICES

A PLAN to hand shares in nationalisedlenders to taxpayers was scorned asdoomed to failure and a gimmickyesterday by observers in the City.

BGC Partners Louise Cooper said itsounds like a nightmare to adminis-ter and that it was a throwback to theprivatisations of the 1980s, asking:Should we really be repeating theexperience of a decade that brought usshoulder pads and legwarmers?

One analyst called the plan a pop-ulist gimmick and said he was work-ing on the basis that it wont happen.

But Portman Capitals MichaelOConnor, who helped devise the plan,said that criticisms are overblown.The technology thats necessary toproduce this is now available off theshelf, he said. Its a procurementissue, not a development issue. He

added that if 22m applications forOlympic tickets could be administeredfor a cost of 10m, then 250m shouldeasily cover the fair shares plan.

City dismissesshare giveawayas a gimmick

News CITYA.M. 24 JUNE 20116

CITY VIEWS: SHOULD RBS AND LLOYDS SHARES BEGIVEN TO TAXPAYERS? Interviews by Cora Gardiner & Phoebe Torrance

The government needs to retain control, thecrisis is still causing problems so we need to waituntil it is over. I don't think we should sell becauserelinquishing control will cause an unbalancewe arent equipped to deal with.

KAMAAL HUSSAIN | LINEDATA LIMITED

The shares should be given to taxpayers becausethe governments money is the taxpayers money. Idon't think we should sell the stakes to overseasinvestors because it should be UK people incontrol of the UK banks.

Shares in RBS and Lloyds should be given backto the taxpayers, but because of the financial

crisis the country really needs to gainmaximum profit, which would begenerated by selling the shares.

SPENCER HALLIDAY | INSURANCE INSIDER

ROBERT UNSWORTH | MONTPELIER SYNDICATE

FAIR SHARES PLAN

Q.WHATS THE PLAN?

A.The idea is to privatise the gov-ernments 83 per cent stake inRBS and its 41 per cent stake inLloyds by divvying up the sharesand giving them to taxpayers.People would not have to pay for

them up front but would pay afloor price to the Treasury whenev-er they sold on the shares. Thefloor price would be set at a break-even level to allow the state torecoup the 66bn cost of bailingout the banks. But any upsidebeyond that price would be kept bytaxpayers and taxed at capital gainsrates.

Q.WHY TAX THE GAINS?A.Taxing the upside would allowthe government to collect aportion of the windfall if therewere big gains after it offloadedthe shares. It is a sweetener for theTreasury, essentially.

Q.ISNT THIS WILDLYIMPRACTICAL?

A.Not necessarily. The technology

to administer massively com-plex and large-scale trades alreadyexists it is simply a matter of buy-ing it for the right price. The

schemes creators,Portman Capital, putthe cost at 250m.

Q.WHAT ABOUT WHEN 40MPEOPLE SHOW UP TO THE AGM?A.The shares in question couldhave voting rights but notattendance rights, and would beheld in accounts administered by anominee. Portman CapitalsMichael OConnor also suggeststhat less sophisticated shareholderscould have their shares adminis-tered electronically bya nominee.

Q.WHAT IFWRECKERSTRY TO DESTROYTHE BANKS BY VOT-ING FOR FOOLISHMEASURES?

A.Given that theywould destroythe value oftheir ownproperty,hopeful-ly thatwouldnt

happen!

Q A&

BY JULIET SAMUEL

POLITICS

ANALYSIS l Royal Bank of Scotland

p

8 :00 1 0: 00 1 2: 00 1 4: 00 1 6: 00

38.5

37.5

36.5

36.7423 Jun

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THE FSAs report on the collapse ofRBS will show that the regulationwas woefully inadequate in the run-up to the financial crisis, FSA chairLord Turner said yesterday.

If RBS had been subject to Basel IIIfrom 2007 onwards, it would have been a completely different situa-tion, he said.

He added that the FSAs report would be unvarnished because wedont have a record of being easy on

ourselves. Turner also criticised the

immensely frustrating process the body has been through in order topublish the report, saying: Wevehave to invent a process to deal withan unsatisfactory legal situation.

However, he said that reforms tothe UKs regulatory regime would putin place a better system for similarcases in future.

But the governments otherreforms, which involve creating two

new bodies in a twin peaks systemof regulation, came in for criticism byAdam Phillips, who chairs the FSAsconsumer panel.

He said that it is essential thatthe policy gets a lot more work onthe detail to ensure it isnt ineffi-cient.

Many in the City are worried thatthe governments proposal to replacethe FSA with two new bodies and toadd another committee to the Bankof England will lead to duplication. Ina white paper finalising the newstructure, the Treasury said that it

would be inappropriate to give anymore detail in primary legislation.

Louise Hodges, a partner at lawfirm Kingsley Napley, said that thegovernment had set out to abolishthe FSA before considering whatwould replace it. There is a concernthat theres a political agenda here,she said.

How are these new agencies goingto work together and make surethings dont fall through the cracksor overlap and duplicate work?

FSA report onRBS to blamebad regulation SHARES in Italian lender Unione diBanche Italiane (UBI) slumped per-ilously close to the subscription pricefor its 1bn (885m) rights issue,

threatening to leave underwriters onthe deal with millions of euros ofunpurchased stock.

The regional banks share priceclosed down 5.1 per cent on the BorsaItaliana yesterday at 3.82 per unit,marginally above the 3.81 subscrip-tion price set for the deal.

The rights issue is due to close today,although investors who have not yetcommitted to buying stock would beleft without an incentive to purchaseshares from underwriters MorganStanley, Italian lender Mediobancaand Centrobanca, which is part of UBI.

However, many investors mayalready have placed orders earlier in

the process, after the rights issueprocess began about a month ago.

Meanwhile, the Italian financialmarket came a step closer to its firstsuccessful initial public offering (IPO)of the year, after it emerged that shoe-maker Ferragamos share offer wasoversubscribed, with 3.6 times moredemand than there were availableshares. The interest in the firm has ledbankers on the deal to increase its pro-posed listing price to 9 per share,with the books due to close last night.

UBI shares fallahead of 1bnrights issue

FSA chair Adair Turner promised a self-critical report Picture: Micha Theiner/City A.M.

BY JULIET SAMUEL

REGULATION

FINANCIAL MARKETS


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AVIVA is to sell its RAC roadside res-cue business to private equity firm

The Carlyle Group for 1bn, as theBritish group continues scaling backfrom non-core areas to focus on itsinsurance operations.

The auction process was fiercelyfought, with Carlyle battling rivalsClayton Dubilier & Rice and BCPartners to be the first private equi-ty firm to get its hands on the busi-ness.

Aviva said yesterday it expected anaccounting profit of 600m from thesale of Britains second-largest break-down recovery group, and would usethe proceeds to strengthen its bal-ance sheet and invest in its main mar-kets.

The final price tag of 1bn valuedRAC at around 17 times 2010 earn-ings.

It was underpinned by strongappetite from debt markets to pro-

vide financing for a deal, with lever-

age multiples of up to seven timesEbitda, harking back to deals done atthe peak of the buyouts boom five

years agoTo finance the buyout, JP Morgan,

BNP Paribas, Credit Suisse, MorganStanley and UBS have underwritten a520m pound loan and a 100m facil-ity, it is understood.

Carlyle sees the possibility of grow-ing the RACs roadside rescue busi-ness, Britains number two behindthe AA with more than 7m members,and running it more efficiently, asource said.

Aviva sells offRAC to Carlylefor 1bn cash

Aviva, now led by Andrew Moss, bought RAC back in 2005 Picture: Micha Theiner/City A.M.BYHARRY BANKS

INSURANCE


ANALYSIS l Aviva

p

28 Mar 15 Apr 11 May 1 Jun 21 Jun

455

445

435

425

415

425.8023 Jun

Laggard of sector deserves second lookAND so the great tidying-up exercisecontinues. Fresh from selling part ofits stake in Dutch unit Delta Lloydfor 381m, Aviva has offloaded itsroadside rescue business RAC for1bn.

Analysts said it had done well tosell the unit on a price to earningsmultiple of 17 times, considering itsown stock trades on seven times. It

bought RAC on a similar multipleback in 2005, but has made around500m worth of disposals sincethen, suggesting it has got a goodprice from private equity buyerCarlyle.

This kind of deal where a bigfinancial services firm sells a non-

core asset to a private equity player will become more commonplacein the months ahead. Banks andinsurers are divesting peripheral

businesses to raise cash and adhereto new capital requirements.

Because they are all in a scramblefor capital, they are unwilling topurchase off of each other. Thatmeans private equity houses, backed

by revived debt markets, are theobvious buyers.

For Aviva, the rationale behindthe deal is simple. It wants to focuson its general insurance businessand the extra liquidity will strength-en its balance sheet, allowing it toinvest in priority markets such as

Spain.Shares in the insurer the lag-

gard of sector closed virtually flatyesterday.

While Aviva is not going to behigh growth in the short term, due

to its reliance on more mature mar-kets, it is cheap on a price-to-earn-ings basis, trades at a discount to

both its net asset value and its enter-prise value and has a high dividend

yield which is well covered.We think the stock deserves a sec-

ond look.

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TOP CHEFSLINE UP FOR

SOLDIERSBANQUETDO TOO many cooksspoil the broth? Notin the case of the sec-ond Square MileSalute City banquet inaid of wounded sol-diers, backed by mediapartner City A.M., when12 of the worlds mostacclaimed chefs will

join forces to cook agourmet menu atGuildhall.

Following the successof last years fundraising

banquet, where Boris Johnson and Jeremy

Clarkson were among the 420 guests, theSquare Mile Salute 2012 will be held on 22February, organised by City restaurantand caterers Chamberlains Events andhosted by Brian Turner CBE, president ofthe Academy of Culinary Arts.

We chefs just love to cook and whatbetter excuse than to do so for such a wor-thy cause, said Turner at the Square MileSalute launch party at The RAC Club

before unveiling the culinary line-up,which includes the creative forces behindthe kitchens at The Ritz London,

of soldiers and in the families of thosekilled or injured on operations. Thisinvestment includes building and run-ning personal recovery centres and pro-

viding training and educationaprogrammes.

One confirmed auction lot at nextFebruarys fundraiser is a four-night stay

at the Fairmont Monte Carlo, where

guests can watch the MonacoGrand Prix from a private viewing point on the

famous Fairmont Hairpin bend, with an invitation

to HSH Prince Albert II ofMonacos reception atthe Princes Palace. Tickets for the event

are on sale at 3,500for a table of ten. See www. squaremilsalute. com to book.

Claridges and The Savoy, as well asRaymond Blanc OBE from Le Manoir aux

QuatSaisons and Maryan Gandon fromthe Fairmont Monte Carlo.

The primary beneficiaries from theseven-course fundraiser will be Help forHeroes, The Royal British Legion, ABF TheSoldiers Charity and The HouseholdCavalry Operational Casualties Fund,

which was represented at the launch byAlex MacEwen, vice president at BlackRockand chief executive of the charity.

MacEwen, a former officer in The Blues& Royals who was almost fatally injured inthe invasion of Iraq in 2003, told The

Capitalist: While we appreciate that thegovernment and the other armed forces

charities do a great deal, the Square MileSalute is a unique event in the Citythat goes beyond what is alreadyavailable it is very encouraging tosee how much goodwill there is inthe Square Mile towards our cause.

Also at the launch event wasLieutenant General Sir WilliamRollo (right), deputy chief of thedefence staff, who explained howthe funds raised by the banquet

will be reinvested in the recovery,rehabilitation and reintegration

The Capitalist10

EDITED BY

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

CITYA.M. 24 JUNE 2011

The FairmontHairpin bend atthe MonacoGrand Prix

Above, left to right: Ray Steadman of Chamberlains, PhilipCorrick, executive chef of the RAC, and Matthew Marshall and

Jeffrey Steadman of Chamberlains

Left: Scarlett and Alexander MacEwen with Judith Pleasance,chief of staff in the office of Alderman David Wootton

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SPORTINGBET is beingadvised by Lazard andOriel, with Emma Griffinheading up the Orielteam. She has alsoworked on Oriels adviso-ry team for DTZ, the realestate firm currentlyfielding takeover interest.Jonathan Walker joinsher on Oriels team.

Heading up the teamfor Lazard is CyrusKapadia. Kapadia hasserved as managingdirector and deputy headof UK investment bank-ing at the financial con-sultancy. He has been atthe firm for 14 yearsafter joining in 1997.Previously Kapadia was achartered accountant atPwC for three years.

Also on the team forLazard is CharlieForeman, who joined thefirm as a managing direc-tor of UK CapitalMarkets Advisory andM&A. He joined Lazardfrom Deutsche Bank,where he was a manag-ing director in the UKcoverage team. He joinedDeutsche Bank in 2002in the corporate brokingteam and in 2005 wasappointed head of UKcorporate broking andequity capital markets.He became a seniormember of the UK cover-age team in 2006.

ADVISERS:

SPORTINGBET

EMMAGRIFFIN

ORIEL

Private equity buysSecuritas for 2bnA team of private equity

firms, Bain and Hellman &Friedman, have agreed tobuy Swedish alarms firmSecuritas Direct fromSwedish rival EQT, the firmssaid yesterday. The deal val-ues the business at about20 billion Swedish Kronor(1.94bn) according to peo-ple close to the deal. Thepair beat a rival bid frompower tools maker StanleyBlack & Decker and CarlyleGroup for the businessowned by EQT.

BHP Billiton admitsrising costsBHP Billiton said yesterdaythat its Worsley bauxiteand aluminium project inAustralia will cost $135m(84.4m) more than previ-ously expected, and thatfirst production has beenput back a year to the firstquarter of 2012. BHP saidthe $3bn venture is one ofthe most complex brown-field projects undertaken,which has slowed downconstruction progress. Thefirm also announced anextra $488m investment inits Jansen potash project inSaskatchewan, Canada.

Apple gets go-aheadfor Nortel auction bidUS antitrust regulatorsgave Apple approval to buycertain assets of bankrupttelecom maker Nortel

Networks yesterday. Applejoins Google and Ericsson inthe fight to snap up 6,000technology patents andpatent applications in anauction starting onMonday. Google hasalready made a $900moffer.

Schuh sells out to USretailer GenescoShares in footwear chainSchuh hit a lifetime highyesterday after US retailerGenesco made a $162mbid for the company.Schuh has 58 stores in theUK and Ireland, plus 16concessions and an onlineshop. Schuhs workers willbe eligible for pay-outs

worth a total of 37m aspart of the acquisition.

BOOKMAKER Ladbrokes yesterdayconfirmed it has made an approachfor Sportingbet, sending shares in itssmaller rival up 13 per cent.

Ladbrokes has been looking for a way to expand its presence in theonline gaming market for sometime, with talks with 888.comfalling through earlier this year.

The betting giant stressed thetalks are highly preliminary andsaid there was no certainty they will

lead to an offer.Chief executive Richard Glynn

said: The board has set out previous-

ly a clear organic strategy forLadbrokes. We also stated that wewould explore appropriate opportu-nities that may help us acceleratethat process and bring benefits toour shareholders. These talks shouldbe seen in that context.

The 888 bid collapsed in April butanalysts believe a deal withSportingbet would be easier to pulloff. The online firms shareholderregister is not dominated by

founders, who can complicate nego-tiations, and management has previ-ously indicated its openness to a

takeover.Swedens Unibet pulled out oftalks to take over Sportingbet lastNovember, although sources close toSportingbet said that the companyremained in talks with several otherparties.

Ladbrokes got off to a good start tothe year, with its first-quarter rev-enues rising by 2.3 per cent. It alsocut its net debt by 48.7m to443.3m.

Ladbrokes bids for rival

BY STEVE DINNEEN

GAMING

Richard Glynn of Ladbrokes said talks with Sportingbet were preliminary Picture: REX

NEWS |IN BRIEF

Coucher defends payoutEx-Network Rail boss IanCoucher has defended the1m payout he received fromthe company on leaving, afterit was revealed in NetworkRails accounts that hetook a years pay in lieu ofnotice and a settlement relat-ed to the company's long-term incentive plan. Couchersaid the payment reflectedthe fact he had wanted towork his full notice periodafter resigning last June; the

company preferred that hedidnt.

NEWS |IN BRIEF

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SHAREHOLDERS in HMV, the embat-tled music retailer, have voted infavour of the sale of Waterstones for53m.

The vote was 99.5 per cent in favourof the disposal based on proxy votesreceived in advance of an extraordi-nary general meeting yesterday.

The final count, expected today,

will confirm the sale of the bookchain to Russian billionaire AlexanderMamut.

Mamut, who is best known inBritain as the backer of blogging siteLivejournal.com, plans to refocus thechain as a more traditional bookstore.

The sale will allow HMV chiefSimon Fox to focus on the groupscore music business, which has takena battering from online competitorsover recent years.

The ailing retailer has issued severalprofit warnings so far this year andhas a debt pile of about 170m.

A sale of the book chain was firstmooted in December last year, whenMamut increased the size of his stakein HMV above five per cent.

His bid for the retailer was alsolinked with Tim Waterstone, thefounder of the chain, although theBritish entrepreneur did not ultimate-ly return to play a role.

HMV shareholders votefor Waterstones sell-off

Russian oligarch Alexander Mamuts bid to buy Waterstones was approved


BYRICHARD PARTINGTONRETAIL

NEWS | IN BRIEF

Ocado hit by broker downgradeShares in online shopping service Ocadotumbled by more than six per cent afterJPMorgan Cazenove downgraded its rat-ing for the shares and J Sainsbury hiredthe groups head of retail Jon Rudoe to

run its online operation. JPMorgan down-graded its rating on the online retailer toneutral from outperform. But thebroker added: We remain bullish on thelonger term Ocado investment case.

Stonegate in merger agreementStonegate Pub Company has merged withTown&City Pub Company, its private equitybackers TDR said yesterday. The newgroup operates 560 pubs with revenuesnear 500m and employs over 10,000

people. The merger with Yatess and Slug &Lettuce operator Town&City creates thelargest privately held managed pub opera-tor in the UK after Stonegate bought 333Mitchells & Butlers pubs last year.

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DIXONS reported a 224m loss yester-day due to tough trading, as itsfinance chief jumped ship.

The electricals retailer said its turn-around plan, which includes 50msavings a year, was on track but thatthe economic downturn was lastinglonger than expected.

It also revealed that finance direc-tor Nicholas Cadbury would be leav-ing the firm after 18 years to joinelectrical components maker Premier

Farnell.Dixons reported one-off costs of

300.9m, including a 251.6m invest-ment write-off relating to impair-ments at its European businesses.

A 53m writedown in Greece wasamong the payments, while it wasalso hit by costs associated with wind-ing up its Spanish business.

The loss in the year to 30 April com-pares with a profit of 112.7m last

year. Underlying pre-tax profits camein at 85.3m, in line with forecasts.

Chief executive John Browett said:Its not death and destruction ... butthe economy is taking longer thanexpected to pick up.

However, he added that the reduc-tion of the budget deficit was helpingto pave the way for an upturn.

On suggestions that Dixons was anacquisition target for US giant BestBuy he said: I can understand whythey might be interested, but addedthat he doubted an offer would mate-rialise.

Dixons shares dropped 3.2 per centto 16.01p yesterday.

Dixons hit by224m loss asFD jumps ship RETAIL sales stagnated in June,knocking hopes for growth on theBritish high street.Annualised sales failed to grow for

the first time in a year, theConfederation of British Industry(CBI) revealed yesterday.

While a third of retailers reportedhigher sales than the same time last

year, 34 per cent said that sales weredown on a year earlier. After round-ing, the survey measured minus twoper cent significantly down from apositive balance of 18 per cent in May.

The underlying trend in sales, which irons out some monthlyvolatility, eased down to a balance of12 per cent, from 18 per cent lastmonth still clearly in positive terri-tory, the CBI said, yet the lowest rateof growth since July 2010.

After a year of growth, high streetsales volumes fizzled out in June,said Judith McKenna of Asda and theCBI. Consumers are really feelingthe pinch as disposable incomes con-tinue to be squeezed by rising pricesand weak earnings growth.

Retailers expect another month ofgenerally flat sales in July. One thirdexpect sales to increase on a year ear-lier, yet nearly as many (31 per cent)are downbeat, forecasting a lower vol-ume of sales than in July 2010.

Survey revealsstagnation onthe high street

BY JOHN DUNNE

RETAIL

RETAIL


ANALYSIS l Dixons retail

p

28 Mar 18 Apr 9 May 31 May 21 Jun

21

19

17

15

13

11

16.4723 Jun

HOME Retail Group, the owner of theArgos and Homebase retail chains, isin talks to buy Habitat.

The luxury furnishings company isnow owned by restructuring special-ist Hilco. It has 71 stores worldwide,including 35 in the UK, 26 in France,five in Spain and five in Germany,employing 2,100 staff.

It is understood that another

unnamed company is also eyeingHabitat.

Home Retail Group has seen its Argos stores struggle in the down-turn as household budgets aresqueezed. However, Homebase has

been faring better.Sir Terence Conran founded the

company in London in 1964 to mar-ket his Summa range of furniture.

The first Habitat store was opened inChelsea by Conran, his then wifeCaroline and the model Pagan Taylor.

Home Retail Group looksto bid for Habitat stores

BY JOHN DUNNERETAIL

Sir Terence Conran founded Habitat Picture: REX

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TROUBLED Micro Focus dived morethan seven per cent yesterday afterdisappointing investors with aweaker than expected profits forecastfor the coming year.

Revenue inched up nearly one percent to $436.1m (273m) but adjustedoperating profit fell almost nine percent, in line with forecasts.

The slow forecast comes as anotherblow for the firm, which was forced

to issue a profit warning in Februaryand lost its chief executive twomonths later.

The company said it expects thecurrent financial year to remain chal-lenging, with a near-term decline insales.

Last month, Micro Focus, whichsupports mainframe computer appli-cations for Tesco and Boeing, said itwas exploring a number of approach-es, including from US-based privateequity firms Bain Capital and Advent

International.However, analysts said yesterdays

results will do nothing to help thefirm achieve a robust valuation.

Chairman Kevin Loosemore said:We just need to fix the executionissues in the business. If I had thechoice between a business with greatproduct and poor execution or greatexecution and poor product, I knowwhich I would choose.

Loosemore added the firm willaddress self-inflicted sales and mar-keting troubles at its testing business.

Micro Focusfalls after a

weak outlook RANK Group yesterday performed ascreeching U-turn by endorsingGuocos hostile bid for the company.The owner of the Mecca Bingo and

Grosvenor Casino chains released astatement to the market saying itgrudgingly recommended sharehold-ers accept the bid despite the boardmaintaining it massively undervaluesthe company.

The decision is based on the increas-ing possibility of Guoco taking controlof 75 per cent of Rank, at which pointit is entitled to delist the company.

A source close to Rank said thiswould be catastrophic to sharehold-ers and was the basis for reversed rec-ommendation. The source told CityA.M. any remaining shareholderswould be left with effectively worth-

less shares which they would beunable to trade, should Guoco decideto delist the company.

Guoco, controlled by billionaireQuek Leng Chan, has signalled it willmaintain the listing but would notrule out any possibilities.

The Rank board said yesterdays tar-ing update, in which it recorded aseven per cent gain in sales in the 10 weeks ended 19 June reinforced itsclaims that the 150p a share offer does-nt reflect the true value of the group.

U-turn for Rankover Guocoshostile approach

Micro Focus chairman Kevin Loosemore

BY STEVE DINNEEN

TECHNOLOGY


ANALYST VIEWS: WHAT DO YOU THINK OFMICRO FOCUS RESULTS? By Steve Dinneen

JONATHAN JACKSON | KILLIK & CO

The figures were in line with previous guidance. Cash conversion wasstrong, at 113 per cent, and net debt fell to $14.9m. The final dividend was main-tained to give a full-year increase of 7.3 per cent. Discussions are ongoing regard-ing potential offers, but there is no certainty any offer will be forthcoming.

RAJEEV BAHL | MATRIX

No real surprises in Micro Focus full year results, with the operating result

in line, earnings per share slightly ahead and cash conversion of 102 per cent.Guidance of a revenue decline in the coming year looks a little conservative to us. Ourestimates and consensus already factor in a small organic revenue decline.

JULIAN YATES | INVESTEC

There has been no confirmation of a bid and we feel that these resultswill not help secure a robust bid price. We maintain our more cautious hold butwe feel in the absence of a bid the stock could head back towards the 250p level,unless there is increased certainty on the strategic outlook.

ANALYSIS l Micro Focus

p

28 Mar 18 Apr 9 May 31 May 21 Jun

400

360

320

280

328.1323 Jun

BY STEVE DINNEENGAMING

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Believe in better

FACEBOOK yesterday tied up anotherloose end ahead of its expected$100bn initial public offering, withthe Winklevoss twins ending theirlong-running legal dispute.

The Olympic rowers known asthe Winklevii have decided not toappeal to the Supreme Court a rulingupholding their $65m (40m) settle-ment. The cash-and-stock agreement

was intended to end a claim by thetwins that Facebook founder Mark

Zuckerberg had stolen their idea for aHarvard social network.

They agreed to settle for the sum but then appealed it, claimingFacebook had misrepresented itssoaring value.

Zuckerberg created Facebook in2004 in his Harvard University dormi-tory room, as dramatised in the 2010film The Social Network.

The end of the dispute marks theclosure of one of the legal claimslodged against Facebook.

The firm is still facing a legal bidfor 84 per cent of the company from

businessman Paul Ceglia. The New York-based wood pellet salesman, aconvicted fraudster, claimsZuckerberg promised him a stake inthe company for IT work carried out

before the launch of Facebook.Ceglia has passed a polygraph lie-

detector case and claims to have doc-umentary proof of the agreement,

which has been dismissed as fraudu-lent by Facebooks legal team.

Eduardo Saverin, ZuckerbergsHarvard roommate who co-founded

the social network has also beeninvolved in a now-settled legaldispute with the firm over allegationshis stake was unfairly diluted.

Facebook last month shed usersacross a number of its mature mar-kets, sparking fears its meteoricgrowth is beginning to peak.

It lost 6m users in the US to fall below 150m and lost a further100,000 in the UK. However, it is stillexpected to smash through the 700musers barrier this year.

Twins concedein Facebooklegal actionBY STEVE DINNEEN

TECHNOLOGY


The Olympic row-ing twins Tylerand CameronWinklevoss haveended their legaldispute withFacebook.Picture: REX

2002 The social networking websiteConnectU is founded by Harvard studentsCameron Winklevoss, Tyler Winklevossand Divya Narendra, with Zuckerberglater asked to help in its development. 2003 Mark Zuckerberg creates'Facemash' at Harvard University. Thiswas an early version of Facebook. 2004 Mark Zuckerberg began towrite Facebook with his Harvard room-mate Eduardo Saverin who claimed hewas diluted out of the company afterZuckerberg quit Harvard and moved toPalo Alto. Saverin later filed a lawsuitagainst Facebook and Zuckerberg, whichwas settled out of court. Saverin signed anon-disclosure contract. 2004 ConnectU filed a lawsuit againstZuckerberg and other Facebook founders.

2008 Tyler and Cameron Winklevossagree to a cash and stock settlement afterlengthy legal proceedings. They later saythey were misled over the value of thecompany and went to the courts to uptheir claim against Facebook. 2010 The Social Network, a filmabout the beginnings of Facebook direct-ed by David Fincher is released. 2010 Paul Ceglia, who claims to havemet Zuckerberg in 2003 when he posteda Craigslist advertisement seeking helpwith his website StreetFax filed a law-suit against Facebook founder MarkZuckerberg, claiming 84 per cent own-ership of Facebook. He is seeking mone-tary damages. 2011 The Winklevii twins admitdefeat after deciding not to appeal

against aSupreme Courtruling upholdingthe original settle-ment over theirConnectU ven-ture.

TIME LINE | THE UPS AND DOWNS OF THE SOCIAL NETWORK

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PRIVATE sector activity slowed inEurope and China this month just asthe outlook for the US has darkened,according to data yesterday, whichsuggests a global slowdown is becom-ing more entrenched.

The Eurozones private sector grewonly modestly -- and without the sup-port of Germany and France, it wouldhave shrunk -- while Chinas factorysector barely expanded even as infla-tion eased, purchasing managersindexes (PMIs) showed.

Commercial sector activity fell to53.6 in an initial flash PMI for

June a sharp drop from 55.8 the pre-vious month.

All PMI scores above 50 indicateeconomic growth, yet the pan-

Eurozone rating is slipping towardsstagnation, printing its lowest ratesince October 2009.

Factory activity in the single cur-rency area fell to an 18-month low of52 another sharp drop, from 54.6.

The data come a day after the USFederal Reserve said the pace of recov-ery in the worlds largest economy

was proceeding more slowly than ithad expected, but pledged no newhelp for the economy once its bondpurchase programme expires thismonth.

Economic activity is losingmomentum quite rapidly, saidMarco Valli at UniCredit. The pace ofgrowth deceleration in May-Junematches similar evidence in otherindustrialised countries.

Chinas flash HSBC PMI, the earli-est available indicator of the coun-trys industrial activity, eased to 50.1in June. Data compiler Markit saidthis was consistent with second quar-

ter economic growth of around 9.1-9.3 per cent year-on-year, down from9.7 in the first quarter.

Euro growthin slowdownBYHARRY BANKS

WORLD ECONOMY

THE number of Americans filing newclaims for unemployment benefitsrose higher than expected last week,suggesting little improvement in thelabour market this month afteremployment stumbled in May.

Initial claims for state unemploy-ment benefits climbed 9,000 to a sea-

sonally adjusted 429,000, the LaborDepartment said yesterday.

Economists had expected claims tocome in at 415,000. The four-weekmoving average of new jobless claims,considered a better gauge of labormarket trends, was unchanged at426,250.

A total of 7.54m Americans wereclaiming unemployment benefitsunder all programmes in the weekending 4 June.

Meanwhile, new home sales in theUS fell 2.1 per cent in May.

Rising number of Americans fileclaims for unemployment benefit

US ECONOMY

CONSUMERS are borrowing less andrepaying more on debts, data from theBritish Banking Association (BBA)revealed yesterday.

Unsecured credit contracted by 1.2per cent in the year to May, while netcredit card borrowing measured amodest 73m in the month the

weakest rate of borrowing on plastic

for this year.Demand for unsecured borrowingremains weak with repayments con-tinuing to outweigh new lending,commented BBA statistician DavidDooks.

Money is still tight and people con-tinue to pay off debt rather than saveor borrow.

In the first five months of the year,personal deposits rose by just 4.8bn,compared with a rise of 13.9bn in the

same period of 2010, the BBA said.Low interest rates have also prompt-ed a decline in the level of re-mortgag-ing, with any normalisation in Bankrate looking increasingly unlikely forthe rest of the year.

The number of approvals for re-mortgage rose by just 532 between

April and May. The level of re-mort-gages in May was 12.4 per cent belowthe six month average, according tothe data.

Consumers borrowing dropsand fewer seek remortgagingBY JULIAN HARRIS

UK ECONOMY


PRICE PRESSURES PERSIST IN SINGAPORE

INFLATION in Singapore is proving more stubborn than expected, holding up at 4.5 percent in May, official data showed yesterday. Higher food, housing and transport costsdrove up the island states consumer price index. The consumer price index looks set toovershoot forecasts of 3-4 per cent targeted by Singapores authorities for 2011. Pic: REX

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BUS and train operator Go-Ahead said yesterday that its profit had beengiven a further boost as moremotorists take public transport

because of fuel price rises.Go-Ahead, which has a fleet of

3,800 buses and is part of a joint ven-ture responsible for Southern,Southeastern and London Midlandrail services, said its buses represent-ed better value than travelling bycar.

House broker Investec lifted its full- year pre-tax profit forecast to 96mfrom 90m previously.

Go-Ahead said its marketing andimproved operating standards werehelping to drive growth as it forecastprofits for the year to July will beahead of previous expectations thesecond upgrade in four months.

Chief executive Keith Ludeman, who is due to stand down nextmonth, said: Since the depth of therecession in 2008, Go-Ahead has seen

solid growth.Go-Ahead expects full-year passen-

ger revenues at its bus division, whichincludes Metrobus in Sussex,Plymouth Citybus and Oxford BusCompany, to increase after growth ofaround two per cent in passengernumbers.

Revenues at its Southern andSoutheastern franchises have bothseen a nine per cent lift, with LondonMidland seeing an improvement ofaround eight per cent. The companysaid that operating profit would bemore than 108m.

Go-Ahead upsforecasts onhigh demand NISSAN Motor forecast a better-than-expected 14.4 per cent fall in annualoperating profit yesterday, defying aquake-induced setback in the past few

months and projecting another yearof record sales.

Japans number two automakerforecast an operating profit of 460bn

yen (3.57bn) for the year to March2012, above an average forecast of432bn yen.

Despite the lingering disruption toproduction from the 11 March earth-quake, Nissan said it would boostsales by 9.9 per cent to 4.6m vehiclesthis year, offering a rosier outlookthan rivals Toyota and Honda, whichhave both forecast a sales decline.

Were pretty confident that thesupply will be there, Nissan chiefexecutive Carlos Ghosn said.

He added that with fewer than 10suppliers affected by the disastersnow, he hoped production wouldfully return to normal before anOctober target.

Nissan expects net profit of 270bn yen, down 15.4 per cent from lastyear, assuming an average dollar rateof 80 yen and euro of 115 yen.

Revenue is seen rising 7.1 per centto 9.4 trillion yen, and Nissan plans todouble its dividend to 20 yen this

year.

Nissan predictsa better thanexpected profit

BY JOHN DUNNE

TRANSPORT

AUTOMOTIVE


ANALYSIS l Go-Ahead Group

p

28 Mar 15 Apr 11 May 1 Jun 21 Jun

1550

1500

1450

1400

1350

1300

1,516.0023 Jun LOSS-MAKING Swedish carmaker

Saab said yesterday it couldnt pay itsemployees wages as it had notobtained the short-term funding itneeds.

Unions for workers at Saab, whichhas made losses for the last twodecades, said they would send a for-mal demand for payment on Mondayif their members had not received

their wages by then.Production at Saab, owned by

Netherlands-based SwedishAutomobile, has been halted for mostof April and May and is currentlydown for at least the next week

because it doesnt have the money topay suppliers for parts.

Shares in Swedish Automobile,which itself has never made a profitsince starting operations in 2000under the name Spyker, tumbled 4.3per cent to 3.10.

Swedish carmaker Saabsays it cant afford wages

Saab, led by Victor Muller, has been loss-making for the 20 years Picture: GETTY

BYHARRY BANKSAUTOMOTIVE

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THE UKs largest racecourse opera-tor Arena Leisure yesterday con-

firmed it is considering a sale of thecompany.Last year billionaire property

investors David and Simon Reubenraised their stake in Arena Leisure toa level just shy of 30 per cent, which

was expected to trigger a takeover bidfor the company.

It is thought the pair may still beinterested in taking control of thefirm. They could not be reached forcomment byCity A.M.yesterday.

Arena, which owns and operatesseven racecourses in the UK, includ-ing Doncaster, Royal Windsor,Lingfield Park and Wolverhampton,said a strategic review has just begun

and there is no certainty it will resultin an offer for the company.Earlier this year Arena won a cater-

ing contract for two key venues at the2012 London Olympics, which isexpected to boost its profits by up to1m.

The company, which posted anadjusted pre-tax profit of 5.4m last

year, said in May that 2011 profitabili-ty was unlikely to see a materialuplift from last year as consumer

confidence remained fragile.Arenas shares, which have gained

22 per cent in the last three months,closed at 37p yesterday.

Arena says it is considering sale

NEWS | IN BRIEF

Cost cuts help revenues at NorcrosBritish shower and tile maker Norcros said itsfull-year profit tripled helped by demand fornew products and cost cuts. Adjusted pre-taxprofit for the year ended 31 March was

10.2m, compared with 3.4m in the year-agoperiod and revenue rose 15.6 per cent to196.1m. Norcros said it would pay a final divi-dend of 0.24p per share. Its shares havegained 24 per cent in the last three months.

Profits up at Jet2 owner DartAviation and distribution group Dart, whichowns Jet2, said yesterday that pre-tax prof-its rose by 18 per cent to 26.2m, andraised its dividend to 0.83p per share.

Profitability increased in aviation, primarily dueto increasing load factors, but decreased in dis-tribution due to start-up costs at the newNorth West distribution centre and the ratio-nalisation of the container operations.

BRAZILIAN miner Vale said yesterdayit has scrapped plans to sell stock in itsfertiliser division, and now aims totake the unit private by buying up theshare it does not already own.

Vale plans to pay up to 2.2bn reais(870m) to buy out minority investorsof Vale Fertilizantes, whose main assetis a stake in Fosfertil.

Vale Fertilizantes is one of Brazils

leading makers of phosphate-based

food nutrients.The next step will be to take ValeFertilizantes private. Therefore, Vale isnot considering an eventual listing ofa subsidiary holding its fertilizerassets, the company said.

In 2010, Vale said it was paying$3.8bn to acquire US-based Bunges fer-tilizer assets in Brazil, which includeda stake in Fosfertil. Vale has vastlyexpanded its role in potassium andphosphates as demand has soared.

Vale scraps its plan to sellshares in its fertiliser arm

BY HARRY BANKS

TECHNOLOGY

BY STEVE DINNEEN

RACING

ANALYSIS l Arena Leisure

p

17 Jun 20 Jun 21 Jun 22 Jun 23 Jun

36

34

32

30

28

26

24

37.0023Jun

lNEWS FROM THE PARIS AIR SHOW

AIRASIA thundered into the Paris

Air Show with a record order for200 revamped A320neo jets on Thursday -- an $18.2bn (11bn)deal that makes the Malaysianfirm Airbuss largest airline.

AirAsia chief executive TonyFernandes, who is also trying toinvest in West Ham, flew intoFrance overnight to sign off on

what one Paris brokerage termedan amazing 200-plane deal,

which is also seen as a coup forengine maker CFM International.

It is a culmination of a lot ofhard work, Fernandes told CityA.M. We operate in the market ofalmost 2bn people so there isplenty of opportunity for us.

The deal wraps up a freneticParis Air Show which confirmed astrong rebound in Asian demandand sent industry records clatter-ing like an airport departure

board.

It also marks an attempt by Airbus to prove the case for itsdecision to update the best-selling

A320 passenger plane, the back-

bone of low-cost airlines, and putpressure on rival Boeing which isundecided whether to match ortrump that move.

The neo is not only a betterengine, but a better aircraft in lotsof things, Fernandes said at thesigning ceremony for the deal.

The AirAsia order eclipsed a$16bn order for 180 aircraft fromIndias Indigo, sealed on

Wednesday, as the biggest evercivil aircraft order by the numberof planes.

The deal adds to evidence of amulti-speed recovery that hasseen Asian economies plan for fre-netic transport growth, especiallyin the low-cost sector.

Underscoring how price-sensi-tive travel has shifted the balanceof power in the industry, AirAsiaand IndiGo are now Airbuss first

and second largest airline cus-

tomers, lagging only the US leas-ing giants ILFC and GECAS .

A senior source familiar withthe deal said that a clause would

allow AirAsia to extend the deal by another 100 aircraft thoughthis was not formally presented asan option, which would have costthe airline extra.

Fernandes confirmed at thepress conference that he had nottaken any options at this point.

AirAsia also plans to take anoth-er 86 aircraft already on orderfrom Airbus to feed growth in itsmarkets, quashing speculation ofconversions to the new plane.

Shares in Airbus parent EADSbucked a weaker stock market yes-terday to close up 0.78 per cent at22.20.

Industry analysts say the rushof orders may put pressure onBoeing to make up its mind

whether to re-engine its compet-ing 737 airplane in 2016 or wait afew years longer and build an all-

new model.

AirAsia inks 11bndeal with AirbusBY HARRY BANKS & KASMIRA JEFFORD

AVIATION

Tony Fernandes has made AirAsia the largest customer of Airbus Picture: GETTY

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Alternative fund managers rep-resent one of the fastest-grow-

ing and most in demand areasof investment management.Demand for hedge funds from institu-

tional investors is climbing rapidlythanks to their above inflation

returns and low correlation to stockand bond markets. The global indus-try is now worth more than 1.2 tril-

lion and looks set to shape the invest-ment landscape more and more in

future. Our list includes two activistfunds because they have risen to thefore to keep corporates on their toes.

A star performer, BlueCrest is oneof Europes largest and most suc-cessful hedge funds with $25bn(15.3bn) of funds under manage-ment. Its hedge funds are widelyregarded to have had a successful

year.BlueCrest is valued at about

$2.5bn, according to the $633mprice tag on the 25 per cent stake it bought back from Man Group inMarch and has refused to submit tothe rule that big funds cannotdeliver top returns.

While opening a Geneva office ithas also defended London as ahedge fund hub and still bases 240of its 380 staff in the City.

Its management also bought back Man Groups stake to gaintotal ownership of the firm a voteof confidence in its future success.

BLUECRESTCAPITAL

Laxey Partners has been established13 years and earned a reputation asa feared corporate raider throughagitating at companies such as Wyevale Garden Centres andBritish Land to raise their share

prices.It is also known for buying into

investment trusts with hefty dis-counts, forcing them to restruc-ture, buy back shares or wind up.This year it took a 1.5 per cent stakein Alliance Trust, demanding itbring in a mechanism to control its20 per cent share price discount.Five months and 50m of sharebuybacks later, the discount is 15per cent or less and the share pricehas gained almost five per cent.

Its latest target for boardroomchange is Singapores UIS.

LAXEYPARTNERS

Man Groups fortunes have reallyturned in the past year. Fundsunder management, which took atumble in the aftermath of thecredit crunch, have risen three percent since the start of 2011 alone totake its mammoth total to $71bn

MAN GROUP (43.6bn).

Man has made some smartmoves to revive its performance: itpaid $1.6bn in November to buyhighly successful smaller rival GLGCapital and become the worldslargest listed hedge fund.

That has paid dividends byMarch, it had returned to positivefund flows with $700m net comingin.

It also banked $633m from thesale of its 25 per cent stake in small-er fund BlueCrest Capital thatmonth and in May news that ithad raised $2bn from Japaneseinvestors for its Nomura Global Trend fund caused its shares tosoar.Europes biggest hedge fund, with

$32.6bn (20bn) under manage-ment, Brevan Howard is now theworld number four and still grow-ing.

Its three London-listed tributary

funds BH Macro, BH Global andBH Credit Catalysts, which listedlast November feed into a multi-fund empire.

Its master fund holds more than$25bn under management anddelivered returns of roughly 20 percent in both 2008 and 2009, givingBrevan one of the best long-termperformances in its peer group.Credit Catalysts reported a 13.5 percent jump in net asset value in theyear to December, while the otherssaw smaller gains. It has officesaround the world, includingLondon, Geneva and Hong Kong.

BREVANHOWARD

Sherborne, the brainchild of serialfund manager Edward Bramson, isanother activist to leave its mark onthe FTSE 100 in the past year. It began buying into F&C AssetManagement last August and calledfor a board shakeup to kick-start the

SHERBORNEINVESTORS

firms performance.Its analysis of

cityam 2011-06-24

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