cityam 2011-07-13

8/6/2019 Cityam 2011-07-13

1/24

FEWER than one in ten people understandthat the government is adding hundreds ofbillions of pounds to the national debt overthe course of this parliament, a shocking newsurvey reveals today.

Just nine per cent of respondents realisethat the government plans to borrow roughlyan extra 350bn from this financial year to2014-15, according to a ComRes/Institute ofEconomic Affairs (IEA) poll.

Incredibly, seven out of 10 people actually believe the government is cutting 350bnfrom the debt over the course of the parlia-

ment, despite an annual deficit that is still setto total more than 100bn this year. One fifth(21 per cent) wrongly believe there will be nochange in the national debt.

Government debts will surpass 1.3 trillionby 2014-15, according to official forecasts pro-duced by the Office for Budget Responsibility(OBR) equivalent to over 70 per cent of thecountrys GDP. Its staggering and worryingthat 70 per cent of people completely misun-derstand the dire situation the countryfaces, said IEA chief executive MarkLittlewood, throwing his weight behind CityA.M.s financial literacy campaign.

This paper has argued for greater standardsof financial literacy to enable people to get a

better grip of their own finances and under-stand the problems facing the government,as well as the financial sector.

ALLISTER HEATH: P2

BUSINESS WITH PERSONALITYwww.cityam.comIssue 1,423 Wednesday 13 July 2011 FREE

FTSE 100 5,868.96 -60.20 DOW 12,446.88 -58.88 NASDAQ 2,781.91 -20.71 /$ 1.59 unc / 1.13 unc /$ 1.4 unc

AS MARKETS swung violently on the fear ofan Italian debt crisis yesterday, Europe signeda treaty to establish a permanent 700bn

(615bn) bailout fund but only from 2013onwards.

While Eurocrats and ministers have spentmonths tweaking the details of the treaty,markets are focused on the more immediatethreat of sovereign default and contagion inthe EUs third largest economy.

Last night, Moodys cut short a relief rallyin US stocks by downgrading Ireland intojunk territory, saying that it is likely that, likeGreece and Portugal, Dublin will need anoth-er bailout before it can return to markets.

Yesterday had already kicked off with afrenzy of selling that saw the euro plummetto its lowest level ever against the Swiss franc,at SFr1.32, and a four-month low of $1.38against the dollar.

Yields on Italys ten-year debt shot to eurolifetime highs of over six per cent, dangerous-ly close to the seven per cent level that ana-lysts see as unsustainable for the sovereignsdebt, which stands at 120 per cent of GDP.

However, bond yields retreated later in theday amid rumours that the European CentralBank (ECB) had started up its dormant bond-purchasing programme to stem the tide ofpanic. But few are convinced that the ECB hasthe firepower for a sustained intervention inItalian sovereign debt markets, which areEuropes biggest.

The task of buying sovereign junk bonds will be taken over by Europes new bailoutfund, the European Stability Mechanism(ESM), from 2013 onwards, but manyobservers see the ESM as an irrelevance to cur-rent events.

Dithering over Europe has reached newlevels, said Newedges Bill Blain. There isfundamental disagreement between europolitical elites and technocrats.

Yesterday again saw Eurocrats fail to reacha deal on a new Greek bailout, and Italy hasspooked markets after Prime Minister Silvio

EUROPE FIDDLESAS ROME BURNS

BY JULIET SAMUEL

EUROZONE

Berlusconi criticised his own governmentsausterity plan as too harsh.

Berlusconi has tried to row back on hisstance, saying that the crisis is pushing us toaccelerate the process of correction extremelyrapidly and asking for sacrifices fromItalians.

Italys deficit is among the Eurozonessmaller problems, at 3.9 per cent of GDP, butits high debt burden and a lack of political

will at the top has fuelled market panic.Monday saw several Italian banks share

prices plunge, before failing to regain all oftheir losses yesterday despite recovering byaround five per cent. Investors are anxiouslyawaiting the results of Europes second roundof stress tests, due on Friday, in order to gainsome clarity about banks vulnerability to thesnowballing sovereign debt crisis.

MORE ON EUROZONE: P4-5

PUBLIC IN DARK ON UK DEBTBY JULIAN HARRIS

FINANCIAL LITERACY CAMPAIGN

Markets are notconvinced thatBerlusconi gets it

Picture: REUTERS

GIVING THEGLOBAL WAYSTANLEY FINKON 2011SBIGGESTPARTYP15

Certified Distribution

02/05/11 till 29/05/11 is 103,467

8/6/2019 Cityam 2011-07-13

2/24

News2 CITYA.M. 13 JULY 2011

Media is failing public in many ways

WITH the phone hacking scandal con-tinuing to grow, and the reputation of journalists at their lowest ebb sincethe death of Diana, now seems like agood time to add to the medias woes.

A poll out today reveals what canonly be described as another mini-scandal, this time relating to themedias ability to convey accurateinformation to the public. True, itdoesnt disclose another sordid orcriminal breach of trust committed bydespicable, story-crazed hacks listen-ing to peoples voicemails but itsfindings ought nevertheless to be

deeply worrying for all of us who workin the media and especially for thosejournalists who work for the BBC andthe other mass market outlets.

As the ComRes/Institute of

Economic Affairs poll points out, thepublic has got completely the wrongidea about what will be happening tothe national debt over the next few years. Because the coalition will beonly gradually reducing the budgetdeficit, the national debt will contin-ue to soar in cash terms and as a shareof GDP. An extra 350bn or so will beadded to the national debt before thenext general election, if all goesaccording to plan. So far, so self-evi-dent, you may think. Yet the public primarily because of the way thisstory has been reported in print,online and in the broadcast media,together with Britains appallinglylow level of financial literacy has noidea whatsoever about this. It wronglythinks that the coalition is planningto repay our debt and fails to graspthe key conceptual difference

between the annual deficit (or extradebt) and the outstanding totalnational debt (a stock which keeps ongrowing as long as there is a deficit).

The poll asked whether the coali-

tion would be keeping the nationaldebt the same over the next fouryears, increasing it by 350bn or cut-ting it by 350bn. Just nine per centgot it right 21 per cent thought it would be staying the same and anastonishing 70 per cent thought thenational debt would be cut by 350bn.This is an extraordinarily depressingfinding and first and foremost a mas-sive failure of journalism. It is also afailure of political communicationand of education. Given such cata-strophic levels of misunderstandingabout what will be happening to theeconomy over the next few years, howcan the public possibly come to a sen-sible decision about spending choices?It is a bitter blow for democracy androbs the UK of the ability to conduct asensible, grown-up discussion aboutwhat should be done to tax and spend.

The media as a whole has also beenfailing in recent days to give enoughprominence to the growing Italian cri-sis. The Eurozones slow-motionimplosion is the single biggest threat

to the UKs prosperity and living stan-dards. While the scandal engulfingNews Corporation and other parts ofthe traditional, paid-for UK newspaperindustry is extremely important anddeserves high billing, it is not the onlystory in town. What is happening inItaly at present is equally vital. Theremight have been an excuse for ignor-ing massive macro events in 2008before Lehman brothers went pop there isnt this time. Those who believe that low standards are onlyrife in parts of the media are wrong.Even the up-market, sophisticatedmedia is repeatedly failing to commu-nicate the key facts to the public on arange of issues. There is no conspiracyor criminality but in its own very dif-ferent way it is equally scandalous.

[email protected] me on Twitter: @allisterheath

NEWS | IN BRIEF

Cheques saved as banks U-turnThe Payments Council has reversed itsdecision to abolish the cheque by 2018,after a public outcry over plans to axethe payment method. The body, whosemembers include banks and paymentsorganisations, said cheques would con-tinue as long as customers needed them.

Trade bodies representing builders andcharities that campaign for the elderlyhad lobbied MPs over the plans. The useof cheques has been in decline in the last20 years, as shops refuse to acceptthem, instead preferring chip and pinpayments.

Ebay faces EU fake goods liabilityEbay and other online marketplaces areto be forced to take measures to pre-vent the sale of fake goods online fol-lowing a European court ruling. Thedecision follows a case brought byFrench cosmetics firm LOreal againstthe online firm over the sale of brandedgoods four years ago. Ebay would beforced to remove advertisements forfake goods and choose carefully theassistance it gives to sellers in promot-ing products. It could be liable for trade-mark infringements if it does not.

EDITORS LETTER

ALLISTER HEATH

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

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

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

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

US Fed is splitover fresh QEA THIRD period of quantitative eas-ing dubbed QE3 could be in thepipeline if the US economy continuesto stagnate, the minutes of the lastFederal Reserve monetary policymeeting revealed last night.

Some participants believed thatit would be appropriate to provideadditional monetary policy accom-modation if the economy fails topick up enough to erode Americaschronically high levels of unemploy-ment, the minutes said.

However, a sharp divide on thecommittee would likely emergeunder such circumstances, with sev-eral participants arguing that the UScould have a smaller output gap thangenerally believed meaning thatexisting asset purchases should be

reversed sooner than currentlyanticipated in f inancial markets.

Fed officials are already split overthe likely nature of rising US infla-tion, with dovish members insistingthat price pressures are temporary, while some hawkish colleagues aremore concerned about rising costs.

Chairman Ben Bernanke has keptinsisting that price pressures are dueto global effects, and not the fault ofthe Feds historically loose policy.

Outspoken Fed hawk ThomasHoenig said recently that he was notin the majority in fearing inflation.

BY JULIAN HARRIS

US ECONOMY

REPUBLICAN Senate leader MitchMcConnell floated a last choice back-up plan for the US debt ceiling crisislate last night. McConnells emergencyplan would see President BarackObama forcing through a hike in thedebt ceiling, without requiring theconsent of Republicans.

The announcement was intended toreassure markets that the US wouldnot default on its debts next month,

McConnell said, yet also turned atten-tion back onto the President. OnMonday Obama blamed stalled talkson ideological lawmakers who arerefusing to compromise.

McConnells complex plan wouldinvolve Obama listing planned spend-ing cuts, but without passing theminto legislation. The new measures would allow Obama to veto anyRepublican objections, leavingDemocrats with enough votes inCongress to pass the debt extensionthrough.

BY JULIAN HARRIS

US ECONOMY

Plan aired to avoid defaultRepublican Mitch McConnell (right) turned attention back on Obama last night

Federal Reserve chiefBen Bernanke remainsconcerned over highlevels of unemploymentin the US

MANAGERS STRUGGLE TO WOO THEWEALTHYPrivate banks across the world arestill struggling to attract new clients,as the wealthy continue to shun pro-fessional investment managers in thewake of the financial crisis, accordingto a report published today. Newmoney paid into private banks byclients fell nearly 19 per cent last year,according to a report by ScorpioPartnership.

INSURANCE SHAKE-UP RAISES FEARSON COMPANY FUNDINGCentral bankers have raised concernsthat companies will face greater prob-lems raising funds to invest in the realeconomy in coming years because ofregulatory and accounting changesfor insurers that may dramaticallyalter their investment style, a report

from the Bank for InternationalSettlements has warned.

TULLET PREBON GETS GO-AHEAD FOR

ACQUISITION Tullet Prebons much delayed pushinto the Brazilian market is set topress ahead after the interdealer bro-ker secured regulatory approval forits acquisition of Sao PaulosConvencao Corretora de Valores eCambio. The sign-off by DilmaRousseff, Brazils president, will allowthe deal, worth up to R$50m (20m)to be completed.

AMAZON SET FOR POLITICAL FIGHT ONCALIFORNIA TAXAmazon, the worlds biggest onlineretailer, is set for a political fight inCalifornia after it called for a referen-dum on the states controversialmove to tax online shopping. The callis likely to sharpen a confrontationbetween Amazon and bricks-and-mor-tar rivals including Walmart, HomeDepot and Best Buy, which have

backed moves to make online retail-ers collect sales tax from shoppers.

SOUTHERN CROSS COLLAPSE COSTSTAXMAN AT LEAST 25MThe collapse of Southern Cross is setto leave the taxman more than 25million out of pocket. The carehomes operator, which said thisweek that it is breaking itself up andreturning its homes to its landlords,owes the money in unpaid tax,national insurance and VAT after sus-pending payments to Revenue andCustoms last month.

JAMIE PUTS A LID ON HIS TIME WITHSAINSBURYS After 11 lucrative years and morethan 100 TV adverts, Jamie Oliverand Sainsburys are parting compa-ny. The celebrity chef and the super-market announced the amicablesplit yesterday, saying that both felt itwas time to move on. The momen-

tum appears to have come fromOliver.

HOMESERVE UK CHIEF JON FLORSHEIMTO STEP DOWNHomeServe, the company that offershome emergency repair services andinsurance, said its UK chief executive Jon Florsheim is stepping down. MrFlorsheim, who worked as BSkyBschief marketing officer before hemade the move to HomeServe, willfinish in the post next month, thecompany reported yesterday.

INFLATION FOR PENSIONERS IS 20PCHIGHEROlder people are suffering the fastestrise in living costs over a fifth higherthan the official rate of inflation.Research from Alliance Trust showedthat those aged between 64 and 74 were seeing living costs increase at5.1pc a year, although official figuressaid that the headline rate of inflation

has fallen from 4.6pc to 4.2pc usingthe official CPI measure.

BMW CRANKS UP PROFIT VIEWGerman luxury-car maker BMWTuesday raised its profit and revenueoutlooks for 2011. Flat sales at Frenchauto maker Peugeot-Citron in thefirst six months, however, illustratethat auto makers with a strongreliance on European markets andless pricing power are feeling the eco-nomic heat.

UBS MOVES 50 STAFF TO NEW YORKUBS has moved 50 members of itsequities team to one of its New YorkCity offices from Stamford,Connecticut, as part of a broader planto relocate a couple hundred employ-ees from the unit to New York,according to a person familiar withthe situation. The 50 employees will join the rest of the Swiss banksAmericas equity-capital-markets busi-

ness in its 1285 Avenue of theAmericas office.

WHAT THE OTHER PAPERS SAY THIS MORNING

8/6/2019 Cityam 2011-07-13

3/24

News 3CITYA.M. 13 JULY 2011

THE UK government will tomorrowsignal that Rupert Murdoch shouldhalt his pursuit of Sky, it revealed yes-terday, sending shares in the broad-caster to their lowest level in a year.

Murdochs bid to take control of the broadcaster received another blowafter David Cameron gave his backingto Ed Milibands commons motionagainst the deal.

The department for culture, mediaand sport select committee also

announced that Rupert Murdoch, hisson James and News Internationalboss Rebekah Brooks will all be calledto give evidence at a public hearingnext week, although it is unclearwhether they will attend.

The revelations came after Murdochmomentarily seized the initiative inthe ongoing scandal plaguing hismedia empire by announcing an auda-cious $5bn (3.2bn) share buyback pro-gramme. News Corp will treble itscommitment to return $1.8bn to

shareholders over the next 12 months.The firm will eat into the $10bn of

free cash it had earmarked for the Skydeal, in a move that will also consoli-date Murdochs control of News Corp,assuming he does not sell sharesowned by his family trust.

Shares in the media giant rose to$16.50 on the Nasdaq yesterday beforesettling back to close at $16.08.

Meanwhile RBS cut its target BSkyBprice from 900p to 830p after strippingout News Corp synergies still com-fortably ahead of yesterdays 687pclose.

Coalition tovote againstMurdoch bidBY STEVE DINNEENMEDIA

CITY VIEWS: WILL MURDOCHS BID TO CONTROL BSKYB ULTIMATELY BESUCCESSFUL? Interviews by Caitlin Morrison and Alexander Sainty

The deal has been delayed, but Ithink its just a matter of waitingfor the dust to settle. There are alot of people jumping on the anti-Murdoch bandwagon.

JAMES WAITE | BANK OF IRELAND

I think it might, its a definite possi-bility. He is getting a lot of theblame for what happened, which isunderstandable if youre in charge but it wasnt him doing it.

STEPHANIE DAVIS | SAFETY MEDIA

I certainly hope not. He already has far too large an influence on the British media.I think it will be very closely run. I hope that the government thinks long and hard.

MARK LESLIE | TOBELL INSURANCE SERVICES

lANOTHER DAY THAT SHOOK THE MURDOCH EMPIRE

8:00amChairman of the homeaffairs committee Keith Vazcalls for information onprecisely what the officersdid in relation to the firstinvestigation.

8:45amGordon Brown says he wasin tears when the Sun toldhim it would run a storyabout his sons medical condi-tion. He is careful not to claimreporters broke the law.

11:40amAssistant police commis-sioner John Yates expressesregret that his force didnot do enough for potentialhacking victims but denieslying over the affair.

12:30pmRupert Murdochs NewsCorp announces to the USmarket it will launch a $5bnshare buyback programme,relieving pressure on itsbeleaguered US stock.

2:00pmSue Akers, the deputy assis-tant commissioner of theMet in charge of the phonehacking investigation, saysthe Met will contact all4,000 potential victims.

3:00pmThe coalition says it willback Ed Milibands motionthat News Corp should notbe allowed to bid for Sky,paving the way for a crush-ing defeat for Murdoch.

7 Jul 8 Jul 12 Jul11 Jul

ANALYSIS l News Corporation

18.5

17.5

18.0

17.0

16.0

15.5

16.5

16.0812 Jul

$

8/6/2019 Cityam 2011-07-13

4/24

INVESTORS surged back intoItalian banks yesterday but stillfailed to lift their shares above lev-els seen before Mondays dramaticsell-off.

Overall, Italys main lenders haveseen their share prices plunge overthe last week since political infight-ing sparked a panic over the coun-trys debt levels.

UniCredit rose 6.2 per cent yes-terday but is down 14.3 per centover the week; Intesa Sanpaulo isdown 11.3 per cent week-on-weekdespite a rise of over three per cent

yesterday; and Mediobanca is still8.8 per cent below its price a week

ago despite a rise of two per centyesterday.

The volatility is being driven bythe high degree of uncertainty asto how much exposure banks haveto their sovereigns debt and howquickly any credit problems couldspread throughout the financialsystem.

James Babicz, head of risk at SASUK, says: Its the unknowns investors dont know how bad itpossibly could be Now that thiscrisis has sprung up in Italy, wedont see a real leader from thatcountry saying heres how we willaddress it.

The fear has also driven investors

out of UK banks. Barclays sufferedmost, falling 2.5 per cent after

Collins Stewart deemed the bankto be one of the most vulnerable toItalys troubles, saying it has sub-stantial retail and wholesale expo-sures.

Lloyds dropped 2.1 per cent andHSBC 1.2 per cent, but RBS buckedthe trend to post a small shareprice rise.

The anxiety has caused investorsto turn their attention to Europes

bank stress tests, due out thisFriday. Evolution Securities Gary

Jenkins said that the volatilitymeans: The result of the European

bank stress tests have become evenmore important.

If the tests are not sufficiently

informative, however, they couldadd to market fears.

Relief rally fails to

cheer Italys banksBY JULIET SAMUEL

EUROZONE


ELEVEN highly respected backbench MPshave signed up to sponsor a bill that wouldcap the UKs national debt as apercentage of GDP, legallyforbidding the governmentfrom racking up IOUsabove a certain level.

The MPs acting assponsor to a bill puttogether by formerDeutsche Bank managingdirector Sajid Javid MP (pic-tured) include four mem-

bers of the influential Treasury Select

Committee (TSC) Mark Garnier,

Andrea Leadsom,David Ruffley and

Jesse Norman as

well as former chief treasury secretaryDavid Laws.

The private members bill successfullypassed its first reading yesterday, with onlyLabour MP John Mann, also a member ofthe TSC, opposing it. It will go to a second

reading in January next year.Javid said that the bill will, at the very

minimum, force a national conversa-tion where previously there has beenonly stealth and obfuscation regard-ing excessive government spending. Although it is not official govern-

ment policy, it is understood that the bill has been given a nod from

the Treasury. The other spon-sors include John

Redwood, and formeradvisers to GeorgeOsborne, MatthewHancock and ClarePerry.

Bill to cap UK publicdebt levels draws

support of grandees

ANALYSIS l 10-Year Government Bond Yield

%

1 Arp 1 Jun 1 Aug 1 Oct 1 Dec 1 Feb 1 Apr 1 Jun

10.0

8.0

6.0

4.0

2.0

0.0

Spain, debt sustainability threshold

SpainItaly, debt sustainability threshold

Italy

ANALYSIS l Foreign Bank Claims

bn

Italy Spain Ireland

1200

1000

800

600

400

200

0

ANALYSIS l Barclays PLC

p

6 Jul 7 Jul 8 Jul 11 Jul

255

250

245

240

235

230

225

220

227.6512 Jul

ANALYSIS l Intesa Sanpaolo

6 Jul 7 Jul 8 Jul 11 Jul 12 Jul

1.80

1.75

1.70

1.65

1.60

1.55

1.50

1.45

1.58112 Jul

ANALYSIS l Unicredit


1.40

1.35

1.30

1.25

1.20

1.15

1.10

1

1.22612 Jul

ANALYSIS l Italian 10-year CDS

bps

15 Mar 15 Apr 16 May 15 Jun 8 J

5,600

5,600

5,400

5,200

5,000

4,800

4,600

CONTAGION SPREADS TO ITALY

Unknown unknowns stalk the banks

THERE is by now a depress-ing familiarity to investorsEurozone moodswings.

They begin with a nagginganxiety about mounting debtlevels, sweep into panic modeand overselling that forces poli-cymakers into action, and thenembark upon an excessive reliefrally.

The difference, this week, isthat bank share prices rebound-ed despite politicians leastimpressive performance to date.

Little has changed since last

week, when Italian finance min-ister Guilio Tremonti declared,in a fit of hubris: If I fall, thenItaly falls. If Italy falls, then sofalls the euro. It is a chain.

Investors with the stomach forintraday share price swings ofover five per cent should enjoythe ride while they can.

But for the more staid wealthmanager, Italys banks are fast-

becoming a no-go zone. That ispartly because, in addition todirect holdings of government

bonds, there is a further

unknown: banks and insurers exposure via structured productslinked to sovereign debt.

The degree of uncertaintymeans that despite mostlyhealthy capital buffers followinga frenzied round of issuance this

year (UniCredit being a notableexception), Italian banks willfind it increasingly difficult tomake the markets see reason.

BOTTOMLINEAnalysis by Juliet Samuel

France

1.9t

Germany

1.8t

UK

1.8t

Italy

2.2t

ANALYSIS l Volume of government bond market ( trillions)BY JULIET SAMUELPOLITICS

8/6/2019 Cityam 2011-07-13

5/24

MOODYS Investors Service yesterdaycut Irelands credit rating to junkstatus, saying the country will likely

need further official financingbefore it can return to internationalcapital markets.

Chances that European policymakers will force the private sectorto share the burden of future

bailouts also weighed on Moodysdecision, as the agency believes thatdecision may drive borrowing costshigher for weaker Eurozone mem-

bers.

Ireland ratingslashed to junk

EUROZONE

ONE of Spains flagship savings bankflotations was put back by a day yes-terday as the sovereign debt crisisforced book-building down to the

wire. The initial public offering (IPO)of Banca Civica, one of two

vitally important dealsunderway in Spain, willbe pushed

bac k by a day to 19 July, giv-

ing investors anextra 24 hours to

absorb the resultsof Europes stresstests, due to bereleased aftermarkets closeon Friday.

Several cajas,or Spanish savings

banks, are expectedto fail the tests. But both

Banca Civica and Bankia, which aimto raise around 700m and 4bnrespectively, have said they are press-ing ahead with their float plans,

with Bankia still due to price onMonday.

The deals, particularly Bankia, areviewed as key bellwethers that signal whether or not investors can bedrawn back into supporting untestedEuropean financials at a time ofintense volatility in the sector.

Dramatic market moodswings inrecent days have knocked marketrisk appetite and sources have toldCity A.M. that much of the book-build-ing is likely to happen in a last-minute flurry after investors have achance to judge the rigor and trans-parency of the EUs stress tests.

Investors have peppered Bankiasmanagement with questions over its33bn in real estate exposure and itsreliance upon wholesale fundinggiven a 160 per cent loan-to-depositratio. However, the caja group says itis fully funded until 2014.

The Spanish government haswarned its savings banks they haveuntil the end of the month to raiseenough cash to meet capital require-ments or face full nationalisation.

Crisis hinders

key caja floatBY JULIET SAMUELCAPITAL MARKETS

NewsCITYA.M. 13 JULY 2011 5

Greece

ANALYSIS l EUR/USD


1.44

1.43

1.42

1.41

1.40

1.39

1.402612 Jul

Silvio Berlusconi hasbeen accused offiddling while Romeburns, as did theEmperor Nero

SPANISH retail bank Banesto report-

ed a 25 per cent drop in first-half netprofit yesterday, hurt by high fund-ing costs and provisions against badloans.

The decline in profit was less thanexpected, but Banestos sharesplunged in line with other Spanish

banks amid growing fears of a spread-ing Eurozone debt crisis. Its totalpanic in the market and the stockfalls are following sovereign risk,said Nuria Alvarez, analyst at Renta 4.

Banesto hit byhigh provisions

BANKING

8/6/2019 Cityam 2011-07-13

6/24

EARLY summer sales in British storessaw consumer price inflation tameddown to 4.2 per cent in June, yet ana-lysts still expect the index to rise abovefive per cent in the coming months.

With surplus stock to shift, this years summer sales appear to havestarted relatively early, and perhapswith bigger price cuts than usual, saidCitigroups Michael Saunders.

Yet Saunders warned: this [down- ward] effect is unlikely to persist insubsequent months, as recent indus-try surveys show a dip in the numberof retailers with excess inventories.

And prices face renewed upwardpressures from the cost of food,according to the Office for NationalStatistics (ONS). Food and non-alco-holic drinks spiked by 0.9 per centbetween May and June, the ONS said.

Moreover, sizeable rises in house-hold energy prices still lie ahead,Saunders added.

Economists widely expect the con-

sumer price index to touch five percent or more in the autumn. Despitedownwardly revising its forecasts lastnight, Barclays Capital forecasts 4.9per cent in October and November.

Core inflation, which excludes theeffects of energy and food prices (aswell as tobacco), sank by half a per centto 2.8 per cent in June its lowest sinceNovember last year. The retail priceindex (RPI) slowed to five per cent inJune, down from 5.2 per cent in May.The tax and price index (TPI) was downby the same amount, from 4.8 per centto 4.6 per cent.

Yet the CPI rate remains over doublethe Bank of Englands two per cent tar-get rate. Todays rate of inflationmeans hundreds of thousands ofsavers need accounts paying a stagger-ing 5.25 per cent before they earn areal rate of return on their savings,said Moneyfactss Sylvia Waycot.

Anything less means they will fallinto the eroding spending power trapwhich has already wiped almost 600off the spending power of 10,000 injust five years.

Early summer

sales tameUK inflation

Public pension deficit at 1.1trn

PUBLIC sector pension liabilitiesstand at a staggering 1.1 trillion, the

Treasury will reveal today when itpublishes accounts drawn up to pri-vate sector standards.

The figure has jumped from770bn in 2008 when the govern-ment last revealed the accrued pen-sion rights for public sector workers due to worsening market conditions,a Treasury source told City A.M.

George Osborne, the chancellor, is

expected to use the shock figure asproof the government needs to prunespiralling public sector pensions.

The Treasury is also expected toreveal the eye-watering cost of provid-

ing a state pension. The Institute ofEconomic Affairs believes currentstate pension liabilities are 1.1 tril-lion while future liabilities arealready 1.7 trillion.

Meanwhile, the liabilities for pri-vate finance initiative projects has hit40bn with just 5bn of that appear-ing on the governments books.

Jesse Norman, a Tory MP on the

Treasury select committee, said thefigures reinforced the case for a prop-er programme for making savings inPFI projects.

In total, up to 4 trillion of addi-

tional debt will be added to the UKs balance sheet today, as the govern-ment makes good on its promise topublish a set of accounts drawn up onthe same basis as companies.

The new accounts known aswhole of government accounts will not change the figures used tocompare government debt and bor-rowing internationally.

BY JULIAN HARRIS

UK ECONOMY

A SURGE in visible imports saw theUKs trade gap widen from 3.1bn to

4.1bn in May, suggesting that thecountry could struggle to rebalancetowards a more export-driven econo-my.

The deficit on trade in goodsclimbed to 8.5bn in May from 7.6bnin April, well above the average expec-tations of economists.

The trade balance on services, atleast, was near-unchanged, with

Aprils 4.5bn surplus slipping onlyslightly to 4.4bn.

Elsewhere, the US trade gap alsorecorded a widening in May; yet in

neighbouring Canada, the tradedeficit narrowed due to a rise inexports to the European Union.

Canadas overall trade deficit nar-rowed slightly in May to C$814m(528m) from a revised C$857m in April. The US trade deficit totalled$50.2bn (31.5bn) in May, the highestsince October 2008, well above theexpectations of economists.

Trade balance widens further onthe back of surging new imports

ECONOMY

MIGRATION into wealthy countriesfell by seven per cent in 2009, theOrganisation of Economic Co-opera-tion and Development (OECD)announced yesterday.

It was the second year in a row thatmigration into OECD countries fell,from just over 4.5m in 2008 to 4.3m in2009. The change reflected lowerdemand for workers in OECD coun-tries, the report said.

Migration between EU memberstates fell by 22 per cent in 2009.

Young immigrants, and immigrantconstruction, finance and retail work-ers have been hit by declining jobopportunities. However the report stat-ed that the situation was not as bad asmight be expected given the globalfinancial crisis. Migration to Australia,Canada and the US actually increasedslightly in 2009.

Demand for labour migration willpick up again. Globalisation and age-ing populations make that a certain-ty, said Angel Gurra, OECDSecretary-General.

Governments must do more todevelop legal labour migration chan-nels and foster better use of immi-grants skills, Gurra warned.

Migrationinto OECD

states falls


BY CAITLIN MORRISON

MIGRATION

BY DAVID CROW AND ALISON LOCK

ECONOMICS

NEWS | IN BRIEF

House prices down 0.5pc in MayBritish house prices fell 0.5 per cent on a

seasonally-adjusted basis in May, takinghouse prices down 1.6 per cent on theyear, government data showed yester-day. The Department for Communitiesand Local Government said the averageprice of a home stood at 203,528.

US business owners morale dipsConfidence among US business ownersslipped last month amid expectations ofweak sales and a deterioration in busi-ness conditions over the next sixmonths, a survey showed yesterday. TheNational Federation of IndependentBusiness' optimism index dipped 0.1point to 90.8 last month from May.

Bank of Indonesia holds its ratesIndonesia's central bank held its bench-mark overnight policy rate at 6.75 percent yesterday for a fifth straight monthas expected, as policymakers saw infla-tion under control after June inflation

eased to a one-year low. June inflationeased to 5.54 per cent.

Will Italy need a financial rescue this year,and how would a bailout affect the Eurozone?THIS week our Voice of the City poll, run inassociation with PoliticsHome.com, is ask-ing for your views on contagion in theEurozone, as the debt crisis hits Italy andministers in Brussels debate the latestround of potential bailouts, rollover plansand managed defaults.

Were asking members of our panel togive us their views on Italys future, fromwhether the Eurozones third largest econ-omy will need an EU-led bailout during

2011, to its future in the single currencyand the wider consequences of an Italiandefault on the world economy.

To answer these questions and more,readers can apply to join the Voice of theCity panel made up exclusively of thoseworking in business and financial servicesin and around the City by applying atwww.cityam.com/panel.

The results of the poll will be printed inMondays edition ofCity A.M.

PoliticsHome.comPoliticsHome.com

In association withPoliticsHome.com

Apply to join today atwww.cityam.com/panel

In partnership

with

8/6/2019 Cityam 2011-07-13

7/24


THE way that some investment banksallocate stock to investors in new floatshas damaged the aftermarket, con-tributing to the breakdown of Europesinitial public offering (IPO) market this

year, according to independent adviso-ry Rothschild.

In response to a letter to investorsfrom Bank of America Merrill Lynch

(BoAML) on the IPO process,Rothchilds co-head of equity advisory

Adam Young toldCity A.M. that thenote, while helpful, still doesntaddress Rothchilds main concern.

In current sideways markets, theusual marketing and book-buildingapproaches are failing to identify clear-ly enough which investors have convic-tion and which investors are as likelyto sell as to buy more stock, he said.

This leads, he says to allocation dis-tortion to the detriment of the after-

market. The worry is that too muchstock is given to hedge funds ratherthan long-term investors.

Independent advisers and bulge bracket banks have been at logger-heads for months over the high failurerate of Europes float market this year.

A special investigation by City A.M.last month revealed that relations

between some advisers are in a state ofwar, with boutique firm STJ Advisorssuggesting that some banks allocation

practices could damage floats.Since then, banks have gone to great

lengths to charm investors andimprove their access to issuers.

But relations between advisers arestill strained. In a shot across the bowsof independent advisers, BoAML

warned them to avoid appearing as aforce for conflict in a sensitive process.

However, others argue that it canoften be the job of an independentadviser to rock the boat if they disagree

with stock allocation decisions.

Rothschild:

IPO practicesharm marketBY JULIET SAMUEL

EXCLUSIVE

SPECIAL INVESTIGATION: CITY AT WAR AT A GLANCE:ENERGY REFORMS

NUCLEAR AND RENEWABLE ENERGY

A carbon price floor measure will beintroduced to encourage investors toplough cash into low-carbon nuclear andrenewable power production. Thereforms aim to put a fair price on carbonand help to cut Britains CO2 output.

CONTRACTS FOR DIFFERENCE

Designed to allow clean technologieswith high upfront and low long-run coststo compete with traditional fossil fuels.In return for providing increased certain-ty, generators will be required to payback cash should the electricity price behigher than they need to make a fairreturn on their investment.

CAPACITY PAYMENTS

Reforms to ensure that Britain hasenough capacity to produce energy. Keygiven the often questioned reliability ofsupply from renewable sources. Old coalpower station operators could berewarded for being able to provide elec-tricity when supply runs short from low-carbon producers.

STABILITY OF ELECTRICITY PRICESPutting an end to fuel price shocks byimproving guarantee of supply from low-carbon sources. Increase the share ofelectricity produced from renewablesources from seven per cent to 30 percent by 2030. The department for ener-gy and climate change said the reformswould mean electricity bills would beabout 160 per year by 2030, or 200without the changes.

ENERGY secretary Chris Huhne hassaid more than 110bn is needed tokeep Britains lights on, in the

biggest shake-up of the electricitymarket since privatisation in 1990.

The cash is needed to build theequivalent of 20 large power sta-tions and upgrade the grid, as aquarter of the UKs generatingcapacity shuts down over the nextten years.

Huhnes plans, outlined in a gov-ernment white paper yesterday, plot

a course to cut carbon emissionsand reduce reliance on fossil fuels.

They will also attempt to address

fluctuations in electricity pricesthrough the introduction of long-term price contracts with nuclearplants and windfarms.

If electricity prices outstrip thelevel set in the contracts, firms willhave to pay back the difference.

Consumers will face rising energybills as a result of the reforms. ButHuhne warned that withoutchange, prices would be higher still.

None of these challenges can bemet for free, he said.

Huhne announces 110bnshake-up for UK electricity

Chris Huhne has outlined his vision for electricity production reforms

BYRICHARD PARTINGTON

ENERGY

8/6/2019 Cityam 2011-07-13

8/24

8/6/2019 Cityam 2011-07-13

9/24

THOMAS Cook saw its share priceplummet yesterday after it issued aprofit warning triggered by unrest inthe Middle East and North Africa andbelt-tightening in the UK.

Europes second biggest travel firmsaid full-year profits will be 60mlower than previously expected trig-gering a share price drop of almost athird.

The company is now estimatingprofit for the year to 30 September ofaround 320m while the City hadpencilled in a figure of 380m.

Tourist destinations such asTunisia, Egypt and Morocco have beenhit by political unrest and the compa-nys French business has also beenbadly affected.

But two-thirds of the profit shortfallwas attributed to tough trading condi-tions in the UK. The company said it would carry out a fundamentalstrategic and operational review ofits UK arm.

Manny Fontenla-Novoa, chief execu-tive, said that the company could notsignificantly raise the price of holi-days to shore up profit.

It is impossible to pass on risingcosts to consumers in this environ-ment, he said.

However, Thomas Cook said averageUK selling prices for summer holidayswere up four per cent as more cus-tomers bought packages that includ-ed food.

Despite the difficult trading condi-tions, bookings by UK customers areup by one per cent for the key sum-mer season.

The number of holidays ThomasCook has left to sell is five per centlower than a year ago, but this is part-ly because it has reduced the numberof packages on offer.

Shares in Thomas Cook closeddown 28 per cent at 34.85p.

Thomas Cook

slumps afterprofit alert

SHARES in French supermarket giantCarrefour fell yesterday after its bid toget a foothold in the Brazilian retailmarket was thrown into doubt.

Brazils government has withdrawnits financial and political support for acontroversial tie-up between retailerPao de Acucar and the local unit ofCarrefour.

The deal depended on financingfrom Brazils BNDES state develop-ment bank. The board of CarrefoursFrench rival Casino, which has strong-ly opposed the merger, voted againstthe deal yesterday. Casino has a con-trolling interest in Pao de Acucar.

The rejection sent Carrefour sharesdown by around four per cent. Themerger was championed by Braziliantycoon and Pao de Acucar shareholderAbilio Diniz.

He is also a shareholder in Casinoand is at odds with the companysboard over the deal.

Analysts said the decision was ablow to Carrefour, which is restructur-ing after three profit warnings inunder a year.

Management clearly expected thatthe deal would go through and thatthe synergies would... significantlyimprove its Brazilian hypermarketprofitability, said analysts at RBS.

The Open University is incorporated by Royal Charter (RC 000391), an exempt charity in England and Wales and a charityregistered in Scotland (SC 038302).

Ready to makea real difference

to your career?

Explore our MBA programme

www.openuniversity.co.uk/mbas0845 366 6035 Quote: GAMAFU

INSPIRING LEARNING

Make it happen with an MBA qualificationIn todays world of business it is imperative to keep yourmanagement skills at their sharpest. With our tripleaccredited and globally reputed MBA you can leap aheadof the competition with all the tools that you need.

Learning that fits around your lifeWhats best about the OU MBA is that its designedto give you maximum flexibility. Our study method isdesigned to fit around the demands of the modernmanager. You can study in your own time whetherthats at home, at work or on the move.

Did you know? Only 1% of business schools around

the world are triple accredited byAMBA, EQUIS and AACSB and with21,900 successful MBA alumni,we are the most popular in thiselite and exclusive group

The average salary increasepost the OU MBA is 40%

75% of FTSE 100 companieshave sponsored staffon our courses

Carrefour shares dive overfears for key Brazilian deal

BY JOHN DUNNE

LEISURE

Manny Fontenla-Novoa said UK customers would not accept higher prices Picture: REX

BYHARRY BANKSRETAIL


ANALYSIS l Thomas Cook

p

8 Jul 11 Jul 12 Jul7 Jul6 Jul

135

110

90

87.8512 Jul

ANALYST VIEWS: CAN THOMAS COOK TURN

THINGS AROUND? Interviews by John Dunne

SIMON FRENCH | PANMURE GORDON

Recent weakness in the share price had suggested all was not well atThomas Cook and we do believe there are some company specif-

ic issues particularly in the UK business. We cut our target and say hold.

KEITH BOWMAN | HARGREAVES LANSDOWN

In all, whilst management initiatives and a much reduced valuationhave provided positives, investor confidence has today been shaken, with a

previously positive market consensus likely to come under some pressure.

NICK BATRAM | PEEL HUNT

Its not the downgrade, but the scale of the miss that is thesurprise. This raises questions about just how flexible the business

model is, or whether management just called it badly wrong.

8/6/2019 Cityam 2011-07-13

10/24

This is where Hamdys City experi-ence becomes useful with the film just three weeks away from being

100 per cent complete, Hamdy isgoing back to his marketing anddeal-making roots. It is amazinghow many skills he has retainedfrom his City days, particularly onthe commercial side, said Bland.

ALL THAT JAZZ JAZZ FMs Jazz in the City show,hosted by Schroders fund managerAndy Brough and Killik partner PaulKavanagh, is developing a strong Cityfollowing for its regular Desert IslandDiscs-style countdown.

There has only ever been one guestwho has been able to include a track

of himself playing jazz though: JohnEast, the deputy chief executive ofMerchant Securities and theHammond organ player in his bandThe John East project, who recentlyincluded his own contribution on arecording of My Attorney Bernie.

East is tonight playing one of his reg-ular gigs at the 606 Club in Chelseawith his band of Mark Fletcher, NevilleMalcolm, Carl Orr, Scott Baylis andMax Grunhard. Come along to Lots

Road at 7.30pm to hear their interpre-tations of melodic jazz classics.

ASSET VEHICLESHAVING trouble borrowing fromthe banks to fund your latest prop-erty deal? No problem just takethe spare Porsche you have sittingin the garage to the pawnbrokers,release some equity andredeem the loan at your

leisure when the deal starts to payout.

Chances are, you wont be alone. As

pawnbroker Cash4mycar tells TheCapitalist, City executives are rushingto use their motors to raise short-termasset finance as the impressive col-lection of classic cars comingthrough its doors can testify.

Its a seasonal thing: the Porschesand Bentleys are pawned over the win-ter and the loan redeemed in the sum-mer when the vehicles are requiredfor use. Its not all about funding newbusiness ventures though some Cityowners are simply struggling to paythe school fees

COFFEE MACHINETHE EARL of Sandwich cornered themarket in brand recall.

But Ross Marshall, the founder ofYourGolfTravel, is coming a close sec-ond by giving all City golf fans who book for this weeks British OpenChampionship at Sandwich in Kent afree coffee from Prt-a-Manger. And,youve guessed it, a sandwich.

The promotion is the latest in astring of marketing tricks from the30-year-old entrepreneur, who set uphis business five years ago with a10,000 credit card loan.

With turnover of 40m and count-ing, it looks like those quirky tacticsare paying off.

DAY OF RECKONING THE DAY that Goldman Sachs hasbeen dreading is here at last: the dayThe Devils Derivatives, the expos ofthe bank that industry commentatorsdescribe as pure dynamite, goes onsale in the UK.

However, author Nick Dunbardoesnt restrict himself to Goldman

in his morality tale of the financialcard tricks that led up to the bank-ing crash the investment banksregulators also come under fire.

As Dunbar told The Capitaliston theeve of publication: When carryingout my research, I was shocked to findhow much regulators were under thethumb of the industry they were sup-posed to be supervising.

PULP FICTION: CITY FILM PRODUCERLEADS DEAL FOR 2M COMIC DEBUTITS COMIC potential has been com-pared to The Full Monty, Kingpin andThe Hangover, but it has been madeon a shoestring of 2m and by a for-mer management consultant.

The independent film, Pulp, is the brainchild of Adam Hamdy, whoworked at the management consul-tancy Bridgewater before foundingan internet start-up and retiring tothe countryside to pursue his dream

of becoming a writer on the proceedsof the dot.com companys sale to aninvestor two years later.

Giving hope to management con-sultants everywhere, Hamdys debutfeature film has been endorsed by Jonathan Ross, after Ross washooked by the films hero TonyLeary, a comic store-owner who willstop at nothing to make his newsuperhero title, The Sodomizer [sic],

a success when it launches at theBritish International Comic Show.

The film went down a storm whenit previewed at the London Film andComic Convention at the weekend people were laughing and, as it is acomedy, well take that as a goodsign said producer Phil Bland andthe next step is to start the talks withUK and US distributors to bring themovie to a global audience.

Comic potential: Actor Jay Sutherland filming a scene from Pulp as hero Tony LearyOur trades.Your advantage.

Real thinking - Real trading

Forex trading carries a high level of risk & is not suitable for all investors. The leverage associated with Forex trading can result in

losses which may exceed your initial investment. Consider your objectives & level of experience carefully before trading & if

necessary seek advice from a financial advisor. The Trader Management Company Ltd. is authorised and regulated in the United

Kingdom by the Financial Services Authority under FSA Registration Number 525164. TMC is compensated through subscriptions

to its live trading room service.

At the Trader Management Company, we believe that superior

education encourages elevated understanding. Thats why we use

our own trades to illustrate how the foreign exchange market

produces a range of signals; all of which can be easily deployed in

your own trading account. Users can learn from our professional

traders and emulate their trades whilst deciphering the Forex

markets at the same time.

Delivering their own personal trades alongside commentaries and

strategies, our team of experienced FX traders use TMCs exclusive

live trading room platform to educate users in the intricacies of the

Forex market. With all relevant trade information conveyed in real-

time, TMCs offering truly is a hands on method for learning how

to identify trading opportunities within the Forex world.

For more information about the Trader Management Company and

how you might incorporate TMC's service into your own trading,

visit TraderManagement.com.

Personal FX trades called in real-time by

professional traders

Trading strategies and commentaries

delivered by Forex professionals in real-

time

FX education delivered through an online

live trading room

One on one mentorship which also

builds a sense of camaraderie through

community interaction

Currency charts, text commentaries,

Q&A feature and live FX squawk alerts

Emulate the strategies of professionaltraders day by day in real-time

www.TraderManagement.com

Does your company offerForex to retail clients?Through the delivery of real-time education and

trades, TMC's live trading room can act as an

unparalleled reactivation tool for dormant clients.

To learn how your organisation could receive free

client access to TMC's complete trading room

service, email [email protected]

today.

Organ grinder: John East at the 606 Club

The Capitalist10 CITYA.M. 13 JULY 2011

EDITED BY

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

8/6/2019 Cityam 2011-07-13

11/24

YELL shares surged yesterday after theYellow Pages publisher announced atie-up with Microsoft to boost theexposure of its online and mobileadvertising.

The groups shares, which have fall-en by around half of their value sincethe beginning of the year gained morethan 15 per cent during trading yester-day.

The embattled firm, which narrow-ly avoided insolvency in 2009, says it

will take advantage of Microsoftsalliance with Yahoo to offer com-pelling search, mobile and local adver-tising solutions to small and medium

businesses.As part of the deal, Microsoft will

also help to boost Yells new cloud-based services. No financial details ofthe deal were released.

The announcement fits Yells pledgeto increase its presence in digitalmedia in a bid to counter a chronicdecline in its print business.

The firm, which has net debt of2.8bn, saw its full year revenue fall12.4 per cent to 1.9bn in the lastfinancial year.

On Monday Yell agreed to buy UStechnology start-up Znode for $20m(12.5m), pushing its shares up nineper cent. The firm says Znode gives Yelle-commerce technology that it can useto connect small businesses with con-sumers on a local level. It will be incor-porated into the group as part of a newdivision, called Yell Connect.

Shares in Yell closed 15.9 per cent upat 11p yesterday.

Yell surges onad deal withMicrosoftBY STEVE DINNEEN

ADVERTISING


ANALYSIS l Yell

p


11.5

10.5

9.5

8.5

7.5

11.0012 Jul

NEWS | IN BRIEF

Perform in line with expectationsSports rights distribution group Performyesterday said its first half trading is inline with its expectations. A statementfrom the firm said it has seen growthacross all business areas, adding:Overall, Perform remains on track todeliver strong full-year growth in line

with management expectations.

Luminar in profit warningNightclub operator Luminar yesterdayissued a profit warning after it report-ed another drop in sales as it failed topull in young revellers. The MiltonKeynes-based company announced a 12per cent reduction in like-for-like salesfor the 18 weeks up to 2 July , worsethan expected. Sales fell by 9.7 percent.

ABB calls for betting changesThe Association of British Bookmakers(ABB) yesterday called for the govern-ment to abolish the 50-year-oldHorserace Betting Levy by 2014 andreplace it with a commercially negoti-ated arrangement. The body says thesuccess of the process would dependon the government facilitating itthrough measures such as continuing

bettings exemption from VAT.

Carrefours Brazil deal in perilShares in French supermarket giantCarrefour fell yesterday after its bid toget a foothold in the Brazilian retailmarket was thrown into doubt. Brazilsgovernment has withdrawn its financialand political support for a controversialtie-up between retailer Pao de Acucarand the local unit of Carrefour. Therejection sent Carrefour shares downby around four per cent.

THE Russian fertiliser group Phosagrohas narrowed the range for its plannedLondon initial public offering (IPO)and is on track to float today with amarket capitalisation of around $5bn(3.14bn).

The company, whose shares arescheduled to begin trading on theLondon stock exchange today, nar-rowed the price range for shares to

$13.75-$15.75 from an earlier $13.00-$16.50.

The Russian oligarch Andrei Guriev,who owns more than 80 per cent ofthe shares in the company, will sell astake in the group of between 10 to 15per cent.

Phosagros $5bn valuation will belower than the $7-9bn envisaged at thestart of the flotation process, but get-ting the float away will be seen as amajor success given the recent turmoilin Londons IPO market.

Phosagro is latest groupto get float off the ground

Oligarch Andrei Guriev is selling part of his shareholding in Phosagro

BYDAVID HELLIERCAPITAL MARKETS

8/6/2019 Cityam 2011-07-13

12/24

GREENCORE has made a 113m offerfor rival food company Uniq as itpaves the way for a delisting inIreland ahead of joining the Londonmarket.

The Dublin-based company, whichis one of Britains biggest providers ofready meals, said its 96p per shareoffer has received the backing ofUniqs board, which put the firm upfor sale in April.

The company changed its name

from Unigate when it sold its dairyempire to Dairy Crest 11 years ago. Itspension fund bought the business inFebruary this year to wipe out a gap-ing pension fund deficit.

Patrick Coveney, Greencores chiefexecutive, said Uniqs food-to-go busi-ness, for which Marks & Spencer is amajor client, would be an excellent fitwith Greencores strategy in the UK.

The firm also said it expects tomake cost savings of at least 10m byeliminating back office costs.

Coveney said Uniqs strugglingdesserts arm, however, would have tobe restructured.

Greencore plans to fund the acqui-sition through a 70m rights issue, with the remaining 53m comingfrom an increased debt facility.

Coveney added that Greencore would use the takeover to tidy upour capital markets position for ourshareholders including seeking FTSEindex inclusion. Shares in Greencoredropped by almost 10 per cent to0.88 while Uniq shares rose 22.97 percent to 94.07p.

Greencore tobuy rival Uniqin 113m deal BRITISH oil explorer Premier Oilreported a disappointing downturn infirst-half production as increasedmaintenance activity in the UK offset a

good performance from its Asianfields.

The FTSE 250-listed firm said itsaverage production for the first half ofthe year fell 21 per cent from 42.8thousand barrels of oil equivalent(kboepd) in 2010 to 36.6 kboepd.

Despite good production perform-ance from the Anoa field in Indonesia,the Edinburgh-based explorer said pro-duction took a hit after the unexpect-ed shutdown of its Balmoral field inthe North Sea together with mainte-nance work at Wytch Farm.

The group also warned that itsHuntington development in the NorthSea is likely to be delayed.

As a result Premier Oil has down-graded its production target for theyear to a range of 40 and 45 kboepd,down from its earlier 45 kboepd guid-ance stated in May.

With continuing good progress onour Asian development projects weexpect to see a significant increase inproduction to around 60 kboepd byyear end, Simon Lockett, chief execu-tive said.

Shares in Premier Oil fell 20.70pclosing at 414.10p last night.

Production atPremier Oil hitby maintenance

Greencore boss Patrick Coveney said Uniq complemented Greencores business strategy

BYKASMIRA JEFFORD

RETAIL

ENERGY


GREENCORE has hired Barclays Capitalto act as financial adviser, joint brokerand joint sponsor, with Mark Todd andJon Bathard-Smith leading the team.

The bank has worked with the Irishfood company over the past year duringits unsuccessful attempt to merge withNorthern Foods, which went to thetycoon Ranjit Singh Boparan.

Mark Todd, managing director ofBarCap, joined the investment bankfrom Citigroups mergers and acquisi-tions team in July 2009. The Queens

College, Cambridge graduate hasworked with Imperial Tobacco duringits acquisition of Altadis, Tata Motors asit bought Jaguar, as well as buying andlater selling Somerfield during his tenyears at Citi. He is joined by JonBathard-Smith, from Barclays CapitalsCorporate Broking division.

The advisory firm Spayne Lindsay isleading the sale on behalf Uniqs majori-ty shareholders, Angel Street.

Investec is also an adviser to Uniq.

MEET THE ADVISERS

MARK TODD

BARCLAYS

CAPITAL

ANALYSIS l Greencore


0.8812 Jul

0.84

0.86

0.88

0.90

0.92

0.94

0.96

0.98

1.00

1.02

1.04

10.6

8/6/2019 Cityam 2011-07-13

13/24


BRILLIANT!BRILLIANT!

BRILLIANT!Chris Tarrant, BBC Radio 2

NOL COWARD THEATRE0844 482 5141

How the hacking scandal has hit the Sky brand

THE last week has been domi-nated by phone hackingnews. It is clear that the pub-lic disapproves of the prac-

tices used and there is generalsupport for the closure of the Newsof the World from the YouGov

poll for the Sunday Times; 73 percent think it is never acceptable for journalists to break the law nomatter how important the storywhilst by a score of 56 per cent to

26 per cent they think NewsInternational was right to close theNews of the World.

Not surprising figures -- but canNews International keep the dam-age confined to one brand?Looking at Sky on BrandIndexreveals mixed news.

As the graph shows there hasbeen a sharp decline in their buzzscore and a smaller fall in index (acomposite score of six key meas-ures).

The buzz decline started when

News Corp got the go ahead to buythe remainder of BSkyB and accel-erated as the News of the Worldphone hacking stories emerged sothat by last Friday buzz was as low

as -18 (down from +4).Index was relatively unimpactedby the bid news but did drop frombetween +5 and +8 to -2 by Friday.

The better news though comeswhen comparing with brands thathave had similar crises.

COMPARISON WITH BPIn May-June of 2010 BPs buzzdropped from -10 to an incredible-73, with index also declining from7 to -15.

By November it had recovered all

the buzz score and most of theindex.

Lets not underestimate theproblem people dont like whathappened, they distrust News

International and I have little

doubt that News of the Worldwould show similar numbers to BP.

The crisis has had an impact onperceptions of Sky, but BP wouldtell them it could be considerably

worse, and there is a way back.

DISASTERS this year have alreadycaused the worst economic losses onrecord, Munich Re said yesterday.

Catastrophes in Japan, New Zealand, Australia and the US led to $265bn(166bn) of losses in the first sixmonths of the year alone far abovethe previous record of $220bn in 2005.

The devastating 9.0 magnitudeearthquake and tsunami to hit Japanin March caused the highest losses ofany disaster ever recorded.

The quake, which caused more than15,000 fatalities and tipped Japanseconomy back into recession, resultedin $210bn of economic losses, thoughthe $30bn of insured losses were lowerthan other disasters.

Earthquakes in Christchurch, NewZealand that flattened the citys busi-ness district and damaged its cathe-dral, caused $20bn of economic

losses but half of that was insured.Munich Re said such a spate of catas-

trophes in such a short period wasvery rare.

We were not surprised by any ofthe events when seen as single events,said Munich Re director Torsten Jeworrek. The accumulation of somany severe events of this type in sucha short period is unusual.

Insurers have reeled from sixmonths in which insured losses hit$60bn five times higher than theaverage first-half loss in the pastdecade. The figure is particularlyunusual as losses in the first half of theyear are generally smaller than second-half losses because hurricanes andtyphoons, which strike in the Americas from May to September,cause more costly damage each year.

Tornadoes in May and June caused$15bn of economic losses and $10bn ofinsured losses, with more stormsexpected in the coming months.

Disaster losses

hit new record

FRENCH car maker PSA PeugeotCitroen said it increased the propor-tion of its sales of cars and light com-mercial vehicles outside Europe in thefirst half as it chases growth in emerg-ing markets.

Like other European auto makers,PSA is focusing efforts on fast-growingregions including China and LatinAmerica as economic uncertainty andausterity measures mean sales stag-nate closer to home.

The car maker said the proportionof sales outside Europe rose to 38 percent in the first half, compared with

35 per cent in the first half of 2010. Itconfirmed its target of 50 per cent of

sales outside Europe by 2015.PSA said worldwide sales of cars and

light vehicles rose 0.2 per cent in thefirst half to 1.86m. Excluding sales ofcompletely knocked-down units, vehi-cle kits that are sold for assembly inmarkets like Iran, sales of assembledvehicles rose 2.1 per cent to 1.65m.

PSA blamed an unfavourable mar-ket mix for a decline in Europeanmarket share, which reached 13.9 percent in the first half, compared with14.2 per cent in 2010. Traditionallystrong markets for the group likeFrance, Italy and Spain either showedweak growth or sales declines.

PSA sales of cars and LCVs in Europefell 5.3 per cent in the first half,

against a market decline of 0.8 percent, PSA said.

Sales boost for PSAPeugeot Citroen in

China and LatAm

BYALISON LOCK

INSURANCE

BYHARRY BANKS

AUTOMOTIVE

BRANDINDEX

STEPHEN SHAKESPEARE

VW

GM

Toyota

Hyundai

Honda

Nissan

BYD

Maruti Suzuki

Hyundai

Tata

Mahindra

GM

Honda

Toyota

Ford

ANALYSIS l Car company market share

Chery

Faw

Geely

Ford

Kai

Suzuki

13% 5.0%

3.2%

2.8%

2.6%

2.6%

2.6%

China

India

9.0%

7.5%

7.0%

6.5%

6.0%

5.0%

53%

21.0%

12.0%

5.8%

4.0%

3.5%

3.4%

2.0%

NEWS | IN BRIEF

Vedanta buys Cairn India stakeVedanta Resources has completed thepurchase of a 10 per cent stake in the

Indian arm of Cairn Energy, in a deal val-ued at around $6bn (3.77bn). The movecomes after Cairn Energy agreed lastweek to sell a 40 per cent stake in CairnIndia to Vedanta. The sale, one of thelargest in India's energy sector, has beendelayed for more than 10 months due toa disagreement over royalty payments.Following the transaction, Cairn nowowns 52.2 per cent of Cairn India. TheVedanta group now holds an aggregate28.5 per cent stake in Cairn India.

Wolseley sells Electric CenterWolseley, the builders merchant, signedan agreement to sell its Electric Centerbusiness to Edmundson Electrical, aleading distributor of electrical equip-ment in the UK. The sale will be complet-ed in the next few weeks following aperiod of employee consultation, thegroup said in a statement yesterday. Itfollows the sale of its Brandon tool hirebusiness last year for business from theElectric Center generated revenue of130m. This transaction is in line withour strategy of focusing on businesseswhere we can create leading marketpositions, said Ian Meakins, Wolseleyschief executive.

ANALYSIS l Sky index and Buzz chart

01/07/2011 06/07/2011 11/07/201126/06/2011

10.0

0.0

-10.0 Index

Buzz

ANALYSIS l BP index and Buzz chart

01/06/2010 01/08/2010 01/11/201001/04/20110

20.0

0.0

-20.0

-40.0

-60.0 Index

Buzz

The Japan quake is the costliest natural disaster on record Picture: REUTERS

8/6/2019 Cityam 2011-07-13

14/24


Kleinwort BensonThe Channel Islands private bank hasrecruited senior private bankers Jeremy

Brown and Stephen Campbell fromSchroders, where they were members ofthe UHNW team. The bank has also

acquired the family business KarrigStrategic Capital, a six-person team whowill join to form the Kleinwort BensonPrivate Investment Office. The new unitwill be led by Paul Kearney, formerly ofCardinal Asset Management.

RothschildThe investment bank has made StephenLlewellyn a managing director in itsLondon financing advisory business.Llewellyn, formerly a managing directorin the high yield group at RBS, willexpand the banks debt capital marketsadvisory, and focus on high yield bonds.

+44 (0)20 7092 0053morganmckinley.com

To appear in CITYMOVESplease email your careerupdates and pictures to [email protected]

SPECIALISTS IN GLOBALPROFESSIONAL RECRUITMENT

in association with

European fiscal worriespush US stocks down

US STOCKS closed lower for a thirdstraight day yesterday as Europesfiscal woes and a weak start totech earnings gave investors little

reason to buy even after the recent loss-es.

Moodys downgrade of Irelands cred-it rating late in the session provided thelatest jolt to stock investors, remindingthem of the scope of Europes debtproblems. On Monday, stocks postedtheir worst day in a month.

The Dow Jones industrial average fell58.88 points, or 0.47 per cent, to12,446.88 at the close. The Standard &Poors 500 Index shed 5.85 points, or0.44 per cent, to 1,313.64. The Nasdaq

Composite Index dropped 20.71 points,or 0.74 per cent, to 2,781.91.

FINANCIALS and commoditystocks led a sharp fall onBritains FTSE 100 yesterday asinvestors extended a recent sell-

off on worries that Europes debtproblems would spread beyondGreece, Portugal and Ireland.

Eurozone finance ministers onMonday promised cheaper loans,longer maturities and a more flexiblerescue fund in an effort to preventdebt contagion in Italy and Spain.

But markets effectively told politi-cians that not enough was beingdone, with Londons blue chip indexclosing down 60.20 points, or 1.0 percent to 5,868.96 as EU ministers setno deadline.

FTSE extends losses as

Eurozone debt fears growTHELONDONREPORT

THENEW YORKREPORT

p

18 Apr 12 May 2 Jun 22 Jun 12 Jul

6,100

5,700

5,800

5,900

6,000

ANALYSIS lFTSE 5,868.9612 Jul

Ernst & YoungThe accountancy firm has strengthened its UKmining and metals team by appointing DavidRussell as a director, in advance of an anticipatedacceleration of IPO and M&A activity in theresources sector. Russell has worked in Africa,

Canada and Australia over his 30-year career inthe industry, largely as a mining analyst. He hasalso been chief executive and director of severalASX, TSX and AIM-listed companies.

headline sponsor champagne reception sponsor

official venue partner

sponsors

Join the City elite at theSquare Miles event of theyear, the City A.M. Awards,to celebrate the best thereis in the UK business world.

Wednesday 21 September

The Grange St Pauls Hotel, London

Visit www.CityAMAwards.com

For more information, please contact Jo Pead020 8267 4043/ [email protected]

Book your place now!

BEST OF THE BROKERS

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

ANALYSIS lBritvic

450 p

382.0012 Jul

430

410

350

11 Apr 5 May 25 May 15 Jun 12 Jul

BRITVICRBS rates the soft drinks maker a buy witha 5 target price as it believes Britvic hasnow hedged against 95 per cent of its inputcost inflation expected to be 9-11 per centin the UK this year leaving it protectedagainst further shocks. RBS expects third-

quarter trading to be fine, with pricing posi-tive, and said it should benefit from improveddistribution and higher cost savings.

ANALYSIS lAstraZeneca

3,200

20 May 09 Jun02 May 12 Jul

p 3,093.0012 Jul

3,100

3,000

ASTRAZENECANomura rates the pharma group reduce,with a 24 target price, over concernswhether its diabetes drug dapagliflozin willpass a US Food & Drug Administration panelhearing on 19 July. The broker argues thatthe drug can exacerbate kidney failure sothinks safety concerns are likely to reduce itssuccess, and is therefore 75 per cent behindconsensus in terms of 2016 estimated sales.

ANALYSIS lKesa Electricals

20 May02 May 09 Jun 12 Jul

p 142.90

12 Jul

135

155

115

KESA ELECTRICALSInvestec rates the stock a hold, with a

1.25 target price, as it remains scepticalof Kesas commercial strategy for its weak-est links, Comet and Developing. It has cutits full year 2012 and 2013 forecasts fol-lowing the prelims announcement lastmonth, and said it was unclear what theComet turnaround strategy was. Its targetprice reflects a sum of the parts valuation.

CITY MOVES | WHOS SWITCHING JOBSEdited by Harriet Dennys

8/6/2019 Cityam 2011-07-13

15/24

Interview 15CITYA.M. 13 JULY 2011 WORDS BY MARC SIDWELL

How to throw the worlds greatestparty: opulence, charity and trustLord Stanley Fink ishosting a spectacularglobal event, to drivemore VIPs to supporthigh-impact charities

SOME people just dont know how toretire. Its three years since hestepped down as deputy chairman atMan Group, but Stanley Fink Lord

Fink since this January shows no signs ofslowing down. In 2008, the godfather ofthe hedge fund industry announced thathe wanted to devote more time to his phil-anthropic interests; it seems he is pursuing

that goal with exactly the same ambitionthat drove Man Group to become the

worlds largest listed hedge fund firm. ThisSeptember, he will be hosting the biggestprivate party the world has ever seen, inaid of a whole roster of transformationalcharities and thats just the beginning.

Fink leads by example, giving awayapproximately one third of his annualincome across a wide range of good causes.But he is keen to encourage a greater cul-ture of charitable giving among the very

wealthy. He cites a Cass Business Schoolstudy across three decades of householdgiving, which shows that the poorest 10per cent of donors give 3.6 per cent of theirtotal spending to charity, while the richest10 per cent give just 1.1 per cent. If thatfigures even partly true, I think its shame-ful.

CITY GIVINGAs he hastens to point out, the financialservices industry has quite a strong charita-

ble record, and he singles out both invest-ment banks and hedge funds for specialmention he is himself a trustee and direc-tor, and was for a year chairman, of themost famous charity founded by hedgefund managers, Absolute Return for Kids(Ark). Still, he argues there are pockets of

wealth in the UK and elsewhere that havebeen harder to reach.

Thats one reason for the Global Party, which should get some of the worldswealthiest reaching deeper into their pock-ets, in return for entertainment of thegrandest kind and a very special silverkey-ring that promises exclusive VIP privi-leges for life.

Inspired by Phileas Foggs fictional trav-els around the world in 80 days, the GlobalParty will unite some of the worlds great-est venues from Thursday 15 to Friday 16September, in a party that circles the

whole planet. Tickets are valid at all venuesand while the venues vie with one anotherto throw the most tempting bash, there is aGlobal Party Challenge that will be won bythe dedicated partiers who make their wayto the most challenging array of venues

while the party is running. For those con-tent to travel at a more leisurely pace, theLondon party will kick off with a journeyon the Orient Express mirroring the startof Foggs great adventure.

The invitation to buy tickets isbeing sent to 90,000 select VIPsaround the world, but otherskeen to support a good causeand join the fun can make adirect donation of 3,000 toone of the events chosencharities in return for apair of tickets. With 5,000pairs having been allocatedto charities in this way,large sums should be going

directly to good causes, aninnovation thats in keeping

with the events cost-conscious ethos. Finksays that they have been tweaking themodel to maximise the amount going togood causes and that the cost ratioscompare very favourably to any self-runevent that charities do.

GLOBAL IMPACTThe charities involved are, like the eventitself, truly global. The emphasis is on effec-tiveness, and Fink points to the opportuni-ty for two charities better known in the UKfor their work at home Ark and the Dukeof Edinburgh Awards to showcase theirtransformational power worldwide. In theUK, the Duke of Edinburgh works mostly

with middle class children and 20/30 per-cent is with groups like young

offenders and is truly transforma-tional, but overseas the propor-tions are reversed and 80 per centis completely transformational.He reflects for a moment and

adds, when you see the effectson young people of growingup with difficult family cir-cumstances, dysfunctionalschools life is tough enoughfor young people in this

world, even if they start with

advantages, and if they startwith major disadvantages you

really wonder how things are going toshape up. Thats why education and healthcan make so much difference. I believe in a

world in which social mobility is possible,people can try hard and can earn a betterquality of life for themselves and their fam-ilies.

TRUST IS KEYAnd despite its scale, the Global Party isjust the first step in Finks efforts to help build that better world. The successorparty, in 2013, will involve not 80 venues

but 360. He smiles, doing the first one isthe hardest. And in my life Ive been privi-

leged to work with good people I can trust.If you dont trust relationships, if you insiston micromanaging, you can never operateacross so many areas.

And on that humane note, the interviewis over. He is, after all, not just organisingthe worlds biggest party, but also has to

fulfil his duties as chief executive of ISAMand as a member of the House of Lords,among a sheaf of other commitments. Heis a man who wears his responsibilities andhis conscience lightly, but no one shoulddoubt the passion and energy this hedgefund titan is bringing to his latest projects.

www.theglobalparty.com

Age: 54Education: Manchester Grammar School; Trinity Hall,Cambridge (Law)Family: Married, with three childrenTitle: Raised to the peerage as Baron Fink, ofNorthwood in the County of Middlesex, 2011Career: He began his career as a chartered accountantwith Arthur Andersen; after a stint at Citibank, hejoined Man Group in 1987 and over twenty-one yearshelped build it into the largest listed hedge fund com-

pany in the world, rising to chief executive and deputychairman; in 2008, he retired from Man and soon tookon his current role as chief executive of InternationalStandard Asset Management (ISAM); in 2009, he wasappointed as co-treasurer of the Conservative Partyand in 2010 lead treasurer, becoming a peer in 2011.He is a trustee and director of Absolute Return for Kids(Ark), where he was chairman from 2009-2010, andchairman of governors for Burlington Danes Academy,which he sponsored through Ark.

CV | STANLEY FINK

Lord Fink manages hismany interests byworking with peoplehe can trust

Picture:Micha Theiner

/City A.M.

I believe in aworld wheresocial mobilityis possible,where peoplecan try hardand earn theirfamily betterquality of life.

8/6/2019 Cityam 2011-07-13

16/24

gtuk.com | FOREX

ree phone 0800 358 0864

GFT Global Markets UK Ltd. is authorised and

regulated by the Financial Services Authority.

CD03UK.162.070811

MT4 WITH GFT.Diferent. Better.Experience this popular orex trading platorm like never beore with:

GFTs exceptional pricing

Zero fees to use MT4

In-house MT4 experts available 24/7

When trading forex it is possible to lose more than your initial deposit.

Practice trading or open an account now at gftuk.com/cityam.

16

Wealth Management | Foreign Exchange

Belgium may be

the next dominoto fall in crisisBelgium and Italy are back in the sights of thebond ratings agencies, writes Craig Drake

second only to the United States andJapan.

Italy is not just the third largesteconomy in the EU but more perti-nently it has the largest bond mar-ket, says Chris Towner, director of FX

Advisory Services at HiFX. The fear isrising that the Italians may in thefuture start to struggle with theirenormous debt levels, which areapproximately 100 per cent of theirannual GDP.

WHILE most of the focus of theEurozone crisis has been onPortugal, Greece and Ireland,more countries are being drawn

into the fray. Italys bond yields are spikingand governmentless Belgium seems overdue

for a government bond rating downgrade.With a lack of faith in the euro, these wor-ries are driving the Swiss franc ever higher.

BELGIAN BOTHERDue to the focus on Italy, Spain and theongoing debt worries in the otherMediterranean Eurozone countries, Belgiumhas largely remained hidden underneaththe radar. Despite pleas from King Albert IIfor the divided Flemish and Walloon regionsto unite in order to deal with the countryseconomic issues, they have been without agovernment for some 13 months. While a

bit of laissez-faire would usually be a goodthing for an economy, with Belgian debt ataround 100 per cent of GDP, measures must

be taken soon in order to keep the credit rat-ings agencies at bay. According to ChrisBeauchamp, research analyst for the IGGroup: Standard & Poors warned sixmonths ago that it would consider down-grading Belgian debt if politicians failed toform a stable government. Six months havenow expired, and it would certainly beexquisite timing if S&P, or indeed any otherratings agency, choose this moment todowngrade its rating. Beachamp adds:Such a move would be highly problematicfor the EU, since it would show that debtconcerns go right to the heart of theEuropean project.

In common with its Eurozone brothers inarms, Belgium will need to overcome politi-cal and regional factions in order to pushthrough the austerity measures required toconvince the ratings agencies that they are

serious about dealing with their financialwoes.

As Beauchamp points out: Recent eventshave shown that contagion can engulfnations very quickly, and both national andEU leaders could rapidly find that the situa-

tion has moved beyond their control if theydont get their skates on.

ITALIAN WOESWhile Belgium is an economic minnow inthe same shoal as Greece, the troubles affect-ing Italy are a very different kettle of fish.

According to Stephen Barber who advisesSelftrade on markets and economics:Rescue packages for Greece are still beingdiscussed, but in the overall scheme ofthings, this is manageable. He adds: Thethreat comes from Spain or Italy, which

while too big to fail are also too big to bailout. After all, core Europe and Britain arehome to many of the banks most heavilyexposed to the sovereign debt.

While the facility exists to prop up theGreek economic disaster, it is unlikely that it

would be possible to support Italy, which hasthe third biggest bond market in the world,

A NEW PLANFOR EUROZONE

DEBT IS VITALBORIS SCHLOSSBERGDIRECTOR OF CURRENCY RESEARCH, GFT

THERE is no doubt that the currency market isnow at the mercy of the credit market. Fearsabout the growing contagion in the Eurozonehave sent euro-dollar to fresh three month

lows at the start of this weeks trade, with the pairdropping below $1.3850 in yesterdays chaoticmarket open. Italy has become the next target ofthe shorts, with yields on 10-year bonds rising wellabove the 5 per cent level, while credit defaultswaps on Italian sovereign debt were trading at arecord wide spread.

The crisis in the Eurozone has now moved fromthe narrow periphery of Greece, Ireland andPortugal to the broader periphery of Italy andSpain. There is a risk that the selling in both the

credit and the currency markets could turn into anavalanche, swamping officials ability to deal withthe problem. Eurozone authorities are slowlybeginning to realize that the market views the sit-uation as a solvency rather than as a liquidityproblem.

Despite the relentless selling pressure, euro-dol-lar managed to retake the key $1.4000 figure inyesterdays North American trade on rumors ofEuropean Central Bank buying. However, anyattempts by monetary officials to stabilise themarket are likely to have only minimal impact inthe long run as credit market concerns continue toweigh. This weeks sovereign debt auctions as wellas bank stress tests due Friday will be the mainbarometers of investor confidence in euro-dollarand unless Eurozone officials are able to put fortha credible plan to backstop the sovereign debt,$1.4000 will cap any short covering rally.

The problem with the euro is that it is a curren-cy without a country. Its confederate nature isbeginning to hurt the whole project, as shorts sim-ply hunt for the next weak link in the chain, forcingEurozone officials into a perpetual cycle ofbailouts. For the euro to survive as a viable curren-cy, the European Union will have to go to aEurobond format in order to avoid this endlessgame of selling the weakest credit.

8/6/2019 Cityam 2011-07-13

17/24

The attempts to bring the Italian econo-my under control are not helped by the per-petual cloud of controversy hanging overtheir bunga bunga party loving president,Silvio Berlusconi. This weekend, an Italiancourt found that Berlusconi had beenaccomplice to attempts to bribe a judge, butno charges could be brought, due to thelapse of the statute of limitations.

Much like Greece, the Italian populationhas shown a distinct lack of popular volitionto implement austerity measures to bringthe countrys deficit under control, with

Finance Minister Giulio Tremontis pro-posed40bn austerity package facing strongopposition.

Fears have grown that the Berlusconi gov-ernment would be unable to force the pro-gramme through the two houses ofParliament, but the Italian premier hasissued a plea for unity in order to preventItaly heading down the same road as Greeceand Portugal.

If Italys bond auction on Thursday floun-ders, then the bond vigilantes will be readyto pounce.

SWISS CURRENCY HAVENThe Eurozone bond crisis has not causedany significant volatility in the highly liq-uid euro-dollar currency pairing. Instead,each piece of bad news has driven investorflight into safe havens, with the Swiss francbeing the haven currency of choice. Withthe euro-Swiss franc pairing hitting newlows at the SFr1.600 level a long way fromits pre-2008 levels of SFr1.6800 it is unlike-ly that we will see then end of this trenduntil the Eurozone f inds some stability.

17

FOREX ANALYST PICKS

FOREX STRATEGISTJOEL KRUGER

My pick: Short Australian dollar-dollar (short, $1.0780, stop $1.0860)

Expertise: Technical analysisAverage time frame of trades: 1 day to 4 weeks

FOREX STRATEGISTILYA SPIVAK

My pick: Long dollar-Canadian dollarExpertise: Global macroAverage time frame of trades: 1 week to 6 months

Expectations of global slowdown are weighing heavily on the S&P 500,with prices now forming a large head and shoulders top and pointing to

sustained risk aversion even if the current bout of EU-driven panic ispacified. The off-the-charts inverse correlation between dollar-Canadiandollar and the US stocks benchmark index hints the pair will mount astructural advance as shares embark on a large-scale decline. I will lookto enter on a pullback to Ca$0.9678, or a weekly close above Ca$0.99.

We had sold the market in the previous week by $1.0750 and actually exitedand then re-entered at a better level by $1.0780 as per the instruction of ourmodel. Either way, the trade is looking quite good with the market mostrecently breaking below $1.0650 to trigger a double top on the daily chartexposing an even deeper drop,

cityam 2011-07-13

Documents