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FTSE 100 5,846.95 -59.48 DOW 12,477.61 -14.00 NASDAQ 2,770.20 -4.18 /$ 1.61 unc / 1.14+0.01 /$ 1.41 -0.01

JP Morgan

cheers withprofit hike

INVESTMENT banking giant JP MorganChase cheered markets with a $5.4bn(3.4bn) quarterly profit yesterday, 13per cent higher than a year ago, as itsinvestment banking arm powered up.

Its result, the latest in a run of fore-cast-beating updates, boosted hopesthat other major banks will also showgains as they report quarterly figuresover the coming weeks.

Revenues rose seven per cent to$27.4bn while earnings per share were$1.27, above expectations of $1.21.

Chief executive Jamie Dimon, wholed JP Morgan through the financialcrisis, called the result solid.

But analysts said it would be toughto beat. For this company to put upthese kinds of numbers, given all thepressures the industry is facing, is phe-nomenal, said Richard Bove, aRochdale Securities bank analyst.

Investment banking profits soared49 per cent as it hiked its fees by 37 percent. In contrast, mortgage portfoliosremained a weakness.

BY ALISON LOCK

BANKING

www.cityam.comIssue 1,425 Friday 15 July 2011 FREE

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James and News International chiefexecutive Rebekah Brooks will begrilled by MPs in the hearing next week. The Murdochs had initiallydeclined to attend but reversed thedecision after attracting fierce criti-

cism. They will face tough questionsfrom MPs including Tory John

Whittingdale and outspoken LabourMP Tom Watson on their knowledgeof the phone hacking scandal andwhether they were aware of allegedpayments to serving police officers.

Meanwhile, News Corps second-

biggest shareholder, Saudi PrinceAlwaleed bin Talal, last night joined

calls for Brooks to step down.And earlier, police admitted Neil

Wallis, the News International exec-utive arrested yesterday, had beenemployed by Met assistant commis-sioner John Yates at the time when

Yates decided not to reopen thehacking inquiry. MORE: P4

THE FBI has launched an investiga-tion into Rupert Murdochs NewsCorp over allegations it hacked thephones of victims of the 9/11 terror-ist attacks.

The move is yet another blow tothe media empire, with Murdochsposition at the top seriously weak-ened if the probe finds evidence ofwrongdoing. Two US senators havealready called for an investigation,mirroring intense political pressurein the UK.

Murdoch risked further wrathlast night by defending his compa-nys handling of the scandal, claim-ing in an interview it had dealt withthe crisis extremely well. He alsodismissed as pure rubbish reportsthat News Corp was looking to hiveoff its newspaper publishing arm.

But the tycoon did cave todemands that he appear before theHouse of Commons culture, mediaand sport select committee, setting

the stage for a gruelling battle in thepublic arena. Murdoch, his son

BY STEVE DINNEENMEDIA

l Rupert Murdoch met with hisson Lachlan yesterday as pressureon him intensified Picture: GettyANALYSIS l JP Morgan Chase & Co

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News2 CITYA.M. 15 JULY 2011

Gold rises yetQE3 talk coolsGOLD prices hit a fresh record high

yesterday, in the wake of Moodys warning that the US governmentmay lose its top credit rating.

This is more about fear, about thedollar, the debt troubles in Europe, as

well as the possible downgrade of theUS credit rating by Moodys, saidCommerzbank analyst Eugen

Weinberg. For gold, this is [one of]the best times.

Spot gold touched a record$1,594.16 (988) an ounce, despiteFederal Reserve chairman BenBernanke appearing to backtrackover his hints that a further period ofquantitative easing (QE3) could be inthe pipeline.

Oil prices also declined, while theUS dollar trimmed its losses follow-

ing Bernankes comments.We are not prepared at this point

to take further action, Bernankesaid. The Fed chairman has raised thespectre of QE3 on Wednesday duringtestimony to Congress in WashingtonDC.

A continued period of stagnationand embedded unemployment in theUS would prompt the Fed to embarkon fresh asset-buying, he had said.But yesterday Bernanke admittedthat this scenario was not yet in hisreckoning, also alluding towardsinflationary pressures.

BY JULIAN HARRIS

US ECONOMY

Europes debt crisis is getting worse

EMPIRES seem to be going out of fash-ion. It is not just News Corp, RupertMurdochs media colossus, which is introuble; the Eurozone, a very differentpolitical conglomerate, is unravellingin front of our eyes. The next step inits demise will come when the resultsof the stress tests for Europes 91largest banks are announced thisevening at 5pm. They will show thatseveral continental institutions would

be incapable of surviving a crisis even though, absurdly, the tests donteven acknowledge the possibility ofany country defaulting. There is a

decent chance that the Eurozonecould be plunged into turmoil onMonday. If so, London will be affected,even though UK institutions are muchmore robust. It wont entirely be a case

of dj vu, however.The crisis of 2008-09 erupted when vast amounts of loans lost much oftheir value; the financial system sud-denly faced massive losses. The weaker

banks lost too much capital, forcingthem into insolvency (and bailouts);others faced a liquidity crisis as finan-cial markets stopped working.

Institutions have since been increas-ing their capital reserves and focusingon more liquid assets. The idea is tomake sure they are more resilient to

what jargon-loving economists callthe next credit event in other

words, the next time a large amountof debt goes bad in one go. Many peo-ple still dont realise that such a catas-trophe could well already be upon us:this time, it is not mortgages andcovenant-light corporate debt that isthe problem but loans to several

Eurozone governments. Toxic govern-ments and their junk debt are thenew systemic threat. But even thoughfinancial institutions and regulatorsare better prepared this time around,

the crisis of 2011-13, as it may end upbeing called, could still inflict massivedevastation.

This is not just about banks: insur-ance companies, pension funds andall other kinds of institutions own gov-ernment debt. In many cases, theyhave no choice: laws stipulate thatthey must. Greek banks are forced toown Greek government debt; theusual assumption is that the debt ofstrong governments is risk-free, and

because Greece became a member ofthe euro it was preposterouslyassumed that it had taken on all theprudent characteristics of Germany.

When financial institutions lentmoney to countries such as Greece,Portugal and the other weaker EUnations, they were actually entrustingtheir money to sub-prime borrowersmasquerading as high-quality sover-

eigns. Too many people believed thepropaganda spewed by supporters ofever-closer European political integra-tion. It is always thus: the majority offolk invariably convince themselves

that the world has changed when infact the basic rules of life, economicsand human nature never do.

The numbers are big. As of this May,Eurozone banks had made loans toEurozone governments of1.156 tril-lion and held securities issued bythem of1.442.7 trillion, while theircapital and reserves totalled 2.118.8trillion, says International MonetaryResearch. The problem is that the sys-tem as a whole would be in deep trou-

ble if the losses on Eurozonegovernment bonds end up higherthan 500bn. And of course such loss-es would hit different institutions in

very different ways: many would notbe able to survive even a much smalleroverall loss. This is going to be a long

weekend. Lets hope it is a false [email protected] me on Twitter: @allisterheath

STOCKS spiked briefly in New Yorklast night after the White House

briefed that Republicans andDemocrats have agreed on $1.5 tril-lion (930bn) in deficit cuts, with fur-ther progress to come.

Talks have spilled into this weekfrom last weekend, with heatedexchanges allegedly causing USPresident Barack Obama to storm outof one meeting.

Obamas treasury secretary TimGeithner last night put pressure onopposition Republicans to agree to arise in the debt ceiling, by stating:We are running out of time.

A further $200bn in cuts could beagreed imminently, the White Housesaid, yet spin doctors warned thatthere has been no hallelujahmoment in the crunch talks.

The American government hasuntil 2 August to raise its debt ceiling,else it will begin defaulting on itscommitments.

BY JULIAN HARRIS

US ECONOMY

$1.4trn in US cuts agreedObamas treasury secretary Tim Geithner (right) said debt talks are running out of time

NEWS | IN BRIEF

UBS wins review of Madoff suitsUBS won review by a Manhattan federal

judge of $2.6bn of lawsuits brought bythe trustee liquidating Bernard Madoff'sfirm, at least the fourth time a bank hasobtained access to that court. US district

judge Colleen McMahon agreed toaccept the two UBS lawsuits, which

accused the Swiss bank and variousfeeder funds that steered money toMadoff of profiting from and covering uphis Ponzi scheme. Her decision is a set-back to the trustee, Irving Picard, whohas filed roughly 1,050 lawsuits seekingmore than $103bn for Madoff's victims,and has been trying to pursue his casesin bankruptcy court.

NY court revives Ambac caseA New York state appeals court yester-day revived Ambac Financial Groups$1bn lawsuit against JPMorgan Chase &Co over an investment vehicle that suf-fered heavy losses from toxic subprimedebt. The court said Ambac has suffi-ciently alleged gross negligence byJPMorgan, whose chief executive JamieDimon was said to have concluded asearly as October 2006 that subprimemortgages could go up in smoke.

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]

Federal Reserve chiefBen Bernanke spoke todampen speculationover a new round ofquantitative easing

Please note our new address4th Floor, 33 Queen Street, London, EC4R 1BRTel: 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

LAFARGE IN TALKS TO SELL PLASTER-BOARD ARMLafarge is closing in on the sale of itsplasterboard business as the Frenchcement maker pushes ahead with itsdebt reduction programme andattempts to recover its investmentgrade credit rating. The worlds sec-ond-largest cement company by rev-enue said on Thursday it had enteredexclusive negotiations with Etex, theBelgian building materials group.

HOSPITAL FAILURE PROPOSALS CRI TI-CISEDNHS leaders have warned that aplanned new failure regime for hospi-tals will lead to costly delays in tack-ling struggling services and divertfunds from other parts of the healthservice. Under proposals seen by theFinancial Times the original plan for

a commercial style insolvency regimefor hospitals will be replaced by one

that will assume that most servicesreceive a degree of protection.

BUSINESSES HIT BY REGIONAL FUND-ING SHORTFALLHundreds of businesses up and downthe country will be left empty-hand-ed in the lottery for regional funds,the government admitted on

Thursday, as it emerged that theremaining pot of cash set aside forthe regions had been more thanthree times oversubscribed.

GLENCORE TO STOP REPORTING QUAR-TERLY RESULTSGlencore has decided to stop report-ing its results every quarter, in a movethat is likely to soothe tensions withXstrata, the mining company in

which it owns a 34 per cent stake. Thecommodities trader on Thursdayoffered to pay up to $2.4m to persuade

bondholders to approve a change inthe conditions of one of its bonds,

which would allow it to drop therequirement for quarterly reporting.

NESTLE TAKES HEALTHY OPTION WITHKIWI FRUIT DEALNestl has turned to the kiwi fruit totry to tackle constipation in its latestmove into the medical nutrition mar-ket. The Swiss food giants health sci-ences division has taken an 18 percent stake in Vital Foods, a NewZealand-based company that uses thefruit to make products to prevent andtreat gastrointestinal conditions.

WILL-WRITERS TO FACE LEGAL CLAM-PDOWN

The legal regulator has launched aninvestigation into will-writers after amystery shopping probe found evi-dence of sharp sales tactics, poorquality wills containing basic errorsand companies disappearing withouta trace. There are currently no restric-tions on who can draft wills in

exchange for money and you do notneed to be a solicitor.

VOLCKER: VICKERS HAS 'MISSED' BIGBANK PROBLEMBritains key proposal for bankingreform still misses the overridingquestion of how to cope with finan-cial failures, Paul Volcker has warned.

The eminent American economist, who is advising President BarackObama on financial regulation, deliv-ered a withering assessment ofBritain's plans to ring-fence retail

banking operations.

GOLD ATM MACHINE AT WESTFIELD:MEET THE FIRST CUSTOMERGold vending machines are to beplaced in every major city in Britainafter the country's first machine wasswitched on in a West London shop-ping centre. The company behind thegold bar vending machines plans toinstall 50 across Britain over the next

few years, allowing ordinary shoppersto invest in the precious metal.

FIAT READIES CHRYSLER MERGERChrysler Group LLC and Fiat SpA, automakers that bounced back fromsevere financial crises a few years ago,are preparing to rejoin the auto indus-try's top ranks through a merger that

would have the financial and produc-tion heft to compete globally. SergioMarchionne, chief executive officer ofChrysler and Fiat, has begun selectinga single executive team to oversee thecompanies business operations.

GROUPON DEALS ATTRACTCONNECTICUT'S SCRUTINYConnecticut law-enforcement offi-cials are looking into whether onlinedeals site Groupon Inc. is breakingconsumer-protection laws that pro-hibit gift cards from expiring. Thestate is looking into whetherGroupons deals should be considered

in the same light as gift certificates forwhich expiration dates arebanned.

WHAT THE OTHER PAPERS SAY THIS MORNING

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ITALY had to swallow record interestrates at an auction of 15-year bonds yesterday as the IMF warned thatEurozone policymakers must comeup with a quick and clear solution toavoid dragging Ireland down withGreece.

The sale came just ahead of abudget vote for Rome, which saw 135senators oppose a majority of 161who voted through an austerity pack-age that is crucial to convince mar-

kets of the commitment to debtreduction.

The fiscal plan involves9.5bn(8.4bn) in cuts by 2014, a 10 per centcut in funding for political parties, a1.7bn fuel tax hike and a promise toscrap a range of tax breaks if revenuetargets are not met.

Investors had forced yields up to ahigh of 5.9 per cent at the Italiansale, which saw Rome raise nearly3bn.

Markets slumped after the sale,

reflecting nerves about how close yields have risen to the seven percent threshold that is seen as unaf-fordable for Italys finances.

The FTSE 100 lost 0.92 per cent percent, the Eurostoxx 50 dropped 0.73per cent and the euro lost 0.75 percent versus the dollar by lateevening.

Meanwhile, the IMF slammedEuropean ministers for exacerbatingthe crisis with a lack of leadership,calling the EUs response insuffi-cient so far.

IMF officials were wrapping up an

otherwise optimistic assessment ofIrelands finances, calling the gov-ernments progress on track and well-financed and praising itssteadfast commitment to its fiscalprogramme.

Euro leaders will meet again next week after negotiations failed onMonday, with the question of privatesector burden-sharing still a key boneof contention in talks between theEuropean Central Bank (ECB) andEuropes main paymaster, Germany.

Italy forcedto pay recordrates for cash

US oil giant ConocoPhillips hived offits refining business from its explo-ration and production arm yesterday

in a bid to unlock shareholder value.The split will leave it to run whatwill be the biggest oil producer in theUS by oil and gas reserves, while a sep-arate management team will run what will be the countrys biggestrefining company by capacity.

The separation should be complete by the first half of 2012, at whichpoint chief executive Jim Mulva willretire.

ConocoPhillipssplits into two

BY JULIET SAMUEL

EUROZONE

OIL AND GAS

News 3CITYA.M. 15 JULY 2011

SHARES in search giant Googlesurged in after-hours trading yester-day as it posted forecast-beating rev-enue and profit growth over the pastthree months.

Revenues rose 32 per cent in thequarter to June to pass $9bn (5.6bn)for the first time, while pre-tax profitjumped 36 per cent to $3.1bn, from$2.4bn in the same period in 2010.

Earnings per share came in at$8.74, above consensus analyst expec-tations of $7.85, driving Googlesshares up more than 12 per cent inafter-hours trading

But its costs a bone of contentionwith investors in the past continuedto grow. Both research and develop-ment costs, and sales and marketingexpenses, jumped to over $1bn in thequarter compared with 2010, causinga 38 per cent rise in total costs to anew high of $2.88bn.

Google smashes forecastswith 32pc rise in revenue

Google, led by Eric Schmidt, has beaten analyst estimates Picture: Reuters

BYALISON LOCKTECHNOLOGY

CAPITAL One and Wells Fargo are

among the bidders for HSBCHoldings US credit card portfolio,sources said yesterday. A separate saleof HSBCs New York state brancheshas attracted bids from US regional banks First Niagara, KeyCorp, andM&T Bank.

The asset sales are part of HSBCchief executive Stuart Gullivers planto refocus the bank on its main busi-nesses. The bank said in May it maysell the credit card unit, which hasmore than $30bn (18.7bn) in assets.

Bidders circleHSBC assets

BANKING

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DIRECTORS at BSkyB are likely tostudy James Murdochs performanceat the culture select committee care-fully next Tuesday before deciding whether to make any moves tounseat him as current chairman ofthe satellite broadcaster.

Legally speaking, James Murdochappears fairly secure in his position ashe would expect to command thesupport of the controlling sharehold-ers, News Corp.

But a source close to the board said

last night that things were changingso quickly that he could not rule outa challenge to the chairman at thegroups next board meeting onThursday week.

Its obvious that having aMurdoch as chairman is not helpfulat the moment because of all thenews surrounding the phone hackingscandal although there has been noimpact so far on the business.

The source also said that the board

directors would want to wait and see what lobbying they got from largeinvestors on the question of JamesMurdochs position.

One shareholder lobbying groupPensions and Investment ResearchConsultants (Pirc) has already calledfor James Murdochs ousting, sayingthat the company needed a chairmanfree from connections to the embat-tled News Corporation.

However, so far this dissent has notspread to some of the larger share-holders.

One shareholder, Crispin Odey ofOdey Asset Management, threw his

support behind the current chairmanyesterday.James is the man who turned the

company from a utility into a technol-ogy company. Now we are about toharvest that value, he told City A.M.

Skys board includes a number ofindependent directors including for-mer Royal Mail boss Allan Leighton,Nicholas Ferguson and RandomHouses chairman and chief executiveDame Gail Rebuck.

Jury still outon Murdoch

as Sky chair

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ANALYSIS l News Corp.

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18.0

17.5

17.0

16.5

16.0

15.9914 Jul

ANALYSIS l BSkyBp


820

780

740

700

69614 Jul

lANOTHER DAY OF TURMOIL FOR MURDOCH EMPIRE

9:00amNick Clegg urges RupertMurdoch to appearbefore the media selectcommittee. He hintsVince Cable was badlytreated over his recordeddeclaration of war onMurdoch last year.

1:00pmRebekah Brooks says in aletter to the media selectcommittee that she willattend a hearing into thephone hacking scandal.Rupert and JamesMurdoch appear to spurnthe request.

4:30pmPolice admit that NeilWallis, the former News ofthe World executivearrested over the phonehacking scandal, was an

adviser to the Met. Policesay he gave "strategic com-munication advice".

Why News Corp stock may not be toxicNEWS Corps shares have fluctuated wildly amid the bombshells thathave rocked Rupert Murdochsempire. But news of the FBI investi-gation yesterday is likely to spark adownward trend for a while shares

have already fallen, closing down2.26 per cent yesterday at $15.99. As the political pressure contin-

ues to mount in the US, the possibil-ity of Murdoch being ousted,however slight, continues to rise.And this presents a very interestingprospect for the canny investor.

News Corp has always traded at aconsiderable discount to its peers,partly due to the perception large-ly accurate that it is a firm run on

the whims of a single man. Itsknown as the Murdoch discount.

Since the latest tidal wave of reve-lations centering around NewsInternational, this discount hasrisen to around 30 per cent mak-

ing the groups value far less than ifsomeone decided to break it up andsell the constituent parts.

The lions share of News Corpsoperating profits come from its UScable networks business, which is worth at least $30bn. Its TV andmovie studios business is worthanother $12bn, which already takesyou to its current market cap.

Throw in its 39 per cent holdingin Sky, and other stakes including in

privately held Sky Italia, and youhave close to $20bn more, beforeeven look at the value of the UKnewspaper business that caused allthe trouble in the first place (whichis just about balanced out if you

strip away News Corps $4bn debt).Its operations in China have beenstripped back significantly in thelast 12 months but its Indian ven-tures have good growth prospects.

All in all, ousting Murdoch wouldbe difficult and painful but couldrealise a lot of value.

BOTTOMLINEby Steve Dinneen

12:00pmThe family of Jean-Charles de Menezes,killed by security forces ina case of mistaken identi-ty, confirm they werecontacted by police inrelation to the phonehacking scandal.

4:15pmDavid Cameron thinksthe Murdochs shouldappear before the selectcommittee, according tohis spokesman. Publicoutcry is building afterRupert Murdoch said hewill not appear.

4:45pmRupert and JamesMurdoch make a U-turnand accept their invita-tion to the select commit-tee. Speculation mountsthe FBI will investigateallegations of phonehacking in the US.

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AT LEAST two Spanish banks are set tofail the EUs second set of stress teststhis evening, with some bankers say-ing that their publication could sparka market meltdown on Monday.

CatalunyaCaixa and Pastor admittedthat they will fail after Spanish financeminister Elena Salgado warned thatthe tests would show up several fail-ures, in contrast to Italian central bankgovernor Mario Draghi, who said thathis nations banks are safe after 8bn(7bn) in capital-raisings.

Banks have to show that they canmaintain a five per cent capital ratioin an adverse scenario in which theEU economy shrinks 0.4 per cent thisyear and does not grow at all in 2012.

Moodys warned last week that upto a third of the 91 banks being testedcould fail tests that are more stringentthan last years exercise, in which all ofIrelands banks were deemed healthyweeks before they had to be bailed out.

The new tests have been criticised fornot including the possibility of a sover-eign default in the adverse scenario,but are tougher in that they have notallowed banks to include convertible bonds and provisions put aside forother matters in their capital cushions a factor that Pastor andCatalunyaCaixa blame for their failure.

Analysts will take charge of crunch-ing more than 900 pages of data at5pm today (UK time), which will forthe first time give a detailed break-down of banks exposure to sovereigndebt and to various related derivatives.However, critics say that the testsshould force banks to mark to markettheir risk-weighted assets (RWA),rather than estimating their value.

The European Banking Authority(EBA) will not publish a completeanalysis to markets, in part due tomanpower constraints. Instead, ana-lysts will spend the weekend plough-ing through the information in orderto allow investors to deliver a dramaticverdict on Monday morning.

EU credibility

on the line instress tests

Jobs crunch at Swiss banks

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SWITZERLANDS flagship lendersare gearing up for large-scale job

cuts to clamp down on costs, withsome estimates for redundanciesrunning into the thousands.

UBS and Credit Suisse have bothsuffered from currency fluctuationsand a drop in revenues that has hitmany investment banks due to lowtrading volumes.

And both banks hired heavily over2010 in anticipation of a bounce

back in markets this year, whichfailed to materialise. UBS blamedpersonnel for a costs increase in itslatest results.

The news follows City A.M.s report

at the beginning of the month t hatUBS has implemented an unofficialheadcount freeze in its London fixedincome, commodities and curren-cies team, while Credit Suisse is mid- way through a jobs consultation tolay off as many as 300 workers in theUK.

Swiss newspaper Tages-Anzeigerclaimed that the cuts would amount

to a drastic 5,000 headcount chop atUBS and 1,000 at Credit Suisse.

Kumaran Surenthirathas of invest-ment banking recruiter Eximiussays: Many global banks are scaling

back after suffering the effects offalling trading volumes on the finan-cial markets.

He added: The Swiss banks facethe added burden of high cost basesas the Swiss franc soars to newrecord highs against the dollar andthe euro, as well as requirements tohold capital in excess of internation-al standards.

BY JULIET SAMUEL

BANKING

A CONSORTIUM of businesses hasjoined forces to warn the governmentagainst its proposed closure of part ofthe district line in west London, argu-ing that it will have dire conse-quences for the local economy.

In a letter to Transport forLondons managing director MikeBrown, several members of the eventsindustry have said that the perma-

nent closure of the Olympia line dur-ing the week would lead to the slowdeath of the Olympia Exhibition

Centre, which hosts major trade andconsumer events such as the BritAwards.

Firms including Emap Connectand Reed Exhibitions say the closurewould deter people from attendingevents, as 73 per cent of its 1.1bn visi-tors use the tube service in order toreach the exhibition centre.

The consultation period ends today.

Businesses warn againstOlympia tube line closure


EU BANKS AT RISK

Bank Market Cap (bn) Core tier 1 ratio

Credito Valtellinese 0.7 6.3%

Banca Carige 2.2 6.6%Banca Pop. DellEmilia Rom. 1.7 6.7%

Unione Di Banche Italiane 23 7.5%

UK BANKS ARE RELATIVELY SAFE

Bank Market Cap (bn) Core tier 1 ratio

RBS 38 11.2%

Barclays 27 11%HSBC 105 10.7%

Lloyds 31 10%

ADVERSE

BASELINE

2010 TEST* 2011 TESTGDP growth -0.4%

Unemployment 11%

GDP growth 1.7%

Unemployment 9.7%

GDP growth -0.4%

Unemployment 10%

GDP growth 1.7%

Unemployment 9.5%

BY JULIET SAMUEL

EU ECONOMY

ANALYSIS l Are this years tests tougher?

ANALYSIS l Who is at risk of failing?

pass rate of

5%core tier one

capital

at least

50%of national

banking sectorper country

including

65%of EU bank

assets

91banks being

tested

BYKASMIRA JEFFORD

TRANSPORT

*scenarios for this year 2011

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ENGINEERING turnaround firmMelrose has increased its offer forCharter International to 840p pershare, valuing the welding equip-ment supplier at about 1.4bn.

The improved offer comes afterCharter rebuffed a 780p per shareapproach from Melrose late lastmonth, the board stating that the

bid undervalued the company. The struggling firm, which saw

the exit of chief executive MichaelFoster last month, said it would con-sider the fresh offer.

The industrial equipment suppli-er issued a profit warning lastmonth, sending its shares plummet-ing by a quarter to 538.5p per unit,and putting pressure on Foster to

quit.Chairman Lars Emilson has beenin executive control of the other-

wise rudderless company since.

Melrose said its renewed offer rep-resented a 40 per cent premiumover Charters closing share price onthe day prior to its originalapproach.

Shares in the firm had been 615pper unit before the bid was con-firmed on 28 June, although shot upto 816p by the end of the week.

The board of Charter is consider-ing this proposal and a furtherannouncement will be made in duecourse, Charter said.

Melrose upsCharter offerBYRICHARD PARTINGTON

INDUSTRIAL SERVICES

RENTAL costs have soared past 1,000per month in London, a survey of let-ting agents revealed this morning.

Londons rents were up an averageof 6.9 per cent per property in Junecompared to the same time the previ-ous year, the Buy-to-Let Index from LSLProperty Services said.

While rent inflation is particularlyintense in the capital, a shortage of

supply into the market is driving upthe cost of renting throughout the UK.Across the country as a whole rents

soared 0.7 per cent in June. The aver-age rent now costs 701 per month inthe UK another record high.

Depressed mortgage lending hascreated a backlog of frustrated buyers,ramping up pressure on the limitedsupply of rented accommodation,commented Jonathan Moore, directorof the website easyroommate.co.uk.

However, mortgage lending in the

capital could be turning a corner,according to a separate survey releasedtoday by a group of chartered survey-ors.

Mortgage approvals in Londonjumped 12.3 per cent in June, makingit the best-performing region in theUK, the group E.surv said.

The upturn in lending activity inLondon included an increase in thenumber of first time buyers. However,the number of Londoners getting onthe property ladder still remains low.

Rents in London now averagemore than 1,000 per monthBY JULIAN HARRIS

HOUSING


ARE YOU WORRIED ABOUT RISING RENTS?Interviews by Alexander Sainty

I am willing to pay more rent, because whilstit is expensive, it does allow me to live reason-ably well within the city. If I was to get on theproperty ladder, my wife and I wouldnt beable to afford anything central, and I am notready for the commute from suburbia.

TOM SCARLETT | GFT

It hasnt really affected me. I have a goodrelationship with my landlord and he hasntincreased the rent since I have lived there. Ifhe were to up the rent, I would still pay it, as Ijust dont have the money to pay for thedeposit needed to buy a property.

As someone who rents, Im not over the

moon about the rise in costs. However,I cant really afford the ludicrously expen-sive down payment for a mortgage. So,without a huge amount of options, I justhave to deal with the expense of renting.

JAMES SOULSBY | NIIT INSURANCE TECHNOLOGIES

KEITH Anderson is acting as lead cor-porate adviser to Melrose for Investec.

As the banks co-head of corporatebroking, he has advised a range of topclients on their finances. He recentlyworked on a 63m rights issue forWorkspace, the listed office manager.

Anderson joined Investec in 2002having been previously at WestLB

Panmure, where he was head of corpo-rate broking and a member of theinvestment banking managementcommittee. He is also a member of theInstitute of Chartered Accountants ofScotland.

Rothschild managing partner RaviGupta is also financial adviser toMelrose.

Charters corporate brokers JPMorgan Cazenove and RBS are repre-senting the firm.

Charter brought in the expertise ofGoldman bankers Dominic Lee and

Adrian Beidas to advise on theMelrose bid at the end of last month.

ADVISERS: INVESTEC

KEITH ANDERSON

INVESTEC

STUART FORBES | LLOYDS BANKING GROUP

ANALYSIS l Charter International

p

June JulyMay

850

900

950

800

750

700

650

600550

829.0014 Jul

8/6/2019 Cityam 2011-07-15

7/24

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8/24

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IT HAS only been three months sinceGeorge Osborne spent the morning atNomura to declare the Japanese

banks new offices officially open.But the chancellor was yesterday

back in the Lower Thames Street areafor the unveiling of Man Groups newglobal HQ at Riverbank House, next-door to Nomura at 2 Swan Lane.

Im making quite a habit of this,said Osborne, taking time out fromhis extremely hectic schedule to

join Man Groups chief executivePeter Clarke and chairman Jon

Aisbitt to mark 228 years of continu-ous commitment to the City ofLondon. We look forward to beinghere for the next 228 years, Aisbitttold his guests. Although we recog-nise there will have to be some man-agement changes.

Man Group, today the worlds

largest publicly listedhedge fund, started life asa barrel business underfounder James Man

back in 1783,when London wasalso in the throesof financial cri-sis, again undera Tory coalitiongovernment. A

young chancel-lor came in andsaved theday, notedO s b o r n esmugly although hemust hopethe similaritiesstop there, becausehis predecessor wenton to die of alcoholpoisoning.

It was a fittinganecdote for Man,

which historically had the contractto supply all the Royal Navy sailors

with their daily tot of rum. Until1970, that is, when the Navy ministerDavid Owen put a stop to the finenaval tradition three years afterthe introduction of nuclear sub-marines. Apparently, the complexityof modern military machinery out-

weighed the need for a settled stom-ach in choppy waters.

BEES VERSUS VIEWSBACK to the inevitable comparisons

with Nomura, after Osborneremarked, on unveiling Man Groupsplaque: When I did this at Nomura,the whole thing almost fell down.

Both buildings are renowned fortheir panoramic roof terraces but,

says Osborne, Mans has the edge.

You have a better view thanNomura, by the way, he told thehedge funds staff. When theylook out to the river, all they cansee is your building.

Not to be outdone, Nomurachose yesterday purely coinciden-tally, obviously to tell the worldabout the two new beehivecolonies installed on its roof ter-race, part of a honey-making proj-ect in partnership with inner-citycharity The Golden Company.

Final scores at close of play yester-day: Man Group 1, Nomura 1.

MOSCOW MULESDIDNT know there is a Moscow inScotland? You do now its a hamletin East Ayrshire that was this weekput on the map when Nicholas

Fairfax, an executive boardmember of Russias largestshipping company SCF Grouptook to his motorbike for a leg

of the charity ride fromMoscow, Ayrshire toMoscow, Russia andback again.

Fairfax was joinedon the UK leg of theride which covered6,500 miles in total

and 13 countries byHRH Prince Michael ofKent (pictured, withFairfax), who helpedraise 14,000 for ThePoppa Guttmann Trustfor spinal injury victims.

LEHMAN-CELLO AS ITALY looks increas-ingly likely to be suckedinto the European sover-

eign debt crisis, TheCapitalist hears the Cityhas coined a new phrase

for the contagion: Lehman-cello.More deadly than Italys national

liqueur and with a far more bitteraftertaste

AHEAD OF THE CURVE THE business elite are dispropor-tionately influential and at the fore-front of new developments, saysIpsos so its hard to imagine how in1993 only 33 per cent of global influ-encers owned a mobile phone, and

by 1996 only 37 per cent used email. The findings were unveiled at

yesterdays Ipsos presentation, where James Torr, director of the

Business Elite (BE) Surveys, lookedback at the evolution of the groupdescribed as the driving force

behind most economies since thefirst BE study in 1973.

Interesting how sharply the per-centage flying on business to theBRIC countries has shot up between2002 and 2010 by 53 per cent toIndia, by 56 per cent to China and by79 per cent to Russia.

Average net worth is also creeping back up from the low of 2009 to800,000 in 2010, with averageincome at more than 150,000.

CHANGE OF ADDRESS YOUVE registered Man Group andNomuras changes of address; nowplease note that as of Sunday 17 July,City A.M. is also moving offices to:Fourth floor, 33 Queen Street,

London, EC4R 1BR.

MAN GROUP ROLLS OUTTHE BARREL FOR NEW HQ

9EDITED BY

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

The CapitalistCITYA.M. 15 JULY 2011

Buzzing: Nomura installs its beehives

Left to right: ManGroup CEO PeterClarke and AHLCEO Tim Wongwith GeorgeOsborne on the

trading floor

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ASSOCIATED British Foods said yester-day said it was on track to meet itsfull-year earnings targets as its budgetclothing chain Primark helped toshore up its profit.

AB Foods, whose brands includeSilver Spoon sugar, Mazola vegetableoil, Ovaltine drinks and Twinings tea,cut its full-year earnings forecast to aflat out-turn in April.

Sales growth at Primark accelerat-ed to 15 per cent in the three monthsto 25 June, taking the increase to 13per cent for the first three quarters ofthe year, the company said.

Meanwhile AB Foods said the salesgrowth was driven by both spacegrowth and like-for-like improve-ments, and that the UK and Irelandachieved like-for-like growth despitethe low level of consumer demand.

The company said that operatingmargins across its businesses in thesecond half had fallen due to higher

input prices and Primark absorbingthe VAT rise in the UK.

Six new Primark stores haveopened since the half-year three inthe UK, two in Portugal and one inSpain.

The company now trades from7.1m sq ft of space in 220 stores, andin September will open a 46,000 sq ftshop in Westfield Stratford.

In other parts of the business rev-enues dropped with the sugar busi-ness down in the quarter.

Meanwhile, prices rises, particular-ly cotton, have been taking their toll,

with Primark struggling to keepprices down for its customers ratherthan pass on the burden.

Price increases are still feedingthrough the system. A lot of the softcommodity prices have gone up,finance director John Bason said.

After AB Foods announcement yes-terday the companys shares climbed

to make it the top riser on the FTSE100 in early trading as investors gavea positive reaction.

AB Foods boostedby sales at Primark

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BY JOHN DUNNE

CONSUMER

SPORTS Direct yesterday reported asurge in full-year profit figures yester-day, triggering a bonus pot for staff.

The retailer posted a 25 per centrise in underlying profit for the yearto 24 April making 200.4m.

The firm, controlled by NewcastleUnited owner Mike Ashley, grew like-for-like retail sales by 6.6 per cent

while revenues surged by 10.2 per

cent.More than 2,000 staff will receivean average bonus pot of 40,000

because of the companysresilient performance. SportsDirect, which owns Sports

World and Lillywhitesstores as well as brandsincluding Slazenger,Lonsdale and Dunlop, hasgained market share as aresult of problems at rival

JJB Sports. Chief executive

Dave Forsey said: This has beenan excellent year of growth forthe group in what has been achallenging retail environment.

Key to this growth has been the success of our

employee bonus sharescheme.

He said the company isconfident of reachingprofit targets of 215mfor the current financial

year.

Sports Direct profit rises asstaff pocket a 40k bonusBY JOHN DUNNERETAIL


ANALYST VIEWS: HOW WELL IS AB FOODSMANAGING RISING COSTS? Interviews by John Dunne

ANDREW WOOD | BERNSTEIN

Slowing results have seen a poor stock performance. While the man-agement update may drive a relief rally that guidance was not reduced,we see little justification for a sustained rally in the stock.

GRAHAM JONES | PANMURE

We remain bullish about the opportunity for Primark to continue itsroll-out in Iberia, Benelux and Germany ... and we raise the shares fromHold to Buy.

UK sales climbed

15%during the quarter

Internationalsales soared160 per cent to

59.6m

Sales increased69 per cent to

104.2min the three months

to 30 June.

ASOS has

13munique visitors on its

websites everymonth

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PREMIER Foods has appointed formerKraft boss Michael Clarke in a bid to

breathe new life into the company.Clarke will succeed Premier chief

Robert Schofield on 1 September.He became head of Krafts European

business in 2009, where he played aleading role at the heart of the contro-

versial takeover of Cadbury, afterwhich Kraft performed a U-turn on apledge to keep a UK factory open,

which sparked fierce criticism. BeforeKraft he was president of Coca-Cola fornorthwest Europe. Previously he

worked for Reebok in Asia.Premier, the maker of Hovis and Mr

Kiplings cakes, has struggled withdebt problems and last month warnedof a fall in first half profit.

It sold its Quorn division as part of astrategy to reduce debt.

Panmure analysts said Clarke hadthe brand credentials that the com-pany needed.

Premier Foods takes on formerKraft boss to revive its fortunesCONSUMER


Chairman leaves

Mitchells & Butlers

Michael Clarke will take the helm at Premier Foods.

ONLINE fashion retailer Asos sawsales soar in the first quarter, but bossNick Robertson dismissed specula-tion that the company was being seri-ously eyed as a takeover target.

Asos, which targets young trendycustomers, said its retail salesincreased 69 per cent to 104.2m inthe three months to 30 June.

International sales soared 160 percent to 59.6m, driven by last yearslaunch of US, French and German

websites, having been up 161 per centin the fourth quarter. The new mar-kets now make up 57 per cent of thesales mix.

Trading in the UK also provedresilient as sales climbed 15 per centduring the quarter.

ASOS said its retail gross marginwas in line with guidance despite the

tough retail environment. Robertsonsaid: The results are strong and weare doing well in the new markets weare going into.

Asked about whether the company

had been approached by serious con-tenders for a takeover, he said: No weare in this business for the long haul.

Speculation has surrounded com-panies like Tesco and Amazon whocould benefit from the companys

web-based business model.Danish shareholder and supplier

Bestseller was also tipped as a possi-ble suitor.

While many UK retailers havestruggled against tough macro head-

winds, ASOS has prospered, benefit-ing from a young core customer baseand the migration of spending fromthe high street to the internet.

Investec said in a note: The ASOSshare price seems to be driven bysales momentum, almost irrespectiveof the valuation metrics. However,the broker put a sell recommenda-tion on the stock saying that despitethe retailer being a great business

with a dynamic and evolving operat-ing model, the current valuationleaves no room for even the smallestslip or disappointment.

MORE NEWSONLINE

www.cityam.com

MOTHERCARE posted weak quarter-ly sales in its main British market,taking the shine off stellar salesgrowth overseas.

The firm, which has issued twoprofit warnings this year and in Maydetailed plans to close over a quarterof its British stores, said yesterdaythat sales at UK stores open over a

year fell 4.3 per cent in the 15 weeksto 9 July, its f iscal first quarter.

That compares with a fourth quar-ter fall of 2.4 per cent.

In the UK the trading environ-ment remains difficult and compet-itive, however our cost reductionprogramme is progressing well, thecompany said.

The UK outcome was partiallyoffset by international sales growthof 15.2 per cent, led by EasternEurope, the Middle East and the

Asia-Pacific.

Mothercaresales slumpon bleak UKRETAIL

ANALYSIS l Mitchells & Butlers

p


325

315

305

295

29514 Jul

TIME LINE |

July 2011 - Simon Burke stepsdown after only three months inthe role. Non-executive directorMichael Balfour also follows suit.

March 2011 - Andrew Fowle stepsdown as chief executive by mutualconsent - two months afterLovering 'by mutual consent'

January 2011 - John Lovering,who joined the pub group a yearearlier, resigns as chairman.

January 2010 Mitchells andButlers AGM comes after monthsof warfare between M&B and itsshareholders. Simon Laffin isunseated from the board.

November 2009 M&Bboard ledby Laffin purge Piedmonts represen-tative Richard Mcguire and threeother directors from the board.

October 2008 - Joe Lewis, theBahamas billionaire buys 29.7 percent stake from Robert Tchenguiz.through his Piedmont vehicle.

BY JOHN DUNNE

RETAIL

Asos gets boostfrom overseas sales

MITCHELLS & BUTLERS has lostits third chairman in 18 monthsafter the company announced

yesterday that Simon Burke willstand down just five months intothe role.

Burkes resignation is yetanother round of musical chairsat the pub group followingmonths of warfare between thecompany and some of its biggestshareholders, which include JoeLewis, the Bahamas-based billion-

aire.The row came to a head at the

groups annual meeting in 2010 when former chairman SimonLaffin was ousted from the board.

Burke will be replaced by BobIvell, former Regent Inns boss,

who has been appointed on aninterim basis. Ron Robson arepresentative of LewissPiedmont investment vehicle

will take over as deputy chair-man.

A spokesperson for the pubgroup said Burke left for person-al reasons and declined to com-

ment further.Shares in the group closed 3.47

per cent down at 295p at the endof trading yesterday.

BYKASMIRA JEFFORD

LEISURE

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SHARES in Daily Mail & GeneralTrust fell as much as 5.5 per centyesterday after the newspaper pub-lisher reported a sharp drop inadvertising revenue.

Its ad sales compared to last yearsank seven per cent in the 13 weeksending 3 July and nine per cent lastmonth.

The company blamed the frag-ile consumer economy which hasmeant continued uncertainty forthe retail sector for its woes andadded the outlook for the comingquarter remains uncertain.

In its first half results released in

May the Daily Mail publisher saidits advertising revenue was five per

cent behind 2010 comparatives.The firm also said the Daily Mail

will increase its cover price from50p to 55p from next week, citingthe rising price of newsprint.

It said: The circulation of theDaily Mail has significantly out-per-formed the market throughout thelast year; however, the continuinghigh cost of newsprint means it isnecessary to increase the coverprice. It is the first rise in pricesince 2008.

Charles Stanley analysts said:This increase is intended to miti-gate the announcement that therehas been a continued downwardspiral in advertising revenues. Wethink this will hit its full year prof-

it expectations, and expect theshare price to fall.

DMGT will be hoping to pick upreaders of the now-defunct News ofthe World. Panmure analyst AlexDeGroote said the closure will rad-ically change the competitive land-scape for UK newspapers, addingon balance, we believe this wouldbe very positive for DMGT.

DMGT hikes cover

price as ad sales fallBYSTEVE DINNEEN

MEDIA


Centaur bullishas its revenuesleap 21 per cent

BUSINESS publisher Centaur Mediasaid it expects full-year results to be atthe top end of its expectations asadvertising revenues grew signifi-cantly.

Second-half digital advertising rev-enue was 21 per cent higher than last year, while print advertising grewseven per cent.

Centaur, whose business maga-zines include Marketing Week andMoney Marketing, said trading in thelast two months of the year has beenstrong and underlying revenues are10 per cent higher than last year.

Chief executive Geoff Wilmot said:The improved trading conditionsexperienced in financial year 2011have continued into the currentfinancial year.

The company added that it expectsan exceptional cash charge of about2.5m in the financial year ended 30 June, related to restructurinannounced last month. Centaur alsosaid it expects a significant non-cashimpairment charge, but it will have noimpact on its underlying performance.

BY STEVE DINNEEN

MEDIA

NEWS | IN BRIEF

Apple increases app pricesApple has increased prices in its UK AppStore, upping charges by up to 25 per centacross its product range. The lowest price currently 59p will rise to 69p, a jump of 17

per cent. Price points at 1.19 and 3.99 willboth rise by 25 per cent, to 1.49 and 4.99respectively. Elsewhere in the world appprices seem to be falling, with Australiangames dropping from $1.19 to 99c.

Spotify launches in the USOnline music streaming service Spotify yes-terday officially launched a US platform,finally tapping the worlds biggest musicmarkets after a lengthy period of negotiation

with record labels. The company, launched inEurope in October 2008 by Swede Daniel Ek,has more than 10m members around onein ten of whom pay for premium servicesthat allow them to stream ad-free music.

EROS IMPRESSES WITH BOLLYWOOD SEQUEL

SHARES in London-listed Indian film distributor Eros International climbed morethan three per cent yesterday after the company said its latest film has grossedalmost $8m (5m) worldwide. Murder 2, starring Emraan Hashmi and JacquelineFernandez, was released on 8 July, and grossed $7.2m in India in its first weekend.

BETTING companies crashed yester-day after heritage minister JohnPenrose announced tough new rulesfor foreign based firms with UK oper-ations.

The proposals mean that, for thefirst time, remote gambling is regu-lated at the point of consumption notthe point of supply.

Paddy Power led the fallers with a5.75 per cent drop, with Betfair losing3.9 per cent, William Hill 3.7 per cent

and Ladbrokes nearly two per cent.Betfair switched its domicile to

Gibraltar in March, followingLadbrokes and William Hill in settingup their gambling licences offshore.Paddy Power is headquartered inDublin.

Penrose said: Our new proposalsare an important step to help addressconcerns about problem gamblingand to plug a regulatory gap, ensur-ing a much more consistent and high-er level of protection for those peoplein the UK who gamble online.

Gaming firms drop afterbetting rule shake-upGAMING

YELL crashed more than 20 per centyesterday after the announcement of

its digital turnaround plan and alack of clarification on its debt pileleft investors cold.

If successful, the four year strategywould see Yell return to growth by2015, with its emphasis on providingdigital services to local markets.

The drop wiped out gains made byYell in the wake of an announced tie-up with Microsoft.

The Yellow Pages publisher alsosaid its guidance for its full year

results were unchanged and currenttrading is in line with expectations.

Shares in Yell closed down 23.64per cent at 8.4p.

Yell, which narrowly avoided insol-

vency in 2009 and had net debt of2.83bn at 31 March, is exploringoptions for its debt pile and hasalready been talking to its majorlenders.

Earlier this week Yell agreed to buyUS technology start-up Znode for$20m (12.5m), pushing its shares upnine per cent.

The firm says Znode gives Yell e-commerce technology that it can useto connect small businesses with

consumers on a local level. It will beincorporated into the group as partof a new division, called YellConnect.

Yell sinks despite rescue planBY STEVE DINNEEN

PUBLISHING

ANALYSIS l Yell

p


12.0

11.0

10.0

9.0

8.4014 Jul

ANALYSIS l DMGT

p


490

470

450

430

421.3014 Jul

8/6/2019 Cityam 2011-07-15

13/24

BARRATT Developments, one of theUKs largest house builders, said it would return to full-year profitdespite market conditions remainingtough.

The firm predicted a full-year pre-tax profit of 40m before exceptionalitems, after a loss of 33m in 2010,meeting market expectations.

In its trading statement ahead ofits annual results due September, thedeveloper said its London businesshelped to boost profits. Tight lendingconditions outside of the capital,however, were still slowing marketrecovery.

Whilst we have seen some recov-ery following the difficult autumnselling season, trading conditions insome areas outside London and theSouth East remain challenging,Mark Clare, group chief executive,said.

Barratt completed 11,171 houses inthe year to June 2011, compared to11,377 the previous year. For the sec-ond half, total completions were6,339, near the 6,324 posted in thesecond half of 2010.

The firm also reduced its heavy

debt burden to around 330m downfrom 367m in 2010. This was helpedby improved profit margins up to 7.8per cent from 5.9 per cent in 2010.

Clare said the governments FirstBuy scheme which helps first timebuyers enter the property market had also provided a timely boost.

Under the scheme, buyers will beoffered a loan of up to 20 per cent ofthe value of the property, jointlyfunded by Barratt.

Last month, Barratt secured a128m deal with London & Quadrantto build 375 new homes near ArsenalFootball Clubs 60,000-seater Emiratesstadium in north London.

Improved profits gave little com-fort to investors as shares closeddown 4.68 per cent to 105.9p.

LISTED car dealer Pendragon yesterdaysaid it plans to raise about 75.2mthrough a rights issue to reduce itsdebt.

The nine-for-eight issue is to bepriced at 10p per new ordinary share,representing an eye-watering 54 percent discount to the stocksWednesday close.

Shares in Pendragon had closed at21.75p per unit on Wednesday.

Britains largest motor retailer alsosaid it had agreed to extend the matu-rity profile of its borrowing facilities,conditional on the receipt of the pro-ceeds of the rights issue, by its credi-tors.

The group said its debts now have amaturity date of 30 June 2014, whichwill enable it to maintain investmentin the growth of the business.

The company, which in Februarysaid it would not pay full-year dividend

as it focuses on reducing debt, nowplans to resume dividend payments

from financial year 2012.Meanwhile, Pendragon said it had

agreed a new pension deficit reduc-tion plan with its pension trustees,which would help it to unlock aggre-gate cash flow savings of 46m in theperiod to December 2014.

As on 31 December 2010, the compa-nys net debt was 325.5m.

The company, whose Stratstonedealerships sell premium models suchas Maserati and Mercedes-Benz, added

that trading and outlook for the year isin line with the its expectations.

Car dealer Pendragon to raise 75.2mthrough deeply discounted rights issue

TORONTO bourse operator TMXGroup is said to have entered intotalks with Maple, the consortiumthat derailed an agreed mergerbetween TMX and the London StockExchange.

Ontario finance minister DwightDuncan told Canada's Financial Postnewspaper that discussions between TMX and Maple Group AcquisitionCorp were underway.

Duncan had been a vocal critic ofthe LSE proposal. Like other oppo-nents, he raised concerns overLondon gaining con-trol over Canadiancapital marketsand the prospectof Toronto losingits status as afinancial center.

Maple Groupbecame the only bid-der late last monthafter the LSE, led byXavier Rolet (pic-tured), pulledout because ita p p e a r e dunlikely to win supportfrom twothirds of TMX share-holders totie-up thedeal.

TMX Groupin talks over

Maple dealCAPITAL MARKETS

SWEDISH regulators have raided lead-ing local bourse operator NasdaqOMX Group in a competition probesparked by a complaint from a smalllocal rival, officials said yesterday.

The raid was carried out lastmonth and was prompted by a com-plaint filed by new marketplaceBurgundy about the actions of UStelecoms company Verizon.

The row is over an agreement forBurgundy to house its servers in a

Verizon data centre, which also hous-es Nasdaq servers. Verizon is alleged

to have later cancelled the agree-ment.Court documents said: [The

Swedish competition authority] wish-es to investigate whether OMX hasapplied pressure on Verizon or threat-ened to punish Verizon if Verizon con-cludes an agreement with acompetitor to OMX.

We are cooperating fully with theauthorities, said a Nasdaq OMXspokesman in Stockholm.

Swedish regulators raidNasdaq over competition

FINANCIAL MARKETSASHMORE Group, the emerging mar-

kets fund manager, posted an impres-

sive $4.6bn (2.8bn) of new clientmoney in its fourth quarter, beatingforecasts amid strong investorappetite for local currency and debtproducts.

The London-listed funds house saidits assets under management (AUM)had jumped to $65.8bn in the threemonths to 30 June, boosted by theacquisition of peer Emerging MarketsManagement, which added $10bn ofassets.

Ashmore had held AUM of about$50.3bn in the previous quarter.

The fund manager, which specialis-es in investing in emerging markets,also saw positive investment perform-

ance add a further $1bn to its AUM.Analysts at Singer Capital Marketshad forecast $2.9bn of new moneyand a $1.3bn boost from improvedinvestment performance.

Ashmore said it anticipated per-formance fees for the full year to hit85m, up from 82.9m the previousyear. It said the fees had risen primari-ly from strong investment perform-ance in funds with August and Aprilyear ends.

Numis analyst David McCann said:We see significant organic growthopportunities from new and existinginvestors.

Ashmore assets hit $65.8bnBYRICHARD PARTINGTON

ASSET MANAGEMENT

Barratt sees

return to fullyear profitBYKASMIRA JEFFORD

PROPERTY

BYRICHARD PARTINGTON

AUTOMOTIVE


ANALYSIS l Ashmorep


420

410

400

390

408.0014 Jul

ANALYSIS l Barratt Developments

p


116

112

108

104

105.9014 Jul

STEVE Douglas is leading thePendragon rights issue for ArdenPartners, which is acting as co-bookrun-ner, joint underwriter and corporatebroker.

As corporate finance director, he hasa wealth of experience in the sector. He

joined Arden in 2004 and was previous-ly at Old Mutual Securities.

Douglas trained as a charteredaccountant with Deloitte.

John Deans is leading the rights issue

for Rothschild, which is acting as finan-cial adviser and sponsor to Pendragon.

Notable transactions on which he ledthe Rothschild team include the 2bnWolseley refinancing, a 750m rightsissue for 3i and the 10bn sale ofHanson to HeidelbergCement. Deans isalso a governor of Bow Boys School inTower Hamlets. Francis Burkitt is alsoworking on the deal for Rothschild.

Simon Hardy and Lee Morton areacting for RBS Hoare Govett, with thebank acting as joint financial adviser,sponsor, bookrunner, underwriter andcorporate broker on the deal.

Andy Welham and David Seal areacting for Barclays Capital, which is also

joint underwriter and bookrunner on

the rights issue.

ADVISERS: ARDEN PARTNERS

STEVE DOUGLAS

ARDEN PARTNERS

HERMES Real Estate, one of the largestreal estate managers in the UK withover $9.3bn (5.8bn) assets under man-agement, has entered the US propertymarket for the first time, in a move todiversify its real estate investments.

Hermes has teamed up withHampshire Real Estate, a private USinvestment company and UnitedOverseas, a Singaporean bank tolaunch a new closed-end commercialreal estate income fund.

Chris Taylor, chief executive ofHermes Real Estate Investment, said

the fund will focus on under theradar areas outside of major city busi-ness districts, primarily in the east ofthe US.

The yield profile is materially high-er than we would typically see in somecity centres today given weight of capi-tal targeting these markets, he said.

Hermes will invest up to $150m cap-ital on behalf of the British TelecomPension Scheme, with UOB andHampshire each committing $25m.

Taylor said the US is the first step ina strategy to diversify into core globalmarkets, with France and Germanynext on the agenda.

Hermes Real Estate to makemove into US property market

PROPERTY

Hermes Chris Taylor said the fund will focus on the east of the US

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US COAL firm Peabody Energy said yes-terday it had entered into an agree-ment with the Xinjiang governmentto pursue development of a 50mtonne-per-year surface coal mine inXinjiang, China.

As per the agreement, Peabody saidit would construct, manage and oper-ate the mine.

The company will also conduct geo-logic, engineering and environmentalreviews of the coal mine.

The Xinjiang Region is Chinaslargest administrative region with vastreserves of coal estimated to account

for about 40 per cent of Chinasreserves, Peabody said.

The government expects Xinjiangscoal output will increase from about100m tonnes in 2010 to more than 1bntonnes, the company said.

Meanwhile, Peabody Energy andArcelorMittal have agreed to slightlyincrease their planned $5bn (3.1bn)

bid for Macarthur Coal, after theAustralian target company agreed toopen its books to them.

ArcelorMittal, the worlds top steel-maker, and Peabody want Macarthurfor its reserves of cheaper, cleaner pul-

verised coal coveted by steel makers.Strategically, it is a good deal for

Arcelor, so the fact it can now enterinto due diligence with Macarthur is

definitely a positive, said Ingo-MartinSchachel, analyst at Commerzbank.

GLOBAL resources giant Rio Tintohas revealed a quarter-on-quarterproduction rise in its Australianoperations, bouncing back fromseveral cyclones, widespread flood-ing and a train derailment whichimpeded its March performance.

Rios global iron-ore productionincreased by 49m tonnes during thesecond quarter of this year, up 12per cent on the previous quarter.

However, Rios first half ship-ments of iron ore from its

Australian and Canadian operationshave suffered nonetheless at 110mtonnes, they were 6m tonnes lowerthan the comparable half of 2010.

Operations largely recoveredfrom the severe weather impactsearlier this year, although someport and rail constraints remained,said Rio chief executive Tom

Albanese.This quarter was also charac-

terised by continued strong pricesfor most of our metals and miner-als, but with worsening adverseexchange rates and some input costpressures. Our growth programme

was boosted by the successful $4bnacquisition of Riversdale, giving usfurther options to develop our tierone assets.

Bauxite and alumina productionsalso saw improvements during thequarter of eight per cent and six percent on the f lood-affected first quar-ter, and its Queensland coal minesare steadily recovering from thesevere flood-related disruptions ear-lier this year.

Thermal coal production grew by18 per cent on the first quarter, andhard coking coal production was upnine per cent on the first quarter,

but down 26 per cent comparedwith the second quarter of 2010 dueto the heavy rains.

Production up

at Rio TintosOz operations

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Peabody to develop surface coalmine in Chinas Xinjiang Region

BYALEXANDER SAINTY

MINING

MINING

PRECIOUS metals miner Fresnillo post-ed record silver and gold productionin the second quarter yesterday, boost-ed by its Saucito and Soledad-Dipolosmines in Mexico, at a time when thegold price is at a record high.

Total silver production, includingsilver sold from the Sabinas mineunder its Silverstream agreement, rose7.2 per cent to 11.4m ounces, while its

gold output jumped 20.6 per cent to110,070 ounces. ExcludingSilverstream, it produced 10.5mounces of silver.

Numis had expected production to be flat on the first quarter at 9.1mounces of silver, excludingSilverstream, and 96,000 ounces ofgold.

Shares in the worlds largest pri-mary silver producer closed up 4.93per cent yesterday at 1,595p.

Fresnillo says silveroutput hits recordMINING

Rio Tinto chief exec-utive Tom Albanesesaid its operationshad recovered fromsevere weather ear-lier in the year

Picture: Reuters


ANALYSIS l Rio Tinto

p


4,650

4,550

4,450

4,350

4,387.5014 Jul

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UniCreditStuart Amor will join the bank as headof EEMEA equity research in London on18 July, to take responsibility for equity

research activities in central andEastern Europe. Amor joins from ING,where he was managing director andhead of the equity research team.

Jones Lang LaSalleJake Egberts has been appointed as asenior vice president in the UK andnorthern Europe advisory team atJones Lang LaSalle Hotels. Egberts

joins from a London hotel advisory firm

and has been on secondment to LloydsBanking Group for the last 12 months.

SJ BerwinThe international law firm has strength-ened its Finance and Energy andInfrastructure teams by hiring RinkuBhadoria as a partner. Bhadoria joinsthe firms Energy and Infrastructuregroup from Clifford Chance, where shewas a senior associate.

Towers WatsonThe professional services firm hasappointed Michael Murphy as a seniorleader in its Risk Consulting andSoftware business. Murphy, formerAviva Europe SE managing director,

will be based in Dublin.

Alvarez & MarsalThe professional services firm hasappointed Herv Gilg as a senior direc-tor, based in the London office. Prior to

joining A&M, Gilg ran his own consult-ing business focused on developing andexecuting performance improvementstrategies, working with clients such asCadbury, WHSmith, BAA and EasyJet.

Chadbourne & ParkeThe international law firm as hiredDanny Heathwood as internationalcounsel in the London office and ErinCallahan as multinational partner.Heathwood joins from Hunton &

Williams and Callahan moves from theInternational Bar Association.

Unite GroupNigel Hall, non-executive director of thestudent accommodation developer, hasannounced he will retire from theboard at the companys AGM in May2012. Stuart Beevor has become sen-ior independent director while the firmhunts for Beevors successor.

CITY MOVES | WHOS SWITCHING JOBS Edited by Harriet Dennys

+44 (0)20 7092 0053morganmckinley.com

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

in association with

Wall St sags onnew Bernanke talk

US STOCKS fell yesterday as newcomments from the FederalReserve chairman dashedinvestors hopes for the chance

of further stimulus and tech sharespushed the Nasdaq down one per

cent.During a second day of testimonyabout the economy, Fed ChairmanBen Bernanke reiterated that the UScentral bank would be ready to injectmore money should the economy getworse. But he told a US Senate com-mittee that the time had not comeyet and noted inflation had picked upsince late 2010.

Stocks had climbed on Wednesdayas investors took Bernankes remarksbefore a House panel as signaling thepossibility of more stimulus for theeconomy if the outlook worsens. Thecentral banks most recent stimula-tive program contributed to strongequity gains since September.

Bernanke has backed off consider-ably from what might have beenmore stimulus, and that made yester-days rally like eating sugar for lunch:Nothing more than a short burst of

energy, said Kent Engelke, chief eco-nomic strategist at Capitol Securities

Management in Richmond, Virginia.The market had started off higher

on positive JPMorgan results and areport showing new claims for US job-less benefits fell slightly last week, but those gains melted away asBernanke spoke.

The Dow Jones industrial average was down 64.37 points, or 0.52 percent, at 12,427.24. The Standard &Poor's 500 Index was down 9.99points, or 0.76 per cent, at 1,307.73. The Nasdaq Composite Index wasdown 37.65 points, or 1.34 per cent, at

2,759.27.Technology stocks were yesterdaystop decliners, continuing their losingstreak for a second day. The MerrillLynch Semiconductor HOLDRS Trustlost 1.1 per cent to $32.52, just belowits 200-day moving average.Google shares slipped 1.7 per centto $529.24 ahead of its earningsreport after the bell.JPMorgan Chase & Co shares rose2.5 per cent to $40.61 after the bankreported a higher-than-expected prof-it as it wrote off fewer bad mortgagesand credit card loans. The Dow com-ponent was by far the top gainer inthe S&P financial index.News Corp shares fell 2.8 per centto $15.49 on heavy volume after theUS Federal Bureau of Investigationsaid it would probe allegations thatthe company hacked into the phonerecords of victims of the 11

September, 2011, attacks on theUnited States.

F ALLS among commodity issuessapped the strength of Britainstop share index yesterday, as wor-ries over global growth clouded

the demand outlook for metals andoils.

At the close, the FTSE 100 index was

down 59.48 points, or one per cent at5,846.95, reversing all and more of theprevious sessions 0.6 per cent rally.

The FTSE is struggling to make anyheadway at the moment as I thinktraders are so wary of this market whip-sawing around, said DavidMorrison, market strategist at GFTGlobal.

Banks were volatile as concerns overtheir exposure to the Eurozone debtcrisis continued, with better-than-expected earnings from JPMorganChase, the first US bank to report sec-ond-quarter results, shrugged aside.

Its really very nervous out there,with the Eurozone debt concerns bub- bling away, undermining anythingthat could be considered positive,Morrison added.

JPMorgans numbers set the bar forCitigroup, which will continue the sec-tor reporting season on Friday, and

helped US blue chips to gain 0.1 percent by Londons close, helping side-

line a threat to the USs credit status.Moodys Investors Service said on

Wednesday that the US may lose itstop-notch credit rating if lawmakersfail to increase the country's legal bor-rowing limit and the governmentmisses debt payments. .

British banks were also cautiousahead of the publication on Friday ofthe results of the European BankingAuthority stress tests on 91 banks fromacross the European Union.

We expect all of the UK banks topass the test, but would question its

relevance given that the risk of aEuropean sovereign default is notbeing captured, Shore Capital analystGary Greenwood said in a note.Lloyds Banking Group, however,bucked the dull sector trend, adding3.2 per cent, supported by an upgradein rating by Goldman Sachs to buy, with the broker bullish about part-nationalised lenders longer-termprospects.

Precious metals miner Fresnillowasthe biggest FTSE 100 gainer, adding 4.9per cent after it posted record silverand gold production in the secondquarter at a time when the gold priceis at a life-time high.

But specialty miners and metalswere weak, with copper prices slippingback.Rio Tinto, down 1.2 per cent, failedto be helped by an in-line productionoutput, with the global miner on track

to hit its 2011 iron ore production tar-get.

And integrated oils fell as a sector ascrude prices dropped by over 1.6 percent on demand doubts over the sus-tainability of a sluggish global eco-nomic recovery.

Oil services firm Petrofacwas thetop FTSE 100 faller, losing 3.8 per centas Barclays Capital downgraded its rat-ing to underweight, mainly on valu-ation grounds, in a review of theEuropean sector.

Peer Amec , down 1.1 per cent, alsosuffered the same cut at BarCapshands.

Broker comment blighted ManGroupas well, with the worlds largesthedge fund manager losing 2.1 percent as HSBC cut its recommendationto underweight from neutral.

On the upside, Associated BritishFoodsadded 2.3 per cent after the foodproducer to clothing retail group saidit is on track to meet its full-year earn-ings targets, prompting PanmureGordon to raise its recommendationto buy from hold.

Commodity falls and fears forstress tests see FTSE declineTHELONDONREPORT

THENEW YORKREPORT

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

ANALYSIS lMorgan Crucible350

300

325

May Jun Jun

p357.10

14 July

MORGAN CRUCIBLECiti reiterates its buy rating on the engineering group and raises its targetprice from 3.70 to 4.10, following an unscheduled trading update reflect-ing a strong finish to first half trading. Sales for the period are now set tobe around 560m, with pre-restructuring earnings before tax at 70m.Compared to previous forecasts, this suggest a profit level around 10 percent ahead of expectations.

ANALYSIS lShire

2,100

1,900

1,700

May Jun Jun

p2,073.00

14 July

SHIREGoldman Sachs rates the biopharmaceutical company as neutral with a tar-get price of 2300p, after the company said its US market in attention deficithyperactivity disorder drug grew by 10 per cent in June. The year-to-dategrowth is 12 per cent ahead of the brokers estimate, and implies the US mar-ket needs only conservative growth of four per cent for the rest of 2011 tomeet full-year estimates. ADHD drugs are c35 per cent of Shires revenue.

ANALYSIS lASML

29

27

25

May Jun Jun

24.3614 July

ASML HOLDINGNomura rates the semiconductors equipment maker as neutral with a tar-get price of 26, after reducing its top-line forecast for 2012 by five per centto 4.4bn to reflect growing concern on orders and a lower contribution fromits EUV tools. Second quarter orders missed expectations, and the companyhas guided for a 40 per cent sequential decline in third quarter numbers. Thebroker sees order levels remaining subdued for the rest of the year.

p

18 Apr 12 May 2 Jun 22 Jun 12 Jul

6,100

5,700

5,800

5,900

6,000

ANALYSIS l FTSE 5,846.9514 Jul

TowryThe wealth adviser has appointed GeraldCorbett as a non-executive director, adding tohis chairmanships of Britvic andMoneysupermarket.com and his non-executivedirectorship of Numis Securities. Corbetts previ-

ous non-exec roles include Greencore Group,Burmah Castrol and MEPC; he is also a formerchairman of SSL International and theWoolworth Group. During his executive career,Corbett was CEO of Railtrack and group financedirector of Grand Metropolitan and Redland.

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First time buyer market may ease

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ctual,refertosalesstaffforfu

rtherinformation.

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Its hard out there buttheres hope, expertstell Donata Huggins

WITH the Bank of England keepinginterest rates at the record low of0.5 per cent, the outlook shouldbe good for those looking to buy

a home. But with renting in London cost-ing 50 per cent more than the rest of thecountry and banks requiring higher andhigher deposits, the picture for those keento get their foot on the property ladder ismixed. What should we expect? We ask theexperts to give us their diagnosis on theposition of the first-time buyer.

LUCIAN COOK, DIRECTOR OF RESEARCH

AT SAVILLS: FUTURE LOOKS CHALLENGINGThe big issue for first time buyers over thenext year will continue to be their abilityto raise a deposit for a mortgage.

For those with a small deposit, theFirstBuy scheme in the new homes sector will be critical. [For more info on theFirstBuy scheme, go to direct.gov.uk. Thescheme sees government and house-builders providing a 20 per cent loan forthe deposit on a new-build, in addition tothe prospective buyers 5 per cent].Without it, higher interest rates for higherloan-to-value mortgages mean that formany it will be cheaper to rent than to buy.By contrast, those with a decent depositare in a good position with less competi-tion both from those who need a largemortgage whether they are occupiers orinvestors.

The longer-term outlook for those firsttime buyers is challenging. The ability tosave for a deposit will be hindered byincreasing rents as more pressure is placedon private rental stock. Additionally, bank-ing regulations suggest that the availabili-ty and cost of mortgage finance willcontinue to vary by loan-to-value and loan-to-income measures that favour existingowner occupiers.

ED MEAD, DIRECTOR OF ESTATE AGENTDOUGLAS & GORDON: LOOK ELSEWHEREWith average property prices in the capi-tal at around 300,000, and seemingly ris-ing, the outlook is not good for first time buyers. By definition they tend to be

wealthier in London, but unless the Bankof Mum and Dad is operating, Douglas &Gordon is finding that buyers of cheaperflats south of the river are being hit by the worsening mortgage drought in conjuc-tion with many sellers over-optimisticexpectations.

Foreign buyers and investors dominatethe market in the centre and its diff icultto see any of this changing soon. The mainissue is a lack of stock and perversely lowinterest rates, and high stamp duty costsare meaning many arent selling, squeez-ing supply. High prices are a corollary ofshort supply and thats fragile given that arate rise or big economic wobble could trig-ger a rush to sell.

The best advice for first-time buyers is toeither wait for supply to ease and prices toperhaps dip, or to look further afieldwhere buyers have the whip hand.

MARK ALEXANDER, DIRECTOR OF MORTGAGEFIND.CO.UK: THERES HOPEFor first-time buyers, the biggest issueremains loan-to-value that is, how muchmoney a buyer can put down as a depositversus how much money a lender is will-ing to loan them. Up until the creditcrunch, first-time buyers could buy theirfirst home with a 5 per cent deposit or insome cases, no deposit at all. However,

Living | Buying17 CITYA.M. 15 JULY 2011

Q.I own a flat and I'm just about tomove out of London and rent it.What are your thoughts on renting

furnished or unfurnished?

A.Renting unfurnished tends to encour-age tenants to stay longer in proper-ties as they have the hassle of moving

their furniture in and out. Also your inventorychecks will be less complicated! You may notachieve quite as much as if it was furnishedbut you could well have fewer void periods. Onthe other hand, renting furnished offers con-venience for tenants and if your lease allows,you may even be able to offer it for short letswhich should bring in a premium (althoughyour letting fees will be higher). Also if you

rent furnished you will be able to offset anamount for wear and tear on the furnitureagainst your rental income.

Q.What do you think will happen toproperty prices in London for therest of the year? Surely prices

can't go up any higher?

In central London, it looks like prices willcontinue to increase as the shortage of sup-ply of property to the market continues. Thisis a structural issue, as many internationalbuyers have bought property in London overthe past few years and have no intention ofselling regardless of market conditions. Thereis therefore an ever dwindling pool of proper-ty to buy. Rents are also starting to risewhich means that landlords are also lesslikely to sell their investment property.Therefore when a good flat or a house hitsthe market there is significant competition.The only things that will tempt/force morestock onto the market will be greater liquidi-ty in the mortgage market allowing vendorsto trade or a significant interest rate rise.

Camilla DellMANAGING PARTNER OF

BLACK BRICK PROPERTY

&Q ARENTING

Getting on theproperty ladder isstill difficu

cityam 2011-07-15

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