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FTSE 100 5,853.82 +63.83 DOW 12,571.91 -15.51 NASDAQ 2,814.23 -12.29 /$ 1.61 unc / 1.13 unc /$ 1.42 unc

More bonus

curbs couldbe onway

BRITISH firms could be subject to aneven more restrictive bonus regimeunder the terms of a new EU directivepublished yesterday.

The Capital Requirements Directive4 (CRD IV), which is the EUs version ofBasel III, suggests that financial institu-tions could have to endure yet moreinterference in their remunerationpractices following a tome of regula-tions on pay introduced in January.

PricewaterhouseCoopers partnerTom Gosling says: The [current rulesare] unlikely to be the last word on payregulation Perhaps most worryingfor relevant firms is the possibility offurther prescription around the ratioof variable to fixed pay.

Already, the rules require that nomore than 30 per cent of most bonusesare paid in cash up-front, but thechanges under consideration could seefinancial institutions forced to cap theproportion of an employees pay thatconsists of a variable bonus.

That would raise fixed costs at atime when many brokers are alreadystruggling.

Governments will now enter negoti-ations over the directive, with the UK Treasury intending to fight CRD IVsmaximum harmonisation require-ment, which would prevent nationalregulators from beefing up EU rules.

KPMGs Giles Williams says: Thismarks a significant shift in power away

from national regulators. From a UKfinancial stability perspective, this fliesin the face of recent moves to empowerthe new regulatory architecture.

BY JULIET SAMUEL

REGULATION

The latest public finance figures, released this morning, will reveal the chancellors progress in cutting the deficit Picture: Reuters

ECONOMISTS have slashed expecta-tions for this years UK growth by halfa per cent in recent months, as worriesmount over sovereign debt crises onboth sides of the pond.

Forecasters now see the British econ-omy expanding by just 1.3 per cent in2011 down from 1.8 per cent asrecently as March, a poll of independ-ent economists revealed last night.

Last month they still expectedgrowth of 1.5 per cent, according tothe poll compiled by the Treasury.

Growth for 2012 was revised lower,from 2.1 per cent to two per cent.

The downbeat news compounds analready miserable weak for chancellorGeorge Osborne, who was named byRebekah Brooks on Tuesday as theforce behind hiring former News ofthe World editor Andy Coulson asNumber 10s spin doctor.

With the UK economy failing togrow at any kind of meaningful pace,Osborne plans to slash the countrysmammoth deficit are increasingly indanger. Economists now see publicborrowing of 125.1bn in 2011-12, upfrom forecasts of 121.5bn in March.

Osbornes progress in tidying up theUKs dire public finances will be clear-

er this morning, after official data isreleased for June.Borrowing was 1.5bn higher in

April and May than at the same point

ECONOMISTS CUTTHEIR FORECASTSBY JULIAN HARRISECONOMY

www.cityam.comIssue 1,429 Thursday 21 July 2011 FREE

EUROZONEDEBT CRISISMAKE OR BREAKTIME FOR EURO,

SAYS BARROSO P5

SUMMER READS TO KEEPTHE KIDS OCCUPIED

BOOKS FOR ALL AGES P19

BUSINESS WITH PERSONALITY

last year, knocking the coalitions planto reduce the deficit by around 20bn.Spending in the first two months ofthis financial year was 4.1 per centhigher than the same time in 2010.

Despite the over-spend, Labour lastnight blamed the UKs anaemicgrowth on Osbornes planned cuts.

The deficit reduction goes too far andtoo fast, a party spokesperson said,arguing for a reversal of the VAT hike.

The Federation of Small Businesses

this week called on the government totemporarily slash VAT for the construc-tion and tourism sectors, in a bid tokick start the economy.

Yet Osbornes policy of raising VAT while scheduling reductions in busi-ness tax was supported by BerenbergBank economist Holger Schmieding.

Cutting business taxes is thestrongest signal to send to globalfirms, while other supply side reforms will help boost the economy in the

medium-term, Dr Schmieding said.Britain is going through a diet like

Germany did seven or eight years ago. You cannot abandon the diet justbecause you dont like it at first. It maynot be nice but eventually it makesyou healthier. GDP figures for the sec-ond quarter of the year will be pub-

lished on Tuesday of next week. Wealways maintained the recovery wouldbe choppy, the Treasury told City A.M.

ALLISTER HEATH: P2

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News2 CITYA.M. 21 JULY 2011

Profits jumpat BlackRockBLACKROCK, the worlds largestmoney manager by assets, bustedexpectations with a 43 per cent jumpin quarterly profit yesterday, thanksto its rapidly growing list of fundstyles and asset classes.

The New York-based company haslong been known as a fixed-incomeinstitutional manager, but chief exec-utive Laurence Fink has pressed intonew areas such as exchange tradedfunds and multi-asset products. Bothtook in healthy inflows of cash frominvestors in the three months to 30June.

Net income rose to $619m (383m)from $432m a year earlier, BlackRockreported yesterday.

Assets under management were$3.659 trillion at 30 June, up 16 per

cent from a year earlier and up 0.3per cent from the end of the firstquarter.

Fink said the results showed hisemphasis on new areas is paying off.On a conference call with analysts, hesaid BlackRocks broad product mix will lead to a deeper relationshipwith clients and drive revenue andprofits.

That is our strategy. And our strat-egy has shown in the second quarterthat it is working, Fink said. Analystsagreed that BlackRocks gains reflect-ed its wide range of products.

BYHARRY BANKS

BANKING

Public spending still over half of GDP

ED Miliband should be happy: Britainofficially remains a state-dominatedeconomy. For all the talk of swinge-ing cuts, public spending is set toremain at 50.1 per cent of GDP in2011, according to the latest OECD pre-dictions. This is an astonishing figure:more than half the economy, whichby one definition means that the UK ismore socialist than it is capitalist.

In fact, this is the third year in a rowthat state spending will be worthmore than half of national income: itwas 51 per cent last year and 51.2 percent in 2009. Britain is one of just

eight OECD countries out of 32 to besaddled with public spending worthover half the output of their economy.Spending is set to drop to 48.8 per centof GDP in 2012 but even that relatively

small reduction could be derailed ifthe economy continues to slow.There are many who believe that

spending cuts (or the fear of futurecuts) is dragging down growth. Mycontention is the opposite: becausethe state still dominates the economyso much, and is being reduced at sucha snails pace, the positive, expansion-ary supply-side effects from downsiz-ing the scale of government have yetto manifest themselves. At this rate,they will actually take years to kick in,which is George Osbornes big prob-lem. There is plenty of economicresearch which shows that large, bloated governments drag downgrowth and that downsizing them boosts growth; but nobody wouldargue that this applies when trim-ming government spending almostimperceptibly, as the OECD stats sug-

gest is the case in the UK.That is the biggest structural reason

why the UK economy is stuck in theslow lane. There are of course othershorter-term reasons which explain

why independent economists have cuttheir growth forecast for this year to1.3 per cent, according to the monthlypoll compiled by the Treasury yester-day. One hugely important reason isthe fear of a spillover from theEurozone and US debt crises.Citigroup, for one, has just downgrad-ed forecasts for the US, Japan and theEurozone, as well as the UK.

Another hugely important reason isthat take-home pay has been falling asa result of high consumer price infla-tion, surging costs and taxes and low wage growth. The Asda Income Tracker produced by EvolutionSecurities shows that wage growthhas lagged inflation since early 2009.There was a 9 a week (five per cent)fall in family spending power com-pared with last year in July. The aver-age UK household had 167 a week of

discretionary income in June 2011 the lowest level since January 2009,the Evolution research suggests.Discretionary income has fallen forthe last 18 months and looks set to

decline into next year. The problemsinclude soaring utility costs causedin part by Britain and Europes strin-gent environmental laws, which arepushing up the price of energy aswell as high petrol costs partly dueto ultra-high taxes and also to the highprice of oil and higher food prices.The biggest single structural change isthe 25 per cent devaluation of ster-ling, which is pushing up importprices.

So no wonder the picture is lookingbleaker than it did earlier this year.The only real question now is whether we will continue to see sluggishgrowth over the next few quarters orwhether a sovereign debt crisis in theEurozone or even the US leads tosomething much worse.

[email protected] me on Twitter: @allisterheath

AMERICAN Express said second quar-ter earnings rose yesterday, as cus-tomers spent more on their cards andthe firm trims its riskier businesses.

Average spending on the companyscards rose 15 per cent to $3,767 andthe number of outstanding AmericanExpress cards rose six per cent to 94m.

The firms quarterly earnings roseto $1.32bn, a jump on 32 per cent onthe same quarter last year.

American Express has been focus-ing its business on processing creditand debit card transactions, which isless risky than lending.

The company said earlier this weekit is working with merchants to offercoupons to customers via Facebook, which is designed to generate moresales volume on American Expresscards.

In the years leading up to the creditcrunch, American Express boostedprofit by making more loans, only tobe burned by customer defaults.

BYHARRY BANKS

CONSUMER

AmEx sees spending riseAmerican Express chief Kenneth Chenault has overseen big gains Picture: REUTERS

NEWS | IN BRIEF

Wells Fargo to pay $85m fineWells Fargo & Co, the largest mortgagelender in the US, has agreed to pay a$85m (52.6m) civil penalty to theFederal Reserve Board and will com-pensate borrowers who were allegedlysteered into more costly subprimeloans with higher interest rates during

the housing boom. The fine is thelargest ever imposed by the FederalReserve in a consumer-enforcementcase, the Fed said yesterday. The bank,which admits no wrongdoing, mighthave to pay up to $20,000 in restitu-tion to borrowers affected by thealleged practices.

Allen & Overy launches in AfricaAllen & Overy (A&O) is set to becomethe first of themagic circle law firmsto establish its presence on the Africancontinent with the launch an office inMorocco. News of the move comes justmonths after it emerged that rival lawfirm Clifford Chance was in the earlystages of planning a launch in Morocco.A&O is thought to be hiring twoCasablanca-based partners to staff thenew base, which is expected to open inSeptember this year.

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]

BlackRock chief execLarry Fink said his firmis offering clientsdiverse products andlong-term security

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

BLACKSTONE STRIKES 700M DEALTO BUY GERMANYS JACK WOLFSKINBlackstone has agreed to take overoutdoor clothing company Jack Wolfskin in a 700m ($995m) dealthat underlined the rapid transfor-mation of the sector from local busi-nesses to international brands. TheUS buy-out group will announce on Thursday that it will acquire theGerman company from BarclaysPrivate Equity and Quadriga Capital,people close to the situation said.

MINORITY INVESTORS SET TO SUETNK-BPMinority shareholders of TNK-BP, theAnglo-Russian oil major, are prepar-ing legal action to claim billions ofdollars of damages over BPs failed bidto form a strategic partnership withRosneft, the Russian state oil compa-

ny. BPs plan to partner Rosneft in anequity swap and Arctic exploration

venture collapsed after AAR, theRussian shareholders in TNK-BP, at a

tribunal in Stockholm.20TH CENTURY FOX TO LAUNCHMOVIES ON ANDROID20th Century Fox is bringing movie

downloads to Googles Androidsmartphone and tablet platform forthe first time this year, setting up thefast-growing operating systems as amedia platform to rival Apples digi-tal dominance.

HUDDLE TO MODERNISE WHITEHALLCOMPUTINGHuddle, a UK technology start-up, hasformed a partnership withWhitehalls senior security chiefs tomake British civil servants among thefirst in the world to use cloud com-puting for work on classified govern-ment documents. The deal with theFCO services, which built the UK gov-ernments secure private networks,

will enable civil servants acrossWhitehall to share policy documents.

GIANTS JOIN THE SUGAR RUSH INBRAZILDow Chemical and Mitsui havebecome the latest investors in Brazilsburgeoning sugar cane industry.Thetwo companies have formed a jointventure, reported to cost up to $2bn(1.2bn), to manufacture plastic outof ethanol made from sugar cane.

CREDIT RATING AGENCIES TOOKUNFAIR BLAME OVER DEBT CRISISCredit rating agencies are not toblame for exacerbating the eurozonedebt crisis and the criticism againstthem has largely been unjustified,according to a House of Lords com-mittee.The European Unions sugges-tion to suspend ratings for bailed-outcountries is wholly impractical andsmacks of censorship, the commit-tee says in a report to be published

today after a four-month inquiry intothe agencies influence on the crisis.

PFIZER TO BUY PAIN DRUG MAKERICAGEN FOR $56MPfizer has agreed to buy Icagen, whichis developing drugs to treat pain andrelated disorders. Pfizer already ownsabout 11 per cent of Icagen. It willacquire the remaining 8.3m shares for$6 each, for a total transaction valueof $56m (35m). In 2007, Pfizer andIcagen entered an agreement to devel-op and commercialize pain and otherdrugs.MCDONALD'S OLYMPIC RESTAURANTWILL BE BIGGEST IN THE WORLDThe busiest and biggest McDonald's isthe world will be within the Olympicpark in London, when it opens forbusiness next summer, seating 1,500customers. The fast food company is along-standing sponsor of theOlympics, and as a result has amonopoly on all the catering outlets

within the Olympic park in Stratford,east London.

ANGLO IRISH'S US PORTFOLIO DRAWSINTERESTSeveral banks, including DeutscheBank AG, Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and WellsFargo & Co., are weighing bids forparts of nationalized Irish lender Anglo Irish Bank Corp.'s U.S. real-estate portfolio, according to peoplefamiliar with the matter. The bank'sreal-estate loanshave a face value ofabout $9.5bn.

ALCATEL WEIGHS FUTURE OFENTERPRISE UNITElecommunications-equipmentmaker Alcatel-Lucent SA saidWednesday it was exploring optionsfor its enterprise business unit,including a possible sale to a thirdparty.The announcement followsmonths of speculation over the fate

of the business unit, which could beworth at least $1.5bn.

WHAT THE OTHER PAPERS SAY THIS MORNING

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DANIELLE Chiesi, a former hedgefund trader and key defendant in thesprawling Galleon Group insidertrading case, was sentenced lastnight to two and a half years inprison.

She is the first major defendant tobe sentenced in the US governmentsprobe, unveiled in October 2009 andcentered around Raj Rajaratnam,founder of the Galleon hedge fund.

The 45-year-old Chiesi was also sen-tenced to two years of supervisedrelease plus 250 hours of community

service. She had pleaded guilty inJanuary to three conspiracy counts.

PRIME Minister David Cameron yester-day attempted to draw a line underthe hacking scandal that threatens toengulf his government as well as theentire Murdoch empire.

He said he has never had an inap-propriate conversation with NewsInternational executives over RupertMurdochs bid for the 61 per cent ofSky the media tycoon does not alreadyown, but would not deny that he hadspoken to Murdoch employees on thesubject since being in Number 10.

He stressed he had no materialinfluence over the Sky bid, which washandled by culture minister JeremyHunt, and hinted government maytake no role in future media takeovers.

Cameron also told parliament that with the benefit of hindsight heregrets hiring former News of theWorld editor Andy Coulson, who hassince been arrested over the scandal, but refused opposition leader EdMilibands requests for an apology.

He said Coulson gave him guaran-tees he had not been involved in ille-gality, shouldering responsibility in anattempt to shield George Osborne

from criticism over his role in the hire.He also defended his chief of staff Ed

Llewellyn, who asked police not tobrief Cameron on the affair. Cameronfielded questions from 136 MPs duringa mammoth Commons session.

News Corp yesterday continued itsfirefighting efforts, saying it has final-ly stopped paying legal fees for convict-ed fraudster Glenn Mulcaire.

The company also lifted a confiden-tiality clause from Harbottle & Lewis,allowing the law firm to speak withauthorities on its work with NewsInternational while the hackings aresaid to have taken place.

The firms second-biggest sharehold-er, Saudi Prince Alwaleed, gave NewsCorp his backing last night.

PM moves to

curb News Inthack scandal

THE WHITE House signalled yester-day it could support a short-termincrease in the US borrowing limitfor a few days if lawmakers agreedto a broad deficit reduction deal butneeded more time to pass it.

The move, a shift from PresidentBarack Obamas previous position,reflects the growing political reality

that time is short for Congress topass a massive deficit-cutting dealbefore the US runs out of money on2 August.

A new proposal for long-termdeficit reduction from a group ofsenators known as the Gang of Sixhas revived hope that a broad agree-ment on spending cuts can bereached to avoid a looming defaultand alleviate pressure on Americastriple-A credit rating.

Fuel consumption figures for the Civic 1.4 i-VTEC Type S Manual in mpg (l/100km): Urban 38.7 (7.3),

Extra Urban 56.5 (5.0), Combined 47.9 (5.9). CO2 emissions: 135 g/km. Model shown is Civic 1.4 Type SManual in non-metallic Milano Red at 12,995. Offers (excluding price point) valid on new retail Civic petrol (excluding Civic Ti) ordered from 1 July to

30 September 2011 and registered on or before 31 December 2011. Offers applicable at participating Dealers and are at the Promoters absolute

discretion. Subject to model, colour and stock availability. Honda Hire Purchase (HP): Indemnities may be required in certain circumstances. Finance is

only available to persons aged 18 or over, subject to status. All figures are correct at time of publication but may be subject to change. Promoter is Honda

(UK), 470 London Road, Slough, Berkshire SL3 8QY. ervicing: Four years complimentary servicing or 50,000 miles, whichever comes first, and includes

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HOW VERY HONDA

Obama now opento short term deal

AMERICAN Airlines has splashed outup to $40bn (24.7bn) on an order for460 Boeing and Airbus aircrafts, asthe carrier works to overhaul its fleet.

The firm, which claims the deal isthe biggest-ever single aircraft pur-chase, is set to buy the planesbetween 2013 and 2022.

It marks a departure fromAmerican Airlines loyalty to Boeing,which it said in 1996 would supply itsplanes exclusively until 2018.

The news came as AAs parentcompany, AMR, reported a widened

loss of $286m and an eight per centrevenue rise for the past quarter.

Record orderfor AmericanChiesi jailed forrole in Galleon

BY STEVE DINNEEN

MEDIA

ENFORCEMENT

AVIATION

Prime MinisterDavid Cameron,back in the UKafter a trip toNigeria, answeredMPs questions overthe phone hackingscandal yesterday

Picture: Reuters

BYHARRY BANKSUS ECONOMY

News 3CITYA.M. 21 JULY 2011

ANALYSIS l BSkyB

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14 Jul 15 Jul 18 Jul 19 Jul 20 Jul

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SHARES of real estate and housingdata company Zillow tripled in valueon their debut, after pricing abovetheir expected range, as investorsbuoyed by a wave of successful inter-net IPOs shrugged off its ties to aweak housing market.

Zillows initial pop in value over-took internet-and-IPO darlingLinkedIns first-day share rise.LinkedIn only doubled in value in itsfirst day of trade.

Seattle-based Zillow offers rentand house price estimates as well asreal estate data on millions of UShomes through its websites andmobile phone applications.

The shares were also boosted by arecovering advertising market,Zillows primary source of revenue,its strong hold in a niche segmentand deals with companies likeYahoo.

Their revenue has increased nice-ly and their losses have come down

nicely. Theyre not profitable yet. They have signed a collaborativeagreement with Yahoo that will helptheir bottomline as well, ScottSweet, senior managing partner atIPO Boutique, said.

Zillow -- which had 22m uniqueusers visiting its website and mobileapplications in May -- halved its loss-es in 2010 and posted revenue of$30.5m (18.9m) last year, up nearly75 per cent from a year ago.

Though Zillows shares pared mostof their initial gains, they closed at$35.77 more than 79 per cent above

their listing price, giving the compa-ny a market value of about $940m.

Zillow is currently trading at morethan 30 times revenue.

Zillow sharessurge on firstday of trading THE Citys jobs bloodbath is threaten-ing to decimate staff levels at smallercorporate finance firms this summer,industry sources warned yesterday.

Finance house Matrix Group placedmost of its 93-person investment banking team under review with aview to retrenching them as it strug-gles to cover its costs.

Only its investment trusts, realestate and energy teams may stay,sources told City A.M., while othersfrom financial services to consumergoods and services will be shut.

Malcolm Le May, who headsMatrixs investment banking armMatrix Corporate Capital, also ten-dered his resignation this week.

The situation mirrors the fall ofArbuthnot Securities and high-level broking sources said many others

were planning to cut staff.I think just about anybody else in

the industry is considering doing thesame, one chief executive told CityA.M., pointing to the next six weeks ofsummer when few deals will happen.

It is a perfect storm in the UK,Jonathan Keeling, chief executive ofArden Partners, said.

But several said changes to bonusregulation had caused hefty increasesto fixed salaries that were making ithard for them to keep staff on.

Matrix slashesbroking arm in

jobs bloodbath

BYHARRY BANKS

TECHNOLOGY

FINANCIAL SERVICES

Zillow is the American equivalent of BritainsRightmove online real estate service The firm trades on more than 30 times rev-enues and is not yet profitable 22m users visited the site in May

FAST FACTS | ZILLOW


STARBUCKS has appointed KrisEngskov a former top aide to BillClinton as head of its UK business.

Engskov (pictured right) is creditedas being the inspiration for the char-acter Charlie a member of theWhite house inner circle in the US TVhit show the West Wing.

He will take over from Darcy Willson-Rymer, who is leavingStarbucks to pursue other businessinterests.

Engskov was Bill Clintons so-calledbody man between 1997 and 2000,

taking on the job of accompanyingthe President on alltrips and acting as hisright hand man.

He joinedStarbucks in 2003and spent two yearsin Britain between2005 and 2007 run-ning the compa-nys London shops.He starts his newrole in September.

Starbucks appoints formerClinton aide as its UK boss

Starbucks has appointed Kris Engskov as its UK chief Picture: GETTY

BY JOHN DUNNE

CONSUMER

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THE Eurozone will meet for a criti-cal meeting on a second Greek

bailout today in negotiations thatcould make or break the euro.

European Commission presidentJose Manuel Barroso said that it wastime for Eurozone leaders to makegood on their promise to save thesingle currency.

Most of the decisions to betaken belong to the competenceof the member states, he said.They have reserved the instru-ments to themselves. And they havesaid they will do what it takes toensure the stability of the euroarea. Well, now is the time to makegood on that promise.

Greece urgently requires a newrescue to avoid a disorderly defaultnext year, with markets sensitive toany suggestion that a deal mightagain be put off.

German chancellor AngelaMerkel has tried to dampen hopesof a deal, despite the Eurozonesfinal deadline for agreeing a

bailout package having passed lastweek: Further steps will be neces-sary and not just one spectacularevent which solves everything, shesaid, suggesting that constructing a

bailout will be an ongoing process.Capital Economics Jonathan

Loynes said: Todays summit couldprovide the last chance for Euro-zone policymakers to get a grip onthe regions debt crisis. Anythingother than a very decisive response

could see the situation become irre-trievable.

Following a panicked crash at thestart of the week, markets rose onthe hope of a grand announcement

yesterday, with the euro gaining 0.5per cent against the dollar. TheFTSE 100 closed up 1.1 per cent andthe Eurostoxx 50 gained 1.8 percent.

Yields on Eurozone governmentdebt also dipped after successiverises over recent days. Italys two-

year yields dropped from 4.3 to fourper cent and its ten-year yields fellfrom 5.7 to 5.6 per cent.

But if the day passes without asubstantial agreement, vulnerableEurozone economies could againfind themselves subject to the

whims of nervous investors.

Barroso: Euro relieson leaders promisesBY JULIET SAMUEL

EUROZONE

SHARES in Bankia, the Spanishsavings bank, dived below theiralready heavily discounted listingprice on their first day of trading

yesterday, after the governmentforced the regional bank to shoreup capital or face nationalisation.

The initial public offering (IPO)of Bankia, formed from a merger

between Caja Madrid and sixother regional Spanish banks, wasseen as a critical step in Spains

overhaul of its financial systemamid tough economic conditions.

Shares in the bank fell as much6.4 per cent to 3.51 (3.08) in thefirst hours of trading yesterday

before closing unchanged at itslisting price of3.75.

Bankia, led by formerInternational Monetary Fundhead Rodrigo Rato, had initiallyoffered its shares at 4.41-5.05apiece and aimed to raise as muchas 4.6bn.

It then cut its price at the 11thhour in a move to woo institution-al investors amid a spiraling

Eurozone debt crisis.The IPO pricing valued Bankia

by assets at 0.4 times the banksstated book value.

Shares in Spanish banks, howev-er, responded with relief that theIPO went ahead, with Spains

benchmark index, the IBEX-35 ris-ing three per cent on the day and

banking giant Banco SantanderSA up five per cent.

"Weve done it in the middle ofa real storm in the market, creat-ed by some of the toughest finan-cial conditions of the last decade,Rato told reporters and bankers at

Madrids stock exchange yester-day, referring to the listing.

Bankia shares fall in market debutdespite bank discounting its listingBANKING

NEWS | IN BRIEF

Civica raises 600m in IPOBanca Civica, a Madrid-based bankformed from the merger of four savingsbanks, announced the pricing of its initialpublic offering (IPO) at 2.70 a share,the bottom of its price range.The IPO was priced at a 60 per centdiscount to the banks stated book value,

the same as its larger rival Bankia whoalso listed this week. Banca Civica,around a quarter of the size of Bankia,expects to place around 600m byfloating 45 per cent of its capital. Thebank said in a press release it hadreceived bids of over 1.1bn with theinstitutional tranche 1.3 times sub-scribed, with more support from theretail tranche which was 2.3 times sub-scribed. Trading will start tomorrow.

Eurostar sales rise four per centSales and passenger numbers atEurostar grew by four per cent in thefirst half of the year, helped by the ashcloud disruption and a rise in US trav-ellers. Cross-Channel train operator saidtotal sales revenues increased from404m to 421m and passenger num-bers went up by three per cent from4.6m to 4.7m. Eurostar benefited fromincreased sales during the Icleandic ash

cloud disruption, during which it ran 70extra trains The number of internationaltravellers using their trains increased 21per cent, driven in part by a "strongincrease" in passengers from the US.

It is not going to be a pretty sighttoday in Justus Lipsius buildingin Brussels. At the crisis sum-mit, Europes leaders will do

something they previously reas-sured their taxpayers was a legalimpossibility bail out failed statesin the Eurozone.

Or at least, they will try to do this.Although they all agree SomethingHas To Be Done to save Greece, they

cant agree on what.Should private bondholders be

made to pay a share? ShouldEurozone banks be taxed to support

failed countries? This latest idea ispotty why pick on banks? If you want to make the culprits of thiscrisis pay, why not tax subprimemortgage lenders, regulators,Socialist Greek politicians orindeed, just Greeks.

Getting Greeks to actually paytaxes would be a good place to start.

Tempers are starting to fray as EU voters vent their fury at having topay to reckless Greeks; and politi-cians are worried they will becaught throwing good money after

bad.

THE REAL GREEK QUESTIONEuropean leaders will in fact dis-cuss everything except the mostimportant issue. The big problem isnot that Greece needs money tostop it going bust.

They are steadily turning the EU

into a transfer union, where the dis-ciplined countries routinely makepayments of hundreds of billions ofeuros to undisciplined ones.

But this does nothing to addressthe underlying problem which isthe lack of competitiveness of theGreek economy.

Greek industry is unable to com-pete with German industry, andGreece is now denied its old trick ofcompetitive devaluations of its cur-rency.

The inevitable result is thatGreece, currently led by PrimeMinister George Papandreou (pic-tured right) is never going to be ableto pay its way; instead the countryis being turned into a bailout

junkie.

WHY LONDON SHOULD WORRYNor should London be smug andcomplacent about the widespreadtroubles on the European main-land.

Clearly international investors

might target their money at Londonas a safe haven in times of trouble,and we could see short term bene-fits.

But if the wheels come off theeuro bandwagon, then we will suf-fer from the economic shockwaves.

Eurozone leaders are going to belooking for scapegoats to punish and there will be none more deli-cious than those Anglo Saxon

bankers.The crisis is a

E u r o z o n epr o bl em,

but thec o n s e -q u e n c e s

will beours.

Anthony Browne is aboard mem-ber attheCityUK

ANTHONY BROWNE

Why the City ought to be keeping aclose eye on EUs fight to fix Greece

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FULL separation of retail and invest-ment banks is back on the agenda forthe Independent Commission onBanking (ICB), City A.M. understands.

In response to an avalanche ofresponses to its interim report urgingthe ICB to reconsider a full Glass-Steagall-style separation of bankingoperations, the commission is consid-ering whether it should go furtherthan a ring-fence around retail bank-ing and instead opt for separating theownership of retail and wholesaleoperations.

However, given the likelihood ofstrong opposition from the Treasury, which recently endorsed the ring-fence idea, the ICBs move to broadenout its options just six weeks before itsfinal report is due could plunge UKbanking policy into confusion.

The commission had previously allbut ruled out full separation of retailand investment banking, insteadfavouring the subsidiarisation of retailactivities to protect what it views asessential operations.

But City A.M. understands that aspart of its work to determine the boundaries of the firewall aroundretail banking, it is also reconsidering

whether it should recommend a sepa-rated ownership structure at the top.

The commissions rethink willplease the Treasury Select Committee(TSC), which said yesterday that fullstructural separation has not receivedsufficient analysis.

But the news will come as an annoy-ance to senior banking executives, who had thought that all the ICBsmajor policy thinking would be doneby the end of the month.

But instead of concentrating onlyupon the practical details of its ring-fence proposal, the commission ismaintaining a broad focus at a latestage in its thinking.

CRUCIAL reforms to the British bank-ing system are being put together intoo much secrecy, an influential com-mittee of MPs has said.

The Treasury Select Committee,led by Andrew Tyrie MP (pic-tured), released a report on the Vickers Commission yesterdaywarning that the reforms risklacking public credibilityand acceptability if they arenot discussed more openly.

The debate on the meritsor otherwise of the ICB(Independent Commissionon Banking) proposals musttake place openly and trans-parently in the public eye,

the TSC says. The taxpayerdeserves a full and public

debate about the futuredirection and shape of ourbanking system.The report also says that

the ICB needs to per-form more detailedanalysis of its calcu-lation of theimplicit subsidythat banks receivedue to an effectivegovernment guar-antee. It also callsfor the commissionto publish more ofthe backgroundthinking behind its

decisions.

Tyrie: banking commissionmust be more transparent


NEWS | IN BRIEF

Fund managers views improveThe outlook of global fund managersbecame slightly sunnier over the lastmonth, despite dire sentiment towardsEurope. A net 19 per cent think theeconomy will improve in the comingyear, up from net 10 per cent in May.But a net 57 per cent of Europeanrespondents hold an underweight posi-tion in the banking sector the lowestsince February 2009, a survey by Bankof America Merrill Lynch found.

Dell to buy Force10 NetworksDell Inc has agreed to buy Force10Networks, a privately-held technologyfirm, in a move to expand into datacen-tre networking and increase its enter-prise portfolio. Force10 serves boomingsocial media companies like Facebookand Zynga has nearly $200m in annualrevenues. Dell did not disclose the valueof the deal.

Windfarm deal hits turbulenceClimate Change Capital has postponedraising money to buy a stake in aScottish wind farm, and said it wouldconsider withdrawing from other proj-ects due to "difficult market conditions.CCC had agreed three weeks ago tospend 61.3m to take a 50 per centstake in a farm owned by Scottish andSouthern Energy.

One of the key findings in the Independent Commission on Bankingsinterim report was that Lloyds should substantially enhance its saleof 630 branches, because the existing number of branches on the

block was not enough to create an adequate competitor. Here the Treasuryselect committee appears to offer some support to Lloyds by suggestingthat more branch sales wouldnt necessarily mean more competitionbecause such a remedy deals with the symptom and not the cause.

BEHIND THE LINES | WHAT THE TREASURY COMMITTEE REPORT MEANS

SirJohnVickersshouldconsiderwhetheranenhanceddivestmentisreallynecessaryandwhetherbycall-ingforsuchasteptheICBistreatingthesymptomofinadequatecompetitionratherthanthecause.Itshouldalsoconfirmwhetherithasexaminedthecaseforfurtherdivestmentsofbranchesfromotherbanks.

TheICB placesthe[sizeof theimplicitstate

subsidyto thebankingsector] at considerablyin

excess of10bn,buthas notpublisheddetailedanalysis

astohowitarrivedatthis figure.Theneedfor con-

sensusin thisareaiscritical becauseofthe

ICBsgoal to eliminatethissubsidy.

TheICBhasdevoted justonepageof itsinter

im

reporttomeasurestoimprovetheswitchingproc

ess

andenhancetransparency.Theirproposalsonswi

tching

andtransparencyofchargestothecustomerneed

further

development;indeedtheinterimreportdoesnot

moveforwardthedebateonthiscrucialissue.

We are concerned that the option of full structuralseparation has not received sufficient analysis. To

this end, we call on the ICB to provide further details as

to the costs and benefits of this reformoption andwhy it decided early against full separationwhensettling its lead option in the interimreport

The Treasury select committee is calling on the commission to quan-tify exactly how much the implicit state guarantee to the bankingsector is worth. If it fails to do so, the committee argues, then it has

no hope of coming up with a set of recommendations that will eliminate thesubsidy, something that needs to be done if the taxpayer is to avoid beingon the hook for future bailouts. It wants the banks and the commission toagree on way of measuring the subsidy and to arrive at an agreed figure.

In its interim report, the commission came out in favour of a form ofring-fencing rather than full scale separation of retail and investmentbanks along the lines of the now defunct US Glass-Steagall act. The

Treasury committee is suggesting that the ICB did not sufficiently analysewhat further benefits a full-scale separation would have in terms of finan-cial stability. City A.M. understands the ICB is now revisiting the prospectof full separation, which is bad news for banks like Barclays.

The Treasury committee comes down quite hard on the commissionfor its work on making bank charges more transparent and makingit easier to switch accounts. It believes that if the consumer were

better able to compare the charges of different banks and then easilyswitch to a better deal then it would help promote more healthy competi-tion. However, it points out the commission has only produced a page ofanswers that are largely unoriginal.

Full Glass-Steagallback on ICB agendaBY JULIET SAMUEL

BANKING

BANKING

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INTEL Corps quarterly revenue fore-casts trumped Wall Streets expecta-tions, defying investors concernsabout slowing personal computersales and buoying its shares.

Doubts about high US unemploy-ment, the risk of a European finan-cial crisis, climbing inventories andsluggish PC sales had clouded thesecond-half outlook for Intel andother chip makers like Advanced

Micro Devices.But the company, which domi-

nates the PC microchip industry butis struggling in a fast-expandingmobile market, forecast current-quarter revenue of about $14bn, giveor take $500m.

Analysts on average had expectedIntel's revenue to rise to $13.5bn inthe current quarter, less than nor-mal growth for this time of year.

Revenue in the June quarter was$13.1bn, up 22 per cent over the year-

ago period and above the $12.8bnexpected by analysts.

Non-GAAP net income in the quar-ter was $3.2bn, up 10 per cent. Non-GAAP earnings per share were 59cents.

Shares of Intel rose 1.65 per cent to$23.37 in extended trade, after clos-ing down 0.3 per cent.

The firm follows Apples blockbuster set of results on Tuesdaynight, and has set the bar high forsector peers reporting later thisweek.

Intel defiesworries withrevenue jump MELROSE, the industrial turnaroundinvestor pursuing CharterInternational, said it was returning373m to its investors yesterday after

completing the sale of one of itsinvestee companies.

Melrose used its 377m sale ofmetal casting business Dynacast todemonstrate its successful turn-around track record and value addi-tion credentials to reinforce itsposition as a good buyer for Charter.

Under its ownership, it saidDynacasts equity value had quadru-pled; its enterprise value rose 98 percent; and the 439m it had investedin both Dynacast and plastics groupMcKehnie had generated 1bn cash.

The 75p-per-share return of capitalto shareholders about 14 per cent ofMelroses market capitalisation

would reduce total shareholder equi-ty to 50m, it said, while the grouphad grown to a 1.4bn capitalisation.

The bullish update also said its lat-est buyout, of landmark engineeringgroup FKI, had seen its equity valueincrease more than 2.5 times already.

The FKI acquisition is anotherdemonstrable example of howMelrose has successfully restructuredand improved businesses to createvalue for shareholders, it said in astatement.

EBAY reported better-than-expectedquarterly results yesterday driven bydemand for its PayPal payment serv-ice, and a rise the value of merchan-dise sold through its main onlinemarket place rose.

EBay said its second-quarter netincome fell to $283.4m (175.5m), or22 cents per share compared with$412m (255m), or 31 cents a share, in

the same period a year earlier.The decline in earnings, however,

was mainly driven by costs fromeBays acquisition of GSI Commerceearlier this year.

Excluding those costs, stock-basedcompensation expenses and otheritems, profit was $630.9m comparedwith $530m in the previous year.

Revenue in the latest period was$2.8bn, up 25 per cent from the sec-ond quarter of 2010 and beating mostmarket expectations.

Melrose showscredentials as itreturns capital

eBay quarterly resultstop market expectations

eBay chief John Donahoe said its company growth State-side is on the up Pic: GETTYBYHARRY BANKS

TECHNOLOGY

INDUSTRY

NewsCITYA.M. 21 JULY 2011

BYKASMIRA JEFFORDTECHNOLOGY

9

ANALYSIS l Intel Corporation

$

14 Jul 15 Jul 18 Jul 19 Jul13 Jul

23.6

23.2

22.8

22.4

22.9720 Jul

8/6/2019 Cityam 2011-07-21

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ANALYSTSBRIDE LIVID

AS CLIENTSCOME FIRSTSANDY Jadeja, the chief technical analystat CityIndex, has such a ferocious workethic that his colleagues place bets on

whether he will actually take time off.So when he had to make a tough call

between presenting a fully-booked spread-betting seminar to clients or attending hisown pre-wedding celebrations, there wasonly one option: the guests partied atMayfairs Montcalm hotel without him.

The clients were happy, but Jadejaswife was absolutely livid to come sec-ond to Fibonacci ratios, risk manage-ment and entry criteria, not to mentionhaving her honeymoon downgradedfrom two weeks in the Maldives to one

week on Ischia off the coast of Italy even though George Clooney was stay-ing on the island at the same time.

Jadeja made amends by cutting off allphone and email communications onhoneymoon the first time in eight years and promising his wife a three-week tripto the Maldives in December.

Obviously, Jadeja wouldnt cancelthat rescheduled break to speak at atraders expo in Las Vegas would he?The markets never sleep and Sandynever sleeps, said Jadeja, who is hoping

by Niranjan Aiyagiri from JP Morgan, who scored 30 runs in quick time totake the Indian sides total to arespectable 100 runs in 19.3 overs although even if the match hadnt beencut short due to slippery outfield condi-tions, it was still clear the England teamhad won hands down.

BUSINESS AS USUALCHARITY begins with spreadbetting,after todays launch of a platformdesigned to allow traders to transformlives in South Asia just by doing their

normal job.

Twenty per cent of the top-linerevenue from every trade made onBATrustmarkets, the financialspreadbetting platform backed by

WorldSpreads, will be donated to theBritish Asian Trust to invest in educa-tion and health charities in South Asia.

Traders arent charged anythingextra, said BATrustmarkets co-founder

Alpesh Patel on the genuine advance incharitable giving. Brokers pay fromtheir own top lines; we are just askingtraders to do what they do anyway.

his wife doesnt pick up City A.M. thismorning. The Maldives may have tomove to Januar y.

CALLING CARDWHEN KEN Olisa, the head of technolo-

gy merchant bank RestorationPartners, was brutally ousted as a non-executive director of the EurasianNatural Resources Company, hefamously described the boardroomputsch as more Soviet than City.

Turning disaster into opportunity,however, Olisa has made his angry part-ing shot from the FTSE 100 mininggroup his new calling card TheCapitalisthears he is handing out post-cards (pictured right) designed with thecatchphrase to his contacts as he sets

about replenishing his roster of non-exec appointments...

RAIN STOPS PLAY THE long-anticipated India versusEngland fund managers cricket

match organised by equity bro-kers CLSA was almost a complete

walkover by the England side.Spectators at the HAC

ground saw Oliver Bell and John Moorhead from Pictetand JP Morgans Alex Robinskeep taking wickets withtheir mean bowling, whileF&Cs Peter Dalgliesh caughteverything behind the stumps like aman possessed.

Complete loss of face was prevented

Get me to my desk on time: client seminars come first for CityIndex technical analyst Sandy Jadeja

CityIndexanalystSandy Jadeja

missed hisown weddingcelebrationsto present aspreadbettingseminar

The Capitalist10

EDITED BY

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

CITYA.M. 21 JULY 2011

Batting above their average: the England team

8/6/2019 Cityam 2011-07-21

11/24

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DESPITE warning of even higherthan expected inflation to come, theBank of England appears increasing-ly reluctant to raise interest rates.

Minutes of the Banks July meet-ing, released yesterday, suggest that

bearish economic news has pushedthe rate-setting committee evenfurther from the first step innormalising rates.

Recent developmentshad reduced the likeli-

hood that a tighteningin policy would be war-ranted in the nearterm, the minutesstate.

Following the release,some analysts speculat-ed that the Bank isunlikely to raise interestrates until the second quar-ter of next year.

Rates have beenkept at historical

lows of 0.5 per cent since March2009, while the Bank also launched aprogramme of asset purchasesknown as quantitative easing.

However, the committee alertedeconomists and struggling house-holds to the near-term inflationarythreat.

In the light of recent develop-ments in utility and food prices, thepeak in inflation was likely to be a lit-

tle higher and come sooner thanthe committee had previously

expected, the notes said.Despite this, seven of

the nine-man commit-tee, including governorMervyn King (left), votedagainst a rise in rates.Martin Weale andSpencer Dale continued

to vote for a 0.25 per centhike.

Adam Posen continuedto be the only member to

vote for a further50bn in asset

purchases.

Bank minutesshow no signof a rate hikeBY JULIAN HARRIS

UK ECONOMY


MORALE on the British high street hasslumped back down again, following a

brief spike caused by the royal wed-ding and early summer sun.

In June the Nationwide consumerconfidence index fell four points to51 a year on year drop of 11 points.

Sentiment had soared from 44 to55 in the previous months index,

which included the packed bank holi-day period at the end of April.

Confidence returned to a moresubdued level in June as the index

again failed to build any sustained

momentum to lift it from its currentlow level, said Nationwides MarkSaddleton. The index now stands 28points below its long-run average,Saddleton said.

Consumers are gloomy on futureprospects for the economy, weighingdown sentiment. Fewer than onefifth (19 per cent) of respondentsexpect the economic situation to begood in six months time. Thirtyper cent said the situation would bebad.

Consumer morale slidesafter early summer boom

CONSUMER

GROSS mortgage lending picked upstrongly in June, according to figuresreleased yesterday.

Lending came in at 12.6bn, up 16per cent from the 10.8bn lent in May.

Yet the figure was still nearly threeper cent lower than at the same timelast year, showing that the UKs slug-gish housing market is not out of the

woods yet.Junes figures remain muted com-

pared to long term norms, saidHoward Archer of IHS Global Insight.The data are not seasonally adjustedand activity is usually higher in June.

The Council of Mortgage Lenders(CML), which compiled the data, citedhigh consumer price inflation anddisappointing economic growth for

the ongoing housing market slump.This backdrop weighs negatively

on purchase decisions relating tohome ownership, said CML chiefeconomist Bob Pannell.

By contrast, landlord activityappears to have picked up recently.

Yet lending appears to have begunan upward trend. Lending in the sec-ond quarter came in at around33.5bn, an 11 per cent increase fromthe first three months of this year(30.1bn), the figures showed.

Mortgagelending onthe increase

HOUSING

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THE London Stock Exchange reas-sured investors of its financial clout atits shareholder meeting yesterday butrefused to be drawn on any potentialpartners following the collapse of itsmerger with Canadas TMX Group.

LSE chairman Chris Gibson-Smithblamed the breakdown of the 2.4bnmerger firmly on TMX for failing tomarshal its shareholders to supportthe deal agreed.

He also used a strong set of quarter-

ly results, which showed group rev-enues rose 14 per cent to 190.2m, toemphasise the LSEs strength as anindependent company.

The 100 or so LSE shareholders atthe meeting expressed sympathy andsupport for the board. One comparedthe deal to BHP Billitons unsuccessfulbid for Canadas Potash Corp, whichauthorities vetoed over concerns thatit would place critical national infra-structure in foreign hands.

But Gibson-Smith ducked theirquestions on the likelihood of it merg-ing with US rival Nasdaq or anotherregional exchange such as the HongKong Exchange.

We werent successful with TMXbut there will be other deals in thefuture, and we are still actually think-ing about other deals we could do, hesaid. But you will have to wait andsee what happens.

LSE chief executive Xavier Rolet

also refused to tell reporters if he hadspoken with Nasdaq head RobertGreifeld recently, or if he planned tomeet Greifeld when he visited the UKnext week.

The LSE will be granted a C$10m(6.5m) break fee from TMX for failingto meet its side of the deal and if itmerges with Canadian bank consor-tium Maple Group within a certainperiod, TMX will have to pay a furtherC$25m fee.

Quarterly revenues at the LSE wereboosted by a 58 per cent jump in post-trade services as net treasury income

from its Italian central counterparty(CCP) clearing service surged morethan four times to 25.8m.

JP Morgan Cazenove analyst RaeMaile said CCP income had tripledover the past year and was expected tostay strong, raising the LSEs earningspotential.

Primary markets income also rose22 per cent compared with the samequarter in 2010.

LSE bats awaydeal talk withstrong resultsBYALISON LOCK

CAPITAL MARKETS


WHAT DID YOU THINK OF THE FAILED TMX MERGER?Interviews by Alison Lock

I complimented the board for its strategy onthe TMX deal but I thought they could havebattened it down harder. But it is gone now, sowe have to look to the future; the Hong KongExchange seems to have a lot in common withthe LSE and is no bigger than it.

AUBREY FRANKLIN | SHAREHOLDER

I think the merger probably would haveworked out, but you can never be surebecause of the potential culture clash. Twocompanies have very different cultures andoften deals fall apart, so who knows how itwould have ended.

It was good that the deal did not gothrough. If there was a merger, control ofthe LSE could have moved away from here,and you could have seen the headquartersmove too. In finance we have a better base

here in London than in Canada.

VINODRAY AMIN | SHAREHOLDER

VICTOR SILK | SHAREHOLDER

Italys crisis brings unexpected benefitsTHE LSE seems an unlikely benefici-ary from Italys growing debt crisis.Yet its latest results showed one partof its business has gained hugelyfrom Italys growing sovereign debtcrisis.

The revenue in question is treas-ury income from the LSEs centralcounterparty (CCP) clearing service,part of its Italian clearing businessCassa di Compensazione e Garanzia.

CCP treasury income soared 337per cent in the quarter year-on-year,its fifth consecutive quarter of rev-enue growth. Over the past year itsrevenues have tripled. It was the fire-power behind the LSEs 58 per cent

jump in its headline post-trade serv-ices income.

So how is Italys indebtednesscausing this? More than half of theLSEs clearing revenue comes fromItalian banks and the business also

guarantees interbank transactionsby Italian banks. That business is seeing surging

demand as the banks grow increas-ingly worried their peers huge sov-ereign debt holdings.

Thanks to their high exposure togovernment debt now viewed as atoxic commodity Italian banks nolonger trust each another to lend to,and appetite for interbank lending

between them has dried up.Instead, they are insisting on

using a clearing house to act ascounterparty between them, whichis fuelling a meteoric rise in CCPtreasury income the interest gen-

erated on the cash and securitiesheld in clearing. The exchange has said the envi-

ronment for CCP revenues remainspositive. Assuming the Eurozonesleaders continue to hesitate, the LSElooks sure to benefit further.

BOTTOMLINEAnalysis by Alison Lock

ANALYSIS l London Stock Exchange

p


1,040

1,020

1,000

980

960

1,030.0020 Jul

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YELL Group tanked 13.5 per cent yes-terday after seeing its profits and rev-enues for the first quarter slide.

Weakness in its print division con-tinues to hurt the Yellow Pages direc-tories publisher, with revenue falling11 per cent to 383.3m, and Ebitdadown 20.2m to 109m.

Print and other directory revenuefell 19 per cent, while digital servicesrevenue more than doubled in thequarter ended 30 June.

A company spokesman told CityA.M. the results are in line with man-agement forecasts.

Yell, which was relatively slow toadapt to the shift to online advertis-ing, is battling competition from ahost of new online services offeringlocal information, and from onlinegiants such as Google which offerglobal advertising solutions.

Last Thursday, the company set outa recovery plan that focuses on a digi-tal strategy it says will help it returnto growth in four years time.However, analysts remain uncon-vinced, with its shares losing a fifthof their value on the day the plan wasunveiled.

Yell shares have lost nearly a thirdof their value since then. They closedat just 6.48p last night, valuing thecompany at about 176m.

The firm, which narrowly avoidedinsolvency in 2009 and had net debtof 2.83bn at 31 March, is exploringoptions for its debt pile and hasalready been talking to its majorlenders.

Last week it agreed to buy UStechnology start-up Znode for$20m, pushing its shares up nineper cent.

Yell says Znode gives it e-commercetechnology it can use to connectsmall businesses with consumers ona local level. It will be incorporatedinto the group as part of a new divi-sion, called Yell Connect.

ONLINE gambling software providerPlaytech said yesterday it has signed along-term contract to provide a tech-nology platform and gaming prod-ucts to Europes biggest gamblingcompany Gala Coral, sending itsshares up almost nine per cent.

Estonia-based Playtech said itsproducts would support Gala Corals

entire product range, includingsports betting, and would take effect

with Gala Coral moving from its exist-ing suppliers in the first half of 2012.

Chief executive Mor Weizer said:This deal recognises our platformstechnological leadership and we areconfident it will provide Gala Coral with the player management toolsand functionality to drive its entireonline business.

Gala Coral, which has more than2,000 betting shops, has a substantialonline business, including a major

presence in the UK bingo marketalongside casino, poker and sports

betting products.

Playtech soars after signing bumpercontract with gaming giant Gala Coral

ARM Holdings surged almost six percent yesterday, riding on the coat tailsof Apples bumper results on Tuesdaynight.

The UK chip designer creates chipsfor Apples blockbuster iPad andiPhone products. It is expected to fea-ture a powerful new chip in theupcoming iPhone 5.

Imagination Technologies, whichalso designs chips for Cupertino-based Apple, saw its shares jump 9.2

per cent. The market-beating resultsled Numis to upgrade Imaginationstock, with the broker saying it esti-mates that Apple represents around40 per cent of the FTSE 250s technol-ogy business revenues, meaning itsroyalty volume estimates must rise toreflect higher Apple volumes.

Apple sold 20m iPhones in the lastquarter along with 9.25m iPads and3.95m Mac computers. It said third-

quarter revenue rose to $28.57bn(17.7bn), trouncing the average ana-lyst estimate of $24.99bn.

Imagination and ARMride on Apples coat tails

TECHNOLOGY

SAMSUNG yesterday launched a thin-ner, lighter version of its Galaxy tablet

in a bid to claw back market sharefrom a rampant Apple. The Galaxy Tab 10.1 inch is an

upgraded version of the 7-inch tabletintroduced in October. It has a bigger,brighter screen and weighs less thanthe iPad 2. However, it has access toonly about half the apps Apple t hatusers do, at just over 200,000, com-pared with around 500,000 in theApple App store.

It launched yesterday in Samsungs

home Korean market ahead of a 4August UK release. It has not yet beenpriced in Europe.

Samsung says it wants to sell morethan five times the number of tablets

this year compared to 2010.Samsung and Apple dominate themarket, with lesser rivals includingResearch In Motions PlayBook,Motorolas Xoom and HewlettPackards recently launched TouchPad. Amazon also unveiledplans last week to join the crowdedmarket.

Apple sold 14m iPads in the firsthalf of this year, compared with ana-lyst sales estimates of about 7.5m units

for the Galaxy Tab over 2011.Research firm Gartner forecasts the

tablet market will surge to 108mdevices next year from an estimated70m in 2011.

Apples overall tablet market shareis expected to shrink to below half in2015 from an estimated 69 per centthis year, Gartner says.

Non-iPad tablet shipments are set tojump 134 per cent next year, outpac-ing the overall market growth rate of80 per cent, according to Nomura.

Shares in Samsung closed up 3.5 percent, boosting the market capitalisa-tion of Asias most valuable technolo-gy company to about $130bn.

Samsung launches iPad 2 rivalBY STEVE DINNEEN

TECHNOLOGY

BT will have to cut the wholesaleprices it can charge Internet ServiceProviders (ISPs) using its broadbandnetwork by 12 per cent on top of infla-tion each year, under a decision madeyesterday by the regulator Ofcom.

The price reduction, which will bein place by mid August of this yearand continue until March 2014, willapply to areas where BT is the soleprovider of wholesale broadband serv-ices.

The reduction will only be imposedon BTs maximum downstream speedof 8 Mbit/s, which is most used in theareas being targeted. Ofcom claimsthat the new rates could benefit 3mhomes and businesses,mainly in the ruralareas of Scotland, Wales andNorthern Ireland.

By placing con-trols on BTs chargesOfcom (headed by EdRichards, pictured)expects con-sumers to seenumerous ben-efits, includ-ing morecompetitionb e t w e e nISPs, andf a s t e rbroadbandservices.

BT forced intomaking cuts onbroadband rate

Yell shouted

down by itsshareholdersBY STEVE DINNEEN

ADVERTISING

BYHARRY BANKS

TECHNOLOGY


ANALYSIS l Playtech

p


375

365

355

345

335

368.7520 Jul

ANALYSIS l Yell

p


10.5

9.5

8.5

7.5

6.5

5.5

6.4820 Jul

ANALYST VIEWS: IS THERE LIGHT AT THE ENDOF THE TUNNEL FOR YELL? Interviews by Steve Dinneen

ALAN HOWARD | CANACCORD

This is more negative news on current trading for Yell, and anotherreminder that investors have yet to see any significant light at the end of the tun-nel: the rate of decline of business, driven by the economic downturn and onlinemigration, has yet to show any meaningful recovery.

JUSTIN URQUHART-STEWART | SEVEN

Yell is a company with a core problem its business is disappearing. ItsYellow Pages business is doomed and there is a vast amount of competition in theonline sphere, where it is now staking its future. It will be difficult to grow in thisarea and its plans seem ambitious.

MANOJ LADWA | ETX CAPITAL

Like HMV, Yell is a perfect example of a company that has failed toadapt to a shift in market trends. Giving themselves four years to return to profitand shift significantly away from printed directories may be too lengthy givendebt refinancing is due in 2013.

Yell boss Mike Pocock has laid out his plans for the firm

BY MOLLIESHOMALI

TELECOMS

HEAD TO HEAD: THE IPAD 2 VS THE SAMSUNG GALAXY TAB 10.1

Samsung iPad

Price TBA from 399

Screen 10.1 inches 9.7 inches

Depth 10.9mm 8.8mm

Twin camera Yes Yes

Processor Dual Core 1 GHz Dual Core 1 GHz

RAM 1GB 512MB

Platform Android 3.0 Honeycomb iOS

Storage up to 64GB up to 64GB

Colour Black Silver

Number of apps 200,000 500,000

3G version Yes Yes

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PHARMACEUTICAL giantAstraZenecas shares fell as muchas 1.5 per cent yesterday after USmedical regulators rejected its newdiabetes drug because of its poten-tial side-effects.

Federal drug authorities saidexperimental diabetes medicinedapagliflozin should not beallowed on the market.

The advisory panel vote ondapagliflozin, a once-daily pilldesigned to eliminate blood sugarthrough the urine, is a blow to thecompany, which saw the drug as apotential cash spinner.

Regulators studying the drug, which AstraZeneca is developing

jointly with New York-based Bristol-Myers Squibb, said it may causebreast and bladder cancers.

But AstraZeneca hit back at thefindings.Based on a thoroughnonclinical and clinical assess-ment, the data do not suggest thatdapagliflozin is associated with arisk for either of these cancers, AstraZeneca said in documentspresented to regulators.

Analysts predicted thatdapagliflozin could reach nearly$500m (309m) in sales, ifapproved. An FDA request for moreresearch on cancer risk coulddelay the drug from reaching themarket for several years, JeffreyHolford of Jefferies said.

The drugs are critical forAstraZeneca, which could lose bil-

lions in sales over the next severalyears as generic drugmakers takeaim at many of its top sellersincluding antipsychotic Seroquel.

The firms shares tanked 1.5 percent after the announcement,before recovering to close 0.5 percent up on the day.

AstraZeneca hit asdiabetes drug failsBYHARRY BANKS

PHARMACEUTICAL

SWEDISH lender Handelsbankensaid its financing position wasstrong when posting second-quar-ter profit that met forecasts yester-day, helped by rising loan volumesat home and improved lendingmargins.

At a time of worries about bankexposure to the Eurozone debt cri-sis and rising funding costs,Handelsbanken said its funding

position was sound -- a liquidityreserve of 600bn crowns (57bn)

will cover requirements for overtwo years.

From our own perspective, thebanks low tolerance for risk, focuson credit quality combined withour organic growth levels are thekey factors behind the stable per-formance, finance director UlfRiese said.

Handelsbankens operating prof-it rose five per cent from the previ-ous quarter to 4.14bn crownscompared with 4.04bn forecast in a

poll or analysts. Loan losses shrankto 172m versus an expected 232m.

Its report came after similarlysolid earnings from top Nordicbank Nordea on Tuesday.

On the whole, I think this looksgood, Cheuvreux analyst MatsAnderson said, pointing to highernet interest income in line withforecasts.

Jan Erik Gjerland, an analyst atDnB NOR, said in a note: Lowerloan losses in Sweden should bepositive together with higher write-backs seen in the Baltics for SEB.

Handelsbanken is Swedens secondbiggest bank.

Handelsbanken boosted by higherloan volumes and lending marginsBANKING

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LATIN American precious metal pro-ducer Hochschild Mining said outputfell 13 per cent in the first half, asexpected, and that it was on track tomeet its full-year target.

It produced 11.1m silver equivalentounces in the first half due to lowergrades at the companys two mainPeruvian operations, declining out-put from its two ageing Ares andMoris mines, and industrial action atits San Jose mine.

Hochschild said the expected clo-sure dates for Ares and Moris will bedelayed as a result of higher preciousmetal prices. The average pricereceived for its silver more than doubled in the first half to $36.46 an

ounce while its gold price jumped 26percent to $1,466 an ounce. Prices for both metals have continued to risethis quarter with gold near recordhighs.

Hochschild saysfull year is stillon track despiteproduction fall

MINING


AFREN CUTS PRODUCTION FORECAST

Africa-focused oil and gas firm Afren has cut its 2011 production guidance by at least 25per cent due to facilities stoppages, as it warned its output level at the year-end would belower than previously forecast. The company, operating mainly in Nigeria, said it expect-ed full-year production to average between 25,000 and 30,000 barrels of oil per day.

BHP Billiton, the worlds biggestminer, has reported a rise in coal out-put but said that flooding continuesto hit production.

Production of coal rose 19 per centin the three months to 30 June com-pared to the previous quarter, it said.

However, coal output is still down28 per cent from the same period lastyear. North eastern parts of Australia,where most of BHPs coal is mined,saw record floods earlier this year.

The remnant effects of the wet weather that persisted for much of2011 financial year continued to

restrict our Queensland Coal busi-ness, despite an unrelenting focus onrecovery effort, the company said ina statement.

The production report went down

well with investors and analysts, whosaid BHPs coal production seems tobe recovering faster than expected.

It seems to be the case that BHP ismoving quicker than expected on thecoal front, said Colin Whitehead, amining analyst at Fat Prophets inSydney.

In sharp contrast, Australias cen-tral bank said that a rebound in coalexports after flooding in Queenslandstate was taking significantly longerthan earlier expected.

It said the return to full outputmight not come until early 2012.

But BHP fared much better in ironore output, its largest business.

Output was up 14 per cent in the

three months ending on 30 June ascompared to the same period a yearago, the report said.

BHP mines its iron ore in areasunaffected by flooding.

BHP Billiton coaloutput rises but

flood still takes tollBYHARRY BANKS

MINING

ANALYSIS l AstraZeneca

p


3,100

3,060

3,020

2,980

3032.5020 Jul

8/6/2019 Cityam 2011-07-21

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Signia WealthMilena Ivanova has been appointed asmanaging director and head of philan-thropy at Signia Wealth. Ivanova, who

will work alongside chief executiveNathalie Dauriac-Stoebe, joins thewealth manager from Vestra Wealth,where she was a partner.

CapcoThe financial services consultancy hasappointed Andrew Tarver, formerly apartner in Capcos UK capital marketsteam, as its UK chief executive. He suc-ceeds Ismail Amla, who will now lead

Capcos North American practice.

Vannin CapitalThe litigation funding body has addedNicholas Stewart QC and MichaelRiegels QC to its advisory board.Stewart practises at Ely PlaceChambers and sits as a deputy HighCourt judge, and British Virgin Islands-based Riegels is a former senior partnerat Harney, Westwood and Riegels.

PimcoThe investment management firmhas appointed Jon Dabinett asaccount manager, responsible for UKdistribution via UK life assurancecompanies, wrap platforms and dis-

cretionary managers. Dabinett joinsfrom Lazard Asset Management,where he was a sales manager.

RathbonesPeter Lucas has been hired as invest-ment director at Rathbone InvestmentManagement International. Lucas joinsRathbones from RBC WealthManagement, where he was head ofopportunistic strategy.

DC Advisory PartnersThe corporate finance house hasappointed Philipp Gutzwiller as manag-ing director, based in London, to adviseclients in the healthcare sector acrossEurope. Gutzwiller joins from CFS

Advisors, the financial services firm hefounded three years ago.

Evolution SecuritiesThe independent investment bankhas appointed Ian Gordon as head ofbanks research. Gordon will joinEvolution Securities on 1 Augustfrom Exane BNP Paribas, where hehas worked as a UK banks analystfor the past four years.

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

US shares pauseon budget worries

US stocks closed nearunchanged yesterday, a dayafter Wall Streets best rallysince March, as the oncoming

debt ceiling deadline overshadowedstrong earnings from Apple.

Apple hit another all-time highone day after the maker of theiPhone and iPad reported quarterlyrevenues that far exceeded expecta-tions.

The stock jumped 2.7 per cent to$386.90 but, overall, investors sat ontheir hands amid the unresolveddebt ceiling crisis in Washington. The White House and Congresswere negotiating a deal to raise theUS debt ceiling before a loomingdefault on 2 August.

The Dow Jones industrial averagelost 15.44 points, or 0.12 per cent, to12,571.98. The Standard & Poors500 Index shed 0.87 points, or 0.07per cent, to 1,325.86. The NasdaqComposite Index dropped 12.29points, or 0.43 per cent, to 2,814.23.

Technology shares were lower,with Yahoo tumbling 7.6 per cent to$13.48 after reporting lacklustre

results and Microsoft dropping 1.7per cent to $27.06 ahead of its quar-

terly report today.Financials was the best perform-

ing sector, boosted by a 4.4 per centrise in US Bancorp to $26.14.

The Midwestern regional banksaid second-quarter net income roseby 57 per cent. The KBW Bank indexclimbed 1.5 per cent.

Sovereign debt problems inEurope and the protracted politicalbattle over increasing the US debtceiling have weighed on stocks. OnTuesday, there was progress towarda $3.75bn US budget deal, prompt-

ing a late rally, but a final resolu-tion remained elusive.European Union leaders must

find a convincing solution toGreeces debt crisis at a summit on Thursday or the global economywill pay the price, the head of theEuropean Commission said in anunusually somber warning.

On the US economic front, exist-ing home sales fell unexpectedly toa seven-month low in June as can-cellations of pending contractssurged, according to the NationalAssociation of Realtors.

Volume was light with about6.3bn shares traded on the New York Stock Exchange, NYSE Amexand Nasdaq, below the daily averageof 7.48bn.

Advancing stocks outnumbereddecliners on the NYSE by 1,658 to1,314, while losers beat winners

1,532 to 1,023 over on the Nasdaqindex.

B ANKING stocks led Britainstop shares higher yesterday onstrong corporate earnings andoptimism over a deal in

Washington to increase the US debtceiling and avoid default.

The UK benchmark index closed

up 63.83 points, or 1.1 per cent, at5,853.82, building on the previoussessions 0.7 per cent advance.

Solid US earnings, including fromApple, have helped ease market ten-sions over sovereign debt issues inEurope and the United States whichhave triggered a five per cent dropon the FTSE 100 index since 7 July.

Chip designer ARM Holdings roseto near the top of the blue-chipleader board, up 4.9 per cent, as blockbuster sales of Apples iPhoneprovided reassurance that demandfor smartphones remains strong.

Smaller tech firms like WolfsonMicroelectronics and ImaginationTechnologiesalso posted big gains.I think investors have moved

their minds on a little bit from someof the big macro concerns thatremain in the backdrop and arestarting to focus back on equity mar-

ket fundamentals that are still verysupportive indeed, said Henk Potts,

market strategist at Barclays Wealth.There is a potential in the short

term for investors to be spooked bythe macro issues, but investorsshould be really looking to takeadvantage of this weakness to bebuying into equities.

The banking sector index enjoyedits biggest one-day percentage gainin more than three months, asBarclaysbounced 5.2 per cent to topthe FTSE 100 leader board, whileLloyds Banking Group added 4.1 percent.

Market jitters ahead of todaysemergency summit on Greeces debtcrisis were replaced by a feeling ofcautious optimism. Confidence wasalso boosted by signs of progress on aUS budget deal.

There are a lot of people thatthink the [recent] sell-off was justoverdone a little bit, said AngusCampbell, head of sales at CapitalSpreads.

Obviously the determining fac-tors were concerns over the eurozone debt crisis, and of course theUS debt ceiling and it looks like adeal is just about to be forged there.BP added 2.5 per cent, with tradersciting rumours that AnadarkoPetroleum will bring forward a set-tlement with the UK oil major overliability for the Gulf of Mexico oilspill.

Elsewhere, ITV rose 3.8 per cent asUBS retained its buy recommenda-tion on the terrestrial television

broadcaster.J Sainsburywas among the biggestFTSE 100 fallers, off 0.9 per cent, hitby a downbeat note from Citigroupthat kept its bearish full-year2011/2012 estimates for UK grocers.

Scary numbers abound,Citigroup said in a note, pointingout that UK gross indebtedness wasnearly 500 per cent of GDP, up from200 per cent in 1990.

The Big Four [grocers] are notpreparing for a new normal of lowGDP growth, consumer thrift and

slower population expansion. Ratherthey are all pushing for spacegrowth, enhancing high gross mar-gin-reliant service and meetingshort-term profit goals by raisingprices, the broker said.Wm Morrison Supermarkets wasdown 0.3 per cent, while Tesco, up0.1 per cent, also underperformedthe market.ICAP and Imperial Tobacco bothfell after going ex-dividend.

Soaring tech stocks burnishbanking rally to send FTSE upTHELONDONREPORT

WALL STREETREPORT

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

ANALYSIS lRolls-Royce660

640

620

600

10 May 30 May 17 Jun 7 Jul

p

648.5020 July

ROLLS ROYCEGoldman Sachs rates the engine maker a buy with an 850p target price onits conviction buy list, as it believes it is well placed compared to its peers andhas strong long-term growth prospects. The stock has more defensive charac-teristics than many cyclicals and should outperform, GS believes. The soon-to-close Tognum acquisition should be largely cash funded and six per centearnings accretive and GS believes consensus earnings forecasts are too low.

ANALYSIS lCentrica

335

325

315

305


p

328.0020 July

CENTRICAEvolution Securities rates Centrica a buy with a 381p target price as thecompanys performance in the past year has been lacklustre while regulatorydisputes and the North Sea tax hike on producers are concerns. Evo believesCentrica will gain from a near tripling in British Energys contribution in thenext few years, while extra energy reserves will add substantial value. It alsosees a 20 per cent earnings upside if UK gas prices move up in line with oil.

ANALYSIS lReckitt Benckiser

3,600

3,500

3,400

3,300


p

3,420.0020 July

RECKITT BENCKISERUnicredit rates the household goods maker hold with a 3,500p target priceas it anticipates it spinning off or selling its pharma division next year. Thebroker values the pharma arm at 330p per share but warns its revenuestream faces threats. The rest of the business trades at a 14 per cent premi-um to its peers, which Unicredit views as unwarranted. It also fears a largeadvertising spend may be needed to raise sales growth.

p


6,100

5,700

5,800

5,900

6,000

ANALYSIS l FTSE 5,853.8220 Jul

Hamptons InternationalThe property consultant has appointed GilesMaude (pictured) and Graham Jones to its devel-opment land team, reporting to head of landSimon Grier-Jones. Maude joins the firmsSouthern Home Counties division as an associate

in the Esher office, and Jones will lead theCotswold and West team as an associate direc-tor in Cheltenham. Maude most recently sourcedland across the South East for a private develop-er, and Jones is a former land and planning direc-tor for CALA Homes and Banner Homes.

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Wealth Management | Funds16 CITYA.M. 21 JULY 2011

FOR someone who runs a multi-million euro internationalinvestment group, Robert Tomeiis a laid-back and affable man to

sit down and talk to in the ConnaughtHotel bar. Tomeis Milan based inter-national investment company hasover 1bn of assets under manage-ment. As the group chairman, Tomeiis responsible for the approval of everygroup investment, and for evaluationof investments in venture capital, private equity, and strategy and debtstrategy placements.

Tomei says that he originally set outwith the aim of becoming an academ-ic, starting out with a degree in logicand analytical studies from StBonaventure University, followed bygraduate studies at both Yale andColumbia. After becoming disillu-sioned by the politics of academia, Tomei saw the world of finance asbeing perfect to apply his studies in apractical environment, starting outwith Kidder Peabodys internationaldepartment of fixed income as aninstitutional adviser on structuredfinance: I saw Wall Street as a placethat would present a variety of chal-lenges, and I feel that I was able totake a step back and analyse situationsrather than taking them at facevalue.

Sitting down to talk to Tomei, it ishard not to see why he has managedto amass an impressive list of clients Tomei has become the go toman for Italys wealthyindividuals and families.Far from being a blandnumber cruncher,Tomeis contrarian views

and insights make himan engaging man to inter- view. In the markets,there is a tendency for per-ception to become reality.There is a lot of prop-aganda out there.Im not saying thatyou should ignorethe popular con-sensus, but youshould hold it upto scrutiny.Tomei raises ani n t e r e s t i n gpoint should you pile intoan investmentor jump ontoa bandwagon just becauseof popularw i s d o m ?

According to Tomei, he

constantly questions any financialdecision. And he doesnt

cityam 2011-07-21

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