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FTSE 100 5,441.80 +46.10 DOW 11,518.85 -102.55 NASDAQ 2,604.73 +21.70 /$ 1.57 +0.01 / 1.14 unc /$ 1.38 +0.01

Firms: cut

red tape toboost jobs

A CHORUS of business groups andthink-tanks yesterday called for a raftof supply side measures to boost theeconomy and cut unemployment,

which rose to 8.1 per cent in August.Youth unemployment in particular

shot up to 721,000 -- excluding fulltime students -- representing 20 percent of 16-24 year olds.

Regulations under fire includeemployers national insurance contri-

butions, greater parents rights, andcompulsory pension schemes.

The government needs to boost theprivate sectors ability to create jobs,and employ those people likely to losetheir jobs in the public sector, saidDavid Kern of the British Chambers ofCommerce. They should cut red tapeand help people to acquire new skills.

The Unlisted Companies Groupcalled for the minimum wage to bereduced and new pension require-ments to be scrapped.

Thousands of people are excludedfrom the labour market as their servic-es are priced too high, said formerClarks boss Roger Pedder. Many

youngsters lives are blighted by job-lessness. This will worsen as pensionschemes are forced on small firms.

Philip Booth of the Institute forEconomic Affairs highlighted red tapethat could be scrapped to boost jobs:Burdens include: an extension of the

minimum wage; increased maternityrights; compulsory pensions; and thetemporary workers directive.

ALLISTER HEATH: P2, MORE: P6-7, 22

BY TIM WALLACE

EMPLOYMENT

BLACKBERRY maker Research In Motions(RIM) crisis deepened yesterday when servic-es in the US and Canada also collapsed.

Customers in the UK were forced to copewithout data services on their beloved hand-sets for a third day, with no sign the miseryis about to end.

Analysts told City A.M. the latest break-down means between 40m and 50m ofRIMs 70m customers are likely to have expe-rienced problems. Services have now failedacross Europe, South America, the US,Canada, Africa and the Middle East.

Activist shareholder Jaguar has seized onthe outage to redouble its calls for a sale ofthe company or radical corporate reshuffle.

Jaguar, which hopes to build on its eight percent stake in RIM, has called for co-chiefexecutives Mike Lazaridis and Jim Balsillie to

be replaced. RIM has lost two thirds of itsvalue since the start of the year.

The phone-maker said the failure was trig-gered by a core switch failure, causing agigantic backlog of data. The extra weighton the system led to the delays and interrup-tions experienced across the world.BlackBerry software boss David Yach said allemails will eventually be delivered.

Sources say it could take until at least theweekend to solve the issue, which is under-stood to originate in its Slough data centre.

Yach refused to comment on his compa-nys response to the crisis, which has comein for heavy criticism.

Users are now demanding compensation

for their lost services.One industry insider told City A.M.

the cost of data over the period so farcould amount to an average of 3 to 4per user. Based on this, RIM could beset for a payout of around 160m.

However, law partner Toby Rogers ofClyde & Co said it is unlikely cus-tomers will have a legal claim. Insteadpressure is mounting on RIM to makeannounce a make-good payment.

Yach again declined to comment.RIM apologised to users in a letter

last night, adding that it has peoplearound the world working aroundthe clock to address this situation.

The outage could not have come ata worse time for RIM, which has seenits market share eroded by the popu-larity of Googles Android handsetsand Apples iPhone. It has investedheavily in a new range of products,including touch-screen handsetsand its PlayBook tablet, which havefailed to make an impact.

Apple boss Tim Cook used thelaunch of the iPhone 4S to stressthat he is gunning for BlackBerrysshare of the enterprise market,claiming that more than 90 percent of Fortune 500 firms are nowtrialling or using the iPhone.

Even Lord Sugar waded into thedebate, saying the outage is the

biggest he has ever experienced,adding he could not understandhow it is taking so long to fix.CITY VIEWS: P10

BY STEVE DINNEENTECHNOLOGY

www.cityam.comIssue 1,488 Thursday 13 October 2011 FREE

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News2 CITYA.M. 13 OCTOBER 2011

EU to speed upBasel III rulesEUROPES banks face a race to bringtheir capital levels up to Basel III stan-dards much sooner than anticipatedunder a recapitalisation plan laid outby European Commission presidentJos Manuel Barroso yesterday.

All of the 90 banks covered by theEUs stress tests including the UKsmajor lenders will be included in aprogramme to get their capital up toa temporary significantly highercapital ratio of highest quality thanthe scheme to which lenders are cor-rectly working.

The minimum core tier one capi-tal-to-assets ratio for large banksunder Basel III will eventually moveup to 9.5 per cent, but Barroso speci-fied that the EU plan will requirebanks to get to this level or higher asswiftly as possible and to calculate

their capital base after write-downson their sovereign bonds.

The plan also implied that banksthat dont reach the required levelshould be forcibly recapitalised bygovernments or by the Eurozonebailout fund if states cannot afford it.It is not clear what time frame banks will have to comply, though somereports suggested six to nine months.

The plan could prove controversial because it will force banks to cutlending and investment even as econ-omists warn of an impending creditcrunch.

Bankers also believe it will be diffi-cult to raise capital on the open mar-ket as investors are reluctant to putmoney into a sector with depressedreturns and low dividends. As CityA.M. revealed yesterday, there is grow-ing disquiet among bankers over theprospect of a large-scale forced recap-italisation in Europe.

BY JULIET SAMUEL

BANKING

When good intentions destroy jobs

BRITAINS unemployment crisis is anational scandal that must urgently betackled. The two major issues are long-term unemployment (which has beena nightmare for years) and youthunemployment, which has increasedsubstantially.

The key problem is that the numberof jobs has been falling in recentmonths while the number of workerskeeps on growing. The latest figuresshow that employment fell by 178,000on the quarter and by 47,000 on theyear to reach 29.1m, a 0.2 per cent dropand the first decline since early 2010.

Losses were concentrated among part-time workers, pensioners and the UK- born. There was only one piece ofnon-bad news: the total number ofhours worked actually rose slightly on

the quarter but fell slightly on the year.The demand for labour has thus beenroughly constant over the past fewmonths, suggesting little GDP growthbut no collapse.

The public sector has clearly failedto introduce the pay freeze that DavidCameron has demanded. In the threemonths to August 2011, average totalpay in the public sector, excludingnationalised financial services, rose by1.7 per cent on a year earlier (and twoper cent excluding bonuses). This helpsexplain the accelerating rate of layoffsin the state sector: civil servants arechoosing to retain fewer people butpay them more.

There were other worrying develop-ments. Shockingly, the figures suggestthat there was an eight per cent quar-ter on quarter collapse in the numberof pensioners in work. Were there a

huge number of sackings of olderworkers dressed up as retirement prior to the change of law which nowmeans companies can no longer forcea worker to retire when they reach 60

or 65? This could certainly explain partof the drop. Most likely, the figures arejust too enormous to be correct.

The reduction in part-timers can beexplained in part by the fact that a lotof the public sector workers who arelosing their jobs or not being replacedare part-timers. Employers may alsohave been preemptively reducing theirdemand for agency workers, ahead ofthe drastic increase in the red tapeand cost of employing them.

The real scandal in yesterdays num-bers was the fact that the jobless rateamong young people aged 16-25 yearsis now 21.2 per cent in the UK, highereven than the 20.4 per cent in theEurozone. The last few months are thefirst time in over 20 years that the UKs youth jobless rate has exceeded theEurozone and European Union aver-ages, as Citigroup reminds us. The UK

jobless rate was 6.5 percentage pointsbelow the Eurozone as recently as in2004. The UK used to have much lower youth unemployment in the dayswhen we enjoyed a more flexible and

deregulated labour market; not sur-prisingly, as our own regulations havebecome similar to those of continentaleconomies, so has youth joblessness. As the Unquoted Companies Grouppoints out, many unskilled young peo-ple with no experience have beenpriced out of the labour market by well-meaning but tragically counter-productive policies to try and boosttheir incomes and rights. This a tragictale of good intentions gone wrong.Britains youth doesnt need more QEor a fiscal stimulus; it needs better edu-cation and a bonfire of the rules andred tape that are discouraging firmsfrom employing them. GeorgeOsborne needs to get his thinking capon and stand ready to confrontBrussels.

[email protected] me on Twitter: @allisterheath

SLOVAKIAS centre-left opposition partyhas agreed to back changes to Europes bailout fund yesterday in return forearly elections, to be held March 2012.

The vote on boosting the EuropeanFinancial Stability Facility (EFSF) willtake place today or tomorrow after adebate both on the fund and the earlypoll.

Slovakia, the regions second poor-est economy, will see its guarantees forthe fund rise from 4.4bn to some7.7bn under the proposed changes.

The European Commissdemanded that Slovakia hurry up,telling its parties to rise above thepositioning of short-term politics andseize the next occasion to ensure aswift adoption of the new agreement.

Newedges Bill Blain said despitethe deal, Slovakias initial defiancecould stir problems: If one country is willing to be the mouse that roars,then others may follow, he said.

Slovak partiesstrike deal topass bailout

NEWS | IN BRIEF

Buffett reveals his $6.9m tax billBillionaire Warren Buffett paid an effec-tive tax rate of 17.4 per cent on his$39.8m income last year, he has dis-closed in a letter to a congressman. Hewas responding to a call to publish histax return after he wrote last monththat the rich are not taxed enough in the

US. Tim Huelskamp, a Republican repre-sentative in Kansas, had said he wouldpublish his tax return if the Sage ofOmaha did the same. In response,Buffett gave his total tax bill and said hewould publish the rest as part of a dealin which other tycoons followed suit.

Citi could split EMI for saleEMI, the home of Coldplay and KatyPerry, looks increasingly likely to be soldoff as two separate businesses record-ed music and song publishing afterfinal bids came in last week, accordingto several people familiar with the mat-ter. The music company is reviewingcompeting offers for EMI Publishingfrom BMG Music, a joint venturebetween Bertelsmann and private equityfirm KKR, and Sony/ATV, a joint venturebetween Sony Corp and the estate ofMichael Jackson, these people said.

EUROZONE

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]

4th Floor, 33 Queen Street, London, EC4R 1BRTel: 020 3201 8900 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 Jo SimpsonPictures Alice Hepple

CommercialSales Director Jeremy SlatteryCommercial Director Harry OwenHead of Distribution Nick Owen

l Jos Manuel Barroso presented theoutlines of a European rescue plan yes-terday, the centre-piece of which was arecapitalisation plan for EU banks.

lDetails were scarce, but it willrequire banks to significantly acceler-ate their capital-raising to comply withBasel III rules as soon as possible orface forced bailouts. The plan shouldplease Germany because it requiressovereign states to bail out banksbefore tapping the collective Eurozonebailout fund, a key demand from Berlin.

lMany of the other measures arefairly standard reiterations of the com-mitment to make Greece curb itsspending and speed up reforms tomake European economies functionmore competitively.

lBut, significantly, Barroso emphasis-es that the crisis plan will involvetreaty changes that will give the EUthe power to scrutinise member statesbudgets and request amendments andsecond readings if it deems them inap-propriate.

lThe document also suggests a finan-cial transaction tax be introduced assoon as possible to ensure that thefinancial sector contributes fairly.

BARROSOS PLAN

SHAREHOLDER ACTIVISM RISING IN USActivism by prominent shareholdersis on the rise in the US, as beaten-down share prices and a renewedfocus on streamlining companies giveinvestors an opportunity to push forchange at large companies. In thefirst three quarters of the year, therewas a 90 per cent rise in the numberof companies worth more than $1bntargeted by activist shareholders,according to analysis by JPMorgansinvestment bank.

CLEAR CHANNEL TO BRING NEWSCREENS TO LONDONClear Channel Outdoor is bringing anew wave of interactive billboards toLondon, installing 100 roadside digi-tal screens with near-field communi-cation capabilities in the coming weeks. The UK rollout will include

sites in Oxford Street, Kings Crossand Islingtons Upper Street.

CAUDWELL BUYS MAYFAIR CAR PARKFOR 150M

John Caudwell, the entrepreneur andfounder of Phones 4U, is set to payIrelands National Asset ManagementAgency close to 150m for the UKsmost valuable car park. The deal,which ends years of speculation overwho would buy one of Namas mostcoveted assets, is expected to close atthe end of this month and is likely toresult in the Mayfair site being rebuiltas an upmarket residential develop-ment.

ALCATEL IN DEAL TO SELL ITS CALLCENTRE BUSINESSAlcatel-Lucent, the Franco-Americancommunications equipment maker,has agreed to sell its corporate callcentre services business for as muchas $1.5bn to Permira, the private equi-ty group. The deal was rumoured tohave floundered last month overfinance issues. Private equity buy-outs

have been hampered in recentmonths by market turbulence.

BAD GUYS WILL PROSPER FROM NEWCOMPULSORY STAFF PENSIONSProposals to introduce compulsoryworkplace pensions contain little pro-tection for employees and could leadto widespread mis-selling, a promi-nent critic has suggested. Renownedfund manager David Pitt-Watson saidthat the governments plans couldleave consumers unprotected andwithout the information they need.

INFLATION PUTS THE SQUEEZE ONBUILDERS AS CUSTOMERS SIT TIGHTBuilders face rampant price inflation when buying and hiring goods andequipment, new figures reveal. TravisPerkins said in a trading update thathigh product inflation was keepingrevenues growing. While the widermarket was generally in slightdecline, the soaring cost of what it

was selling had seen like-for-like pertrading day revenues leap 9.6 per cent.

MARIO DRAGHI FEARS ITALIAN DEBTSPIRALItaly risks a debt spiral without dras-tic steps to cut spending and restoreconfidence in public finances, thecountrys central bank governor haswarned. We must act fast. The sortsof interest rate rises seen over the lastthree months, if protracted, couldlead to an uncontrollable spiral, saidMario Draghi, who takes over as headof the ECB next month.

EX-POLICE OFFICER ADMITS 300MVAT FRAUDA former police officer has admitted a300 million VAT fraud believed to bethe biggest in UK history. NigelCranswick, 47, was a director of Ideas2 Go (I2G), which he ran from a smalloffice in a Sheffield business park,and claimed to have bought and sold

at least 2bn of goods in just eightmonths.

CHINA TO SUPPORT SMALL FIRMSChinas State Council, or cabinet, yes-terday unveiled a package of meas-ures including tax breaks andlending preferences to support smallcompanies. The move comes asChinas smaller companies have haddifficulty accessing credit from thestate-dominated banking system,leading to increasing distress in areassuch as the private-sector hub city ofWenzhou in eastern China.

EU PROPOSES CAP ON FARM SUBSIDIESOfficials have kicked off what promis-es to be more than a year of bitter wrangling over how to revise its$75bn a year program to aid Europesfarmers. The European Commission yesterday released its proposals tolimit subsidies for big farms andoblige them to set aside more land for

preservation, as part of an effort torein in spending.

WHAT THE OTHER PAPERS SAY THIS MORNING

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A CONTROVERSIAL third phase ofquantitative easing could still be onthe cards in the US, it emerged lastnight.

Two of the Feds 10-person commit-tee said that current conditions andthe outlook could justify stronger pol-icy action than the central banksOperation Twist, the minutes to itsSeptember meeting revealed.

Operation Twist which the Fed

announced last month -- involves itselling shorter-term paper to financethe acquisition of longer-term bonds.The move is an attempt to hold downlong-term yields, with the aim ofboosting private sector investment inthe economy without having to raisethe size of its own balance sheet.

Yet the Feds balance sheet couldstill be expanded with more asset-pur-chases, the minutes showed.

A number of participants saw large-scale asset purchases as potentially a

more potent tool [than Operation Twist] that should be retained as anoption in the event that further policyaction to support a stronger economicrecovery was warranted, the minutessaid. The unnamed couple of Fedmembers leaning towards QE3 saidthat they had supported OperationTwist because it did not rule out bold-er interventions.

Yet three hawks on the committeecontinue to make a stand against theFeds ultra-loose policy. Richard Fisher,Narayana Kocherlakota, and Charles

Plosser voted against the Feds state-ment.

Plosser last night said that Americas sticky level of unemploy-ment was still a serious challenge,despite a relatively positive jobs reportfor September.

As the economy strengthens,prospects for labor markets will con-tinue to improve and the unemploy-ment rate will gradually decline,undoubtedly too gradually for many ofus, Plosser warned.

QE3 is still onthe table, Fedminutes show THE UKs top tax collector admitted yesterday that he should not havestruck a secret deal with GoldmanSachs to forgive a chunk of unpaid tax.

David Hartnett was called before acommittee of MPs to explain his rolein agreeing a deal that saved the bankup to 10m in interest on a tax bill ithad fought for five years in court.

Referring to the agreement,Hartnett said: Im entirely responsiblefor the Goldman Sachs mistake.

Although the revenue in question isa drop in the ocean for both HMRCand Goldman, it threatens to cost thecivil service its top taxman.

Jesse Norman MP, member of theinfluential Treasury Select Committee(TSC), called for Hartnett to resign,claiming he had misled the TSC overhis role in the Goldman deal.

He strongly implied that he wasnot involved in the Goldman Sachscase, Norman blogged. The MP alsocomplained that Hartnett had saidthat he was not legally permitted todiscuss the matter in detail with MPs.

Legal advice to HMRC publishedonline shows that its lawyers stronglyadvised against discussing it for fear ofbreaking confidentiality laws, but theultimate decision rested withHartnett.

Goldman declined to comment.

REPUBLIC, the private equity ownedclothing chain now run by formerAsda chief executive Andy Bond, hasachieved record sales despite theslump on the high street.

The accounts for Republic (Retail)show sales rose 4.5 per cent to181.19m. Operating profit for theyear to 30 January fell 7.3 per cent to27.27m, however, with the firm

investing nearly 10m in store open-ings and upgrades as well as IT andinfrastructure.

The chain, which did not returncalls, was bought by US private equityhouse TPG in a 300m deal last year.

Bond joined Republic, based inLeeds near his home, as executivechairman in January despite beinglinked with a number of top jobs atFTSE 100 firms. He is also executivechairman of Euro Garages, theBlackburn-based forecourt retailer.

Call for taxmanto resign overGoldman case

Record sales at Republicdespite UKs retail slump

Andy Bond could not be lured to the City after stepping down from AsdaBY JULIAN HARRIS

US ECONOMICS

NewsCITYA.M. 13 OCTOBER 2011

BY PETER EDWARDSRETAIL

BY JULIET SAMUEL

BANKING

3

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THE STRUGGLING hedge fund indus-try suffered another blow yesterdayas Man Group revealed its flagship

vehicle had been caught out by therecent rally in equities.

Shares in Man, the worlds largestlisted hedge fund, plunged six percent after it said AHL, its computer-driven vehicle, lost 5.5 per cent last

week as hopes of measures to tacklethe Eurozone debt crisis prompted arally in equities. AHLs position wasalso hit by a sell-off in bonds.

The $24.9bn (15.79bn) AHL funduses complex algorithms to followmarket trends. Analysts at Numishave estimated it provides about 80per cent of Mans profit.

AHL said in its weekly commentarythat a change in market direction inthe week to 10 October had hit itslong positions in fixed income, as

well as its short positions in equitiesand energy markets.

The fund is down 3.2 per cent so farthis year, between eight and nine percent away from its high-water mark,above which it can earn lucrative per-

formance fees. Shares in Man closeddown 5.96 per cent at 156.3p lastnight, prompting speculation of atakeover approach for the group.

City A.M. understands Anglo-Australian fund manager Henderson,which has taken over rivals Gartmoreand New Star over the last two years,is unlikely to be interested in anapproach but could look at hiringstaff or teams from Man if the oppor-tunity arose.

Henderson said it did not com-ment on speculation and Mandeclined to comment.

Hedge funds have endured a torridsummer with many failing to antici-pate the swings in global markets.

Shares in Man

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HEDGE FUNDS

News 5CITYA.M. 13 OCTOBER 2011

ANALYSIS l Man Group plc

p

6 Oct 7 Oct 10 Oct 11 Oct 12 Oct

170

165

160

155

156.3012 Oct

Integration of GLG is still main issueTHERE was, until yesterday, a solitarybright spot for Man Group, the belea-guered hedge fund giant. AHL, itsflagship vehicle and main profit driv-er, was still performing well despite a

torrid time for the rest of the busi-ness, adding $1.5bn in the secondquarter while almost every otherfund lost money.

Thats no longer the case. AHL, likeother quant funds, has been caughtout by last weeks rally. Its long posi-tions in fixed income bonds and itsshorts on equities forced it to post a5.5 per cent loss for just one week.

To make matters worse, Goldman

turned negative on Man stock, on thegrounds that it expected poor thirdquarter performance with no visibili-ty on when things might improve.

The shares, which have lost some

37 per cent since its disastrousupdate a fortnight ago, closed downby six per cent yesterday.

AHL is a victim of see-sawing mar-kets rather than poor management.Quant funds computer drivenfunds that pick stocks based on com-plex algorithms often struggle

when markets act irrationally.The GLG funds acquired by Peter

Clarke last year are supposed to offset

any volatility in the performance of AHL but they are dragging downperformance even further.

In the second quarter, less than athird of Mans GLG funds managed

to outperform the average hedgefund. That suggests the integration ofthose fund managers isnt proceed-ing as planned.

AHL might be worrying investorstoday but we think GLG is a poten-tially much bigger problem.

BOTTOMLINEAnalysis by David Crow

Chief executive Peter Clarke has seen Man shares fall this week Picture: REUTERS

Turbulence prompts massexodus from hedge funds

INVESTORS pulled out around fivetimes more cash from hedge funds inthe month to 1 October than in theprior period, during one of the mostturbulent few weeks for stock and

bond prices since the 2008 financialcrisis dampened appetite for risk.

Gross outflows, as measured by theGlobeOp Capital Movement Index,

which tracks monthly net subscrip-tions and redemptions from hedgefunds running around $170bn

(109bn) of assets, hit 3.17 per cent

last month, the fourth time grossexits topped three per cent in 2011.

Withdrawals from hedge fundshad fallen to 0.58 per cent in themonth to 1 September, the lowestlevel since before the credit crunch asinvestors swapped safe havens likegold in favour of portfolios expectedto make money in all seasons.

GlobeOps index showed hedgefund inflows were still net positive,rising 0.31 per cent in the month to 1October on the back of a 3.48 per cent

gross influx of capital.

HEDGE FUNDS

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UNEMPLOYMENT hit a 17-year high in August as new private sector jobsfailed to offset public sector lay-offs,according to the Office for NationalStatistics figures, out yesterday.

According to the latest statisticsfrom the Labour Force Survey, 8.1 percent of the workforce was unem-ployed from June to August .

That represents an increase of114,000, taking the total to 2.57mfrom 2.45m in March to May.

And in September, 1.6m peopleclaimed job-seekers allowance, up17,500 on Augusts figures.

Youth unemployment, excluding

full time students, rose to 721,000, or20.2 per cent 74,000 more than inthe previous three months.

Total employment fell by 178,000over June, July and August. Only 2,000

were full time roles with the vastmajority of the fall accounted for byover 175,000 part-time jobs.

Analysts are split on the reasons forthe huge decline in part-time roles.

Large numbers of part-time staff wok in the public sector, which isresponsible for most losses, said the

Institute for Employment StudiesNigel Meager. Also, during the reces-sion many employers held ontoskilled workers, cutting hours insteadof jobs. Now demand is falling again,they may have to cut those jobs entire-ly.

David Kern, chief economist at theBritish Chambers of Commerce point-ed to other factors. Many retail staffare part-time, and the industry has

been hit by falling consumer confi-dence so may be cutting jobs.

From August 2009 to August 2010,400,000 part time jobs were created.Economists say this too may be a rea-son for the recent sharp decline.

Part-time jobs may be the easiest toadd and the easiest to lay off, saidHoward Archer, from IHS GlobalInsight. Furthermore, firms may alsosee full-time workers as more skilled.

Unemployment soarsas economy weakensBY TIMWALLACE

ECONOMICS


ANALYSIS l Unemployment rate

%

1992 1995 1998 2001 2004 2007

EU

Eurozo

25.0

20.0

15.0

10.0

5.0

0

ANALYSIS l Unemployment leve

million

1992 1995 1998 2001 2004 2007

4

3

2

1

0

2.57m

ANALYSIS l Inflation vs Earnings growth

11100908070605040302

6

5

4

3

2

1

0

4.5%

1.8%

ANALYSIS l Unemployment rate

%

1992 1995 1998 2001 2004 2007 2010

12.0

9.0

6.0

3.0

0

8.1%

ANALYSIS l Change on quarterthousand (Rounded)

All employment Full-time Part-time

300

200

100

-100

-200

-300

0

- 178,000 - 175,000

- 2,000

Jobs misery

1.6m people claimed job-seekers allowance in September Picture: REX

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Labour market estimatesJune - August 2011

Unemployment

2.57 million

Employment

29.10 million

114,000

178,000

26,000

17,500

Inactivity

9.35 million

Claimant Count1.60 million

(compared to March to May 2011)

September 2011(compared to August 2011)

4 years free servicing

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PUBLIC sector workers have seen payincreases outstripping those in the pri-vate sector, despite George Osbornespromise of a pay freeze.

Average regular pay (excludingbonuses) for state workers in the threemonths to August increased by 2.2 percent on the same period last year, tak-ing weekly pay to 470 per week.

Private sector workers only saw arise of 1.6 per cent, and regular pay islower at 424.

When retail price index inflation which stood at 5.2 per cent in August is taken into account, private sectorwages fell by around 3.6 per cent.

Increases in public sector payappear to contradict the chancellors2010 promise to freeze pay for twoyears.

HM Treasury did not respond to City

A.M.s requests for an explanation intime for publication.However, the rise may have come

about because of a 250 increasepromised to those earning under21,000. Average pay levels may alsorise as promotions are awarded.

When bonuses are included, payincreased by 2.1 per cent in the privatesector, to 458 per week, and by 2.3 percent in the public sector, to 476 perweek.

Public sector pay freezeignored as inflation bitesBY TIMWALLACE

UK ECONOMY


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STANDARD Life yesterday said it waspreparing for an explosion in its UK business as 400,000 new customerscould start saving into its pensionschemes for the first time next year.

The life and pensions group said ithad ramped up investment in pension

management software as it preparesfor an expected 150bn of pension

money to move around UK schemes inthe next five years.

New regulation will require about1.3m UK businesses to auto-enrolemployees into pension schemes fromnext year, which Standard Lifebelieves could start five to seven mil-lion workers saving.

The extra 400,000 customers shouldcome from the 35,000 firms it already

services with a corporate pensionplan, it said at its investor day.

We have more assets and employ-ees ready for the explosion in auto-enrolment, Standard Lifes UK chiefexecutive Paul Matthews said.

It said it expected surging demandfor its online platforms for pensionmanagement thanks to the RetailDistribution Review, which willchange fee models for financial advicefrom 2013. About 168bn has moved

onto platforms in the past 18 months,and it could reach 400bn by 2014.

Standard Life eyes 400,000 new clients

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Capital thinking #20

The ability to cut losses quicklyis the sign of a good trader.

We know what youre thinking yes we allknow that but when your trade is tumblingmore into the red, what do you do? You dothe opposite you run your losses and takeyour profits too early.

PEPSICO is planning to raise prices onsome drinks and snacks in the coming

weeks to help offset higher commodi-ty costs. The maker of Pepsi-Cola reported

slightly better than expected third-quarter earnings last night, sendingshares up four per cent.

The US firm reported net income of$2bn (1.27bn) compared with $1.92bna year earlier.

Revenue climbed to $17.58bn, upfrom $15.51bn a year ago and slightly

ahead of average analyst forecasts.Price hikes, on top of other increasestaken earlier this year, are helping thecompany stand by its full-year earn-ings growth target. PepsiCo expects2011 earnings to grow at a high single-

digit rate.But due to a recent strengthening of

the dollar, that forecast now onlyincludes a one percentage point boostfrom foreign exchange, having earlier

expected a two-point boost. The firmsaid it was too early to give an outlookfor 2012, given current volatility.

PepsiCo also denied rumours on Wall Street that it was planning tosplit its drinks and snacks divisions.

Pepsi posts better profitBYHARRY BANKS

CONSUMER

PENSION funds are shifting awayfrom gold and private equity as theylook for alternative investment strate-gies, according to a new report fromUBS.

Trustees have also cooled on invest-ments in hedge funds and exchangetraded funds, according to theEuropean Equity Strategy research.

The switch has been driven by theneed to find alternatives to fixedincome funds, which have providedlow returns.

Various strategies, such as hedgefunds and private equity have becomeless popular because of high fees andpoor liquidity respectively.

Interest in gold has declined,despite its price soaring in September,because of the lack of income it gen-erates, it said.

The report, produced by KarenOlney, head of thematic strategy inEuropean equities at UBS, highlight-ed the collapse in real governmentbond yields and said the proportionof pension fund assets invested inequities has fallen from 85 per cent toaround 45 per cent over the last twodecades.

Some major employers have turnedto more unorthodox measures in anattempt to plug pension deficits andare putting assets, rather than cash,into the schemes.

Last year drinks group Diageoagreed a plan with its pension fund touse up to 2.5m barrels of maturingScotch whisky to help tackle itsdeficit.

As the whisky matures, the plan books income. This prevents toomuch cash getting siphoned off into

the plan, the UBS report said. The report was produced after apensions event with Jeremy Dell ofactuarial and business consultantsLane, Clark and Peacock.

Pensionplans shiftstrategies

HOPES of a long-term recovery inBritains global buying power areboosted today with the publication offigures showing it has held on to itsposition as the second-most activenation in mergers and acquisitions.

British companies made $83.26bn(52.82bn) of acquisitions overseas sofar this year while foreign firmsspent $64.35bn on buying British businesses, according to researchfrom law firm Allen & Overy.

Only US firms carried out moreM&A work abroad, according to thefigures, which cover the first threequarters of the year.

The close transatlantic tradingrelationship was underlined by thefact that the US was the top targetmarket for British companies, fol-lowed by India, Germany France andCanada.

Deals for companies in utilities,financial services and infrastructureled the expansion overseas.

One of the most high-profile dealscame in June, when Pizza Expressfounder Hugh Osmond bought UStemporary power provider APR.

Richard Browne, head of the UKcorporate practice at Allen & Overy,said: Given the relatively stagnantstate of the UK economy, its not sur-prising that UK based companies arelooking abroad for growth and thatwe remain a net acquirer of foreignassets.

However, were unlikely to see areturn to the frothy levels of M&Aactivity witnessed a few years backany time soon. Steady growth for thenext few years would be welcome, but well only see that once issues

with the euro can be put to bed.The value of private equity deals isup 51 per cent so far this year, withthe number of transactions up 14 percent.

UK groupsbuy abroadamid slump

VENTURE capitalist Jon Moulton will raise new funds for hisBetter Capital vehicle, with ana-lysts speculating it could be asmuch as 100m.

Better Capital has already bought a string of companies,

including the Readers Digestand engineer Gardner, since

floating two years ago.The company, through its Enigmatic

Investments business, recently had a9.7m bid for Clarity Commercerejected, prompting Moulton (pic-tured) to question the firms credi-bility. Clarity responded yesterdayby saying it has received several

indicative expressions ofinterest [with] signifi-

cantly better overallreturn.

Moulton set to raise funds

Pepsi chief executive Indra Nooyi plans to raise the price of its snacks Picture: REUTERS

BY PETER EDWARDS

M&A

BYALISON LOCK

INSURANCE

BY PETER EDWARDS

PENSIONS

BY STEVE DINNEEN

PRIVATE EQUITY

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THE PIMCO Total Return Fund, the worlds largest bond fund, increasedits exposure to mortgages inSeptember and showed a dramaticdrop in cash equivalents and moneymarket securities for the same period,according to its website yesterday.

Pacific Investment ManagementCo, which has $1.3 trillion in assetsunder management, increased expo-sure to mortgages in September to 38per cent from 32 per cent in August.

And while the funds exposure tothe US Treasury market remainedsteady at 16 per cent for the secondmonth, the holding marks a bigdeparture from Pimcos exit from themarket at the start of the year on fearsof inflation eroding the value of

bonds.In late August, Pimco co-chief

investment officer and Total ReturnFund manager Bill Gross said the pre-cipitous decline in Treasury yieldsreflected a high probability of reces-

sion. The yield on the benchmark 10- year US Treasury note then droppedbelow two per cent to 1.98 per cent inthe wake of the Feds Operation Twist.

Yesterday, the 10-year yield stood at2.16 per cent.

Equally noticeable was the TotalReturn Funds dramatic drop in cashequivalents and money market securi-ties of negative 19 per cent inSeptember from negative nine percent in August, the funds websiteshowed.

Meanwhile, Pimcos head of globalequities said yesterday that while the

global outlook remains very volatile,the firm is not counting on theEurozone collapsing.

I personally think the [EuropeanCentral Bank] will end up putting alot more sovereign debt on its balancesheet, said Neel Kashkari. Not

because it wants to, but because it hasno choice. Whether they expand theEFSF or not, the ECB is the back-up ...

They hate it, but that is what they are, just like the Federal Reserve was inthe US.

Pimco beefsup exposureto mortgagesBYHARRY BANKS

US ECONOMY

CITY VIEWS: HOW BADLY HAS THE BLACKOUT HIT BLACKBERRY?Interviews by Phoebe Torrance

I dont think it has done any good it may make

people want to change phone completely. It is hardbecause so many people depend on their mobilephone for business or personal reasons. Nocompany can afford to mess up like that.

FARAZ KHALID | ANTARES

It will have some damage, but other models,

like the iPhone, compared to BlackBerry are soexpensive, changing your phone would be ahassle. It is only the first time theseblackouts have occurred.

THOMAS HUS | GROUPAMA TRANSPORT

Obviously it has had some negative effect, but I am sure they will be able to bounce back. This sort of thing couldhappen to anyone! I have a BlackBerry and personally it has not affected me enough to cause me to wantto change phone.

PETER GODFREY | JRP UNDERWRITING

* These views are those of the individuals above and not necessarily those of their company.

THIS week we are asking membersof our readers panel whether RIMsreputation can recover from threedays of server outages, which haveprevented millions of customersfrom accessing emails on theirBlackBerrys.

We want to know how badly the brand has been damaged, andwhether it will eventually lose busi-ness to rivals such as Apple.

To answer these questions andothers, readers can apply to join the

Voice of the City panel made up

exclusively of those working in busi-ness and financial services in andaround the City by applying at

www.cityam.com/panel The results of the poll will be

printed in Mondays edition ofCityA.M.

In partnership with

PoliticsHome.comPoliticsHome.com

How badly has RIMs reputation been hurtby three days of BlackBerry server failures?

Apply to join today at www.cityam.com/panel

8/3/2019 Cityam 2011-10-13

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Subject to terms, conditions and availability. Valid for travel 8 Nov 11 - 28 Mar 12. Book by 24 Oct. Limited availability over peak travel periods,holiday periods and sporting events. Handling fee per passenger per one-way flight: 6 per credit/debit card transaction may apply. Supplementapplies for travel Fri - Sun.

Visit www.thelionking.co.uk or call 0844 871 3000

Photos of London Company by Catherine Ashmore and Lois Greenfield. Kissy Simmons as Nala

Disney

SEE

ITON

SUND

AY

Matineeat2

.30pm

LUNCH PRICES HIKED TOHIGHLIGHT PROBLEMS

FACED BY THIRD WORLDLONDONERS may be accustomed tosigning away the vast majority oftheir pay packet on the capitals ris-ing rents, but what if everyday food

was as much of an outlay, account-ing for 50 to 80 per cent of incomeevery month?

Thats what the Red Cross is hop-ing to highlight as it takes over pop-ular City lunchspot SpitalfieldsMarket today, upping prices by 500-800 per cent to show how food priceinflation is hitting the worlds poor-est countries.

The Food Insecurity Market willset up shop in Spitalfields todayahead of World Food Day on Sunday,hosted by TV star and chef Hardeep

Singh Kohli.With the price of a loaf of bread

hiked to between 5-7, and a tin of baked beans set to hit around 6,The Capitalistthinks it doesnt sound

like a bad deal compared to some ofthe Citys more pricey establish-ments...

A PERFECT PRESENTFOR everyone planning ahead forthe perfect Christmas present for a

wife, mother, girlfriend or sister,Scottish auctioneers Lyon &

Turnbull may just have the answer.The historic auction house is hold-ing a sale on 30 November to sell aspecially commissioned pendantmade by jewellers Eric N Smith.

Already given the seal of approval bysupermodel Stella Tennant, all pro-ceeds from the sale will go to the

Teapot Trust, which raises funds toprovide art therapy for chronicallyill children. Jewellery andcharity...the Capitalistcan think of no

better way to a womans heart.

EDITED BY

ELIZABETH FOURNIERGot A Story? [email protected] The Capitaliston Twitter: @citycapitalist

The CapitalistCITYA.M. 13 OCTOBER 2011 11

City workers lunching in Spitalfields Market today might be surprised by the higher than normal prices

8/3/2019 Cityam 2011-10-13

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BAE SYSTEMS has warned that flood-ing in the US and significant uncer-tainty over future levels of militaryspending may disrupt short-term trad-ing, but it remained confident of win-ning further contracts despite asqueeze in government budgets.

The worlds second biggest defencecontractor said trading for the threemonths from 1 July had been in line with expectations and earnings pershare for the year will be broadly sim-ilar to 2010.

BAE, which announced last monththat it will cut around 3,000 jobsacross the UK due to slower sales of theEurofighter jet, said: [W]ith con-straints on government expenditurein many of the groups principal mar-kets, affordability continues to be akey focus for customers.

The group, which makes theTypoon aircraft as part of a four-nation

consortium including Frances EADS,delivered its first 24 Typhoon to theRoyal Saudi Air Force in the period.

It said it was pursuing a number ofsignificant business opportunitiesincluding the possible sale of aTyphoon aircraft to India as well as theSultanate of Oman.

BAE warned it is also assessing theimplications of serious flood damagean electronics facility on the US eastcoast, which could lead to some salesbeing deferred to 2012.

BAE warns ofuncertaintyin US budgetsBYKASMIRA JEFFORD

DEFENSE

BAEs chief Ian King announced 3,000 UK job losses last month Picture: REUTERS

News12

ANALYSIS l BAE Systems

p280

270

260


282.0012 Oct

Ryanair keeps pressureon Aer Lingus for payout

RYANAIR ramped up pressure on AerLingus yesterday, calling in an openletter for the airline to take urgentaction to improve its share price.

Undeterred by Aer Lingus plan fora shareholder meeting announcedyesterday, Ryanair penned its thirdopen letter in the space of a monthto ask for a 0.20 per share specialdividend.

Ryanair, which holds a 29.8 percent stake in Aer Lingus, has also

asked the Irish airline to halt pay-ments into its defined contribution

pension scheme until shareholdersgive their approval.

Ryanair chief executive MichaelOLeary also repeated demands to seea report commissioned by Aer Lingusinto a 30m (26.3m) tax settlement.

Aer Lingus said yesterday that itwill use a meeting on 4 November toseek approval from shareholders tocancel up to 500m in reserves, giv-ing it flexibility to return cash toinvestors.

Shares in Aer Lingus, which havelost nearly half their value since the

start of 2011, closed flat at 0.64 yes-terday.

TRANSPORT

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A FORMER lawyer and Wall Streettrader caught up in the US govern-ments crackdown on insider tradingthat ensnared Galleon founder RajRajaratnam was last night ordered toserve two years and six months inprison for his role in the case.

Michael Kimelman, who co-found-ed trading firm Incremental Capital with brothers Zvi Goffer andEmmanuel Goffer, was convicted by aManhattan federal court jury in Juneon securities fraud and conspiracycharges alongside the Goffers.

Rajaratnam, who was convicted in

May, is due to be sentenced today.

JUST 33 companies in the UKs FTSE100 have set targets for the percent-age of women they plan to appoint totheir boards, ignoring calls for board-room equality to be addressed.

Six months after the publication ofLord Mervyn Davies government-commissioned report into women on boards, a progress review by theCranfield School of Management hasshown that just a third of firms havetargets in place.

Just ten firms are aiming for morethan a 10 percentage point increasein female board representation,despite Lord Davies saying FTSE 100boards should aim for a minimum of25 per cent women by 2015.

At a Downing Street reception yes-terday, Prime Minister DavidCameron welcomed the progress that

had been made, but said there wasstill a lot to be done.

Since the Davies Report was pub-lished there have been 21 new femaleappointments to FTSE 100 boards 22.5 per cent of all appointmentsmade. Of these just three are execu-tive positions, with the rest takingnon-executive positions.

Women now make up 14.2 percent of FTSE 100 directors, anincrease from 2010s figure of 12.55per cent.

The Prime Minister also confirmedyesterday he had written to the FTSE350 firms that are yet to set out theirplans, encouraging them to set goals.

FTSE 250-listed engineer Fennerand bookmaker William Hill bothannounced yesterday they had hirednew female directors to their boards,as research showed 133 FTSE 250boards now have female-held direc-torships.

Most of FTSE

are ignoringDavies report

MINING group Anglo American saidit would consider the implicationsof Codelcos announcement that ithopes to use its option to buy Anglos49 per cent shareholding in itsChilean copper assets.

State-run Codelco said its has linedup $6.75bn (4.3bn) of funds in a dealwith Japanese trading house Mitsui.

Anglo has held the two mines anda smelter since 2002, but Codelco hashad an option to buy since 1978.Codelco has the opportunity to exer-cise its option every three years, withthe next such window coming up in

January.

Anglo may loseChilean minesUS jails three inhuge fraud case

BY ELIZABETH FOURNIER

CORPORATE GOVERNANCE

ENFORCEMENT

MINING

A six-month update has showed firms falling short of Lord Davies targets Pic:REUTERS

News 13

8/3/2019 Cityam 2011-10-13

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COVERED WARRANTS ARE LEVERAGED PRODUCTS. CAPITAL IS AT RISK AND LOSSES MAY EXCEED THAT OF INVESTING IN THE UNDERLYING ASSET DIRECTLY.

LUXURY goods group Burberry battedaway fears of an economic slowdownin its key Chinese market yesterday asit unveiled forecast-beating results.

Revenues for the three months toSeptember hit 463m above a fore-cast for 448m by a poll of analysts.

Luxury goods stocks have fallensharply in recent weeks on signs of aneconomic slowdown in China -- theengine of recent strong growth indemand for luxury goods -- and fears

the Eurozone debt crisis could tip theworld back into recession.

But Burberry, whose shares werealso given a boost after the launch ofits collection at London Fashion Weeklast month, has bucked the trend.

There is no evidence of any slow-down... What we have seen is consis-tent strong brand momentum and business growth, Burberry financedirector Stacey Cartwright said.

Comparable store sales growthaccelerated to 16 per cent in the sec-

ond quarter from 15 per cent in thefirst, with sales in China steady ataround 30 per cent.

Burberry said the first-half operat-ing margin in its retail and wholesale businesses would be broadly flat,compared with a previous forecast fora small decline.

Demand was driven by new storeopenings and by tourists fromaround the world, including China,Brazil and Russia, Cartwright said.

She added that she did not expectany change in analysts consensusfull-year profit forecast of 370m.

Demand forBurberry isstill boomingBY JOHN DUNNE

RETAIL


ANALYSIS l Burberry Group

p1,300

1,250

1,200


1,308.0012 Oct

ANALYST VIEWS: CAN BURBERRY MAINTAIN ITS SALES MOMENTUM?By John Dunne

RICHARD HUNTERHARGREAVES LANSDOWN

The company intends to continue itsexpansion plans, whilst remaining flexible intapping on the brakes should circumstancesdictate. Continuing investment in its businesswill of course weigh on profit in the mediumterm, whilst the company could become a vic-tim of its own success given increasingly toughcomparatives. Even so, Burberryremains a retail growth success.

DAVID JEARYINVESTEC

Retail revenue growth (45 per centunderlying) drove the beat. Concerns aboutChinese growth have weighed on the shares oflate we feel this is overdone. Operating mar-gin guidance has been nudged up and full yearguidance reiterated. Although Burberry willnot be immune from continued market turbu-lence, on a medium-term view westrongly reiterate our Buy.

CHRIS ALEXANDER | BNP PARIBAS

Burberrys second quarter and first half trading update is very resilient and has come in as per estimates indi-cated in our preview, with underlying sales growth of 30 per cent giving first half sales of 830m. Those anticipating amore severe slowing in growth rates are likely to revise estimates upwards but overall we expect limited changeto current forecasts.

Chief executive Angela Ahrendts has steered Burberry on to a path of impressive growth. Picture: REX

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TRAVIS Perkins yesterday reportedstrong sales at its heating andplumbing business BSS, which offset

weakness at its Wickes DIY chain.Across Travis Perkins businesses,

like for like sales rose by 5.9 per centover the nine months to September.

The company said sales growth atits merchanting business and at itsplumbing and heating unit BSS off-set a particularly challenging periodfor Wickes.

Travis Perkins said third quarterturnover at builders merchantdepots open more than a yearincreased 7.7 per cent, whileturnover was up 2.6 per cent at BSS.

Chief executive Geoff Cooper said:We continue to take market shareagainst a tough market backdrop,confirming the sustainable strengthof our organic growth strategy.

Our positive merchanting andBSS performance is balancing theeffect of a challenging consumer

environment for our retail busi-ness.

Wickes, the 200-store DIY chain,saw same store sales drop by two percent in the three months to October.

Kitchen and bathroom sales weredown by 12.4 per cent over the lastnine months.

Shares in Travis Perkins had lost22 per cent of their value over thelast six months before the latestresults were published.

However, they rose eight per centafter the market update yesterday asanalysts saw the performance asresilient.

Travis Perkins

is buoyed byBSS sales lift

JAPANS Fast Retailing yesterday fore-cast a 16 per cent rise in annual oper-ating profit thanks to higher sales atits domestic Uniqlo outlets andexpansion of the budget clothingchain, after posting its first profit risein six quarters.

Asias top apparel retailer isexpanding overseas to offset slowing

growth in Japan due to persistentdeflation and increased competition.The company said operating profits

rose 33 per cent to 11.8bn (90m) inthe fourth quarter

The year to August 2012 numbersare based on assumptions of overseasprofits rising, so it all depends onhow the overseas expansion goes,said Mitsushige Akino, chief fundmanager at Ichiyoshi InvestmentManagement.

Fast Retailing getsboost from Uniqlo

BY JOHN DUNNE

CONSTRUCTION

BY JOHN DUNNERETAIL


Charlize Theron, who is a brand ambassador for the Uniqlo clothing range

ANALYSIS l Travis Perkins

p

840

800

760


865.0012 Oct

Esprit hit by claim that itoverstated shop numbers

SHARES in fashion chain Espritdropped yesterday after it wasclaimed that it had exaggerated thenumber of stores it has in China.

The company has said it has 498outlets and 404 retail spaces indepartment stores in mainland China a number disputed in a report inNext magazine.

Next reported that it had foundnumerous instances of exaggeration,saying that out of 37 directly operat-

ed stores and 35 sales counters in

department stores in Shanghai, sevenof the total did not exist andreporters were unable to contact 13

with the telephone numbers provid-ed. Esprit is the largest clothes compa-ny listed in Hong Kong and has said itplans to double its sales in China tooffset weak European markets.

According to the companys annualreport Esprit had 300 directly operat-ed stores in China at 30 June. Thatrepresents a net increase of 12 fromlast year. The company shares wentdown 14 per cent after the dispute

surfaced.

RETAIL

8/3/2019 Cityam 2011-10-13

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FRESNILLO, the Mexican preciousmetals miner, yesterday cut its sil-ver production guidance for 2011,after the company was to forced toimprove safety conditions at all ofits projects following the death oftwo miners in July.

The FTSE 100 company said quar-terly production decreased by 5.8per cent compared to the thirdquarter of 2010, mainly due to theslowdown of production at its

largest mine in Mexico, from whichFresnillo takes its name.

Fresnillo said both deaths werecaused by falling rocks whichresulted from breaches ofFresnillos safety policies and saidit continued to reinforce safety con-ditions.

The group lowered its guidancefor the full year from its earlier fore-cast of 44m to 41m ounces of silver.

However, the company revised itsfull year total production target for

gold from 400,000 to 430,000ounces because of an ongoingexpansion at two mines in Mexico.

Headquartered in Mexico City,Fresnillo is the worlds largest pro-ducer of silver and Mexicos second-largest gold miner. It floated on theLondon Stock Exchange in 2008.

Numis analyst Cailey Barkerdescribed the results as a mixed bag but generally disappointing,after forecasting 10.5m ounces ofsilver output for last quarter.

Shares fell two per cent, closingat 1,665p last night.

Fresnillo cutsguidance forsilver output A RUSSIAN court is likely to throw outa $2.8bn (1.8bn) lawsuit brought by ashareholder against two BP executiveson the board of the oil majors Russian

joint venture, TNK-BP, after a judgedenied the claimant more time togather the necessary investor support.

Andrey Prokhorov, a minority share-holder in TNK-BP, filed a claim againstthe execs over its failed alliance withstate-controlled Rosneft, despite BPsprevious agreement to use TNK-BP asits main investment vehicle in Russia.

Prokhorov, who owns 0.0000106 percent of TNK-BPs shares, had asked theSiberian court to extend the deadlinefor investors to join the claim whichthe judge yesterday denied.

This means the case should bethrown out on the date set for a hear-ing on 10 November if Prokhorov does

not gather support from at least oneper cent of TNK-PBs investors.

BP still faces a separate $4.9bn law-suit brought by Prokhorov and otherminor shareholders over BPs failed tie-up with Rosneft.

But it was not all good news for BP the US offshore drilling regulator yes-terday issued sanctions against BP andcontractors involved in last yearsDeepwater Horizon disaster, leavingthem open to fines. BP was given sevenof the 15 non-compliance notices.

BHP BILLITON yesterday approved$1.2bn (761m) in pre-commitmentcapital to start expansion work on itsOlympic Dam copper and uraniummine, which analysts say could nearlycost 30 times this sum to develop fully.

The funds will be used to buytrucks, build worker housing and forother items requiring lengthy leadtimes, it said.

BHP said it will not make a final

decision to go ahead until mid-2012,

after it weighs up the 150 environmen-tal conditions imposed on the projectby the national and South Australiastate governments this week.

The Olympic Dam project team iscompleting studies to create one of the worlds largest open pit mines, withthe potential to increase copper pro-duction from around 180,000 tonnesper annum to 750,000 tonnes perannum and beyond, BHP chief execu-tive Marius Kloppers said in a state-ment.

BP gets upperhand in Russiandirector lawsuit

BHP Billiton commits to$1.2bn capital for mine

The Olympic Dam project could cost up to 30 times the initial capital Pic: REUTERS

BYKASMIRA JEFFORD

MINING

ENERGY


BYHARRY BANKS

MINING

ANALYSIS l Fresnillo

p1,700

1,650

1,600


166512 Oct

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HOME EVENT


20-27 November

The O2

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US PROSECUTORS indicted two private bankers with Julius Baer for helping wealthy Americans evade taxes, draw-ing yet another Swiss bank into thecrosshairs of the US Justice Departmentamid a widening crackdown on off-shore tax evasion.

While the indictment of the two bankers, Daniela Casadei and FabioFrazzetto, did not name their employerand referred only to Swiss Bank #1,Julius Baer confirmed the indictmentconcerned one current and one formeremployee.

The bank is one of a number of Swissfinancial institutions supporting theongoing negotiations between the USand Switzerland and is cooperatingwith the US government investigation,Julius Baer said in a statement.

The two bankers and a number ofunnamed colleagues helped about 180

rich American clients of Julius Baer hideabout $600m (380m) in secret Swissbank accounts that went undeclared tothe US Internal Revenue Service, accord-ing to the indictment.

Casadei and Frazzetto were accusedof conspiracy to defraud the US. According to court papers, Casadei worked at Julius Baers Zurich officefrom at least the early 1990s andFrazzetto worked at the Zurich officefrom around 2005.

Baer bankers

accused of taxevasion role

Julius Baer, run by CEO Boris Collardi, said its staff were involved in the case Pic: REUTERS

BYHARRY BANKS

ENFORCEMENT

ANALYSIS l Julius Baer Gruppe AG

CHF

32.50

31.50


32.9712 Oct

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DUTCH chip equipment maker ASMLhas said that tablets and smart-phones are driving the sector, but itsees signs of slowing growth else-where in the industry.

ASML, seen as a bellwether for thetechnology sector, said 2012 will be adifficult year to forecast. Chieffinancial officer Peter Wennink saidthe slowdown in the semiconductorindustry is evident from ASMLsfourth-quarter order book, althoughthis is still understood to be higherthan its third quarter.

Technology investors eagerly awaitdetails of ASMLs order book develop-ments, which serve as a barometer forthe big chip makers such as Intel. Thereaction was largely positive yester-day, with ASML shares surging morethan six per cent. Intel and chipdesigner ARM Holdings also rose byaround one per cent.

Wennink said that unlike this timelast year, when bookings for technolo-gy upgrades and capacity expansionreached record levels, now cus-

tomers arent certain about what thefuture will bring, which isnt givingus any confidence to say anythingabout 2012.

However, he said the semiconduc-tor equipment used for producingchips in smartphones and tablet com-puters will continue to see demand.He added that, if necessary, ASML isable to cut its cost base by up to 20 percent within six months.

ASML said it expects fourth-quartersales to be above 1.1bn (960m). Inthe third quarter it made a net profitof355m, up 32 per cent from a yearago, on sales up 24 per cent at1.46bn.

ASML sees a

slowdown inchip industryBY STEVE DINNEEN

TECHNOLOGY


ANALYSIS l ASML Holding NV

29.00

28.00

27.00

26.00


28.1912 Oct

Online surge spearheadsrise in marketing budgets

MARKETING budgets were revised upin the last quarter, ending a ninemonth period of decline for the ailingindustry, according to the latestIPA/BDO bellwether report.

For the first time since the secondquarter of 2007, budgets for all sectorswere revised up. The internet saw thesteepest increase by a wide marginand the largest quarter-on-quarterjump in the history of the report.

An encouraging 21 per cent of com-

panies reported an upward revision inmarketing spend, compared to 17 per

cent that reported a reduction. Theresultant net balance rose to a one-and-a-half-year high of 3.4 per cent.

Direct marketing budgets wererevised upwards to the greatest degreefor a year.

However, business optimism isfalling, with marketing executivesconfidence for the industries in whichthey operate hitting a two-and-a halfyear low.

Meanwhile, a separate report sug-gests TV advertising has become moreeffective, with an average return of

1.70 for every 1 invested, 22 per centhigher than five years ago.

TECHNOLOGY

NEWS | IN BRIEF

Meggitt wins US army contractEngineering firm Meggitt yesterdayunveiled a $475m (301.5m) contract toprovide the US army with live-fire train-ing ranges. Meggitt, which was promot-ed to the FTSE 100 index last month,said the fixed-price contract would runover the next five years at US army

operations worldwide. Meggitt is work-ing alongside four other companies onthe contract, including defence giantLockheed Martin and Saab Training.Ronald Vadas, president of MeggittTraining Systems, said in a statement:"Our selection is testament to thestrength of our 15-year relationship withthe US Army and we look forward tocontinuing to respond to its evolvingrange development and modernisationrequirements.

Infosys earnings soar 10 per centInfosys, Indias second largest softwareservices exporter, yesterday reported arise in quarterly profit of almost 10 percent. It also cut its full-year sales outlookby less than expected, easing investorworries of a sharp slowdown in the out-sourcing sector. Kicking off results for

Indias 48bn IT sector, Infosys sharesended seven per cent higher yesterday totheir strongest level in more than twomonths, outperforming a 2.5 per cent risein the broader Mumbai market.

Media Corp sales are on the riseAdvertising and online gaming groupMedia Corp said revenues have risen 46per cent in the year to the end ofSeptember, despite challenging marketconditions. The firm said unaudited gross

profit was up 16 per cent at 5.8m, andthat on a like-for-like basis, losses areexpected to narrow compared with lastyear. Chief executive Justin Drummondsaid the firm had delivered a pleasingperformance this year, adding in a state-ment that the firm is exploring bolt-onacquisitions.

Sony to recall 1.6m Bravia TVsSony may recall 1.6m of i ts Bravia LCDTV screens after failures caused severalto melt or emit clouds of smoke. At least11 TVs in Japan have been struck by thefaulty part. The setback is the latest blowfor Sonys struggling TV business, whichis heading for its eighth straight year oflosses as it battles fierce competitionfrom Samsung and LG of South Korea. Noinjuries have been reported.Peter Wennink said ASMLs customers are uncertain about the future Picture: REUTERS

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CiCCOMPANY INVESTMENT CLUB

BRITISH American Tobacco (BAT) hascompleted its $452m (270m) swoopfor Colombias Protabaco.

The newly acquired firm is the sec-ond largest cigarette company inColombia, selling 5.5bn domestic cig-arettes in 2010.

Its biggest brand, Mustang, is thecountrys second best selling ciga-rette with a market share of around18 per cent. BAT itself sold 708bn cig-arettes in 2010.

BAT said funding for the cash acqui-sition will be from the groups existingresources. The deal represents a multi-ple of 11.3 times Protabacos $40mdomestic 2010 Ebitda on net domesticrevenues of $110m.

BAT, which has 200 brands world-

wide including Dunhill, Lucky Strikeand Kent, was advised by investment

bank Rothschild on the Protabacodeal.

The company has said one of its keyaims is to make acquisitions to growacross the globe.

Last quarter BAT reported anincrease in earnings after it raised itsprices to counter what it branded atough sales environment, with vol-umes down on the previous threemonths.

BAT finalisesits acquisitionof ProtabacoBY STEVE DINNEEN

RETAIL

ROCKHOPPER Exploration yesterdayagreed a deal to give it greater expo-sure to its oil find in the FalklandIslands, and said it has received inter-est from potential partners for amajor expansion.

Rockhopper, which this week liftedits oil estimates for the Sea Lion field

by 20 per cent, said it will acquire a

52.5 per cent extra stake in part of alicence controlled by another UKexplorer, Desire Petroleum.

Rockhopper will in return pay for awell to be drilled on the licence. Thefirms shares jumped 10.8 per cent yes-terday.

The group will fund the plan witha share placing, run by CanaccordGenuity and Merrill Lynch, which yes-terday raised 46.5m from institution-al investors and employees.

The firm added that it had beenapproached by industry partners look-ing to co-invest with it in a $2bn proj-ect to develop pipelines and a floatingproduction system needed to get oilpumping from its Sea Lion discovery,to be funded by a combination of part-ner financing and debt.

Rockhopper plans to open up anonline data room towards the end ofthe year to allow interested parties tolearn more.

Rockhopper jumps again asit ramps up Falklands projectBYMARION DAKERS

ENERGY

Rockhopper chief executive Sam Moody

ANALYSIS l British American Tobacco PLC

p

10 Oct 11 Oct 12 Oct6 Oct 7 Oct

2,780

2,760

2,740

2,840

2,820

2,800

2,720

2,751.0012 Oct

ADVISING British American Tobaccowas Rothschild.

Roberto Paiva, vice chairman ofRothschild Latin America and a boardmember of Rothschild Mexico, led thedeal team on BATs acquisition ofProtabaco.

Cambridge-educated Paiva has 20

years experience, 10 of those with

Rothschild and previously Lazards. Herecently handled the 1.2bn acquisi-tion by MAN of Volkswagens truckbusiness in Brazil.

The deal for Protabaco saw negoti-ations starting in January, with a teamof bankers in London backing up Chile-based Paiva. He dealt directly with thefamily owners of the Colombian firm,which had been an acquisition targetfor rival Philip Morris.

The negotiations were described assmooth and the price tag was thesame as that offered by Philip Morristwo years ago.

Paivas success in sealing the dealnow gives BAT a strong footprint in

the Colombian market.

MEET THE ADVISERS

ROBERTO PAIVA

ROTHSCHILD

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RADICAL changes to the tax systemare needed to kick-start business activ-ity and counter unemployment in theabsence of strong UK economicgrowth, two think-tanks have argued.

Taxes on employment could be cutby 14bn to create jobs and raise eco-nomic growth because current lowgrowth levels threaten the govern-ments deficit-cutting target, theCentre for Policy Studies (CPS) says in areport published today.

Its findings echo calls by theOrganisation for EconomicCooperation and Development (OECD)

yesterday for tax breaks on businessesto encourage them to employ newstaff, and tax credits to raise incomesfor struggling workers.

It is essential that a strong pro-growth message is heard, both domes-tically and internationally, CPSeconomist Ryan Bourne said.

Bourne warns that if the UK growsat half the rate forecast by the Office ofBudget Responsibility until 2015, thedeficit would still be nine per cent ofGDP only two percentage pointslower than in 2010.

He proposes that the governmentshould lift 14bn from the tax burdenon business and workers, funded byreductions in budgets for internation-

al aid and pensions reform, to boostjobs and investment.

It calls for a drop in headlineemployer National Insurance contribu-tions to 12 per cent from 13.8 per cent,and a four percentage point reductionin corporation tax to 21 per cent.

The government should also aban-don the 50p top rate of income tax rateand raise the personal allowance to10,500, it says 500 more than thecoalitions current target.

The OECD suggests giving low-income workers, older people and fam-ilies tax concessions to raise their

household income. It wants to see gov-ernments targeting tax breaks at thosethat feel the burden of higher taxesmost keenly, to encourage low-skilledand second earners back to work.

But it too backs pro-growth changesto employer taxes such as social securi-ty contributions and payroll taxes suchas NI contributions as a way toincrease labour demand.

Half of all tax revenue in OECDstates including the UK, Germany,France and the US is generated byemployment income, making it a crit-ical lever for growth, the OECD said.

These tax burdens discourageemployers from hiring. They alsoreduce the incentives for the unem-ployed to look for a job, and for thosein employment to work longer or hard-er, it added.

UK told to cuttaxes on payand businessBYALISON LOCK

POLITICS

THE NEW round of quantitativeeasing (QE2) is necessary to boostthe UKs economy and keep infla-tion from falling below target,according to Bank of England chiefeconomist Spencer Dale (pictured),speaking yesterday.

Last Thursdays monetary policycommittee (MPC) meeting saw the

asset purchase programme extend-ed by 75bn, from the current levelof 200bn.

International problems are push-ing the economy downward, Daletold Reuters, and those internation-

al pressures will be the main factorthe committee will take intoaccount when deciding futuremoves.

I cant think of any obviousperiod in history where weveseen such an acute and pro-longed period of financialturmoil, he said.

But I think whats verydifferent now to the GreatDepression is whats happen-

ing in the real economy,he said. The comments

follow MPC gover-nor Sir MervynKings claim last

week that the financial crisis maybe the worst even seen.

Dale voted for a 0.25 per centincrease in interest rates in every

monthly meeting fromFebruary through to July ofthis year.

CPI inflation stands at 4.5per cent, well above target

but the MPC loosened policyfurther because it fears infla-

tion will fall below target in

the future. The mreleased next weekwill show whether or

not he backed QEsexpansion.

QE2 needed to combat weak globaleconomic outlook, says MPCs Dale

BY TIMWALLACE

UK ECONOMY

ECB lendingup as bankslose trust

BANKS increased borrowing from theEuropean Central Bank (ECB) as con-cern grew over access to finance, fig-ures out yesterday revealed.

Institutions borrowed 4.14bn(3.64bn) overnight on Tuesday, in the

wake of the failures of Dexia, MaxBank and Proton Bank.

Lending has remained high at over1bn each night for more than aweek. Overnight deposits also jumpedat the start of this week because banks

were concerned about each otherscredit-worthiness.

Meanwhile, falling revenuespushed Greeces budget deficit widerover the nine months to September,the government announced in a state-

ment yesterday.The deficit for 2011 so far stands at

19.2bn a 15.1 per cent rise on thedeficit for the same period of 2010,

which stood at 16.65bn. The government announced that

expenditure increased by seven percent compared with the first ninemonths of last year.

Debt servicing costs increased by2.38bn, social security funds weregiven an extra 1.8bn to make up forreduced re

cityam 2011-10-13

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