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FTSE 100 5,410.35 -26.35 DOW 11,577.05 +180.05 NASDAQ 2,657.43 +42.51 /$ 1.57 unc / 1.14-0.01 /$ 1.37 unc

Shock as Apple missesits earnings forecasts

SHARES in Apple plunged 6.5 per centin after hours trading last night asdisappointing sales of its iPhonemeant the tech giant missed its quar-terly earnings target.

Around $27bn (17.2bn) was wipedoff the value of Apple when itannounced its results after the stockclosed at $394.78. In its first updatesince the death of co-founder Steve Jobs, it reported fourth-quarter

iPhone sales of 17.07m, compared tothe 20m expected by analysts. Applesaid consumers had put off spendingas rumours grew about the newiPhone 4S, which went on sale lastweek.

Overall quarterly revenue rose 39per cent to $28.27bn but missed WallStreets prediction of $29.69bn. Netprofit was up 54 per cent to $6.62bn.

Apple also said sales for the year to24 September rose 66 per cent to$108.25bn. Net profit was up 85 percent to $25.92bn.

BY PETER EDWARDS

TECHNOLOGYGOLDMAN Sachs shocked investors by

reporting the second-ever quarterlyloss in its history as a public companyyesterday.

The banks net income plunged to a$428m (273m) loss, with pre-tax prof-its falling from $2.8bn last year to a$730m loss in the third quarter of this year. Chief executive Lloyd Blankfeinadmitted he was disappointed.

The bottom line was hit particularlyhard by drops in the value ofGoldmans proprietary investments:its investing and lending division lost$2.48bn versus a gain of $1.8bn in the

same period of 2010.The biggest contributor to the loss

was a drop in the value of its invest-ment in Commercial Bank of China,which alone cost Goldman $1.05bn.

The investment bank also sufferedfrom revenues melting away asinvestors sat on their hands. Revenuesfrom equity underwriting plunged by71 per cent and in debt underwriting,the bank brought in just under half ofthe income generated last year.

But secondary trading activity isalso down in the banks largest divi-sion: top-line income in fixed income,commodities and currencies fell off by36 per cent to $1.73bn.

The lacklustre performance saw

bonus pots and staff numbers dropsharply: the cost of paying the banksstaff dropped 59 per cent to $1.58bn,in line with the 60 per cent drop inoverall revenues.

As part of a costs crackdown,Goldman cut four per cent of itsemployees, bringing its headcountdown to 34,200 and recording averageannualised pay of $185,000.

City A.M. understands that the bankhas assured some bankers in itsLondon office that there will not bemass lay-offs in the City, but not all ofits staff are convinced and some fearthat large-scale UK job cuts couldcome down the line in addition toshrinking bonus payments.

BY JULIET SAMUEL

BANKING

GOVERNOR: TIMEIS RUNNING OUT

www.cityam.com FREE

Goldman plunges into red

BUSINESS WITH PERSONALITYIssue 1,492 Wednesday 19 October 2011

Certified Distribution29/08/11 till 02/10/11 is 98,447

such measures.Kings chilling verdict on the

potentially near-bankrupt state ofsome banks and sovereigns imposesmore pressure on the Eurozone, where crunch meetings are sched-uled for the coming days.

Policy-makers in the UK alone are

limited in how much they can do toavert a further economic downturn,King said. Our fate rests to a consid-erable extent on the policies pursuedby our trading partners.

While governments in the Westneed to rein in their spending and borrowing, King called for higher

spending by the surplus countries,stating that countries such as Chinaand Germany share a major respon-sibility to respond to our presentdilemma by expanding domesticdemand.

By importing more they wouldprovide deficit countries with the

wherewithal to export and servicedebt repayments, King argued.

China should also cease tampering with its currency, King implied.Over the past two decades, somegovernments, particularly in Chinaand the euro area, have tried to fixexchange rates without putting in

King defended theBank of Englandspolicies last nightas inflation soared

Picture: REX

BRITAINS recovery has beenknocked off track by the globalfinancial crisis, Bank of England gov-ernor Sir Mervyn King claimed lastnight, in a sweeping attack on gov-ernments and monetary authoritiesthroughout the world.

King hit out at monetary authori-ties that have fixed currencies, andcriticised governments for failing toact quickly enough on the weak-nesses in bank and sovereign balancesheets. Time is running out, Kingwarned a meeting of the Institute ofDirectors, in Liverpool.

Four years into the crisis it is sure-ly time to accept that the underlyingproblem is one of solvency not liquid-ity solvency of banks and solvencyof countries.

Following the crisis of 2008, banks were recapitalised inadequately,King said, especially on the conti-nent [of Europe].

A transparent recognition of loss-es and a substantial injection of addi-tional capital are necessary to restoremarket confidence, King said,although he recognised that somegovernments are too hard-up to fund

BY JULIAN HARRIS

UK ECONOMY

place mechanisms to ensure that

competitiveness could be rebalanced by other means, he said, arguingthat exchange rate manipulation hascontributed significantly to thecurrent turmoil.

Earlier in the day Kings Bank hadcome under criticism itself, as CPIinflation climbed to 5.2 per cent, andRPI inflation reached a 20-year highof 5.6 per cent. Yet the governordefended the Banks record andrecent expansion of its quantitativeeasing programme.

Without monetary stimulus --low interest rates and asset purchas-es -- there is a risk that growth willstall and inflation fall below oursymmetric two per cent target, hesaid. Yet the current soaring infla-tion saw Britains Misery Indexclimb to yet another unenviable 19-year high, economists said yesterday.

The index of misery was con-firmed at its highest since the after-math of Black Wednesday in theautumn of 1992. The index combinesthe effect of inflation with levels ofunemployment, to produce an over-all measure of gloom.

The UK recovery was on trackuntil recently, King concluded lastnight. But the problems in the euroarea and the marked slowing in theworld economy have lengthened theperiod over which a return to nor-mality is likely, he warned. Wemust use the gravity of the global cri-sis to provoke a bold response.

ALLISTER HEATH: P2EUROZONE: P4, INFLATION: P6-7

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News2 CITYA.M. 19 OCTOBER 2011

Moodys cutsSpain to A1MOODYS Investors Service last nightcut Spains sovereign ratings by twonotches, saying high levels of debt inthe banking and corporate sectorsleave the country vulnerable to fund-ing stress.

Worsening growth prospects for theEurozone will also make it more chal-lenging for Spain to reach its ambi-tious fiscal targets, the ratings agencyadded.

Spain could be downgraded again ifthe Eurozone debt crisis escalates fur-ther, Moodys warned.

Since placing Spain's ratings underreview in late July, no credible resolu-tion of the current sovereign debt cri-sis has emerged, and it will in anyevent take time for confidence in theareas political cohesion and growth

prospects to be fully restored, Moodyssaid in a report.

The downgrade puts more pressureon Eurozone leaders, who will meetthis weekend to discuss a solution forthe crisis. Reports last night suggestedthat Germany and France have agreedto boost the Eurozones bailout fundto2 trillion, causing markets to rally.

Moodys downgrade on Spain wasthe third received from the big-threeratings agencies in the past few weeks.Moody's was more aggressive than itsrivals, however, cutting the countrysratings to A1 from Aa2.

BY HARRY BANKS

EUROZONE

Inflation:an undemocratic stealth tax

INFLATION is taxation without legisla-tion, as Milton Friedman, the Nobelprize winning economist, once said.He was spot on. Yesterdays figureswere truly appalling: inflation on theretail price index measure hit 5.6 percent, the fastest rate for 20 years. Onthe official consumer price indexmeasure, it reached 5.2 per cent. Overthe past 12 months, the British publichas suffered a real terms national paycut because prices are rising at amuch faster rate than incomes.Average compensation went up 2.8 percent in cash terms but paradoxically

fell by 2.8 per cent in real terms as thepurchasing power of money slumped,as a result of sterlings debasement.

The real value of assets and bankaccounts is also falling interest rates

are low, and their meagre incometaxed (unless sheltered in an ISA),which means that the value of manysaving pots is being eroded by 4-5 percent a year. Average UK house pricesare down by 29.9 per cent in realterms from their July 2007 peak, andare back to September 2002 levelsafter adjusting for inflation, accord-ing to the Halifax measure (thedecline is sharp but not as pro-nounced on other indices).

All of this means that the UK isundergoing yet another secret, giantact of redistribution from savers(whose wealth is being eroded as thepurchasing power of sterling declines)to borrowers (the value of whose debtis gradually being cut in real terms),from homeowners with no mortgages(whose real terms house prices arefalling) to homeowners with mort-

gages (who are better off from lowerreal debt but worse off from reducedreal house prices), and from workersto those on benefits (whose paymentsare linked to the CPI). George Osborne

is worse off because he has to pay outmore in benefits and on index-linkedgilts but he is better off because pub-lic sector salaries and all spendingfixed in cash terms is being cut in realterms. On balance, this could conceiv-ably even help cut spending by morethan the 0.7 per cent planned.

Had the government passed a lawin Parliament to take money from onegroup and give it to another to grabcash from peoples bank accounts tohelp pay down their neighboursmortgages, overdrafts and credit cardbills there would have been outrage.Had the government decreed a partialdefault on the national debt (most ofwhich is not indexed to inflation), themarkets would have panicked. Yetbecause this process is happening onthe sly, without discussion, and withthe Bank of England telling us that

this is merely a short-term blip, hardlyanybody is batting an eyelid eventhough, once again, the prudent arebeing mugged to bail out the impru-dent. Inflation is not just taxation

without legislation and undemocrat-ic: it is also the stealthiest of all taxes.One reason why there has not been

more of public outcry is that the bal-ance of power between savers and bor-rowers has changed. The former haveseen their relative numbers and influ-ence diminish; the latter have gainedclout after years of bingeing on cheapmoney. Savers were also given a fillipwhen RBS and Northern Rock were bailed out; debtors now probablythink it is their turn for a handout.But inflation violates contracts andproperty rights; it creates uncertaintyand mistrust. Its costs economic aswell as moral are far greater than itsbenefits. Britain needs a renewed com-mitment to sound money and a newwar on inflation.

[email protected] me on Twitter: @allisterheath

CHARTER International gave its chair-man Lars Emilson a three-year exten-sion to his term in June, just five days before Melrose submitted its firsttakeover bid, it emerged yesterday.

The unusual arrangement couldcause headaches for Charters buyerColfax, even though Emilson remainson a one-month notice period and thesame terms and conditions apply aspreviously.

Charters board approved the three- year extension to Emilsons term ofoffice on 23 June during a torrid weekwhen a profit warning in its tradingstatement caused its shares to plunge25 per cent in a day. Charters chiefexecutive Mike Foster resigned fourdays later on 27 June, while Melrosetabled its offer just a day after.

Charter has paid Emilson an extra132,692 for his services from June toSeptember, in addition to his annual215,000, according to the scheme ofarrangement for the sale to Colfax.

BY DAVID HELLIER AND ALISON LOCK

M&A

Charter boss in 3-year deaCharters chairman Lars Emilson has had his term extended Picture: REX

NEWS | IN BRIEF

Bernanke urges bubble burstingFederal Reserve chairman Ben Bernankesaid yesterday that central banks mayneed to resort to monetary policy tocombat asset bubbles, although regula-tion should be a first line of defence."The possibility that monetary policycould be used directly to support finan-

cial stability goals, at least on the mar-gin, should not be ruled out," he said at aconference at the Boston FederalReserve Bank. Bernanke did not directlydiscuss the outlook for the US economyor monetary policy in his speech, whichoffered thoughts about how centralbanking might shift in the wake of thefinancial crisis.

Groupon set for float roadshowDiscounting website Groupon is planningto launch its IPO roadshow on Mondayor Tuesday, sources said last night. Thefloat is expected to value the daily dealssite at more than $10bn (6.36bn) andis likely to be in the range of $11bn to$12bn. Groupon filed for an IPO of up to$750m in June but last month put it onhold amid market volatility. MorganStanley, Goldman Sachs and CreditSuisse are leading the underwriters.

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]

Spain, led by primeminister Jose LuisRodriguez Zapatero,has been hit by aMoodys downgrade

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

FRANCE WARNS OVER EURO CRISISFrance has warned that Europeanunity would be at risk if Eurozoneleaders failed to take bold action totackle its sovereign debt crisis at acrucial summit this weekend.President Nicolas Sarkozy said leaderswill take very important decisions inthe coming days and said thedestruction of the euro will risk con-flict and division in Europe.

GILT BUYING COULD HIT PENSIONSThe Bank of Englands moves to stim-ulate the economy by purchasinggilts may raise the liabilities of com-pany pension schemes by as much as25bn to 30bn, according to LindsayTomlinson, the outgoing chairman ofthe National Association of PensionFunds. Liabilities rise when interestrates fall because inflation is

assumed to erode future obligationsat a slower rate.

DROPBOX CLOUD RAISES $250MDropbox has raised $250m in new

funding in a deal that values the digi-tal file-sharing service at $4bn. Thefirm Dropbox has rocketed in popu-larity among users and investors. Itsservice allows people to access docu-ments, music and videos from what-ever device they are using, and tostore them in a so-called internetcloud. The company plans to launchnew products, make acquisitions andincrease staff from 70 to 200.

DOMINOS BEATS EXPECTATIONSDominos Pizza group delivered bet-ter-than-expected quarterly profit andsaid it is optimistic about sales of itsnew artisan pizzas, sending itsshares up almost 8 per cent in NewYork. The pizza delivery chain said Q3sales at restaurants open at least ayear were up 3 per cent in the US andup 8.1 per cent internationally. Analysts said the growth in same-

restaurant sales, a gauge of perform-ance, topped their targets.

FIRMS SHUN ON RBS AND LLOYDSCompanies are cutting their business with Royal Bank of Scotland andLloyds amid fears that the cost of bor-rowings will rise after the recent rat-ings downgrade by Moodys. TheAssociation of Corporate Treasurerstold MPs that corporate borrowershad already begun talking to rival Japanese banks keen to secure astronger foothold among British busi-nesses.

FRENCH FURY OVER DOING UP RITZMohammed Al Fayed set off a stormof protest in France yesterday whenhe announced the closure of the Ritzfor 27 months while it undergoes arenovation. The hotel, where Diana,Princess of Wales, was staying on thenight she died said that all but a fewdozen of its 500 staff would be laid

off. Union official Jacques Lebretonsaid staff should be allowed to return.

GLAXO DRUG HALVES MALARIA RISKGlaxoSmithKlines trial malaria vac-cine halved the risk of African chil-dren getting malaria in trials, but thedrug giant has said it will not make aprofit from the vaccine. GSK, alongwith African research centres and thePATH Malaria Vaccine Initiative, isresearching a vaccine to protect chil-dren against the mosquito-borne dis-ease, which is responsible for almost800,000 deaths each year.

ICB REPORT ASTONISHES ME - LAWSONFormer chancellor Lord Lawson haslaunched a scathing attack on theIndependent Commission onBankings final report, saying he wasastonished by some of its proposals.He questioned Sir John Vickers andsaid he was surprised the commissionhad not urged the full separation of

retail and investment banking andhad supported one-stop shops.

VIACOM SEEKS TO REVIVE LAWSUIT A judges order dismissing aninfringement lawsuit againstGoogles YouTube last year should beoverturned because it endangers therights of owners of television showsand other copyrighted materials, alawyer for Viacom said. Viacom isseeking to revive its lawsuit overalleged unauthorised posting of itscontent on the video-sharing site.

GRUPO MEXICO OWES $1.3BN - JUDGEDelaware judge said Grupo MexicoSAB owes more than $1.3 billion tominority shareholders of itsSouthern Peru Copper unit in a casestemming from a corporate restruc-turing that contributed to the bank-ruptcy of another of its miningsubsidiaries, Asarco. Leo Strine ofDelawares Court of Chancery said

Grupo Mexico is on the hook to SPC'sminority shareholders

WHAT THE OTHER PAPERS SAY THIS MORNING

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BANK of America/Merrill Lynch(BoA/ML) reported a dramatic rise inprofits yesterday, with earnings risingfrom a $5.9bn (3.75bn) loss last year to$7.4bn in pre-tax profit for the thirdquarter of this year.

However, $1.7bn of the profit figure was due to an accounting gain thathas also affected the results of otherUS banks reporting this quarter. And$4.5bn in earnings was due to a rise inthe value of its structured liabilities.

And $3.6bn of its earnings camefrom a one-off sale of its stake in ChinaConstruction Bank, which it offloadedquickly over the summer in a bid toplacate panicking investors over itscapital levels.

Our focus this quarter was onstrengthening the balance sheet byselling non-core assets and buildingcapital, said chief financial officerBruce Thompson, reporting a core tierone capital ratio of 8.65 per cent. The

bank also cut its balance sheet by

$42bn over the quarter.However, BoAs investment banking

business, which includes MerrillLynch, reported a sharp drop-off in rev-enues, in line with the performance ofmany rivals.

Revenues fell by over a quarter to$5.22bn and pre-tax profits fell from$2.9bn to $727m. The bank blamedthe figures on the fact that risk aver-sion has [slowed] customer activity.

The investment bank results alsoincluded $1.7bn of the pre-tax account-ing gain reflected in the groupsresults.

Accountinggains prop upBoA earnings

THE US pushed through its toughestmeasures yet to curtail speculation incommodity markets in a tight vote yes-terday, likely shifting the focus of afierce four-year debate from the regu-lators to the courts.

In a measure decried by Wall Streetand trading companies as a misguidedpolitical attempt to cap soaring oil andgrain prices, the Commodity Futures

Trading Commission (CFTC) voted 3-2

to approve position limits that will

cap the number of futures and swapscontracts that a single trader can hold.

The rule, which was being modifieduntil the last minute, offers somerelief for the industry, relenting onseveral provisions, as expected.

The divisiveness was stark from theopening, making a legal challengemore likely. That would be anotherhurdle for CFTC chair Gary Gensler,

who is struggling against Republicansand Wall Street to put in place rulesrequired by recent financial reforms.

CFTC approves plans tocrackdown on spectators

CFTC chair Gensler has voted for tougher rules on commodity speculation

BY JULIET SAMUEL

BANKING

News 3CITYA.M. 19 OCTOBER 2011

ANALYSIS l Bank of America Corp (BAC.N)

USD

13 Oct12 Oct 14 Oct 18 Oct17 Oct

6.80

6.70

6.60

6.50

6.40

6.30

6.20

6.10

6.6418 Oct

THE EU agreed last night to ban nakedcredit default swaps (CDS) on sover-eign debt in an attempt to curb whatsome policymakers see as hedge fund

bets on the Eurozone crisis.The measure had been deadlocked

for months because of a split betweenthe European Parliament and EUstates, which have joint say.

The countries that were against aCDS ban agreed to it after the parlia-ment said they could opt out if thecurb was damaging their governmentdebt market.

It is a very ambitious accord whichstrengthens financial stability andstrengthens the single market forfinancial services, Michel Barnier, theEUs financial services chief, said.

The law, which also includes report-ing requirements on shortselling

shares, will take effect from 1November 2012 on new contracts.

Andrew Baker, chief executive of theAlternative Investment Management Association, said the ban couldincrease pressure on already stretchedlending markets.

It could not only reduce liquidityand increase volatility in debt markets,

but also increase government borrow-ing costs and reduce real economyinvestments in EU member states,hesaid.

EU reaches dealon naked shortselling ban law

EUROZONE

BYHARRY BANKS

REGULATION

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STANDARD & Poors downgraded 24Italian banks and financial institu-tions last night, citing renewed mar-ket tensions and lower growthprospects.

It also raised the risk assessment onItalys banking industry from group 2to group 3, which could prompt high-er borrowing costs.

Meanwhile jittery investors movedout of French bonds yesterday. Themove was prompted by Moodys

announcing on Monday that it mayplace Frances AAA credit rating ondowngrade watch in coming monthsif the cost of funding the Eurozonebailouts costs too much.

The warning pushed 10-year Frenchbond spreads over German bunds up18 basis points (bps) to 114bps, its high-est since 1992.

Finance minster Francois Baroinsaid that France may not meet 2012s1.75 per cent GDP growth forecast.Nonetheless, he maintained that the

countrys rating was solid.Elsewhere, Germanys ZEW indica-

tor of economic sentiment decreasedby five points in October. The eighthconsecutive monthly fall brings theindex down to minus 48.3 points, itslowest in three years. This suggests asoft recession is likely.

A Spanish auction of 1bn of 18-month Spanish debt yesterday sawyields fall on those seen in September,down to 3.801 per cent from 3.807.Greece sold 1.625bn of three-monthtreasury bills at 4.61 per cent up fivebps on last months sale.

Italys banksfacing higherfunding costs CHINAS economy grew 9.1 per centin the third quarter from a year earli-er, its weakest pace since early 2009,and just below market forecasts.

The countrys growth slowed from9.5 per cent in the second quarter ofthe year, according to official figuresreleased yesterday.

The bearish news contributed tosome sharp drops in commodityprices during yesterdays trading,and hit stocks in Asia and through-out the world. The MSCI Asia APEX50 lost over three per cent, while inJapan the Nikkei was down by morethan 1.5 per cent.

Gold dropped nearly 1.5 per centas investors worried about a possibleslowdown in China.

And copper often a bellwether ofglobal economic health, and heavily

consumed in China lost over half aper cent during the day.

Brent crude for December fellbelow the 50-day moving average totouch a seven-day low of $108.45 inmorning trading in the US, yet recov-ered modestly in later trading.

Slowing growth in China hasgiven the bears new reasons to roarthis morning, RBC said in a note.The GDP figure has sparked con-cerns that Europes debt crisis isdragging on the global economy.

Slowing growthin China spooksglobal investors

Chinese Premier Wen Jiabao faces slowing growth Picture: REUTERS

BY TIMWALLACE

EUROZONE

CHINESE ECONOMY


Worlds largest exporter sufferingfrom contraction in global demand

W

HILE Chinas 9.1 per centgrowth recorded for the

third quarter of the yearmay have disappointed

analysts -- with some still question-ing the reliability of the govern-ments uber-fast estimates -- it is littlesurprise that the worlds largestexporter is facing a hit from theglobal economic slowdown.

The third quarter involved twomonths of narrowing in Chinastrade surplus, with annual exportgrowth plummeting in September

down to 17.1 per cent, from a 24.5per cent lift in August.

Government statisticians alsonoted yesterday that imports growthhas outpaced exports this year, possi-bly knocking 0.1 per cent off its GDPexpansion. As real estate construc-tion is also slowing, expect furtherslips in the (albeit questioned) statsin the coming months.

BOTTOMLINEAnalysis by Julian Harris

ANALYSIS l French yield spread vs bunds

Nov 2011 Mar May SepJul

0.50

0.00

1.00%

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ANALYSIS l International inflation rates

Annualinflation

rate %

00 02 04 06 08 10

10

8

6

4

2

0

-2

JapanUSUK Eurozone

ANALYSIS l UK consumer, energy and food prices

%

Sep 10 Oct Nov Dec Jan 11 Feb Mar Apr May Jun Jul Aug Sep

16

14

20

18

12

10

8

6

4

2

0

CPI Energy Food & non-alcoholicbeverages

ANALYSIS l UK earnings and inflation

%5.2%

1.8%

02 03 04 05 06 07 08 09 10 11

6

4

3

5

2

1

0UK inflation - CPI YoY change

Average weekly earnings excludingbonus - YoY change (3m average)

News6

CITY VIEWS: HAVE YOU NOTICED RISING PRICES INYOUR EVERYDAY LIFE?

Interviews by Phoebe Torrance

Yes, on a daily basis we hear about extremely high

rises in every day living expenses, it doesnt worryme just yet but if it gets any worse then it will besomething we seriously need to worry about.

DAVID PHILLIPS | JRP UNDERWRITING

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

I havent particularly noticed a large increase in day-to-dayitems, the City has always been expensive and doesntchange a lot. If there was a significant increase thenthere would be something to worry about.

SHANE KILLEEN | PERCEPTION

PRICE HIKE BRITAIN

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CONSUMER prices increased at arecord rate in the year to September,the Office for National Statistics (ONS)said yesterday.

The consumer price index (CPI) roseto 5.2 per cent the highest since it

was introduced in 1996, and equal tothe peak in September 2008.

The figure was 4.5 per cent in theyear to August, making this the secondlargest monthly jump in the rate ever.

Inflation was last within its target oftwo per cent, plus or minus one percent, in December 2009.

The cost of living, measured by theretail price index (RPI), rose by 5.6 percent, up from 5.2 per cent in Augustand the highest annual since 1991.

The tax and price index (TPI), whichalso takes taxation into account, rose

by 5.3 per cent -- up from 4.8 per centin the previous month.

Meanwhile average weekly wagesfailed to keep pace, rising by just 1.5

per cent in the year to August in theprivate sector and 2.2 per cent in thepublic sector. Energy prices accountedfor 67 per cent of the increase in CPIfrom August to September. Gas andelectricity prices soared by 18.3 percent in the 12 months to September.

In a speech last night Bank ofEngland governor Mervyn King (pic-tured left, with chancellor GeorgeOsborne) restated his view that domes-tic demand remains low and tempo-rary factors have pushed up inflation.

When last Januarys VAT rise drops

out of the index this January, all otherthings being equal, inflation will fall

by 0.76 percentage points, and com-modities prices appear to have slowed.

Furthermore, food prices, whichaccount for 10 per cent of the CPI, mayfall soon as supermarkets haveannounced a price war.

However, falls in inflation remainuncertain core inflation increased by3.3 per cent in the year to September,up on 3.1 per cent in August, largelydriven by air fares.

Fastest pricerises since CPIbegan in 1996 BENEFITS will cost billions more dueto soaring inflation, the Institute forFiscal Studies (IFS) claimed yesterday.Pensions, job-seekers allowance,

incapacity benefit and severe disabilityallowance are all linked with con-sumer price index (CPI) inflation. Next

Aprils increases are calculated usingSeptembers rate, the highest ever.

When the Office for BudgeResponsibility increased its inflationforecasts for 2011 from 3.1 per cent lastNovember to 4.3 per cent in March, itadded at least 1.2bn to 2012s expect-ed social security and tax credits bill.

As CPI inflation has come in higherstill at 5.2 per cent, the IFS believes1.8bn more will be added to the bill.

For next years calculations, the gov-ernment switched from the RPI meas-ure which came in at 5.6 per cent to

the highest of CPI, average earnings or2.5 per cent.

As a result the basic pension will riseby 5.31 to 107.46 per week. It wouldhave risen by 41p more using RPI.

However, business rates remainlinked to the RPI.

A 5.6 per cent increase in ratesamounts to 350m for retailers alone,according to the British RetailConsortium, which says that is theequivalent of the wages of 16,000 shop

workers.

Inflation-linked

benefits bill set

to soar in 2012

BY TIMWALLACE

UK ECONOMY

UK ECONOMY

NewsCITYA.M. 19 OCTOBER 2011 7

Electricity

&gas

18.3% Petrol17.9%

Cigarettes

&alcohol

10%

Clothes

&shoes

2.1%

Transport

8.9%

Food

6%

ANNUAL RISE IN PRICES

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CANACCORD Financial, the Canadianfinancial services group, was waitingon the sidelines yesterday as Investecs200m-plus all-share takeover ofEvolution Group hit problems.

Canaccord pulled out of the biddinglast month, leaving Investec as pre-ferred bidder.

Under Takeover Panel rulesCanaccord is barred from relaunchinga takeover for six months but yester-day those close to the process said the

firm might be allowed to bid again ifInvestecs bid failed to gain support atnext weeks shareholder meeting.

Investecs bid was thrown into con-fusion after Evolutions biggestinvestor, fund manager Aberforth,unexpectedly pulled its support.

The about-turn sparked fears thatothers could follow suit and Investecsoffer, which requires 75 per cent ofinvestors to vote for it, could fail.

Aberforth is understood to beunhappy that Investecs share price

has fallen 11 per cent since it made theshare offer, cutting its value by a fifth.

They dont want to sell at thatprice, one source told City A.M. It isnot a price you would sell assets at.

Other major investors are known tobe considering withdrawing their sup-port. Share options granted toEvolution chief executive Alex Snow

just days before bid talks were revealedalso caused some unease.

Andy Brough at Schroders told CityA.M. Investecs bid remained the onlyone on the table. At the end of theparty you dont always go home with

the prettiest girl, he said.

Canaccord onstand-by forEvolution bid BORIS Johnson yesterday attackedone of George Osbornes key posi-tions on the Eurozone crisis when hesaid that any attempts at greater fis-

cal union would be absolutelycrazy.

Speaking at a journalists lunch inWestminster, the Mayor of Londonsaid: I think its absolutely crazy todecide the solution to the euro crisisis to intensify fiscal union.

I cant for the life of me see howthat is going to work in the long-term.

The chancellor has consistentlycalled on Eurozone countries to pur-sue greater fiscal union to helpresolve the escalating debt crisis inthe region.

Johnson, who dismissed sugges-tions he would run against Osborne

in a future Tory leadership contest,also repeated calls for the govern-ment to scrap the 50p rate.

Someones got to say it and itmight as well be me, he said.

Johnson also made a plea for theMayor of London to be granted pow-ers over education, saying there wasa real risk that Londons teenagers

were missing out on opportunities because they didnt have the samework ethic as some foreign workersin the UK.

Mayor attackschancellor onEurozone ideas

BY ALISON LOCK AND DAVID HELLIER

FINANCIAL SERVICES

POLITICS


ANTI-CAPITALIST protestors outside St Pauls Cathedral yesterday said the number of tentsin their camp has now reached 150. The fourth day of demonstrations passed peacefullywith no arrests made as the group of anti-capitalists organised themselves for a long s tay.

Picture: Laura Lean / City A.M.

ANALYSIS l Evolution Group PLC

p

13 Oct12 Oct 14 Oct 18 Oct17 Oct

86

85

84

83

82

81

80

79

80.2518 Oct

PROTESTS CONTINUE AT ST PAULS

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SOARING demand in the emergingmarkets helped Coca-Cola post astrong increase in sales yesterday, butthe drinks giant warned it is about totake a hit on foreign exchange.

Sales in the third quarter rose sevenper cent by volume in Latin America,Eurasia and Africa and six per cent inthe Pacific region, helping offset weak-er growth of two per cent in Europeand one per cent in America, exclud-ing Cokes new cross-licensed brands.

The group, which is the worldslargest soft drinks producer, is open tothe effects of currency shifts and hedg-ing strategies because the majority ofits sales come from outside the US.

It increased global sales by five percent and revenue by 45 per cent to$12.25bn (7.8bn), boosted by last

years acquisition of its North American bottling operations, pricerises and a five percentage-point cur-

rency benefit.Profits were up eight per cent to

$2.22bn but Coke warned: Currencieswill adversely impact our fourth quar-ter operating income by low to midsingle digits while still providing a lowto mid single-digit positive impact forthe full year.

Muhtar Kent, the British-educatedchief executive, said the results were atestament to Cokes focused systemvision, strong brands and solid execu-tion in a volatile marketplace.

Cokes globalsales fizz upamid turmoil

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BY PETER EDWARDS

RETAIL

JOHNSON & Johnsons third-quarterearnings fell on lower US sales, but the weaker dollar and strong demandoverseas helped the company beatWall Street forecasts.

J&J earned $3.2bn (2.04bn), or $1.15per share, compared with $3.42bn or$1.23 per share a year earlier.

Excluding special items, J&J earned$1.24 per share. Analysts on average

had expected $1.21.Revenue rose 6.8 per cent to $16bn,

just shy of Wall Street estimates of$16.02bn. It would have risen just 2.6per cent if not for the weaker dollar,which boosts the value of sales in over-seas markets.

The companys US sales slipped 3.7per cent, hurt by declines in all threeproduct segments: prescription drugs,

consumer products and medicaldevices.

Johnson & Johnson profit fallsbut still beats Wall St forecastsPHARMA

YAHOO last night paid the price for asummer of discontent and weakonline advertising as it reported athird quarter slump.

Profits for the quarter, the lastunder chief executive Carol Bartz, whowas fired in September, fell 26 per centto $293m (186.57m), or 23 cents pershare. Net revenue, which excludesfees paid to partner websites, dropped

4.5 per cent to $1.07bn on the sameperiod last year. The firm, which has appointed

finance director Tim Morse as interimchief executive, predicted fourth-quar-ter net revenue of $1.125bn to$1.235bn. It has retained investmentbanking firm Allen & Co as it conductsa strategic review of its business, which could see co-founders JerryYang and David Filo take control in a$20bn deal with private equity.

Meanwhile chipmaker Intel took a

more upbeat view as demand for itsNotebook helped it record quarterlyresults. It said sales for the threemonths to the end of September would be between $14.2bn and$15.2bn, despite concerns over its abil-ity to compete with smartphones suchas Apples iPad and Googles Android.

Graham Palmer, managing directorof Intel UK, told City A. M. that Britishconsumer confidence was returningslightly quicker than in the US or therest of Western Europe.

Yahoo suffers after chiefsexit but Intel upbeat over UKBY PETER EDWARDSTECHNOLOGY


Danger ahead: Coca-Cola boss Muhtar Kent has warned of the impact of currency swings

ANALYSIS l Coca Cola Co

USD

12 Oct 13 Oct 14 Oct 17 Oct 18 Oct

67.50

67.25

67.00

66.50

66.75

68.00

67.75

66.7418 Oct

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MAYFAIRSFINANCIERS

HELP EATALL THE PIESPIES AND prosecco were yesterday onthe menu at Dartmouth House atMayfairs answer to the long-runningannual Gulls Eggs lunch.

Mayfair hedge fund managers methotel brokers at the Macmillan CancerSupport fundraiser, including JonesLang LaSalles Jonathan Goldman, whohas a personal connection to the cause,having recently endured a 20-houroperation for throat cancer.

Goldman, whose licensed leisure andhotels team recently sold the Sanderson,St Martins Lane and W hotels to MiddleEast sovereign wealth funds, was a guestof Puma Hotels director Peter Procopis

also a cancer survivor who was recentlyenlisted to the Macmillan committee byShore Capitals chairman David Kaye.

Also at the event were Anton Black andDominic Epton of Rothschild, while jew-ellery designer Victoria Tryon and her

brother Edward, the owner of Lichfields,caught up with Amber Aikens, theestranged wife of chef Tom Aikens.

Chairman of the committee for the lasttwo years is Zoe Couper, now known asZoe de Givenchy following her June wed-ding to JP Morgans private banking head

petitive bidding situation.Meanwhile, across town in Islington

Green, a buyer has been found for the for-mer premises of the Playtime Bar the

brainchild of Boujis owner Ignite Group,led by chief executive Matt Hermer, whichstopped trading last Friday. Step forwardFrench bistro chain Cote, which said the4,000 sq ft unit really hit the spot for itstwenty-ninth outlet.

CHILD SUPPORTCAMPAIGNING body ECPAT UK is lobby-ing the government for more support

for child victims of trafficking, whichis why it yesterday summoned MPs tothe river for the naming of its Row toFreedom boat The Guardian.

Christening the boat on Anti-Slavery Day was Olympian Matthew

Pinsent, ahead of its awareness-raisingtrip across the Atlantic this winter. Thevessels all-female crew of six includesKatie Pattison-Hart, currently taking ayear out from corporate life after set-ting up a branch of Lloyds TSB in the

United Arab Emirates.

Olivier de Givenchy on a beach in theBahamas, where the couple have a home.

We wanted something that felt a bitmore barefoot, less formal, the founderof Couper and Partners and Financial

Jam Sessions told The Capitalist.

BORIS EXPOSEDSONIA Purnell left nothing out in her

biography of Boris Johnson the journal-istic chicanery, rivalries with fellow

Tories, scandal at City Hall and, yes, thatfriendship with the Spectators femmefatale Petronella Wyatt.

As Channel 4s political correspondentMichael Crick observed: Sonia must havehad huge fun writing this wonderful

book. The only person who wont beamused is Boris himself.

So it was perhaps no surprise that theLondon mayor (right) was a no-show atlast nights book launch for Just Boris atthe Corinthia Hotel. He was invited, buthe never RSVPd, said a publicist for-lornly, leaving the ex-Sun editor David

Yelland and Boriss rival 2012 mayoral

candidates Ken Livingstone and BrianPaddick to fill the charisma vacuum.

LAST ORDERSGOOD news for fans of the top-end City curry house CinnamonKitchen. The restaurants chiefexecutive Vivek Singh hasexpanded his empire by sign-ing a 35-year lease for theRed Bar in Kingly Street,after an extremely com-

Macmillan supporters (L-R): Victoria Tryon, Edward Tryon, Zoe de Givenchy and Amber Aikens

The Capitalist12 CITYA.M. 19 OCTOBER 2011

EDITED BY

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

Olympic rower Matthew Pinsent with the six-strong Row to Freedom crew

8/3/2019 Cityam 2011-10-19

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The Chartered Institute or Securities &

Investment (CISI) is pleased to announce today

the launch o a new qualifcation

The qualifcation has been developed by established international

specialists and thoroughly tackles the fnancial crime agenda,

takes a global view o transnational crime and illustrates practical

deences including the Bribery Act (2010).

This qualifcation is now available and it can be taken worldwide.

For more details

visit cisi.org/cfc

Fraud alone is assessed to cost the United Kingdom

over 38bn. It is vital that we all work together to

conront this threat. I believe that the eective

training o sta and provision o proessional

accreditation, such as the CISI qualifcation

Combating Financial Crime, is an important step in

ensuring organisations are equipped to provide the

best possible response to combat fnancial crime.

Adrian Leppard,

Commissioner of Policy for the City of London

BPS RUSSIAN joint venture TNK-BPsaid it may join a $13bn (8.2bn) law-suit brought by a minority sharehold-er over the oil majors failed alliance

with state-controlled Rosneft. TNK-BP Holding, the main sub-

sidiary of TNK-BP, said it would con-sider the question of whether or not to

join the lawsuit being put forward by

one of its minority shareholders at a board meeting being held on 24October.

However, it is unclear whether themotion will go-ahead because it wouldrequire the approval of at least eightout of the nine directors on TNK-BPHoldings board to vote in its favour, aspokesman for BP said.

BP and AAR, the consortium of fourRussian billionaire partners. each havefour seats on the board of TNK-BP

Holding. The sole independent direc-tor is David Lasfargue.Minority shareholder Andrei

Prokhorov has filed two lawsuits for$2.8bn and $13bn against the oilmajor over alleged loss following BPsfailed deal with Rosneft.

It was unclear yesterday which suitthe board of TNK-BP Holding have

been asked to consider joining, howev-er BP has rejected both as absurd andgroundless.

TNK-BP may join lawsuitfor damages against BPBYKASMIRA JEFFORD

OIL & GAS


JULIAN BARNES WINS MAN BOOKER PRIZE

AUTHOR and bookmakers favourite Julian Barnes won the Man Booker Prize for fiction yes-terday, despite once dismissing the coveted award as posh bingo. The 65-year-old won withThe Sense of an Ending, which at 150 pages was described by one review as a novella. Itwas his fourth time on the Booker shortlist having previously been nominated for Flauberts

Parrot in 1984, England, England in 1998 and Arthur and George in 2005. Pic: REUTERS

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JAPANESE camera-maker Olympussays it is considering taking legalaction against its ousted chief execu-tive after he went public with con-cerns over his former employerscorporate governance.

Michael Woodford was axed after just two weeks in the top job afterclashing with the board over alleged-ly excessive payments made to advis-ers during a 2008 acquisition.

He held meetings with the Serious

Fraud Office in the UK yesterday,claiming a report carried out by PwChad raised concerns over the deal.

Now Olympus is threatening legalaction against Woodford for leakingconfidential information.

His departure was an acrimoniousend to a 30-year career, in which herose further than all but a handful of

westerners in a country famed for itsimpenetrable corporate culture.

The ongoing saga has put a spot-light on what critics say is a key weak-

ness of Japanese-style management, which often lacks strong independ-ent oversight at board level.

Twelve of Olympus 15 board mem-bers are company executives, and oneof its three outside directors failed topass a test of independence set by topproxy voting firms.

Chairman Tsuyoshi Kikukawa, whoinitially stepped aside to create spacefor Woodford, has resumed the chiefexecutive role, increasing pressure onthe firm to create a structure in

which his authority can be chal-lenged.

Olympus maysue its axedformer boss

Michael Woodford has met with the SFO since being sacked Picture: REUTERS

BY STEVE DINNEEN

TECHNOLOGY


ANALYSIS l Olympus Corp


2,400

2,000

1,600

1,41718 Oct

TIME LINE | THE RISE ANDFALL OF MICHAEL WOODFORD

1981Michael Woodford joins Olympus. Overthe next three decades he becomes thearchetypal company man, known forhis robust, no-nonsense managementstyle.

April 2011Woodford takes over as president ofthe company, becoming one of only ahandful of non-Japanese to run a largeJapanese corporation.

September 2011Woodford is promoted to chief execu-tive as well as maintaining his role aschairman. His appointment is hailed asgiving Olympus more executive autono-my.

October 2011Woodford reportedly asks longstand-ing chairman Tsuyoshi Kikukawa toresign over payments made to advisorsduring a $2bn acquisition in 2008, fol-lowing an independent report by PwC.

14 October 2011Woodford is axed after the board unan-imously backs Kikukawa. The movesends shares in the firm plummeting.Olympus says Woodford was dismissedbecause of a clash of managementstyles.

17 October 2011Olympus tanks even further, losing aquarter of its value. Woodford makes itclear he will not let the issue lie, hand-ing documents to the Serious FraudOffice in the UK. Olympus maintainsthere is no evidence of wrongdoing.

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ITALYS financial police seized fundsworth 245m (214.3m) at UniCrediton yesterday in a tax fraud probe andthe banks former chief executive, Alessandro Profumo, was placedunder investigation, judicial sourcessaid.

The financial police said in a state-ment the funds were seized at a lead-ing bank, in a probe over fraudulentconduct via a complex series of inter-national operations that made use ofcorporate structures and financialinstruments.

The alleged fraud related to tax dec-larations for 2007 and 2008, it said.

UniCredit denied any wrongdoingin the matter and said it was sur-

prised by the authorities decision.UniCredit is very surprised by this

initiative and remains convinced thatboth it and its employees acted cor-rectly and properly in relation to thismatter, a spokeswoman said.

The investigation centres on sus-pected tax evasion stemming from acomplex financial scheme, known asProject Brontos, set up by Barclay andused by UniCredit.

One of the judicial sources saidProfumo had been put under investi-gation because, as chief executive ofthe bank at the time, he authorisedusing the scheme.

A spokesman for Barclays declinedto comment. Profumo, who steppeddown last year after a row with share-holders, was not immediately avail-able for comment.

UniCredit andProfumo hitby tax probeBYHARRY BANKS

BANKING

News 15

THIS week we are asking membersof our readers panel whetherChinas economic growth is losingsteam, after it posted lower-thanexpected GDP growth of 9.1 percent in the third quarter.

If the spark does go out of theChinese economy, what are therepercussions for the UK andEurope?

To answer these questions andothers, readers can apply to jointhe Voice of the City panel madeup exclusively of those working inbusiness and financial services inand around the City by applyingat www.cityam.com/panel

The results of the poll will beprinted in Mondays edition ofCityA.M.

In partnership with

PoliticsHome.comPoliticsHome.com

Is Chinas soaring economicgrowth losing momentum?

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

8/3/2019 Cityam 2011-10-19

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BELLWAY hiked its dividend by nearlya third after strong sales in Londonand the south east helped boost full-year profits by 51 per cent beatingmarket expectations.

The UKs fourth largest house-builder by market capital reported pre-tax profits of 67.2m for the 12months to 31 July, up from 44.4m theprevious year.

John Watson, Bellways chief execu-tive, said sales in the first nine weeks

of the new financial year were up 11per cent compared with the same peri-od in 2010, boosted by the opening ofnew selling outlets.

The group ended the year operat-ing from 205 outlets, having started with 185 and, with the benefit of astrong balance sheet, we are in a goodposition to increase our land bank andsales outlets in the future, Watsonsaid.

The number of completed sales roseto 4,922, up seven per cent from last

year, but still below record highs of7,638 homes in 2007.

Housebuilders have suffered inrecent years as a slowdown in govern-ment spending, the lack of mortgagesand economic uncertainty continuesto hit sales prompting firms to shifttheir product mix towards more popu-lar family-sized homes and focus theiractivities on the more lucrative south-east.

The group increased its final divi-dend by 31.3 per cent from 6.7p to 8.8p.Shares rose 3.10 per cent to 698.50plast night.

Bellway liftsdividend asprofits jump DROPBOX, the company behind thevirtual file cabinet that allows usersto access documents, photos andvideos from different devices, said it

had raised $250m (159m) in fund-ing.

Index Ventures led the series Bround from participants that alsoincluded Benchmark Capital,Goldman Sachs, Greylock Partners,Institutional Venture Partners, RITCapital Partners, and Valiant CapitalPartners.

Dropbox plans to tap the moneyfor expansion through acquisitionsand partnerships as well as for newhires. The San Francisco-based com-pany said it had 45m users whoaccess 1bn files every three days. Itprovides a certain amount of storagefor free before charging people for

extra capacity.It is run on the so-called fremium

model, offering two gigabytes of stor-age for free, while 50 gigabytes costs$9.99 a month and 100 gigabytescosts $19.99 a month.

Dropbox, which has not disclosedits revenue, competes with otherservices like Google Incs free Docs.

So far, Dropbox has raised $257.2mthat includes early investors SequoiaCapital, Accel Partners, and Hadi andAli Partovi.

Dropbox raises$250m fundingfor expansion

BYKASMIRA JEFFORD

CONSTRUCTION

TECHNOLOGY


ANALYST VIEWS: DO BELLWAYS RESULTSSPELL GROWTH FOR THIS YEAR?Interviews by Kasmira Jefford

CHRIS MILLINGTON | NUMIS SECURITIES

Bellway's full year results are strong and we have increased our 2012 esti-mates although we feel that the risk remains on the upside. The group has startedthe year well with the value of sales reservations up 21 per cent in the firstnine weeks of the year, which should support good top-line growth.

Bellways CEO John Watson said it planned to open 15 new outlets this year.

ANALYSIS l Bellway PLC

p


720

700

680

698.5018 Oct

MIKE BESSELL | EVOLUTION SECURITIES

A very solid set of results. We see Bellway as a low risk, high quality namein this space, and todays announcement reinforces that view. Net cash of 3m withimproving profitability from continued improvements in the land mix high-lights the strength of the business from here.

CHARLIE CAMPBELL | LIBERUM

Bellway is rightly seen as the most cautious of the housebuilders, so themarket should take note of the dividend surprise (10 per cent ahead of consensus)and that the statement talks of being confident in delivering salesgrowth and margin improvements.

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WHITBREAD yesterday reported fore-cast busting first-half pre-tax profitsand ramped up its interim dividend.

The performance of its Premier Innand Costa Coffee chains fuelled therise. Whitbread, which also operatesthe Beefeater and Brewers Fayre pubrestaurant chains, said underlying pre-tax profits rose 15.2 per cent to174.9m in the six months to 1September against analysts forecastsof 167m.

Total group sales increased 10.7 percent to 891.3m. Premier Inn sales

were up 10.6 per cent to 393.4m, while Costa rose 26.3 per cent to250.8m.

Whitbread said Premier Inn had benefited from good demand from

business customers, particularly inLondon which was proving resilient.

This is a good set of results demon-strating the strength of our brands intough market conditions, said chair-man Anthony Habgood.

The company said it would pay aninterim dividend of 17.5p per share, upfrom 11.25p last year.

Whitbread individend hikeas profits lift

RETAILER Matalan said yesterday itremained cautious on its outlookafter reported a 63 per cent fall inearnings for the second quarter.

Ebitda Earnings before interest,taxes, depreciation plunged to13.6m in the 13 weeks to 17 August.

Matalan blamed the tough climate,promotional activity and higherinput costs. Total revenue dropped1.7 per cent to 258.5m. The retailersaw online sales double.

The retailer said that Septemberstarted strongly, although this was

hampered by the unseasonably hotand sunny weather in the last week.

For the 26 weeks to 27 August salesfell 1.7 per cent to 526.6m. Ebitda forthe same period slumped 47 per centfrom 77.1m to 41.2m.

Matalan said June was a particu-larly difficult month due to sales atcompetitors starting earlier than last

year.But the retailer said it started to see

improvements in like-for-like tradingin July after implementing its Line &Price strategy. The improvement alsocontinued into August.

Hilco buys Irish companyA-wear from Alchemy

IRISH fashion retailer A-wear has been acquired for an undisclosedsum by restructuring specialist HilcoIreland.

A-wear has 39 stores throughoutIreland and three in the UK as well asan online and wholesale businesses.

Hilco said that its Irish arm hasprovided extended working capitalfacilities to A-wear to facilitate the

business financial needs.Hilco bought the business from pri-

vate equity group Alchemy. The indebted retailer has been

researching refinancing options overrecent months. But it rejected any sug-

gestion that it was under threat ofadministration.

Hilco chief executive PaulMcGowan said: We are delighted tohave this opportunity to acquire oneof Irelands strongest retail brands.

A-wears online shop includes anumber of discounts including dealfor students.

A-wear joint chief executive MarkNaughton-Rumbo said: This sale andthe provision of additional workingcapital is an important step for thecompany, and I would like to thank allof our lenders as well as our investors,for their tremendous efforts in com-pleting this transaction.

Matalan warns oftough times ahead

BY JOHN DUNNE

LEISURE

FRENCH food group Danone gave aconfident outlook for 2012 yesterdayand said its water business was stillstrategic, playing down a report it wasin talks on a disposal.

The worlds largest yoghurt maker, whose brands include Actimel and Activia, said it was positive for nextyear on the back of robust growth inemerging markets.

Finance chief Pierre-Andre Terissedeclined comment on a reportDanone was in talks with JapansSuntory Holdings to sell water assets.

Danone upbeatamid talk ofwater disposal

RETAIL

CONSUMER

RETAIL


ANALYSIS l Whitbread

p


1,660

1,620

1,635.0018 Oct

LVMH, the worlds largest luxurygoods company, posted forecast-beat-ing third-quarter sales growth yester-day and said it was confident for therest of 2011, in the latest sign of

wealthy shoppers resilient appetitefor high-end goods.

The Louis Vuitton maker posted a15 per cent sales gain on a like-for-like

basis, following strong results fromBurberry last week. The numbersaugur well for other luxury fashion

brands and retailers even amid nag-ging signs that the broader economyis in danger of slipping into recession.

Sales rose to 6.01bn (5.23bn) inthe three months to 30 September,

beating consensus of5.8bn. LVMHsaid the first nine months of the yearconfirmed its confidence for the full

yearLVMH said the trend in the third

quarter matched the first half, withmomentum in Asia, Europe and theUnited States and a rebound in Japanfrom the slump following the earth-quake disaster..

Louis Vuittonowner bullishas sales surge

BY JOHN DUNNE

RETAIL

LVMH, which owns Louis Vuitton (modelled above), grew sales by 15 per cent Picture: REX

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NEWS | IN BRIEF

SocialGo soars on product launchSocialGo, the developer and provider ofsoftware that allows groups to build theirown online social networks, yesterdayreleased its new social networking soft-

ware product. The launch of SocialGOVersion 2 sent shares on the rise, to closeup by almost 20 per cent. The new productallows customers to build entire websitesand can connect to Facebook and Twitter.

BBX operating system unveiledResearch In Motion will introduce souped-up operating software for its BlackBerrysmartphone and PlayBook tablet designedto make both more formidable competitors

to Apple and Google devices. At a develop-ers conference in San Francisco, theCanadian company said yesterday it wouldinstall its new BBX platform in next-gener-ation devices but provided no timetable.

MORE NEWSONLINE

www.cityam.com

BlackBerry suffers more than its parent brand

ONE benefit of daily trackers suchas YouGovs BrandIndex is thatyou can immediately measurethe impact of a crisis compar-

ing where the brand was prior to a

problem, to perception within 24hours, and then its status during therecovery period and beyond.

Last week millions of BlackBerryusers were unable to use email, theweb or BlackBerry Messenger (BBM)

following a systems crash on themorning of 10 October. The blackoutaffected services across Europe, theMiddle East and Africa, with manyusers taking to social networking sitesto vent their anger.

It was BlackBerry rather than brandowner, RIM, that bore the brunt ofnegativity. Buzz for BlackBerry can beseen to react immediately to the newswith a dramatic fall from +11 pointson 10 October to -26 on 13 October and

-52 by Monday, while RIM recorded asmaller fall from 0 to -14 over the sameperiod.

BlackBerrys Index Scores also fell(although not as dramatically), regis-tering a significant drop of 26 points

as they fell from +22 on 10 October to-4 a week later. RIM again fared betterhere, moving only slightly from 3points on 10 October to +2.

Its the second time recently that we have witnessed how RIM sees nodiscernible impact on overall brandperception while BlackBerry suffers.

Following the August riots, whenBBM was the communication methodof choice, BlackBerrys Buzz plummet-ed with a drop from 10 points on

Monday 8 August to -8 by 11 August.Yet, prior to last week, Blackberry

had fully recovered this 18 point drop. Whether the brands perception iscapable of recovering from this latest

crisis as successfully can be assessedover the next few days and weeks.Stephan Shakespeare is chief executive ofYouGov.

BRAND INDEX

STEPHAN SHAKESPEARE

ANALYSIS l Index Chart

8 Oct 11 Oct 14 Oct 17 Oct

25

20

15

10

5

-5

0

BlackBerry

Research InMotion

ANALYSIS l Buzz Chart

8 Oct 11 Oct 14 Oct 17 Oct

20

10

0

-10

-20

-30

-40

-50

-60BlackBerry

Research InMotion

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ECONOMISTS have been challengedto create a plan for the orderly exitof countries from the Eurozone,with a prize sponsored by Next chiefexecutive Lord Wolfson, the peerannounced today.

There is a very real possibility of aEurozone collapse, and a disorderlyrout represents the worst possibleoption which would put at risk sav-ings, banks and the stability of allEuropean nations, said Wolfson.

But if a government says it isdetermining how a nations exit

would work, it risks making the situ-ation worse.

That leaves a policy void to befilled, and I hope this prize attractsserious intellectual power from aca-demic, city and commercial econo-mists.

Solving the problem would be nomean feat. All contracts in affectedcountries would be undermined ifcurrencies changed, devastatingdebtors and creditors, buyers andsellers. And runs on banks couldbecome runs on countries if cash ismoved from a nation leaving theEurozone to one staying in.

Policy Exchange and Lord

Wolfson, who jointly announced theprize, hope to attract a range ofapproaches.

Historical examples of disinte-grating unions can be studied, themacroeconomic implications areenormous, the legal elements mustbe unwound and there are tacticalquestions for central bankers toaddress what kind of currencyareas would be the best replacementfor the current Eurozone? saidWolfson.

The competition is open toentrants from any country, and thewinner will be awarded a 250,000prize.

250,000 for a planto exit the EurozoneBYTIMWALLACE

EUROZONE

Lord Wolfson is seeking a framework allowing countries to leave the Eurozone in an orderly fashion Picture: Stephen Lock

NEWS | IN BRIEF

Daimler maintains outlookDaimler said yesterday it would keep its2011 outlook, pouring cold water onmarket talk it may have to cut its guid-ance. "We don't have the intention tolower our outlook," a Daimler spokesmansaid. Daimler also said it had dismissedErnst Lieb, the head of Mercedes-Benz

USA, with immediate effect and gave noreasons for the move.

EFG plans restructuringPrivate bank EFG International said itwill look to cut jobs, sell its financialproducts unit and close several bookingcentres and offices as part of a restruc-

turing launched under new chief execu-tive John Williamson. The Switzerland-listed bank will slash 10-15 per cent of

jobs in the next 18 months to reducecosts and return to profit, and will aim toreduce its stake in EFG FinancialProducts from 57 per cent to below 20per cent, Williamson said yesterday.

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DREAMING OF A PLENTIFUL CHRISTMAS

HEDGE funds outperformed equi-ties in September, according to datareleased yesterday, although mostmanagers still lost money.

All strategies managed to post better returns than the S&P 500,which plunged by 7.03 per cent lastmonth, the EDHEC-Risk institutesaid.

However, on average, managerspursuing a short-selling strategywere the only ones to post positivereturns, with a gain of 8.14 per cent.

Commodity trading adviser (CTA)funds, which try to play the techni-cal factors in different niche mar-kets, posted virtually flat returns of0.26 per cent, as did merger arbi-trage funds, down 0.96 per cent.

The worst performing fund man-agers were those pursuingemerging markets strategies, withan average loss of 6.71 per cent.

Relatively spared until lastmonth, emerging markets also tooka blow as their stumble of lastmonth turned into free fall inSeptember, said EDHEC.

ITV snaps up Channel TVas it consolidates its brand

ITV yesterday snapped up Channel Islandsbroadcaster Channel Television in a fur-ther consolidation of its broadcastingfranchise.

The deal for the small broadcastermeans Northern Ireland-based UTV andScotlands STV are the only other holdersof the 15 licences to broadcast on channel3. The terms of the deal, which is subjectto regulatory approval, were notdisclosed.

Consolidation had seemed unlikelyafter chief executive Adam Crozier saidhe is focussed on acquiring content pro-

ducers to bolster ITVs flaggingproduction house.

Speculation has now reemerged thatSTV, which holds two licences, and UTVcould be targets for ITV. Analysts havelong argued the acquisitions would makecommercial sense, allowing ITV to stripout costs.

A deal with STV is more likely now thetwo firms have settled a long-running pro-gramming dispute. STV agreed to pay ITV18m to compensate for what ITV saidwas a shortfall in its network programmecontributions.

UTV Media, which also owns TalkSport,has previously held merger talks with STV.

Hedgies beat sharesbut still lose money

HEDGE FUNDS

MEDIA

TWO thirds of Britons areplanning to spend more orthe same on Christmas aslast year, according to theHSBC Christmas Survey. Onaverage, Brits are planningto spend 378 on the holi-day, with 183 of that

going on food, drink andentertainment. In a positivesign for retailers, the 22 percent who plan to spend lesssay they will cut theirspending by 96.53, whilethe 20 per cent who areplanning to spend more saythey will shell out an extra82.23 almost cancellingout the implied drop.

Picture: REUTERS

RSM Tenonfinanceboss quits

RSM TENON finance director RussellMcBurnie has stepped down afterthree years in the job.

He will be replaced by former PAConsulting chief financial officer Adrian Gardner. It is understoodMcBurnie will remain at the account-ancy giant in a lesser role.

RSM Tenon chairman Bob Mortonsaid: Gardners experience andinsight will help us achieve ourmajor priorities which continue tobe working capital reduction, profitimprovement and organic develop-ment.

I would like to thank Russell forhis commitment and dedication to

the business.

BY STEVE DINNEEN

ACCOUNTING

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Signia WealthEtienne de Merlis has been appointedas an executive director in the fundmanagers investment team, managingdiscretionary and advisory accountsfor ultra high net worth clients. DeMerlis joins from JP Morgan Private

Bank, where he was a portfolio manag-er for UHNW individuals.

CofundsThe independent investment platformhas appointed Jim Clay, formerly a sen-ior member of the UK sales team atSEI, as business development manager.

Barclays

Ian Ackerley has been appointed asinvestments director, UK Retail

Business Banking. He joins from VirginMoney, where he was managing direc-tor of investments and pensions.

PrupimThe real estate fund manager has hiredChris Nash, formerly a director and

fund manager at ING Real Estate, asdirector of institutional business.

CITY MOVES | WHOS SWITCHING JOBS Edited by Harriet Dennys in association with

Cushman & WakefieldThe global property consultant has appointedMichael Lindsay as a partner and head of itsEMEA corporate finance team in London. Lindsaywas formerly a partner and UK head of corporatefinance at KPMG, and director in Citigroups real

estate and lodging investment banking team.

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BEST OF THE BROKERS

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

ANALYSIS lLamprell PLC

375

325

275

225

3 Oct1 Aug 1 Sep

p

228.2018 Oct

LAMPRELL

Investec said its target price of 393p isunder review after the engineer firmedup an order to build two jackup oil rigsfor Abu Dhabi's National DrillingCompany. Investec believes the deal willrenew investor confidence in the stock.

ANALYSIS lSarantel Group PLC

1.0

0.5

0.6

0.7

0.8

0.9

1 Aug 1 Sep 3 Oct

p 0.7518 Oct

SARANTELMerchant Securities rates the antennaemanufacturer as hold maintaining itstarget price of 0.7p after Sarantel issueda trading statement warning that fullyear revenues would be 24 per centlower, largely due to a delay in orders.

ANALYSIS lFaroe Petroleum PLC

240

140

160

180

200

220

1 Aug 1 Sep 3 Oct

p

154.018 Oct

FAROE PETROLEUMNumis Securities retains its add rec-ommendation after the oil and gasexplorer announced a discovery at theButch prospect in the Norwegian NorthSea. The broker moved its target price

from 190p to 186p.

Wall St rallies on Europe but Apple disappoints after hours

U

S stocks surged late in trading yesterday as buyers latchedonto another report of agree-

ments to strengthen the eurozone's rescue fund to bid up stocks

aggressively. All three major indexes rose

sharply after the Guardian newspa-per said France and Germany willincrease the euro zone's rescue fundto 2 trillion as part of a plan toresolve the sovereign debt crisis.

Investors and buyers piled intofinancial shares, which had startedthe day weak but gained momen-

tum on the late news. Shares ofBank of America rose 10.1 per cent

to $6.64 and trading volume for theDirexion Financial Bull 3X ETF

jumped to the highest since April2010.

The development from Europe isreally what we had been rallying onfor the past two weeks beforeGermany yesterday signaled that theissue wasn't quite resolved, saidLarry Peruzzi, senior equity trader at

Cabrera Capital Markets in Boston.But the direction of the market

can easily reverse if we get some-thing bad again from Europe.

Stocks may also be affected onWednesday by last nights late newsfrom tech bellwether Apple.

Stock index futures sold off afterthe bell following weak quarterlyresults from Apple. Its shares lostmore than five per cent to below$400 in extended trade after the

company reported a rare miss inquarterly results after sales of its

flagship iPhone fell short of WallStreet expectations. The stock hadclosed up 0.5 per cent at $422.24during the regular session.

S&P 500 futures SPc1 fell 6.3points while Nasdaq 100 futuresNDc1 lost 18.75 points.Goldman Sachs Group added 5.5per cent to $102.25 after reporting arare loss, but Goldman said it was

moving to cut costs, includingemployee pay.

THENEW YORKREPORT

BRITAINS leading share indexended lower yesterday as nerv-ous investors retreated fromriskier assets, forcing the FTSE

100 below a significant technical levelas global growth concerns returned tohaunt the market.

The blue-chip index fell 26.35points, or 0.5 per cent, to 5,410.35 --

below the 5,450 level it has managedto close above just once since early

August -- as investors pulled out of themining and banking sectors.

The FTSE bounced off a session lowat 5,348.64, tracking movements on

Wall Street as market volatility contin-ued in thin trade.Rolls Royce andIMIwere among thetop risers up 1.6 per cent and 2.2 percent, respectively.

Elsewhere, Whitbread rose 0.5 percent after Britain's biggest hotel andcoffee shop operator reported a higher-than-expected first-half pretax profitand hiked its dividend over 50 percent.

Bargain hunters picked up G4S, which bounced 9.8 per cent, havingslumped more than 20 per cent onMonday when announcing a deeplydiscounted rights issue to pay for its1.5bn acquisition of Danish firm ISS.

FTSE downas growthworries hit

THELONDONREPORT

18 Jul 5 Aug 25 Aug 5 Oct15 Sep

6,000

5,200

5,600

ANALYSIS l FTSE

5,410.3518 Oct

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ANGLO-SWISS miner Xstrata has warned that its South African coaloperations were significantlyimpacted by a strike over an employ-ee share ownership programme, butsaid that customer deliveries had notyet been affected.

Thousands of workers belonging tothe National Union of Mineworkers(NUM) have walked off the job sinceSunday, the union said, demandingequal benefits for all workers under a

proposed share ownership scheme.The news came as Xstrata posted

record third quarter thermal coaloutput yesterday as it recovered fromweather-related setbacks at the startof the year.

The company reported quarterlythermal-coal output of 20m tonnes,its highest ever, compared with18.5m tonnes the same period a yearearlier.

But Xstratas mined copper outputdropped to 223,606 tonnes in the

quarter from 233,647 tonnes afterproduction was hit by lower grades,repairs and blizzard conditions at itsCollahuasi mine in Chile.

Copper generated the most profitfor Xstrata, with coal ranking second.

The miner said it settled annualthermal coal contracts with long-term Japanese customers at $126.5per tonne from $129.85 a tonne inApril, exceeding analyst expectations.

Xstrata fell by 1.33 per cent to936.40p last night after mining stockswere hit by weaker-than-expected fig-ures on Chinas third-quarter growth.

Xstrata hit bySouth Africanmining strike CLARITY Commerce yesterday said itis in talks with a number of suitorsand expects to receive a better offer

than the one tabled by Jon MoultonsEnigmatic Investments.

The Clarity board reiterated its rec-ommendation to shareholders toreject the Enigmatic bid, which it saysundervalues the company and itsprospects.

It said: The board is in discussionswith a number of potential interestedparties and is working with these par-ties towards an offer which woulddeliver a significantly better overallreturn to shareholders than the offerby Enigmatic, and which the Clarityboard expects it would be able to rec-ommend.

Enigmatic, controlled by Moultons

buyout company Better Capital, last week defended its 9.7m bid andhighlighted the 1.6m loss from con-tinuing operations Clarity posted lastyear.

Clarity says itmay receivenew bid soon

BYKASMIRA JEFFORD

MINING


SIR Martin Sorrell yesterday laid outhis vision for the future of the adver-tising industry, stressing the impor-tance of social media and the shift toemerging markets.

He also said mobile advertising isan increasingly vital part of the indus-try, with the number of smartphonesexpected to increase to 2bn in thenext five years. However, WPPs head

of digital Mark Read also highlightedthe resilience of TV, saying the twowill continue to co-exist.

The WPP boss said he wants toincrease his firms exposure to theBRIC (Brazil, Russia, India and China)and Next 11 economies from 30 percent to 40 per cent. He also said heplans to boost its new media expo-sure from 30 per cent to 40 per cent.

This is in line with a glut of recentacquisitions focussing on new mediain emerging markets.

WPP boss looks to mobilefuture for the ad industry

Sir Martin Sorrell has made several buys in emerging markets Pic: Micha Thiener/City AM

BY STEVE DINNEENADVERTISING

ANALYSIS l Xstrata PLC

p


1,000

940

920

900

880

980

960

936.4018 Oct

BY STEVE DINNEENTECHNOLOGY

Jon Moulton questionedthe credibility of Claritywith its customers afterit rejected a bid from hisEnigmatic vehicle

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AIR FRANCE-KLM ousted its chiefexecutive yesterday and recalled thechief architects of the Franco-Dutchmerger with a brief to eradicate losses

while preparing for an anointed suc-cessor.

Europes largest airline by rev-enues, which has fallen behind peersdue to a cocktail of costs, debts andcompetition, said after board talksthat recovery and improving perform-

ance would be its top priority.The group said it postponed plans

to reorganise into a fully fledgedholding company, with integrateddivisions, from the beginning of 2012until 2013 and restored its old guardto run things in the interim.

Jean-Cyril Spinetta will remainchairman and resume his previousrole as chief executive, replacingPierre-Henri Gourgeon who resignedfrom the post he had held since

January 2009.

Leo Van Wijk, who with AirFrances Spinetta masterminded the2004 merger of French and Dutch car-riers from the KLM side, will bedeputy chief executive, the groupsaid.

The holding company move is seenas a necessary precursor to possiblefuture acquisitions.

Air France-KLM shares closed up 1.4per cent after rising six per cent onnewspaper leaks about the proposed

board decision, which analysts saidwould speed up restructuring.

Air France-KLM replacesits chief exec THE FINANCIAL Stability Board (FSB)published its top six priorities forbanking reform yesterday.Basel III, OTC derivative reforms, pay

changes, systemically important bankmeasures and resolution frameworks

were all declared to be FSB priorities. The body plans to track progress

towards the implementation of legisla-tion promoting these G20 initiatives.

The selection process was based onthe importance of consistent and com-prehensive implementation of reformsin that area for global financial stabili-ty the FSB said.

Meanwhile, the Basel Committeepublished a progress report yesterday,detailing the stage of implementation

which each country has reached. EUnations are leading the way, with draftlegislation in place to implement Basel

IIIs requirements and laws in placecovering all of Basel IIs agreements.

Almost every other nation has legis-lation in place or in the progress tocomply with Basel II, with the excep-tion of Argentina, which is in theprocess of drafting rules, and Russia

which will not have the rules imple-mented until at least 2014.

In terms of Basel III, only SaudiArabia which has issued final regu-lations to banks China and the EUhave gone beyond the drafting stage.

Basel III andderivative rulesget FSB priority

BYHARRY BANKS

AVIATION

REGULATION


AUSTRALIAS Qantas Airways hasgrounded two more planes due to anescalating industrial dispute whichthreatens to disrupt

cityam 2011-10-19

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