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FTSE 100 5,450.49 +40.14 DOW 11,504.62 -72.43 NASDAQ 2,604.04 -53.39 /$ 1.57 unc / 1.14 unc /$ 1.37 unc

BAA puts for sale signover Edinburgh airport

BAA announced plans yesterday to sellEdinburgh airport, bowing to the UKCompetition Commissions (CC) rulingto sell one of its Scottish airports inorder to increase competition.

The decision comes after a two-yearbattle between BAA and the CC, whichin 2009 ruled that BAA, owned bySpanish infrastructure giant Ferrovial,exerted a dominant hold on UK air-ports and told it to sell Stansted and

either Glasgow or Edinburgh airport. Analysts at the Royal Bank o

Scotland said that in choosing to sellEdinburgh, a stronger asset comparedto Glasgow, BAA may be opting for asale that would have a higher chanceof being profitable.

The airport operator, which alsoowns Heathrow, Southampton andAberdeen, said it plans to agree a saleby the summer 2012.

It is still disputing the watchdogsfinal ruling in July requiring it to selloff Stansted. In 2009, the group waspressured to sell Gatwick for 1.5bn.

BY KASMIRA JEFFORD

TRANSPORT

MORGAN Stanley surprised investors by staying in the black yesterday,although it did so in part only becauseof an accounting gain that has seen banks book huge earnings from thelower cost of their debt.

The bank reported a net profit of$2.2bn (1.4bn) and pre-tax earnings of$3.68bn for the third quarter of thisyear, compared to $801m in 2010.

But $3.4bn of the 2011 figure camefrom the accounting gain: strippingout that effect gives a pre-tax profit ofsome $280m and a small net loss.

However, even without the boostfrom accounting vagaries, markets were pleasantly surprised by theresults from a bank whose share pricehas recently been in the grip of mar-ket rumours about its exposure totroubled European countries.

The bank reported $2.11bn in netexposure to Greece, Ireland, Italy,

Portugal and Spain and negative netexposure to France due to the highvalue of its hedges. The lions share ofits risk is in Italy, where net exposureis $1.79bn, while it has $287m in netexposure to Greece.

Despite what chief executive JamesGorman called a turbulent period,the bank saw its net assets under man-agement swell by $17.5bn.

It reported putting aside $3.69bn topay staff, the same amount as duringthe third quarter of 2010.

BY JULIET SAMUEL

BANKING

Crispin Odeys hedge fund is one of many to have suffered this autumn

THE WOES of hedge fund managers were underlined yesterday whenCrispin Odeys flagship European vehicle became the latest to revealsteep losses.

In a letter to clients, seen byCityA.M., Odey Asset Management said itsEuropean fund lost 8.3 per cent lastmonth, after some of its long posi-tions, such as Sky Deutschland, per-formed poorly.

The funds performance improvedslightly this month and is down by 16to 17 per cent so far this year, DavidStewart, chief executive of Odey AssetManagement, told City A.M.

The Odey MAC hedge fund has per-formed two to three per cent betterthan its European sister product, headded, meaning it is down 13 to 15per cent.

Stewart said Crispin Odey had beenvery clear why he is long on equities

referring to the founders bullishstance on stocks.

Investment is a long-term game(but) nobody is relaxed when you aredoing poorly, he added.

Odeys firm, which made millionsduring the financial crisis by shortingstricken City banks, has seen betterperformance elsewhere, however. James Hanburys absolute returnfund and Michele Ragazzis GianoCapital fund are both up by four tofive per cent so far this year.

It comes only days after billionaire American investor John Paulson warned of the possibility of massredemptions at his Advantage Plusfund and Man Group revealed its flag-ship computer vehicle had beencaught out by a rally in equities and asell-off in bonds.

The average equity hedge fund lost5.65 per cent of its value in Septemberand is down nearly 10 per cent this year, according to Hedge FundResearch.

Sarah Ing, an analyst at SingerCapital Markets, said the recent per-formance of hedge funds had beenpoor.

There have been some funds with very low returns this year, likePaulson and Odey. There is a lot ofuncertainty, causing a lot of whip-saw-ing in the environment. It is a very dif-ficult time.

Yesterday Man suffered another blow when Raffaele Costa quit asdeputy head of sales and marketingfor the US and Europe.

He was previously an executive atGLG Partners and joined Man when itbought its rival for $1.6bn (1.02bn)last year in an attempt to lessen itsreliance on its quant fund AHL. He isleaving to launch a property invest-ment firm but will continue to advisethe group.

Man has been the subject oftakeover talk after its shares tankedon poor performance at both its GLGfunds and AHL.

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News2 CITYA.M. 20 OCTOBER 2011

Citi pays out$285m fineCITIGROUP settled with the USSecurities and ExchangeCommission (SEC) for $285m lastnight over a case involving deriva-tives sold before the financial crisis,saying it was pleased to put thismatter behind us.

The SEC had accused Citi of negli-gence when it advertised certainderivatives to customers without dis-closing that it had helped to selectthe underlying assets in the instru-ments and had short positions insome of them.

Citi denied the accusation andargued that while it had short posi-tions on some of the collateral for thederivatives, it also held $100ms

worth of the instruments itself in var-ious subsidiaries and had long posi-

tions in other, similar products.The derivatives in question were

collateralised debt obligations (CDO)sold at the height of the property

boom in 2006 and early 2007, mak-ing the case just the latest in a stringof suits generated from the fallout ofthe financial crisis.

Citi was not forced to admit anywrongdoing in the settlement.

US authorities in particular arekeen to go after banks for what theysay was inadequate disclosure of pos-sible conflicts of interest in sellingmany complex financial products.

BY JULIET SAMUEL

BANKING

Savers are being hit by brutal forces

IF you want to feel the full effects ofinflation, try buying a bar of choco-late at your local newsagent, a sand-

wich near your office or even a shirtfor work. Its incredibly depressing.Prices have shot up. For savers andinvestors, the name of the gameremains wealth preservation: how do

you prevent inflation at a 20-yearhigh, increasing tax and global uncer-tainty from wiping you out? Evenhedge funds are failing to keep up,

with many highly paid managers fail-ing to deliver an acceptable return, as

we report on page one.

This challenge is made even harder by the fact that capital gains tax, which this government increased to28 per cent, is no longer indexed toinflation. This has introduced a

deeply perverse and unfair bias intothe tax system, which this newspaper warned about at the time. Imaginethat you owned an asset for the past

year that you manage to sell for a 5.6per cent gain the rate of retail priceindex inflation. In real terms, you arenot better off; yet you still have to paya 28 per cent tax on the capital gainabove the tax-free threshold. You arepaying tax on a meaningless infla-tionary gain, which means that thetax system has turned into a wealthtax, forcing people to hand over achunk of their assets rather than achunk of their gains.

So what can be done? History is oflimited use. Looking back over thepast 38-odd years, Fidelity, the fundmanager, has calculated annualreturns on different asset classes

bonds, stocks, commodities and cash

depending on the phase of the eco-nomic cycle, such as reflation, recov-ery, overheating or stagflation. Givenrecent events, the year ahead willmost likely be characterised by

stagflation, in the UK at least.Historically, under stagflation, bondslost 1.1 per cent a year, stocks lost 14.9per cent, commodities surged 29.6per cent and cash lost 0.8 per cent.

That pattern is pretty clear yetunfortunately it is of little help.Commodities are unlikely to rocketnext year; globalisation has brokensome historical correlations; andequities would only lose this much inthe event of a real Eurozone implo-sion or banking meltdown. There are,unfortunately no simple answers.

Gold will do well if inflationremains high and central banks con-tinue to boost liquidity around the

world but the yellow metals recentwoes were caused by investors beingforced to sell out as a result of margincalls triggered by declines in otherassets. Once again, a key traditional

relationship broke down. Other com-modity prices will depend on how

well China and the US are doing;there is growing evidence thatgrowth is slowing in China, with pos-

sibly traumatic consequences.Equities will continue to be all overthe place but stocks that pay a highdividend are likely to outperform.

Gilt yields could fall further thanksto QE, pushing up capital values butthat would merely further fuel a bub-

ble that will eventually end in com-plete disaster. One story last nightshowed just how absurd and irra-tional the situation has become:Goldman Sachs has just sold $500m

worth of 50-year bonds paying just 6.5per cent interest. Yes, you read thatright. Investors were so desperate for

yield that they lapped up the issue. The cost of borrowing has fallen toabsurdly cheap levels, and savers arethe ones who are paying the price.Grim times.

[email protected] me on Twitter: @allisterheath

THE European Commission is set toannounce an overhaul of trading plat-forms and penalties for financialcrime this morning as its head, MichelBarnier, unveils two new hefty tomesof regulation.

The Market in FinancialInstruments Directive II (MiFID II) willtarget commodities derivatives trad-ing by handing national and EU regu-lators new powers to slap bans on anymarket practice they see as damaging.

It could also impose limits on thevolume of any individual position andwill force aggregate positions in eachkind of commodities derivative to bedeclared to better assess the role ofspeculation in these markets.

More generally, it will propose mak-ing all private derivatives trading plat-forms subject to the same regulationsas centralised clearing houses.

Alongside MiFID II, Barnier will pub-lish the latest Market Abuse Directive(MAD), which will demand new pow-ers to treat insider trading and marketmanipulation as crimes. MORE: P26

BY JULIET SAMUEL

REGULATION

EU unveils trading rulesCommissioner Michel Barnier is cracking down on derivatives markets

NEWS | IN BRIEF

Cable cant rule out double dipBusiness Secretary Vince Cable said yes-terday that Britains faltering economycould slip back into recession, but govern-ment action to boost growth is likely tohelp the country avoid another downturn.During an interview with ITV news, Cablewas asked if he could promise that Britain

would not experience a double-dip reces-sion. He said: I can't do that. We knowconditions are very difficult but the gov-ernment is doing the best it can to protectpeople.

Vote on EU referendum movedDowning Street yesterday brought for-ward a House of Commons vote onwhether a referendum on Britains mem-bership of the EU should be held, as fearsgrow that some Tory MPs were planning arebellion in Prime Minister DavidCamerons absence. The debate was origi-nally scheduled for next Thursday, 27October, but will now take place onMonday. The referendum would ask if theUK should stay in the EU, leave, or renego-tiate the terms of its current membership.Both the Prime Minister and WilliamHague will be in Australia next Thursday,but in the Commons on Monday.

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]

Citi, led by VikramPandit, will stump up$285m over debtinstruments sold duringthe property boom.

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

EU PUTS BANKS SHORTFALL AT JUST90BNEuropes grand plan to strengthenits banking system is set to fall wellshort of current market expecta-tions identifying a capital shortfallof less than 100bn (87bn) thatmust be made up over the next sixto nine months, according to thelatest official estimates. The EUsestimate of the necessary recapital-isation effort compares with arecent IMF report that identified a200bn hole in banks balancesheets.

SHADOW FALLS OVER SOLAR SUBSI-DIESSubsidies for households to installsolar panels are about to be slashed

by ministers in a controversialmood that could make a further

dent in the coalitions green creden-tials. Ministers are also expected to

announce today a shake-up of windpower incentives from 2015, which

will cut subsidies for onshore windbut improve state help for wave andtidal power.

ARM UNVEILS NEW CHIP FOR $100SMARTPHONE

ARM Holdings has unveiled a newmicrochip design that will allowthe development of smartphonescosting less than $100 (63) by 2013.

The UK-based company, whosedesigns are used in more than 90per cent of the worlds mobilephones, has produced a micro-processor achitecture one-fifth thesize of those used in smartphonestoday, and five times more efficient.

COSALT SHARES SHED MORE THANHALF VALUE IN A DAYShares in Cosalt more than halvedafter the engineering services com-pany warned that full-year revenues

would be significantly lower thanthe boards previous estimates.

ST PAULS ASKS ANTI-CAPITALIST PRO-TESTERS TO GOSt Pauls Cathedral could be closed forthe first time in memory because ofthe anti-capitalist protest taking placeon its doorstep. Cathedral authoritiesasked the growing number of OccupyLondon Stock Exchange protesters

who have pitched tents outside themain entrance to move on last night.

MILLIONS IN AID LOST TO FRAUD ANDCORRUPTION

The department responsible for over-seas aid is losing millions of pounds oftaxpayers money through fraud andcorruption because of poor financialmanagement, an influential commit-tee of MPs has found. The Public

Accounts Committee said that thepotential for fraud will now be muchhigher because Britain is refocusing its

overseas aid to war-torn and difficultcountries.

PRUDENT SAVERS HIT BY EXCESSIVEHIDDEN FEES ON PENSIONSPrudent savers are having theirretirement funds eaten away byexcessive hidden fees, the organisa-tion representing pension funds willadmit. The National Association ofPension Funds says that fees are toohigh and that consumers face aneye wateringly complex system ofhidden levies.

SHOP DIRECT WARNS OF BRUTAL2012 DESPITE SEEING SALES RISEShop Direct, owner of theLittlewoods shopping business, has

warned of a brutal 2012 after post-ing an increase in sales last year. Thecompany, the country's biggest cata-logue and online retailer, increasedsales by 5.5pc to 1.94bn in the yearto April 2011, helped by the success-

ful introduction of the Isme brand,aimed at older women.

AT UBS, CHIEF PUSHES NEW CUTSUnder pressure to revive UBSs for-tunes and help the firm recover froma rogue-trading scandal, the Swiss

banks interim chief is preparing toshrink its once high-flying investment-

banking unit. Sergio Ermotti, who has been at the helm for less than amonth, has ruled out a sale or spinoffof the investment bank but has decid-ed to significantly reduce its scope andsize.

BOFA'S BIG MORTGAGE SETTLEMENT ISMOVED TO US COURT

A federal judge has ruled the $8.5bnsettlement between Bank of Americaand several high-profile investors wholost billions on mortgage-backed secu-rities will be heard in federal court.

The ruling goes against BoA and Bankof New York Mellon, the trustee in the

case, which had both wanted the set-tlement to remain in New York state.

WHAT THE OTHER PAPERS SAY THIS MORNING

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MOODYS downgraded five of Spains biggest lenders last night, includingBanco Santander, following on fromits downgrade of the sovereign state onTuesday night.

The other banks downgraded wereBBVA, CaixaBank, La Caixa andConfederacin Espanola de Cajas deAhorros (CECA). The agency limited itsactions to Spains biggest, systemicallyimportant banks because it said they were most affected by the sovereigndowngrade due to a higher likelihoodof bailout should they fail.

Moodys also downgraded 16Spanish regional authorities.

EBAY reported profit that matched Wall Street estimates yesterday, butgave a restrained outlook for the restof the year, sending its shares lower.

Excluding stock-based compensa-tion expenses and other items, theoperator of the largest online market-place reported profit of $628.2m(398m), or 48 cents a share, in the lat-est period. Revenue climbed 32 percent to $2.97bn.

Third-quarter net income was$490.5m, or 37 cents a share, com-pared to $432m, or 33 cents a share, ayear earlier. EBay was expected to earn48 cents a share on revenue of $2.91bn.

Not a spectacular quarter, said R JHottovy, equity analyst at Morningstar.It was essentially in line, which mayhave disappointed the market.

EBay forecast fourth-quarter profitof 55 cents to 58 cents a share, whileanalysts were looking for 58 cents ashare. The company also forecast full-year revenue of $11.5bn to $11.6bn andfull-year profit of $1.98 to $2.01 ashare.

When eBay reported second-quarterresults in July, the company forecast

full-year revenue of $11.3bn to $11.6bnand full-year profit of $1.97 to $2.00 ashare.

Investors were assuming therewould be upside surprise in earningsor the guidance, said Fred Moran, ananalyst at Benchmark Capital.

They maintained their full-yearforecast essentially, which reflects a lit-tle caution around the global econo-my, Moran added. Managementcould increase forecasts later in theyear, but things are too volatile rightnow to stick ones neck out.

EBay president and chief executive John Donahoe said more and morecustomers were choosing to shopthrough smartphones, with the com-pany expecting mobile commerce togenerate almost $5bn in merchandisevolume this year.

Mobile is one way online andoffline shopping are blending into asingle commerce environment, saidDonohoe.

We are focused on enabling com-merce, helping consumers shop any-time, anywhere, and being thecommerce partner of choice for retail-ers of all sizes.

EBay shares fell four per cent to$31.90 in after-hours trading.

EBay outlook

cautious asrevenues rise

INTERNATIONAL entrepreneur RobertGaines-Cooper lost his UK residencyappeal in the Supreme Court yester-day, in a case that could have repercus-sions for other non-domiciles facingback-dated tax bills.

The court ruled in favour of HMRCthat the millionaire must pay taxunder UK law, despite having lived inthe Seychelles since 1976.

Commentators said the judgement

highlighted the need for more clarityon UK laws on tax residence, which aredue to be reformed with the introduc-tion of a statutory residence test inApril 2012.

The introduction of a statutory res-idence test ... cannot come soonenough for anyone contemplating working, living or retiring abroad,said Ronnie Ludwig, partner in the private wealth group at accountancyfirm Saffery Champness.

Key tax ruling mayhit UK non-doms

AMERICAN Express posted higher-than-expected quarterly net incomeon yesterday, as borrowers used theircards for more purchases.

The New York-based credit card com-pany said third-quarter net income was $1.2bn, or $1.03 per share -- upfrom $1.1bn, or 90 cents per share, ayear ago. That was above analysts aver-age estimate of earnings of 96 centsper share. Total revenue, net of interestexpenses, rose nine per cent to $7.57bnfrom $6.97bn a year earlier.

But costs were up on its card mem-

ber program and personnel costs, withtotal expenses up about 13 per cent.

AmEx profit upon record spendSantander isdowngraded

BYHARRY BANKS

TECHNOLOGY

BANKING

FINANCIAL SERVICES

Ebay presidentJohn Donahoe saidmobile commercerevenues were onthe up

Picture: REUTERS

BY ELIZABETH FOURNIER

TAXATION

News 3CITYA.M. 20 OCTOBER 2011

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THE US economic outlook grew dim-mer in September, leading businessesto be wary of spending and of buildingup inventories ahead of the holidaysales season, the Federal ReservesBeige Book revealed last night.

US stocks fell after the Beige Book was released, while Treasury debtprices rose on its glum economic out-

look. In more positive signs of activityfirming in the third quarter, strongerhousing starts in September have ledsome analysts to raise their forecast forthird-quarter growth.

Housing starts rose a surprising 15per cent month on month inSeptember, separate data showed yes-terday.

And the Beige Book contained somebullish economic news, finding thatconsumer spending was up slightly in

most districts, led by auto sales andtourism. There was also some increasein business spending, notably for con-struction and mining equipment andfor new-car inventories.

Meanwhile, consumer price index(CPI) inflation in the US hit 3.9 percent last month, its highest rate forthree years. While total CPI was up 0.3per cent, core inflation -- whichexcludes energy and food costs -- rose

by just 0.1 per cent.

Economic fears stallingUS recovery: Beige BookBYHARRY BANKS

US ECONOMY

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CONSTRUCTION output growth suf-fered a major drop in August, datafrom Eurostat revealed yesterday.

Eurozone construction productiongrew by 0.2 per cent in the month,according to initial estimates. Theexpansion represents a decline ingrowth from Julys 1.8 per centincrease in output. Across the wholeEU, output did not grow at all in

August. In July the Unions construc-tion sector expanded by 0.9 per cent.

Eurostats construction index showsthe Eurozones production was 15.6per cent lower in August than in thesame month in 2005. For the wholeEU, the decline is 9.9 per cent.

Constructionoutput growthfalls in Eurozone

EUROZONE

EC set to bolsterinfrastructure

INFRASTRUCTURE spending acrossEurope could receive a50bn (43.6bn)

boost from 2014 to 2020, if a EuropeanCommission (EC) proposal announced

yesterday works as planned.The money will be spent on trans-

port, digital communications andenergy projects.

A pilot phase in 2012 and 2013 willsee230m spent. A total of32bn willgo to transport projects over the wholeperiod, towards the 250bn theCommission claims needs to be spent

by 2020.

EUROZONE

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FRENCH president Nicolas Sarkozyflew to Germany last night for crisistalks ahead of this weekends summit,which aims to address the Eurozoneswoes.

He wants the European FinancialStability Fund (EFSF) to become a bank,tapping the European Central Bank(ECB) for funds to help governments.

Germany and the ECB oppose thesuggestion, leading Sarkozy to tell theFrench parliament yesterday that hewas heading to Germany to convincechancellor Angela Merkel and hercoalition partners.

On Tuesday she dampened hopes ofa plan to save the euro emerging thisweekend, saying One cannot resolvesovereign debt with one summit. Itwill take difficult, long-term work.

One suggestion that has gained trac-tion is the idea that the EFSF should

insure a portion of the losses on sover-

eign bonds, providing insurance for

investors. That could leverage the fundfrom 440bn to1 trillion or more.However, economists are sceptical.I would be surprised if the leverage

amounted even to 1 trillion, whichwould only cover peripheral refinanc-ing needs for the next two years, and Ido not think the crisis will be over bythen, said Berenberg Banks ChristianSchulz.

However, if banks agree to a 50 percent haircut, Greeces national debtwill fall to 120 per cent of GDP, similarto Italian levels. They could slow taxrises and focus on structural reforms.

CEBRs Douglas McWilliams saidthere is hope bank refinancing may beagreed. At the national level, provi-sion needs to be made to bail out andnationalise bust banks. At the EU levelfunding needs to be made available tobail out the bust banks so that theycan keep trading by Monday, to stop

more going the way of Dexia.

Summit hopeplummets onbailout rowsBY TIMWALLACE

EUROZONE


CITY VIEWS: ARE YOU CONFIDENT THE EURO WILL SURVIVE? Interviews by Phoebe Torrance

No, I think the Euro has too manyfundamental flaws and is too complexto survive. It was doomed to begin

with and I would like to see it go.

PAUL SMITH | INCEPTA

I dont think that the euro will survive this time; possibly in many generations time there could bean equivalent that could work, but currently we have been forcing together too many different cul-tures too quickly for the euro to succeed.

PETE GODDERS | LLOYDS OF LONDON

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

A GENERAL strike failed to dissuadeGreeces socialist party from votingthrough new austerity measures lastnight, though more votes are requiredtoday to make the bill law.

Around 100,000 protestors and strik-ers (pictured, left) gathered to opposethe measures.

However, all 154 of the ruling social-ist PASOK partys deputies voted infavour of the bill a majority of the300 members of parliament. The gen-eral strike turned violent yesterday, asprotesters clashed with police andburned piles of uncollected rubbish.

Protests are continuing today asdeputies vote on the austerity meas-ures article-by-article, and then on the

whole package.If the measures are not voted

through, the next 8bn tranche of aidfrom the EU and InternationalMonetary Fund will not be received. Ifthat does happen the government willrun out of money by the middle ofnext month.

The government needs to be able tofund its debts to avoid triggering adefault, which could have enormousramifications for banks and investorswho are exposed to the bonds.

The controversial bill includes fur-ther measures to cut public sector wages and employment levels.Pensions will also be cut back, as willwage bargaining rights.

Picture: REUTERS

Initial approvalgiven for moreGreek austerity

GREEK ECONOMY

CHRIS GAZE | VERINT

Yes. As a group of countries we tradetogether, our economies are interdependentand it provides collective security. Smallereconomies need the euro to give them a

chance of economic survival and it helpslarger economies to trade more easily.

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THE BANK of Englands new phase ofquantitative easing (QE2) could rise to100bn in purchases, minutes to itsOctober meeting revealed.

All nine members voted for a 75bnrise in the asset purchase programme,

believing a recession in the Eurozoneto be likely, which would damage theUKs economic growth prospects.

The outlook for the US and Asia wasalso subdued, the Banks MonetaryPolicy Committee (MPC) noted.

Depending on developments in theeuro area and financial markets, thesize of the stimulus could be adjustedin either direction, the minutes read.

The MPC considered extending theexisting 200bn of assets purchased bya further 50bn to 100bn.

The first 200bn of QE pushed downlong-term interest rates but at thecost of CPI inflation rising by 0.75 to1.5 per cent, the Bank estimates.

Septembers CPI inflation figures which came in at 5.2 per cent were

not known when the MPC was makingits decision, though it did expect infla-tion of above five per cent.

However, the MPC believed domes-tically generated inflation remainedcontained. Inflation was likely to fall

back sharply in 2012 as temporary fac-tors fall out of the figures.

The minutes said low wage growthand weak consumer spending, which

was only a little higher in the secondquarter of 2011 than at its trough two

years earlier influenced the MPCsview that inflation will near the twoper cent target in the medium term.

Unity on QE2as MPC mulls100bn spree

GEORGE Osbornes spending plans arekeeping closely to schedule because ofthe unexpectedly rapid cuts in publicsector jobs, according to a PwC reportout today.

This time last year the Office forBudget Responsibility forecast 400,000state jobs would be lost by 2015-16.

But local authorities anticipatedthis before the 2010 election, and

began the process early. That means290,000 jobs were cut in the 18months to June 2011, the report said.

By now the f igure is over 300,000,chief economist John Hawksworthtold City A.M. Natural wastage, as staffleaving are not replaced, goes a long

way towards cutting headcount, butjob losses accelerated in quarter three.

The government has a good chanceof meeting its target of eliminatingthe structural deficit by 2015-16,

despite the slowdown in economicgrowth to one per cent this year.

Progress made so far means thereis room to slow down capital spendingcuts to provide a minor fiscal boost.

One problem remains the govern-ments communications strategy, thereport found.

The government must explainthere is no miracle policy to create

jobs it is the private sector which boosts employment, Hawksworthsaid.

PwC: job losseskeep deficit planon schedule

MPC governor Sir Mervyn King voted for 75bn more QE to boost demand Picture: REX

BY TIMWALLACE

UK ECONOMY

UK ECONOMY


ANALYSIS l Consumer price inflation hit5.2 per cent in September

%

5.2%

02 03 04 05 06 07 08 09 10 11

6

4

3

5

2

1

0

UK inflation- CPI YoYchange

Employment growth fallsas demand recovery stalls

GROWTH slowed in consumer spend-ing, manufacturing and investmentover the last month according to the

Bank of Englands agents summary ofbusiness conditions, out yesterday.

The official survey measures thestate of the economy across the coun-try and informs the monetary policycommittee (MPC) in making its inter-est rate decisions.

Consumer demand growth is slug-gish as consumers are increasinglyconscious of avoiding waste, withhouseholds driven by value.

Low demand has forced manufac-tures to scale back investment plans,

and output growth in the sector isdown as households economise.

Such conditions have impacted onprivate sector hiring intentions, which

also slowed. However, investment in younger workers is rising use ofapprenticeships was increasingly

widespread, to avoid future skillsshortages, the study found.

Other positive news came in trade.Exports to Germany and variousemerging economies remainedrobust, helped by the level of sterlingand product innovation. The 12-month outlook remains relatively pos-itive, with strong prospects reported inthe Middle East and Asia, as well.

UK ECONOMY

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BANK offices in London andEurope were raided yesterday in ashock move by European authori-ties investigating whether the insti-tutions fixed the regions Euriborinterbank lending rate.

RBS and Deutsche Bank wereamong the major banks raided,according to informed sources, asoffices in London and Paris weretargeted by European Commissioncompetition investigators.

The Commission is trying to find

out whether the 44 banks that con-tribute to deciding the Euribor rate the rate that banks use as theirbenchmark when lending to eachother in euros fixed the price totheir advantage.

The Euribor rate is set at theaverage of all 44 banks lendingrates and underpins trillions ofeuros worth of euro-denominatedloans and debt instruments.

Banks such as Barclays Capital,Socit Gnrale, BNP Paribas andSantander sit on the Euribor-EBFpanel that compiles the bench-mark. It denied price fixing.

We are fully confident in thegovernance of Euribor. With somany banks involved in setting therate, fixing a rate artificially would be impossible, said Euribor-EBFmanager Cedric Quemener.

The Commission said it hadconcerns that the companies con-cerned may have violated EUantitrust rules that prohibit cartelsand restrictive business practices.

It is the third banking probe this year, after others into control ofanother interbank benchmark, theLondon interbank offered rate, andcross-border bank payments.

Bank offices raidedover Euribor probeBYALISON LOCK

ENFORCEMENT

Avivas group chief executive Andrew Moss is to cut 950 jobs in Europe Pic: REX

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AVIVA will cut nearly 1,000 jobs fromits European operations and bringIreland within its UK business torevive the groups profitability.

Aviva said it would reduce its head-count in Ireland by about 770 closeto half its 1,770 staff as well as 180from its European regional opera-tions over the next two years to givethem a leaner cost base as competi-tiveness has fallen.

The home and motor insurer said it wanted to make its Irish arm themost competitive ... in Ireland aftertwo years of underwriting losses andan expense ratio of 19 per cent, com-pared to 10.5 per cent in the UK.

Aviva blamed the challengingmacroeconomic environment aswell as having too high a cost base.

It has been consulting on the Irish business since March, while theEuropean overhaul comes after thearrival of new European head IgalMayer, a known cost-cutter at Aviva.

Aviva cuts 950Europe jobs asprofits wane

BYALISON LOCKINSURANCE

FOR MORE NEWS

www.cityam.com


8/3/2019 Cityam 2011-10-20

8/36

News8

Vivienne Westwood is among the top names eyeing Shoreditch Picture: Rex

Shoreditch isfashion oasis

SHOREDITCH is set to be home to amini Bond Street as luxury fash-ion houses Christian Louboutin,Ralph Lauren and Vivienne

Westwood home in on Londonseast end, setting the stage for a pos-sible doubling of rents over five

years.The three fashion houses, which

have sites in high-end areas ofLondons traditional West End shop-ping district, are among luxuryretailers targeting the once down-at-heel Shoreditch to capitalise onits edgy image, lower rents andincreasingly affluent population.

It is a bit like the MeatpackingDistrict of New York, John Lovell, aShoreditch landlord of five proper-ties, said, referring to theManhattan neighbourhood trans-formed by an influx of high-end

boutiques.Developer Hammerson is plan-

ning a 485m project south ofShoreditch High Street with about630,000 square feet of offices andshops as well as 299 homes.Derwent London, which owns685,000 square feet of property inthe Shoreditch and Old Street areas,

wants more.Paris-based designer Christian

Louboutin is weeks from closing adeal for a store close to theBoundary Hotel on the mostsought-after area of RedchurchStreet -- which already houses ahandful of high-end brands, twosources said.

Meanwhile British designerVivienne Westwood, is looking for a2,000 square foot shop, while

American retailer Ralph Lauren hasbeen scouting for a 4,000 sq ft unitfor its second RRL-branded store inBritain, a source said.

BYHARRY BANKS

RETAIL

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HOME Retail Group chief executiveTerry Duddy yesterday called for thechancellor to do more to help cash-strapped families as falling sales atthe companys Argos chain took theirtoll on the share price.

Denying the companys businessmodel was broken, Duddy fired a broadside at George Osborne, chal-lenging him to increase tax relief forthose on a low income.

Argos was hit by a nine per centdrop in like-for-like sales in the firsthalf. That performance triggered a 70per cent plunge in pre-tax profits to28m across the group.

The companys share price wasdented by the bleak figures.

Duddy said that climbing inflationwas among the factors contributingto the woes at Argos.

The government should helpthose lower income groups. Theyshould get more relief, including achange in the tax threshold, he said.

The company also announced a joint venture in China that will seeArgos goods sold online in the coun-try, with one shop also to open.

The deal with Haier will see an ini-tial 22m investment from HomeRetail. Meanwhile Duddy said he wasoptimistic over UK Christmas saleswhich he expected to be boosted bythe popularity of iPods and the iPad 2.

He said: The business model is not broken. We are investing in thingslike the Chinese joint venture and thepurchase of Habitat to come out ofthe downturn strongly.

Home Retail

hit by Argossales decline

Greggs rolls out to motorways

GREGGS the bakers is planning toopen new shops in motorway service

stations as part of an ongoing expan-sion of the brand.It has sealed a deal with Moto

Hospitality with the first trial store toopen at a site in Cheshire.

The company, the UKs largestbaker, will open up to 30 outlets toadd to its existing chain of 1,540shops across the UK.

Greggs sells snack staples, such as

sausage rolls and sandwiches, to sixmillion customers a week.

Chief executive, Ken McMeikan,said: Making Greggs even moreaccessible to consumers as they travel

will, I hope, be welcomed by bothexisting and new customers. The baker recently announced a

deal to sell its sausage rolls in highstreet budget supermarket Iceland.

The companys most recent results,for the third quarter, showed a salesrise despite the tough consumer cli-mate.

Recent rises have been fuelled part-

ly by the popularity of its breakfastdeals.

BY JOHN DUNNE

RETAIL

BY JOHN DUNNE

CONSUMER

SPORTS Direct, Britains biggestsporting goods retailer, said revenuesrose in recent weeks and added it islooking to events such as next yearsLondon Olympics to keep sales rollingin 2012.

The firm, controlled by NewcastleUnited owner Mike Ashley, said totalsales rose 11.5 per cent for the nineweeks to 25 September to 329m.

Gross profits rose 12 per cent to131m.

The strong trading highlights thepositive sales growth achieved postthe tough FIFA World Cup compar-isons, said chief executive DaveForsey.

The company which owns SportsWorld and Lillywhites stores as wellas brands including Slazenger,Lonsdale and Dunlop, said retail divi-sion sales rose 12.1 per cent.

Sports Direct profits upas it eyes 2012 boostRETAIL

Terry Duddy wants tax relief for people on low incomes

ANALYST VIEWS: HOW SERIOUS IS THESALES BLOW AT HRG? Interviews by John Dunne

KEITH BOWMAN | HARGREAVES LANSDOWN

For now, investor concern continues to be fully vindicated. Profits havemissed already lowered forecasts, with Argos suffering. The company remains in avery difficult place, with downbeat management outlook comments likely to fos-ter further profit downgrades. Consensus opinion is a sell.

PHILIP DORGAN | PANMURE GORDON

We find it increasingly difficult to see a quick path to recovery forArgos. In the absence of volume growth and without a significant scaling back instore numbers and a reappraisal of the role of the catalogue, we think that mar-gins will continue to be squeezed at Argos.

FREDDIE GEORGE | SEYMOUR PIERCE

We cut our full-year profits forecast from 135m to 125m. We continueto have significant reservations on t he long-term outlook for both the Argos andHomebase businesses. But we say 'hold' the stock on the basis that there is likeli-hood of a restructuring programme being put i n place over the next year.

ANALYSIS l Home Retail Group

p

13 Oct 14 Oct 17 Oct 18 Oct 19 Oct

140

135

130

125

120

115

110

105

100

95

99.5019 Oct

ANALYSIS l Greggs PLC

p


505.0

502.5

500.0

497.5

495.0

492.5

499.1019 Oct

WINE specialist Oddbins will fromtoday start trading from 37 revampedshops with a new range of 475 wines.

The company plunged into admin-istration in March but some shops were bought by Whittalls WineMerchants, a subsidiary of RajChathas EFB Group.

Under the new management theshops remained open but are nowrelaunching.

The company is promising to giveshop managers the autonomy tostock wines that are proving popularin the area they are serving.

There will also be a blind taste testin which customers will be asked tosay how much they would be willingto pay for a wine.

The data will be collated and thenthe wine will be priced at the averagefigure given.

Ayo Akintola, the new managingdirector of Oddbins, said that the newcompany would concentrate on cus-tomer service.

We will not be having complicateddeals but offer a good price for a bot-tle of wine.

The problem with Oddbins beforewas that it was trying to do too much.We have excellent buyers bringing ingreat wines.

Oddbins toastsreturn to highstreet trading

RETAIL

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Contact us on: 0800 279 4772

Citigroup, Inc., 2011. All rights reserved. Citi, Citi and Arc Design and CitiFX Pro are trademarks and service marks of Citigroup Inc. and used and/or registered throughout the world.CitiFX Pro offers trading on margin. The leverage created by trading on margin can work against you as well as for you, and losses can exceed your entire investment. Before openingan account and trading, you should ensure that you understand the risks and can withstand the losses and that you seek advice from your advisors as appropriate, please see www.citifxpro.com for further details. This information is directed only at persons in the UK who qualify as Professional Clients (as defined in the rules of the Financial Services Authority)and CitiFX Pro is only available to Professional Clients in the UK. Classification as a Professional Client may require an assessment of the persons experience and knowledge (in roll-ing spot or similar instruments or markets). CitiFX Pro is a service offered to you by Citibank International plc which is authorized and regulated by the Financial Services Authority.Registered Office: Canada Square, Canary Wharf, London E14 5LB. VAT registration number GB 429 625 629. The main business of Citibank International plc is banking and securitiesbusiness. It is entered on the FSA register under number 122342.

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BUSINESSHONOURS

FOR INDIANTYCOONSTHERE was a reason Boris Johnson could-nt attend the launch of Sonia Purnells Just Boris biography on Tuesday night. The London mayor was otherwiseengaged presenting KP Singh, the chair-man of Indias largest real estate develop-er DLF, with the entrepreneur of the yearaward at the Asian Awards.

Singh, the Forbes billionaire who hasmade pathbreaking and visionary con-tributions to the building of modernIndia, was one of the headline names atthe Grosvenor hotel event, hosted byLord Sebastian Coe with a video addressfrom David Cameron.

The Prime Minister congratulated all

the winners on their contribution to theBritish and global economy and culture but the man who has inf luenced the livesof the greatest number of people is AmitSinghal, the man behind Google search.

I always wanted to build somethingmy mum could use, and I am happy tosay that I did, said the master ofGoogles ranking system as he collectedhis award for Outstanding Contributionto Science and Technology.

Completing the line-up of business win-ners was billionaire Anand Mahindra, the

Gathering on a terrace overlooking theRiver Thames to reflect on the wanderingof the Jews after their exodus from Egyptwere Hedley Goldberg, MD at Rothschild;Maurice Helfgott, founder of AmeryCapital; Development Securities CEOMichael Marx; and Boris Ivesha, the CEOof Park Plaza Hotels. The law firmsSuccah tent will remain open to theJewish community for the remainder ofthe religious festival.

YACHT BROKERSTHE Commodores Cup yacht race is stillnine months away, but Brewin Dolphinyesterday staked its claim as the competi-tions new title sponsor. We are not new-comers to the world of sailing, said CEOJamie Matheson, reminding his audienceat a Royal Ocean Racing Club lunch thatthe investment manager already backsthe Scottish Series.

The Commodores Club has its ownrich heritage and this fits well withBrewin Dolphin as our firm goes backtwo-and-a-half centuries, he added.

vice chairman and managing director ofMahindra & Mahindra, who received theLloyds Banking Group business leader ofthe year award from the banks sari-wear-ing CEO of corporate banking DianaBrightmore-Armour.

Theres a lot of money in manufactur-ing tractors $7bn, in fact, the amountthe industrial conglomerate is now worthafter Mahindra cracked some of Indiasbiggest domestic deals.

RUSSELL THE CROW WHO SAYS accountants dont have asense of humour? Someone at PwC hasnamed the bird of prey that patrols theBig Four firms Embankment officesRussell make the link to the actor

Russell Crowe yourself.The bird of prey is always on guard,

revealed a PwC hawk. We suppose itsquite a cunning way of keeping pigeonsfrom settling on the ramparts. Beforeother financial services firms start rush-

ing to the falcon breeders, however, beadvised that Russell is in reality a paperkite attached to a pole on the outside ofthe auditors fourth floor.

SUCCAH IN THE CITYBERWIN Leighton Paisners Succah in theCity event is getting bigger and biggereach year, said the chief Rabbi, LordSacks of Aldgate, as he addressed thecrowd of prominent Jewish businessmenat the event to mark the festival of Succot.

Billionaire Anand Mahindra with Lloyds Banking Groups Diana Brightmore-Armour

11EDITED BY

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

The CapitalistCITYA.M. 20 OCTOBER 2011

Above: BLP head ofcorporate John

Bennett (left) andRothschilds HedleyGoldberg

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BSKYB, the satellite TV giant, yester-day said it had increased first quarterprofits in tough circumstances bysqueezing more cash out of existingcustomers.

The average Sky customer spent535 in the three months to the endof September, a 25 increase on thesame period last year, after the satel-lite broadcaster boosted the numberof subscribers who buy all three of its

TV, broadband and telephone pack-ages.

Almost a third of its 10.3m cus-tomers now buy so-called tripleplayservices, an increase of 29 percent compared to last year, helping itto grow pre-tax profit by 33 per centto 307m.

Revenues jumped from 1.53bn to1.66bn while diluted earnings pershare increased from 10.4p to 12.8p.

The number of new subscribers

signing up to Sky in the three monthperiod fell to just 77,000, a markedslowdown from the 96,000 it added inthe first quarter of its last financial

year. Jeremy Darroch, chief executive,

said: Looking ahead, the environ-ment is likely to remain challengingas a result of the pressures facing con-sumers in the UK and Ireland.

Profits were flattered by the inclu-sion of a 39m break fee paid byNews Corp, which was forced toabandon its bid for the BSkyB sharesit didnt own already amid a politicalstorm over phone hacking at itsSunday tabloid the News of the

World.News Corp attempted to buy BSkyB

in the expectation it would start gen-erating huge amounts of cash.

In the first quarter, cash generatedfrom continuing operations was up

by 131m to 348m while adjustedfree cash flow was 96m a 39 percent jump compared to last year.

Sky profitsas customersspend moreBYDAVID CROW

MEDIA

ANALYSIS l Operating margin

ANALYSIS l Total direct to home Sky subscribersmillions

4.72

15.3%

16.7%17.8%

7.3

9.7

11.6

5.506.32

7.02 7.427.84

8.26 8.679.07 9.54

9.96

Q100-01

Q101-02

Q102-03

Q103-04

Q104-05

Q105-06

Q106-07

Q107-08

Q108-09

Q109-10

Q110-11

Q111-12

12

1011

8

9

6

7

4

5

21

0

3

2.0

1.5

1.75

1.0

1.25

0.5

0.25

0

0.75

ANALYSIS l Earnings per share

p12

10

9

11

8

76

5

43

2

1

0

%20

18

19

16

17

15

14

13

10

12

11

ANALYSIS l Total revenuebn

2010 2011

2009 2010 2011

10.37

1.31.5

1.7

2009 2010 2011

2009


Subscriber slowdown is not importantINVESTORS in BSkyB shouldnt gettoo wound up about slowing growthin subscriber numbers. While thetiming might have something to do

with the consumer downturn, newcustomer additions were always

going to tail off after the companypassed the 10m mark. Indeed, justtwo years ago, many bearish analyststhought the 10m target wouldremain an elusive dream.

Management always knew thatthe scorching growth rate wouldntlast, which is why they have turnedtheir focus to growing the all-impor-tant average revenue per user (Arpu)metric. Although the company has

boosted by almost a third the num-ber of customers taking the so-calledtriple play package of TV, phone and

broadband, there is still much roomfor further growth. Virgin Media, itsclosest rival in the UK, has 63.8 per

cent of its customers taking three ofits services. Then there are the nice-to-have

extras such as high definition TV, 3DTV, sports and movies. While theseadd-ons might struggle in the imme-diate future, Skys market-leadingoffering leaves it well placed to ben-efit when the upturn comes. Untilthen, it can sit back and throw offtonnes of cash.

BOTTOMLINEAnalysis by David Crow

Jeremy Darroch said conditions were chal lenging Picture: REUTERS

THE SKYS THE LIMIT:PAY-TV GIANT KEEPS ON GROWING

ANALYSIS l British Sky Broadcasting

p


730

720

710

700

690680

670

660

710.0019 Oct

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MOTOROLA yesterday set out to showit is still a force in the mobile market

with a reboot of its top-selling Razrhandset, saying the phone is out ofthe league of rivals Apple andSamsung.

The ultra-thin device, the firstlaunched since Google announced its$12.5bn (7.91bn) takeover of thefirm, looks set to become one of theflagship phones running Googles

Android operating system.

Speaking to City A.M. at the phoneslaunch in Berlin yesterday, the firmshead of devices Alain Mutricy said theRazr is the perfect opportunity torestore Motorolas flagging European

brand.He said: Its true the Motorola

brand in Europe is not as strong assome others its very strong in theUS, China and Latin America but toreboot your brand you need to have a

very strong product and a veryunique product. And if there is a time

we can do that, it is with this device.I dont think this phone is in the

same league [as the iPhone 4S and theGalaxy S2] I think its out of theirleague.

The launch came in a frenzied 24hours in the mobile industry, in

which Google revealed the latest ver-sion of its Android mobile software,codenamed Ice Cream Sandwich,

which will go head-to-head withApples new iOS 5.

Samsungs new Galaxy Nexus, cre-ated in collaboration with Google,

will be the first device to run the

update, which includes a feature thatuses facial recognition to unlock yourphone.

Samsung is tipped to overtakeApple in smartphone sales this quar-ter after setting a blistering pace withits Galaxy S2 and receiving a boostfrom news of a weaker than expected17m iPhone sales.

However, extra competition in the Android market from a rejuvenatedMotorola could chip away atSamsungs lead.

Motorola inphone launchto rival Apple PRIVATE equity giant Blackstonebought a piece of European culturalhistory yesterday when it took a stakein German camera-maker Leica.

Blackstone spent upwards of122m (106.47m) to buy a 44 per centshare in Leica Camera from Austrian

billionaire Andreas Kaufmann.The roots of Leica go back to 1907,

when Max Berek began producingbinoculars. It created its first cameraseven years later and devotees wenton to include Henri Cartier-Bresson,the iconic Frenchman who pho-tographed Gandhi and Picasso.

The fortunes of Leica have been upand down since then, however. Italmost went into insolvency in 2005

but was profitable in the year toMarch 2011 on sales of nearly250m.

It wants to double this figure as it

expands by opening new shops inAsia and capitalising on demand forsmall system cameras, which haveinterchangeable lenses but are not as

bulky as traditional digital single-lensreflex cameras

We do not feel any uncertainty,chief executive Alfred Schopf said yes-terday. Kaufmann said the firmsstrategy will not change and vowedthat his familys investment vehicle,

ACM Projektentwicklung, will retaina majority stake in Leica.

Blackstonebuys historiccamera firm

BY STEVE DINNEEN

TECHNOLOGY

PRIVATE EQUITY

NewsCITYA.M. 20 OCTOBER 2011 13

FIRST LOOKBy Steve Dinneen in Berlin

COMEBACK gigs are difficult to getright. Success is often as much aboutcapturing a moment in time as out-right talent. Get it right and it can bea glorious reminder of your glory days

think Pulp at Glastonbury but getit wrong and you risk tarnishing yourmemory, much like the Stone Roses atLeeds. Double or quits. It's a riskybusiness.

This is the situation Motorola findsitself in with its new Razr. Back inthe heady days of 2004 it was thecoolest phone on the market butMotorola has never quite replicatedits success. Now its decided it'stime for that comeback gig.

First impressions are impres-sive. Its screen dwarfs that of theiPhone 4S and it is a good bit thin-ner, with curves bending intoeach corner. The downside is thismakes it look a little like its beensquashed. It also suffers slightlyfrom being too light for its own

good, feeling a bit like a displaymodel minus its innards.It packs some serious pro-

cessing power into its 7.1mmshell and if it had beenreleased on a world withoutSamsung, the Razr could havebecome an instant hit. As it is,you get the nagging feeling

youve seen this act before.

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EUROPEs problems are down to its work-shy population, according tothe head of Chinas sovereignwealth fund.

Jin Liqun, chairman of the ChinaInvestment Corporation, whichmanages about $300bn in assets,said: The root cause of trouble isthe overburdened welfare system,built up since the second World Warin Europe -- the sloth inducing, indo-lence inducing labour laws.

People need to work a bit harder,they need to work a bit longer, and

they should be more innovative, hetold Channel 4 News.

PRIVATE equity house Permira sparkedhopes of a gradual recovery in buyouts yesterday as it agreed to pay $1.5bn(950m) for the call centre softwarebusiness of Alcatel-Lucent.

Permira clinched the cash deal forGenesys, at the top end of expecta-tions, after six months of talks between Alcatel-Lucent and possiblebidders.

Hewlett-Packard, Cisco and SiemensEnterprise Communications had beenamong the leading candidates, despite Alcatel-Lucents net debt hitting376m at the end of June.

Shares in the Franco-American tele-com equipment-maker have halvedsince May, even as it nears the end of athree-year turnaround plan after mak-ing a series of annual losses.

Genesys sells software for the opera-tion of call centres and video confer-encing and turns over around $500m.

The deal is expected to complete latethis year or early in 2012.

Brian Ruder, partner at Permira,said: Genesys is widely recognised asone of the worlds leading providers ofcustomer service software and contactcentre solutions, and we are excited bythe long-term growth potential of thisbusiness.

Yesterday sources said Permira hadlooked at Alcatel-Lucents entireEnterprise business, which has 5,000staff globally, but chose to buy Genesys because it is seen as having resilientgrowth prospects in a difficult macro-economic environment.

City A.M. understands Permira willconsider exploiting what it sees as afragmented market to make bolt-onacquisitions to Genesys.

The private equity house was for-merly run by Damon Buffini, whobecame one of the stars of the buyout boom. He later took the chairmansrole before stepping down last year. Heremains a partner.

Permira buystelecoms firmin $1.5bn deal

BAE Systems yesterday announced ashake-up of its reporting structure,creating a new division for its Cyberand Intelligence activities, which ana-lysts say could pave the way for radi-cal changes within the company.

The defence giant said it is revisingits reporting segments to align withthe groups strategic direction.

There is clearly a strategy, saidHoward Wheeldon, of BGC Partners,although he was wary of predicting ademerger. The share price has gonedown 18 per cent in the past six

months. That is a huge concern forthem and they have to address it.

BAE shake-upto its reportingCIC: problem isEuropes sloth

BY PETER EDWARDS

PRIVATE EQUITY

ECONOMY

ECONOMY

Former boss Damon Buffini remains a partner in Permira Picture: REUTERS

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SIX MILLION UK workers will see atotal 2.5m of their tax money repaidby the government as a new IT systemcorrects overpayments dating back to2003, HMRC said yesterday.

The repayments will be on averageabout 300 per person with any inter-est generated on top of that, and willbe returned automatically any timeuntil the end of next year.

But another one million peoplewill be sent an average 600 bill thatcould hit more than 3,000. Anyoneowing a large sum will be contacted

directly to work out a way to repay ininstalments.

The mispayments cover tax taken between 2003 and 2007 and havecome to light only after the InlandRevenue installed a new IT systemthat has made it easier to find errors.

Money that is owed going backmany years is now going to be auto-matically paid back as we get the taxsystem up to scratch. We are gettingcases that were left unreconciled upto date as quickly as possible, anHMRC spokesman said.

But PwC tax partner AlexHenderson describe PAYE as a bluntinstrument that worked fine whenpeople spent their careers in one

firm, but does not suit the needs oftodays workers.

OLYMPUS, the Japanese cameramaker, yesterday threatened to sue itsformer chief executive yesterday,accusing him of causing disruptionto the business and creating a loss ofcorporate value.

The camera group fired Michael Woodford on Friday over what itclaimed were differences in manage-ment direction and methods. Sincethen he has made a number of allega-tions about what he deems to have been a misuse of shareholdersmoney, in particular querying thepayment of $687m (416m) to a finan-cial adviser in a 2008 deal to buy theUK-based Gyrus Group.

Olympus yesterday acknowledgedit had paid the fee, which representedmore than one-third of the acquisi-tion price, but defended it, saying theacquisition amount was a reasonableone.

Olympus shares have fallen by 44per cent since Woodford began speak-ing about the circumstances behindhis firing last week. He has also calledon the entire board to go, warning ofan existential threat to the futureof the 92 year-old business.

Olympus acknowledged another ofMr Woodfords claims that it hadspent Y73.4bn between 2006 and2008 to buy three little-known compa-nies in fields far from its core busi-ness.

Olympus hitsout at oustedex-chief exec

Six million to get tax rebate asHMRC overhauls its IT systems

BYDAVID HELLIER

OLYMPUS SCANDAL

POLITICS

Olympus, led by president Tsuyoshi Kikukawa, has defended the fee Picture: REUTERS

News 15

ANALYSIS l Olympus Corp

13 Oct 14 Oct 18 Oct 19 Oct17 Oct

2,600

2,200

1,800

1,38919 Oct

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C&C SAID yesterday chief executive John Dunsmore would leave at theend of the year after leading a turn-around of the Irish drinks group, andreaffirmed full-year profit guidance when posting first-half results thatmet forecasts.

Dunsmore will be succeeded at theMagners brewer by finance director

and chief operating officer StephenGlancey.

Glancey said: There is no changein strategy at all. You could not put acigarette paper between us in termsof our view of the business.

First-half operating profit was up7.8 per cent to 67.4m (58.6m) com-pared with a forecast for 66.4m,while earnings per share were up 7.1

per cent.It is a surprise for the market.

People are asking questions aboutwhat is going on, Bloxham analystJoe Gill said.

But the numbers are reasonablysolid, especially given the poor con-sumer background.

Dunsmore said the company haddecided to cut the amount of seniormanagement capability after three years of significant restructuring.

The interim dividend was raised 11per cent to 3.67 cents.

C&C chief Dunsmore to leave as profits lift

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SABMILLER is joining forces withTurkeys Anadolu Efes to become the

number two brewer in Russia in a dealthat gives the London-based group a24 per cent stake in the leadingTurkish brewing group.

SABMiller, which last monthagreed to buy Australian rival Fosters

for $10bn (6.3bn), said yesterday thedeal will put it behind Carlsberg inthe worlds fourth largest beer marketand yield cost savings of $120m ayear.

Under the deal, SABMiller will trans-fer its Russian and Ukrainian beer business for a 24 per cent stake in Anadolu Efes, with Anadolu Group,controlled by the Turkish Yazicilar andOxilhan families, holding 42.8 per

cent, leaving a free float of just over 33per cent following a capital increase.

The alliance will be the focus of both groups interests in TurkeyRussia and the former Soviet Union,

central Asia and the Middle East, andwill include the Turkish groups 89 percent share of its domestic beer market.

The deal puts an enterprise value ofaround $1.9bn on SABMillers Russianand Ukrainian business.

SAB in tie-up with EfesBYHARRY BANKS

M&A

SHOEMAKER Crocs lowered its out-look for the first time in three yearsas it faces softening sales at its stores,amid a weak economy in Europe andshaky consumer confidence in theUS.

The dim outlook sparked a sell-offin the Crocs stock, wiping out nearly40 per cent of the companys market value in extended trading. Shareswere trading at $17.08 in after-markettrade, after closing at $26.64 onMonday on Nasdaq.

I am not surprised by this type ofmarket reaction, Wall StreetStrategies analyst Brian Sozzi said..

Any time you have a wholesalerlike Crocs saying they missed salesand their margins are below plan,you immediately think of an invento-ry pile up in the channel.

Crocs, known for its colourfulclogs, has seen its stock gain over 55per cent so far this year, excludingMondays losses, benefiting fromstreamlining its business, loweringinventory levels and introducing newstyles to win customers.

Footwear products like trainers andboots offered by peers such as Nike,Genesco and Footlocker, have beenselling well, Sozzi said.

There is now increased competitionamong footwear companies and eachis vying for consumers attention, headded.

(If) they have to choose betweenNike shoes and a pair of Crocs thatare higher priced than last year, Ithink they are going to opt for theNike boots, Sozzi said.

The lower direct-to-consumer salesalso ate into the companys gross mar-

gins, chief executive John McCarvelsaid in a statement.Crocs sells its footwear in more

than 90 countries through retailersand distributors.

Crocs stocktumbles assales soften

DIAGEO, the owner of drinks brandssuch as Smirnoff, was hit by a protestagainst unacceptable changes to itsrewards for veteran chief executivePaul Walsh yesterday.

Cooperative Asset Management, which owns 83m of Diageo shares,told the annual meeting it wasalarmed to see the board loosenrestrictions on Walshs bumper shareawards without asking shareholders.

Diageo will let Walsh walk away with all shares awarded for Diageosperformance whenever he resigns,even if that is before the end of thethree-year review period. In normalpractice, he would be given only some.

We were alarmed to find that a sig-nificant change to the leaving provi-sions for the CEO onlywas omittedfrom the shareholder consultationprocess during the year, the investorsaid. We find this unacceptable.

The attack echoes growing disquietamong investor groups at the rewardsat Diageo. The firm did not release theresults of yesterdays votes but last yearmore than 13 per cent refused to backits remuneration report.

The Coop also slammed Diageosrefusal to engage with it on pay foreight years. Diageo had never deignedto provide us with a response, whilelong-standing concerns remained inabundance over performance, it said.

Diageo hitby investorcritic on pay

AT LEAST five private equity firms were poised to submit first-roundnon-binding offers for a 77 per centstake in frozen food retailer IcelandFoods by yesterdays deadline, fourpeople familiar with the matter said.

Iceland Foods chief executive andkey investor Malcolm Walker is think-

ing about bidding for the companylater in the process, with backing

from pensions funds and sovereignwealth, three of the people said.

Analysts expect a winning offer tovalue Iceland at 1.3bn to 1.5bn.

BC Partners, Cinven, Blackstone,TPG and Bain will square up againstsupermarket groups Asda, owned byretail giant Wal-Mart, and WmMorrison, the sources said.

The retailers would have to sell off

some of the stores to satisfy competi-tion authorities.

Five bidders circle IcelandRETAIL

SABMiller has taken a 24 per cent stake in Turkeys Efes Picture: NEWSCAST

BYALISON LOCK

LEISURE

BYHARRY BANKS

LEISURE

BYHARRY BANKS

CONSUMER

ANALYSIS l Diageo

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1,350

1,325

1,275

1,300

1,331.0019 Oct

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DTZ, the debt-laden property agent,has put itself up for sale, just two daysafter announcing that its majorityshareholder walked away from a deal.

DTZ confirmed in May that SaintGeorges Participations (SGP), theFrench group that owns 55 per cent ofDTZ, had made a bid in partnershipwith the real estate arm of BNP Paribasin a deal that valued the company at162m. Talks ground to a halt onMonday when DTZ announced thatSGP had walked away, sending DTZsshares tumbling 13 per cent.

But DTZ said yesterday that it hasreceived preliminary indications ofinterest from a number of partiespotentially interested in acquiring DTZand would begin a formal sale process.

DTZ along with its peers in the sec-

tor were hit by the crisis in 2008 but ithas since struggled to recover due tothe large amount of debt on its bal-

ance sheet, which analysts believecould put off suitors.

DTZs net debt has fallen to 64.3m,down from 80m last October, but isstill regarded as too high.

The firm also ruled out a break-up:Those people speculating on the break-up of DTZ clearly dont under-stand our business, a spokesman saidyesterday.

Shares closed down 3.3 per cent lastnight at 22p.

DTZ launchessale after bidtalks collapseBYKASMIRA JEFFORD

PROPERTY

AILING outsourcing group Mouchelfinally got its firesale of assets under-way yesterday but the first deal willgenerate only 3.4m initially.

It has agreed to sell its rail businessand related assets to AustraliasSinclair Knight Merz for cash andhopes to claw back a further 2.5mhaving retained certain assets, such as

money owed by debtors and contractswhere work is underway.The group has been rocked by cuts

in government spending. Its sharesclosed unchanged at 15.25p yesterdayand are still at around only half the value of two weeks ago. Since thenMouchel has warned it could breachits banking covenants and lost interimchairman David Sugden after hefailed to win backing from mainlenders Lloyds, RBS and Barclays.

Shares are flat as strugglingMouchel begins asset sell-offBY PETER EDWARDS

SUPPORT SERVICES


DTZ, led by John Forrester, is up for sale again after bid talks fell through

ANALYSIS l Mouchel Groupp


20

12

16

14

18

15.2519 Oct

ORIEL Securities has been appointedadviser and broker to DTZ, with DavidArch, head of corporate finance, lead-ing the sale process. He is joined bypartners Emma Griffin and MichaelShaw.

Arch has over 25 years' corporatefinance experience advising companies

on M&A and capital raising transac-

tions. He spent twelve years workingfor Schroders corporate finance divi-sion, before joining Close Brothers in1996 as corporate finance director.

Oriel Securities reputation hasgrown since it was established as aboutique investment bank and broker-age in 2002.

In May this year it advised theonline gaming firm Sportingbet on itsacquisition of Australian peerCentrebet in a 117m all-share deal. Italso completed the 220m stock mar-ket float of Max Property Group in2009 and has worked on several other

equity raisings.

MEET THE ADVISERS:

DAVID ARCH

ORIEL

SECURITIES

ANALYSIS l DTZ Holdings

p


30

28

24

26

22.0019 Oct

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GLOBAL miner BHP Billiton reported a24 per cent jump in quarterly iron oreproduction yesterday, its foot stuckfirmly to the accelerator even as pricesfor the steel-making commodity slideand Chinese steel mills wind back out-put.

BHPs iron ore production for theSeptember quarter largely met mar-ket expectations, putting it on arecord annual run rate of 173mtonnes and mirroring ramp-ups from bigger rivals Rio Tinto and BrazilsVale.

BHP said improvements to its Australian rail system, which haulsiron ore from desert mines to thecoast, helped boost production. It gaveno comment on demand in the quar-terly report but it has always main-tained that it sells all it mines.

But with iron ore prices tumblingin recent weeks, there are questionmarks over the near-term outlook,given that the worlds biggest iron oreconsumer, China, faces pressure onsteel margins as Beijing engineers asoft economic landing.

Chinese crude steel production inSeptember fell to its lowest point in

seven months.The overall market is in panic as

small mills have started to shut downsome blast furnaces, while big onesare relying on their existing iron oreinventories and reduced buying, aniron ore trader in China said on theeve of BHPs production report.

The worlds biggest iron ore miner,Vale, also appears to be responding tothe weakening demand from someChinese mills, offering to sell themcheaper spot-priced ore rather thanore priced under quarterly contracts.

Spot iron ore fell almost 70 per centto $56 a tonne in November 2008 afterthe global financial crisis struck, thenalmost tripled to a high of around$192 last February. It has sinceslumped 22 per cent to around $150.

BRITISH industrials group GKNsaid yesterday third quarter profitrose 14 per cent, helped by stronggrowth at its automotive, agricul-ture and metals divisions.

GKN, which produces auto com-ponents as well as airframes forplane-makers Airbus and Boeing,reported a pre-tax profit of 100m

on sales 11 per cent higher at1.48bn in the three months to the

end of September. The figure does not include a

23m hit GKN took relating tocosts incurred by an explosion atits plant in Gallatin, Tennessee inMay, which killed two people.

Macroeconomic uncertaintyhas increased in recent months,although no significant deteriora-tion has been experienced in GKNsorder books, the company said ina statement.

On the basis of current marketconditions, we therefore expect

the group to continue to performstrongly through the fourth quar-ter.

Overall we continue to expect2011 to be a year of strongprogress, with the group well posi-tioned for growth in 2012 andbeyond, it said.

Shares in GKN, which have fallen14 per cent in the last threemonths, dropped by almost fiveper cent to close at 185.90p yester-

day, valuing the company at justover 3bn.

GKN predicts a strong end to the yearas profits rise at airframe producer

US INSURER Unum has left the race tobuy Irelands largest life insurer IrishLife, the Irish Independent reportedyesterday, without citing any sources.

Bancassurer Irish Life & Permanenthas put its life business, the jewel in itscrown, up for sale after stress tests aspart of an EU-IMF bailout revealed ithad a capital hole of4bn (3bn).

The life business has an embedded

value of around1.6bn. The news of Unums withdrawal

emerged earlier when Irish Life &Permanents advisers Deutsche Bankreceived second-round bids, the news-paper reported.

The companys board and IrelandsDepartment of Finance, who will con-sider the bids, both declined to com-ment. Unum did not immediatelyrespond to an request for comment.

Finance buyout firm JC Flowers inpartnership with private equity firm Apollo Global Management, an

Canada Life Ireland were interested inIrish Life.

Unum drops out of racefor Irish Life business

INSURANCE

WEST Africa-focused oil firmBowleven is seeking to raise $120m(75.8m) via a placing to help fundthe continued exploration andappraisal of an oil field it has discov-ered off the coast of Cameroon.

The company said yesterday thatwithout raising funds there would bea significant impact on its ability tocarry out its plans for its asset inCameroon as it will only have around$15m of cash at the end of October.

The placing is conditional on a res-olution being passed at a general

meeting scheduled for earlyNovember.Bowleven also flagged a $42m

write-off in relation to an explorationpermit in Gabon and a $23m foreignexchange movement cost ahead of itsannual results in November.

The company, which is worth$391.1m, said it will consider bring-ing partners into its permits inCameroon which could help fundexploration costs.

Bowleven to raise $120mto fund Cameroon plans

OIL & GAS

RIO Tinto has made a C$578m(361.6m) friendly takeover offer forCanadian uranium explorer HathorExploration in a move to thwartCameco Corps hostile bid.

Hathors board has recommendedshareholders accept Rio Tintos allcash bid at C$4.15 per share, which ishigher than Camecos offer of C$3.75a share.

At stake is Hathors Roughriderdeposit, a uranium project locatednear Camecos Rabbit Lake mill in the Athabasca Basin of the Canadianprovince of Saskatchewan.

Shares of Hathor were halted on Wednesday morning on the TorontoStock Exchange. Shares of Cameco,Canadas largest uranium producer,dropped 2.88 per cent to C$20.88.

Cameco launched its hostile bid forthe uranium exploration company inlate August, after talks aimed at afriendly deal failed.

Hathor said Camecos C$3.75 ashare offer was financially inadequateand failed to ascribe value toRoughrider and to its other assets,including its Russell Lake property inthe southeastern Athabasca Basin.

Rio Tinto announced yesterday thatJohn Varley -- who joined its boards on1 September -- has replaced AndrewGould as chairman of the remunera-tion committee. Gould will retirefrom Rio Tintos boards following the2012 AGMs.

Rio Tintolaunches bid

for HathorMINING

AEROSPACE electronics groupCobham said it agreed to sell its ana-

lytic solutions business to privatelyowned engineering firm ParsonsCorp for $350m (222m), fivemonths after the British firm said it would look to shed two of its non-core units.

Cobham, whose equipment helpsmilitary vehicles such as F-35 fighterplanes communicate with oneanother, expects the deal to hurt itsearnings by about five per cent, andthat it would gain about $20m after

costs.In May, Cobham had said it would

look to sell its commercial systemsand analytic solutions businesses.

Changes to the US Government

Organisational Conflict of Interestrules and the competitive intensityin its markets have diluted thestrategic benefit to the group ofowning this business, Cobham saidin a statement.

The analytic solutions unit provides a range of scientific, systemsengineering and network centric warfare services to the US missiledefence and national security mar-kets.

For the six months ended 30 June,the analytics solutions business post-ed an operating profit of $13.8m onrevenue of $144.3m.

Cobham to sell Parsons CorpBYHARRY BANKS

ENGINEERING

BHP ups iron

production asprices slideBYHARRY BANKS

MINING

BYHARRY BANKS

ENGINEERING


SALES OF BLACK CABS FALL IN THE UK

MANGANESE Bronze, maker of the iconic black London cab, said yesterday that its UKrevenue had fallen in the third quarter due to tough economic conditions, but that inter-national sales had almost tripled. Revenue in the three months to 30 September declined8.6 per cent, with year-to-date UK sales down 7.5 per cent to 1,174 vehicles.

Picture: Laura Lean / City A.M.

ANALYSIS l Bhp Billiton

p


2,000

1,950

1,850

1,900

1,890.0019 Oct

ANALYSIS l Cobhamp


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178

170

174

177.9019 Oct

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RLAMRoyal London Asset Management haspromoted two members of its propertyteam. Stephanie Hacking has been pro-

moted from assistant fund manager tofund manager, and Andrew Johnstonhas been promoted from asset manag-er to assistant fund manager.

Barclays WealthThe wealth manager has appointedRachel McCarthy as a private bankerin the London and South East teamwithin the UK & Ireland PrivateBank. She joins from Coutts & Co,

where she managed a portfolio ofprofessional clients.

Secret EscapesThe free members website, backed byOctopus Investments, has hired AlexSaint as chief executive. He moves fromDealchecker, where he was also CEO.

Oracle CoalfieldsThe Pakistan-focused coal developer

UK has appointed Tony Philip asfinance director and Brian Rostron asmining and contracts manager. Philiphas handled major project financingswith African and Middle Eastern com-panies while working at Shell Group,and Rostron previously worked at

Miller Argent South Wales, HJ BanksMining and the Scottish Coal Company.

DeloitteThe business advisory firm hasappointed Carole Crossley as a directorto lead its growth and markets team inthe global employer services group,part of the firms tax practice. Crossleypreviously held senior HR roles at BPand

cityam 2011-10-20

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