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THE TOTAL value of City bonuses is setto plunge nearly 40 per cent to 4.2bnthis financial year as Eurozone tur-moil and weaker bank profits dragdown payouts to barely a third of pre-crisis levels.

The level of bonuses in 2011-12 willbe the lowest for nine years, accordingto the Centre for Economics andBusiness Research (CEBR). It expectspayments to be subdued until 2016.

The report comes after a string ofdisappointing third-quarter resultsfrom some top banks and is a furtherblow to chancellor George Osbornesplan to repair the public finances.

The tax take from bonuses will bearound 2.5bn in 2011-12, or 60 percent of the 4.18bn paid out, com-pared to the 6.8bn collected by theTreasury in 2007-08 from a bonus poolof 11.57bn.

Douglas McWilliams, chief execu-tive of the CEBR, said: Although I

wouldnt want to be a Porsche sales-man now the real losers from fallingbonus payments are the Treasury andthe taxpayer.

The report also said the total paidin City bonuses is unlikely to recoverquickly. The bonus pool will be virtu-ally flat at 4.17bn in 2012-13 beforerising one per cent to 4.22bn the fol-lowing year, in part because more pay-ments are being deferred.

By 2015-16 the total will reach4.65bn, the CEBR said.

Banks have had to slash cash bonus-es following new European ruleswhich effectively stop bankers fromtaking any more than 20 to 30 percent of their bonus in up-front cash.

Bank profits have been hit asEurozone leaders struggle to tacklethe sovereign debt crisis, while invest-ment banking divisions have sufferedfalls in revenue at their fixed incomeand equity trading arms as the vol-ume of work slumps.

Rob Harbron, co-author of theCEBR report, said the drop in bonus

payments is a concern for the reputa-tion of London as a financial centre.

With financial services helpingdrive the capitals economy andLondon historically leading thegrowth of national output, subduedactivity spells more weak prospectsfor the coming year.

Last week Goldman Sachs said thecost of pay and bonuses had dropped59 per cent to $1.58bn (985m) after itreported its second-ever quarterly lossas a public company. At UBS, quarterlypay costs rose to 94 per cent of rev-enue in its investment banking arm,reflecting deferred payments fromearlier in the year, after net profitplunged by more than a third.

The City will shed more than26,000 jobs this year, the CEBR saidearlier this week. In the US, theFederal Reserve has said more than 60per cent of the bonuses of top bankexecutives are being deferred.

Despite this, separate researchshowed that directors at the UKs topcompanies saw their pay and benefits

increase by 50 per cent in the pastyear, to an average 2.7m. Chief execu-tives pay rose by 43 per cent, IncomesData Services said.

Should financial regulation intervene in theportfolio choice of investors?Francesca Cornelli, Professor of Finance

Masters in Finance (full-time and weekend formats available)Meet us on campus at an information event and speak with alumni, students and admissions staff:

Tuesday 8 November, 19.00 Monday 12 December, 19.00Visit www.london.edu/mif/ | Email [email protected] | Call +44 (0)20 7000 7514 Leading Financial Thinking

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Leading FinancialThinking

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Markets surge on USgrowth and euro plan

AMERICAS economy grew at its fastestpace in a year, official data for thethree months to September claimedyesterday.

Stocks surged as the bell rang onWall Street, after the governments fig-ures estimated annual GDP expansionof 2.5 per cent in the third quarter.

The Dow Jones industrial averagesoared by over 258 points in the open-ing moments, a spike of 2.18 per cent eventually ending the day up 2.86 per

cent at 12,208.48 points.Equities were also relieved by state-ments from European leaders, whosought to assure markets that a reme-

dy to the debt crisis was in motion.The S&P 500 is up more than 13 per

cent this month, on pace for its biggestmonthly gain since October 1974.

Wall Streets fear gauge, the CBOEVolatility Index, fell 15 per cent.

On this side of the pond, stocks werealso boosted by the relatively bullishnews. The Euro Stoxx 50 climbed oversix per cent during the day.

Safe haven spot gold slipped $2.50 to$1,721.20 an ounce, while ICE BrentDecember crude rose $3.26 to $112.17a barrel, as oil received a boost.

The pound rose against the dollar yetwas outperformed by the euro, whichnearly reached $1.42 at one stage.

FORUM: P29

BY JULIAN HARRIS

WORLD ECONOMY

Americas GDP estimate was a pleasant surprise for President Barack Obama

CITY BONUSESWILL PLUNGETO 2003 LOWSBY PETER EDWARDS

BANKING

Chancellor GeorgeOsborne will pick up2.5bn in tax frombonuses in 2011-12,according to the CEBR

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News2 CITYA.M. 28 OCTOBER 2011

Markets waitfor the devilin the details

THE EURO continues to rest on solidfundamentals, proclaimed theEurozone statement put out at 4am

yesterday morning.Despite surpassing markets low

expectations and providing somepatches of long-desired detail, thestatement was met with increasingscepticism by the evening.

Leaders agreed to leverage theEuropean Financial Stability Facility(EFSF) the regions bailout fund byup to four or five times, for example,after Chancellor Angela Merkel wonparliamentary permission forGermany to take on most of the risk.

But with only280bn of the 440bnfund available for leveraging (the rest

being already committed for bailouts),

that puts its firepower around1 tril-lion half market hopes of2 trillion.

More pressing is how it will beachieved. The details of how Europeplans to create a collateralised debtobligation to share risk between junk

bond-issuers (Greece) and triple-Aissuers (Germany) will be key to

judging its viability. They arepromised in November.

Another question is who will buy the debt amassed by theEFSF. Euro leaders are keen totap the billions in reserves builtup by China and MiddleEastern states. But the

worlds wealthiest sov-ereigns will not buyany old junk they

will have to be sure that enoughGerman money stands behind it.

Even if Europe can pull off thisclever financial engineering, however,its success comes back to the funda-mentals of the euro.

Markets simply dont believe theyare solid. Mediterranean

economies, most notably Italy, arecharged with unwinding adecade of economic mismanage-

ment, tearing up their welfarestates, labour rules and pensions.

On Monday, French PresidentNicolas Sarkozy was asked whether he has faith in

Italys leaders to take onthe challenge.

His reply? A smirk.

Why the euphoriawas not justified

MARKETS are hugely preferable tocentral planning but sometimescapitalisms finest get it spectacularly

wrong. Yesterdays deluded jump instock prices the FTSE is now back upto 5,713.82 was a gross over-reactionto the Eurozones deal. A sigh of reliefthat the outcome wasnt worse wouldhave been understandable; but there

was no justification for euphoria.

Frances President Nicolas Sarkozysummed up the day best when helaunched a devastating attack on

Athens dodgy accounting at the timeof the euros launch, admitting that it

was a mistake to allow Greece to join.I would go further: as many criticsargued at the time, it was a mistakefor anybody to join the euro. Theentire single currency plan was mis-conceived from the start and nowtraps its members in a systemplagued by cripplingly high exit costs.

But arguments about the loomingpolitical tensions as politicians seekto forge a transfer union without

bothering to ask their electorate wasnot what the financial markets want-ed to hear yesterday. They wantedsome sort of deal and thats whatthey convinced themselves they hadgot. It was not just UK and Eurozoneequity markets that soared: the Dowand S&P are on track for the bestmonthly gains in decades.

The US rebound at least makessome sense. Third quarter GDP fig-ures were decent at an annualised 2.5per cent (0.65 per cent in UK quarterlyterminology). The US economy is now

bigger than it was just prior to thebursting of the bubble, an importantmilestone (the UK economy remainssubstantially smaller). The US double-dip recession all those forecasterskept predicting hasnt materialised,though plenty of dark clouds remain.

But the rebound of European mar-kets is not justified. The 50 per cent

voluntary haircut on Greek bondssupposedly agreed after hours ofmeetings only applies to a group ofprivate sector investors; governmentsand central banks that own 35 percent of the debt arent losing a penny.In reality, the deal hasnt beenfinalised. Even the haircut itself isdodgy: it is a reduction of half in thenet present value of the bonds, a con-cept which requires contentiousassumptions about discount rates.

The result is that if all goes well,which it wont Greeces debt to GDPratio should fall back to a still unman-ageable 120 per cent of GDP by 2020,

back to the level it was just two yearsago. And what are the 30bn of cred-it enhancements to the private sec-tor contained in the fine print? We

need answers. What is certain is thatthe bulk of the Greek banking systemis now likely to be nationalised; andgiven the febrile political climate inGreece at present it is very doubtfulthat proper policies will be put intoaction. At best, Greece will be insol-

vent again in three years time, withanother write-off required. It couldhappen much sooner than that.

The 1 trillion bailout fundremains equally opaque; no moneyhas yet been raised. The idea is to con-struct an extremely complex set ofmechanisms similar to the ill-fatedCDOs with their debt tranches andthe equally useless monoline bondinsurers that rose to prominence dur-ing the sub-prime crisis. Insuring thefirst 20 per cent of losses on govern-ment bonds, one of the ideas mooted,

would have failed to help Greece. The Chinese will be tapped, per-

haps to the tune of 100bn, to helpleverage the fund but it is vital thatthe full terms be made public. Untilnow, it was merely hypocritical of theEU to criticise Beijing for distortingthe global credit markets by manipu-lating its exchange rate and accumu-lating excessive forex reserves. It soonmay no longer be financially possiblefor it to do so either. The markets have

been temporarily assuaged but theeuphoria cannot possibly last.

[email protected] me on Twitter: @allisterheath

A RECESSION may be on the way, PaulFisher from the Bank of Englands

monetary policy committee (MPC) warned yesterday, as new datarevealed retail sales and consumerconfidence are plummeting.

The economy could slide backapproaching a recession, which isalways possible with the sort of finan-cial crisis overhanging, Fisher toldBloomberg Television.

In the fourth quarter the economyat best seems likely to be flat, couldeasily have negative growth.

The following quarter could also benegative, he said making the down-turn an official recession.

Fisher hopes to see a solution to theEurozones woes, which should

return confidence to the economy. Ifthat doesnt happen then we willhave to look and see if we need to givemore support, he said, just weeks

after announcing 75bn in additionalquantitative easing.Retailers are reporting sales for the

time of year are their weakest for twoand a half years. The CBIs distributivetrades survey found a net balance of34 per cent suffering from poor sales.

Consumer confidence is at levelslast seen in 2008 and 1990, immedi-ately before the UK entered recession,according to the GfK NOPs survey.

The index declined to two points tominus 32 this month thirteenpoints lower than October 2010.

The data suggests the governmentcant rely on people spending their

way out, said Nick Moon of GfK NOP.

MPCs Fisher: Significant risk ofa double dip recession in the UK

UK ECONOMY

EDITORS LETTER

ALLISTER HEATH

7th Floor, Centurion House,24 Monument Street, London, EC3R 8AJTel: 020 7015 1200 Fax: 020 7283 5334

Email: [email protected] www.cityam.comEditorialEditor 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 HeppleCommercialSales Director Jeremy SlatteryCommercial Director Harry OwenHead of Distribution Nick Owen

Distribution helplineIf you have any comments about the distributionof City A.M. Please ring 0207 015 1230, or [email protected]

Printed by Newsfax International,Beam Reach 5 Business Park,Marsh Way, Rainham, Essex, RM13 8RS

MAYOR TELLS EU TO DROP FINANCIALTAXBoris Johnson has stepped upLondons opposition to EuropeanUnion plans for a tax on financialtransactions, urging Brussels to dropthe proposal at the earliest opportu-nity. The mayor says he is stronglyopposed to the scheme, which woulddrive business out of London.

WHAT THE OTHER PAPERS

SAY THIS MORNING

SIRIUS FINDS POTASH UNDERYORKSHIRE

The task of feeding the worlds sevenbillion people may have got a bit easi-er after a significant discovery

beneath the North Yorkshire Moors.Potash is a key ingredient in fertiliserand as the worlds population hasgrown demand for the mineral has

soared.The price of potash has trebledin the past decade.

l ANALYSIS l THE THREE PLANKS OF

440bn

1 trn

160bn*

Firepower of Eurozone bailout

fund, the EFSF, to be boosted

from 440bn to 1 trillion using acombination ofa special purpose

investment vehicle and a debt-

insurance scheme

*160bn of the original 440bn

has already been spent on

bailouts

1. BAILOUT FUND

Yet the fine print is the least of our worries, writes Juliet Samuel

Sarkozy says Greece joining euro was a

mistake as Osborne hints at IMF cashIT WAS a mistake to let Greece jointhe euro single currency when it did

because its economy was not ready toform a monetary union with othersin the club, French President NicolasSarkozy said yesterday.

It was a mistake, Sarkozy said, when asked during a TV interviewabout having Greece adopt the eurotwo years after the single currency

was created. Its economy was notready, he added.

And Sarkozy told French house-holds they will have to weather a fur-ther 6-8bn in budget cuts tocompensate for faltering domesticgrowth that the government now seesat one per cent next year.

The cuts come on top of11bn ofsavings already identified in the 2012

budget, and according to thePresident mean that the countrycould still meet its economic growthforecast of 1.75 per cent for the year.

Despite having almost no sleep fol-lowing the drawn-out crunch talks on

Wednesday night, Sarkozy also foundtime to speak on the telephone withChinese premier Hu Jintao about thepossible involvement of the worldssecond-biggest economy in Europes

bailout. The head of the European

Financial Stability Facility (EFSF),Klaus Regling, is travelling to China topromote the cause to officials face-to-face. But it looks like he will have his

work cut out Chinas new agencyXinhua said yesterday that emergingeconomies should not be seen as the

EUs Good Samaritans.UK chancellor George Osborne also

brought up the latest Eurozoneaccord in parliament yesterday,telling MPs that very good progresshas been made and that Europeanleaders have started down the rightroad.

He hinted that the UK could handover more money to the InternationalMonetary Fund (IMF) to ensure theinstitution can perform its job as thelender of last resort.

But he stressed to the Eurosceptic Tory faithful that the money wouldnot be spent directly on bailing outthe single currency, even though theIMF is currently involved in rescuepackages for a number of Europeannations including Greece and Italy.

He added that Britain would not beputting money into the EFSF, but con-

ceded that the cash could indirectlyend up helping out the Eurozone.

EUROZONE

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EU banks: wewont needpublic moneyEUROPES banks insisted yesterdaythat they can handle ramped-up capi-tal requirements from EU authorities

without resorting to state bailouts.Despite some analysts having called

a nine-month timeline for raising bil-lions in new funds unrealistic,lenders are determined to appearunruffled.

Yesterday, the European BankingAuthority (EBA) unveiled preliminaryresults of the stress tests it is conduct-ing on EU banks, which called for total

new capital of106bn (93.4bn) condi-tional on a 50 per cent haircut on

banks holdings of Greek debt.The lions share of that will have to

be found by Greek and Spanish banks.Greeces main lenders have to raise30bn as a result of holding billions inAthens debt. But Spains banks werealso deemed to be drastically under-capitalised: its top five need to find26bn, with many of its other lendershaving already been nationalised.

BBVA is the worst hit: it has to raise7.01bn, but insisted it can generate

4.7bn of that purely through profits.Frances banks were told to raise

8.8bn, with only Credit Agricoledeemed to have enough capital.

BNP Paribas said it will not need todo a rights issue to raise its 2.1bn,

while Socit Gnrale did not ruleout tapping markets but said it wouldnot need public funds to find 3.3bn.

Both SocGen and BNP Paribas willspeed up their effort to offload non-core assets to meet the target.

Germanys Commerzbank said itwould not need to tap public funds toraise its required2.9bn.

Banks that do have to tap markets

could find it difficult to persuadeinvestors to stump up the cash givenongoing Eurozone risks, plungingshare prices and low dividends.

And one intriguing detail was leftunexplained: the EBA appeared to sug-gest that contingent convertible bonds(cocos, which turn into equity if a

banks reserves drop too low) will bean acceptable form of capital.

The Basel Committee rejected cocosearlier this year, but they have beenendorsed by Swiss regulators andcould now be adopted by the EU.

BY JULIET SAMUEL

BANKING

News 3CITYA.M. 28 OCTOBER 2011

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THE EUROZONE RESCUE PLAN

2. GREEK HAIRCUT

3. BANK RECAPITALISATIONSBanks will

have to raisean extra

106bn in

capital to

withstand the

50pc haircut

on their Greek

bonds

TEN-YEAR yields on German govern-ment bonds jumped by the most inalmost three months yesterday andspreads across the Eurozone nar-rowed, as investors reacted to politi-cians plans by shifting their riskexposure.

German bunds became a less attrac-tive safe haven after the countrys par-liament backed an increase to theEuropean Financial Stability Facility,to which it contributes some 211bn.

But at the same time yields onSpanish, Italian and Greek sovereigndebt fell, narrowing spreads and sug-gesting some appetite for more riskyassets had returned. The spread

between yields on 10-year Greek andGerman debt fell to 2002.3; down123.4 basis points from the previousdays close.

But the credit default swap marketyesterday fell off a cliff, after it becameclear that the contracts were unlikelyto class Greeces haircuts as a default.

David Geen, general counsel at theInternational Swaps and Derivatives

Association, said that the arrange-

ment was still classed as voluntary. The Markit iTraxx SovX Western

Europe Index of credit default swapson 15 governments fell 42 basis pointsto 291 yesterday. The volume ofGreekand other CDS trades has col-lapsed in recent weeks.

BY ELIZABETH FOURNIER

MARKETS

Bond spreads narrow as investors react

A WAVE of weak data in the Eurozonepoints towards a recession, analystsare warning, piling more pressure onEurozone leaders.

Figures out yesterday from theEuropean Commission showed con-sumer and business confidence wors-ening into October.

Economic sentiment slipped to a 22-month low, falling 0.2 points to 94.8.Consumer confidence declined 0.8points to -19.9 on Septembers figures.

The evidence suggests Italy and

Spain are in recession, and theEurozone as a whole could shrink thisquarter, said Lombard StreetResearchs Jamie Dannhauser.

Economists stress immediate pres-sure is on Berlusconi to reform Italysfinances. He needs to avoid a default,overwhelming the bailout fund.

Markets have priced in a 0.25 percent rate cut in December, thoughsome analysts hope it happens sooner.

Germany recorded no inflation thismonth, upping the chance of a cut.

Markets hope incoming EuropeanCentral Bank (ECB) boss Mario Draghi

will cut interest rates next week.

BY TIMWALLACE

EUROZONE

Leaders face falling GDP

Austria

BelguimCyprus

France

Germany

Greece

Italy

Norway

Portugal

Spain

Sweden

2,938m

4,143m3,587m

5,184m

30,000m

14,771m

1,312m

8,844m

7,804m

26,161m

1,359m

157% 120%

2011 2020

10-YEAR YIELDS YESTERDAY

1 Germany +17bp 2.21%

2 Spain -15bp 5.33%

3 Italy -5bp 5.88%

4 Greece -29bp 24.73%

Eurozone leaders say this will

reduce Greeces debt-to-GDP ratio

from 157 per cent in 2011 to 120

per cent by 2020. But there wont

be haircuts for public sector owners

of Greek debt such as the ECB

Private sector

bondholders to take a

writedown of 50 per

cent on their holdings of

Greek sovereign debt

HOW EUROPES BANKS WILL RAISE CAPITAL

Bank Amount needed

BBVA 6.3bnSaid it will not need public fundingand will generate capital internally

Commerzbank 2.9bnWill not seek state aid to raise extra

capital

BNP Paribas 2.1bnSaid it will not need to raise funds onthe markets

Societe General 3.3bnWill reach requirements by its ownmeans without public funds

Group BPCE 3.3bnWill set aside profits and continue toregularly issue capital shares

Banco Comercial Portugues 2.4bnWill deleverage, and could draw onLisbons public 12bn credit line

Banco BPI 1.7bnWill deleverage, and could draw onLisbons public 12bn credit line

Svenska Handelsbanken 1.1bnWill meet requirements throughadjustments to its balance sheet

Swedbank 300mSaid strong results should mean itdoesnt need to raise new capital

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GRUPO Santander saw its quarterlypre-tax profits rise by nine per cent yesterday, despite failing to signifi-cantly reduce its impairments.

The banks shares were also boostedby its assurance that it will overshootEuropean authorities nine per centcapital ratio target by 100 basis pointswithout the need to issue new capi-tal while also paying out a dividendof 60 euro cents per share.

From a base of 8.3 per cent core tierone capital at the moment, Santander vowed to reach 10 per cent by Junenext year the EU deadline.

While large portions will comefrom earnings and bonds due to con-vert to equity next year, the bank saidthat about 0.7 per cent of its new cap-ital will stem from other measures in other words, large-scale disposals ofits non-core portfolio, in large partmade up of real estate assets.

However, it could find it difficult toreach its desired sale price for some ofthe assets due to a large overhang ofsimilar portfolios on the continent.

Santander should be able to rely onincreasing revenues, however. Its quar-terly earnings came in at 2.77bn for

the third quarter of this year whilenet loan loss provisions edged downonly marginally to 2.91bn versus

2.94bn last year. Other impairmentsmore than doubled from 41m to84m.

The overall quality of its loan bookwas little changed, however, and the bank warned that it expects condi-tions to continue on a downwardtrend in its home market, Spain,where the proportion of non-perform-ing loans increased to 5.15 per cent.

Nine-month earnings were alsodown by over six per cent as a solidthird quarter failed to make up forprevious under-performance.

And results deteriorated for its UK business, where pre-tax profitsdropped 19 per cent to 496m, in partdue to a 547m provision for compen-sation those mis-sold payment protec-tion insurance.

Its stock closed up 7.5 per cent, buoyed by market exuberance overthe euro bailout accord.

BY JULIET SAMUEL

BANKING

MOODYS chief executive RaymondMcDaniel has said the corporate bondrating business looks poised torebound when credit markets sta-bilise, after reporting a third-quarterprofit that beat Wall Street estimates.

McDaniel said the pipeline of corpo-rations waiting to issue new bonds is

pretty strong, but warned it washard to predict when it may happen.

Its earnings beat forecasts througha combination of share buybacks, anunusually low tax rate and strength inits less well-known Moodys Analyticsbusinesses of financial research andconsulting services.

Earnings per share in the thirdquarter were 57 cents compared withthe 49 cents expected by analysts onaverage. But net income fell four per

cent to $130.7m (81.7m) while totalrevenue rose just one per cent.

Moodys expects bond marketgrowth as gains beat forecasts

FINANCIAL SERVICES

ELITE US investment bank Lazardpleased investors with a 24 per centsurge in revenue gained from advis-ing on M&A in the third quarter.

Lazard shares bounced as much as18 per cent after it posted the betterthan expected rise in advisory rev-enues to $199.1m (124.5m), while itsnewly-acquired boutique Evercoresaw M&A revenues rise a still-bigger

38 per cent. Despite the gain, Lazardsthird-quarter pre-tax profits fell 12per cent to $69.6m as its core businessoperating revenue rose just two percent to $470.3m as expenses rose.

Chief financial officer MatthieuBucaille said Lazard gained marketshare during the quarter because offortuitous deal closings, but is conser-vative about its outlook.

We remain cautious because thevolatility weve experienced recentlyhas really impacted confidence, he

said. In M&A, confidence is key.Assets under management had fall-en 16 per cent since June to $135.8bn,or five per cent year-on-year, after atorrid quarter in equity markets, where Lazards asset managementbusiness is focused. But asset manage-ment revenues gained four per centto $216.7m as Lazard raised its fees.

Lazard booked an $18.2m pre-taxgain from buying back subordinatedbonds, but did not include this in itsprofit figures.

Lazard shares soar despiteprofit fall on market turmoilBYALISON LOCK

BANKING


Santander

vows to beatcapital target

ANALYSIS l Banco Santander SA

21 Oct 24 Oct 25 Oct 26 Oct 27 Oct

6.20

5.90

6.10

6.00

6.30

6.40

6.506.4427 Oct

THE CANON Chancellor of St Paulshas quit the cathedral, say-ing he did not want to see

violence used to clearthe protesters camp.Reverend Dr Giles

Fraser (right) said hisconscience meant hecould not support StPauls if it joined with the City ofL o n d o nCorporation to evictthe Occupy LSXactivists.

He wrote on

Twitter that he was leaving withgreat regret and sadness and latersaid he would have preferred to seethe size of the camp reduced and thecathedral remain open.

It came as London Mayor BorisJohnson called for new law to pre-vent protest camps erupting like

boils, and the head of theMetropolitan Police is

said to be deciding within 48 hours

whether toforcibly movethe camps atthe cathedraland FinsburySquare.

Canon Chancellor quits St Paulsover threat to force out activists

POLITICS

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THE WORLDS finance watchdog yes-terday outlined plans to clamp downon the poorly-regulated $60 trillion(37.5 trillion) shadow banking sys-tem, to reduce the risks it poses tomainstream banks worldwide.

The Financial Stability Board, aglobal banking regulator, said itwould add new regulation next yearto make it harder and more expensivefor banks to do business with theshadow banking sector, which

includes money market funds, securi-tisation and securities lending.

While the FSB admitted that shad-ow banking entities provided extrafunding and liquidity, it said the sec-tor poses systemic risks to world finan-cial structures.

With regulation on banks tight-ened, it is important to address sys-temic risks...arising from the shadow banking sector and its interaction with the regular banking system,said Lord Adair Turner, chairman of

the FSBs supervisory and regulatorycooperation committee.

He said the new rules expected nextyear would be fundamental to the sta-bility of the global financial system.Lord Turner also chairs City regulatorthe Financial Services Authority andsits on the Bank of Englands newFinancial Policy Committee.

The FSB unveiled draft recommen-dations for closer supervision and reg-ulation of shadow banks, such assetting stricter limits on the size andnature of a banks exposure to shadowbanking entities.

Any shadow banking entities abank sponsors should be included onits balance sheet so that it would haveto account for them in its mandatoryregulatory capital buffer, and leverageand liquidity ratios, it added.

The FSB estimates that the sectorrepresents between 25 and 30 per centof the global financial system.

But money market funds haverejected their inclusion in the FSBsdefinition of shadow banks, sayingthey have rigorous constraints.

THE FINANCIAL Services Authorityhas said it wants to clamp down onthe way banks and building societiessell insurance on packaged accountswhich can turn out to be useless.

The regulator wants to preventanother mis-selling scandal by forc-ing lenders to check whether a cus-tomer is eligible to claim under eachpolicy and then to tell them.

About one in five UK adults has apackaged account, a form of currentaccount which can cost up to 300 ayear and comes with other productssuch as ticket discounts or protectionfrom identity theft.

Sheila Nicoll, FSA director of policy,said: We are concerned that it maybe too easy at the moment for firmsto sell customers something they donot understand or need

The regulator has published a con-sultation paper which also suggestsbanks and building societies providecustomers with an annual eligibilitystatement to see if their circum-stances have changed and tell them ifa packaged account is unsuitable.

A spokesman for the BritishBankers Association said packagedaccounts could be a good deal butadded: Customers should shoparound for the deal which suits theirown needs best.

FSA wants newrules on priceyaccount extras

BYALISON LOCK

REGULATION

BANKING


Shadow banksector facesclampdown

RETAIL veteran John Lovering hasreturned to the board of the invest-ment group that owns Peacocks, thestruggling fashion chain he chairedfor six years until 2003, City A.Mcanreveal.

Last month the British high streetretailer, which sells discount fashionlines, called in KPMG to conduct anindependent business review as fearsgrow that it is in danger of breachingits banking covenants.

The group was left with huge debt

in 2006 when it was taken private by aconsortium of investors.

The 400m deal was led by manage-

ment with the backing of GoldmanSachs, several hedge funds andEchelon, an investment vehicle ownedby John Lovering.

Lovering will now take up Echelonsseat on the board of Peacocks parentcompany after an Echelon partnerstepped down.

The former chairman ofDebenhams and Homebase, who isknown for his ability to turn firmsaround, said he will not be taking anyactive part in the running of Peacocks.

BYKASMIRA JEFFORD

RETAIL

John Lovering returns tofashion chain Peacocks

John Lovering, former chairman of Peacocks, will join the board of its parent company

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ROYAL Dutch Shell is more worriedabout Europes competitiveness thanthe macroeconomic effects of the sov-ereign debt crisis, the oil giant said yes-terday, warning that it is likely to keepreducing its support of projects theregion.

Chief financial officer Simon Henrysaid Shells investment in Europeanprojects had been cut to only 15 percent of the companys total annualinvestments and this proportion is

likely to drop further.Fundamentally, we have more of a

concern in Europe as a whole aboutcompetitiveness. Europes macroeco-nomic position can only recover andthe sovereign debt crisis can only beaddressed through underlying eco-nomic growth, he said.

We do not see the European Unioncreating the conditions for that, in factquite the opposite.

Henrys comments came as thegroup reported it had doubled its

third-quarter profits to more than$7bn (4.4bn) third quarter of this

year, boosted by high oil prices. Brentcrude averaged $113 a barrel, up 48 percent on the same quarter in 2010.

Shell saw overall production, exclud-ing divestments, rise by two per centcompared with the same period last

year at 3.01m barrels of oil per day,helped by its oil sands project inCanada and its liquefied natural gasscheme in Qatar.

Shell said the third quarter payoutwill continue at 42 US cents per share.The group closed up 27p at 2,280p.

Shell gloomyon EU growthas profits rise EXXON Mobil Corps profit soared 41per cent in the third quarter, as gainsin crude oil prices and higher refiningmargins boosted results.

The worlds largest publicly tradedoil company, reported a profit of$10.33bn (6.4bn) up from $7.35bn a

year earlier.Profit in the companys exploration

and production business rose 54 percent while its refining business sawprofit rise 36 per cent.

However, Exxon suffered a drop inoil and natural gas production by fourper cent to 4.28m barrels oil equiva-lent (boe) per day in the quarter, itsfirst drop in production since the sec-ond quarter of 2009.

The decline in production camedespite the fact that Exxon spent arecord $26.7bn in the first nine

months of the year.The company is spending heavily to

increase its shale gas production, espe-cially in North America, to help boostthe profitability of its domestic asset.

Last year, it closed a deal for gas pro-ducer XTO Energy, and the oil compa-ny has steadily been purchasingacreage in shale fields like theMarcellus in the Eastern United States.

Shares yesterday closed at $81.88 inNew York last night, up by one percent on the day.

Exxon profitssoar on higherenergy prices

BYKASMIRA JEFFORD

ENERGY

ENERGY


p

ANALYSIS l Royal Dutch Shell PLC


2,260

2,200

2,240

2,220

2,280

2,300

2,320 2,280.0027 Oct

ANALYST VIEWS: WERE SHELLS RESULTS ONTRACK? Interviews by Kasmira Jefford

RICHARD GRIFFITH | EVOLUTION SECURITIES

Dare we say it but things appear to be going very smoothly for Shell. Keyprojects are ramping up on time, there appears to be no operation reliability issuesand it is making play opening exploration discoveries. It is in a sweet spot andshould continue to get stronger as over 20 major projects come on stream.

RICHARD HUNTER | HARGREAVES LANDSDOWN

One market adage... is Never sell Shell. Todays update is a timelyreminder why this is still the case. A doubling of earnings has been possible throughboth higher oil prices and stronger refining margins. Shells aggressive investment poli-cy continues apace, helped along by the extra income it has generated.

IAIN ARMSTRONG | BREWIN DOLPHIN

We are talking about a cash machine here. I believe that the conditionswithin the company, with a sharp change in underlying trading, would suggest thatthey will be free cash flow positive next year, which gives them the opportunity tohand money back to shareholders in the form of higher dividends next year.

CEO Peter Vosersaid Shells profitswere helped byhigher oil prices.Picture: REUTERS

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COMMERCIAL property agent CBRE yesterday posted a cheering 12 percent rise in net profit for the pastquarter as global property sales

jumped 23 per cent.The results, released after US mar-

kets closed, showed that its revenueshit $1.5bn (940m) in the third quar-ter, 21 per cent higher than in thesame quarter in 2010, while net profit

was $63.8m.Global mortgage loans were up 52

per cent from last year, to about$5.8bn, while leasing revenues alsorose almost a fifth, it said.

Chief executive Brett White saidthe company was very pleased withthe results at a time of such econom-ic uncertainty.

Global revenue rose significantlyin nearly all of our major service linesand geographies, reflecting the dura-

bility of the commercial real estatemarket recovery, coupled with ourability to improve market share in an

uneven macro environment, he said.CBRE said its EMEA business pro-

duced the biggest revenue rise, of 28per cent, despite Europes sovereigndebt worries, while its leasing rev-enues from the region rose by a thirdas it signed big deals in the UK,France, Germany and theNetherlands. White said its Americas

business also performed well, withproperty sales rising 42 per cent com-pared with 2010.

Investors welcomed the news, send-ing CBREs shares 7.4 per cent higherin after-hours trading.

CBRE revenuehits $1.5bn asproperty sells PROCTER & Gamble posted a slight dipin quarterly profit that was in line with expectations yesterday, as the worlds largest household products

maker raised prices and notched salesgains in each unit.

The maker of Pampers nappies and Tide detergent earned $3.02bn(1.87bn), or $1.03 per share, in thequarter ended on 30 September, com-pared with $3.08bn, or $1.03 per share,a year earlier. It had fewer shares out-standing in the most recent quarter.

P&G, which makes everything fromGillette razors to Pantene shampoo,announced or implemented priceincreases on brands that account forthe majority of its US sales and haspulled back on some promotionalspending, which also effectively raisesthe prices consumers pay.

Sales rose 8.9 per cent to $21.92bn.Organic sales, which strip out theimpact of acquisitions, divestituresand foreign exchange fluctuations,rose four per cent, coming in at thehigh end of the companys two percent to four per cent forecast.

The volume of goods sold rose twoper cent, excluding acquisitions, assetsales and currency fluctuations, withgrowth in developing regions partiallyoffset by a decline in developedregions.

P&G remains inline as quarterlyearnings decline

BYALISON LOCK

PROPERTY

CONSUMER


Time Warner Cable sinksas video customers wane

TIME Warner Cable missed WallStreet forecasts yesterday, sending thecable companys shares down asmuch as eight per cent, as it lostmore video customers than expectedand lost phone customers for the firsttime.

The number two US cable operatorsaid its third-quarter profit missedanalysts expectations due to mount-ing programming costs and a drop inpremium video subscriptions.

Time Warner Cable lost 128,000

video subscribers in its residentialservices in the quarter.

However, it added 89,000 sub-scribers for its broadband servicesduring the period.

It also lost 8,000 phone customers,the first quarter it has done so since itstarted selling voice services.

The company posted revenue of$4.91bn (3.1bn) -- slightly below the$4.95bn pegged by Wall Street ana-lysts. Profit for the three-month peri-od ended 30 September fell to $356m.

MEDIA

Glenn Britts company is losing video subscribers Picture: REUTERS

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$

ANALYSIS l CBRE Group Inc

21 Oct 24 Oct 2 5 Oct 26 Oct 27 Oct

16.50

15.00

16.00

15.50

17.00

17.1227 Oct

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COLGATE-PALMOLIVE has posted a

higher quarterly profit, as the tooth-paste maker benefited from expansionin emerging markets even as risingcosts for raw materials eat its margins.

The maker of Colgate toothpasteand Palmolive dish soap said itexpected earnings per share to rise ata mid-single-digit percentage rate in2011 and that its goal was to return todouble-digit earnings growth in 2012.

Colgate profitsin new markets

CONSUMER

MOTOROLA Solutions yesterday raised

its revenue target for the full year cit-ing strong demand from businessesand government clients for its wirelessequipment.

It increased its 2011 revenue growthtarget to seven per cent from a previ-ous target range of 5.5 per cent to sixper cent. For the third quarter, thecompany said its operating profit roseto $253m (157m).

Motorola upsrevenue target

TECHNOLOGY

DOW Chemical narrowly missed WallStreets quarterly profit expectations

yesterday as cost increases and eco-nomic worries dented demand inEurope and North America.

Dow reported net income of $815m(506m), or 69 cents per share, com-pared with $512m, or 45 cents pershare, in the year-ago period.

Revenue rose 17 per cent to$15.11bn.

Dow Chemicalmisses forecast

INDUSTRIALS

MOODYS Corp reported higher-than-expected quarterly earnings yesterdayafter share buybacks and an increasein research and consulting revenuecountered the hit its bond rating busi-ness took from government debtcrises.

Third-quarter net income fell fourper cent to $130.7m (81m) from$136m a year earlier. Revenue rosefour per cent to $531.3m.

Moodys resultsbeat estimates

FINANCIAL SERVICES

US REGULATORS are formally inves-tigating whether Avon broke briberylaws overseas, and the cosmeticscompany has said it was againreassessing its strategy after quarter-ly profit fell far short of marketexpectations.

Avons third-quarter profit fell to$164.2m, or 38 cents per share, from$166.7m, or 38 cents a share, a yearearlier. Revenue rose 5.7 per cent to$2.76bn.

Avon also sold five per cent fewerproducts in the quarter.

Avon slumps onbribery inquiry

CONSUMER

EVERCORE Partners quarterly earn-ings topped expectations yesterday asthe boutique investment bank earnedmore fees from advising clientsdespite a tepid merger market.

The company also raised its quar-terly dividend by 11 per cent to 20cents a share, effective in the fourthquarter.

On an adjusted, pro-forma basis,the firm earned 46 cents a share, onrevenue of $163.9m (101.8m).

Investment banking revenue rose38 per cent.

Evercore raisesquarter dividend

FINANCIAL SERVICES

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SHAREHOLDERS of broker-turned- wealth manager Evolution Groupvoted firmly in favour of its sale toSouth African investment groupInvestec yesterday despite concernsover the real price of the deal.

Nearly 95 per cent of shareholdersthat chose to vote gave the takeoverthe green light, despite a ten per centdrop in the value of the deal to 210m,from 233m when it was announcedin September. The all-share offer was

worth 1 per share, but has nowslipped to about 90p.

The falling value of the deal hadraised the ire of Evolutions biggestshareholder Aberforth Partners,which pulled its support for the dealwhen it slumped to as low as 82p pershare last week.

But Andy Brough, fund manager atSchroders, which holds about eightper cent of Evolution, told City A.M. arevival in Investecs price this weekmeant the deal now looked better

than many had anticipated.It feels like we are leaving the

party with a balloon, he said whilethe other shareholders maybe wenthome with a slightly prettier girlthan they expected.

Only 56 per cent of Evolutionsshareholders voted either for oragainst the offer at the general meet-ing, though, while 12 investors with-held their votes completely.

Evolutions chief executive AlexSnow will now take a seat on Investecs board and become executive chair-man of its UK investment bank.

Investec bidfor Evolutiongets yes vote FRANCES biggest insurer, Axa, said itslife and savings division had been hit by the slowing global economy butsaid its UK pensions business was

growing fast yesterday.Axa said life and savings revenues,

which make up the lions share of itsbusiness, fell 9.3 per cent to 39.8bn(24.9bn) in the first nine months ofthe year compared to the same periodin 2010. That caused Axas overall rev-enues to fall 4.8 per cent comparedwith 2010, to65.9bn.

Despite this, its shares soared byalmost 15 per cent on optimism afterthe late-night deal struck betweenEurozone leaders on Wednesday.

Axa played down the poor perform-ance in its life division, where netinflows almost halved to a net 4.5bnin the first nine months of 2011.

We are in line with our strategicplan, chief financial officer GeraldHarlin said. We stand by all the com-mitments we have made.

Describing the economic climate asdifficult, he said Axas balance sheetwas solid and its exposure to peripher-al Eurozone debt was marginal.

Revenues from property and casual-ty insurance rose 3.8 per cent as Axaraised its prices, while Axa Wealth, itsUK-based pension business, saw assetsrise 9.6 per cent to 18.3bn.

SIMON Lee, the well-regarded interna-tional head of insurance group RoyalSun Alliance, will step up to the postof group chief executive next Tuesday, two months earlier thanoriginally announced.

Lee replaces Andy Haste, who hasled RSA since 2003 and overseen aperiod of strong growth and prof-itability at the home and motor insur-

er. Haste was due to step down at theend of the year but with the handovercomplete will leave ahead of time.

Lee, 50, a former NatWest execu-tive, has overseen rapid expansion ofRSAs Europe and Canada businesses,which now account for almost half ofthe groups premium income.

His promotion has been plannedfor months and is expected to drivefurther overseas growth. RSA expects70 per cent of premium to come fromits global operations by 2016.

Axa shares updespite 9pc fallin life revenues

Simon Lee steps up tolead RSA ahead of time

Simon Lee will become RSA group chief executive on 1 November

BYALISON LOCK

BANKING

INSURANCE


BYALISON LOCKINSURANCE

ANALYSIS l Evolution Group PLC

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90

88

86

84

82

80

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CHINESE companies have bought arecord number of European targets sofar this year, taking their total spend-ing on M&A to $12.1bn (7.6bn), datafrom Dealogic yesterday showed.

Chinese companies made 64European mergers and acquisitionsin the first nine months of this year,up from 47 in the whole of 2010.

German companies were mostsought-after, with 14 M&A closing, while France attracted the highestprices, as Chinese firms spent $4.7bnbuying eight local companies.

City banker Rothschild topped thelist of advisers to Chinese firms.

BOB IVELL was yesterday confirmedas executive chairman of Mitchells &Butlers as interim chief executiveJeremy Blood stepped down, follow-ing a bruising period when largestshareholder Joe Lewis made an abort-ed takeover attempt.

The shake-up brings the numberof board-level changes in the lastfour years to nine, with six chair-men and three chief executives atthe helm of the pub group.

Doug Evans, general counsel andcompany secretary, has been appoint-ed to the board to become its fifthmember, alongside finance directorTim Jones and Doug Evans and RonRobson, both representatives ofLewiss Piedmont vehicle.

Ivell, who took on the chairmansrole on an interim basis in July, is lead-ing the search for a new CEO and willtake on those duties until an appoint-ment is made. Blood will remain withthe business for a short time to ensurean effective handover.

Analysts said the appointment ofIvell a veteran of the hospitality sec-tor after spending nearly 40 years in

the industry as chairman of RegentInns, managing director of Scottish &Newcastle Retail and managingdirector of Beefeater restaurants should start to bring some calm toMitchells & Butlers troubled ship.

These are tentative signs M&B ismaking moves towards a return tonormality and management stabilityafter the disruption caused by board-level resignations and the recenttakeover talks from Piedmont, saidPaul Crawford at RBS.

Ivell said: My immediate key tasksare to recruit a permanent, high-qual-ity chief executive and strengthen the board further with additional non-executive directors. Shares in M&Bclosed up 5p at 246p on the news.

Ivell takes on

a new execrole at M&B

TEMPORARY power provider APRdelivered a bullish trading update yes-terday, saying it saw growth acceler-ate in the past quarter with revenuesup 63.5 per cent to $57.5m (35.7m).

APR, which only re-listed in Juneafter being taken over by HughOsmonds Horizon vehicle, signed anew agreement to supply turbines toengineering group Pratt & Whitneyyesterday and said its order book wasrobust, giving it a strong pipeline ofnew business.

The group also said it expected its

full-year net profits to come in aheadof market expectations.

APR sees 64pcrevenue jumpChinese M&Ain Europe soars

BYHARRIET DENNYS

LEISURE

M&A

INFRASTRUCTURE

Mitchells & Butlers executive chairman Bob Ivell and largest shareholder Joe Lewis


All this pub firm needs is some stability TO BE honest, my eight-year oldnephew could become executivechairman of Mitchells & Butlersand the pubs firm would enjoymore stability than it has in recentyears. This is the ninth change in

either chief executive or chairmanin the last four years. HopefullyBob Ivell will stick around forlonger than his predecessors. He issaid to have a good relationship with activist shareholder JoeLewis, which should help.

There is no doubt that Ivell is anindustry pro. His CV includes exec-utive stints at Scottish & Newcastleand Whitbread, and he is a direc-

tor of soft drinks company Britvic.In M&B, he now controls one ofthe best portfolios of pubs in the business, with a strong focus onthe increasingly important pub-with-food segment.

Its share price and operationalperformance has been hurt by theinterminable board-room soapopera. Ivells first job will be tosteady the ship.

Next, he must find a chief execu-tive. In many ways it is a plum job,but potential candidates are sureto be deterred by the fates of theirpredecessors. Analysts say theappointment of a bright young

turk or an internal candidate which both carry risks is themost likely outcome.

Like all consumer-facing indus-tries, pubs are suffering as realwages are hit by pay freezes and

soaring inflation. But beneath theconstant director bust-ups, brandslike All Bar One give M&B a realcompetitive advantage.

Hopefully Ivell can stop squan-dering it by bringing some much-needed stability to the company.

BOTTOMLINEAnalysis by David Crow

p

ANALYSIS l Mitchells and Butlers PLC

21 Oct 24 Oct 26 Oct 27 Oct

242.50

225.00

240.00

227.50

245.00

247.50

250.00

25 Oct

246.0027 Oct

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News16

London 2012

IMAGE OF THE WEEK

With the announcement that more than2,012 of the athletes apartments havenow been completed, culture andOlympics secretary Jeremy Hunt visitedthe construction site to see theprogress. After the Games, the apart-ments will be adapted for permanentuse, creating 2,818 new homes.

Between now and the 2012 Games, CityA.M. is publishing its Olympic Image ofthe Week. We welcome photographsfrom all sources sponsors, athletes,local businesses, commuters, residents if you have a shot you think readers willlike, email [email protected] with

IOW2012 in the subject line. Full details:www.cityam.com/london-2012.

LONDON 2012 | OLYMPIC AND PARALYMPIC VILLAGE

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LONDONERSCHARM IS A

SERVICE FORWEALTHY

WHERE THE wealth lies and, more impor-tantly, how to persuade customers to part

with it was the theme of the WealthSummit run by monthly magazine LuxuryBriefing in association with City A.M.

Master of ceremonies was JamesReatchlous, who bought Luxury Briefingfrom Princess Alexandras son JamesOgilvy in 2009 before expanding intospin-offs such as Luxury Connections, thesoon-to-be-launched quarterly little

black book for suppliers.Reatchlouss supporting cast included

Ben Elliot, founder of the rich mansconcierge Quintessentially, and RobHersov, who sold his private jet company

Marquis Jets Europe to NetJets in 2008 before founding high net worth consul-tancy Adoreum Partners.

You have to reach the rich with a levelof trust, Hersov told The Capitalist, stillinspired by his breakfast the previousday with Vernon Hill, the man givingHSBC, Barclays and friends a run fortheir money by bringing the customer-oriented Metro Bank to the UK. The

banks here have got it all wrong, he con-tinued. They are selling products ratherthan focusing on relationships.

nephew Mark Ronson is the director ofmusic. Also spotted dining at the privatemembers club since it opened on 12September are Rolling Stone Ronnie

Wood, steel magnate Lakshmi Mittal andKillik & Co partner Paul Killik.

It must be the connections of the clubs business advisory board entrepreneurDavid Tang, Addleshaw Goddard seniorpartner Paul Lee and property investorGary Landesberg, to name but a few thathas persuaded 1,500 arts enthusiasts topart with the 1,200 joining fee plus1,500 annual membership.

The Arts Club has already become apowerhouse of networking, said The

Capitalists man in Mayfair.

RAIN MAKERSTHE SHAPESHIFTING Hindu god Krishnamet business transformation recruiter

Venquis last night at the firms Diwaliparty to celebrate Krishna defeating thegod of rain. Lets hope the sovereign debtclouds dont dampen the spirit of giving,said the firms spokesperson as he sup-plied the donation link

www.justgiving.com/shivia/donate

Not so, said William Cash, editor-in-chiefof Spears magazine, who said that if theUK does anything well it is service in fact,the consequence of the Big Bang is thatLondons banking classes have becomethe financial waiters of the world.

We are experts in social grovelling;some call it charm, he said. For

Malaysian, Russian and Middle Easternoligarchs, there is nothing more reassur-ing than an English accent.

BOOM AND BUSTCASH also read an extract from his forth-coming novel Drawdown, which opens atthe height of Londons golden boom in2007 before chronicling the downfall of

banker Mike Mowbray, who loses every-thing after being embroiled in a scandalthat leads to prison.

The author has spent the last fiveyears sitting ringside on the bleachersof Londons Circus Maximus, observ-ing scenes similar to the fictional char-ity auction organised by the AlphaReturn for Children Foundation thatopens his comedy novel.

Any similarity to Arki Busson and Ian

Waces hedge fund gala Absolute Returnfor Kids is, of course, purely coinciden-tal but all will be cleared up next year,

just as soon as agents Aitken Alexanderfind a publisher. We are going to auc-tion the book to the highest bidder, justlike in the City, said Cash happily.

ARTISTIC LICENCEPROPERTY tycoon Gerald Ronson hasfound a new favourite haunt: the ArtsClub on Dover Street, where his DJ

Left: Rob Hersov ofAdoreum Partners,Bloombergs DinaNajia and LuxuryBriefing owner JamesReatchlous

Above: The Arts Clubon Dover Street

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CARD and gift retailer Clinton Cardsposted an 83 per cent slump in full-year profit, hit by a combination oflow consumer confidence andintense competition from supermar-kets and the internet.

The firm said it made an adjustedoperating profit of 3.2m in the yearto 31 July, down from 18.8m on rev-enues down 7.6 per cent at 364.2m.

The group ended the period trad-ing from 596 Clinton Cards storesand 127 Birthdays outlets, employ-

ing about 8,350 people. It said salesat stores open over a year were down

1.5 per cent in the first 12 weeks ofthe new financial year.

The firm has extended its 55mdebt facility to July 2013, whichfuelled a share price rise after theannouncement. Shares in Clintonclosed up 11.8 per cent yesterday.

The fortunes of Clinton contrasted with those of Card Factory, its pri-vate equity-owned rival, which post-ed a 56 per cent rise in pre-taxprofits to 55.66m.

The accounts for Sportswift, which trades as Card Factory, alsoshowed turnover rose nine per cent

to 228.83m in the year to 31January.

OUTDOOR goods specialist Blacksleisure yesterday announced a half- year loss of 16m and said it wasexamining its funding options in abid to shore up the struggling firm.

The company, which also tradesunder the Millets brand, is fightingfor survival due to mounting lossesand surging debts.

The pre-tax loss for the six monthsto 27 August compared with 7.2m inthe same period last year.

Sales at stores open for at least a year fell seven per cent to 81.1m,while stock levels were cut by 28 percent.

Chief executive Julia Reynolds said:We dont have any exact figures ordate [for the funding], but we areworking on that currently.

Blacks, which went through arestructuring under former chiefexecutive Neil Gillis, streamlined itsproperty portfolio last year by exitingmore than 100 stores.

The company currently operatesabout 300 outlets. It has beeninvolved in a long-running spat withits largest shareholder Mike Ashley,

the founder of rival firm SportsDirect, whose bid for Blacks wasrejected last year.

New chairman Peter Williams, theformer chief executive of Selfridges,said yesterday that Blacks is not cur-rently in talks with anyone over apotential takeover.

He added that the company waswell placed to receive a sales boostover Christmas.

But Charles Stanley retail analystSam Hart said: Discounting andmargin pressure remain rife in theoutdoors sector. Blacks and Millets both remain poorly positioned fornow. We continue to see limitedscope for the groups return to prof-itability.

Blacks losses

mount as iteyes funding

Clinton Cards profits nosedive asit negotiates a fresh credit deal

BY JOHN DUNNE

RETAIL

RETAIL

BETTING giant William Hill yesterdaysaid revenue growth slowed in thethird quarter as the company cameup against tough comparatives withlast years football World Cup.

William Hill, which has 2,350 bet-ting shops and takes more than amillion bets a day, said net revenuegrew by two per cent in the quarterand five per cent in the year to date.

Retail net revenue dropped bythree per cent during the period andwas flat in the year to date. Groupoperating profit was 22 per centlower in the period, reflecting theimpact of the World Cup and resultsin the football league that favouredthe bookmaker.

In the year to date, operating prof-it is down three per cent. WilliamHill benefited, however, from a sharprise in online revenue, which grew by

28 per cent in the quarter, driven by anumber of product innovations andan increase in the number of in-playbetting markets on offer.

We have delivered a solid per-formance in quarter three, in spite ofa highly competitive market placeand a tough consumer environ-ment, chief executive Ralph Toppingsaid.

The company said it remained ontarget for the full year.

William Hill revenue growthslows but on target for yearCONSUMER

Chief executive Ralph Topping is on target for the year Picture: REX


p

ANALYSIS l Blacks Leisure Group PLC


8.9

8.6

8.5

8.8

8.7

9

9.1

9.2

25 Oct

8.5027 Oct

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VIRGIN Media yesterday announced ithas added more high-value customersbut saw its shares tank as cashflowgeneration ran out of steam.

It made net customer adds of 6,300,bouncing back from a traditionally dif-ficult second quarter that saw 36,000people left the service.

Investors struggled to digest theresults, with Virgin trading upslightly during afternoon trading inthe UK before lurching as much as10.5 per cent upon the opening ofthe US markets, where the majorityof its stock is listed. It closed down7.4 per cent in London and 5.9 percent in New York.

Virgin said strong growth in its TiVocontent-on-demand service helpeddrive its average revenue per user to arecord 47.86.

Enders analyst Ian Watt describedthe results as one of the most interest-

ing Ive seen in the sector, saying it isdifficult to gauge the firms perform-ance.

He told City A.M.: Its a glass half fullor half empty situation. Cashflow hasmore or less ground to a halt after two years of strong growth. Volumes arepositive, with strong uptake of fastbroadband and TiVo but there are alsoquite a lot of people leaving throughthe back door.

The group also announced an exten-sion of its share buyback programmeof up to 250m.

Virgin tanksdespite jumpin customers

ASIAN chipmakers, including theworlds top contract chipmaker TSMC,reported sharply worsened quarterlyearnings and braced for anotheruncertain quarter as a weak globaleconomy hit demand for computers.

Yesterday, Taiwans TSMC reported a worse-than-expected 35 per centdecline in profit to 620m, its fourth

straight quarterly drop.Hynix Semiconductor of South

Korea, the worlds number two com-puter memory chipmaker, reported itsfirst quarterly operating loss in twoyears. In Japan, rival Elpida Memoryalso tumbled to a quarterly loss.

Analysts said there were chances ofa recovery in the first half of next year, when inventory adjustment wasexpected to be complete and chipprices bottom out. Roaring growth ofsmartphones and tablets were the sin-

gle ray of sunshine in the gloomyresults.

Chipmakers across Asia hit hardby gloomy economic conditions

BY STEVE DINNEEN

TELECOMS

TECHNOLOGY

HEWLETT-PACKARD last nightannounced that it would keep its per-sonal computer unit after all, follow-ing an extensive review of the highvolume but low-margin business.

The retention of the PC businessmarks another flip-flop in strategy asthe company had said earlier that itspreferred option was to spin out thebusiness.

The worlds largest technology com-pany by revenue stunned investorswhen it announced in August that itis considering strategic alternativesfor the group and would kill its newtablet computer as part of a majorrevamping away from the consumermarket.

Citing deep integration of the PCgroup in HPs supply chain and pro-curement, recently appointed chiefexecutive Meg Whitman said the com-pany was stronger with the unit.

Hewlett-Packardflip-flops over PCs

Virgin Media CEO Neil Berkett said TiVo was popular with customers Pic: VISMEDIA

BYHARRY BANKSTECHNOLOGY

p

ANALYSIS l Virgin Media Inc


1,700

1,650

1,650

1,750

25 Oct

1,576.0027 Oct

PRESSURE on scandal-hit camera-maker Olympus mounted yesterday

after US patent records appeared topoint to a possible conflict of interestin an investment in a cookware com-pany.

A venture capitalist who managedan Olympus fund that invested $225m(158.4m) in the new enterprise waspart-owner of a cookware patentwhich he transferred to the target busi-ness, just as Olympus was pouringmoney into it, various documentsappear to show. Olympus declined tocomment.

Olympus facesfresh questionsTECHNOLOGY

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NINTENDO this week marked the 25thanniversary of the Legend of Zelda,one of its most iconic titles. But thefanfare gave way to crisis yesterday asthe firm said it would slip to its firstever annual loss after issuing its sec-ond profit warning this year.

The former undisputed heavy-weight of the video games world hasseen its business attacked on multiplefronts. The strength of the Japanese

yen, the popularity of rival consolesfrom Microsoft and Sony and theemergence of cheap gaming solutionson smartphones and tablets have alleaten away at its profits.

Its Wii console is coming to the endof its life-span meaning sales have

become sluggish and its portable 3DSdevice has failed to impress con-sumers, forcing Nintendo to slash its

price.It now expects an annual net loss ofaround 20bn (164m), the first in its

history, and also slashed its full-yearoperating profit forecast to just 1bnfrom 35bn.

In the last quarter it tumbled to a19.6bn operating loss, slightly biggerthan the market had expected andmuch worse than the company hadforecast.

Nintendo, which has seen its stocktumble more than 50 per cent in thelast year, has also cut its projectedgame sales on weaker than expecteddemand. It hopes the release of thenew Legend of Zelda title, SkywardSword, will help to ease its woes.

Nintendo setto report itsfirst ever lossBY STEVE DINNEEN

TECHNOLOGY

CONSUMERS in the US and Canadahave sued Research in Motion (RIM)for a days-long service outage on itsBlackBerry devices that rippled acrossthe world earlier this month.

The system-wide failure of the serv-ice left tens of millions of frustratedBlackBerry users on five continents

without email, instant messagingand browsing.

The firm apologised to millions ofBlackBerry customers for the four-dayoutage that tarnished its image andset back its drive to catch up with

Apple and other smartphone rivals.But the gesture, along with an offer

of free premium app downloads forthose affected, has not been enoughfor furious customers who have filedlawsuits accusing RIM of breach of

contract, negligence and unjustenrichment.

BlackBerry outage nightmarenot over as lawsuits hit RIMTELECOMS

SONY has called time on its European

joint venture with Ericsson, takingfull control of their telecoms businessfor1.05bn (920m).

Sony Ericsson has struggled to gaintraction in a fiercely competitivesmartphone market dominated bythe likes of Apple and Samsung.

The business will now become partof Sonys consumer division.

Analysts expect much tighter inte-gration of the user experience

between Sonys smartphones and itsother consumer goods, such as

flatscreen TVs and its PlayStationfranchise.

Rivals including Panasonic have

launched handsets that can double as TV remote controls and which canseamlessly share content with otherdevices.

Welsh-born Sony chairman SirHoward Stringer said: Its the begin-ning of something which I think isquite magical. We can more rapidlyand more widely offer consumerssmartphones, laptops, tablets and tel-evisions that seamlessly connect withone another and open up new worldsof online entertainment.

The deal will give Sony ownershipof certain handset patents held bySweden-based Ericsson and will

enable it to cut costs in the mobile business, with Stringer pointing tosavings in operations, R&D and mar-keting.

The takeover of Sony Ericsson bythe Japanese group had long beenmooted but Stringer last year dis-tanced himself from such a move.

Ericsson chief executive Hans Vestberg said the company will usethe cash to strengthen its balancesheet and has no plans to pay it out toshareholders.

Sony buys out Ericsson JVBY STEVE DINNEEN

TELECOMS

Satoru Iwatas company has struggled in the face of intense competition Picture: Reuters


ANALYSIS l Nintendo Co Ltd

21 Oct 24Oct 25Oct 26Oct 27Oct

11,200

11,000

10,800

11,400

11,800

12,000

11,600

11,11027 Oct

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LUFTHANSA, Europes biggest airline,has cut back its plans to expand capac-ity next year after posting weaker thanexpected third quarter results.

Operating profit fell to 575m(357m) from 783m a year earlier,after being hurt by the European debtcrisis, turbulence in the financial mar-kets and waning growth in the globaleconomy, the German aviation groupsaid in a statement yesterday.

Fears of a recession and concernsabout the effects of the debt crises inEurope and the US have already had aclear effect on the course of businesssince the third quarter, chief execu-tive Christoph Franz told reporters at apress briefing.

Lufthansa issued a profit warninglast month, saying it no longer expect-ed to improve on last years operatingprofit after its passenger airlines unit

had a weaker than expected August.The group has now scaled back itsplans to increase the number of seats

on planes next year to three per centfrom the original plans for nine percent. It had already cut planned capac-ity growth for the winter season twiceto address sliding demand.

Lufthansa said it was exploring var-ious disposals and strategic optionsfor its loss-making UK subsidiaryBritish Midland International (BMI),and hoped to conclude a sale by theend of the year.

Shares in the group closed up 3.44per cent at 10.39 yesterday.The stocklost 35.1 per cent in the third quarter,ending September at9.76.

Lufthansasearnings missexpectations

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BYKASMIRA JEFFORD

TRANSPORT

BRITISH bus and rail operator Go-Ahead said first-quarter trading roseas drivers turned to public transport toavoid rising motoring costs, althoughit remained cautious about the medi-um-term wider economic outlook.

Go-Ahead said revenues at its non-London bus unit, which includes serv-ices in Oxford and Brighton, were fourper cent higher in the period to 26

October but passenger numbersremained flat compared with thesame period last year. Bus revenues inLondon were marginally up.

Passenger revenues across thegroups three rail franchises Southern,Southeastern and London Midlandrail franchises all rose between eightand twelve per cent.

Chief executive David Brown toldreporters that a 20 per cent increase inthe cost of car insurance and a surgein fuel prices was driving growth at a

time when Britons incomes aresqueezed by rising prices, muted wagegrowth and government austeritymeasures.

We want a vibrant economybecause a vibrant economy means peo-ple will travel more but there is a tight-ening of belts amongst people and thecommon theme would be if youve gota second car, you get rid of the secondcar, Brown said.

Shares rose 1.23 per cent, closing at1,396p yesterday.

Go-Ahead revenues boostedby commuters taking trainsBYKASMIRA JEFFORDTRANSPORT


Lufthansa CEO Christoph Franz said the results did not have him jumping for joy

ANALYSIS l Deutsche Lufthansa AG


10.50

0.75

10.25

10.00

10.75 10.3927 Oct

NEWS | IN BRIEF

Kenmare output lifts revenueKenmare Resources said third-quarterrevenue rose strongly from the secondquarter mainly on higher production andalso helped by increased prices. Ilmeniteproduction was 147,000 tonnes, up fiveper cent from the second quarter, whileoutput of zircon grew 17 per cent to11,200 tonnes from its Moma mine inMozambique.

Aquarius swings into lossAquarius Platinum swung to a quarterlynet loss, primarily due to adverse foreignexchange moves, as precious metal pro-

duction declined on operational problems.It posted a net loss of $91.8m (56.9m)

in the quarter to end September, includ-ing a $94.3m foreign exchange loss frominter-company loans, compared with anet profit of $42.4m in the year-earlierquarter.

Statoil net income up 50 per centNorway's Statoil said yesterday itsadjusted net income rose 50 per cent to$2.07bn (1.28bn) in the third quarterand its production climbed 14 per cent.Statoil said its output rose 14 per cent inthe quarter compared with the sameperiod last year, to 1.57m barrels a day.However, the company still expects its

output to be down slightly this year,before rising next year.

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HARRY Potter publisher Bloomsburyposted a 52 per cent rise in its first-half profits after sales of ebooks wentthrough the roof.

The firm saw digital sales increaseby almost six-fold to 2.5m, jumpingto 5.5 per cent of the groups overallsales.

Pre-tax profit beat expectations tohit 2.2m for the half, compared with1.4m the year before. Revenue rose

16 per cent to 44.9m. The results were buoyed by the

release of the latest movie version ofJK Rowlings boy-wizard, which led toa surge in book sales. Bloomsbury isalso set for a boost when Rowlingsonline Harry Potter ebook store,Pottermore, finally opens. It was slat-ed for an October release but has beendelayed after its beta version experi-enced greater than expected traffic.

While Rowling has always main-tained the digital rights to the books,

Bloomsbury says it will receive a sliceof the revenues.

Other strong sellers include 2010Man Booker Prize winner The FinklerQuestion, which has shifted 700,000copies worldwide.

The companys shares, which havelost 24 per cent since the acquisitionof Continuum InternationalPublishing Group, closed up one percent last night.

The firm has warned the consumereconomy remains at its worst fordecades and it remains cautious.

Harry Potterpublisher seesprofits surgeBY STEVE DINNEEN

PUBLISHING

NewsCITYA.M. 28 OCTOBER 2011 23

SPRINGS TIME IS UP AT FUTURE

STEVIE Spring, the colourful chief executive of publisher Future, yesterday resigned withimmediate effect, just months after the company warned on its full-year results and saidit would undertake a restructuring. She was joined on the way out by finance director

John Bowman. Spring will be replaced by the companys UK head Mark Wood, while Bowmans shoes will be filled by Graham Harding Picture: Rex

p

ANALYSIS l Bloomsbury Publishing PLC


101

100

99

102

103

10499.75

27 Oct

NEWS | IN BRIEF

Hertz drops Dollar Thrifty offerCar rental firm Hertz yesterday with-drew its tender offer for shares in USpeer Dollar Thrifty Automotive, but saidit was still interested in buying its smallerrival if antitrust regulators clear the deal.Hertz cited Dollar Thrifty's share buy-back plans and current market condi-

tions for withdrawing the exchange offer,and said it would reassess the price andterms of a deal once it gets approval. Itslast bid was worth $1.94bn.

Laird gets a boost from tabletsLaird, the products developer for wirelessand advanced electronics applications,yesterday reported strong revenuegrowth after bumper demand for tabletsand smartphones. However, it said therewas a continuing decrease in the PC,notebook and flat screen TV segments.Third quarter revenues from its perform-ance materials and wireless systems divi-sions were up 18 per cent from last yearto 121m. The electronics and technologyfirms discontinued Handset Antennae andMechanisms businesses posted revenuesof 23m, down from 38m last year.

Havas sees strong revenue growthParis-based advertising company Havas

yesterday reported its strongest organicrevenue growth in three years, up morethan seven per cent. The groups thirdquarter revenue rose five per cent to339m, with a decline in its home mar-ket the only blot in its copybook. Havas,which competes with larger rivalsPublicis, WPP and Omnicom, said itsgrowth in Europe was more restrainedthan in the first half of the year, but saidthe UK contributed to growth in thethird quarter, with digital, media andhealt

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