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News4 CITYA.M. 13 DECEMBER 2011

PERSONAL finance must be taught inschools to equip young people withthe knowledge they need to navigatean increasingly complex financialworld, said a group of MPs yesterday,as they called for compulsory lessonsto be part of the curriculum.

A report released by the all-partyparliamentary group (APPG) onfinancial education for young peoplecalled for obligatory teaching to bepart of both primary and secondaryeducation, after finding that the UKwas in danger of being left behindother countries where the agenda isfurther advanced.

According to the report, personalfinance is only taught on an ad hocbasis in UK schools at the moment,with just 45 per cent of teachers say-ing they had ever run lessons on thesubject.

The group wants this to change, with personal finance educationintroduced into the existing mathe-matics and PSHE (personal social

health and economic) curriculum. The proposals mean children

could start learning the basics of per-sonal finance as young as age five, with the aim that young peopleshould leave school able to calculatepercentages, fractions and decimals,and be able to apply these methodsto everyday life.

The report is the culmination ofeight months work by the APPG, which was put together in Januaryand is now the largest in parliament, with 226 MPs and peer membersacross all main parties.

The issue will be also be debated inthe Commons on Thursday, after apetition launched by moneysavingex-pert.coms Martin Lewis calling forcompulsory financial education gotmore than 100,000 signatures.

BY ELIZABETH FOURNIER

FINANCIAL LITERACY

RBS probe doesnt answer key issues

THERE was lots of good stuff in yester-days report on the demise of RBS andthe idiocy, stupidity and incompetenceof the top executives including SirFred Goodwin advisers, politiciansand regulators in charge, includingGordon Brown and Ed Balls. RBSs rise,fall and slow-motion crash is an aston-ishing tale of hubris: human beingswho think they can defy the laws ofgravity, as well as the reality of eco-nomics and finance, always end updestroying themselves and thosearound them.

But in other ways the report is

flawed; here are some reasons why.There was no proper attempt at justify-ing RBSs bailout. A disorderly collapsewould have been horrid but it mighthave been possible to forcibly convert

at least some debt into equity, thusprotecting taxpayers. Those decisionswere just as important as errors in therun-up to RBSs failure. We need aninquiry into them too.

There was no proper plan to dealwith a major bank going bust no res-olution mechanism to protect taxpay-ers and allow an orderly wind-down.Why did regulators not think of thisduring the boom? The fact that nosuch plan B existed was tantamount toan implicit guarantee that an institu-tion could do anything, safe in theknowledge that it would be rescued.Yet the report doesnt go into this.

Another much misunderstood issueis light-touch regulation, blamed forallowing RBS to happen. Supporters ofa free-market economy believe humanaction needs to be governed by a com-plex web of rules and restrictions,

based around private property, profitand loss, freely functioning price sig-nals, the rule of law, liability and con-tracts. Under this system, resources areallocated reasonably efficiently, with

greed tamed by fear. Bad decisions arepenalised by losses; good ones reward-ed by profits. Behaviour is regulated by market mechanisms: if you lendmoney to a bank, and know you willlose it if it takes silly decisions, you willpay close attention.

Real capitalists dont believe behav-iour should be unconstrained orunregulated they do not think thatpeople should be able to do whateverthey want, with no consequences.What they do believe is that it is best ifthe constraints and consequences aremarket-based, harnessing the power ofself-interest, rather than imposed bysupposedly selfless or omniscient regu-lators. A few decades ago, before theBasel Accords, capital ratios were oftenhigher than they are today investorsand depositors demanded the protec-tion and extra prudence.

A real free-market is not the rule ofthe jungle a system with no privateproperty, no contracts and violence but neither is it the pre-2008 model. That crazy system, perfected in

Browns Britain, saw the authoritiesrepeal many traditional market-basedconstraints on CEOs because liabili-ties were guaranteed, private creditorsrelaxed and ceased to exercise propersupervision and replaced them withan ineffectual regulatory system. This was the worst of all worlds: privateinvestors no longer cared, consumersthought they were safe and the regu-lators were useless. There was alsointervention in other ways, with exces-sive liquidity from central banks cor-rupting the price of credit.

What is wrongly called light-touchregulation was in fact a corporatist sys-tem that insulated creditors, promot-ed moral hazard and encouraged thelikes of Sir Fred Goodwin. Its a shamethe disease has been so misdiagnosed.

[email protected] me on Twitter: @allisterheath

LLOYDS has completed a debtexchange that reduces its 2012 financ-ing needs by a fifth, the bankannounced yesterday.

That means it will have to issue 15-20bn of new debt next year instead ofthe previous target of 20-25bn. Themove reduces Lloyds short-termreliance on wholesale funding mar-kets, which have seized up over the lastquarter due to the Eurozone debt crisisand regulatory uncertainty.

The debt exchange effectivellengthens the maturity of Lloyds debt.The bank did not state the total it hadto pay investors to participate, but saidthey were given a premium.

It comes at the start of a crucialweek for Lloyds, whose board meets onThursday to discuss the return of its illCEO and its sale of 632 branches.

Lloyds bondswap cuts debtneeds by 20pc

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

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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 Gavin BillennessPictures Alice Hepple

CommercialSales Director Jeremy SlatteryCommercial Director Harry Owen

Head of Distribution Nick Owen

Personal finance education should be acompulsory part of every schools cur-riculum Quality resources and appropriate vis-its should be made available to teach-ers Primary teachers shouldbuild upon their teaching ofbasic money and mathemat-ics skills from an early ageacross the curriculum Primary school teachersshould be required to havea minimum grade B inGCSE mathematics Training days shouldbe used to refreshthe mathematicsskills of primaryschool teachers

Personal finance education should betaught cross-curricular in mathematicsand PSHE (Personal Social Health &Economic) education at secondary level Personal finance elements of mathsshould be clearly highlighted to empha-sise how they relate to real life deci-sions

A school coordinator, or champi-on, should be appointed in eachschool with responsibility forsourcing resourcesand ensuring mathsand PSHE educationcovers personalfinance goals

FINANCIAL EDUCATION | KEY RECOMMENDATIONS

Justin TomlinsonMP is chair of thegroup pushing forchange

MPs: Finance must be taught

BY JULIET SAMUEL

BANKING

EVRAZ RAISES PROSPECT OFSEVERSTAL MERGEREvraz has raised the possibility of amerger with Severstal in a deal thatwould unite Russias two biggest steel-makers to create the worlds eighth-largest producer by output, with acombined market capitalisation of12bn. Alexander Abramov, Evrazschairman and founder, said in aninterview with the Financial Timesthat uniting the two businesses wouldbe a good idea.

BG PREPARES TO SELL $600M STAKEIN GUJARAT GASBG, the oil and gas producer, haslined up Citigroup to advise on apotential sale of its stake in GujaratGas in a deal that could raise about$600m, say people familiar with thematter. It comes as the explorer looks

to raise capital and as part of a reviewof its global portfolio amid specula-

tion of plans to divest a stake in itsBrazilian operations.

CALL OF DUTY SALES OUTSTRIPBLOCKBUSTER FILMSCall of Duty: Modern Warfare 3, thelatest instalment in ActivisionBlizzards hit war-game franchise, hasrealised $1bn-worth of sales in 16days, outpacing blockbuster moviesincluding Avatar and Harry Potter, but marking a slowdown after itsrecord-breaking first week.

FEMINISTS CLAIM VICTORY IN TOYSIGNS FIGHTFeminist groups are claiming victoryin a campaign against gender stereo-typing in Hamleys, the London toyshop, which has changed the signs inits girls and boys toy departments toreflect particular types of toys, ratherthan who should be playing withthem. Blue signs marked Boys hadpreviously directed shoppers to the

fifth floor of its flagship store to buyaction and war-themed toys.

ANGLIAN IS ACCUSED OF PLAYINGMONOPOLY OVER WATER SUPPLIESA planned housing development out-side Milton Keynes has become theunwitting scene of a water industryrow that strikes at the heart of gov-ernment plans to open up the marketto competition. Anglian Water washanded a statement of objections byOfwat yesterday effectively a chargesheet of alleged misdemeanours over a stalled property developmentcalled Fairfields.

RUSSIAN BILLIONAIRE PLAYBOY SEEKSTO CHALLENGE PUTIN FOR PRESIDENCYMikhail Prokhorov, the Russian bil-lionaire, is to stand against VladimirPutin to be the next President ofRussia, he announced yesterday. Thecountrys third-richest man pledgedto gather two million signatures to

qualify for the ballot, declaring: Mybase is the middle class.

FEARS GROW OVER THE FUTURE OF 5,500HIGH STREET SHOPSOne of the UKs largest property com-panies has drawn up a confidentiallist of struggling retailers amid fearsthat more than 5,500 shops in Britaincould be handed back to landlords orclosed within months. The propertycompany is one of a number to haveidentified a collection of retailers suf-fering from poor trading and anothergroup facing liquidity pressures.

MPS' SALARIES COULD BE BOOSTEDWITH ALLOWANCESMPs salaries should be boosted withflat-rate allowances worth tens ofthousands of pounds a year to fundsecond homes and travel, a MPs com-mittee has suggested. The Committeeon Members Expenses also recom-mended that MPs should be given

back the power to scrutinise their ownexpenses.

CANADA PULLS OUT OF KYOTOCLIMATE PACT The Canadian government saidMonday it was formally withdrawingfrom the Kyoto protocol on climatechange-the first country to do so-though it said it would honor a sepa-rate, carbon-reducing agreementreached over the weekend in Durban,South Africa. The move had beentelegraphed by Canadian officials forweeks. Canadas environment minis-ter Peter Kent made the announce-ment yesterday afternoon.

AT&T MAY RECUT T-MOBILE DEAL AT&T and Deutsche Telekom AGedged closer to abandoning AT&Ts$39 billion acquisition of T-MobileUSA in its current form, putting acourt fight with the JusticeDepartment on hold as they focus on

coming up with alternatives to thedeal.

WHAT THE OTHER PAPERS SAY THIS MORNING

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THE London Stock Exchange took totalcontrol of stock index provider FTSEInternational yesterday, by buyingPearsons 50 per cent stake for 450m.

The move cements the LSEs holdover the FTSEs 200,000 indices andglobal, high growth trajectory. It alsoputs it in control of a critical piece oftrading infrastructure as it seeks togrow its derivatives and clearing capa-bilities to compete better against rivalsin Europe and the US.

The LSE is currently also in theprocess of buying clearing houseLCH.Clearnet.

Pearson said the disposal of its halfof FTSE was in line with its strategy tosell out of financial data businessesand grow its presence in news andanalysis instead.

David Lester, the LSEs director ofinformation services, said the deal waspart of the groups diversificationaway from pure equities trading andwould allow the group to create new

benchmarks and tradeable derivativesproducts.

In our view it is a very high growthand high quality asset, he told CityA.M. It grew at 30 per cent in 2010 andthis year we expect it to grow atbeyond 31 per cent.

He said FTSEs growth into globalmarkets was of huge value and the LSE would continue to invest in newindices and data services worldwide.

The LSE will finance the takeoverfrom 100m of cash and 350m ofbank facilities, taking its leverage ratiofrom 1x to 1.6x. THE FORUM: P26

LSE buys FTSEto win controlof key assets HEDGE fund boss Hugh Hendry (pic-tured below) has bucked the gloomafflicting rivals and recorded stellargains on his China short fund.

The charismatic Glaswegian toldCity A.M. the fund had returned 52 percent so far this year. The performancecontrasts with a loss of 4.37 per centfor the average global hedge fund,according to data from Hedge FundResearch.

Hendry has profited by shortingChina amid the global turmoil, despitebeing mocked in 2009 when he postedonline an amateur video in which hewarned of slowing growth in China byhighlighting a series of empty officeblocks and skyscrapers.

Chinese authorities have admittedeconomic growth has slowed from itslong-term double-digit rate to around

nine per cent but some commentatorshave suggested the rate of

slowdown is signifi-cantly greater.

Hendry set up hisfund after workingfor Baillie Giffordand Odey Asset

Management. He isknown for often

taking con-trary posi-tions.

Hendry hedgefund soars asChina slows

BYALISON LOCK

CAPITAL MARKETS

HEDGE FUNDS

News 5CITYA.M. 13 DECEMBER 2011

ANALYSIS l London Stock Exchange Group PLC

p

6 Dec 7 Dec 8 Dec 9 Dec 12 Dec

860

840

820

800

780.0012 Dec

SIMON Robey, Morgan Stanleys

UK chief executive and co-chair ofM&A, advised the London StockExchange on this latest deal.

The LSE is just one of Robeysstar clients, but he has experienceda tough year for dealmaking aspolitical issues have transpired toprevent transactions going ahead.He led the advisory work on theLSEs ill-fated bid for Canadian rivalTMX this year, but the LSE wasforced to walk away after TMXs

Canadian shareholders blocked thedeal. Robey also saw BSkyBspotential takeover by News Corpabandoned after the phone hackingscandal at the News of the World,while his advice to BP on its last-ditch efforts to save its Arctic tie-up with Rosneft foundered ontensions with TNK-BP.

Robey is known as a star atMorgan Stanley, however, and overthe years he has acted for UKchocolate maker Cadbury in its11.5bn sale to US rival Kraft lastJanuary, and on Santanders pur-chase of Abbey National in 2004.

Robey was a choral scholar atMagdalen College, Oxford. He isthe chairman of the Royal OperaHouse and has held a season ticketat Arsenal for more than 20 years.

ADVISERS: MORGAN STANLEY

SIMON ROBEY

UK CHIEF

EXECUTIVE

LSE chief exec Xavier Rolet bought the rest of FTSE Picture: Micha Theiner/CITY A.M

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THE UK will work to repatriate powersfrom the European Union while stillseeking a resolution to the Eurozonecrisis, David Cameron told MPs yester-day, as he robustly defended his deci-sion to veto a new treaty agreement inlast weeks summit.

With deputy PM Nick Clegg conspic-uous in his absence, Cameron stressedthat his actions on Friday preventedthe EU exerting more control over UKfinancial services, and repeated his

stance that he protected our interests.Opposition leader Ed Miliband

attacked Cameron for allowing the UKto be left behind and failing tobuild alliances with other nations,though he failed to say whether hewould have signed the new treaty.

Cameron received warm supportfrom many previously hostileConservative MPs.

But Clegg, who has called the vetobad for Britain, failed to show hisface in the Commons for Cameronsspeech, claiming his presence wouldhave been a distraction.

John Redwood came out as one ofCamerons strongest backers, sayingthe use of the veto had made Britainsposition stronger allowing the PrimeMinister to attack Labours record innegotiations as flimsy. Laying out hishopes for the EUs future, Cameron

explained that markets need morereassurance to prevent a collapse.

Markets want to be assured thatthe firewall is big enough, that bankswill be recapitalised and Greeces crisisis properly dealt with, he told theHouse of Commons.

PM: We willbring powersback from EU

MOODYS has placed eight Spanish banks on review for possible down-grade, in light of a worse than expect-ed economic outlook and exposure toreal estate.

The ratings agency said 21 financialinstitutions have also had their ratingscut after a review of systemic support.

And it warned yesterday that moreEurozone banks and governmentsmay have their credit ratings cut ifthey do not find a solution to the sov-ereign debt crisis soon.

Moodys said the communiqu

issued by European leaders on Fridaycontained little substance.

Risks to the cohesion of theEurozone continue to rise, theagencys report read.

Adverse economic conditions arebecoming more likely the longer anysolution is postponed for, and wouldadd to the already sizeable challengesfacing the authorities coordinationand debt reduction efforts.

Ratings will be revised in the com-ing weeks and months in the absenceof any decisive policy initiatives thatstabilise credit market conditionseffectively.

CBI lashes out at politicalrow over Camerons veto

RECRIMINATIONS over DavidCamerons veto last Friday are under-mining efforts to secure the singlemarket and unnerving businesses, theConfederation of British Industry (CBI)claimed yesterday.

The group stressed that thousandsof jobs rely on trade with Eurozoneeconomies, and so the coalition gov-ernment must re-double its efforts toensure that the UK is not put at an eco-nomic disadvantage.

It is ironic that the focus on theBritish veto has overshadowed thepressing issue of Eurozone stabilitywhich is critical to all British business-

es, said CBI director general JohnCridland.

The reality of this summit is thatsome useful steps were taken on fiscalunity but not enough was done tosecure the Eurozones future, he said.

The CBI is now calling for theEuropean Central Banks position and potential to be a lender of lastresort to governments to be resolved.

The UKs economic future will con-tinue to hang in the balance until ithas been sorted, Cridland continued.

Nonetheless, he acknowledged thatDavid Cameron had responded tolegitimate concerns over otherEuropean leaders proposals.

Spanish banks ondowngrade watch

BY TIMWALLACE

POLITICS

ITALY sold 7bn in one year debt atnear-record highs yesterday, asFridays summit failed to calm mar-ket fears over the weak sovereign.

The yield came in at 5.952 per cent,just below the euro-era high of 6.087per cent paid on a similar issuance inNovember. The sale was covered 1.9times.

Italys issuance was in contrast toHollands. The Dutch governmentpaid a negative yield of 0.007 per centon1.1bn of debt maturing in March,reflecting its safe haven status..

Borrowing coststays high forItalys Monti

EUROZONE

EUROZONE

EUROZONE

World Economy6 CITYA.M. 13 DECEMBER 2011

CITY STILL WITHIN OUR GRASP, SAYS REHN

BRITAINS veto of a new European treaty to tighten fiscal oversight of states will not stopEurope regulating the City, Olli Rehn, the European Unions economic and monetary affairscommissioner, said yesterday. Rehn said the UKs veto was a matter of regret as Europe didnot want it on the sidelines. The European Commission, meanwhile, said yesterday it wouldfund a 100m (84.6m) fund to free up government data for public use. Picture: Reuters

US LAWMAKERS agreed late lastnight to fund the governmentthrough next year, potentially avoid-ing a shutdown that would have fur-ther eroded Congres tatteredreputation ahead of the 2012 elec-tion.

A group of Republican andDemocratic politicians in charge ofgovernment spending agreed onhow to fund crucial governmentfunctions until the current fiscalyear to the end of October 2012, con-gressional aides said.

Politicians are expected to publishthe massive spending bill, alsoknown as the omnibus, today.

The House of Representatives andthe Senate must still vote in favor ofthe spending bill before a temporaryfunding measure expires on Friday.

A Senate panel also said yesterdaythat it had agreed new sanctionsagainst Irans central bank, andfrozen $700m in aid payments toPakistan, in a bid to curtail themovement of explosives intoAfghanistan.

US agrees afunding dealfor next year

US ECONOMY

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Convertible Case

THE FINANCIAL Services Authority(FSA) participated in a mass delusionthat drove markets and underlay aflawed regulatory regime in the run-up to RBSs collapse, the authority con-cluded yesterday in its long-awaitedreport on the collapse of the bank.

The FSA had a tendency to sharethe delusions of the then conventionalconfidence, the report says.

But the regulator also points the fin-ger at RBSs management and at pres-

sure from the previous government.FSA chairman Lord Adair Turner

blamed underlying deficiencies inRBS management, governance andculture for causing bad decisions.

Those mistakes were left unchecked by regulators inadequate scrutinydue to pressure to run a light touchregime, the report suggests.

Ed Balls, now shadow chancellorand then economic secretary to theTreasury, is singled out as keen to pro-mote a lightly resourced regulator.

In particular, under the regime Ballspraised for its efficiency, Turner com-plains that the FSA had just five peopleresponsible for supervising RBS in2007, a job now done by 23 people.

The report also condemns RBSsexecutives for overseeing an aggres-sive expansion of its balance sheet fourfold in four years while havinglittle idea of its capital levels and vul-nerability to high-risk asset classes.

Executives and the board were notsufficiently aware of their exposure,the report says.

As possible remedies, Turner sug-

gests automatically barring directorsof a collapsed bank from futurefinance jobs and beefing up the UKspay rules, already the worlds strictest.

FSA admits itjoined marketmass delusion

Lord Adair Turner blamed underlying deficiencies at RBS management Pic: REUTERS

BY JULIET SAMUEL

BANKING

Taxpayers spent over 25bn bailing out thebank in 2008. It has lost value since then. Its balance sheet expanded fourfold to avalue of 2.4 trillion during 2004-2008. RBSs pre-tax loss in 2008 was over 34bn.

FAST FACTS | RBS

Focus on RBS report8 CITYA.M. 13 DECEMBER 2011

Two lever arch

folders and a CD

the amount of

information given to

RBS by ABN Amro in

April 2007

Words by Peter Edwards

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01:00

25 Nov01:00

24Nov

01:00

28 Nov

01:00

29 Nov

01:00

30Nov

01:00

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05 Dec

01:00

06 Dec

01:00

07 Dec

01:00

08Dec

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01:00

11 Dec13:00

12:00

5,100.0

5,140.0

5,180.0

5,220.0

5,260.0

5,300.0

5,340.0

5,380.0

5,420.0

5,460.0

5,500.0

5,540.0

5,580.0

5,620.0

UK100(25th November

to9thDecember)

5,629.9

0.0%

5,418.3

38.2%

5,353.0

50.0%

5,287.7

61.8%

5,077.4

100.0%

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Focus on RBS report 9CITYA.M. 13 DECEMBER 2011

Regulator also shared investors hubris

M ARKETS are very good attelling us theres a problem like ratings agencies whenits bleeding obvious, FSA

chair Lord Turner opined yesterday.Unfortunately, if there is one thing

the FSAs 450-page report made obvi-

ous yesterday, that adage could justas well apply to regulators.Determined readers of the tome

were treated to a mind-numbingaccount of the back-and-forthbetween RBS and its supervisors.

The picture that emerges is one ofa body constantly playing catch-up, whether it was on liquidity rules,asset values, financial engineering orthe basics, like data collection.

Only with the benefit of hindsightis it clear quite how muddled regula-tors and markets assumptions were:using the modern rulebook RBSwould have recorded a common equi-ty tier one ratio of just 1.97 per centin 2007 (compared to the new mini-

mum of 9.5 per cent for large banks).In order to illustrate the degree towhich supervisors had participatedin the delusions of this time,Turner pointed to a pre-crisis report by international regulators praisingthe stabilising influence of now-hated complex financial instrumentsthat many banks had invested in.

None of this excuses the shoddyjudgements made by RBSs manage-

ment. But it highlights the hubris ofBritains regulatory overhaul, whichassumes that regulators can spotbubbles and deflate them gently.

This new role for regulators ismeant to come with a strengtheningof market discipline, with creditors

forced to take losses if a bank fails.The danger is that amid the cur-rent debt crisis, the latter reform getswatered down, leaving us wholly inthe hands of a muddled regulator.Based on yesterdays report, that ishardly a reassuring prospect.

BOTTOMLINEAnalysis by Juliet Samuel

25.5bnTotalamountinjectedintoRBSbytheUKgovernment

NVESTIGATION OFBANK FAILURE

ANALYSIS l Royal Bank of Scotland Group PLC

p

2006 2007 2008 2009 2010 2011

100

200

300

400

500

600

20.5612 Dec

RBS REPORT: AT A GLANCE

Why publish this report?Last year the FSA caused a public outcryby saying it would take no action againstRBS chief executive Fred Goodwin andothers despite a 17-month investigation.

After pressure from MPs such as AndrewTyrie, it agreed to produce a full report.

Cause of RBS lossesThe FSA said the rapid expansion ofRBS global banking and markets (GBM)division under chairman Johnny Cameronwas behind its huge losses. The marketview that RBS had been visibly aggres-sive in expanding into high risk areasdestroyed confidence, adding to its losses.

Focus on profit, not balance sheetThe FSA cited RBS investors that saidGoodwins pay rewarded earnings growthrather than balance sheet strength. TheFSA said RBS was slow to realise, duringthe course of 2007, that the risk it wasfacing was not only to its annual profittargets, but massively greater andamounting to a major balance sheet hit.

ABN Amro takeover

The FSA has pledged far greater scrutinyof major bank takeovers. RBS did nothave to seek regulatory approval to buyABN Amro but the FSA admits it couldhave blocked the deal by other lessdirect means... if really determined.

Making executives accountableThe FSA wants bank executives to takefewer risks. It suggested making execu-tives strictly liable for the impact of baddecisions to make it easier to fine or banthem after a collapse, or structuring payso they are penalised for poor decisions.But it warned a strict liability basis foraction risked breaching human rights andcould discourage people from top jobs.

Other regulatory reformsThe FSA also proposes wider reforms,including new leverage requirement tomake sure banks focus on leverage as

well as capital ratios. It wants the power

to block hostile bank takeovers, and moreassessment of how far a banks capitalresources depend on minority interests.The FSA also wants to check how bankscalculate their regulatory capital position,

and if a firms shortcomings force the FSAto delay its capital guidance, the require-ments it sets in the interim will betougher than normal.

Amending past mistakesThe regulator has belatedly beefed up itssupervision of RBS from just six people inAugust 2007 to 23 today. It says itssupervision regime has been radicallytransformed with a greater focus oncapital, liquidity and asset quality.

Whos to blameThe previous government, RBS executivemanagement and board and the FSAitself all shared the blame for the bankscollapse. The FSA shared the delusionsof the conventional confidence of thetime, it admitted.

Labour light touch regulationThe regulator said if it had suggested

tougher oversight of banks before the cri-sis, there would have been extensivecomplaints that the FSA was pursuinga heavy-handed, gold-plating approachwhich would harm Londons competitive-ness. It quotes Ed Balls, then economicsecretary to the Treasury, endorsing lightregulation and then chancellor GordonBrown opposing intrusive oversight.

Why there were no sanctionsagainst Fred Goodwin and others

There was not enough evidence to bringGoodwin or others from RBS either tocourt or a tribunal, the FSA said, as RBSfailure did not automatically make itschief executive personally liable. The FSAwould have to prove a particular execu-tive was incompetent, dishonest or lackedintegrity. RBS executives made manypoor decisions, but the errors were not

enough to take action.

On management failures:RBS management and board

undoubtedly made many decisions which,

at least in retrospect, were poor

On the ABN Amro acquisition:

the board decided to go ahead with it on

the basis of due diligence which was clearly

inadequate relative to the risks entailed

On regulatory supervision: The key prudential

regulations being applied by the FSA, and by

other regulatory authorities across the

world, were dangerously inadequate

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THE CITY regulator has vowed to getdeeply into the guts of any futurefinancial services takeover on the scaleof Royal Bank of Scotlands acquisitionof ABN Amro.

Chairman Lord Turner said theFinancial Services Authority wouldtake a far more proactive approachtoday to the 71bn (47bn) takeover ofthe Dutch bank, led by RBS with Fortisand Santander in 2007.

Now we would be deeply into theguts of whether we were going to letyou publish details of a bid, Turnersaid yesterday at a briefing.

He spoke out after the FSA made aseries of damning criticisms of FredGoodwins mega-deal. The report high-lighted RBS limited due diligence,which amounted to little more thantwo lever arch files and a CD.

Turner used his foreword to call forregulators to be required to giveapproval for major bank deals becausesociety has an interest in the majorrisks which banks take, not just man-agement, board and shareholders.

The main report also contains a

series of detailed criticisms of how thedeal, a misjudgement with cata-

strophic consequences, would hitRBS capital base and the confidenceof the market.

The decision to fund the acquisi-tion primarily with debt, the majorityof which was short-term, rather thanequity eroded RBSs capital adequacyand increased its reliance on short-term wholesale funding. The acquisi-

tion significantly increased RBSsexposure to structured credit andother asset classes on which large loss-es were subsequently taken.

Two years later Sir Philip Hampton,who took over from Sir Tom McKillopas chairman, described the ABN Amrodeal as the wrong price, the wrongway to pay, at the wrong time and thewrong deal.

It falls to Johnny Cameron, however,the former investment banking chief,to explain how the 21bn takeover ofNatWest in 2000 left the board over-confident about its ability to pull-offtransformative deals.

I think that lulled us into a sense ofcomplacency... The fact is that theacquisition of ABN was also hostile. Wegot bits and pieces of information butfundamentally it was hostile. Theresthis issue of did we do sufficient duediligence[?] Absolutely not. We were

not able to do due diligence that waspart of doing a hostile acquisition.

FSA vows norepeat of ABNAmro fiascoBY PETER EDWARDS

BANKING

Focus on RBS report10 CITYA.M. 13 DECEMBER 2011

RBS: WHO TAKES THE BLAME?

Sir Fred Goodwin

The FSA had harboured worriesabout Fred the Shreds internaldominance as far back as 2003.It criticised the ABN Amro deal,his brainchild, as a gamble anddismissed the due diligence car-

ried out as little more than twolever arch folders and a CD.Goodwins relationship with theFSA slumped to the extent thata clear the air meeting was arranged with the regulatorssupervision director in October 2004. Conditions appear tohave worsened by 2006, however, when the then RBS chair-man Sir George Mathewson added a clause to Goodwins for-mal performance objectives demanding he improve the banksrelationship with the FSA.

Hector Sants

The FSA, led by Sants, heaps blame on itself for variously placing alow priority on liquidity supervision, failing to carry out detailed testson the effect of the ABN Amro deal on RBS capital and liquidity lev-els, assuming that markets were inherently stable and succumbingto political pressures for light touch regulation.Lord Turner, chairman of the regulator, also highlights deficiencies inthe global system of financial regulation which increased the likeli-hood of a systemic crisis. The FSA has introduced widespreadreforms, however, and Turner defends its controversial decision not to

take enforcement action, saying mistakes in commercial judgementare not subject to sanctions and not with the benefit of hindsight.

Gordon Brown

Not so much the Iron Chancellor asthe man who couldnt say no totax receipts created by the bub-ble. The report says a sus-tained political emphasis onthe need for the FSA to be

light touch and the needfor Britains financial servic-es to remain competitiveglobally helped create theclimate for RBSs growth. Italso describes Browns desireto avoid unnecessarilyrestrictive and intrusive regu-lation and highlights the role ofhis adviser, Ed Balls.

Sir Tom McKillop

The FSA suggests theboard of RBS, led byMcKillop, failed ade-quately to challengeRBSs focus on increas-

ing revenue, assets

and earnings pershare when it

should have paidattention to cap-

ital and liquidity levels. The report said thekey discussions over the doomed acquisi-tion of ABN Amro were held in board meet-ings and the chairmans committee but the

outcome of the decisions over ABN, it hardlyneeds to be said, were dramatically negative.

Johnny Cameron

He admitted the relatively smoothacquisition of NatWest had lulledus into a sense of complacencyaround further hostile takeovers,such as the deal for ABN Amro.Losses racked up by Camerons

global banking and markets divisioneroded RBSs capital base and under-mined confidence. GBM is also criti-cised for the decision to aggressivelyexpand structured credit and lever-aged finance which exacerbatedlosses. Previously faced an FSA inquiryafter which he agreed not to take onany full-time jobs in the City, althoughhe did not admit any guilt.

Matthew Greenburgh

Goodwins favourite adviser, who retired from Bank of AmericaMerrill Lynch last year, does not even merit a mention in the FSAreport. Although he worked on a series of major deals in an oftensuccessful 28-year career in the City, he became known as one ofthe architects of RBS disastrous takeover of ABN Amro, alongsideFortis and Santander. He also worked on Lloyds takeover of HBOSin 2009, which increased its exposure to bad debt. After leavingBoA he said he would consider taking a PhD in English Literature.

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VIRGIN Atlantic has muscled into theauction for BMI, a month after British

Airways parent IAG agreed to buy theairline.

Lufthansa, which owns BMI, said yes-terday it has also reached an agreementin principle to sell the carrier Virgin,stressing that its deal with IAG had not

been exclusive.Virgin, which has shown interest in

BMI since it was put on the block inSeptember, is thought to have made a

bid worth much less than IAGs.But the firm hopes its smaller market

share would make its offer morestraightforward in the eyes of regula-tors. Virgin hit out against BA andIberias merger on competition grounds.

BMI controls around nine per cent ofthe landing slots at close-to-capacityHeathrow, while Virgin has just threeper cent. Lufthansa hopes to complete asale early next year.

TIME Warner has revised its bidfor the debt-ridden televisionproduction company Endemol,restating its previous proposal of1bn (859m) as an all-cashoffer.

This comes amid talks of debtrestructuring at the Dutch com-pany behind Big Brother and Dealor No Deal, which has racked up2.8bn of debt.

It is expected that Endemolslenders will reject Time Warners

bid as it currently stands, votingin favour of the debt restructurethat will see creditors reduce thedebt significantly to about500m in return for equity.

Endemols creditors includeGoldman Sachs, RBS, Apollo,Centrebridge, Barclays, and theLehman Brothers estate.

A spokesman for Endemol,Charles Armitstead, said: Thepreferred route is to continue toreach an agreement with thelenders rather than consider anyoffers from Time Warner, orindeed anybody else.

Were confident that an agree-ment that puts the company backon a strong financial footing isimminent.

Keith Cocozza, Time Warnersspokesman, refused to comment.

Cash bid forEndemol inface of debtBY LAUREN DAVIDSON

MEDIA


BEHIND THE SCENES AT ENDEMOL

Q.WHAT IS TIME WARNERHOPING TO ACHIEVE?A.Time Warner has turned itseyes to Europe: of the compa-nys 20 deals in the last few years,about 80 per cent have been out-side the US. Endemols deadline forsorting out its finances is today, sothis is an opportune time for Time

Warner to make its move.

Q.HOW HAS ENDEMOLRESPONDED TO TIMEWARNERS APPROACH?

A.It says the revised offer doesnot really change anything.Endemols negotiations withlenders have been going on forabout a year, and the far more

likely option, according to one

source, is that the bid will not beaccepted.

Q.WHY DOES ENDEMOLS DEBTNEED RESTRUCTURING?A.Endemol is currently2.8bn indebt. When the TV company

was acquired by Goldman Sachs,Mediacinco and Cyrte in May 2007,these companies raised the debtfinancing. Endemol has struggledto meet the required interest pay-ments, partly because the enter-tainment industry has taken a hitlately. The company has been indiscussion with its creditors for a

year or so about revising its capitalstructure to avoid the breaching ofloan covenants. A waiver was

extended last month, which

expires today.

Q.WHAT WILL THE DEBTRESTRUCTURE IN VOLVE?A.The existing debt is expectedto be written down significant-ly and in return the lenders willreceive equity in the business. This

will require two thirds of thelenders support to go through.Endemols loan covenants will berevised and it will be left with asmaller amount of debt to service.

Q.WHAT WILL HAPPEN NEXT?

A.It is likely that Time Warnersbid will not be successful andthe lenders will write Endemols

debt down to around 500m.

PETER

MARSHALL

CO-HEAD OF

EUROPEAN

RESTRUCTURING

ANALYSIS l Time Warner Inc

$


34.80

35.00

34.60

34.40

34.20

34.00

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Virgin wadesback into thefight for BMI

Houlihan Lokey is advising Endemolthrough its debt restructuring processand will be on call to offer its adviceon Time Warners revised bid.

Leading the team is Peter Marshall,a managing director at HoulihanLokey and co-head of the firmsEuropean restructuring department.A specialist in corporate restructuringand turnaround, he has experience incomplex cross-border transactions, soshould be well-equipped to adviseEndemol in this case.

Marshalls previous clients includeGate Gourmet, Welcome BreakGroup, 20:20 Mobile Group and JVHGaming.

He is joined by Gijs de Reuver, adirector at Houlihan Lokey. Formerlyvice president of Houlihan LokeyHoward & Zukin and an executivedirector of Goldman Sachs, de Reuverfocuses on financial restructuring.

Endemols creditors, which includeGoldman Sachs, RBS, Apollo,Centrebridge, Barclays and theLehman Brothers estate, are beingadvised by Rothschild.

Charles Armitstead is managingEndemols communications in thiscase. He recently left FTI Consultingto work for PendomerCommunications.

Big Brother contestantPamela Anderson.Programme creatorEndemol, led by presidentMarco Bassetti (inset), is2.8bn in debt

Picture: REX

QA&

BYMARION DAKERS

TRANSPORT

ADVISERS:

HOULIHAN LOKEY

Intel sales hitby Thai harddrive drought

SHARES in US chip maker Intel fellmore than four per cent in trading yes-terday as it warned that supply short-ages of computer hard drives caused byfloods in Thailand would hurt its rev-enue in the current quarter.

More than 600 people have died inthe flooding, which has caused billionsof dollars in damages since July and dis-rupted international supply chains inthe PC and automobile industries.

In the last two weeks, as the supplybecame more apparent, we saw a sub-stantial change in our order rate. Mostof our customers are concerned theshortage will continue especiallythrough the early part of the first quar-ter, said Intels senior vice president

Tom Kilroy on a conference call.Intel said customers were reducing

their stock of chips in anticipation ofthe hard drive shortage continuingearly next year.

BYALISON LOCK

TECHNOLOGY

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NEWS | IN BRIEF

Carrefour launches bid for G&GCarrefour, the worlds second-largestretailer, said yesterday it was offering tobuy Guyenne et Gascogne, in a cash bidworth 494m (418m) to secure its rela-tionship with its largest French fran-

chisee. The supervisory board of Guyenneet Gascogne has approved the proposedtransaction, which includes an option tobe paid in Carrefour shares, the two com-panies said in separate statements.

Battersea Power Station foldsBattersea Power Station was put intoadministration yesterday after its ownerfailed to repay it creditors 324m of debt.Irish developer Real Estate Opportunitieshad been seeking a new investor to repay

the debts and fund a 5.5bn regenerationscheme. A High Court ruling yesterdayconfirmed Ernst & Young as administratorsa move set to attract property investorshoping to develop the station.

The Citys Takeover Panel needs to get a grip

WHEN Omega Insurancedecided five years ago toredomicile to Bermuda, I

would think it unlikely that

many shareholders gave muchthought to how the company would

be regulated from here on in, specifi-cally in regard to being within theremit of the Citys Takeover Panel.

But in the past few days many ofthem have had cause to reconsiderthe implications of that move.

Omega has been in the throes oflengthy takeover discussions andrecently appeared to be on the way toagreeing a deal that would see thegroup effectively in the control ofMark Byrne, an insurance entrepre-neur who also happens to be the god-son of Warren Buffett.

Byrne, with the encouragement of

the groups board, put in an offer forup to 25 per cent of Omegas shares.His offer, on which he was advised byCiti, was an unusual reverse tender

which envisaged him paying up for

shares in a price range. The moreinvestors agreed to sell at a lowerprice, the less he would have to pay.

Sources close to the deal say thatCiti gave Byrne confidence that he

would be able to buy the majority ofthe shares at the low end of therange. But the tender actually fin-ished with virtually all shareholdersagreeing to sell shares only at the topend.

Just before the offer closed, Byrne

let it be known that his offer was setto lapse because it had all along beenconditional on various regulatoryclearance being given, which had not

been completed.

Shareholders are now in a mess.One top ten shareholder says thewhole thing is a farce. Were waitingto hear back from the company butits been 12 months now sinceOmega first announced it had had atakeover approach and were still

waiting for something to happen.Bankers close to the deal are con-

vinced that this impasse would nothave happened if Panel rules hadapplied and the Panel had been able

to bang heads together. They worrythat other companies such as HardyUnderwriting (also the subject of a

bid) have redomiciled.The Panel should surely consider a

change in its remit so that all UK-list-ed companies come within itspurview.

At the moment its view seems to be that youre either in or youreout, and that shareholders in com-panies that change their domicileknow the risks.

While that may be so, UK financialmarkets can do without too manymore Omega Insurances.

[email protected]

INSIDE TRACK

DAVID HELLIER

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pitality but if guests expect Hixssignature British style at his latest

opening, then think again. Wevehad fun with the menu and aregoing off-piste, said Hix.

CASINO BANKINGRUMOURS circulated that DanielStewart had bankrolled a third roundof quantitative easing, securing alicence to print money at itsChristmas party at Harrys Bar onIronmonger Lane.

The firm even let guests speculatethat the banknotes at the roulettetable were fakes, funded by Chineseinvestment firm Jade Investments.

The money was NOT real,stressed a spinner. It was fakemoney with Marilyn Money [written]on it, as the theme was Hollywood.

With hindsight, the Elvis imperson-ator was a giveaway as enjoyed byDavid Newton of the Helium SpecialSituations fund, over from Monaco forthe occasion, and Daniel Stewartschairman and chief executive PeterShea and consultant Adam Wilson.

FEEDING THE 5,000BUSINESS is booming at Pret AManger, the sandwichand coffee companymajority-owned byprivate equityfirm Bridgepoint.

So while otherfirms are scalingback on corporateentertainment,the chain stillthrows bothsummer andChristmas eventsfor its 5,000 staff,the latest lastSaturday at theHAC ArtilleryGarden.

The food, howev-er, was not thatgreat, according toone guest. Perhaps

Pret a Managershould have served its

own products even if only thefamous porridge, credited with help-

ing the company hit its 37 per centrise in core earnings last year.

END OF THE AFFAIRNO STONE was left unturned when journalists yesterday quizzed FSAchairman Lord Adair Turner at thepress call to release the report on whyRBS failed. Not even whether thealleged affair by the banks formerCEO Sir Fred Goodwin affected hisconcentration on the job in hand, asone newspaper reporter queried.

We found out who this personwas, said Turner, to sniggers fromthe room. If this person had been achief risk officer, there might havebeen concerns. Did we go back andwork out precisely how focused onthe job Fred was? No.

LUCK OF THE DRAWSAY WHAT you like about bankers, atleast they know how to run a simplecharity raffle. Or do they?

The Capitalist hears that one 30-something investment banker man-aged to sell both the raffle ticket andthe counterfoil at a City firms recentChristmas drinks, meaning he madetwice the money but the punter hadzero chance of winning.

Sound familiar? Its no surprisethe City is in so much trouble when you have people who dont evenunderstand how a raffle works run-ning the banks, said a mole.

GOING DUTCHKELLY Rowland is big in Saturdaynight television, as a judge on the X

Factor. And now the ex-Destinys

Child singer is big in expensivewatches, as the face of TW Steel,the Dutch watchmaker known

for its oversized timepieces. The partnership w

unveiled at a party at The Box, the Soho burlesque

favoured by Icapsexcitable traders,and special edi-tion KellyRowland watch-es will follow in2012, assures TW Stechief executiveJordy Cobelens(pictured left

with Rowland).Perhaps pre-sumptuously,he added: I

know theyll be ahuge success.

EXPECT THE UNEXPECTED AS MARKHIX MOVES INTO BELGRAVES HOTELTHE RUMOURS have been swirlingaround the leisure industry formonths, and Thompson Hotels yes-terday confirmed that chef MarkHix will run the restaurant and barat its new hotel launch Belgraves,due to open in January.

The 80-seat Hix Belgravia, thechefs fourth restaurant, will offer amenu inspired by his travels aroundthe world, while Marks Bar, his sec-

ond after the Soho original, willcontain a cigar garden and art- works commissioned from artistMat Collishaw.

Belgraves, located on CheshamPlace behind Sloane Square, is thefirst transatlantic opening fromThompson Hotels, the New York andLos Angeles-focused group owned by brothers Larry, Jason and MichaelPomeranc and Stephen Brandman.

The 85-room hotel is a joint ven-ture with the Harilela Group, theHong Kong-based family-owned hos-pitality empire led by Dr HariHarilela, an adviser to the Chinesegovernment, with interior design byTara Bernerd and EPR Architects tomake the hotel a second home forLondons business leaders.

Jason Pomeranc has said he isinspired by traditional British hos-

Chef Mark Hix has had fun with the menu for Hix Belgravia at Belgraves hotel

Elvis performed to Daniel Stewarts guests

The Capitalist18 CITYA.M. 13 DECEMBER 2011

EDITED BY

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

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IMPACT ONTHE WEST

Some of Americas most iconicmoments and symbols The BostonTea Party, and The Stars and Stripes -stem from its history with The EastIndia Company.

In December 1773, American colonistsstole aboard ships and dumped 342crates of East India Company tea intoBoston harbour to protest taxation.The act became a rallying point for

what would become The War for American Independence, changingthe course of history. Today, The EastIndia Companys Boston Tea Partyblend, based on the original teas sent byThe East India Company to America,allows you to enjoy fine tea free of anytaxing troubles.

And, the US Flag is said to be based onthe original East India Company flag.

With alternating red and white stripes,the similarity is undeniable.

T H E E A ST INDIA C O M PA NYintroduced tea to Britain and India,spices to the West Indies, and porcelainto Russia. The Company held Napoleoncaptive in St. Helena and its tiny spiceisland, Pulo Run, was later exchangedfor Manhattan.

Granted a Royal Charter by QueenElizabeth I in 1600, The Companymapped trade routes, discovered exoticgoods, and established trading ports

which would grow into the cities ofSingapore, Hong Kong, and Mumbai.

Food lovers will delight at the fineselections, exotic tastes, and rich

flavours from around the world.

THE JOY OF CHOCOLATE

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TRADE, THE W RLD ANDTHE EAST INDIA COMPANY

INFLUENCES FROMTHE EAST

THE GREAT EXHIBITION took placein 1851 in Hyde Park, London. As thefirst of many World Fairs to come, it washeld for Britain to show its expertiseand leadership on a world scale. Heldin a structure called The Cr ystal Palace,one of the main features was The EastIndia Companys exhibit on India.

The highlight of the Great Exhibition was the Koh-I-Noor, the infamousdiamond from India, brought over byThe Company. They used The Exhibi-tion to prove the benefits of therelationship with India, creating adisplay of Indian materials, art andculture bar none, dazzling and impress-ing this worldwide audience.

Various artefacts from The GreatExhibition were used to create the

V&As first collection, and profits fromthe show enabled the purchase of landnear Hyde Park in South Kensington,

where the V&A was developed, in

addition to the Natural HistoryMuseum, and the Science Museum.

LAST MINUTECHRISTMAS IDEAS

COMPUTER chip manufacturer CSRwas the highest riser in the FTSE 250 yesterday after the companyannounced its intent to pull out of itsloss-making digital television and sili-con tuner businesses.

Shares rose by as much as 15 percent before closing up 10 per cent at183p.

The move, which will save the chipdeveloper $60m (38m) a year in oper-ational costs, is part of a plan to focus

on areas where the company has astronger market presence.

CSR will axe 400 jobs mainly out-side the UK as a result of this clo-sure, incurring an additional $10m inrestructuring costs by the end of thefirst half of 2012.

This comes after the firm cut 400jobs this summer as the Cambridge-based company acquired Zoran, theUS image technology group, for300m.

Joep van Beurden, chief executiveofficer of CSR, said: The actions wehave announced today will allow us toincrease our focus on the areas of thebusiness that offer the best prospectsfor delivering sustained and prof-itable growth.

CSR will continue to support its cur-rent products in the closed sectors,but will stop developing new models.

Fourth quarter 2011 revenues areexpected to be in line with previousguidance, in the range of $230m to$250m.

CSR cuts offloss-makingdigital arm CSRs chief exec Joep van Beurden says the firm will focus on areas of profitable growthBY LAUREN DAVIDSON

TECHNOLOGY

NewsCITYA.M. 13 DECEMBER 2011 19

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

CITY VIEWS: WHAT ARE THE MOST DESIRABLETECH ITEMS THIS CHRISTMAS? Interviews by Kasmira Jefford

KENNY BHATTIEGLIN HOLDINGS

MICHELLE OCONNELLINVESTMENT SOLUTIONS

I will be looking to buyApple products like theMac book pro or the LEDcinema display, which isbetter to work with and

watch films. I amalso waiting forApple aroundFebruary torelease itstelevi-sion.

In terms of whether I ambuying them for other peo-ple this Christmas, I wouldsay no, because most peo-ple I know have got the

gadgets they need. Thoseinto their gadg-ets are waitingfor the next bigthing to comeout likethe iPad.

ANALYSIS l CSR

p


185

190

195

200

180

175

170

165

183.1012 Dec

NEWS | IN BRIEF

OFT tobacco fines overturnedImperial Tobacco and several leadingretailers have won a court battle to over-turn record fines imposed by the Office ofFair Trading (OFT) over allegations ofunlawful pricing. A fine of 112.3m hand-ed down to Imperial Tobacco last yearwas reversed, while Morrisons, Asda, Co-

Op and Shell also had cases against themoverturned by the Competition AppealTribunal. The original tribunal related topromotional deals between Imperial andthe retailers in 2000-03, and resulted in arecord total fine of 225m after the OFTalleged unlawful pricing deals.

Thyssen sells superyacht businessThyssenKrupp has sold its Blohm + Vosssuperyacht and two other marine units toBritish buyout firm Star Capital, in a dealworth up to 150m, as the German steel-maker focuses instead on building militaryvessels. The sale is part of the companys10bn divestment plan begun this year tolower its debt, including a spin-off of itsstainless steel division. Among Blohm +Vosss superyachts, the biggest by far wasRoman Abramovichs Eclipse, a 557-footerequipped with two heli-pads, a pool and amissile-detection system.

Martin Marietta bids for VulcanConstruction aggregates maker MartinMarietta Materials has made an unsolicit-ed $5bn offer to buy larger rival VulcanMaterials in stock, in a bid to create theglobal leader in the industry. The compa-nies began considering a deal more than ayear and a half ago, but Vulcan broke offtalks in recent months. CJS Securitiesanalyst Arnold Ursaner said the dealmakes sense because of the synergies itoffers, but that Vulcan may reject it.

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SHARES in Areva Frances state-ownednuclear energy company were sus-pended in Paris yesterday after lossesassociated with the Fukushima crisisin Japan took their toll.

The nuclear reactor maker had beenexpected to take heavy writedownsrelated to cancellation of orders.

The declining value of UraMin, aCanadian uranium miner bought byAreva in 2007 for1.9bn (1.6bn), wasalso taking its toll.

French industry minister EricBesson sounded the alarm at the week-end, indicating that Areva was on theropes. The French state owns 87 percent of the company.

Chief executive Luc Oursel met withthe companys board yesterday to ham-mer out restructuring plans whichinclude job cuts in its internationaloperations.

The firm plans to write off2.36bnfrom its accounts this year and expectsan operating loss for 2011.

Areva said it had asked for the sus-pension shortly before the marketopened yesterday. The NYSE Euronextstock market operator immediatelysuspended trading.

Areva is a world leader in the field ofnuclear energy facilities, but the out-look for the sector has been heavily

clouded by a switch in sentiment awayfrom nuclear energy in some coun-tries, notably in Germany, in light ofthe disaster at Fukushima in Japan.

The group faces a huge exceptionalcharge that will push it into a loss forthe first time in 10 years.

UraMin was sold to Areva just two years after it joined Londons juniorstock market with a 120m marketvalue. The French government backedthe firms decision at the time.

The huge spike in its value in 2007reflected a $138 a pound price tag foruranium at the time at the time

because of upbeat outlooks on thefuture of nuclear reactors.

However, uranium is now priced atless than $60 a pound as theFukushima events have led severalstates to decide that nuclear power isno longer an option for their powerproduction.

UK-LISTED explorer GulfsandsPetroleum and Chinese companySinochem have shut down their oiloperations in Syria followingEuropean Union sanctions related tothe crackdown on the uprisingagainst the rule of President Basharal-Assad, Gulfsands said.

Although China has resisted sanc-tions on Syria, Sinochem is bound byEU sanctions since it bought its inter-est in the Syrian fields by taking over

UK-listed Emerald Energy, through which it still owns the assets, aGulfsands spokesman said.

Syrian state-controlled GeneralPetroleum Corporation (GPC) willcontinue to produce oil from thefields, in exploration block 26. Analysts said the further develop-ment of the block would be delayed.

The Syrian fields are the only cash-generating assets Gulfsands owns,but a spokesman said it had $120mon the balance sheet and no debt.

Gulfsands shares dropped 8.7 percent to 170p yesterday.

Areva haltstrading overnuclear lossBY JOHN DUNNE

INDUSTRY

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BP is over the worst phase of itsproblems after the Gulf of Mexicooil spill, chairman Carl-HenricSvanberg (right) claimed yester-day, clearing the way for him tolead the board at world numbertwo truck maker Volvo.

The Volvo nomination commit-tee said in a statement it had

backed Svanberg to head theboard at Volvo. Svanberg has beenchairman of BP since January2010.

Svanberg, who had to apologisefor referring to those hurt by the

April 2010 oil spill as small peo-ple, said that his working weekat BP was about two to three days.

We are no longer in the acutecrisis phase of the oil spill situa-tion, he said, adding that most ofthe work now was related todealing with compensa-tion issues.

But he said his ambitionwas to leave the board ofmobile network gear maker

Ericsson, where he is a direc-tor and where, from2003 until 2009,he was presidentand chief execu-tive.

I think that he should be ableto handle these two jobs [at BPand Volvo], but not anything else.One of the most important thingsis that the nomination committeehas taken up the question ofwhether he can handle both posi-

tions, said Helena Levander,head of Nordic InvestorServices, which offers adviceand analysis on corporate gover-nance issues.

In a Swedish merry-go-round, Volvos former chiefexecutive officer, LeifOlofsson, becamechairman of Ericssonearlier in the year.

Svanberg plans to keep BP chairas he takes on new role at Volvo

BYHARRY BANKS

MANUFACTURING

E.ON lowersprofit rangeon charges

GERMAN utility group E.ON will bear a3bn (2.6bn) charge in its2011 accounts as large Eurozonecountries such as Spain and Italyintervened to lower prices, it said yes-terday.

E.ON, the worlds biggest utilitycompany by sales, said the chargewould damage its overall net profits,and lowered the top end of its profitrange to 2.5bn from 2.6bn.

Net profit is now expected to bewithin the range of2.1-2.5bn, whileits adjusted earnings before interest,tax, depreciation and amortisationin 2011 is expected to be between9.1-9.3bn. It had previously forecastadjusted Ebitda of up to 9.8bn.

The company said the biggestchunk of the charges, 2.1bn, weredue to a pessimistic outlook for long-term power prices in Spain and Italy,as well as reduced load hours for gasand coal power plants in those coun-tries.

In addition, lower than expectedvolume and margin assumptions forsome of E.ONs Eastern Europeanspread generation assets in Hungaryand Slovakia trigger an impairmentof0.4bn. In central Europe, mainlyin Benelux, impairments amount to0.5bn, it said.

Along with peer RWE, E.ON is cur-rently suffering from the falloutfrom Germanys decision to exitnuclear power, leading to shrinkingprofits, massive job cuts as well as anasset disposal programme.

BYALISON LOCK

ENERGY

NEWS | IN BRIEF

Cosalt chair talks up his offerCosalt chairman David Ross has writ-ten to investors urging them to accepthis offer to buy their shares in theembattled firm. Ross, who wants tode-list the company, has made a400,000 offer for the marine safetyequipment provider Cosalt. CarphoneWarehouse founder Ross said in theletter, published yesterday: Without asufficient inflow of finance into thebusiness, the companys whole future

is at stake and its options are extreme-ly limited. Shareholders have until 20

December to accept his controversialoffer of 0.1p per share.

Xcite looks to appease investorsXcite Energy said yesterday a viableand more financially efficient meansof commercialising the Bentley NorthSea oil field was being investigated,after shareholders had expressed con-cerns over an apparent lack ofprogress. The department of energyand climate change must first sign-off

the Bentley field development plan.Xcites shares fell 4.8 per cent.

Essar execs charged with fraudIndia's federal police yesterday filedfraud charges against five executivesat Essar Group the parent companyof London-listed Essar Energy andLoop Telecom, as part of a sprawlingprobe into a multi-billion-dollar tele-coms case. Fraud and criminal conspir-acy charges have been filed againstbillionaire Ravi Ruia, vice chairman ofEssar Energy, and his brotherAnshuman Ruia. The firm denied all

charges in a statement, adding that itwould take legal recourse.


Gulfsands shuts down itsSyria project amid unrestBYHARRY BANKS

ENERGY

Gulfsands is pulling out of Syria in the wake of European Union sanctions

TURKEY

IRAQ

SYRIA

OilPip

eline

BLOCK 26

3D

Seismic

Taramish 3D

0 30km

ANALYSIS l Areva SA


21.50

20.50

21.25

20.25

21.00

20.75

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SHARES in CPP Group plunged bynearly a sixth yesterday after the cred-it card insurer said a regulatory probe

would drag down profits.Its stock closed at 117p last night,

down 15.83 per cent, 21 months afterlisting at 235p. The group said it doesnot know how long the FinancialServices Authority will spend on aninvestigation into the way it sold pro-tection against identity theft, or thelikely outcome. The inquiry, openedin March, is having a materialimpact on its UK sales.

CPP said it expects organic revenue

growth to be in line with expecta-tions at around six per cent in 2011.

Underlying group operating profitin 2012, however, is likely to be signif-icantly lower than 2011 due to the

impact of lower sales this year, andincreased regulatory costs and eco-nomic pressures in southern Europe.

The transition to a new IdentityProtection product has meant lostsales opportunities and this, com-

bined with challenging trading con-ditions in Southern Europe, willimpact the business in the nearterm, the company said.

CPP shares slumpon profit warning

and probe worriesBY PETER EDWARDS

INSURANCE


NEWS | IN BRIEF

Train stations to house officesWorkers struggling to get to the officeduring the Olympics will be able to workfrom train stations through a new ven-ture by Network Rail. The 40m move,made in conjunction with The OfficeGroup, will see flexible office spacespring up at five London stations. The

first drop-in hub, which should be readyby mid-2012, will accommodate up to250 people in a range of flexible officesizes at Paddington Station.

Centaur Media in new VentureCentaur Media, the business informa-tion and events group, has acquiredVenture Business Research (VBR), aspecialist digital data and analyticsbusiness in the clean energy and globalsecurity sectors, for a maximum pay-ment of 7.5m. The cash considerationcomprises an initial payment of 2.5mat completion and a further payment,subject to VBR's performance in theyear to 30 June 2015.

Mac App Store passes 100m markApple yesterday said it has passed100m downloads from its Mac AppStore the version of its online shopinstalled on its range of laptop and desk-

top computers in less than a year.Apples main app store has more than500,000 apps and more than 18bn cus-tomer downloads, with the total grow-ing at more than 1bn a month.

SWISS Re said yesterday chief execu-tive Stefan Lippe (pictured) will takeearly retirement after roughly three

years at the helm, in a surprise movethat analysts said added a new ele-ment of uncertainty to a company

which Lippe had helped stabilise.No reason was given for the depar-

ture, which Swiss Re said would takeeffect next year. Some analysts sawreinsurance chief ChristianMumenthaler as likely successor, butSwiss Re said it will also look outsidefor candidates for the position.

The 56-year-old Lippe informed theZurich-based firms board over the

weekend of his decision, a Swiss Respokesman said. In a statement, Lippecited the turnaround of the reinsureras the appropriate time to step down.

The board of directors very muchregrets Stefan Lippes decision toretire early after almost threedecades at Swiss Re, chairman

Walter Kielholz said. A successorwill be appointed soon, SwissRe said.

Analysts saidthe departure wasa note of uncer-tainty at SwissRe after Lippeushered in anera of greaterstability fol-

lowing a push to take more risk underhis predecessor, Jacques Aigrain.

Lippes main achievement wassteadying Swiss Re after it lost its AArating in 2009 when risky invest-

ments jeopardised its capital base, prompting a SwFr3bn

(2.05bn) loan from WarrenBuffetts Berkshire Hathaway.

Swiss Re repaid the Buffettloan late last year

and in Octoberwon backing fromratings agencyStandard & Poors, which lifted its

credit rating forthe reinsurer toAA- from A+.

Lippe plans to retireearly from Swiss ReBY HARRY BANKS

INSURANCE

BAA reported a slowdown in the num-ber of passengers visiting its airportslast month after Londons biggest air-port Heathrow was impacted by pub-lic sector strike action.

The airports operator said passengernumbers at Heathrow fell 0.5 per centto 5.2 m, compared with the sametime last year. An estimated 50,000fewer passengers flew after airlinesreduced load factors in preparation

for the strike.The number of travellers on domes-

tic flights tumbled by 12.3 per centyear-on-year meaning passengers weredown even after the impact of theBorder Agency strike on 30 November

was taken into account.This sustained domestic decline

reflects the UK regions being progres-sively cut off from the UKs only hubairport by a lack of capacity atHeathrow, BAA claimed.

In total, the company said its air-ports, which also include Stansted,Glasgow and Aberdeen, handled BA Asairports handled 7.8m passengers,

down 0.9 per cent on the previousyear.

BY KASMIRA JEFFORD

TRANSPORT

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www.cityam.com

ANALYSIS l CPPGroup

p

7 Dec 8 Dec 9 Dec 12 Dec

140

150

160

130

120

110

117.0012 Dec

Chief exec Paul Stobart faces a challenge in restoring investor confidence in CPP

ANALYST VIEWS: WILL CPP GROUP RECOVERAFTER A WEAK PERFORMANCE? Interviews by Peter Edwards

HENRY CARVER | PEEL HUNT

The FSA investigation remains un-resolved and the UK business is stillmaterially impeded....Our estimates and recommendation remain under review.

ALEX HUGH | UBS

We think new income has worsened in Q4 to date due to card protectionbeing a more mature product, and Spain having deteriorated further.

HUGO MILLS | CITI

Short term the shares continue to be driven less by fundamentals and moreby uncertainty around the outcome from the FSA investigation.

TORONTO-LISTED Chinese forestryfirm Sino-Forest is further delayingthe release of its third-quarter finan-cial results until unnamed outstand-ing issues have been resolved to thesatisfaction of its board of directors.

Sino-Forest, whose shares have beenhalted for months following allega-tions of fraud, yesterday said execu-tives were considering several optionsfor the firm including a sale.

The firm had been expected to fileits results on Thursday, under a 30 dayperiod agreed in November. The firmalso said a report by an independentcommittee into fraud allegations will

not be issued until 2012, instead of theyear-end as planned.

Sino-Forest to

put off resultsINDUSTRY

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ROAD TRAFFIC (VEHICLE EMISSIONS)(FIXED PENALTY) (ENGLAND) REGULATIONS 2002

Notice is hereby given that from 1st January 2012, the City ofLondon intends to issue Fixed Penalty Notices to drivers of vehicleswhich are left idling unnecessarily. The Notices will be issued underthe Road Traffic Vehicle Emissions (Fixed Penalty) (England)Regulations 2002.

It is already a requirement of Regulation 98 of the Road Vehicles(Construction and Use) Regulations 1986, as amended, that driversswitch off engines in parked vehicles. From 1st January 2012, if adriver refuses to turn off an engine when requested to do so by anauthorised officer, a Fixed Penalty Notice will be issued, for whichthe penalty will be 20. This will increase to 40 if it is not paidwithin 28 days.

The City of London has been declared an Air Quality ManagementArea for fine particulates (PM10) and nitrogen dioxide (NO2). Bothpollutants are harmful to heath at high levels, and are found in theCity at levels which exceed health-based air quality objectives.

Vehicle engines which are left running unnecessarily are asource of both PM10 and NO2, and enforcement of thelegislation cited above is part of the overall effort beingmade by the City of London to improve air quality.

Please see www.cityoflondon.gov.uk/air for further

information.

EUROPES economic weakness hashurt trade, affecting the world econ-omy, analysts at Fitch warned, as fig-ures from the Organisation forEconomic Cooperation andDevelopment (OECD) yesterdaystrongly suggested worse it yet tocome in the Eurozone, the BRICSnations and the US.

Fitch raised concern about theimpact of the Eurozone crisis in itsglobal economic outlook.

Intensified market pressure andfast changing political events, rein-forces the view that the Eurozonefaces persistent problems with its banking and sovereign debt crisis,said the ratings agency.

It slashed its 2012 GDP growthforecast for the currency area from0.8 per cent last quarter to 0.4 percent now.

Slowing global growth as aresult has impacted on India andChinas growth forecasts, Fitchreported, cutting 2012 forecastsfrom 7.5 per cent to seven per centand 8.5 per cent to 8.2 per centrespectively.

The OECDs leading indicatorsinclude business sentiment, con-sumer confidence and employmentexpectations, and are used to esti-

mate economic growth relative to its

trend rate in six months time.Every area covered by the OECD

recorded a slowdown prediction inOctober, with the Eurozones indica-tor registering a year-on-year fall of5.1 per cent, a drop of 7.9 per cent inBrazil, and India falling 8.7 per cent.

Those figures represent a slidefrom a 4.2 per cent year-on-year fallin the Eurozone in September,minus 7.7 in Brazil and minus 7.7 inIndia, indicating the situation isdeteriorating further.

When it comes to Britain, the indi-cators are similarly gloomy, with theindicators decline on a monthly basis slowing only slightly fromminus 0.7 to minus 0.6, and annual-ly declining to a 3.8 per cent drop.

This is the ninth successivemonthly decline, and highlights thegrowing danger of a renewed reces-sion, said Howard Archer, econo-mist at IHS Global Insight.

OECD warns

euro slump isgoing global

Halifax: Housing market will stay weak

WEAK economic growth and persist-ent high unemployment will hold

down house prices through 2012,Halifax warned yesterday in its hous-ing market outlook.

Only record low interest rates willhelp stop the market falling further,the banks economists claimed,although mortgage funding pressuresare expected to weaken this support.

Prices will keep rising in London,according to separate data out today

from the Royal Institution ofChartered Surveyors (RICS), butremain stable or continue to fall else-where in the country.

Sales activity increased for the third

month in a row, according RICSs sur-vey, with a net balance of 14 per centof surveyors reporting a rise in sales inNovember compared with nine percent the month before.

However, expectations of salesgrowth are slowing a net balance offive per cent predict expansion, downfrom 17 per cent in October.

Halifax, too, forecasts stronger

prices in the south east and London, asother regions economies are weaker,relying more on public sector jobs.

The governments housing policy isonly expected to have an impact in the

longer-run.The long-standing deficit betweensupply and demand whereby therate of house building has failed tomatch the rate at which new house-holds are being formed has widenedin recent years as levels of house build-ing have fallen to record lows, saideconomist Martin Ellis.

Measures recently announced in

the governments housing strategyshould help to boost housing supplyover the longer term, but they areunlikely to be sufficient to eliminatethe gap.

Low interest rates will continue tohave an impact payments for theaverage new borrower have fallenfrom 48 per cent of disposable incomein mid-2007 to 26 per cent in 2011 but the ratio of house prices to earn-ings still above its long term average,any price growth is likely to remainweak over the coming few years, Ellispredicted.

BY TIMWALLACE

WORLD ECONOMY

INDUSTRIAL output fell for the firsttime in more than two years in India

in October as consumer demandwaned, adding pressure on the central bank to ease monetary or liquidityconditions, possibly as soon as Friday.

Production at factories, mines andutilities plunged 5.1 per cent from ayear earlier the deepest drop sinceMarch 2009. Septembers annual out-put was revised marginally upwards to1.99 per cent.

Indian factoryoutput plunges

INDIAN ECONOMY

BOOSTING energy efficiency isgood for business, and firms shouldwork more closely with the govern-ment to cut costs and protect theenvironment, the Confederationfor British Industry (CBI)announced yesterday.

There is a business case for act-ing on resource efficiency, and athreat to our growth prospects if wedont, said t he CBIs Neil Bentley.

You need to be green and grow.The industry body also hit out at

the government, accusing it of hav-ing an incoherent overall strategy.

Too many different governmentdepartments at too many differentlevels are coming up with theirown ways of dealing with this prob-lem, said Bently.

Were looking to the businesssecretary and the EU commissionerto give us the right policy frame-work.

The CBI is urging businesses torecognise the growing importanceof resource efficiency.

It is also pushing governments tocome up clear indicators to meas-ure efficiency and targets to forcebusinesses and countries into line.

The CBI pointed to the EuropeanCommissions low-carbon economy2050 roadmap as an example.

The group also called on the gov-ernment to help improve the over-all investment environment todrive resource efficiency, which itsays is key to transitioning to a

green economy.

CBI calls onbusiness to

save energy

THE UK jobs market is set for ableak midwinter, a surveyreveals today, after hiringexpectations fell to their weak-est level since the last recessionthree years ago.

Yet hundreds of thousandsof vacancies exist for peoplewith the right skills or who arewilling to retrain, according toManpower, which conducts thewidely-regarded survey.

Employers continue to lookfor skilled and motivated candi-

dates who show a real de

cityam 2011-11-13

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