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FTSE 100 5,389.74 -29.86 DOW 12,107.74 +4.16 NASDAQ 2,577.97 -25.76 /$ 1.56 unc / 1.20+0.01 /$ 1.30 unc

Essar boss

hit by Indiatelco probe

THE CHAIRMAN of FTSE 100 oil andgas giant Essar Energy was embroiledin the Indian governments war on cor-ruption yesterday, announcing that he

would quit his role until an investiga-tion into his conduct is resolved.

Ravi Ruia is being investigated forallegedly failing to properly discloseEssars full interest in Loop Telecom

when it bid for a 2G license. In effect,the Indian Central Bureau ofInvestigation claims that Essar indi-rectly tried to bid for two licenses,

which is forbidden.Essar denies the claims, none of

which involve allegations of corrup-tion or bribery.

The development comes at an awk-ward time for City advisers hoping tobring foreign-owned companies to theLondon market, with growing con-cerns over corporate governance.

Ravi Ruia will be replaced byPrashant Ruia, currently vice-chair-man of the firm and CEO of EssarGroup, the listed oil firms parent com-pany.

Essar Energy has yet to appoint afifth non-executive since floating in2010, despite saying it has a shortlistfor the job. DAVID HELLIER: P2

BY JULIET SAMUEL

ENERGY

The Wellcome Trust, chaired by Sir William Castell, has outperformed the MSCI World Index and donated 602m this year

THE WELLCOME Trust, the promi-nent UK charity for health research,

yesterday pledged to increase itsdonations by 30 per cent over thenext five years, after its investmentportfolio comfortably outperformedglobal stock markets.

The fund, chaired by City stalwartSir William Castell, reported a totalreturn of two per cent on its invest-ments this year, even though marketsfell three per cent in the same period.

This equates to just under 270min gains from a portfolio value of13.9bn at the start of the year.

After spending 602m on charitable donations in the last financial year, the charity reported currentassets of 13.6bn.

Danny Truell, chief investment offi-cer of the Wellcome Trust, said thatthe funds performance meant thecharities it supports would be gettingan early Christmas present thepromise of more donations.

Over the last few years, financialconditions have been difficult, said

Truell. However, as a charitable foun-dation, we take a long term view. Wenow plan to spend more than 3bnon charitable activities over the next

five years a 29 per cent increase onthe last f ive years.While an investment return of two

per cent is significantly lower than

WELLCOME BOOSTHELPS CHARITIES

BY LAUREN DAVIDSONCHARITY

www.cityam.comIssue 1,538 Thursday 22 December 2011 FREE

HARDY BACKON THE BLOCK

BEAZLEY LOOKS

OVER ITS RIVAL

INSURER PAGE 11

ENGLAND CAPTAIN INDOCK: TERRY CHARGEDSTAR DENIES RACISM P30-31

BUSINESS WITH PERSONALITY

usual, the charity said it was pleasedwith the result in the face of strongeconomic headwinds and growingfears about the cohesion of the Euro,the pace of the US recovery and theimpact of inflationary pressures on

faster-growing economies.Truell put the strong results downto the foundations illiquid assets,particularly from venture capital

investments that saw a return of 17per cent, mainly from investments ininternet companies.

We did well from LinkedIns flota-tion earlier this year, and we expect tosee benefits soon from the recent

Groupon and Zynga IPOs, he said.In its first ever Guide to Giving, CityA.M. has today ranked the WellcomeTrust second in its seasonal round-up

of some of the worlds biggest givers.Sir Mark Walport, director of the

trust, told City A.M.: 75 years after thedeath of [founder] Sir Henry

Wellcome, it is rewarding to see that we have been able to invest his

endowment wisely, making us todayone of the worlds major charitabledonors.

GUIDE TO GIVING: P19-27

Certified Distribution

31/10/11 till 27/11/11 is 100,007

602mDonated to charity

in 2011

29%increase in donations

planned over the

next five years

How we

reportedthe Essarfloat inApril 2010

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News2 CITYA.M. 22 DECEMBER 2011

BofA settlesloan bias caseBANK of America Merrill LynchsCountrywide mortgage division hassettled an agreement to pay a record$335m (213.7m) for discriminatingagainst minority homebuyers in what Justice Department officialshave said is the largest discriminationsettlement in US history.

The case, brought against sub-prime mortgage companyCountrywide for its conduct between2004 and its 2008 acquisition by Bankof America, includes allegations ofcharging African-Americans andHispanics higher interest rates andfees than non-minorities and steeringthem towards subprime loans thatwere more expensive than necessary.

Countrywides actions affectedmore than 200,000 borrowers across

41 states, who will receive compensa-tion from the Bank of America unit.

The victims had no idea they werebeing victimised, said Thomas Perez,head of the Justice Departments civilrights division. This is discrimina-tion with a smile.

The Obama administration hascome under fire recently for failing toprosecute financial institutions which have misbehaved during theUS housing crisis since 2008.

Bank of America shares dipped$0.07 to $5.10 on the New York StockExchange before closing up at $5.23.

BY LAUREN DAVIDSON

BANKING

EX-LEHMAN CHIEF TO RUN SPAINSECONOMYSpains new government has placedthe economy in the hands of Luis deGuindos, former head of LehmanBrothers in Spain, as Mariano Rajoy,the prime minister, seeks to return thecountry to growth while embarkingon a programme of budgetary austeri-ty. As finance minister, Mr de Guindos will be charged with regaining theconfidence of international investors.

RECORD NUMBER OF ZERO BONUSESEXPECTEDMore banks are likely to award arecord number of zero bonuses thisyear and run the risk of legal claims,employment lawyers are predicting.GQ Employment Law, the law firm,says that although banks are wellwithin their rights not to pay bonuses

to City workers, in the past they haveoften taken the commercial decision

to pay modest bonuses even tomediocre staff partly to avoid legal

challenges.MUDD TAKES LEAVE AS FORTRESSCHIEFDaniel Mudd, chief executive ofFortress, is to take a leave of absencefrom the investment company after hewas charged with securities fraud in acivil case brought by the US Securitiesand Exchange Commission related tohis previous role at Fannie Mae.

TRIPADVISORS SHARES FALL ON FIRSTDAY OF TRADING TripAdvisor shares fell on the travelreview websites first day of trading asan independent company but itemerged with a similar valuation toExpedia, the former parent that spunit off. TripAdvisor, which aggregatesreviews of hotels and restaurants writ-ten by its members, closed with a mar-ket value of $3.69bn compared with

the $3.72bn value of Expedia, the trav-el booking website.

NORTHERN FIRMS MUST FIGHT HARDERFOR SURVIVALCompanies in the North are finding itmuch harder to survive than theircounterparts in London and the SouthEast. Figures from Experian, the infor-mation services provider, show thatthe number of company failuresincreased at a much faster rate in theNorth East, North West and Yorkshirelast month.

FORGET KUALA LUMPUR, LONDON ISFOCUS FOR MALAYSIAN INVESTOR Another prime London property hasbeen snapped up by overseas investors,with a fund set up to promote the eco-nomic wellbeing of Malaysias indige-nous people paying 350m to buy theheadquarters of the law giantLinklaters. Permodalan NasionalBerhad of Malaysia has agreed to buy

Milton and Shire House on Silk Streetfrom Beacon Capital Partners.

SHELL SHUTS ITS HUGE BONGA OILFIELD AFTER LEAKRoyal Dutch Shell has been forced toshut its 200,000 barrel-a-day Bonga oilfield off the coast of Nigeria after up to40,000 barrels of crude oil leaked intothe ocean. The temporary closure isShell's second in a week, with a leak ofdrilling fluid causing the company toabandon a rig in the Gulf of Mexico onSunday.

BARCLAYS IS MEANEST SAVINGS BANKBarclays has been named and shamedas Britains worst savings bank. It has afar higher proportion of its savingsaccounts paying derisory rates of inter-est than any other high street bank.More than seven out of 10 accounts pay0.5 per cent or less. Worse still, 60 percent of its savings accounts pay 0.1 percent or less. By contrast, around a third

of savings accounts at Halifax, HSBCand NatWest pay 0.1 per cent or less.

SILVER LAKE FOUNDERS TRIMOWNERSHIP STAKES The founders of technology-focusedprivate-equity firm Silver Lake arereducing their ownership interests tomake room for a younger crop of exec-utives, Bloomberg News reported. Thisyear, Silver Lake has made a number ofhigh-profile bets, including turning aninvestment in Web-calling firm Skypeinto a $8.5bn sale to Microsoft.

EX-CEOS SLAM AVON'S JUNGAvon Products Inc. CEO Andrea Jung ishaving a hard time letting go, and twoof her predecessors are voicing objec-tions. Two former CEOs of the door-to-door beauty company are upset thatMs. Jung, who last week said shewould step down, will stay on for atleast two years as executive chairman.They fear that her continued presence

would make it hard to attract a newleader.

WHAT THE OTHER PAPERS SAY THIS MORNING

Essar Energy needs board reshuffle

WHEN the London StockExchange tried a couple of weeks ago to reassureinvestors about the perform-

ance of recently floated companies, itdid not dwell too long on the experi-ence of Essar Energy, the Indian ener-gy group that is now a component ofthe FTSE 100 (just).

Essar Energy floated at a price of420p in mid-2010 but after a miser-able 2011 its shares are hoveringaround 170p. The shares fell 5p to173p yesterday after Ravi Ruia, the bil-lionaire founder of Essar Group,

stepped down temporarily from hispost as chairman of London-listedEssar Energy, following a legal rulingin New Delhi.

The ruling stated that Ruia is to

face charges in front of a specialcourt established to look into a tele-coms scandal that is estimated tohave cost India as much as $39bn inlost revenues.

Ruia intends to resume the chair-manship as soon as he can but in themean-time his nephew Prashant willbe taking over as interim chairman.

It is true that shareholders invest-ed in Essar Energy knowing that it was family controlled the familyown around 78 per cent of the shares.

And it is also true that manyinvestors are comforted by knowingthat the people at the top of theLondon-listed companys board havetheir financial interests aligned withthose of other investors.

But surely Essar could now appointthe independent director it promisedat the time of the float and go for an

independent chairman as well?Companies listing on the London

market need to comply or explainwhy theyre not adhering to the cor-porate governance code.

If Essar Energy was chaired inLondon by an independent director itwould be far better equipped to copewith scandals, alleged or otherwise,that the controlling family might bedragged into at home. And it couldalso be seen to put the interests of thelisted company first.

Sometimes its a matter of percep-tion more than anything else buttheres almost certainly a corporategovernance discount associated withEssar Energys share price and that wont go away until some bigchanges have been made on theboard. When bankers are doing theirbest to soothe nerves ahead of sharelistings from overseas-owned groupswith dominant shareholders, this lat-est development wasnt quite whatthey needed. Essars advisers need topush hard for change.

MORE HOARE GOVETTIt may be that I have underestimatedthe value of the Hoare Govett name,now being sold off along with a loss-making business by RBS. After writing

yesterday that much of the interest inthe firm seems to centre around thevalue of the name and that this couldbe somewhat irrational, brand special-ist Hamish Pringle of 23red has writ-ten to me to differ. Clearly, he says,the Hoare Govett brand has seriousand possibly insurmountable prob-lems at a functional level, but as youvepointed out it remains a householdCity name.

This represents a huge emotionaland psychological asset that cost manymillions to create, has survived despiteappalling management over manyyears, and whose power could be reju-venated, added to, and leveraged withthe right stewardship. The HoareGovett brand can be [email protected] Heath is away.

SOCIETE Gnrale has hired formerCredit Agricole executive BertrandBadr as its new chief financial officerafter a surprise reshuffle.

Current CFO Didier Valet will movesideways to become the head of SocGens corporate and investment bank-ing arm, starting on 3 January.

His move comes after current invest-ment banking chief Michel Pretisaid he has decided to pursue other

opportunities outside the bank, theFrench firm said in a statement.

Socit Gnrale Corporate andInvestment Banking will also seeChristophe Miann take over asdeputy chief executive in charge ofglobal markets, operations and IT.

Frdric Ouda, chief executive andchairman of the banking group,thanked Preti for his support espe-cially in this financial crisis environ-ment and said Valet will be key todrive the adaptation of the bank inthese circumstances.

BY LAUREN DAVIDSON

BANKING

Soc Gen shuffles its staffSocGen banking chief Frederic Ouda backed the new appointment

NEWS | IN BRIEF

US home sales hint at recoveryUS home sales surged in November,according data out yesterday from theNational Association of Realtors (NAR),which economists believe suggests themarket is on the path to recovery. Sales ofexisting homes rose four per cent fromOctober to an annual rate of 4.42m. But

the NAR also revised data from 2007onwards, showing sales were 14 per centlower than previously believed.

Fitch warns US over credit ratingFitch warned again yesterday that theUSs rising debt burden was not consis-tent with maintaining the country's topAAA credit rating, but said there wouldlikely be no decision on whether to cutthe rating before 2013. Last month,Fitch changed its US credit rating out-look to negative from stable.

Yahoo set to cut stake in AlibabaYahoo is discussing a plan to slash itsstakes in China's Alibaba Group and itsJapanese affiliate as part of a compli-cated share transaction valued at rough-ly $17bn (10.9bn), sources familiar withthe matter said. The deal is expected tobe considered by Yahoo's board today.

Editorial StatementThis newspaper adheres to the system of

self-regulation overseen by the Press ComplaintsCommission. The PCC takes complaints about theeditorial content of publications under the EditorsCode of Practice, a copy of which can be found atwww.pcc.org.uk

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

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

Bank of America, ledby Brian Moynihan,settled a case againstits mortgage divisionCountrywide

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

EDITORS LETTER

DAVID HELLIER

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EUROZONE banks have flooded theEuropean Central Bank (ECB) withdemand for cheap liquidity, figuresshowed yesterday, blowing analystsestimates out of the water.

A total of 523 banks borrowed489.2bn (407bn) in three-year loansin the ECBs biggest ever fundingexercise over 100bn above consen-sus expectations. Regulators hadencouraged lenders to take advantageof the cheap money.

The figure includes 45.7bn of one-year funding that banks had alreadytaken out but opted to switch tothree-year loans. Most lenders 123of 181 using the one-year liquidityswitched over, the Bank said.

Italian banks are believed to besome of the biggest borrowers as dataout yesterday revealed that the coun-trys economy shrank 0.2 per cent inthe third quarter of this year.

The dramatic upswing in demandfor cheap funding comes as Europedescends into a full-blown credit

crunch and banks are forced to writedown the value of their sovereignbonds. Many used those bonds as col-lateral for their ECB funds.

Despite boosting its bank loans, theECB has refused to lift the cap on itsongoing bail-out of states. The implic-it hope, say economists, is that bankswill pass on the liquidity by buyingnations debt, which could be the rea-son behind recent falls in debt yields.

But Citi economist GuillaumeMenuet warns that there is a fine linebetween that and financial oppres-sion. There is a risk that at somepoint it becomes coercive, he said.

Demand foreasy moneyswamps ECB

BY JULIET SAMUEL

BANKING

News 3CITYA.M. 22 DECEMBER 2011

Bank at centre of a game of hot potato

YESTERDAYS data was thehardest evidence yet that sincetaking the helm, ECB presi-dent Mario Draghi has

endorsed a policy of quantitative eas-ing by the backdoor.

The idea is to flood banks with

cheap money and hope they orencourage them to use it to buyup sovereign debt.

To make it work, the ECB has hadto loosen its collateral requirements,allowing banks to swap lower-qualityassets than it would normally acceptfor cheap cash.

In the process, the ECB becomes aconvenient dumping ground forwhat Pimco has termed hot potato

(i.e. unsellable) assets and junk sover-eign bonds, keeping zombie banksafloat. The hope is to avert a cata-strophic credit crunch before it feedsthrough into recession.

On that score, it is probably toolate Europes economy is likely

already shrinking again, by mosteconomists reckoning, and banksare more liable to sit on the cashthan lend it on to businesses.

So the immediate, more modestaim is instead to avoid the collapseof the banking system and sovereigndebt market while politicians f iddle.

But even the cheap cash mightnot be enough. Political expediencycould feed through to regulatory

tweaks.For example, it could involve, in

the words of one economist, tellingthe European Banking Authority toget lost. More precisely, write-downson sovereign bonds for the purposesof stress-testing could be put off.

More long-term, it could also foilefforts to loosen Basel III liquidityrules so banks can fulfill them usingassets other than sovereign bonds.

If that happens, however, it willmean no end to the sovereign-bankfeedback loop.

BOTTOMLINEAnalysis by Juliet Samuel

ANALYSIS l ECB balance sheet

Trillion

00 02 04 06 08 10 12

2.5

2.0

1.5

1.0

0.5

Christmas came early as ECB chief Mario Draghi flooded banks with cash Pic: REUTERS

EC gives thumbs up to a45bn Dexia guarantee

FAILED bank Dexia will be allowed toreceive a 45bn (37.5bn) refinancingguarantee from France, Belgium andLuxembourg, rather than the 90bnoriginally offered, the EuropeanCommission (EC) said yesterday.

The temporary guarantee covers bank refinancing measures with amaturity of up to three years, issueduntil May 2012.

Strict rules prohibiting state aid toprivate firms would usually ban such a

guarantee, but the banks systemic

importance justifies the support.However, the three countries will

have to present a liquidation plan inthree months time in case Dexiaproves not to be viable. The bank hadalready been recapitalised in a dealwhich the EC approved in February2010, and its restructuring is due to becompleted by the end of 2014.

Meanwhile Belgian investment firmLynx Capital launched legal actionagainst Dexias chief executive PierreMariani, claiming he mislead investorsbefore the October bailout. Dexia was

unavailable for comment.

BANKING

489bnThevalueof3-yearloanstheECBmadeyesterday

523Thenumberofbanks

thattappedthe

funding

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JOHN Duffield, the former chief execu-tive of New Star, has broken his silenceover the bullying accusations levelledby his ex-employee Patrick Evershed.

Duffield did not appear in court atthe employment tribunal for theunfair dismissal case brought againstNew Star owners Henderson byEvershed, which settled out of courton 7 December. But Duffield yesterdayreopened the war by exercising hisright to reply to Eversheds extreme

and colourful statements.In his only response to the court

hearing, a statement on Duffields per-sonal website refuted Eversheds claimthat he bullied fund managers at New

Star to the detriment of the funds per-formance, claiming that he deliber-ately created an environment in which[fund managers] had freedom to investwhere they wished.

Duffield, who now runs Brompton Asset Management, cited evidencegiven at the tribunal by Roger Dossett,the former UK property fund managerat New Star. Dossett said at the hear-ing: [Duffield] certainly did not bullyme or any members of my propertyteam, otherwise I would have given inmy notice.

Duffield also denied Eversheds alle-

gations that 20 employees took timeoff from New Star due to sickness andstress, claiming the real figure wasnine staff over the period in question,and he rejected the claim he pressuredEvershed into enlarging the fund hewas managing.

Gregor Logan, New Stars chiefinvestment officer, was an innocent victim of Eversheds claims, addedDuffield. Gregor and my other for-mer colleagues are very capable peo-ple with total integrity, he said.

John Duffieldhits back todeny bullying PHONE-HACKING was widespread atPiers Morgans Daily Mirror, a formercolumnist at the tabloid said yester-day, as the Leveson enquiry

unearthed further evidence of theillegal practice in the press.

James Hipwell said he witnesseddaily hacking by Mirror showbusi-ness reporters working a few feetfrom his own desk in 1999.

Hipwell said he believed the prac-tice was sanctioned by senior editors,although he had not seen it takingplace in the presence of Morgan, whoedited the newspaper from 1995until 2004, or discussed in front ofhim.

It seemed to me that what theywere doing was entirely accepted bythe senior editors on the newspaper,he told the Leveson Inquiry into press

standards. I think it was seen as aslightly underhand thing to do butnot illegal.

Hipwell was fired from the Mirrorin 2000 and later jailed for illegalshare dealing linked to his financialcolumn.

Morgan, now a CNN talk-show hostin the US, edited the Rupert Murdochtabloid at the heart of the phone-hacking scandal, the News of the World, from 1994 to 1995 beforegoing on to edit the Daily Mirror.

Hacking at theMirror was rife,says Hipwell

NATHAN Kirsh, the South African property investor, has bought City skyscraper Tower42 from BlackRock UK Property Fund and LaSalle Investment Management for 282.5m.The acquisition of Natwests former headquarters on Old Broad Street, one of the tallestoffice buildings in London, marks Kirshs first deal since selling a 29 per cent stake in

property firm Minerva earlier this year at a massive profit. Meanwhile Japanese proper-ty company Mitsui Fudosan has joined forces with Stanhope to buy the 70 Mark Lane inthe City for 19.5m, which come with planning permission to build a 100m office tower.The f irms hope to complet e the building in 2014 . Picture : REUTERS

BYHARRIET DENNYS

FUND MANAGEMENT

MEDIA


John Duffield (left) hashit back at accusationsof bullying from hisformer employeePatrick Evershed

TOWER 42 SNAPPED UP FOR 282.5M

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THE CRISIS in the Eurozone, weakdomestic demand and continued

bank funding problems all threat-en the UKs economy, the Bank ofEnglands Monetary PolicyCommittee (MPC) concluded inits monthly meeting, theminutes of which cameout yesterday.

However, condi-tions are so uncer-tain that the MPC led by Sir MervynKing (right) decided againstfurther bond pur-chases for now.

As 75bn ofbond buying is cur-

rently underway, theMPC is also worriedmarkets lack capaci-

ty to cope with more QE immediately.The Bank believed an expansion of

QE was justified in October as infla-tion is forecast to fall sharply in 2012.

Although factors like JanuarysVAT rise will drop out of the infla-tion figures next month, there

were signs of a split on inflationthis month though some MPC

members expressed concern at therate at which inflation willfall.

Expectations of near terminflation may fall more slowlythan expected, affecting wageand price-setting behaviour,for example, or the Bank mayhave overestimated sparecapacity in the economy.

With the current round ofQE due to finish in earlyFebruary, it looks likely well

see another 75bn then, con-cluded Ernst and YoungsItem Club.

BY TIMWALLACE

UK ECONOMY

THE UK economy is slowing across the board, according to the Bank ofEnglands business conditions summa-ry, published yesterday.

Construction output declined inNovember, the Banks agents found,and growth also slowed in manufac-turing, business services, and exports.

Uncertainty in the economic situa-tion is in part to blame employment

intentions had softened recently, withincreasing uncertainty leading togreater caution in some cases, theBank said. Such concerns have also fedthrough to wages, with staff nowmore concerned about job securitythan pay.

And an Ipsos Mori study out todayfound that just nine per cent of Britishpeople expect the economy to improve

in the next six months, and 10 percent describe the economy as good.

UK economy faces sluggishnessat home and abroad, warns Bank

UK ECONOMY

GOVERNMENT borrowing fell inNovember, putting the coalition ontrack to hit its deficit reduction tar-gets, figures published by the Officefor National Statistics yesterdayshowed though the slowing econo-my could hit the target next year.

The deficit came in at 18.1bn lastmonth, 2.3bn lower than in

November last year. Current spendingaccounted for 15.7bn of the deficit,down from 17.4bn a year earlier.

Excluding the bank bailouts, thenational debt now stands at 977.1bn,or 62.8 per cent of GDP, up from 62.3per cent in October and 57.5 per centin November 2010. Including financialinterventions, the debt hits 2.306 tril-lion, or 148.1 per cent of GDP.

Novembers deficit is always particu-larly high, as tax revenues are relative-

ly low. It is not one of the quarterlymonths in which corporation taxesare paid, nor January when large vol-umes of income tax are handed over,and roughly 2bn is paid out in the

winter fuel allowance.The concern is that borrowing may

rise more than expected in comingmonths as the economy falters, duemainly to the knock-on effects of theEurozones crisis, said economistChris Williamson at Markit.

Deficit down in November asTreasury defies slow growthBY TIMWALLACE

UK ECONOMY


LATE BOOST FROM CHRISTMAS SHOPPING

MPC leavingdoor open for2012 QE boost

RETAIL sales jumped sharply last week, reversing the negative trend that has definedmuch of 2011, according to data out yesterday from the British Retail Consortium (BRC).Sales rose 2.3 per cent on the week before, and 2.6 per cent on the same week of last year.

Heavy promotions and discounts led to the jump, the BRC believes. Picture: REX

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SHARES in stockbroker Arden Partnerssoared yesterday after the firm said ithad made a pre-tax profit this year,compared to a 500,000 loss in 2010.

Revenue slipped from 13m to12.4m and underlying profits werealso down to 1.2m during the periodfrom 1.3m, but Arden booked an

overall profit before tax of 600,000.Chairman Lord Flight said that the

stockbroking business was facing per-haps the most difficult and challeng-ing conditions since the 1970s, butthat Arden was well positioned for thenew financial year.

He also said the second half of theyear and Eurozone crisis had broughtparticular challenges, with most of thefirms trading weighted heavily in thefirst half.

Shares in Arden closed up nearlyeight per cent at 34p yesterday.

US airlines have lost a legal fight toblock the EUs plans for carbon per-mits, which are due to come into forceon 1 January.

Industry group Airlines for Americasaid it was considering an appeal afterthe European Court of Justice said thescheme to charge airlines for carbonemissions on flights to and fromEurope was legal.

The initial cost is expected to beminimal but would rise to a whop-ping9bn by the end of 2020.

Much of this cost is expected totrickle down to consumers, adding tothe pile of charges and duties alreadylinked to the average European flight.

American Airlines, UnitedContinental and the Air Transport

Association of America, who broughtthe case, said they would complyreluctantly until they decide whetherto appeal.

But the US could stand in the wayof widespread compliance. Draft lawin the US Congress, if passed, wouldmake it illegal to comply with the EUlegislation.

US secretary of state Hillary Clintonurged the EU last week to reconsiderthis current course and re-engage

with the rest of the world on a possi-ble global carbon tax scheme.

Airline industry body IATA said thedecision came as a disappointment

but not a surprise, adding that thesuccess of the new scheme willdepend on how non-European states

view its legal and political acceptabili-ty. In this respect, there is growingglobal opposition.

The UK government was less for-tunate in its own green legal battles

yesterday, when the high court ruledplans to cut subsidies for solar panels

on homes were legally flawed. Energysecretary Chris Huhne was propos-ing to make an unlawful decision,the court said.

Airlines loseappeal overEU carbon taxBYMARION DAKERS

TRANSPORT

STOCKBROKING

SHARES in insurance groupPhoenix got a small fillip yester-day, after the company said cashgeneration for the year would besmack bang in the middle of itsestimated range.

The firm, originally a HughOsmond vehicle, said it would gen-erate around 800m in operatingcash in 2011 a 66m rise from

last years figure.It also announced that financechief Jonathan Yates would leaveafter just 18 months at Phoenix,

with deputy Paul Miles taking onthe role while the board searchesfor a replacement.

Phoenix Group rose from theashes of Pearl Group following aradical restructuring of the compa-ny, several years after it took overthe closed-life fund business ofClive Cowderys Resolution Life.

Cowderys current vehicle,Resolution, called off takeovertalks with Phoenix in lateNovember after details of a poten-tial deal were leaked. Phoenix isnow in discussions with privateequity firm CVC Capital Partnersover an offer for the company.

Phoenix Group shares, whichhave fallen more than 17 per centsince the start of the year, regained1.57 per cent in trading yesterday,closing at 517.5p.

Phoenix finance boss leaves asit sees cash generation in lineBY ELIZABETH FOURNIERINSURANCE


Stockbrokers face toughest timesince 1970s, says Ardens chair

OLYMPUS OFFICES AND HOMES RAIDED

DOZENS of black-suited investigators raided the office building of three small Olympus sub-sidiaries yesterday, one of 20 sites searched in a probe of a $1.7bn accounting scandal thatthreatens the Japanese camera-makers survival. Other teams were seen waiting to be buzzedinside a luxury condominium the home of a former company president.

Picture: REUTERS

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CHOCOLATE maker Thorntons haswarned that full-year profits will fallshort of expectations, blaming weakconsumer confidence and frenzieddiscounting among rival retailers inthe run-up to Christmas.

Shares plunged 37.5 per cent afterthe confectionary chain said it nowonly expects to break even for the yearto 30 June 2012, before taxation, excep-tionals and impairment and onerouslease charges.

Analysts had forecast a profit beforetax of around 3.8m, compared with4.3m the previous year.

Chief executive Jonathan Hart, who joined Thorntons in January fromCaffe Nero, is closing as many as 180stores over the next three years as leas-

es expire, replacing them with fran-chises.

In October, the company reported a7.6 per cent decline in revenues to46.5m, while total sales across itsown stores were down 10 per cent to23.4m. It also cut its dividend.

Thorntons said it would issue a fur-ther trading update on 12 January.

Shoppers losesweet toothfor ThorntonsBYKASMIRA JEFFORD

RETAIL

BARRATTS Priceless, the ailingfootwear company, will shut 18 storesbefore Christmas, resulting in the lossof 170 jobs, its administrators said yes-terday.

Deloitte, which has been trying tofind a buyer for all or part of the restof the business as a going concern,said five Barratts shops and 13Priceless stores will be closed downtomorrow, adding fresh misery to thehigh street. The chain, which has near-ly 200 stores, is the latest in a line ofshoe shops including Faith to collapse.

Barratts to cut170 jobs beforeChristmas Eve

RETAIL


NEWS | IN BRIEF

Facebook to allow news feed adsSponsored adverts will soon start to popup in the news feeds of Facebooks800m users. The social network willallow advertisers to target campaigns atspecific demographics in a way that crit-ics say will be far more intrusive thanthe status quo. A Facebook spokesman

said the firm will roll out the next gener-ation adverts slowly and will try torestrict them to one sponsored ad peruser per day.

Ogfem fines firms for gas delaysOfgem has fined National Grid andNorthern Gas for failing to respond togas leaks quickly enough. National Gridwill pay 4.3m and Northern Gas900,000 for failing to get to 97 percent of uncontrolled gas leaks within anhour. Ofgem said the fines would havebeen higher if the firms had not co-oper-ated with the watchdogs probe.

Call to clean up insolvency feesInsolvency professionals will have toanswer to a new independent watchdogif the industry does not tackle excessivefees and overhaul its own regulations,the government said yesterday.Insolvency minister Ed Davey said

charges need to be more transparent,possibly through a new law if the sectorfails to clean up its own act. A govern-ment consultation after an OFT probefound that unsecured creditors do notalways get the returns they mightexpect, he told parliament yesterday.

ANALYST VIEWS: CAN THORNTONS SURVIVEIN THE TOUGH RETAIL CLIMATE? Interviews by Kasmira Jefford

DAVID JEARY | INVESTEC

We infer a mixture of both sales and gross margin weakness hasprompted the revised PBT guidance... We understand that covenants would not bebreached at the projected level of guidance.

AMISHA CHOHAH | MERCHANT SECURITIES

The high gearing, with net debt of 24.5m in 2011 and set to grow further, isa serious concern combined with the weak UK macros and the unproven new strate-gy. We expect the group to reduce or eliminate their dividend payment.

SANJAY VIDYARTHI | ESPIRITO SANTO

While management has in place a strategy to reduce the store portfolio...to around 200 over the next three years, concerns remain as to whether this can hap-pen quickly enough to offset the underlying attrition to high street sales.

Mulberry bags chief from rival Hermes

ChocolatierThorntons boss

Jonathan Harthas issued a profitwarning

LUXURY handbag and leather goodsmaker Mulberry has poached BrunoGuillon, the managing director ofFrench rival Hermes, to help drivethe groups international expansioninto Asia and the US.

Guillon, 46, will become thebrands first non-British chief execu-tive, joining in March next year after10 years at the family-owned fashionhouse Hermes, where he was respon-sible for the groups French sub-sidiary.

Hermes directly owns all of itsoperations, such as supply chain,making them in total control frombeginning to end of all processes. It

is this recognition and attention todetail that can be expected fromBruno at Mulberry, said LewisAlexander, an executive headhunter.

Guillons career spans across theluxury goods sector, having workedas international director of the watch and jewellery division atLVMH Group and at fragrance groupNina Ricci.

He will be working closely along-side creative director Emma Hill,who has helped the company tripleits profits to 15.6m in the sixmonths to 30 September, led by thehuge success of its Alexa bag,inspired by television presenterAlexa Chung.

[Guillon] brings an instinctiveunderstanding of quality and aninternational perspective that will be

invaluable in the next stages of ourgrowth, said Hill.

Internationally, Mulberry has seensales more than double in the firsthalf of the yearo n the back of strongdemand from Asia, and hasshrugged off concerns of an econom-ic slowdown.

The group has opened 10stores this year so far including a thirdstore in New York while its partners in Asia-Pacific havelaunched stores inSingapore andTaiwan.

The group plansto open 15 morestore in the nextyear.

BYKASMIRA JEFFORD

RETAIL

ANALYSIS l Thorntons PLC

p

15 Dec 16 Dec 19 Dec 20 Dec 21 Dec

37.5

35.0

32.5

30.0

27.5

25.0

23.7521 Dec

BRUNO GUILLON

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Yes, I carry out a lot ofcharitable actions atChristmas time. I like tomake a visible difference as

it gives mesatisfac-tion overthe holi-day peri-od.

Definitely, it is theChristian thing to do. It is atime for being with thefamily, which

makes youappreciateeverythingso you wantto givemore.

I think as a nation we allfeel more inclined to giveover Christmas. My compa-ny donates a lot of money,

while I dopro bonowork dur-ing theyear.

SHAKTI ANANDTATA CONSULTANCY

BRITISH insurer Beazley is hatching anew plan to take over HardyUnderwriting, a year after abandon-ing an initial move on its smallerrival.

The potential bid would comes at atime of consolidation in the Lloydsof London insurance market.

Beazley revealed it was interestedin talks following Hardys announce-ment this month of a strategic reviewtriggered by big hits from payouts inglobal crisis zones including anearthquake and tsunami in Japanand floods in Thailand.

In December last year, Beazleyditched a 180m offer for Hardy at upto 350p per share.

It pulled away after Hardy indicat-ed it would have to up the offer, say-ing it was opportunistic by takingadvantage of market conditions.

Beazley said in a statement to thestock market yesterday it wanted toenter exploratory discussions withHardy about a deal.

It added that this did not consti-tute a firm intention to make anoffer.

Hardy did not comment but haspreviously said that several unnamed

potential suitors have come forward.

The company has also said thatfinding a partner could be a way togo forward rather than an outrightsale of the business, whose shareshave dropped in the second half of2011.

Shares in Hardy rocketed 10.8 percent yesterday.

Lloyds of London insurers are seenas ripe for consolidation because per-sistently weak insurance prices and arash of disasters have weighed ontheir shares, while their small sizemakes them vulnerable as strictercapital requirements come into force.

Chaucer accepted a 292m offerfrom Hanover Insurance, while BritInsurance succumbed last year to a

bid from buyout firms Apollo andCVC.

Omega Insurance is also at the cen-tre of a bid battle.

BY JOHN DUNNEINSURANCE


PETRA Diamondshas achieved thehighest price percarat of any roughdiamond it has eversold. The 4.8 caratblue stone was soldfor $1.45m (920,000)

just hours beforePetras shares startedtrading on Londonsmain market yester-day, graduatingfrom Aim. Chief exec-utive JohanDippenaar is pic-tured at the Cullinanmine, where the stonewas found.

ANALYSIS l Hardy Underwriting Group PLC

p

15 Dec 16 Dec 19 Dec 20 Dec 21 Dec

195

190

185

180

193.8821 Dec

Beazleys lead adviser Angus Wintherhas over 20 years of corporate financeexperience.Winther is based in London and spe-cialises in advice to clients who operatein the insurance and diversified financialsectors, including work on a number ofsignificant transactions in these sectorsover the past few years, such as advis-

ing Brit Insurance on the 880m offer

from Apollo and CVC, helping Kiln withits 442m offer from Tokio Marine, andadvising Equitable Life on their restruc-turing which included the transfer of4.6bn of non-profit annuities toCanada Life and 1.7bn of with-profitannuities to Prudential. Winther wasone of the co-founders of Lexicon, thecorporate finance advisory businessthat was acquired by Evercore in Juneof this year. Prior to founding Lexicon inJuly 2000, He worked at Donaldson,Lufkin & Jenrette, where he also spe-cialised in mergers and acquisitions inthe financial institutions sector. He waspreviously a partner in The PhoenixPartnership, a corporate advisory andprivate equity business which was

acquired by DLJ in 1997.

ANGUS

WINTHER

SENIOR

MANAGING

DIRECTOR

ADVISERS: EVERCORE

PETRA CELEBRATES MAIN MARKET MOVE WITH RECORD SALE

www.RateSetter.com Customer Phoneline: 08442490115In association with RateSetter: A better way to Save and Borrow, Peer to Peer

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

ALAN CULLENLAING O'ROURKE

TANUJ UPPALGLEN SOLICITORS

CITY VIEWS: DO YOU FEEL MORE INCLINED BECHARITABLE AT CHRISTMAS? Interviews by Phoebe Torrance

Hardy again

in sights ofrival Beazley

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ED SAATCHISCALES UP

TO SOCIALMEDIA IPOIMAGINE logging on to Facebook and italready knows who your friends are, saysEdward Saatchi, the red-headed son of theadvertising legend Maurice Saatchi.

This is the idea behind the social, data-driven networking site that isNationalField, the business worlds answerto Facebook that launched in spring 2008as a way of connecting staff on Obamaselection campaign trail.

Saatchi, 26, and his business partnersAharon Wasserman and Justin Lewis havegot in early on the next big thing in SiliconValley after cloud computing: social enter-prise, or social software for businesses.

Facebooks co-founder Chris Hughes sitson the board of t he company, as does SamLawrence, the former chief marketingofficer of Jive, the social network softwarefirm that f loated last Tuesday with a mar-ket valuation of more than $800m.

There is a huge amount of marketmomentum, says Saatchi, who is in talkswith a major technology firm and one ofthe UKs national newspaper groups tosign a deal to replace their intranets withhis Facebook for companies. The sitemakes money by charging businesses set-up and running fees, and will next yearopen up to host public apps, from which itwill take a percentage of the profits.

The founders hope to close series B fund-ing with US venture capital firms by theend of June next year, following initial$1m investment from Microsoft, Googleand DirecTV, and the eventual plan aftera few more rounds of funding is to follow where Jive has led by going public. ButSaatchi wont give a target valuation forthe IPO. You cant possibly think I amgoing to answer that, he says. One forinvestment banking advisers to watch.

MAN FOR ALL SEASONSHAS someone at Westfields PR companyhad one too many festive shandies?

It would indeed be a service of conven-ience if Westfield London opened untilmidnight on 23 and 24August, as the mallsspokesperson informed The Capitalistyester-day just possibly not for some last-

minute Christmas shopping.

Surprise, surprise, the PR firm in ques-tion, Yellow Door, had enjoyed its officeparty the previous evening.

SPECIAL TREATMENTIF MAHIKI Dubai thought it could cornerthe market in cocktails in the United ArabEmirates it can think again.

Because hard on the heels of Mahikislaunch in the Jumeirah Beach Hotel onMonday (The Capitalist, 19 December) is acounter-move from its London rival Movida,

which is opening imminently in theRadisson Royal Hotel (above).

Movida is the club that Dubai has beenlonging for, says the 500-capacity venue,which will contain two bars, 38 VIP tables

and an exclusive private area for those

who prefer a little more privacy.Movidas focus on VIPs may give it the

edge among publicity-shy Emiratessheikhs although it has the handicap ofonly being open three days a week, com-pared to no special treatment Mahikisseven. Let battle commence.

FLYING STARTITS NOT called The Flying Trader for noth-ing the racehorse owned by forex traderGreg Secker had its first win atWolverhampton last Friday, finishing threelengths ahead to land Secker an earlyChristmas bonus of 4,205.

Although, to be more accurate, the prizemoney will be donated to SeckersKnowledge For Action Foundation, whosehighest-paying clients co-own the two-year-old colt trained by Jane Chapple-Hyam.

FIFTH TIME LUCKYSTAR jockey Ruby Walsh cost the subscrip-tion horse-racing channel Racing UK almostsix figures when he won three races in arow at Cheltenham in March.

But the offer of a free subscription to thechannel will be repeated on the one occa-sion Racing UK will be happy to pay out if Kauto Star creates history by winning theKing George VI Chase at Kempton Park onBoxing Day for the fifth year in a row.

To take up the offer, which runs untilmidday on Monday 26 December, call 0844472 5777 and quote Kauto Star.

The Capitalist12

EDITED BY

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

Left to right: EdwardSaatchi, AharonWasserman and

Justin Lewis

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BRITAINS top share indexfell back after a volatilesession yesterday, swing-ing back from early strong

gains in low volumes, with banks seeing gains eroded,although Lloyds was boosted bya broker double upgrade.

At the close, the FTSE 100index was down 29.86 points, or0.6 per cent at 5,389.74, revers-ing a chunk of Tuesdays one percent advance.

Volumes were around 85 percent of the 90-day average.

Banks ended lower as a sector,dragged back by big falls in glob-al heavyweight HSBC and emerg-ing markets specialist StandardChartered, down 0.8 per centand 0.2 per cent respectively.Lloyds Banking Group, howev-er, was the top FTSE 100 riser, up

5.5 per cent as Exane BNPParibas upgraded the UK lenderto outperform from under-perform on valuation grounds.

That move provided supportto other domestic British banks,with Barclays and Royal Bank ofScotland up 0.3 per cent and 0.8per cent respectively.

Among other blue chip gain-ers, building products firmWolseley and recently-promotedIrish peer CRH added 2.1 percent and 2.6 per cent respective-ly, boosted by further upbeatdata on the US housing market.

Elsewhere among the FTSE100 fallers, Essar Energywas thebiggest faller, down 3.4 per centafter announcing its chairman was stepping aside temporarilyfollowing allegations by Indiascentral bureau of investigationover the holding of Essar in looptelecom limited.

And blue chip retailers wereunsettled by further depressingnews on the high street, withMarks & Spencer and Sainsburyboth down around two per cent.


FTSE seesaws loweron banks and retailers

THELONDONREPORT

TECHNOLOGY sharesslumped yesterday andpushed the Nasdaq downone per cent after Oracle

reported results that cast doubtson the sectors health, even as broader markets closed mostlyflat in a thinly traded day.

Outside the Nasdaq, the mar-ket recovered from early losses assome recent fears over Europefaded. Traders tried to buildmomentum for a year-end rallyand possibly erase the S&P 500s1.1 per cent losses so far in 2011.

After Tuesdays close,OracleCorp reported earnings and salesthat missed expectations for thefirst time in a decade. The soft-ware giant joins a growing list ofcompanies, including some oftechnologys biggest and oldestnames, whose results and out-

looks have raised alarm bellsabout business conditions.

The stock plunged 12 per centto $25.77 on heavy volume and was the top decliner in theNasdaq 100. Shares of other techcompanies also fell. IBMwas thebiggest drag on the Dow, down3.1 per cent at $181.47. CiscoSystems lost 2.6 per cent to$17.92 at the close. ThePhiladelphia semiconductorindex fell 1.2 per cent.

Oracle is a tech story, buttheres concern it could be a broader economic story, saidBrad Sorensen of CharlesSchwab in Denver.

The Dow Jones industrial aver-age rose 4.16 points, or 0.03 percent, to 12,107.74. The Standard &Poors 500 Index gained 2.42points, or 0.19 per cent, to1,243.72. The Nasdaq CompositeIndex slid 25.76 points, or 0.99per cent, to 2,577.97.

For the year, the Dow is up 4.6per cent while the Nasdaq isdown 2.8 per cent.

Markets hold up yettech sector hit by slide

THENEW YORKREPORT

BEST OF THE BROKERS

ANALYSIS lCarnival PLC

2,300

2,200

2,100

2,000

1,900

Oct Nov Dec

p 2,131.0021 Dec

CARNIVALDeutsche Bank rates the cruise company as abuy with a target price of 2,650p afterfourth quarter results that showed earningsper share (EPS) in line with the brokersexpectations of 28 cents. Deutsche points outthat while it expected no extra stock to havebeen purchased following a significant buy-back in the third quarter, some investors maystill be disappointed.

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

ANALYSIS lCentamin Egypt Ltd

110

100

90

80

Oct Nov Dec

p 83.7521 Dec

CENTAMIN EGYPTCiti maintains its buy rating on the Egypt-focused gold miner, but reduces its target pricefrom 1.67 to 1.23 to take into account somechanges to its estimates after building in risksrelated to recent disturbances in the country.Though the broker says Egypt may eventuallysettle down, it is lowering its earning per shareslightly after reviewing industry cost trends andthe likely cost profile.

ANALYSIS lTesco PLC

410

400

390

380

370

360

Oct Nov Dec

p 382.9021 Dec

TESCONomura rates the supermarket giant as a buywith a target price of 500p, saying that Tescos BigPrice Drop has driven an early volume response inthe third quarter. The broker expects the fully fund-ed initiative to resonate with stretched shoppers,and along with a partially reset non-food offershould drive an improvement in trading that shouldbuild into 2012. Nomura cites UK unemploymentand squeezed spending as a potential downside.

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Bluewater BioBluewater Bio International, the watertreatment firm, has appointed waterindustry expert Lloyd Martin as senior

adviser, focusing on the Middle East.Martin has held several senior posi-tions in UK water companies, includingregional director at Severn TrentServices International and business

development manager at AnglianWater International.

PwCMark McCaffrey has been appointed asglobal software leader for the technol-ogy industry group at PwC. McCaffrey

joined the New Jersey assurance prac-tice of PwC in 1994 before transferringto the software practice in the SanJose office in 1995.

XP PowerThe electronics manufacturer hasappointed Jonathan Rhodes asfinance director. Rhodes joined the

finance team of XP Power in July2008 as European controller; prior to

joining the group, he spent nine yearsat JCDecaux, where he held seniorfinancial positions including head offinancial reporting.

The Hark GroupThe specialist retail asset managerand developer has hired MarkWilliams as a shareholder and part-ner, working alongside founding part-ners David Henderson Williams andRob Cossey. Williams moves fromDTZ, where he was the senior directorleading shopping centre investment

and development funding activityacross UK and Europe.

Cerberus Capital ManagementAllen Ukritnukun has joined Cerberusas head of European corporate dis-tressed trading and investing, based

in London. He will manage a teamfocused on European and Asian dis-tressed investing, including financials,sovereign debt and structured credit.Prior to joining Cerberus, Ukritnukunwas a managing director at GoldmanSachs in the global credit division,responsible for European private dis-tressed trading and investing.

CITY MOVES | WHOS SWITCHING JOBS Edited by Harriet Dennys

+44 (0)20 7092 0053morganmckinley.com

To appear in CITYMOVESplease email your careerupdates and pictures to [email protected] SPECIALISTS IN GLOBAL PROFESSIONAL RECRUITMENT

in association with

CinvenThe private equity firm has made several appointmentsat Guardian Financial Services, the UK consolidator ofclosed life assurance funds acquired by Cinven inAugust. Jonathan Yates (pictured), formerly groupfinance director of Phoenix Group, joins as chief execu-

tive; Paul Dixon joins from Phoenix as chief investmentofficer; and Simon Davis, who previously ran his ownconsulting business, joins as chief risk officer.

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NEWS | IN BRIEF

AstraZeneca bets on Asia researchAstraZeneca is placing new bets on drugresearch by signing deals with two Asiancompanies, just a day after suffering adouble setback for two of its most impor-

tant pipeline assets. Britains secondbiggest drugmaker has struck a globaldeal to co-develop a novel cancer treat-ment from Hutchison China MediTech andbought options on a potential new classof diabetes pills from Astellas Pharma.

Seymour Pierce fined 400,000Seymour Pierce was yesterday fined arecord 400,000 for twice falling shortof the required standards for advisingclients listed on London's junior stock

market, AIM. Seymour Pierce, which spe-cialises in advising small and mid-capcompanies, was not quick enough toadvise one of its clients to announce thatit was running low on working capital,said the AIM Disciplinary Committee.

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Philip Salter askstwo experts if weshould be contentwith beta incomeor pursuing alpha

WHETHER investors shouldaim for alpha (beating the

benchmark) or beta (track-ing the benchmark) is a

debate that divides investors. Here adefender of tracking beta and anadvocate of chasing alpha put theirrespective cases.

Should investors chase Alpha? In a word: no. Evidence shows that it isfutile attempting to outperform mar-kets with odds heavily stacked againstinvestors. This has been shown to betrue both in rising and falling mar-kets and over short and long periods.Most studies estimate that, over oneand three year periods, fewer than 20per cent and 5 per cent of fund man-agers respectively beat the market.Investors do have an alternative.

Investing in public markets involvesoperating in a market with millions ofother participants. When investorschase alpha they believe they can out-

wit the majority of them. Common

Outlook for 2012: Protecting your wealth

15

Wealth Management | Personal Finance

To track or chase returns

WORLDTRACK

ANTHONY

CHRISTODOULOU

sense alone should dictate that unlessan investor has exceptional advan-tages for example, superior knowl-edge or technology then he cannotexpect to outperform. On the con-trary, he should expect to achieve themarket average return, less fees andcharges. These costs vary widely, butcan range from 1 to 3 per cent perannum taking into account implicitcharges, which are often not disclosedto investors.

When market returns are high, thecosts of accessing, transacting andadvising might not appear significantto many investors. However, withlower returns, costs become propor-tionately greater and crucially signifi-cant. Perhaps more alarming: ifmarkets remain highly volatile, chas-ing alpha is likely to result in excessivelevels of turnover further increasingcosts.

The animal spirit of investing willalways encourage some degree ofchasing alpha. However, a new way ofinvesting is now available. The inno-

vation of exchange-traded funds (ETFs)means that investors can simply buyentire markets, or sub-markets(including all dividends), with muchlower costs and greater flexibilitythan before. These costs tend to rangefrom 0.25 to 0.50 per cent per annum.Rather than trying to generate alpha,investors can access markets with pre-cision and allocate cheaply using per-sonalised objectives. In the words of

Jack Bogle: Dont look for the needlein the haystack. Just buy thehaystack.

Anthony Christodoulou is the founder ofWorldtrack, an independent specialist ETFinvestment business providing exclusivesolutions to private clients and family officesin the UK : www.world-trackers.com

Its hardly surprising, with repeatedinvestment studies showing that themajority of professional fund man-agers fail to beat the markets, thatmany investors come to the conclu-sion if you cant beat it, then track itcheaply. However, I believe its possibleto outperform the market. For those

who would like to try, I would recom-mend three strategies.

Many studies have confirmed the

importance of reinvested dividendswhen it comes to the long-term per-formance of shares. Over a lifetime ofinvestment (65 years) in the UK mar-ket it represents over 90 per cent ofthe overall return an amazing figure

by any standards. The higher the divi-dend the more significant its contri-

bution which explains why the dogsof the Dow theory still remains popu-lar. This simple, but effective, strategyoutperformed the market from 1972to 2007 and although it all went badly

wrong in recent years, so did mostthings. I think in a world of record lowinterest rates and gilts, which offernegative real returns, the dogs willhave their day again fairly soon.

Another strategy that will lead to

market outperformance is followingdirectors deals. Actions always speaklouder than words and when directors

buy their own company shares youshould listen. The outperformance ofthese shares was confirmed byresearch carried out over a four-yearperiod by directorsdeals.com. Thisshowed shares bought by directors

went up by an average 23.5 per cent inthe year following the transaction andshares that were sold fell by 15.5 percent. Watch out for deals at the fullmarket price in small companies car-ried out by more than one director.

Finally, use the Garp theory to dis-cover undervalued shares. This wasintroduced by the American investorPeter Lynch and works on the premisethat fair value exists when the price-to-earnings ratio (P/E) of a stock equalsits growth rate. Pegs of less than oneare the ones to look out for. There is a

big difference between a stock that ischeap and one that is undervalued.

The P/E will tell you whether itscheap, but a peg of less than one tells

you its undervalued.John Cotter is vice president of Barclays

Stockbrokers and author of Cotter OnInvesting, Taking the bull out of the markets.Published by Harriman House.

BARCLAYS STOCKBROKERS

JOHN COTTER

2012 MACRO OUTLOOKWeak economic growth will continuein the West, as the deleveragingprocess enters its third year we arestill several years away from complet-ing this. However, any resolution inthe Eurozone is likely to provide someshort-term support to stockmarkets.

PREDICTIONS FOR END OF 2012 FTSE 100: 5,700 S&P 500: 1,350 UK average property price: 5% decrease UK interest rates: 0.5% Gold: $1,600

HOW TO PROTECT YOUR WEALTHVolatility will remain in 2012, so investors should avoid trying to predictmarkets and instead focus on long-term themes which will deliver.Income generation will remain a key investment strategy as you getpaid to wait. Equity income growth in Asia would suit more adventur-

ous investors, while global income funds will help diversify equityincome exposure. The US could be the market to surprise on the upside.

BESTINVEST

ADRIAN LOWOCK

2012 MACRO OUTLOOK2012 has the hallmarks of being ayear of consolidation at best or flatto slightly negative growth more like-ly. Irrespective of any stimulus boost-ing measures, it will take months,perhaps two years before confidencereturns to drive economic growth.

PREDICTIONS FOR END OF 2012 FTSE 100: 5,100 S&P 500: 1,280 UK average property price: 7% decrease UK interest rates: 0.5% Gold: $1,550

HOW TO PROTECT YOUR WEALTHThe dollar should retain its status while the Norwegian krone,Australian dollar and Swiss franc should also strengthen during 2012.For cautious investors, short-dated, fixed income bonds in any of thesecurrencies would be my preferred investment strategy. For more aggres-

sive investors there is a sweet spot in heavily discounted, perpetual float-ing rate notes in US dollars issued by the Canadian and Australian banks.

GLENDEVON KING

PETER BAUM

2012 MACRO OUTLOOKGermany will cave in and across theworld central banks will print money.The true power of America will meanthat it will lead the charge of quanti-tative easing. The net result will bethat fears of recession are replacedwith accelerating inflation.

PREDICTIONS FOR END OF 2012 FTSE 100: 5,900 S&P 500: 1,350 UK average property price: 9% increase UK interest rates: 0.5% Gold: $2,300

HOW TO PROTECT YOUR WEALTHInvestors should flee fiat currencies and invest in hard assets. Thebest investment of all will prove to be gold, as it is the only currencynot set to be debauched by politicians and bankers during the year.The best way to play gold is by amassing a balanced portfolio of

mid-cap gold producers, which I think are right now as cheap aschips.

T1PS

TOM WINNIFRITH

Catch it if you canPicture: GETTY

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FOR the past fifteen months, the Bank of

England (BoE) has been backpedalling.Instead of coasting, the UK economy hasstalled. The governments bold and sensible

plans for budget deficit reduction are broadly ontrack for the next few months, but will notremain so unless the central bank shapes up tothe challenge of restoring the flow of credit tothe private sector. Neither the 0.5 per cent BankRate nor the resumption of gilt purchasesaddresses the fundamental problem: a broken

wholesale funds market. The BoEs strategy ofrapidly weaning UK banks off emergency liquid-ity support has proved a disaster for the domesticeconomy. Moreover, it has exposed UK banks toadditional stresses in the face of a Eurozone

banking contraction. The eagerness of the politi-cians to fix the system as a bulwark against anyfuture banking crisis has had the diametricallyopposite effect. A reintroduction of the SpecialLiquidity Scheme is urgently required.

The UK banking system entered the globalcredit crisis with a massive shortfall of domesticcustomer deposits relative to domestic customerloans, known as the customer funding gap. Thisgap, which grew to 800bn by the end of 2008,

was filled for many years by short-term bank bor-rowing from the international wholesale fundsmarket. The US subprime crisis erupted in

August 2007, triggering severe funding problemsfor UK banks, especially Northern Rock. Over thenext 18 months, the central bank launched a

barrage of measures intended to stave off the cri-sis, including a cut in Bank Rate from 5.75 percent in December 2007 to 0.5 per cent in March2009, where it remains today.

Arguably the most significant interventionwas the Special Liquidity Scheme (SLS), launchedin April 2008, which accumulated 287bn ofsecurities mostly residential mortgage securi-ties and covered bonds against which the BoElent 185bn of Treasury bills. As recently as Junethis year, the central bank boasted that strongdebt issuance, deposit growth and loan shrink-age had allowed UK banks to reduce official sec-tor liquidity support more quickly than

planned. The strict timetable for the return of

SLS funds forced banks to make their replace-ment top priority. This has superseded the vari-ous initiatives and incentives designed topromote bank lending to the private sector,

whether as home loans or commercial loans.Despite the repetition of the very same threat

that plunged Northern Rock into darkness fouryears ago, the BoE is adamant it will close the SLSby January 2012. UK banks have been preparingfor this, holding back from net new customerlending and reining in their unused credit facili-ties by 11 per cent or 31bn since September2010. This has robbed low interest rates of theirexpansionary vigour and denied to the UK econ-omy even the temporary phase of rapid econom-ic recovery that normally follows a slump.

The BoE has adopted the position that thestructural liquidity support for the banks should

be temporary while the compression of interestrates, extending across the government yieldcurve, should continue for a considerable period.

This combination is wrong-headed and counter-productive. As Professor Ronald McKinnon ofStanford University has recently pointed out inthe US context, the continuation of near-zeroshort-term interest rates poses a credit constrainton the banking system. Low interest rates onlystimulate faster credit growth when interbankrates are comfortably above zero. Banks withgood opportunities for lending to individualsand small and medium-sized enterprises (SME)typically do so through the extension of creditfacilities. These credit lines, like an overdraftfacility, can be drawn down when the borrower

requires them. For the bank, this creates uncer-

tainty over its net cash position. An illiquid bankwould be in trouble if its customers decided touse up their credit lines in a synchronised fash-ion, as can happen in a soft economic patch.

If banks had ready access to wholesale fundsthrough the interbank market then it wouldallay their fears of illiquidity. They could coverunexpected shortfalls by borrowing from banks

with excess reserves without needing to offer col-lateral. However, with the interbank rate barelyabove 1 per cent, strong banks are unwilling topart with surplus reserves for a derisory yield.

Weaker banks cannot readily bid for funds at aninterest rate well above the interbank rate with-out signalling that they might be in trouble. TheBoEs new contingency liquidity facility is wel-come, but carries the stigma of the discount win-dow and doesnt address the structural problem.

The solution is to reverse the BoEs position: toreinstate the SLS for an extended period, and to

begin to reconnect Bank Rate to the marketinterest rate structure. Bear in mind, averageinterest rate on bank and building societyaccounts with notice periods at end-November

was 1.78 per cent. The logical response to theEurozone threat to UK wholesale market fund-ing is to strengthen substitute liquidity facilitiesfor UK banks, not to suppress interest rates.

Peter Warburton is director of Economic Perspectivesand a member of the IEAs shadow Monetary PolicyCommittee.

16 The ForumCITYA.M. 22 DECEMBER 2011

Reintroduction of the Bankof Englands Special Liquidity

Scheme is urgently required

A wholesale improvement isthe only way for UK banks toweather the Eurozone storm

cityam.com/forum

PETER WARBURTON

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GUIDE TO GIVERS

OUR GUIDE TO 20 OF THE WORLDS TOP CHARITABLE DONORS

Since this is the season of goodwill, we havedecided to focus attention on some of thepeople and organisations that spend timeand resources on giving to those less fortu-

nate than themselves.Our own Christmas Appeal has focused minds

at City A.M. on the charitable sector.For the past few weeks we have been encourag-

ing our readers to make donations toOpportunity International, a charity involved in

micro-lending to entrepreneurs and small busi-nesses, mainly in Africa. The response has beensensational and for that we are so grateful.

Todays supplement contains a top 20 list ofgivers from foundations and trusts that has beencompiled from a variety of sources. We alsodecided to put together a list of top 10 City ofLondon donors.

With all such lists, this one is not exhaustiveand we would welcome suggestions from anyorganisation, expert or individual donor as tohow it could be improved on next year.

We have excluded one or two organisations

that we have found on other lists, if we thinkthat the money that has been given away is insome way related to the groups main business

(this is the case with one or two of the pharma-ceutical organisations, for example).

Those organisations that have been preferredare ones that raise money to give away to a vari-ety of causes that are unrelated to their current

business. We have spoken to several charity industry

bodies, as well as the funds themselves, and havescoured lists on the internet and used materialfrom various sources.

Hopefully, this will provide a base from whichthe City A.M. list of givers will grow. Just like thegiving itself.

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The William H Gates Foundationwas created in 1994 to work toimprove global health. Createdwith an original stock gift of

$94m (60.5m), the foundation mergedwith the Gates Learning Foundation in2000 to create the Bill and MelindaGates Foundation.The largest philanthropic organisation inthe world, with total assets of $37.4bn, theBill and Melinda Gates Foundation handedout $2.6bn in 2010. The foundation fundsglobal health initiatives, agriculturaldevelopment and education pro-grammes. Bill and Melinda Gates, pic-tured, have placed a priority oneradicating diseases, like polio,through vaccinations.

Gates, in his 2011 annual letter,stressed the importance of gov-ernments and individuals continu-ing to give, despite the hardeconomic times.Under David Cameronsleadership, the UnitedKingdom set a great exam-ple by keeping its promiseto grow aid spendingdespite the cuts it had tomake, Gates said. It isinspiring to see a leaderstand up for what hebelieves is right, evenwhen it isnt easy.Though its headquar-ters are in Seattle inWashington State, thefoundation has officesin Delhi, Beijing andLondon.

2WELLCOME TRUST

UK

The Wellcome Trust was estab-lished following the death of SirHenry Wellcome in 1936, toadminister the fortune of the

pharmaceutical philanthropist, pictured.Based in London, it aims to encouragethe public understanding of science,support biomedical research and influ-ence health policy around the world.Working towards improving the healthof both humans and animals, the trustdonated 602m in 2011.Its aims include boosting the healthbenefits of genetics, increasing theunderstanding of brain and chronic ill-

nesses, tackling infections or diseasesand connecting the environment withnutrition and health.With the enormous possibility of devel-opment in chemistry, bacteriology,pharmacy and allied sciences thereare likely to be vast fields opened forproductive enterprise for centuries tocome," Sir Henry wrote in his will.True to his prediction, the foundationhas since developed many life-changingdrugs, such as the first effective drug tofight leukaemia and a drug used tocombat AIDS.The Wellcome Collection is one of thebest-known arms of the trust and ishoused alongside the Wellcome Libraryin Euston. Its purpose is to enhancepublic understanding of medical scienceand history with a series of landmarkexhibitions.Having just celebrated its 75th anniver-sary, The Wellcome Trust has an

endowment of 13.6bn.

NOVAMEDIA/POSTCODE LOTTERIES

NETHERLANDS

Started in 1989 by Simon Jelsma,Boudewijn Poelmann, pictured,Frank Leeman and Herman deJong, the charity supports a wide

range of programs, such as UNICEF, theRed Cross and Amnesty International.Since being set up, Novamedia/PostcodeLotteries has donated 4bn (3.35bn) intotal, including $700m (451m) in 2010.The group is comprised of five separatelotteries. The first three were started inthe Netherlands, where currently 50 percent of the revenues go to charity. Afterthesuccess of these charity lotteries, thegroup launched two new lotteries in2005, one in the United Kingdom and theother in Sweden.The Peoples Postcode Lottery in the UKdonates 20 per cent of its profit to chari-ty and all of the money raised by the UK

lottery stays in the country. The lotterysupports Children 1st, Maggies CancerCaring Centre, Missing People and multi-ple wildlife trusts. Poelmann is chairmanofCity A.M.

1

20 of the worlds largest donors

WK KELLOGG FOUNDATION

US

The WK Kellogg Foundation,originally titled the WK KelloggChild Welfare Foundation, was setup in 1930. It supports a number

of causes, focusing on children andeducation, which is evident in its vision:We envision a nation that marshals itsresources to assure that all children havean equitable and promising future anation in which all children thrive.Created by breakfast cereal entrepreneurWill Keith Kellogg, pictured, the privatefoundation also advocates economicsecurity for families, greater racialequality and civic engagement.In 2010, the WK Kellogg Foundationcommitted $360m (232m) for grantsand put $289m towards variousprogrammes that support caring forchildren and improving their lives.While the foundation is based in Michiganwith the Kellogg Company, it is tied tofoundations all over the world, including inAfrica, the Caribbean and Latin America.

FORD FOUNDATION

US

E

dsel Ford, pictured, the son of motor

pioneer Henry Ford, established theFord Foundation in the US in 1936to advance scientific and education-

al efforts. The organisation started with agift of $25,000 (16,000) and last yeargave out $506.8m in grants.The organisation now has a wide array ofobjectives, including promoting humanrights internationally, supporting sustain-able development, funding educationalopportunities and promoting economicfairness.The Ford Foundation is particularly con-cerned about the widening gap betweenthe rich and the poor.Too many voices today are silenced orignored by their leaders; too many socialopportunities are restricted to thewealthy few; and too many public institu-tions are impenetrable and closed toscrutiny, according to Luis A. Ubias, theninth president of the foundation.Based in New York City, the Ford

Foundation operates in 50 countries.

451M

602M

418M

326.5M

5

4

3BILL AND MELINDA GATES FOUNDATIONUS

1.67BN

20 CITYA.M. 22 DECEMBER 2011GUIDE TO GIVERS

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Maggies Cancer

Caring Centres

Maggies Centres are all about helping people

to navigate through their cancer journey

Janet Ellis, TV presenter

Maggies Cancer Caring Centres are a fantastic

service for anyone diagnosed with cancer,

where they can find support, information or

even just a cup of tea.

BelongingJacqueline Fraser was diagnosed with cancer

in 2008. Jacqueline explains When I was diag-

nosed, I didnt hear what the doctor had to say

despite being involved with the NHS for

40-years. You dont belong in a hospital; your

plans and your future dont matter there. When

you have cancer, it is like you dont belong in

this busy City of London, in this world. You have

a sick note. At Maggies you do belong.

At Maggies you have a place and that is an

overwhelmingly good feeling and you feel

safe again. Maggies has helped me move on,

not go back, you dont go back.

Welcome to Maggies LondonThe first purpose-built Maggies Centre in

England was opened by Nigella Lawson and

Sarah Brown on 29 April 2008. Located at

Charing Cross Hospital in London, it is open

to anyone affected by cancer in the capital.

It is an uplifting, non-institutional space

where people with cancer, their family and

friends can access the support they need.

The centre is open from 9am to 5pm Monday

to Friday.

Thanks to you2 million in funding from the Peoples

Postcode Lottery keeps four Maggies Centres

going for the whole year. By playing you

support Maggies and hundreds of other good

causes. See www.postcodelottery.co.uk

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ROBERT WOOD JOHNSON FOUNDATION US

The Robert Wood Johnson Foundation(RWJF) was founded in 1972 by RobertWood Johnson to improve the health andhealthcare of all Americans. The foundationdonated $304m (193.7m) towards theseaims in 2011.One of the foundations greatest achieve-ments is the creation of the 9-1-1 emergencyresponse system in America, which has beena model for other response systems in theworld. The foundation also values end-of-lifecare and has established training and guide-lines to promote quality healthcare.Most recently the foundation has taken upthe cause of childhood obesity and attemptedto improve access to affordable healthy food.It also campaigns for more physical activitiesin schools and communities.The foundation funds both private and publichealthcare organisations and research on pub-lic health with research grants making upmore than 20 per cent of awards.

9 DAVID AND LUCILE PACKARD FOUNDATION US

Founded in 1964 by David and LucilePackard with an original endowment of$100,000, the David and Lucile PackardFoundation has many aims, including con-servation and science, health and familyand community development.Last year the foundation donated $234m(149m) to support these projects.One of the primary focuses of the founda-tion is to improve the lives of children oneof the core desires of technology entrepre-neurs David and Lucile Packard.Though the organisation has long-termgoals for each program, it adjusts its shortterm strategies based on the economy andthe money available to issue, especially dur-ing the economic downturn.Headquartered in California, it is still con-sidered a family foundation as thePackards children and grandchildren playan active role.

11 WILLIAM AND FLORA HEWLETT FOUNDATION US

The William and Flora Hewlett Foundation

was founded by computer entrepreneursWilliam and Flora Hewlett and their son,Walter Hewlett in 1967. With assets val-ued at $7bn, the foundation donated$205.3m (130.9m) last year to helptackle a wide array of issues, specificallyglobal poverty, combating climate changeand improving education.Its work in global poverty includes provid-ing grants to promote transparent gover-nance, improving education in thedeveloping world and ensuring access tofamily health. The foundation is based inCalifornia tries to boost local communitiesby raising educational standards andreducing teen pregnancy. Assets stood at$7.38bn in 2010.Paul Brest, the president of the founda-tion, said it responded to the global finan-cial crisis by issuing smaller grants andstreamlining operating costs.

12 THE KRESGE FOUNDATION US

Established in 1924 by retailer Sebastian Kresgewith an initial gift of $1.6m to help people on lowincomes, the Kresge Foundation now has totalassets of $3.1bn and awarded $158m (100.74m)in grants for 2010 to fund community develop-ment. The Michigan-based foundation has sevenprograms: arts and culture, community develop-ment, Detroit, education, environment, health andhuman services.In order to promote its schemes, the foundationalso partners with non-profit organisations andthe public and private sector.The Kresge family still plays a major role in thefoundation, as Kresges son and many grandchil-dren serve on the board today.Rip Rapsom, president of the Kresge Foundation,said the economic crisis has put foundations inperilous position, but he believes it is vital to con-tinue giving in order to buffer, to the fullestextent possible, the social and economic harm

that disproportionately falls on low-income peo-ple during times of economic disintegration.

6 ELI LILLY AND COMPANY FOUNDATION US

The Lilly Company, with a desire to improvethe healthcare of the poor in low-incomecountries and to strengthen public educationin the US, established the Eli Lilly andCompany Foundation in 1968. In 2011, thepharmaceutical giant donated $430m(277m) with this aim.To achieve an improvement in global health,

the company believes the brightest scientistsin the world need to tackle the problem.The Indiana-based foundation is encouragingscientific understanding in its early stages byhelping primary school children improve inmaths and science.It works in the area of chronic or non-com-municable diseases such as diabetes, cancerand mental illness.It is also funding research in the area ofmulti-drug resistant tuberculosis.The foundation said it has not been affectedby the economic downturn, and has seen itsdonations increase year-by-year.

8 JOHN D AND CATHERINE T MACARTHUR FOUNDATION US

Once one of the three wealthiest men inAmerica, property and business ownerJohn MacArthur started the Foundationwith his wife in 1970, with the aim of pro-moting human rights, global conservationand security.MacArthur was worth more than $1bn(640m) when he died, 92 per cent ofwhich he left to the foundation. The organi-sation currently has a net value of $5.6bnand donated $243.8m (155.7m) in 2010.Its international programmes, operating in60 countries, focus on human rights, sus-tainable development, higher educationand health. The foundation has offices inIndia, Mexico, Nigeria and Russia. The USarm funds community development, educa-tion and juvenile justice reform.The economic crises and changes in worldgovernments have increased the challengesfor the foundation, according to its presi-dent, Robert Gallucci.

10 GORDON AND BETTY MOORE FOUNDATION US

Gordon E Moore, one of the founders of Intel,

established the Gordon and Betty MooreFoundation in 2000 alongside his wife Betty,with the aim of advancing scientific researcharound the world and creating positive out-comes for future generations.The foundation gave $233.5m (149m) ingrants during 2010 for its three areas of focus:science, environmental conservation and theSan Francisco Bay Area.The foundations total endowment is over $5bnand the projects it supports includeConservation International, Andes-AmazonInitiative and Marine Microbiology Initiative.A fifth of grants go towards innovativeresearch and it helps projects which are oftenoverlooked by traditional grant-making bodies.The California-based foundation seeks toimprove the quality of life of its local communi-ty. Both Gordon and Betty Moore are involvedin other philanthropic organisations and areactive in their own charity.

7

277M

194M

155.7M

100.7M

130.9M149M

149M

THE TOP 20 AT A GLANCE

1 Bill and Melinda Gates Foundation US Computers 1994 1.67bn2 Wellcome Trust UK Pharmaceuticals 1936 602m3 Novamedia/Postcode Lotteries Netherlands Charity l otteries 1989 451m4 WK Kellogg Foundation US Cereals 1930 418m5 Ford Foundation US Automotive 1936 326.5m6 Eli Lilly and Company Foundation US Pharmaceuticals 1968 277m7 Robert Wood Johnson Foundation US Health products 1972 194m8 John D and Catherine T MacArthur US Property 1970 155.7m9 David and Lucile Packard Foundation US Technology 1964 149m10 Gordon and Betty Moore Foundation US Technology 2000 149m11 William & Flora Hewlett Foundation US Technology 1967 130.9m12 Kresge Foundation US Retail 1924 100.7m13 Childrens Investment Fund UK Hedge funds 2002 60m14 Leverhulme Trust UK Soap 1925 50.2m15 Andrew W Mellon Foundation US Banking 1969 42.7m16 Monument Trust UK Supermarkets 1965 37.5m17 Gatsby Charitable Foundation UK Supermarkets 1967 35.3m18 Garfield Weston Foundation UK Foods and retail 1958 33.7m19 Wolfson Foundation UK Retail 1955 31.3m20 Esme Fairbairn Foundation UK Investments 1961 30.8m

22 CITYA.M. 22 DECEMBER 2011GUIDE TO GIVERS

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