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News2 CITYA.M. 4 JANUARY 2012

Eurozone banks living handto mouth on loose ECB fundsTHERE are growing fears that someEurozone banks could be in severefinancial difficulties based on datareleased by the European CentralBank (ECB) yesterday.

Figures revealed that the Banksovernight emergency funding facilityis still in high demand despite theECB having flooded Eurozone lenderswith money in recent weeks.

On Monday, banks drew14.8bn ofovernight loans from the ECBs mar-ginal lending facility, which offersday-to-day funds at the above-marketrate of 1.75 per cent.

Thursdays figures showed that banks needed 17.3bn in overnightsupport last week, the highest figuresince March last year.

Economists said that the sustained

demand is particularly unexpectedgiven the 489bn banks took out inthree-year loans just two weeks ago.

The data suggests that an unknownnumber of Eurozone banks have seentheir funding situation worsen signif-icantly in the last week so that theywere unable to wait for yester-days more economicalauction of weekly moneyto supplement thelonger-term cash.

Last week one couldhave argued that it wasfor the end of the year [tomake balance sheets lookgood], but youd haveexpected it to unwind, saidHendersons Simon Ward.

Overall, demand forthe ECBs short-e r - t e r mcash hasdropped:

it conducted an auction of cheaperweekly cash yesterday, in which totaldemand dropped by 15bn to130.6bn.

But the overnight figure shows thatsome banks needed tiding over onMonday before the weekly cash wasavailable.

The ECB is unlikely to tightenthe purse strings any time soon.The Bank has appointed a newchief economist to replaceJurgen Stark, who resigned lastyear in protest at the decision tobail out governments by buyingtheir bonds.

Peter Praet (pictured left), thedoveish Belgian member of the

ECBs executive committee, willtake over from the

h a w k i s hGerman to

head up thee con om ic

forecasting on which the Bank basesmany decisions.

But despite the ECBs apparent will-ingness to act as a backstop for thefinancial system, Fitch has suggestedthat it might not be enough.

The rating agency said in a reportthat some Spanish banks do not haveenough collateral of sufficient qualityto get ECB funding that would coverthe value of their debt that willmature this year.

BY JULIET SAMUEL

BANKING

MINISTER ATTACKS GREEN LOBBY The climate change minister hasrounded on the environmentalTaliban of green campaigners, insist-ing they are wrong to accuse the gov-ernment of abandoning itscommitment to a low carbon agenda.Greg Barker said: There is nothingenvironmental about exporting man-ufacturing jobs abroad. Barker hasled the contentious efforts to rein insolar generation costs.

1.2BN APP DOWNLOADS AT CHRISTMASMore than 1.2bn apps were down-loaded on to mobile phones andtablet devices during Christmasweek, a new study says, marking thefirst time that more than 1bn appdownloads have been recorded in aweek. About 20m Android and Appledevices were activated during

Christmas week, according to mobileanalytics firm Flurry.

RIM CONSIDERS NEW CHAIRMAN

Research In Motion, the Canadianmanufacturer of the BlackBerrysmartphones, may bow to investorpressure and name an independentdirector as chairman of the belea-guered company. Under the planMike Lazaridis and Jim Balsillie, co-chief executives of RIM, would relin-quish their additional titles ofco-chairman to make way for a newchairman. Barbara Stymiest, an inde-pendent director, is said to be thefrontrunner for the position.

WAVE OF CHINA DELISTINGS IN US The value of Chinese companiesdelisting from US exchanges in 2011exceeded the amount Chinese compa-nies raised via initial public offeringsin the US, a stark sign of how fraudallegations and slowing growth havemade many foreign investors bearishon Chinese groups. Chinese compa-

nies with a combined equity value of$3.5bn were taken private in 2011.

SNB GOVERNORS WIFE SAID TOSHORT THE SWISSIEThe Governor of Switzerlands central bank is under pressure to explainwhy his wife transferred $500,000 ofSwiss currency into US dollars shortlybefore authorities intervened to capthe value of the soaraway franc. MrsHildebrand bought half a million dol-lars on 15 August, three weeks beforethe Swiss National Bank plunged intothe currency markets to put a cap onthe value of the Swissie.

DIAGEO CHIEF EXECUTIVE SWITCHESTO AVANTIPaul Walsh, the long-serving chiefexecutive of Diageo, has moved intothe satellite industry after beingappointed as a non-executive directorof Avanti Communications, addingheavyweight City experience to the

board. Avantis share price rose byfour per cent, or 11p, to 301p.

EQUITY RED STAR ESCAPES 1M FINEEquity Red Star has avoided a 1mfine by the Lloyds of London insur-ance market following an investiga-tion into its underwriting standards.The home and motor insurer has beenordered to pay 95,000 towards thecosts of the investigation after admit-ting two charges of detrimental con-duct. The charges relate to lossesincurred by the underwriting syndi-cate, which has been hit heavily by arise in personal injury claims.

ANALYST WARNS BARCLAYS OVER TAXBarclays has been warned that its rep-utation is being tarnished by thepersistent use of complicated finan-cial structures to boost profits. BrucePackard at Seymour Pierce saidBarclays risks a customer backlash if itdoes not reduce its exposure to off-

shore tax havens or limit legitimatetax avoidance.

SEARS HIRES RETAIL VETERANSears Holdings, long criticised for giv-ing short shrift to the shopping expe-rience, has hired a retail veteran, thechief exec of Brookstone, to oversee arevamping of its Sears and Kmartstores. Ron Boire, who previouslyserved in top merchandising roles for Toys R Us and Best Buy, instantly becomes one of the most seasonedretail executives at the strugglingchain-store holding company.

OLYMPUS HOTLINE DIDN'T BLOWWHISTLE The two Olympus executives whoallegedly masterminded the conceal-ment of $1.5bn in losses also oversawthe companys whistleblowing hot-line. Employees were afraid toexpress views that were differentfrom those held by the company's

autocratic leadership, according toa recent independent report.

Britain needs to take Chinese lessons

IT is quite fashionable to be bearish onChina these days. Few think the Asiansuperpower will be able to brush offthe Eurozone woes, inflation is skyhigh and its housing market bubble isabout to go pop. Ive noticed a certainsmugness in those who predict painfor the Chinese, as though it willsomehow staunch the huge flow ofpower from west to east.

But make no mistake: America andEuropes reign as Kings of the World isfast coming to an end. The IMF pre-dicts that China will overtake the USas the largest global economy in 2016,an event that would end up dominat-

ing the legacy of whoever wins thisyears presidential race.

Few doubt that Chinas economicexpansion will slow in 2012, but it isall relative. Growth of around sevenper cent might be less than the nine

per cent pencilled in for 2011, but it isstill significantly better than the grimoutlook for Europe or the slightlymore positive picture in the US.

There is still plenty of proof thatChina is hot. Yesterday we learnedthat gambling revenues in Macau jumped by 42 per cent last year to$33.47bn, making it five times largerthan Las Vegas, and that Temasek islaunching a new $2.5bn fund to investin the region.

So what part is Britain playing inthe Chinese growth story? Last sum-mer, the Prime Minister trumpetedtrade deals worth 1.4bn as proof theUK wasnt missing out, but we still lag behind our peers. According to theWorld Trade Organisation, Germanysold $71bn of merchandise to Chinain 2010, accounting for 5.6 per cent ofexports, while the UK sold just

$11.4bn, accounting for 2.8 per cent.Of course, Germany has long been

better at exports than us. As a nationof shopkeepers, restaurateurs andhoteliers, youd expect us to be capital-ising on the huge growth in Chinese

tourism instead but youd be wrong.According to the UN World TourismOrganisation, the Chinese spent$54.9bn on tourism in 2010, a fourfoldincrease over the previous decade. TheUKs share of the pie was a paltry 0.4per cent.

In a list of our closest rivals, whichignores countries like the Bahamasand Greece, Britain also performsabysmally. Among our eight nearestcompetitors, our share of outboundChinese visits fell from five per cent in2005 to three per cent in 2010. We lostout to France, which had a 30 per centshare in 2010; the US (20 per cent); andSwitzerland (seven per cent).

Even if our market share stays thesame, we should in theory benefitfrom more Chinese tourism over thenext decade. Oxford Economics reck-ons the number of visitors to Britain

could jump by almost two thirds to290,000 by 2020. But this assumesLondon solves its crippling airportcapacity problem, which is alreadystopping people from visiting. Although the overall number of

Chinese tourists has rocketed over thepast five years, airline seat capacityfrom the countrys airports to the UKhas remained stable at 40,000 perannum.

The Tories have backed themselvesinto a corner with their idiotic,Nimby-ish opposition to more run- ways at Heathrow, Gatwick orStansted. Now they need to find analternative solution urgently, orforego the billions of pounds thatChinese tourists could soon be spend-ing here.

Rather than standing on the side-lines, rubbing our hands with glee atany sign of a slowdown in China,Britain needs to work out how to cashin on the [email protected] me on Twitter @davidcrow83 Allister Heath is away

NEWS | IN BRIEF

City Airport gets traffic liftLondons City Airport has smashedthrough the 3m passenger mark in 2011after growing its traffic by 7.6 per centover the year. Traffic in December wasup a hefty 33 per cent on a year ago.The airport has grown faster thanHeathrow, which added 3.7 per cent to

its passenger numbers in the year toNovember, and outpaced a 3.4 per centdrop at Stansted. The airport is stilloperating below its 2008 peak of 3.27mpassengers, though chief executiveRichard Gooding is optimistic ahead ofthe Olympics.

Activists set to leave Old StreetProtesters who have taken over the dis-used Old Street Magistrates Court havesaid they will leave by 23 January. Theactivists, part of Occupy London,claimed they had reached an agreementwith owner Mastcraft after a hearing atClerkenwell and Shoreditch CountyCourt. The group still intends to holdtrials of the one per cent for thebankers and politicians it blames for thefinancial crisis. Mastcraft said it hadspoken to the activists about the depar-ture date but did not reveal full details.

EDITORS LETTER

DAVID CROW

Editorial StatementThis newspaper adheres to the system of

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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

ANALYSIS l Use of ECB overnight funds

bn

1 Jan 1 Mar 1 May 1 Jul 1 Sep 1 Nov

2018

16141210864

2

2011

WHAT THE OTHER PAPERS SAY THIS MORNING

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THE EVENTS group behind theReading, Leeds and Latitude festivalsis set to battle investment groupOakley Capital for the live music armof ailing retailer HMV.

City A.M. understands FestivalRepublic, run by Melvin Benn, is inter-ested in a deal and could make a movein a matter of days. There is no guaran-tee, however, it would take on all ofHMV Live, which includes London fes-tival Lovebox and 13 UK gig venues.

Oakley, the owner of Time Out, isalso one of several others consideringa purchase of HMVs Live events anddigital division.

Citi, which is advising HMV, hasreached out to a number of investorsto offer them details of the division.Sources said Citi had approached alarge number of interested parties of

which most said yes to the offer ofmore information, but the process wasat an early stage.

Investment house Pacific Capital is

also said to be interested but privateequity firm Permira, which made a762m bid for HMV in 2006, is not.

HMV acquired the live division forabout 60m in 2007 and aims to sell itfor a similar sum, but Seymour Pierceanalyst Freddie George said he wassceptical, adding: In this sort of mar-ket and in a forced sale it isnt easy.

HMV, which has a 163m debt pile,put the division up for sale inDecember as it reported a first-halfpre-tax loss of 45.7m.

Citi and Festival Republic bothdeclined to comment.

Bidders tunein for fire sale

of HMV LiveTHE FEDERAL Reserve will from thismonth onwards publish quarterly pro-

jections of future interest rates, in amove widely seen as a further attemptto stimulate the economy.

The policy change could provide anopportunity for a back door policy eas-ing in January, said Harm Bandholzof UniCredit last night. If for examplemost participants would not pencil inany rate hike until the end of 2014, themarket would certainly take this as astrong signal, he explained.

Fed chief Ben Bernanke has previ-ously stressed his desire for moretransparency at the bank, and has nothidden the intention to hold rates attheir historic low.

A third phase of quantitative easingis unlikely to be announced thismonth, according to Paul Dales of

Capital Economics.The Fed noted the recent accelera-

tion in economic growth and,although it stated there were still sig-nificant downside risks, there was noreal QE3 discussion, Dales said. Not

very surprising when the incomingnews has been fairly upbeat.

The Feds minutes cited evidencethat economic activity was expand-ing at a moderate rate, notwithstand-ing some apparent slowing in globaleconomic growth.

Fed says it willpublish interestrate projections

Pop star Kelis performing at Lovebox, the festival run by Simon Foxs HMV Picture: REX

BY PETER EDWARDS AND ALISON LOCK

RETAIL

News 3CITYA.M. 4 JANUARY 2012

ANALYSIS l HMV Group PLC

p

23 Dec28 Dec 29 Dec 30 Dec3 Jan

3.60

3.40

3.20

3.00

2.80

3.353 Jan

BY JULIAN HARRIS

US ECONOMY

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BP yesterday launched legal actionin a bid to make contractorHalliburton cough up the estimated$42bn (26bn) paid out in compen-sation and expenses for theDeepwater Horizon oil spill disaster.

Halliburton cemented the failedwell that caused the United Statesbiggest offshore spill.

In a US court filing, BP said it wassuing to recover costs and expensesfrom cleaning up the oil spill, lost

profits, and all other costs anddamages incurred by BP related tothe Deepwater Horizon incidentand resulting oil spill.

The company did not put a figureon how much it expectedHalliburton to pay.

BP and Halliburton are locked in aprotracted a legal battle with a trialexpected to begin in February to set-tle damages claims.

The explosion on the DeepwaterHorizon rig in April 2010 killed 11

workers and spewed more than 4m barrels of oil into the Gulf. It hastriggered series of lawsuits as com-panies jostle to avoid blame for thedisaster.

Last month, CameronInternational agreed a $250m settle-ment with BP to help pay for costsassociated with the Gulf of Mexicooil spill, raising hopes that deals

between the British oil firm and twoother contractors could follow.

BP also remains in legal action with Transocean, the owner andoperator of the Deepwater Horizon

rig.

BP puts spillbill at door ofHalliburton

Total seals 2.3bn shalegas deal with Chesapeake

BY JOHN DUNNE

ENERGY


FRENCH oil group Total is ploughing$2.3bn (1.47bn) into the develop-ment of US shale gas reserves in Ohioin the latest example of global energycompanies piling into new energysources made economic by the highprice of crude.

In a deal with Chesapeake Energy, which the US group announced inNovember without identifying its

partners, Total will take a 25 per centstake in a joint venture covering theUtica Shale area of eastern Ohio.

North America has seen a boom ininvestment in energy resources suchas shale gas in recent years, raisingthe prospect of the US reducing itsdependence on imported energy.

Mining giant BHP Billiton spentnearly $17bn buying shale gas pro-ducer Petrohawk Energy and shalegas assets from Chesapeake Energyearlier this year.

BYHARRY BANKSENERGY

Barack Obama hitout at Bob Dudleys

BP after the oilspill.

Picture: REUTERS

ANALYSIS l BP PLC

p


470

465

460

455

471.053 Jan

Total, led by Christophe De Margerie, is investing in US shale gas Picture: REUTERS

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MORE NEWSONLINE

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Stakes are high for firms and ObamaALMOST exactly a year ago, BarackObama received his independentreport into the Deepwater Horizontragedy, having called for whose assto kick over the spill a few monthsearlier.

His experts rightly slammed BP,Transocean and Halliburton for mis-takes that caused the worst oil spill inUS history. They also pointed out thatif BP, or a similar oil behemoth, hadnot been a culprit in the blow-out,

victims might never have been com-pensated as quickly or thoroughly.

It would be disproportionate topraise BP for its reaction to the disas-ter chief Tony Hayward and chair-

man Carl-Henric Svanbergs quipswill go down in the annals of corpo-rate gaffe history but its $20bn com-pensation pot has gone some way togetting some of those suffering in theGulf of Mexico back on track.

But even this massive stack of dol-lars, and BPs eagerness to end itslingering share price spill dis-count, will eventually run dry. Andas this weeks court filings haveshown, others like Halliburton arereluctant to chip in until itsabsolutely necessary.

Obama thundered at the time thatevery single person affected should

be compensated, as he halted deep-

water drilling in the Gulf for almost a year standing in stark contrast tothe drill, baby, drill mindset ofmany in the Republican party.

In 2012, a move to bash someheads together could ensure that

meaningful progress is made duringthe next tranche of court hearings inFebruary.

It could also neutralise the kind ofcareer kryptonite that felled top brassat BP which could be particularlydangerous in an election year.

BOTTOMLINEAnalysis by Marion Dakers

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GREECE will have to leave theEurozone if the latest bailout pack-age is not agreed by March, a govern-ment spokesman said yesterday.

The government is attempting tofinalise a 100bn (83.4bn) voluntaryhaircut on privately held debt aspart of a wider 130bn bailout pack-age.

If it cannot make investorsagree by mid-March, the gov-ernment will run out of cash around 14.5bn in debtmatures in the month,which will not be paid if thebailout is not in place.

We will be out of the mar-kets, out of the

euro, warnedg o v e r n m e n ts p o k e s m a nPantelis Kapsis(pictured).

As the state continues to struggleunder its vast debt burden, he alsotold TV station Skai there is achance that there will be a need foradditional measures nobody canrule this out.

Analysts believe the governmenthas taken the unusual step of speak-ing so plainly about its difficulties toput pressure on the private investors.

Greece is going to run out ofmoney at some point soon they

cannot hide this fact, although itis surprising to hear them sayit, Open Europes RaoulRuparel told City A.M.

Negotiations have draggedon for some time, and the gov-

ernment wants to stress that ifinvestors do not take a haircut on

their bonds, the situation will

be much worse for every-one. It would not surpriseme if these negotiationsagain went right to theedge of the timeframe.

Greece says itmay exit euroBY TIMWALLACE

EUROZONE

UNEMPLOYMENT rose for the fifthconsecutive month in Spain, datapublished yesterday showed, as rat-ings agency Fitch cut its economicgrowth forecasts for the country.

However, German unemploymentfell to 6.8 per cent, or 2.88m, from 6.9per cent in November its lowest levelsince reunification in 1991, accordingto the Federal Labour Agency.

Spains claimant count rose slightly,increasing by 1,897 to 4.42m, com-pared with a 59,536 jump in November.

The data confirmed the deteriorat-ing economic situation in the secondhalf of the year, said employmentminister Engracia Hidalgo.

Meanwhile Fitch cut its economicgrowth forecasts for the country to

zero in 2012, and one per cent in 2013,from forecasts of 0.5 and1.5 per cent.

The agency believes a resolution ofthe Eurozone crisis is vital to boostingSpains banks and the wider economy.

However, its 2012 outlook alsoclaims banks are unlikely to return tothe cheap funding costs that wereavailable to them in the past, and thatan improvement in the real estate sec-tor is unlikely in the short term.

Economists believe the gap betweenthe countries will continue to grow.

Labour market conditions willremain markedly healthier inGermany than in most other countriesin Europe in the months ahead, espe-cially since key leading indicatorshave shown stabilisation and even atentative rebound at the end of 2011,said IHS Global Insights Timo Klein.

BY TIMWALLACE

EUROZONE ECONOMY

Fitch slashes Spaingrowth predictions

HUNGARIAN bond yields soared aftertens of thousands of protestors gath-ered in the country to oppose a newBasic Law which activists fear couldunfairly support the ruling party andundermine the independence of thecentral bank.

Critics also believe the new law,which replaced the existing constitu-tion on new years day, curtails thejurisdiction of the top court.

Ruling party Fidesz is able to changethe constitution because PrimeMinister Viktor Orban won a two-thirds majority in elections in 2010.

The dispute has cast doubt overongoing talks with the EU and IMFabout a new financing agreement,seen as crucial for Hungary to shore upmarket confidence.

Yields on 10-year bonds rose to

10.373 per cent yesterday, up from 8.47per cent a month ago and below sevenper cent in September, reflectinginvestors growing fears that Hungarywill not be able to pay its debts.

Investors fleeHungary as lawanger grows

EUROPEAN ECONOMY


NEWS | IN BRIEF

Belgian borrowing costs downShort-term Belgian debt issued yester-day was snapped up by investors withyields at 18-month lows, after Belgiumsnew government appeared to restoremarkets confidence in its ability to man-age its finances. The government sold2.44bn of three-month and six-monthbills, higher than the 2.2bn initiallyplanned. The auction registered an aver-age yield of 0.264 per cent on the three-month bills, down from 0.78 per centpaid last month. The six-month bills soldat 0.364 per cent, down from 2.438 percent in November. Fears had mounted inNovember that Belgium after almost600 days without a government wouldbe unable to pay its bills. Yields on 10-year bonds rose close tosix per cent, echoing those of troublednations like Greece and Italy. A six-

party coalition formed a governmentin December.

Dublin houses down 64 per centHouse prices in the Irish capital fell 16.9per cent in the last year, according toresearch out yesterday from propertyand mortgage advisory firm the SherryFitzGerald Group. Since their peak in2006, the average house price in Dublinhas fallen 64.2 per cent in real terms,while the average price nationwide hasfallen 59.8 per cent. Dublin prices arenow back to levels last seen in early2000. Meanwhile, data from propertywebsite myhome.ie showed prices acrossthe country fell by 2.4 per cent in thefinal three months of 2011 and 13 percent over the year as a whole. That com-pares with 2.8 per cent in Dublin in thelast quarter and 14.7 per cent in the year.It believes prices are down 43 per centon their peak nationwide and by over 50per cent in Dublin. Average asking prices

now stand at 236,000 for the countryas a whole, and 268,000 in Dublin.

GOVERNMENTS of the worlds topeconomies face $7.6 trillion (4.9 tril-lion) of debts maturing in 2012, after

a year in which weak countries sawborrowing costs soar.

Japan tops the list, with $3 trillionof repayments, while the US followswith $2.8 trillion.

However, it is Italy that econo-mists fear may fail to pay.

Investor appetite for German, USand Japanese debt is very pro-nounced they will have no trou- ble, said Holger Schmieding of

Berenberg Bank. The crucial test forItaly comes with major refinancingin February. Only IMF or ECB help will persuade investors to buy itsbonds.

$7.6 trillion rollover: topeconomies debt maturityBYTIMWALLACE

WORLD ECONOMY

DEBT REPAYMENT: GOVERNMENT DEBTS MATURING THIS YEAR

1 Japan $3 TRILLION

2 USA $2.8 TRILLION

3 Italy $438bn

4 France $367bn

5 Germany $285bn

6 Canada $221bn

7 Brazil $169bn

8 UK $165bn

9 China $121bn

10 India $57bn

11 Russia $13bn

Source: Bloomberg

ORDE

M E PROGRESSO

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RISING exports held up UK manufac-turing output last month, accordingto Markits purchasing managersindex out yesterday, though outputdeclined over the final quarter of2011 as a whole.

Coming in at 49.6, the monthlyPMI figure showed a small decline inoutput, compared with a larger con-traction of 47.7 in both November

and October. Any figure above 50 representsexpanding output.

Although 2011 began strongly,with manufacturing PMI of 61.3 inJanuary, five of the past six monthshave seen falls in the sectors output.

The final quarter of the year sawthe largest decline in the sector sincethe second quarter of 2009, and totallevels of work have now fallen for sixconsecutive months.

However, new export orders grew

for the first time in five months,largely due to rising demand fromGermany, eastern Europe and China.

Looking ahead, manufacturersare currently relying heavily on back-logs of work to prop up production,said David Noble from the CharteredInstitute of Purchasing and Supply.

This is only a temporary fix, andthe trend in overall order booksneeds to improve if the sector is toavoid a protracted period of lacklus-tre performance.

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Factory sector gets helpas exports to China riseBY TIMWALLACE

UK ECONOMY


MORE NEWSONLINE

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ECONOMISTS VIEWS: HOW STRONG IS THEUKS MANUFACTURING SECTOR? Interviews by Tim Wallace

ANDREW GOODWIN | ERNST AND YOUNG ITEM CLUB

The pickup in export demand is a welcome development, but thatscoming from a very low base. Activity is still, at best, stagnating.

HOWARD ARCHER | IHS GLOBAL INSIGHT

The data suggest domestic demand for manufactured goods contract-ed significantly, and employment fell for a third month running.

DAVID TINSLEY | BNP PARIBAS

The PMI figures offer a glimmer of hope. New orders are contracting,but the rate has slackened considerably, and export orders actually rose.

British manufacturing has had a bad quarter, though export orders rose in December

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SPORTS DIRECT, the retailer con-trolled by the billionaire footballtycoon Mike Ashley (pictured), isunderstood to be one of four interest-ed buyers expected to place a bid forthe ailing outdoor retailer BlacksLeisure within the next two days.

Blacks, which put itself up for salelast month after failing to secureextra funding, is expected to besold in a controversial pre-pack

administration, whereby assetsare sold off debt-free aheadof a formal administra-tion process.

While the other bidders areunknown, City A.Munderstands thatBlacks rival GoOutdoors hasexpressed interestin some of thegroups brands

and its stores, especially in city centreswhere the out-of-town retailer is look-ing it expand its presence.

Mountain Air and EdinburghWoollen Mills, which bought a third ofcollapsed retailer Jane Normans storesin June, are also said to have registeredan interest with Blacks sale adviser,KPMG.

The debt-laden company, whichowns brands including Milletsand Peter Storm and employs3,500 people, has seen its shareprice plummet from 42p at the

beginning of last year to 0.88pyesterday, leaving the company

valued at just 0.84m.It recently warned

that its full-year per-formance would be worse than expectedafter dire tradingconditions.

All partiesdeclined to com-ment or wereunavailable.

Deadline forBlacks bids

draws closer

DEBT issuance by companies droppeddramatically in the second half of

2011 as the worsening economic cli-mate and Eurozone crisis weighed onthe debt market, new data fromDealogic yesterday showed.

Companies issued $5.76 trillion(3.71 trillion) of bonds in 2011, downsix per cent from 2010s level, with 60per cent issued in the first half andjust $2.31 trillion issued in the rest ofthe year the lowest since 2008.

In Europe, debt issuance fell twoper cent to $2.14 trillion in 2011 butthis trailed off in the f inal quarter.

MARKS & Spencer has become the lat-est high street retailer to be targetedby hedge funds betting that its shareprice will fall, new f igures from DataExplorers show.

M&S has seen demand to borrow itsshares a sign that hedge funds aretaking short positions on it rise from3.9 per cent in August to almost five

per cent by December, making it themost-shorted FTSE 100 retailer.

Short interest in retail stocks is now3.4 per cent, double the 1.6 per centaverage in the FTSE all-share index.

Short sellers have been bearishtowards retailers for over six monthsand companies exposed to the much-maligned UK high street account forsix of the top 10 most shorted FTSE all-share stocks, Data Explorers said.

Debt marketsfaltered in 2011

BYKASMIRA JEFFORDRETAIL

CAPITAL MARKETS

NewsCITYA.M. 4 JANUARY 2012

BYALISON LOCKCAPITAL MARKETS

9

TOP TEN FTSE RETAIL STOCKS ON LOAN

% of shares on loan

1 Carpetright 14.10

2 Home Retail Group 14.03

3 Mothercare 12.32

4 Dixons Retail 11.34

5 Ocado 9.07

6 Game 5.86

7 Marks & Spencer 4.88

8 Kesa Electricals 4.73

9 WH Smith 4.68

10 Next 4.00

Source: Data Explorers

Hedge funds short M&S

shares amid retail gloom US prosecutors accused three Swissbankers last night of conspiring with wealthy US taxpayers to hide morethan $1.2bn in assets from tax author-ities, and sources briefed on the mat-ter said the three worked for Wegelin& Co, one of Switzerlands oldest pri-vate banks.

Prosectutors said the indictmentcharges the bankers with trying tocapture business lost by UBS andanother bank in 2008 and 2009.

Swiss bankerscharged in USA

TAXATION

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HOME FROMHOME SOHO

LAUNCH FORiPAD CROWDIF THE late Lucian Freud had owned acrash-pad in Soho, what would it havelooked like? Such was the starting pointfor Apartment 58, the first in a new breedof members clubs for the iPad generation.

We wanted something that works for a busy executive in a major metropolis,said Notting Hill Arts Club founder AlanGrant, who devised the concept of thetechnology-equipped home from homewith business associate Ronald Ndoro.

We looked at a number of membersclub models, and to me it is pretty alienthat you cant use your smartphone inSoho House, says Grant of his 1 Februarylaunch. Our members can let them-

selves in with their own key, access theCloud to work off an iPad or Mac, pick uptheir mail, and park their bicycle.

The Soho club, at 58 Poland Street, isthe first of three planned Apartment 58openings this year. Grant and Ndoro arethree to four weeks away from secur-ing a site near Portobello Road for thesecond club, to open before theOlympics, with a third due to open inShoreditch or Dalston in time for LondonFashion Week in September.

Grant refuses to name the City invest-

will point barfly traders in the rightdirection. The dress code, in case you were wondering, is Would Gordonapprove?. Probably not.

SEEING THE LIGHTIN 2005, Rohan Narse was a GoldmanSachs investment banker with a doublechin, spending 20 days a month travellingand eating more than his exercise regime justified. In 2012, Narse (pictured left)looks younger than his 46 years, andspends his days teaching hedge fund man-agers and Big Four partners how to restorebalance in their lives.

The turning point came in 2008, when

Narse almost died in a car crash on theM3. I experienced a lot of stillness inthat accident, says Narse. I realised Ididnt want to come back to putting on ablue suit and tie every day and doing thesame old transactions.

A two-year quest around the ashrams ofIndia later, and Narse is helping finan-ciers stop living the unreal life of a vam-pire or a ghost and to sleep moresoundly through his seminars at TheLight Centre in Belgravia. Stressed-outbanking executives, take note.

ment manager who has put up seed capi-tal for the project, but says the 600,000to fund the first two clubs has been cov-ered, anticipating self-generated returnsthat will bankroll expansion into a chain

of Vietnamese restaurants and a string ofbrasseries, three of which will be locatedunderneath the Apartment 58 sites.

Names on the shortlist for the Apartment 58 advisory board includeTopshops creative director Kate Phelan,model Alexa Chung, and musiciansDizzee Rascal and Kanye West. Cocktailswill be served from 6pm at each club butsome work will still get done, claimsGrant. This is not a classic late-nightvenue; it is a useful work, networking andpre-socialising place. Whatever you say.

SUPPLY AND DEMANDSOME inventive free market eco-nomics from the Margaret Thatcher-themed club Maggies,

where from next Wednesday drinksprices will rise and fall according tothe demand on the live tradingscreens behind the bar.

Once the clubs drinks menu hasfloated on the stock market,its anyones guess how muchyou will end up paying for around on the weekly WallStreet Wednesdays although insider tipsleaked on the Twitterfeed @maggies_club

Alexa Chung, Dizzee Rascal and Kate Phelan will be asked to advise on Apartment 58 Pictures: REX

Actors Jim Broadbent andMeryl Streep as Denis andMargaret Thatcher in thefilm The Iron Lady

The Capitalist10 CITYA.M. 4 JANUARY 2012

EDITED BY

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

8/3/2019 Cityam 2012-01-04

11/24

View all our awards at samsung.com/uk/galaxys2

Fizzingly FastDual Core Processor

Sparklingly Bright

Stunningly Slim

Start 2012 with a bang.Galaxy S II, Phone of the Year.

Screen images simulated. 2011 Samsung Electronics Co. Ltd. 2011 award Stuff and T3.

8/3/2019 Cityam 2012-01-04

12/24

THE WORLDS largest bond fund had$1.4bn (895m) in outflows inDecember, according to fund analyticsfirm Morningstar.

The Pimco Total Return Fund, ledby Bill Gross, suffered total redemp-tions of $5bn in 2011, a year when thefund underperformed benchmarksafter betting heavily against USTreasuries, which rallied on the year.

Gross fund has had investorredemptions on and off for morethan year. Morningstar estimates thattotal redemptions from the $241bn. Total Return Fund have exceeded$13bn since November 2010.

UK COMPANIES could be forced to payan estimated 1 trillion of extra fundsinto their pension schemes if EU plansto regulate them in the same way asbanks take effect, a leading actuarywarned yesterday.

Firms may have to push at least600bn into their schemes under newproposals that aim to make pensionschemes hold solvency capital againstrisky assets, in line with rules affectinginsurance groups and banks.

Widely quoted estimates of a600bn bill on UK companies could infact be as much as 1,000bn depend-ing on how the rules are introduced,said Charles Cowling, managing direc-tor of JLT Pension Capital Strategies,part of insurance broking group JLT.

Cowling said such contributionswould clearly be disastrous for our

economy, and would accelerate thefall of the UKs few remaining defined

benefit schemes.

It is probably too late for thisPandoras box to be closed, he added.The onus is now on companies withlarge pension obligations to accelerateplans for managing their way out ofthese very expensive liabilities.

In a separate statement, theBrussels-based European PrivateEquity & Venture Capital Association(EVCA) added its opposition to theplans, which it says will affect 25 percent of all EU workers.

In its response to insurance regula-tor EIOPA, EVCA chairman KarstenLanger said the plans would stopschemes from both funding their lia-bilities and investing in vital capitalprojects via private equity funds.

In their efforts to minimise sys-temic risk, regulators are in danger ofnegating the stabilising effect of long-term investors in global financial mar-kets and reducing the ability of

institutions to invest in the real econo-my, he said.

UK firms mayface 1trn billfor pensions

LABOUR is set for a U-turn on its social welfare policy after Liam Byrnclaimed that the benefits system hadskewed social behaviour.

The shadow work and pensions sec-retary highlighted the work in the1940s of William Beveridge oftenconsidered the father of the welfarestate who said long-term unemploy-ment benefits should be conditionalupon attending work or training.

Byrne called for tough-mindedreform and criticised the rising cost ofhousing benefit. His comments arelikely to anger left-wingers who havealready opposed coalition welfare cuts.

Labour U-turn

over benefits

Pimco fund hit

by $1.4bn exit

BYALISON LOCK

PENSIONS

FINANCIAL SERVICES POLITICS

News12

No, but there isnt muchopposition. Not many US cit-

izens want a Republican inpower. The economy in theUS has flat-lined, much likeours, and hetried fiscalstimulusbut thatclearly did-nt work.

Yes. He has the characterand he hasnt made a mas-

sive faux pas yet. Also, thecapture of Bin Laden willpersuade the Americanpublic tovote forhim.

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

CITY VIEWS: HAS BARACK OBAMA DONE ENOUGH TOSECURE RE-ELECTION? Interviews by James Stevenson and Phoebe Torrance

SCOTT BAILEYCFC UNDERWRITING

Probably not. He hasntdelivered on his previous

promises. Its a troublesometime with the economic cli-mate, and hell be the scape-goat. It couldhave hap-pened toany leaderfaced withthose prob-lems.

PETER GODFREYJRP UNDERWRITING

ANDREW WALLENGREENWOODS SOLICITORS

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

8/3/2019 Cityam 2012-01-04

13/24

MOVIE maker Paramount Pictures has been crowned the worlds numberone film studio as it enters the year ofits 100th anniversary, beating oldfavourite Warner Bros to the covetedtop spot.

Americas oldest existing film stu-dio amassed a record $5.17bn (3.3bn)in 2011, $1.96bn of which was inNorth America, with a further$3.21bn from the internation-al market. Even the release ofthe final Harry Potter film wasnot enough to give WarnerBros the lead, which came insecond with $4.67bn.

Paramount, which isowned by media con-glomerate Viacom, putits successful yeardown to the release ofthe latest films in the

T r a n s f o r m e r s ,Paranormal Activityand MissionImpossible franchisesand its distributiondeals with Dreamworks

Animation and Marvel, thecompanies behind 2011

box office hits Kung Fu Panda 2 andCaptain America respectively.

Transformers: Dark of the Moon was Paramounts first ever film topass the $1bn mark and is currentlyranked as the fourth highest grossingfilm. Rango, the film studios firstoriginal CGI film, took $123.5m in

America alone.Brad Grey (pictured), Paramounts

chief executive, said: This achieve-ment reflects the combined efforts ofour entire team across the globe andthe careful process by which weselect the project and partners we

believe in.We product pictures that aspire

to entertain audiences around the world, while at the same

time we have sought tofind innovative ways to

reach movie-goers in thischanging entertain-ment environment.

Paramount, whichalso released StevenSpielbergs Super8 and

Tintin in 2011, will this year send to the screens

World War Z, the zombiethriller starring Brad Pitt,and The Dictator, fromthe team behind Borat.

THIS week we are asking membersof the City A.M. Voice of the Citypanel, run with PoliticsHome.com,

where they think the worlds mar-kets are headed over the next twelve

months.Is the new years boost to the

FTSE a signal for gains through thecoming months, or should investors

brace for another rocky year?

And does the next round of meet-ings to solve the Eurozone debt cri-

sis fill you with hope, or just dread,for the worlds economies in 2012?

To have your say on these ques-tions and more, you can apply to

join at cityam.com/panel. Results

will be published in Mondays news-paper.

TALKTALK will enter the handset mar-ket in the second quarter as it contin-ues its push to become a player in themobile sector.

The firm, which launched its SIM-only mobile offering last year, has just50,000 customers but hopes the addi-tion of devices will bolster its num-

bers. To lead its new drive TalkTalk has

appointed O2s head of direct tradingas its new mobile director.

The TalkTalk mobile service, whichpiggybacks on Vodafones network,hopes to capitalise on the companysposition as a budget broadbandprovider.

Commercial director Tristia Clarkesaid: Were established as the valueplayer in phone and broadband and

weve been able to bring those princi-ples to our partnership with Vodafone.One year in, weve made a good start

with a SIM-only offer and we now have

the opportunity to offer a range of con-tracts and handsets.

TalkTalk to expand itsmobile offering in 2012

SAMSUNGS Galaxy S II handsetfought off competition from ApplesiPhone 4S to maintain its top spot inthe mobile phone war overChristmas.

The phone has now led tables foreight consecutive months, accordingto uSwitch.coms tracker, which is

based on internet searches as well assales.

The race appears to have been close-run, with other calculations placingthe 4S at the head of the pack by mid-December.

Apple does not confirm sales fig-ures until its quarterly results,although it is understood the 4S has

been a hit with consumers despite amixed critical reaction.

Korean manufacturer SamsungsGalaxy Ace handset ranked third, fol-lowed by HTCs Wildfire S.

Overall Samsung has five handsetsin the top 10, including the recentlyreleased Galaxy Nexus collaboration

with Google. The only other manufacturer to

make the top 10 was Sony Ericsson. The biggest loser appears to be

BlackBerry, which failed to rank a sin-gle phone in the list following a disas-trous year in which its networkcollapsed for almost three days.

Nokia, whose flagship Lumia hand-set was released in time for Christmas,also failed to make the top 10.

Samsungedges Apple

to top spot

YELL, the online services directory,

has appointed a new chief strategyand business development officerafter a turbulent few years packed

with debt and digital competition.Matt Anderson, the first to fill this

new global role, will guide the strug-gling company in its continuingtransformation from Yellow Pagesdistributor to a leader in the emerg-ing local e-marketplace.

The transition has not been

smooth for Yell so far, due to a 2.6bnstack of debt and increasing competi-tion from other business searchengine providers that impinges onthe companys print revenues.

Anderson will attempt to turn thecompany around by building strate-gic partnerships and developing newonline ideas. He is already familiar

with the business, having advised Yell on its new business strategylaunched last summer, the establish-ment of relationships withBazaarvoice and Netbiscuits and theacquisition of Znode.

Currently a partner in the con-

sumer, media and digital practice atconsulting firm Booz & Co, Andersonhas worked with several Fortune 100companies on significant corporatetransformations and is considered to

be an expert in digital strategy.He said: I relish the chance to be amajor part of driving the transforma-tion and believe my expertise willhelp position Yell to lead in thisspace.

Yell is becoming a global digitalsolutions player in the e-marketplaceand its assets will differentiate it tocapture value in the digital world.

Chief executive Mike Pocock said:

As a key member of my executiveteam, Matt will bring his strategicinsights and relationships directly tothe centre of Yell's ongoing transfor-mation.

Yell also appointed FreshfieldsLibby Chambers, formerly of BarclaysBank and Bank of America, as a non-executive director and member ofthe renumeration committee.

Shares in the directories groupremain at a constant 5p a frac-tion of the 3 they were

before March 2008, whenYell was listed on the FTSE100.

BY LAUREN DAVIDSON

TECHNOLOGY

VOICE OF THE CITY

Paramount at

peak of worldfilm industryBY LAUREN DAVIDSON

ENTERTAINMENT


THE BEST OF

THE REST

HARRYPOTTER

PoliticsHome.comPoliticsHome.com

Apply to join today at www.cityam.com/panelIn association with PoliticsHome.com

In partnershipwith

How hopeful are you for the new year?

$366million

CAPTAINAMERICA

$665.7million

KUNG FUPANDA2

$1.12bn

TRANSFORMERS: DARK

OF THEMOON

THE HANGOVERPART2

Digital services company Yells for help

MATT ANDERSON

BY STEVE DINNEEN

TELECOMS

BY STEVE DINNEEN

TELECOMS

$324million

**sofar

TOTAL

$5.17

bn

MISSION

IMPOSSIBLE4

Rival studio Warner made a total of$4.67

bn

8/3/2019 Cityam 2012-01-04

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SSE, one of the UKs biggest utilities,has revealed it has exceeded morethan one gigawatt of onshore windfarm capacity for the first time,enough to power around a millionhomes.

The company, previously knownas Scottish and Southern Energy,said in a statement yesterday thatgood progress made on sites inNorthern Ireland and Scotlandmeant it had increased its capacityfrom just 40 megawatts (MW) sixyears ago.

The FTSE 100 firm said that windhas overtaken its conventionalhydro electric capacity of 1,150MWfor the first time and now represents just over a tenth of the energygiants generation capacity.

Ian Marchant, SSEs chief execu-tive, said: The safe and timely deliv-ery of new assets is a key priority forSSE and passing the one gigawattmilestone for onshore wind farmcapacity is a very positive develop-ment as we start the New Year.

With construction work continu-ing at sites in Scotland, NorthernIreland and the Republic of Ireland,

we expect that our operatingonshore wind farm capacity willcontinue to grow significantly in thecoming months, he added.

Installed onshore wind capacitycurrently stands at 4.4GW or 5.9GWincluding offshore wind farms,according to figures fromRenewable UK, the industry body.

The government wants the indus-try to reach a total of 31 GW by 2020and we are confident that we canachieve that, as long as the policyframework remains supportive andministers continue to back theindustry, a spokesperson said.

The news from SSE came as more100,000 homes lost their electricitysupply yesterday following violentstorms of up to 90 miles per hour.

SSE lifts its

capacity forwind powerBYKASMIRA JEFFORD

ENERGY

CENTRICAs US arm Direct Energyhas completed a $39m (25m) cashacquisition of natural gas retailer Vectren Source from VectrenCorporation, a move it said will boost its customer base in the USNorth East.

Indiana-based Vectren Source hasmore than 146,000 residential and

small commercial customeraccounts, with the majority of cus-

tomers located in Ohio, New YorkState and Indiana.

In a statement released yesterday,Direct Energy said the deal coulddeliver significant cost savings andwill add to its existing Ohio residen-tial base of 210,000 customers.

Competitive retail markets inthe US Northeast provide us withvaluable opportunities to grow ourbusiness, Direct Energy presidentand chief executive Chris Weston

said.The acquisition of Vectren

Source supports Direct Energysstrategy to add scale to our down-stream activities and forms part ofCentricas strategic priority to builda leading integrated North American business.

Last year, Direct Energy acquiredthe New York-based energy retailerGateway Energy Services, taking itstotal number of accounts in theregion to more than 800,000.

In September it also agreed to

Texas-based energy retailer FirstChoice Power for $270m.

Centrica completes acquisition of USenergy firm Vectren Source for $39m

THE FOUNDER of Somerset-basedhardware store Toolstation netted a24m windfall yesterday after TravisPerkins owner of DIY chain Wickes bought the company.

Mark Goddard-Watts set up the busi-ness in 2003 after leaving rivalScrewfix, which he also founded, fol-lowing its takeover by B&Q ownerKingfisher.

Yesterday he sold the remaining 70per cent of Toolstation to Travis

Perkins, almost three years after theUKs largest builders merchant and

home improvement retailer paid18m for a 30 per cent stake in thecompany.

Since the first investment, Goddard-Watts has grown Toolstation from 12outlets to 103, and established a stronginternet and catalogue-based business.

Toolstation is a great addition toour consumer division and will add toour growth in market share andreturns, said Travis Perkins chiefexecutive Geoff Cooper.

Travis Perkins buys outToolstation from founderRETAIL

BMW expects the global premium carmarket to grow more than twice as

fast as overall auto sales this year, thecarmakers finance chief has told aGerman newspaper.

Around the world, we see marketgrowth of four per cent and morethan eight per cent in the premiummarket, Friedrich Eichiner toldSueddeutsche Zeitung in an inter-view published yesterday.

He said he sees the European carmarket remaining flat this year,while the US and China offer growth

opportunities.Eichiner added that BMW would be

able to cope with some economicheadwinds by having workers taketime off in lieu of overtime worked.

And while the worlds biggest pre-mium car maker is committed to theGerman market, it will produce moreand more vehicles where the demandis, in Latin America, India and China.

We will make a final decision onBrazil in the coming weeks. After thatwe could look at other sites. It is alsopossible that we expand existingplants, Eichiner said.

Asked about BMWs investment incarbon fibre maker SGL, Eichiner said

the carmaker had no plans to furtherraise its stake. Last month, SGL saidBMWs stake in the company hadgrown to 15.7 per cent.

There are currently no plans to do

that, we feel comfortable with ourholding,Eichiner said.

BMW predicts 2012 growthBYHARRY BANKS

TRANSPORT

BYKASMIRA JEFFORD

ENERGY


NEWS | IN BRIEF

JP Morgan faces Bear Stearns suitJP Morgan Chase has been sued for $95mby the trustee for securities marketed in2005 by the former Bear Stearns Cos overalleged misrepresentations regarding theunderlying mortgage loans. US Bank NAwants to force JP Morgan to buy back themortgage loans because of alleged breach-es of representations and warrantiesregarding the Bear Stearns Asset BackedSecurities Trust 2005-4, for which itserves as trustee. JP Morgan declined tocomment on the case.

Carillion wins M6 contractCarillion has won a 105m contract fromthe UK government to manage the M6motorway in Birmingham. The building

firm will transform the section betweenjunctions five and eight into managed

motorway. This would mean variable speedlimits, which the company says will lead toimproved safety and journey times. Thecontract begins at the end of the monthand is scheduled to be complete by 2014-15. This is the third contract Carillion haswon for the management of motorwaysaround Birmingham.

Unions plea to save Petroplus jobsA pan-European group of unions hascalled on governments in the UK, France,Belgium and Switzerland to supportemployment at oil refineries threatenedwith closure after refiner Petroplus hadits credit lines frozen. Last weekPetroplus said it would begin shutdownsat its Antwerp, Petit Couronne and

Cressier plants after its banks froze a$1bn credit facility.

ANALYSIS l SSE PLC

p

23 Dec28 Dec 29 Dec 30 Dec 3 Jan

1,300

1,290

1,280

1,270

1,260

1,250

1,303.003 Jan

powers approx1M homes(1,000 homes per megawatt)

powers approx

4.4Mhomes

WIND POWER IN THE UK

FRANCE must invest billions of eurosto improve the safety systems of itsnuclear facilities so they can with-stand the kind of extreme shocks thattriggered the worst nuclear accidentin 25 years at Fukushima, the nuclearwatchdog ASN said yesterday.

French nuclear power operator EDFwill need to install flood-proof dieselgenerators and bunkered remoteback-up control rooms at its 19 plantsacross the country or face shuttingdown some of its 58 reactors, the ASNadded.

State-controlled EDF will also haveto set up, before the end of 2012, anemergency nuclear task force to inter-vene on the site of an accident withinless than 24 hours.

We believe that facilities can onlycontinue to operate if investments aremade in the timeframe were setting,otherwise we may have to suspendsome operations, ASN presidentAndre-Claude Lacoste said.

The ASN handed the French govern-ment the conclusions of a safetyassessment of nuclear facilities nearly10 months after an earthquake andtsunami crippled Japans FukushimaDaiichi nuclear plant

France has carried out stresstestson its nuclear facilities as part ofan EU-wide move to assess the resist-ance of European nuclear powerplants to extreme cases of naturalcatastrophe or bad weather.

The EU is due to publish its conclu-sions in June.

French nuclearplants told toinvest in safety

ENERGY

Overall UK onshore wind farm generating capacity

(excluding Ireland) = 4.4 GW+

1GW of onshore windpower equates to around160 kilotonnes of oilequivalent (Ktoe).

SSE operates

43wind farms

SSE onshore wind farm generating capacity inUK and Ireland = 1GW+

160 kilotonnesof oil

equivalent

8/3/2019 Cityam 2012-01-04

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INFRASTRUCTURE group BalfourBeatty has won preferred bidder sta-tus for an 800m Essex waste con-tract.

The project is a 28-year public-private partnership (PPP) contract todesign, build and operate a new sus-tainable waste treatment facility for

Essex County Council and Southend-on-Sea Borough Council.

The group will invest around 7m,or around 30 per cent of the requiredequity. The project is a joint venture with Spanish outfit Urbaser, whichwill invest the remaining 70 per cent.

The deal is expected to close in thefirst half of 2012, and constructiondue to end in 2015. Urbaser will oper-ate the waste plant once it is built.

Balfour Beatty chief executive Ian Tyler said the deal strengthens the

firms position in the waste manage-ment sector.


MINER Anglo American yesterdayreaffirmed its refusal to sell anyshares in its Chilean unit AngloAmerican Sur to state-owned copperminer Codelco.

Anglo American received a letterfrom Codelco earlier this week seek-ing to exercise an option to take a 49per cent stake in AA Sur.

But Anglo claims Codelco is inbreach of contract and has no right toexercise the option.

The UK-listed miner said: Giventhat Codelco has breached the con-tract, Codelco has no right to exercisethe option with respect to Anglo American and, as a result, anyattempt to exercise the option canhave no effect. Codelco has alreadysaid Anglos actions have no basis inlaw or in fact.

It filed a legal complaint againstCodelco for breach of contract seek-ing the termination of the optionagreement and damages.

As a result of Codelcos allegedbreach of the contract, it is no longerentitled to enforce the option on Anglo American. The companyalleges the breach consists ofCodelcos illegitimate premature

attempt to exercise the option andCodelcos actions aimed at prevent-ing Anglo from exercising its contrac-tual rights.

Codelco, the worlds biggest copperminer by production, said its rightsextended to 49 per cent of shares in Anglo American Sur, which alsoincludes a smelter and explorationproperties.

Gerardo Jofr, the company presi-dent, told a news conference: Wehave a right to 49 per cent or theequivalent value. We have right andthe law on our side.

In November, Anglo defensivelysold 24.5 per cent of Sur toMitsubishi, the Japanese industrialgroup, for $5.4bn. Anglo claims aresidual 24.5 per cent stake is all thatremains up for grabs.

SHARES in Talvivaara Mining shotup more than 27 per cent yesterdayafter the Finnish nickel miner saidit has met its downgraded produc-tion targets.

The FTSE 250-listed firms stock was caught in a downward spirallast year as it repeatedly slashed its

output targets in the wake oflonger-than-expected maintenance

stoppages.But the firm said it had surpassed

its latest nickel target of 16,000 met-ric tons during 2011, as well as hit-ting a quarterly record for zincproduction of 10,525 metric tons.

It added that since the produc-tion facilities were brought backonline in mid-October, the f irm hasbeen on track to meet its 2012 pro-duction targets.

A goal of 25,000 to 30,000 tons ofnickel for the year was set in

November.Pekka Per, Talvivaaras chief

executive, said: In the months tocome, we will remain focused onproduction ramp-up and on furtherimproving the consistency of all ouroperational processes.

The company is due to report itsfull year results on 16 February.

Talvivaaras London-listed sharesclosed at 255.4p, valuing the compa-

ny at 540m. Its Helsinki-listedshares rose 16 per cent.

Talvivaara looks to the future as it hitsits downgraded nickel output targets

Balfour Beatty in 800mgovernment contract win

Anglo shoots

back in warwith CodelcoBY JOHN DUNNE

MINING

BY MARION DAKERS

MINING

BENTLEY REVS UP AS CHINESE MARKET GROWS

VOLKSWAGENSextravagantBentley brand hasjumped back topre-recession levels

of demand after itsaw a 37 per centrise in sales for2011, strengthenedby booming salesin China. The US isstill Bentleys num-ber one market,with sales up byover a third to2,021 cars anincrease of 32 percent. China tooksecond place for thefirst time ever aftersales virtually dou-bled to 1,839,smashing the previ-ous years record.The luxury car-maker, based atCrewe in Cheshire,sold 1,059 cars inDecember, inBentleys best sin-gle month of salessince the recession.

Phoebe Torrance

NEWS | IN BRIEF

Vialogy lifted by contract hopesShares in seismic data analysis softwarecompany Vialogy soared by up to 30 percent yesterday after the group said itwas confident of securing future oil andgas work with major exploration compa-nies. Vialogy said that in Asia, a contractwith a national oil company is waitingfor government approval before it issigned.

Fiberweb loses finance chiefIndustrial materials group Fiberwebsaid its finance chief, Daniel Abrams,will be leaving the group at the end ofMarch 2012. Abrams has held the rolesince 2008, and prior to joiningFiberweb he was finance chief atCambridge Display Technology and wasfinance director of Xenova Group.Replacing Abrams will be Kate Miles,

currently finance director of Fiberwebshygiene division.

Lonrho raises 25m for expansionLondon-listed Lonrho, which invests ininfrastructure projects and other invest-ments in Africa, said yesterday it hadcompleted a 25.4m fundraising to bol-ster its war chest going into the newyear.

Steady climb to the top for British Airways

BRITISH Airways had a difficult timein 2010 with strikes, snow and theIcelandic ash cloud all causing flightdelays and cancellations and thefirst two of these impacted heavily on

consumer perceptions on YouGovsBrandIndex. The brands Index score(a composite of six key measures ofperception: general impression, quali-ty, value, corporate reputation, satis-

faction and recommend), which hadbeen +25 in the middle of December2009, twice dropped into minus num-bers following the strikes. Although ithad recovered some of that ground bythe end of the year, British Airwaysremained as only the fifth best per-ceived airline in the UK, well below itstraditional place scrapping withVirgin Atlantic for top spot.

But British Airways has always hada resilient brand, with the public pre-

pared to forgive and forget quickly.That allows it to recover from thesedips quicker than most (one only hasto look at the 2010 chart to see howquick the rebound was after the first

two strikes for evidence of that: thedecline was very steep but the recov-ery started almost instantaneouslyand was nearly as steep). In 2011, thePR crises of 2010 were avoided andthat has allowed BA to continue itsrecovery this time without the fall-backs, seeing a slow but steady risefrom +17 to +26. The climb saw it over-take Qantas and Singapore Airlinesearly in 2011, move past Emirates inthe late summer to take second place,

and it is now closing in on VirginAtlantic, which has seen a very slightdecline through 2011 from +30 to +27.

If current trends continue andBritish Airways suffers no more set-

backs then 2012 could well be the year where it regains its mantle asBritains favourite airline.Stephan Shakespeare is the chief executiveof YouGov

BRANDINDEX

STEPHAN SHAKESPEARE

ANALYSIS l Airlines Index 2010

Dec Jan FebMar AprMayJun Jul AugSep OctNovDec

Virgin Atlantic

British Airways

Singapore Airlines

Qantas

Emirates

40

35

30

25

15

20

10

5

0

-5

ANALYSIS l Airlines Index 2011

Dec Jan FebMarApr MayJun Jul AugSep OctNov Dec

Virgin Atlantic

British AirwaysSingapore Airlines

Qantas

Emirates

35

30

25

15

20

10

5

0

BY JAMES STEVENSON

INFRASTRUCTURE

ANALYSIS l Anglo American PLC

p


2,500

2,475

2,450

2,425

2,375

2,400

2,350

2,497.003 Jan

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IVSCMichel Prada has stepped down fromthe board of trustees of theInternational Valuation Standards

Council, following his appointment aschairman of the International FinancialReporting Standards Foundationtrustees. The IVSC nominating commit-

tee has started recruiting for a newchair for the IVSC board of trustees.

Bluefin Corporate ConsultingThe employee benefits and technologyconsultancy has appointed Ryan Hallas group health and risk consultant.

Hall joins from Aon Hewitt, where hewas associate consultant.

Neuberger BermanThe employee-controlled asset man-ager has appointed Robert Schlichtingas managing director, head of distri-bution Germany and Austria.Schlichting, who will be based inFrankfurt, joins from SchroderInvestment Management, where he

was head of institutional business forGermany and Austria. Prior toSchroder, he worked at Merrill LynchInvestment Management and JPMorgan Asset Management.

Assura Group

The primary care property company hasappointed David Richardson, seniorindependent director of Serco Group, asa non-executive director. Richardson isalso chairman of Bilfinger Berger GlobalInfrastructure Sicav SA and a boardmember of Worldhotels AG.

Just RetirementThe Aim-listed financial servicesprovider for the retired market has

appointed Keith Haggart as director ofretirement needs. Haggart joins fromPrudential, where he was businessdirector for equity release.

Oriel SecuritiesThe stockbroker has strengthened its

research team by appointing ChrisWickham to cover the consumer sec-tor, John Karidis to cover telecoms,Justin Smith to cover pharmaceuticals,and Vugar Aliyev to cover oil and gas.Smith, Wickham and Karidis join aspartners and Aliyev joins as associatepartner. Wickham most recentlyworked at Matrix Group, Karidis andSmith move from MF Global, andAliyev joins from Matrix Securities.

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

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US markets beginthe year on a high

STOCKS and the euro started theyear with a sharp rally yesterday, boosted by better-than-expectedglobal data and hopes the Fed

could ease monetary policy further,even as crude surged on tensions

between the US and Iran. A number of Federal Reserve offi-cials believed economic conditionscould well warrant a further easingof monetary policy, according to 13December meeting minutes releasedyesterday.

This month the Fed will begin issu-ing policymaker forecasts for its bench-mark interest rate and when officialsexpect the first rate rise to occur.

The euro hit a session high as theminutes were released, advancing to$1.3076 before paring gains to 0.93 percent, or $1.3048.

The Fed minutes came after datawere released showing growth in USmanufacturing accelerated inDecember to its fastest pace since June,while a sharp drop in German jobless-ness to the lowest in two decades whet-ted global risk appetite.

Omer Esiner, chief market analyst at

Commonwealth Foreign Exchange in Washington, said: The dollar was

already on the defensive today, but theminutes do suggest that the Fed is stillopen to easing monetary policy, whichis negative for the dollar.

Asian markets rose after datashowed Chinas big manufacturersavoided a contraction in December,though downward risks persist.

US stock indexes rallied sharply, hit-ting multi-month highs. The Dow Jones industrial average climbed asmuch as 2.15 per cent, hitting its high-est since July, before paring gains toclose up 1.47 per cent. The Nasdaq

Composite Index added 1.67 per cent. The Standard & Poors 500 Indexgained 1.55 per cent after havingnotched its highest intraday level sincelate October.

Another report showed US construc-tion spending surged to a near 18month high in November, adding torecovery hopes.

US Treasuries prices fell in thin trad-ing as investors cashed in year-endgains. The safe-haven appeal of US gov-ernment debt diminished after theDecember factory report.

The beginning of the year tends tostart out positive as people want to putmoney to work, but the overseas datacant be overstated in its importance,especially since the US data has beenso strong as well, said Sal Catrini, amanaging director for equities atCantor Fitzgerald & Co in New York.

Global stocks as measured by the

MSCI world equity index rose 1.8 per-cent and hit a near one-month high.

BRITAINS top shares poweredahead at the start of the newtrading year yesterday asupbeat economic data from

the United States, Europe and China boosted risk appetite and helpedinvestors set aside fears over the

Eurozone debt crisis.The pace of growth in the US man-ufacturing sector accelerated inDecember, its best month since June,as US construction spending inNovember surged to a near 18-monthhigh.

The data added to earlier opti-mism triggered by better Chinesemanufacturing and service data andGerman unemployment which fellmore than forecast.

Stefan Angele, head of investmentmanagement at Swiss & Global AssetManagement, which has around SwFr 80bn (55m) of funds under man-agement, said that while theEuropean sovereign debt crisis poseda big threat, any positive news thatreduces uncertainty and improvessentiment might lead to a re-pricingof equities on a higher level.

The UK benchmark ended up

127.63 points, or 2.3 per cent, at itssession peak of 5,699.91 its highest

close since 28 October. The indexended well above its 200-day movingaverage around 5,610.

Miners, which fell around 30 percent in 2011, contributed more thana third of the FTSE 100s gains, ledhigher by a 9.5 per cent jump inKazakhmys, as the strong manufac-turing data from the United Statesand China buoyed the outlook fordemand in the sector.

Jefferies International said thatequities are cheap compared tobonds, but the asset class could be

trapped in a range until the velocityof money increases in the globaleconomy.

Equities will show modest dou-ble digit returns but for the best partof the year will be range bound, inour view. The implicit faith equityinvestors have in policy makers willbe tested again and may mean trend-less markets until QE [quantitativeeasin] is adopted, the investmentbank said in a note.

Lex van Dam, hedge fund manag-er at Hampstead Capital which man-ages $500m (319m) of assets, saidthat if the market remains firmpeople will have to buy because ofthe fear of missing out.

The fundamentals wont be asimportant right now unless theyreally change significantly eitherway, he said.

Buyers came in for banks, with

Barclays the best off, up 5.8 per cent,as Citigroup upped its target price

for the lender to 245p from 230p andrepeated its buy rating, saying itbelieves BarCap can be a winner inthe consolidating world of capitalmarkets.

Banks around 30 per cent lowerin 2011 also climbed as investorsdipped into riskier assets perceivedto have been dealt with harshly in2011 on the back of fears over thehealth of the global economy.

Meanwhile European stocks roseto their highest close in five monthsafter US and Chinese manufacturing

data boosted investor confidenceand helped shift attention awayfrom the Eurozone.

The FTSEurofirst 300 index of topEuropean shares rose 1.6 per cent toend the session provisionally at1,027.67 points, the highest closesince early August.

The STOXX Europe 600 BasicResources Index jumped 5.4 percent, as copper prices hit three-weekhighs.

Manufacturing data sparksFTSEs racing start to 2012THELONDONREPORT

THENEW YORKREPORT

BEST OF THE BROKERS To appear in Best of the Brokers email your research to [email protected]

ANALYSIS lAfren PLC

95

100

90

85

80

75

Nov Dec Jan

p

103.203 Jan

AFRENBrewin Dolphin rates the oil group add and has put its 128p target priceunder review following a group production update this week. The brokernotes that Afren has underperformed on its original production targets forthe year, though it beat its revised figures after ramping up work on itsNigerian project. But Brewin adds that Afren has significant upside poten-tial in its 15-well exploration programme.

ANALYSIS lAfren PLC

95

100

90

85

80

75

Nov Dec Jan

p

103.203 Jan

CLOSE BROTHERSShore Capital has raised its recommendation for the financial servicesgroup from hold to buy and has given it a sum-of-the-parts fair value of760p. Shore believes the firm is well-positioned to weather the UKs rougheconomy thanks to its strong balance sheet and relatively small exposure toproblem asset classes. However, the broker points out that revenue pres-sures at its Winterflood arm are likely continue through the next year.

ANALYSIS lDolphin Capital Investors

30

32

28

26

24

22

Nov Dec Jan

p

22.253 Jan

DOLPHIN CAPITAL INVESTORSPanmure Gordon rates the Aim-listed resorts investor as a buy but hasscaled back its target price from 83p to 79p, following a 8.5m share issueagreed at the end of last year. The broker is still satisfied by Dolphins cashbalances, which would cover around one years costs, and availability of fur-ther loans. Panmure also reckons the firms price to net asset value ratio isanomalous at just 0.86 times.

p

21 Oct3 Oct 10 Nov 30 Nov 20 Dec

5,800

5,200

5,400

5,000

5,600

ANALYSIS l FTSE5,699.91

3 Jan

Avanti Communications GroupPaul Walsh, chief executive of Diageo, has joinedthe board of satellite data company AvantiCommunications as a non-executive director. Heis also a non-executive director of FedExCorporation and Unilever. Prior to joining

Diageo, Walsh held financial and commercialpositions with InterContinental Hotels and inthe GrandMet food business, becoming CEO ofthe Pillsbury Company in 1992. He was appoint-ed to the GrandMet board in October 1995, andto the Diageo board in December 1997.

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THE last few weeks have beenuncharacteristically quiet onthe European crisis front butpessimists may just view this

as the calm before the next inevitablestorm. The optimistic view could bethat surely all of the bad news is get-ting close to being priced in for theeuro and its death has been consis-tently overstated. IG Index quoteseuro-dollar at $1.3049-$1.3050.

Traders were watching dollar-yenwith interest after coming backfrom the Christmas break. The pairextended last weeks losses below77.00 and headed towards the sig-nificant support around 76.50, thelows reached after the tsunami inMarch. Buy orders were being linedup from 76.50 to 76.0, anticipat-ing an official response. If replicat-ing this trade, a stop loss below

75.50 would be recommended.Spread Co quotes 76.729-76.749.

The end of the festive periodshould welcome back significant vol-ume in all asset classes. With theabsence of any tangible progress onEuropes debt crisis and the USbudget imbalance, the commoditycurrencies are likely to be in focus.On Australian dollar-dollar Alpariquotes $1.0348-$1.0350.

Sterling-eurohas battled hard towin over the 1.2000 level withoutmuch success, despite the ongoingproblems in the Eurozone. Evenstronger than expected UK manu-facturing data was not enough toattract traders back to the pound.With the major resistance barrier of1.2000 remaining in place, its hardto see sterling pushing beyond there.Capital Spreads quotes 1.1960-1.1963.

With manufacturing picking up inthe US, China, and India, riskappetite is back on for forex traders.The Kiwi dollar jumped to a threeweek high against its US counter-part, as traders moved out of thesafe haven US dollar. This trendcould continue in the short term, asthe Kiwi is well supported. CapitalSpreads quotes New Zealand dol-lar-dollar at $0.7883-$0.7887.

The UKs manufacturing activitysurvey indicated that the pace ofcontraction slowed last month, giv-ing the currency a lift. Sterling-dol-lar has fallen back from above$1.56, with the downtrend line fromthe 14 November highs the mainbarrier to the $1.57 level. Longer-term resistance at $1.5770 maycome into play, should sterlingrebound past that point. CMC

Markets quotes $1.55836-$1.55845.Philip Salter

THE TIPSTER

REPORTS OF EUROS END

MAY BE EXAGGERATED

Wealth Management | Foreign Exchange

2012 will mimic 2011 inAussie dollar volatilityTraders can profit from this years twists and turns of the forex markets, althoughthey will have to know when to hold, fold, walk away and run, says Philip Salter

A

S THE currency markets opened for trading at the start ofthe new year, investors remained in a party mood, bidding upthe Australian dollar, after PMI readings from the region

printed better than expected. Chinas official PMIManufacturing report crossed back above the 50 boom/bust level,

GEOPOLITICALTHREATS TO2012 TRADINGBORIS SCHLOSSBERGDIRECTOR OF CURRENCY RESEARCH, GFT

allaying concerns that the Asian giant was heading into a recession,while the Australian AIG Manufacturing report came in above 50for the first time in six months.

Yet, while the news from Asia stoked a rally in risk, events else-where cast a dark c loud over the future. In the Persian Gulf, Iransuccessfully fired a missile that could reach Israeli and US bases inthe Middle East, taking brinkmanship to a new level, after Westernpowers threatened further economic sanctions in the wake of thecountrys continuing nuclear program.

The latest jockeying in the Middle East may be nothing morethan just another round of sabre rattling, but it does present a veryserious risk to global economic growth in 2012. Furthermore, Iremain sceptical that China can engineer a soft landing, as its realestate bubble continues to deflate. The decline in Chinas realestate values will spill over into the countrys construction sectorand will have a negative impact on the investment component ofits GDP, which makes up nearly 50 per cent of the countrys econo-my.

On the other hand, the US economy continues to show slow butnevertheless steady improvement in demand and employment. This

dynamic is setting up one of my favourite trades for 2012: shortAustralian dollar-Canadian dollar as a bet that North America willoutperform Asia this year. Last year the trend favoured theAustralian dollar, as the pair rose from Ca$0.9500 to Ca$1.0500against the loonie. However, if Asian growth begins to slow thattrade will begin to reverse in 2012 and if the standoff in the Straitof Hormuz turns violent, oil prices will surge, boosting theCanadian dollar even further. Presently, the pair continues to rangequietly, but if it breaks the recent lows at Ca$1.0250, parity willsoon follow, as optimism gives way to caution.

MARKETS across the globe aresuddenly hinting at thepromise of economic renew-al. Apart from the earth suc-

cessfully travelling once more aroundthe sun, to the delight of the planets

Homo sapiens, has anything reallychanged from jittery 2011?

For a short time at least, confidenceis high. Traders and investors seemprepared to take on risk again, saysMichael Derks of FX Pro. Back in mid-December, dollar-Aussie dollar wasunder parity and looking quite vulner-able, he adds, but it has bounced

back impressively since then.Yesterday, Aussie dollar-dollar surgedto $1.0384, while the euro recorded arecord low of Au$1.2578 against the

Aussie dollar. The Aussie dollar an archetype

risk-on currency is on the up, asChristmas spirits spill over into thenew year. But alas, the pessimistsshould be equally confident in theirgloom the odds are that traders willface similar market volatility to 2011.

THE OUTLOOK OUTBACKDerks explains that there are two glob-al forces pushing the Aussie in oppo-site directions. Pushing against Aussiestrength are concerns about globalgrowth, which are encouraginginvestors to tread warily. Working for

Aussie strength is the inability of theauthorities managing major curren-cies to convince investors they offer astore of value in contrast, the

Australian currency is freely floating,with strong banks and a solid federal balance sheet. Alaparis George Tchetvertakov thinks 2012 will seequantitative easing measuresannounced in the US, UK and Europe.If this happens, he says, commoditycurrencies and Scandis will appreciatestrongly against dollar, euro and yen as these will be used for funding pur-poses to attain a higher yield in the

Australian and New Zealand dollars.

The fate of Australias economy, andthus its currency, is intimately tied tohow fast China grows and if it crashes, 2010 May Sep May2011 Sep Jan

1.60

1.40

1.35

1.30

1.45

1.50

1.55

ANALYSIS l Euro-Aussie dollarplumbing new depths

Au$

how hard it comes back to earth.China grows on the iron ore, coal andcopper extracted from Australiasland. Tchetvertakov notes: 26.4 percent of Australias annual exports inagricultural and manufactured prod-ucts and 11.2 per cent of all its services

based exports go to China. However, whether and how hard China willcrash is anyones guess it would belike predicting the collapse of theSoviet Union.

TRADING PLACESTraders should expect volatile tradingconditions for the Australian dollaragain in 2012. Derks thinks it would

be remarkable if we did not see theAussie below parity for some part ofthe year. He says: Apart from theslowing pace of global growth, espe-

cially in Europe and Asia, the Aussiedollar also needs to contend with amuch weaker domestic economy. Ian

O'Sullivan of Spread Co thinks it isvery hard to call whether it will holdabove parity by the end of the year,

but thinks we will almost certainly seea similar pattern to the last 15months, where it swings 3 to 4 cents

below parity and 6 to 10 cents above.Derks recommends traders keep an

eye on euro-Aussie dollar, which hasdeclined 38 per cent in just three

years. It would not be surprising, hethinks, if this currency pair reachedparity within the next couple of

years. Last years successful Aussie dol-lar traders were fleet-footed, saysDerks, the best approach was to catchone of these waves for no more thanthree weeks, get out completely, and

wait for the trend to reverse before re-entering. It will be a bumpy ride.

Expect plenty ofups and downs

Picture: GETTY

27 Dec 28 Dec 29 Dec 30 Dec 3 Jan

1.040

1.020

1.015

1.010

1.025

1.030

1.035

ANALYSIS l A strong start to 2012for Aussie dollar-dollar

$

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AN OPEN letter to the Prime Minister

argued for reform of social care fund-ing yesterday. But we have been here

before. Fifteen years ago the JosephRowntree Foundation (JRF) published theresults of their Inquiry into the Costs ofContinuing Care. The 1997 Labour govern-ment made reforming the funding of care apriority. A Royal Commission reported in 1999and it took until 2009 for the government toset out options for fundamental reform. Nowit is 2012 and we are still waiting for a finalapproach to funding these services.

These delays are a problem. Someone whowas 40 when the JRFs inquiry was first pub-lished would now be 55 and have little chanceof significantly building up assets for retire-ment. This is not only bad for the individualsaffected but it also causes problems forEngland as a whole. Population ageing meansthat the longer it takes us to make a changethe larger the number of people caught

between two systems. Delay makes changemore costly.

Costs must be reduced as the longer-termoutlook for the governments accounts is

bleak. The fiscal time-bomb of population age-ing is already exploding, with the baby-

boomer generation retiring and theproportion of the population of working agefalling. As a result the cost of health and careis projected to increase by 40bn (in todaysmoney) by 2041 and the cost of pensions isprojected to increase by 32bn. This is moneythat the government simply does not have.

It is easy to see why politicians want todelay reform. Many people believe that thestate will cover the cost of care as it does withthe free at point of use NHS. Yet the realityis different and many people only discoverthey need to pay for care when they or a fami-ly member enter it. It is a rare politician who

will acknowledge that families have to pay forcare and, indeed, that for the future system ofcare to be affordable contributions will haveto increase.

The obvious source for contributions is the

equity in assets like housing. Yet too often dis-cussions on elderly care reforms are con-cerned with protecting childrensinheritances. So England persists with a sys-tem that is patently unfair, where too manypeople only find out they are required to payfor care in a moment of crisis. The politicalconsensus favours people being caught shortrather than admitting to the reality of hardchoices.

So what should be done? Some answers can be found in the report of last yearsCommission on Funding of Care and Support.

This commission, chaired by Andrew Dilnot,rightly emphasised that people should makeprovision for their own long term care. Yet

while many of the ideas raised by this com-mission were right, the price tag (1.7bn) ofits proposals was wrong. In an environment

where budgets are being cut and populationageing is driving up costs, proposals for largeincreases in spending tend to end up in thelong grass. As Liam Byrne, the former Labour

Treasury minister, famously wrote, theresno money lef t.

Perhaps the best idea of the commissionwas to cap how much people are required topay towards the costs of their care. Althoughthe proposed level (35,000) was too low, a cap

would provide greater clarity over entitle-ments and expectations. It would mean thatpeople could pay for the bulk of the costs ofthe care that they need but would be protect-ed when these costs rise to catastrophic levels.

The certainty a cap provides would encourage

people to look to vehicles like insurance,annuities and equity release to help managethese costs and make the market more attrac-tive for private providers.

Greater certainty could also encourage anhonest conversation on the real costs of anageing population and how we are going todeal with them.

Everyone knows we are getting older butfew people seem to grasp the fund

cityam 2012-01-04

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