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FTSE 100 5,723.00 -28.90 DOW 12,758.85 +83.10 NASDAQ 2,818.31 +31.67 /$ 1.57 +0.01 / 1.19 -0.01 /$ 1.31 +0.01

Fed: We wont increase ultra-low interest rates until late 2014

THE FINANCIAL Services Authority yes-terday fined hedge fund GreenlightCapital and its owner, David Einhorn,7.2m for alleged insider trading inconnection with a 350m equity rais-ing by Punch Taverns in 2009.

Einhorns 3.6m share of the 7.2mfine is the second-largest ever imposedby the UK regulator on an individualfor market abuse.

The FSA case hinged on a telephoneconversation in June 2009 betweenEinhorn and Punch Taverns chiefexecutive Giles Thorley, AndrewOsborne of Bank of America MerrillLynch and three others just daysahead of the planned capital raising.

According to sources, Osborneasked Einhorn if he could make him

an insider, which would have madehim privy to inside information butprevent him from trading in the firmssecurities, but Einhorn refused. There was then some discussion about thematter before the conversation ended.

Within minutes of the conversationclosing, according to the FSA, Einhorn, who is well known for shortingLehman before its collapse, gaveinstruction for all of his 13.3 per centshareholding in Punch to be sold.

City A.M. first approached Einhornspublic relations company in New York,Sard Verbinnen, on Monday to com-ment on its clients share dealings inPunch Taverns in 2009. It made noresponse until yesterday after theFSA revealed Einhorn had been fined.

Yesterday Einhorn, an outspokenactivist shareholder who opposed thePunch Taverns fundraising, said: We

believe that this action is unjust andinconsistent with the law and withprior FSA enforcement precedent.

However, rather than continue anarduous fight, we have decided to putthis matter behind us and concentrateon managing our business.

In a 45 minute conference call lastnight, an affronted but unapologeticEinhorn accused the FSA of conduct-ing a politically charged process. TheFSA wants to score a win against ahigh profile US hedge fund, he said.

He said that not one of the peopleon the Punch call had said that anyinside information had been disclosed.There was no reason to think I wasrestricted in any way, he said.

The FSAs investigation intoOsborne, who quit Bank of AmericaMerrill Lynch in December, is ongoing.

ANALYSIS: P10-11

THE GLOBAL economy is so weak and

US growth so anaemic that interestrates are unlikely to rise until late2014, the Federal Reserve announcedlast night.

Markets rose on the highly accom-modative policy announcement, buoyed by the promise of cheapmoney for years to come. The Dow

Jones rose 0.38 per cent, the Standard& Poors 100 jumped 0.53 per cent, andgold broke the $1,700 mark, rising 2.14per cent in the day.

Slowing global growth, falling busi-ness investment and the weak hous-ing market, combined withbelow-target inflation forecasts mean

there is room for further loosening,the Fed said. As a result, Operation Twist will

continue, with the central bank

increasing the average maturity of its bond holdings to push down long-term interest rates further.

For the first time ever the outlook of

each member of the Federal OpenMarkets Committee was made public.Two of the 17 members believe ratesshould stay low until 2016, and three

want no rise before 2015.However, not all analysts believe this

new transparency is beneficial.In the future it might regret this

decision to publish forecasts at timesthe ability to surprise markets isimportant, argued Lombard StreetResearchs Dario Perkins.

BY DAVID HELLIERFINANCIAL CRIME

BY TIM WALLACEUS ECONOMY

www.cityam.comIssue 1,557 Thursday 26 January 2012 FREE

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BANKERS SNIPEIN DAVOS P18-19

BLOW FOR OSBORNE ASECONOMY SHRINKSGDP TURNS SOUTH P2, P4

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Greenlights owner David Einhorn says the fine is unjust Picture: GETTY

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News2 CITYA.M. 26 JANUARY 2012

Eurozone hitby debt woesDEBT crises in Greece and Portugalshowed no signs of abating yester-day, yet elsewhere in the Eurozoneperiphery Ireland successfullyaccessed bond markets for the firsttime since its bailout.

While Irelands governmentappears to be recovering relativelywell since accepting an internation-al rescue package in 2010, Portugalmay need a further 30bn in EU andIMF rescue funds, one of its chiefbusiness leaders said yesterday.

Ill dare to say we have a creditcrunch... What is lacking is 30bn,claimed Antonio Saraiva, head ofPortugals main industry confedera-tion.

Saraivas call echoed an earlierwarning from Carlos Pina, a govern-

ment official who negotiated thecountrys bailout. Portugal mayneed a further 20-25bn in rescuefunds to finance public companies,Pina has said.

Borrowing costs for thePortuguese authorities soared to aEurozone-era record high yesterday,reflecting fears that the publicfinances are not sustainable.

Yields on three-year governmentbonds struck an eye-watering 19.4per cent, while five-years reached18.8 per cent.

Conversely, at an Irish bond swap,fresh three-years were made avail-able with a yield of just 5.15 percent designed to tempt holders of bonds due for expiry in January2014. In the end around 30 per centof that debt was swapped for thenew later-dated bonds, surprisingon the up side.

Yet the efforts of Greek authori-ties to negotiate a debt swap withprivate holders continue to drag on.Both sides confirmed that CharlesDallara, head of the Institute ofInternational Finance (IIF), returnsto Athens today for yet anotherattempt to kick-start the talks.

The government aims to com-plete negotiations on the debt swapas early as this week, said govern-ment spokesman Pantelis Kapsisyesterday, remaining upbeat.

We are now in the most delicatephase of the negotiations to com-plete the debt swap ... It is clear thatwhat happens in the coming dayswill affect the countrys course for

years, he added.The IIF a body that represents

private holders of Greek debt saidyesterday that it is sending a teamof experts to Greece to continuenegotiations with the Greek govern-ment on legal and technical issues.

The IIF is keen to agree on alloutstanding legal and technicalissues as soon as possible, it says.

As with the previous occasionwhen talks broke down, the stick-ing point seems to remain the rateof interest of new bonds. Privateholders are said to be holding outon their final offer to accept newbonds that pay out four per cent.

MERKEL AT DAVOS: P18-19

BY JULIAN HARRIS

EUROZONE

NORWEGIAN CARRIER AIMS HIGHWITH 222 AIRCRAFT ORDERSNorwegian Air Shuttle plans to buy222 new aircraft worth $21.1bn fromBoeing and Airbus in a move that her-alds its ambition to become one ofEuropes leading low-cost airlines.Boeing secured its largest everEuropean deal through a firm orderby the Oslo-based airline for 122 737narrow-body aircraft, worth $11.4bnat list prices.

MEGAUPLOAD FOUNDER DENIED BAILKim Dotcom, the founder ofMegaupload, the file-sharing websiteshut down last week in one of thelargest criminal copyright cases brought by US authorities, willremain in a New Zealand jail after hisrequest for bail was refused. In a 20-page written ruling, a judge in

Auckland said there was significantrisk that Mr Dotcom, a German

national, would flee the country.

THE SUNNY SIDE OF GLOBAL WARMINGFOR UKA dire vision of violent storms, fatalfloods and shriveled crops is oftenpredicted in reports on global warm-ing. But a gentler world of blueberryfarms, shoals of plaice and fewer win-try deaths may also emerge as a resultof the changing climate, according toa UK government study publishedtoday.

EGYPTIANS URGE CIVILIAN RULE AYEAR ON FROM REVOLTThe first commemoration of Egyptsrevolution became a massive politi-cised protest against the power of thearmed forces that continue to lord.Hundreds of thousands of Egyptiansmarched into central Cairos TahrirSquare, the epicentre of last years 18-day revolt, demanding an immediateend to military rule and shouting slo-

gans against the ruling SupremeCouncil of the Armed Forces.

TELL US TO PAY MORE TAX AND WEWILL, SAYS BILLIONAIREA billionaire co-founder of one of the worlds biggest private equity fundshas challenged governments to sethigher tax rates after backing MittRomney over the low rate that theRepublican candidate paid on hisearnings. David Rubenstein, the man-aging director of Carlyle Group, saidthe private equity industry wouldhappily pay more taxes but it was upto governments to enforce the level.

CITY SLICKER TURNS ITS SIGHTS ONGRAND OLD MAN OF STOCKBROKINGCenkos Securities wants to merge withPanmure Gordon, its blue-bloodedrival broker. Cenkos, now run by thecorporate financier Jimmy Durkin,has bypassed Panmures managementand directly approached QInvest, its

biggest shareholder, with a proposalfor a nil-premium all-share merger.

O2 SHARED MOBILE NUMBERS WITHWEBSITESO2 has apologised for an error thatshared users mobile phone numbers with the websites they visited. Anexperiment set up by Lewis Peckover, a28-year-old web systems administrator,called attention to the problem lastnight. Peckover showed that O2 wasproviding websites with the mobilenumber of users who visited.

CHANNEL 4 SET TO REPORT DEFICIT FOR2012The broadcaster will increase its spend-ing on UK programmes from around360m in 2010 to nearly 450m, partlyfunded from a 50m surplus generatedin 2010 and by reallocating moneywhich would have been spent on acqui-sitions from overseas. Instead, theremainder of the funding injection

will come from Channel 4 reserves,leaving the broadcaster in deficit.

SANDISK PROFIT FALLS 42 PER CENT A day after electronics giant Applereported record iPhone sales, SanDiskprovided soft guidance that suggeststhe rest of the mobile industry isn'tdoing as well. SanDisk which makesflash memory for smartphones,tablets and other devices forecastfirst-quarter revenue of $1.3bn to$1.35bn, below the $1.46bn expectedby analysts.

XEROX FOURTH QUARTER PROFIT RISESXerox met its fourth quarter profit tar-get with help from its services opera-tion, but the company indicatedeconomic weakness, particularly inEurope, will weigh on its business thisyear. Xerox continues to win contractsto outsource business technology andback-office functions. But its tradition-al printer-and-copier business is strug-

gling to show growth, and weakness inthe economy looms as a threat.

WHAT THE OTHER PAPERS SAY THIS MORNING

Coalition deeply confused on growth

IT is hard to understand what thecoalition is playing at. Britains econo-my is stagnating, GDP appears to haveshrunk in the last three months of2011 and yet the government exudesno sense of emergency, no impressionthat it realises that we are in a nation-al crisis and that radical, drastic andunpopular action must be taken. Themood music remains deeply imbal-anced and dangerously anti-capitalistand hence anti-growth; rhetoric mat-ters as it helps set the zeitgeist. Whatis needed now more than anythingelse is to kick-start the corporate sector

to encourage it to hire and invest inthe UK, rather than accumulate cashand invest abroad; instead, we getincessant calls for wealth taxes, moregreen taxes, more restrictions and red

tape, all of which will merely convincebusinesses and entrepreneurs to sit ontheir hands. The 52p tax rate, seeninternationally as a reason to avoidthe UK, will stay indefinitely.

It is of course right to tackle prob-lems (such as rewards for failure) butwrong only to focus on these kinds ofmatters or to constantly seek to out-flank the Labour party from the left.How many more navel-grazing, pseu-do-philosophical and pointless speech-es about the nature of capitalismmust we be subjected to? Its madness:people need jobs and growth, andthese will only come from profit-mak-ing private companies. Yet listening tothe rhetoric, the only kinds of busi-ness people the coalition like areyoung, small wannabe entrepreneurs(who are indeed great) but all other(also very valuable) categories are con-

stantly criticised, told they are allabusing the system or lectured thattheir true market worth is far belowthat of a footballer. There are of courseplenty of abuses and problems, some

of which are reported in todays CityA.M. but listening to the coalitionand our political class, abuse is all thatthere is. That is utter tripe.

The endless banker-bashing persists,even though the coalition desperatelyneeds a reformed City to start grow-ing, hiring and exporting its servicesagain. The government should be pur-suing a pro-market, anti-handout, pro-competition and anti-corporatistpolicy but doing that doesnt meanreinforcing anti-business prejudices orwaging war on the very people whoneed to be convinced to start investingand hiring again. Its a question of bal-ance, of emphasis.

Its also about real, tangible action,rather than gimmicks, announced, re-announced and re-re-announced.There have been no substantial, epoch-defining changes to the regulations

and red tape that cripple the labourmarket. Speeches on getting rid ofhealth and safety excesses turn out tobe about trivial tweaks. The Beecroftlabour reforms have been diluted out

of all recognition. Continuously hit-ting the City while saddling manufac-turing with expensive energy policiesand slapping an ill-thought out tax onNorth Sea oil and gas companies thathas led to a drop in production is stu-pid. No wonder it sometimes seems asif the UK is being rebalanced fromgrowth to stagnation.

The Prime Ministers speech to theCouncil of Europe yesterday callingfor reform of the European Court ofHuman Rights was eloquent; it wasalso pointless. Reform wont happen.

The coalition thinks it is prioritis-ing growth. It isnt not even remote-ly. The spending squeeze is right andnecessary, and must remain intact.Apart from that, the coalition needs totear up its policies and start again.

[email protected] me on Twitter: @allisterheath

The IIF, led by Charles Dallara, is returning to Athens for talks Picture: REUTERS

NEWS | IN BRIEF

Senate starts HSBC investigationHSBC Holdings is being investigated formoney-laundering by a US Senate panel,which could result in a congressionalhearing being scheduled within a matterof months. While the focus of the probeis not yet known, this is the latest in astring of banks exposed by US officials

for managing transactions on behalf ofcountries believed to sustain corruptionand criminal activity. Global banks haveforked out more than $1.2bn in penaltiessince 2008 for violating anti-moneylaundering regulations.

Goldmans London HQ to be soldChinese real estate investor Gaw CapitalPartners is in talks to buy GoldmanSachs' London HQ for about 300m inthe latest deal underlining the safe havenappeal of the city's property market, asource said. Gaw, through its DowntownProperties vehicle, is in the final stages oftalks to do the deal for the block onLondon's Fleet Street, the source familiarwith Gaw's plans said. The PeterboroughCourt and Daniel House properties are letto the US bank until June 2026, and wasput on the market after former ownerJesta defaulted on debt repayments.

EDITORS LETTER

ALLISTER HEATH

Editorial StatementThis newspaper adheres to the system of

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

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

4th Floor, 33 Queen Street, London, EC4R 1BRTel: 020 3201 8900 Fax: 020 7248 2711Email: [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

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SPECULATION of an imminent pub-lic offering from Facebook has beenreignited by the social networkingcompanys suspension of trading onthe private secondary market.

While deal-making will operate asnormal, Facebooks lawyers Fenwick& West will not approve transactionsfor the remainder of the businessweek.

Zuckerbergs empire has said themove is to perform shareholderrecord audits and declined to com-ment on the probability of a loom-ing IPO.

Unlisted companies sometimessuspend secondary trading beforegoing public or making a bigannouncement to prevent peoplebuying or selling before others haveseen the new information.

Jive suspended trading beforefloating in December last year.However, Groupon and Zynga, twoother prominent tech IPOs from2011, did not.

Facebook has suspended trading

before, in order to review its share-holder list leading some to denyany link between this weeks moveand the imminence of a flotation.

Rumours of an early-2012 publicoffering from the social networkingsite have been circulating vigorouslyin recent months, sparked by expec-tations that Facebook would reachthe 500-shareholder limit for anunlisted company by the end of last year and be required to publish itsfinances.

The flotation, expected in May,could see Facebook attempt to raise$10bn (6.4bn), leading to a companyvaluation of $100bn.

However Sharespost, a servicewhich facilitates trading on the sec-ondary market, currently valuesFacebook at $74.3bn.

A public offering in the next few weeks would coincide with theeighth anniversary of Facebook, which Zuckerberg launched asthefacebook.com on 4 February2004.

The company is thought to havebrought in around $4bn in revenueslast year.

Rumours of a

Facebook IPOon trade halt

THE BRITISH government has nochoice but to continue with plans to

reduce its annual deficit, the headof the International Monetary Fund(IMF) said last night.

Former French finance ministerChristine Lagarde (right) recentlyrecommended that some govern-ments had scope to slow down aus-terity measures in the face of strongeconomic headwinds.

But yesterday she stated that theUK is not one of them. Those coun-tries that have fiscal space and that

can slow down their fiscal consoli-dation efforts are very few, and Imafraid Britain is not in that particu-lar group, she toldChannel 4 News.

On a more upbeatnote, Lagarde insist-ed that the IMFexpects Britain toreturn to levels ofgrowth that will helptackle rising unem-ployment. If you lookat our forecast for 2012-2013, were clearly see-ing an improvementgoing from 0.6 per

cent positive to then two per centpositive, she said.

Earlier in the day the IMF warnedthat global crude prices could rise asmuch as 30 per cent if Iran halts oil

exports as a result of US andEuropean Union sanctions.If Iran halts exports to countries

without offsets from other sourcesit would likely trigger an initial

oil price jump of 20 to 30 percent, or about $20 to $30 a barrel, the IMF said in its

first public comment on apossible Iranian oil supplydisruption.

FEARS OF UK SLUMP: P4

Lagarde: UK must cut deficit

BY LAUREN DAVIDSON

TECHNOLOGY

Mark Zuckerberg is expected to take Facebook public by May Picture: REUTERS

BY JULIAN HARRIS

UK ECONOMY

News 3CITYA.M. 26 JANUARY 2012

Salmond sets terms forScots independence vote

SCOTTISH first minister AlexSalmond claimed he could be leadinga sovereign nation by 2016 after set-ting out details of a proposed inde-pendence referendum.

The Scottish National Party (SNP)leader chose Burns Night to defyDavid Cameron and announce hispartys plans for a vote in late 2014 onthe matter of dissolving the 304-yearunion with England.

He also said that the referendum

would ask a simple question: Do you

agree that Scotland should be anindependent country?

Independence would involve disen-tangling the complex financial sys-tems that connect the two countriesand allocating an appropriate shareof the UKs national debt.

The SNP say Scotland would contin-ue to use sterling and rely on theBank of England as lender of lastresort. This would give it little controlover interest rates.

Recent polls indicate around 3040per cent of the Scottish electorate

support independence.

POLITICS

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Fears of newslump afterGDP shrinks BANK lending continued to slow inDecember, but remains up on 2010sfigures according to data published yesterday by the British Bankers

Association (BBA).New mortgage lending hit 8.7bn

in the month, 12 per cent higher thanin December of 2010 and thestrongest month of 2011.

However, annual net growth in thesector slowed to just 1.5 per cent itslowest rate in the decade of availablefigures largely thanks to risingrepayments.

Consumer credit shrank by 1.4 percent in 2011. After a 0.2bn fall inNovember, net lending held steady inDecember in part, analysts believe,because of increased spending in therun up to Christmas.

Consumer appetite for taking on

new borrowing is very low whilethere is also a strong desire of manyconsumers to reduce their debt, saideconomist Howard Archer from IHSGlobal Insight.

Consumers desire to get a tightgrip on their finances is clearly theconsequence of current heightenedconcerns over the outlook for theeconomy and jobs.

Lending to non-financial business-es fell 2.3bn in the month, after a0.4bn rise in November. The BBAblamed weak demand for credit.

Meanwhile financial businesses cuttotal debt by 3bn in the month, slow-ing from a 12.7bn decline in the pre-vious month.

Lending slowsas consumerspay back more

UK ECONOMY

Economics4 CITYA.M. 26 JANUARY 2012

Sir Mervyn Kings Bank will be watching GDP anxiously Picture: REUTERS

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BHARPT JOSHR | DENSITRON TECHNOLOGY

I think weve been in a recession since the end of last year. I know fromexperience that most companies are only offering temporary or short termcontracts and they see the numbers.

DUNCAN MULGREW | METS LTD

Personally our company is doing its best business in ten years, although weare quite specialist. I know the housing industry is struggling which isalways a bad sign.

MATTHEW JOPP | SK TECHNOLOGIES

I work in the private development industry and we have actually seenour numbers pick up compared to last 18 months, so Im optimisticthat were not in recession.

CITY VIEWS: IS THE UK IN RECESSION?Interviews by Raymond DohertyGDP FELL in the final three months of

2011, according to early estimatesfrom the Office for National Statistics,published yesterday.

Economic output appears to havedeclined by 0.2 per cent, with 40 percent of available data analysed so far.

Such a decline leaves GDP growthfor the whole of 2011 at 0.9 per cent.

Prime Minister David Cameron blamed the Eurozone crisis and

squeezed household incomes for thedecline, describing the figures as dis-appointing while attacking Laboursdemands for more spending.

Opposition leader Ed Miliband hitout at Cameron, describing him as abyword for self-satisfied, smug compla-cency and urging him to abandon thecurrent deficit reduction plan on the basis that it was responsible for cut-ting growth and pushing up unem-ployment.

Manufacturing led the fall over thethree months, with output down 0.9per cent on the quarter and registeringno growth compared with the sameperiod of 2010.

The mild winter months led to a fallin electricity and gas use, which fell 4.1per cent on the month and 8.3 percent on the final quarter of 2010.

Services which accounts for themajority of GDP held steady in thequarter.

Within that headline figure, somesectors expanded while othersdeclined.

Government output increased by0.4 per cent in the quarter and 2.5 per

cent on the same period of 2011.Healthcare led the rise as, despite a budget freeze, the number of proce-dures increased.

Meanwhile output in the distribu-tion, hotels and restaurants sectordeclined 0.5 per cent in the quarter,though still expanded 0.7 per cent onthe year.

Construction suffered a 0.5 per centfall in output in the quarter, and thesame fall compared with the fourthquarter of 2010.

However, as it accounts for only

around seven per cent of GDP it is notsignificant enough to impact on theoverall economic growth figures.

We believe output is likely todecline in the first quarter of 2012, which would mean the UK has re-entered a technical recession, saidInvestec economist Philip Shaw.

What is more important than thedouble dip or not debate is the broadshape of the economic outlook. Ofcourse there is little clarity here, buttentative signs towards a resolution ofthe Eurozone crisis help us to main-tain our central case of a shallowupturn.

BY TIMWALLACEUK ECONOMY

ANALYSIS l Economic growth has tailed off

% q on q

2008Q2

2008Q4

2009Q2

2009Q4

2010Q2

2010Q4

2011Q2

2011Q4

1.5

1

0

0.5

-0.5-1

-1.5

-2

-2.5

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Cost of raisingchildren jumpsto new records

THE EUROZONE crisis hit manufac-turers in the final three months of2011, according to the CBIs industri-al trends survey published yester-day.

Output stagnated, with a net bal-ance of just two per cent of firmsreporting an expansion, and 15 percent reporting a fall in new orders the first such drop in two years.

Sentiment fell in the quarter witha net balance of 25 per cent of firms

feeling less optimistic about busi-ness conditions than they werethree months ago a steep drop,

but slowing slightly on the 30 percent tracked in the previous quarter.

A net balance of 20 per cent arealso increasingly pessimistic aboutthe year ahead.

The Eurozone crisis is the singlebiggest factor dragging down manu-facturing, which is a particularlyexport-oriented sector, said CBI

boss John Cridland.A resolution would help the

economy. The biggest missing link isthe stability fund, and the responsi-

bility lies with politicians to boostthat to over 1 trillion (0.843 tril-lion) and ensure it can supportItaly.

The weak state of the manufactur-ing sector did not hit jobs, however,

with a net balance of 11 per cent offirms increasing employment.

This is in part due to employersconcerns over retaining skilledstaff, said CBI economist IanMcCafferty.

Also low wage settlements have

helped firms keep on more staff.

UK factorieshit by woesin EurozoneBY TIMWALLACE

UK ECONOMY

Economics 5CITYA.M. 26 JANUARY 2012

BY TIMWALLACE

UK ECONOMY

CHILDCARE, education and foodcosts have all hit parents pockets,pushing the cost of raising a child tonew highs, according to a study pub-lished today by Liverpool Victoria(LV).

The cost of raising a child untilthey are 21 stands at 218,024, theresearch estimates.

Education costs rose 5.1 per centover the last year to 71,780. Over40,000 comes from university costsand fees, and the remainder includesschool uniforms, bus fares and trips.

Since the report was first carriedout in 2003, education costs haverisen 120 per cent.

Food spending jumped four percent in the year, and 25 per cent

since 2003, to 18,667, whilst child-care and babysitting now costs62,099 up 2.7 per cent on the yearand 57 per cent since 2003.

In response to soaring costs, two-thirds of parents are planning toseek out more low-price items intheir weekly shop this year, whileone-third are increasingly sellingitems online and in car boot sales toraise extra cash.

Despite an uncertain economyforcing more pressure on the budget,its clear parents dont begrudge themoney they spend on children, and

would rather do without themselvesthan radically cut back on what theycan provide, said LVs Mark Jones.

ANALYSIS l Factory output has stagnated

% balancereporting growth

Past 3 monthsNext 3 months

00Year 04030201 05 06 07 0908 10 11 12

30

20

10

0

-10

-20

-30

-40

-50

-60

TOTAL

218,024

Education*

71,780

Leisure

7,303

Hobbies & Toys

9,248

Other

13,761

Personal care

1,143

Furniture

3,373Food

18,667

Clothing

10,781

Childcare

62,099

Pocket Money

4,337

Holidays

15,532218,000: thecost of raising

just one child*does not include private school fees

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WORK HAS stopped on the Pinnacleskyscraper on Bishopsgate for a secondtime, as the developer struggles tofind enough pre-let tenants.

Construction officially halted lastweek with the tower just seven storeyshigh. However, City sources say workhad been very slow over recentmonths, making possible tenantsmore reluctant to consider the build-ing.

Work first stopped last year, restart-ing in September after developer ArabInvestments secured a new tranche offunding from HSBC and HSHNordbank.

Arab had embarked ona fresh capital drive in2010 but failed to keepconstruction work going,as reported in City A.M.(below).

And now conditionson the funding requir-ing a certain level ofpre-let deals appear tohave kicked in again.

Around 10 per centof the 945 foot-tallPinnacle, also knownas the Helter Skelter,has reportedly beenlet.

The City leasingmarket is diffi-

cult The Pinnacle is a statementbuilding, a very adventurous project, but how many possible tenants are

prepared to make a statement likethat in the current climate? said oneproperty source, who declined to benamed.

The 800m tower has already fallenbehind its original schedule and cur-rently has a completion target of 2015.

The Pinnacle, if it is finished on time,will come to market more than a yearafter rival developments includingLand Securities Walkie Talkie toweron Fenchurch Street and BritishLands Cheesegrater project.

Agents for the skyscrapers are com-peting for a dwindling number oflarge tenants looking to pre-let a size-able chunk of a tower. Schroders sus-

pended its search for up to2 5 0 , 0 0 0square feet

of officespace in

D e c e m b e r

amid econom-ic uncertainty.

A r a bInvestments

along with CBRichard Ellisand Savills, the

joint leasingagents on the

tower, wereunavailable forcomment yester-day.

BNY extendsits stay withCanary Wharf

BYMARION DAKERS

PROPERTY


Work on the Pinnacle haltsagain amid tenant drought

BNY MELLON has decided to stay putat its offices in Canary Wharf withthe US bank renewing its lease atOne Canada Square for a furthereight years.

The bank, which is leasing sixfloors at the top of the 50-storey sky-scraper, has signed a new term withits landlord Canary Wharf Group,

beginning 1 January 2014 at a rent of

42.50 per square feet. The property firm, owned by

Songbird Estates, has agreed a rent-free period of 18 months from 1

January 2014.Richard Archer, head of leasing at

Canary Wharf Group, said: BNYMellon has been a highly valued ten-ant at Canary Wharf for over 13 yearsand we are delighted that it hasagreed to extend its occupation atCanary Wharf. This is another vote ofconfidence in both Canary Wharfand London.

One Canada Square is Britainstallest operational building, but it isdue to be knocked off its perch by theShard at London Bridge, which is dueto be completed this year.

Canary Wharfs chief executiveGeorge Iacobescu also announcedplans last week to radically expandits east London estate after buyingout its partners in the Wood Wharf, asemi-derelict site next to Canary

Wharf, where it intends to build anew office and residential district.

BYKASMIRA JEFFORD

PROPERTY

One Canada Squareis Londons tallestoperational building

Picture: MICHATHEINER/CITY A.M

www.cityam.com

I ue1,272 Friday26 November2010

F E

MPCRBREAKSPOSENACCBOESKIN POLITICALB

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THEDEVELOPERofthe Pinnacle sky-scraperis scramblingtosecure extrafundingtoavoid beingforcedtohaltconstructionon the 945-foottower.ArabInvestments (AI)has mad

plea tosome f h

bankmightoffera smallerloan ifAIcan lockdownapre-letdeal formorethan150,000feet.AIs managing director KhalidAffara saiditmadesensetoreturntoits original investors rather thacceptthe te

towers by listed firms leaves thePinnacle in an increasinglycrowdedmarketwhen itisreadyfortenantsinearly2013.

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PINNACLEAPPEALSTOKEEPICONICOWERALIVE Amountoffundingsec r :330m33%

Fundingwillpayfor:threecompletefl5%

Developercouldbeforcedtohaltworknextyearunlessitcansecureextrafunding

YMARIONDAKERS

EXCLUSIVE

ANALYSIS l Songbird Estates

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A tale of two property developersBUILD it and they will come. Thatwas the mantra which underpinnedspeculative developments duringthe boom years. These days its morelike show me the tenants and Illshow you the money. Without a

confirmed pre-let, its awfully diffi-cult for smaller developers to getfunding, hence why work on the so-called Helter Skelter has stopped (seestory opposite).

There was better news fromCanary Wharf Group, which con-vinced Bank of New York Mellon tostay on in its offices on the top sixfloors of 1 Canada Square (story alsoopposite). The Wall Street bank will

pay 42.50 per square foot from2014, a higher rate of rent than itpaid previously, we understand. Thissuggests Canary Wharf Group is stillpushing up rents, especially for itsmost premium office space.

So what do these two stories tellus about the state of Londons com-mercial property market? First, thatsmall-time developers such as ArabInvestments, the group behind thePinnacle, will struggle for the fore-seeable future. They are no matchfor listed giants like British Land andLand Securities, who can use exist-ing revenue streams to fund theirdevelopment programmes.

Second, that big financial institu-tions still need offices with verylarge floor plates such as OneCanada Square. Only Canary Wharfand a handful of City buildings canprovide this kind of space, meaning

they will benefit enormously fromsqueezed supply when leases arerenewed over the next few years.

That bodes well for theCheesegrater and Walkie-Talkie, butmakes it harder for the likes of theWalbrook and Cannon Place.

BOTTOMLINEAnalysis by David Crow

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CITIGROUP is considering furthercuts to its securities and banking divi-sion, raising the prospect of moreredundancies at its London offices.

The banks finance chief JohnGerspach told investors that losses inthe division were disappointing andunacceptable and that the firm isnot oblivious to the fact that our coststructure cannot be justified by ourcurrent revenues.

Gerspach also revealed that thedivisions bonus pool had beenreduced by $800m (514m) in 2011.

We must either drive revenuegrowth and operating leverage or wewill have to restructure, cut capacityand cut expenses, he said in a confer-ence call. While this is not a decisionthat we will make in haste, it is alsonot a decision that we will delay inthe name of long-term strategy,

The firm spent $1bn during 2011on rebuilding the unit which

includes investment banking, privateequity and hedge fund operations but has been disappointed by its per-formance.

Citi employs around 10,000 staff inLondon within a global workforce of266,000. The firm is currently in theprocess of laying off 5,000 employees worldwide, including several hun-dred in the UK.

The bank could not confirm howpotential redundancies would affectspecific regions but it is almost cer-tain that London would be affected.

Citi cuts putLondon bankjobs at risk THE HEAD of 3i Infrastructure yester-day opened the way to spendingmore cash despite the chill grippingthe deals market.

Cressida Hogg, managing partner,said the firm is developing theinvestment pipeline for the comingmonths. It also said its portfolio isperforming well and delivering agood yield.

The firm reported a cash balanceof 136.2m.

The group, which is set to battleinstitutional investors in the fight tobuy Edinburgh airport from opera-tor BAA, is also working on the pro-curement process for thegovernments 6bn overhaul of theThameslink rail line.

Yesterday in a statement for theperiod from 1 October Hogg said her

firm is currently focusing on bring-ing the Thameslink transaction to afinancial close.

Last year the Department forTransport said the preferred bidderfor the supply of new Thameslinktrains will be 3i Infrastructure andits partners Innisfree and SiementsProject Ventures.

Britains oldest private equity firm3i Group floated the infrastructurearm in 2007 and remains its invest-ment adviser.

3i spin-off stillupbeat despitemarket gloom

BY JAMESWATERSON

BANKING

INVESTMENTS


INVESTMENT manager CharlesStanley has suffered a drop in rev-enue from 32.2m to 27.3m for thethree months to 31 December.

The 15.5 per cent decrease waslargely a result of low trade volumes,which meant commission income fellfrom 16.6m to 10.6m.

The firm managed to boost feeincome by 5.8 per cent to 16.6m dur-

ing the same period.Charles Stanley blamed reduced

bargain volumes caused by the poortrading environment, euro uncertain-ty and depressed UK economy forthe results but was keen to emphasisethat it had successfully retained14.48bn of client funds, just downon the 14.5bn it managed in March2011.

The firm had previously issued aprofit warning in October. Sharesclosed down 2.39 per cent at 265p.

Revenues fall 15 per centat broker Charles Stanley

Sir David Howard faces tough times as Charles Stanleys chairman

BY JAMESWATERSONFINANCIAL SERVICES

ANALYSIS l Citigroup

US$

18 Jan 19 Jan 20 Jan 23Jan 24 Jan

30.50

30.00

29.50

29.00

28.50

28.00

29.9625 Jan

8/3/2019 Cityam 2012-01-26

9/36

GERMAN investment bank DresdnerKleinwort scrapped plans to pay50m(42m) in bonuses to its Londontraders even though the City regulatorhad been breathing down its neckover the loss of staff, a court has heard.

Bankers were jumping ship toGoldman Sachs, Citigroup andUnicredit/HVB and the FinancialServices Authority had become con-cerned about the effect of a possibledisorderly breakdown of Dresdner

Kleinwort, as the markets worsened inlate 2008, it is alleged.

The FSA, if I could put it colloquial-ly, were breathing down the banksneck to do something, said AndrewHochhauser QC yesterday.

A group of 104 former Dresdnerbankers claim binding and enforce-able contractual promises mean theyare owed 50m from a guaranteedminimum retention pool of400m for2008. They say the introduction of aclause to reflect worsening perform-

ance, was a moving of the goalposts. The claim, against Dresdner

Kleinwort and Commerzbank, nowthe parent firm, covers sums rangingfrom15,000 to2m which were dueto have been paid in January 2009.

Stefan Jentzsch, then chief executiveof Dresdner Kleinwort InvestmentBank, said in 2008 the cash would bepaid no matter what as part ofefforts to retain staff amid a re-organi-sation of Dresdner group. This hadsparked anxiety over job security, saidHochhauser, who is representing 21 ofthe bankers.

Allianz which owned Dresdnersinvestment bank before it was sold toCommerzbank in January 2009 feared a mass exodus of staff couldhave disastrous consequences.

Commerzbank, which had to bebailed out by the German governmentafter buckling in the credit crisis, haslong argued that discretionary bonus-es were dependent on the banks per-formance and said it is mounting avigorous defence. Its rebuttal isexpected to begin today.

Bankers bidfor 50m in

bonus battle

A KEY Whitehall committee will meetthis week to discuss whether Sir FredGoodwin should be stripped of hisknighthood, David Cameron has said.

The Honours Forfeiture Committee will consider all of the evidence,the Prime Minister said yesterday. Theevidence will include the FSAs damn-ing report on the near-collapse of

Royal Bank of Scotland. City A.M.understands, however, that a finaldecision will not be made for at leasta fortnight. Goodwin was knighted in2004 for services to banking.

Meanwhile Goodwins successor,Stephen Hester, is expected to receivea bonus of less than 1m. The govern-ment has put huge pressure on RBSand it is understood talks are contin-uing. The Treasury has demanded the

bonus is paid entirely in shares and is

deferred.Hester is entitled to a salary and

bonus of up to 7.6m, including up to4m in share-based payments, butthis is unlikely because the banksstock closed at 26.75p last night well

below the governments break-evenprice of 51p.

The Treasury said no decision hadbeen made. Cameron has previouslysaid RBSs bonus pool will be lowerthis year.

Goodwins gong under threat from civilservants as pressure grows on Hester

BY PETER EDWARDS

BANKING

BY PETER EDWARDS

BANKING


FORMER LLOYDS BOSS ERIC DANIELS JOINS STORMHARBOUR

ERIC Daniels, theformer group chiefexecutive of LloydsBanking Group, isjoiningStormHarbour asprincipal and sen-ior adviser with

immediate effect.Daniels, whoretired from Lloydsa year ago, has thehighest profile yetof any of the profes-sionals that havejoined the inde-pendent boutiqueinvestment bank,which was formedearly in 2009.Picture: REX

8/3/2019 Cityam 2012-01-26

10/36

PROJECT Beetle was the name usedfor a 350m fund-raising in 2009 thatled to a critical reduction in Punch

Taverns 4bn debt pile.Those who worked on the ultimate-

ly successful transaction, whichincluded bankers from Bank of

America Merrill Lynch (BAML) andGoldman Sachs, and lawyers fromSlaughter & May, had every reason tocelebrate the deal and move on to thenext.

But for one investment banker and

one US hedge fund manager, theirinvolvement in Beetle has had mas-sive repercussions.

On the website of the FinancialServices Authority (FSA) there is one

word alongside former BAML bankerAndrew Osbornes name: inactive.

His inactivity, since December of

last year, has everything to do with aconversation he was involved in dur-ing the marketing of the Punch

Taverns fundraising, which yesterdayled to a 7.2m fine for David Einhornand his firm Greenlight Capital.

Opinions vary as to whetherOsborne, or Oz as he is affectionatelyknown in the City, was just naive orunlucky in regard to Einhorn, a largeinvestor in Punch Taverns.

The FSA has spent months investi-gating events leading up to the 16

June public announcement of thePunch Taverns open offer and shareplacing.

In particular investigators focusedon a conversation that includedOsborne, Einhorn, Jim White, then ofGoldman Sachs, and the then Punch

chief executive Giles Thorley, in theearly part of June that year.

As is usual, Osborne, as the compa-nys corporate broker, wantedEinhorn, a large shareholder inPunch, to be pre-warned about theimminent transaction so that hemight support it.

Unusually, when Osborne askedEinhorn whether he would wallcross (or become an insider to theissue, which would involve not buyingor selling any shares in Punch for anagreed number of days), the Americanrefused.

Bankers said that this would havebeen an unusual situation and a diffi-cult one for Osborne to deal with. 99times out of 100 a shareholder agreesto being made an insider, as long as

you give them an idea how long theywill be unable to trade for, said asource yesterday.

Friends say thatOsborne then broughtthe conversation to aclose but regulatorsappear to have judgedthat some informationabout the rights issue

was indeed passed on tothe hedge fund trader,albeit not deliberately.

Einhorn is a confronta-tional character whofamously shorted shares inLehman Brothers ahead ofits collapse and who pub-licly took on the banksthen finance director ErinCallan, rightly suggestingthat she was being too opti-mistic about the bank.

At one point Einhorn was PunchTaverns largest shareholder. However

ahead of the public announcement ofthe fund-raising there were four sepa-rate announcements, all in June,showing that he had reduced his stakein the company.

The stake went from 13.3 per centon 1 June to 8.98 per cent on 15 June,the day the details ofthe deal wereannounced to thestock market. TheFSA said his deal-ings saved thefunds losses of5.8m.

Greenlight andQVT became vigor-ous opponents of thefund-raising deal andtheir opposition near-ly led to it being voteddown.

Needing ashareholder vote of 75 per cent, Punchrecorded a narrow victory of 75.1 percent. Although the deal resulted inPunchs share price falling 44p to

104p on 15 June, it was broadly wel-comed in the City because of its stabil-ising influence on the groupslong-term prospects.

Osborne is expected to be given afine by the FSA, but he is said to beconfident he will not be banned from

working in the City. Friends ofthe Welsh rugby-lover said

last night he had beenapproached by a numberof banks who are inter-ested in hiring him andthat he has been offeredat least one non-execu-tive chairmanship.

But they said he wasunlikely to take a new

position until the whole FSA matter had

been resolved and as of yesterday his dealings

with the FSA were still

ongoing.

Focus on insider scandal10 CITYA.M. 26 JANUARY 2012

How Project Beetle sent a City rai

US fund manager scuttlingBYDAVID HELLIERREGULATION

Rainmaker: Andrew Osbornequit BAML in December

8/3/2019 Cityam 2012-01-26

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Focus on insider scandal 11CITYA.M. 26 JANUARY 2012

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maker and a

THE PUNCH Taverns case hinges onthe interpretation of a term used byinvestment bankers: wall crossing.

A company or one of its adviserswill ask a shareholder to wall crossfor the purposes of marketing a dealto them, like an acquisition or afund-raising.

If a shareholder agrees to be wallcrossed it means that they can nottrade in the shares of the companyfor a set period ahead of a transac-tion.

If a shareholder declines to be wallcrossed, as in this case, an advisershould stop the conversation thereand then, says Ruth Gevers, former-ly of the FSAs market conduct team.

The FSA said yesterday that a mat-ter of minutes after a telephone conversation had concluded with acorporate broker, Einhorn gaveinstructions to sell all ofGreenlights holding in Punch.

At this point the advisers in theroom had a responsibility to make aSuspicious Transactions Report tothe FSA.

Advisers on a deal, like ProjectBeetle, also have an insiders listwhich the FSA can ask for.

Wall crossingat centre ofFSAs probeREGULATION

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BRITVIC shares enjoyed a 3.44 percent rise yesterday after the softdrinks maker and distributorreported a rise in revenues and bigmarket share gains for Pepsi, whichit makes and distributes underlicence in the UK.

The maker of Robinsons, Tangoand J2O said first quarter revenuerose 2.5 per cent at constantexchange rates to 295.2m, driven

by growth in its UK, French andinternational division.

The FTSE 250 companys carbon-

ated drinks division performed par-ticularly strongly, with a revenuerise of 5.8 per cent driven by Pepsi,

which Britvic said hadsubstantially grown itsshare in the take-homecola market.

In France, where itowns the Teisseire

brand, Britvic grew sales by 12.6 per cent afterincreasing its share ofthe syrups market.

However, Britvic suf-fered a further slump inits Irish business, whereit sells own-brandMiWadi and Ballygowansoft drinks.

Revenues fell 10 percent due to price cuts

and a 0.2 per cent dip in sales vol-umes.

The group said half of the salesdecline in Ireland stemmed from

weakness at its wholesale business, which distributes third-parbrands to pubs and bars.

Britvics stills division also deliv-ered a weaker-than-expected per-formance, with revenues declining

by 1.7 per cent in the period. As a result, analysts at Panmure

Gordon downgraded their pre-taxforecasts for 2012 by 4m to 116mfor British still and by 6m to131m for the groups Irish division.

Chief executive Paul Moody saidin a statement: We expect the gen-eral economic and trading environ-

ments to remainchallenging but, despitethis caution, we are con-fident in our ability todeliver another solid setof results for the yearahead, in line with ourexpectations.

The company expanding in the US

where it will start man-ufacturing its childrensFruit Shoot brand forthe first time. It alsosigned several deals,that will see it doubleits Fruit Shoot distribu-tion to six states.

Pepsi adds fizz toBritvic after Irish

drink sales declineBYKASMIRA JEFFORD

RETAIL

Strong food shop performancehas boosted jobs, retailers say

RETAIL employment rose in the finalquarter of 2011 as food shops pros-pered, reversing declines seen in theprevious six months, figures from theBritish Retail Consortium (BRC)showed yesterday.

The final three months of the yearsaw a 0.5 per cent rise in retail employ-ment compared with the same quar-ter of 2010 equivalent to 4,074

additional jobs.

Over the same period the number ofretail outlets grew by one per cent.The rise marks a sharp turnaround

from the 0.8 per cent decline in jobs inthe third quarter, year on year.

Employment by food retailers rosein each month of the final quarter.

However, non-food shops appear tohave hired temporary Christmas stafffor shorter periods of time than in2010, to avoid the extra red tape result-ing from new agency workers rules.

BY TIMWALLACE

UK ECONOMY

ANALYSIS l Retail Employment

Quarterly change on previous year

Q42009

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

4

3

2

1

1.6% 1.

9%

2.1%

0.6%

0.5%

0.5%

-0.4%

-0.8%

0

-1

3.6%

8/3/2019 Cityam 2012-01-26

13/36

WH SMITH cheered investors yesterdayafter the books and stationery retailerposted an improvement in profit mar-gins despite sales continuing to fall.

Chief executive Kate Swann said thegroup had delivered a resilient per-formance in a challenging marketafter like-for-like sales fell f ive per centfor the 21 weeks to 21 January.

The FTSE 250 firm, which has 612high street shops and 561 in travel

locations, said sales were hit by a lackof strong titles this Christmas com-pared with last year, when Jamies 30-Minute Meals and Tony Blairs

biography flew off the shelves.At its high street division, like-for-

like sales fell six per cent as consumerconfidence remained weak.

Under Swanns leadership, the com-pany has been focusing on offsettingshrinking sales with higher marginproducts and cutting costs, which hasled to an increase in profits over the

past seven years.She has also rebalanced WH Smiths

high street and travel businesses andthe firms mix of products away fromentertainment products such as CDsand DVDs, which now count for lessthan five per cent of its sales.

As a result of this, the months ofNovember and December now repre-sent less than half of annual groupprofit compared to over 90 per cent ofgroup profit six years ago, Swannsaid.

Shares rose 4.32 per cent to 554p.

Shop slumpfails to fazeWH Smith ASDA, the British arm of US retailerWal-Mart, has signed a franchise dealwith a Lebanon-based firm to take itsGeorge budget fashion brand to the

Middle East.The UKs second largest supermar-

ket said in a statement yesterday thatthe Azadea Group, headquartered inBeirut, would explore options for itsGeorge label in the Middle East, with-out mentioning the location or thenumber of stores it intends to open.

Meanwhile, the group has alsosigned a second franchise deal withretailer SandpiperCI, based in theChannel Islands, to open George out-lets in both Jersey and Guernsey.

Last year, Asda announced its inten-tion to establish a small number ofpilot George stores, which it plans toopen in 2012.

George, which was launched 20 years ago, currently accounts foraround half of Asdas general mer-chandise sales. The supermarket said22.5m shoppers, or half of the UK pop-ulation, have purchased an item fromGeorge in the last year.

Last week Tesco signed a franchisedeal with Fawaz Abdulaziz Al Hokair &Co, the largest shopping mall owner inSaudi Arabia, as part of a move to turnits F&F clothing range into an interna-tional fashion brand.

Asda takesGeorge brandto Middle East

BYKASMIRA JEFFORD

RETAIL

RETAIL

NewsCITYA.M. 26 JANUARY 2012 13

ANALYSIS l WH Smith

p


560

555

545

550

540

535

530

55425 Jan

ANALYST VIEWS: DID WH SMITHS RESULTSMARK AN IMPROVEMENT? Interviews by Kasmira Jefford

PHILIP DORGAN | PANMURE GORDON

Management has now successfully shifted the seasonality of the business,but a break up looks unlikely in the short run and top line momentum islikely to remain subdued. We think shares currently lack a catalyst.

JOHN STEVENSON | PEEL HUNT

WH Smith delivered Christmas trading in line with subdued like-for-likeexpectations... Valuation and yield remain attractive, although our holdstance continues to reflect medium-term technology fears.

DAVID JEARY | INVESTEC

WH Smith delivered another solid Christmas trading update, with a smallimprovement in like-for-like sales...our 99m profit before tax forecast remainsunchanged, as does our Buy recommendation.

Kate Swann hasbeen chief exec ofWH Smith since2003.

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The CapitalistCITYA.M. 26 JANUARY 2012

RESTAURANTS, holidays, cars andnow trading seminars. Todays deal ofthe day on the internet coupon busi-ness Groupon is a 95 per cent dis-count to 19.95 on the tradingacademy run by the irrepressiblehedge fund manager Lex van Dam.

To recap: van Dam (right) is the ex-Goldman banker who left to set upHampstead Capital, before puttingup $1m of his own money to let agroup of amateurs lose two per centof that capital on the 2010 BBCshow Million Dollar Traders.

That was still three per cent betterthan the professionals however,

says van Dam, thanks to his five-step

programme whichteaches the art ofbuilding andmanaging anonline stockportfolio.Places for theinternet tutori-als are unlimited and open topeople who aredissatisfied withthe performanceof their financialadviser.

Everyone, in

other words.

GROUPON LISTS MILLIONDOLLAR TRADERS DEAL

FORGET the FTSE 100 its the compa-nies further down the stock marketthat will lift the country of recession,says Grant Thornton partner PhilipSecrett, who last night called on thegovernment to abolish stamp duty for

Aim- and Plus-listed firms.Secrett was addressing a roomful

of the Citys small-cap businesses,the fund managers that invest inthem, and one large dinosaur skele-ton at the Grant Thornton QuotedCompany Awards at the NaturalHistory Museum.

Never mind Davos this was the firstessential event ofthe business year,said organiser

Vitesse Media,and the onlyone thatr e w a r d shigh-achiev-ing listedcompaniesq u o t e dsouth ofthe FTSE350 downto Aim andPlus.

The world

is entering a period of slower growth,and so we desperately need to bringcapital to our small businesses,

because these are the companies gen-erating the best returns, awards

judge Gervais Williams, the manag-ing director of MAM Funds, told TheCapitalist between debates with pre-senter Naga Munchetty of BBC World.

Many fund managers prefer tofocus on the large companies but

we are getting close to a turningpoint where that will reverse.

Joining Williams on the top table were fellow judges Andrew

Buchanan of OctopusInvestments, Andy Broughof Schroders (pictured left

with Ishbel Macpherson,chairman of Speedy Hire),

and Giles Hargreave ofH a r g r e a v eHale, whoa b s t a i n e dfrom votingh i m s e l f Investor ofthe Year forhis consis-t e n treturnsin small-cap stocks.

Peter Barrett-Lennard of RBC Capital Markets, Tony Lowrie ofKenmare, and Stephen Foss of RBC Capital Markets

(from left) Marcus Edwards-Jones of Range Resources, Shahrukh Khan of OracleCoalfields, and Harry Stevenson of Pritchard

Gervais Williams of MAM Funds, Andrew Buchanan ofOctopus, and Katie Potts of Herald Investment Trust

CITY INVESTORS TAKESTOCK OF SMALL-CAPSUCCESS STORIES

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ROCHE Holding is offering $5.7bn(3.6bn) in cash to buy US genesequencing company Illumina in anunfriendly takeover bid that marks amajor move by the Swiss drugmakerinto the gene technology field.

Gene sequencing is central to per-sonalised medicine, which allows sci-entists to predict a patients responseto a particular drug, both during clini-cal practice and in drug trials.

The current offer price is 18 per cent

above Illuminas closing price onTuesday and over 60 per cent above thelevel before rumours of a bid started,

but analysts have said Roche mighthave to raise its offer to secure a deal.

Roche chief executive SeverinSchwan said the company had nointention of raising its offer.

Basel-based Roche said it wouldoffer to buy Illuminas shares for$44.50 each in cash. Roche currentlyowns a very small number of Illuminashares, finance chief Alan Hippe said.

It plans to commence a tender offerbecause Illumina was not willing tonegotiate a transaction.

Roche has made multiple efforts toengage with Illumina in order to reacha negotiated transaction, but Illuminahas been unwilling to participate insubstantive discussions, it said.

A deal would be financed from avail-able cash and borrowings under itscredit facilities and would not requirenew finance, Roche said.

Illumina urged shareholders to takeno action pending a recommendationfrom the board.

Roche offers$5.7bn to buygene business

BOEING said yesterday that a pensionexpense larger than Wall Street hadanticipated would weigh on its 2012

earnings, but it handed investorsgood news with expectations forincreased aircraft deliveries this year.

The worlds largest aerospace anddefence company reported fourth-quarter net profit of $1.4bn, com-pared with $1.2bn a year earlier.

The company, which competeswith Airbus for orders, said revenuehad risen to $19.6bn and that itexpects to deliver 585 to 600 commer-cial airplanes in 2012.

Boeing upbeatover plane sales

Roche boss Schwan said he will not raise his offer for Illumina Picture: REUTERS

BYHARRY BANKS

PHARMA

TRANSPORT


ANALYSIS l Roche

CHF


167.50

165.00

162.50

160.00

160.0025 Jan

ROCHE has turned to regular financialadvisers Greenhill and Citigroup on itsbid for Illumina, having mandated bothhouses on previous M&A transactions.

Citis team on the deal includes itsglobal head of health care investmentbanking ex-Lehman Brothers employ-ee Chris Hite and Wilhelm Schulz, thebanks head of European M&A.

Born in Austria, Schulz completed hisMBA in the UK at Lancaster University,and worked as a ski instructor beforeclimbing through the Citi ranks.

Both Schulz and Hite worked on

Roches $230m acquisition of hepatitisC specialist Anadys Pharmaceuticals inOctober last year.

Greenhills healthcare team has previ-ously worked for Roche as the solefinancial adviser on its 2009 acquisitionof biotechnology company Genentechfor $46.9bn after a lengthy pursuit.

Illumina is being advised on the offerby Bank of America Merrill Lynch, andGoldman Sachs.

By Elizabeth Fournier

MEET THE ADVISERS

WILHELM

SCHULZ

CITIGROUPONLINE streaming service Netflix

exceeded expectations for 2011despite its market value crashing bymore than two thirds in October asup to a million customers left theservice in protest to hiked fees.

While fourth-quarter net incomeslid 13 per cent to $41m (26.1m),quarterly revenues were up by a thirdon the previous year to $876m.

Netflix expects to see a loss of up to$118m in the coming quarter due toits expansion to Latin America andthe UK last year.

Netflix survivesdisastrous year

TECHNOLOGY

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Focus on Davos18 CITYA.M. 26 JANUARY 2012

SUSTAINABILITY ISABOUT MORE THANTHE ENVIRONMENT

ANDREW MOSSGROUP CHIEF EXECUTIVE, AVIVA

S

USTAINABILITY is a word that crops up in a lot ofthe conversations going on at Davos. For many, its a

shorthand for environmentalism, but for us it has tomean much more than that. Our relationships with

customers can last for decades running a sustainable busi-ness is how we safeguard the financial futures of our 44mcustomers.

We know that we can only provide our customers withprosperity and peace of mind if we act responsibly, sustain-ably and with integrity. Well-managed, responsible busi-nesses will perform better and create more sustainablevalue over the long term.

We want our employees to be able to build a rewardingcareer with us. We want our customers to stay with us and recommend us to others. We want to be a responsiblecorporate citizen and make a lasting, positive contributionto society. All these approaches build sustainability into theheart of the business.

Later this year at the Rio+20 summit, well be leading acoalition of financial institutions, professional bodies, NGOsand investors in calling for agreement on a global conven-tion on corporate sustainability reporting. The idea is toget company boards to consider and report on the futuresustainability of the firms they govern and thus encouragemore responsible long-term approaches to investment.

However, it isnt enough just to talk to the financial com-munity. We also have to concern ourselves with the com-munities in which we live and work. Our internationalStreet to School programme aims to help children livingand working on the streets get back into some form ofeducation and training. We intend to help half a millionchildren by 2015. Our employees have dedicated over30,000 volunteering hours to Street to School projectwork. Here in the UK, where the issue of street children isoften less acknowledged, our staff are helping deliver run-away awareness and prevention lessons to young people.

In investments, insurance, as an employer and as a com-pany, we think long term: we try to ensure there is sustain-ability in everything we do.

BANK chiefs will wear the scars ofthe crisis for the rest of their lives,Bank of America chief executive BrianMoynihan said during a debate on thefuture of capitalism yesterday.

Moynihan had jumped to defendhimself from the charge that the oldindustries and institutions are inca-pable of producing the necessarychanges post-crisis.

Speaking for fellow bankers, he toldan audience member: You should restassured that every one of our institu-tions is so different from what we ran

a few years ago. We know that andweve learned from that. We wear thescars [of the crisis] still today and willcontinue to wear them for the rest ofour careers. We understand that andwe are trying to move forwards.

He also said that large corporationslike BofA face a huge challenge toavoid stagnation and to adapt suffi-ciently. Our job is to hustle [talent],he said. These premises that getthrown out that large companiesdont innovate weve got to thinkthat through.

Also speaking was Sharan Burrow,head of the International Trade UnionConfederation, who warned: This is

just going to get worse, not better.Emerging economies cannot pull thewest out of this. [Its a problem] havingan austerity strategy and not a growthstrategy. Its not going to help globali-sation.

She came under fire from BenVerwaayen, chief executive of Frenchtechnology firm Alcatel-Lucent (ownerof Bell Labs), who responded: When Ihear you make speeches saying Weare ready for solutions and if only theother side will do what we want, we will go back to what we were wewont go back. What Id like is a littlebit of perspective from your side, fromthe labour movement.

Moynihan: crisis to leave scarsBY JULIET SAMUEL

EUROZONE

THE COALITION will last out its intend-ed term to 2015, according to Labourpeer Peter Mandelson, although headded that it was surprising that theright, and not the left, has benefittedfrom the financial crisis.

Mandelson was speaking at a break-fast hosted by WPP chief executive SirMartin Sorrell to discuss the shift inEuropean and American politics.

Asked if the government will survive

until 2015, he said: The public are notin a mood to reject the coalition... The

coalition will last until they can bear each other no longer, which, yes, will probably be agood four years.

But Mandelson said he waspuzzled by Europes politi-cal shift rightwards.

[The right] are scor-ing more points, hesaid. Capitalism is ontrial, but why is theright benefitting fromthis and not the left?This is surprising.

He also had someadvice for Labour

leader Ed Miliband, saying thatreclaiming the centre ground of pol-itics is something Labour has tothink through.

As for European politics, hetold the assembled businessexecutives that they shouldnot expect progress to be

as fast as markets want.Does it have to move

at the speed of a snail?he said, versus thenanosecond changein markets. Yes.

Politics is like that. Itmoves slowly.

BYHARRY BANKS

WORLD ECONOMY

EUROPE risks becoming little morethan an interesting holiday destina-tion if less competitive countries donot follow Germanys example,Chancellor Angela Merkel told apacked hall in Davos yesterday.

Germanys premier warned againstlevelling down in order to make theEurozone a coherent economic group.

Do we wish coherence and consis-tency without ambition? shedemanded, saying that the continent

risks embracing the lowest commondenominator if poorly performingnations did not follow those rolemodels with high productivity likeGermany. We will certainly be aninteresting place to take a holiday inbut we will not be competitive..

During her opening address for the World Economic Forum Merkel alsoreitered Berlins view that Europemust embrace a system of harsh sanc-tions for countries that do not keep afirm grip on their spending.

If we break the rules, were ready tohave others bring legal action against

us, she said. The issue of what powers the ECJ

should have over erring nations hasbeen a key sticking point in negotia-tions over the Eurozones new fiscalcompact, with Germany supportingthe most stringent legal framework.

And she appealed for patience fromfinancial markets for Europes slowpolitical negotiations: Please take thelong, drawn-out process with a certaindegree of acceptance, she said.

Berlin is also keen to keep non-Eurozone nations at the table as acounterweight to some less competi-tive countries in the euro.

Merkel told delegates: We have tobe very careful this common union ofthe 27 remains a union. But sheadded that the euro 17 would need toembrace their own more integratedstate: Do we dare more Europe? Wereready to be more European, she said.There will have to be more integra-tion... we have to become used to the[European] Commission becomingmore and more like a government.

Then, turning to the hundreds oftop business leaders watching, shesaid: And please dont forget us whenyou're thinking of investment.

Merkel: dont

dumb down

the Eurozone

@Noriel 7.05pmToday new/social media day for me in Davos at theWEF: meetings with Sean Parker, Randi Zuckenbergand CEOs/founders of Scribd and Mashable

@Wef 5.35pmEach one of us is made for goodness, evenbankers - Archbishop Desmond Tutu @TheElders#WEF #Davos http://wef.ch/live ^ml

@DrGerardLyons 2.54pmPanel of nobel economists couldn't agree what hadgone wrong with economics. I would say not enoughhistory and too much belief in models.

@MichaelHewson 10.41am#Merkel says "absolutely convinced" Europe willresolve crisis - doesn't say when though.

DAVOS TWEETS

BY JULIET SAMUEL

DAVOS 2012

Sustainable companies make a difference Picture: REUTERS

Mandelson surprised by political shiftto the right but says coalition will last

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Focus on Davos 19CITYA.M. 26 JANUARY 2012

PRIME Minister David Cameron willup the ante with Europe today bydemanding that Brussels impose tar-gets to bring down the burden of EUregulation on businesses.

Just six weeks after vetoing an EU

treaty because he could not get a sin-gle concession from other leaders,

Cameron will make a checklist ofdemands on continental govern-ments.

Britain has been arguing for a pro-business agenda in Europe. We needto be bolder still, he will tell dele-gates gathered in Davos. Heres thechecklist: a target to reduce the over-all burden of EU regulation. A new

proportionality test to prevent need-less barriers to trade... we cant afford

to wait any longer.Europes lack of competitiveness

remains its Achilles Heel, he willadd.

The single market remains incom-plete... we are still doing things tomake life even harder. In the name ofsocial protection, the EU has promot-ed unnecessary measures that

impose burdens on businesses andgovernments.

Cameron will use Davos platform tolobby Brussels on burden of regulation

BY JULIET SAMUEL

REGULATION

ABOVE: Activistsagainst theWorld EconomicForum held aprotest with fakedog leashes yes-terday at the con-ference centre

MAIN PICTURE:GermanChancellorAngela Merkel

opened the forumwith a note ofcaution over theEurozones cur-rent negotiationsover its future

Pictures:REUTERS

WHATS ON IN DAVOS TODAY

l 7.30am: HSBCs wholesale bankingchief Samir Assaf is hosting a break-

fast on the southern silk road: aguide to 21st century eco-nomic growth, featuringpanellists from theInternational MonetaryFund, the Braziliangovernment and WSJ.

l 10.30am: GordonBrown will chair adebate with the presi-dent of Guineau, AlphaCond, Nigerian presi-dent Goodluck Jonathanand South African presi-dent Jacob Zuma.

l 11.30am: Prime Minister DavidCameron will address the WorldEconomic Forum on Europe's competi-tiveness and the failure of the Doha freetrade talks.

l 11.55am: Mayor of London BorisJohnson will discuss the upcoming

London Olympics in the main congresshall.

l 12.30pm: Davos Open Forum onresponsible leadership in time of

crisis with former IsraeliPrime Minister EhudBarak, former UK

Prime MinisterGordon Brown andformer ECB presi-dent Trichet,among others.

l 10pm:McKinsey will host

a nightcap in theBelvedere Hotel

until the small hours.

l 10pm: The FT andCNBC host a joint nightcap in

the Belvedere.

l Events can be watched live online:http://www.livestream.com/worldeco-nomicforum

l The official Twitter feed is @Davos#WEF.

EVENTS

In

association

with

Lord Mandelson sounded off about garlic-eating tax dodgers at Sir Martin Sorrells breakfast, asthe second day at Davos kicked off with political sniping and an amused room of top bankers.

IS Lord Mandelson missing thelimelight? The dark prince wasall over the forum like a rash yes-terday, hot-footing it from oneengagement to another.

Before any sign of sun wasshowing through the thick snow-clouds covering D avos yesterday,Mandy suited and booted for a

breakfast hosted by WPP chiefexecutive Sir Martin Sorrell.

Demonstrating the incisivepolitical nous for which theinvestment bank Lazard no doubtpays him a handsome advisoryfee, Mandelson offered his viewson topics ranging from theRussian President DmitriMedvedev weak, hasnt really

made a mark to the reason

that German Chancellor AngelaMerkel remains popular

because she has avoided givingexcessive hand-outs to garlic-eat-ing tax-dodgers in the south ofEurope.

But there was one topic onwhich he was most reluctant tohold forth.

Direct as ever, Sir Martin men-tioned that some commentatorshavent been so kind aboutMandys current partyleader Ed Miliband.

Have they? said thedark prince nonchalant-ly. Ive been travelling.

Barclays chairmanMarcus Agius doubled over

with laughter.

But HSBC chief executiveStuart Gulliver had places to be:he was soon trying to sneak out

via the kitchen.

DAVOS DIARY by Juliet Samuel in Davos

Lord Mandelson said Angela Merkel had stayed firm ongarlic-eating tax dodgers inthe south of Europe.

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SHARES in the Swedish telecoms com-pany Ericsson plummeted 15 per centyesterday to the lowest point since2008 on a dismal set of fourth quar-ter results.

Net income came in at SEK1.5bn,just a third of last years 4.4bn Swedishkrona (400m) and shocking analystswho were expecting to see net incomenearer the SEK4.2bn mark.

Ericsson put this down to lowersales volumes in networks, particular-

ly across North America where salesdeclined 20 per cent, and losses relat-ed to the Sony Ericsson partnership, inwhich sales fell 20 per cent.

Ericsson agreed to sell its share inthe partnership in October to Sony for1.05bn. The deal is set to close thisyear.

Ericsson reported net cash ofSEK39.5bn, in a 10 per cent rise on lastquarters balance, but a 27 per centdrop on the end of 2010.

Ericsson named modernisation as a

cause of its decline, due to both a dropin sales as wireless operators concen-trate on building fourth generationnetworks and the money spent onrolling out new Ericsson equipmentacross Europe.

Motorola Solutions, the telecomsequipment provider launched whenMotorola Inc divided its operationslast year, showed better results. Yearlyprofits jumped to $1.16bn (740m)from $633m, with the years revenueup seven per cent to $8.2bn despite a37 per cent drop in fourth quarterprofits.

Ericsson seesshare pricedrop by 15pc THE SOLAR power industry hareceived a boost in the courts, afterjudges upheld a decision blocking thegovernments attempts to cut solar

subsidies. The Court of Appeal case involved

the governments move to halve thepayments made to households withsolar panels. Under the programmethe households are paid for the elec-tricity they generate.

The government which says it can-not afford to sustain the scheme hasindicated that it will now take the caseto the Supreme Court.

Climate change secretary ChrisHuhne said after yesterdays highcourt decision, which upheld the viewthat the governments plans werelegally flawed: We want to maximizethe number of installations that are

possible within the available budgetrather than use available money to paya higher tariff to half the number ofinstallations.

Employers group the CBI urged thegovernment to abandon its legal battleover its plans.

The judgement should be used todraw a line under this saga, which sawthe government scoring a spectacularown goal and confidence in the renew-ables sector undermined, said direc-tor general John Cridland.

Governmentloses its solarpanel appeal

BY LAUREN DAVIDSON

TELECOMS

ENERGY


ANALYSIS l Telefon AB L M Ericsson

SEK


70

68

64

66

62

60

58.8525 Jan

BEST OF THE BROKERS

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

ANALYSIS lPhosAgro OAO

12

11

10

9

Nov Dec Jan

$

9.3225 Jan

PHOSAGROUBS has upgraded the London GDR listingof the Russian fertiliser group from sell toneutral after a sell-off over the past cou-ple of months that has seen the stock losenearly 30 per cent. The broker sees no rea-son to change its 2012 estimates or price

target of $9, despite a weak market outlookand unclear demand implying some down-side risk.

ANALYSIS lRandgold Resources

7,400

7,200

7,000

6,800

6,600

6,400

Nov Dec Jan

p 6,82525 Jan

RANDGOLD RESOURCESInvestec has reduced its recommendation onthe gold mining business from buy to holdahead of results on 6 February. The brokerhas reviewed its production forecasts andearnings to incorporate recent changes to itsgold price assumptions, considerably lower-ing estimates for 2012 and 2013. Investechas also lowered its target price from 7,332pto 7,303p.

ANALYSIS lSynergy Health

900

880

860

840

820

810

Nov Dec Jan

p 86625 Jan

SYNERGY HEALTHBrewin Dolphin has downgraded the health-

care equipment and services provider fromadd to hold as the shares move closer toits target price of 943p ahead of third-quar-ter results in February. The broker expectssecond-half sales growth of 13 per cent, andremains positive on Synergy in the mid-termgiven the structural and international growthangle to the investment case.

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ENGINEER Weir Group yesterdayannounced that it had bought Dallaspump maker Novatech for 113m.

The FTSE 100-listed company saidthe deal would give it a strongerfoothold in the lucrative US oil andgas market.

Last November, Glasgow-basedWeir acquired Texas-based SeaboardHoldings for 430m.

Novatech specialises in pumps which can work at high pressuresand is already a supplier to Weir.

Weir chief executive Keith

Cochrane said: This strengthensfurther Weirs presence in the North American unconventional oil

and gas markets and builds a largerupstream product range to offerthe developing internationalshale markets.

Shares in Weir closed upalmost two per cent yesterday at19.64.

BY JOHN DUNNE

ENGINEERING

BRITISH engineers Renishaw said yes-terday it enjoyed revenue growth of 11per cent during the half of 2011 com-pared with last year.

The company said its total revenueof 147m for the period is a half-yearrecord.

Renishaw also said it is expecting

recovery in the electronics sector,while global investment in production

systems in automotive, civil aviation,agriculture and energy looks increas-ingly favourable.

However, the company saw interimpre-tax profits drop from 35m in 2010to 31m in 2011. Renishaw attributedthe drop in profitability was due to sig-nificant investments in staff and infra-structure to support growth.

The company has maintained its

interim dividend payment at 10.3p pershare.

Renishaw sees record revenuesbut suffers a dent to earningsENGINEERING


CONOCOPHILLIPS TO PAY 100M FOR SPILL

US OIL company ConocoPhillips yesterday agreed to pay one billion yuan (101m) incompensation for damages caused by a huge oil spill in the north east of China. The leaklast June from an offshore field released more than 3,000 barrels of oil and lubricant offthe coast, sparking anger among local people. Picture: REX

NEWS | IN BRIEF

Forth Ports takes over London siteForth Ports has taken full ownership of acontainer terminal in London, itannounced yesterday. The firm bought upthe remainder of Tilbury ContainerServices, which is on the River Thamesabout 30 miles from central London, fromthe other co-owners. The centre handled

314,000 containers last year. DP Worldsaid it sold its 34 per cent stake to Forthfor 48.45m, while Associated BritishPorts offloaded its 32.7 per cent holdingfor 46.55m, the firms said in a state-ment. Charles Hammond, chief executiveof Forth Ports, said the deal is a majorstep forward in our plans to grow anddevelop our ports business. He said thefirm plans to combine its existing ShortSea terminal with Tilbury to create one ofthe UKs biggest container operations.

Heritage in Tanzania expansionOil exploration and production firmHeritage Oil has been awarded furtheracreage in Tanzania through the Kyelaproduction and sharing agreement(PSA). The Kyela PSA has an area of1,934 square kilometres but has neverbeen previously targeted for hydrocar-

bon exploration. However, Heritage saidgravity data over the area suggests thepresence of a sedimentary section of suf-ficient thickness to allow for the genera-tion of oil.

Kenmare sees revenue soarIrish mining company KenmareResources yesterday reported robustdemand for its products in 2011, withrevenues up 83 per cent year-on-year.Revenue rose from $91.6m in 2010 to

$167.5m in 2011. Quarter-on-quarter, thevolume of finished products shipped inthe fourth quarter rose from 188,200tonnes to 192,400, while production ofIlmenite and zircon was up 13 per centand 12 per cent respectively.

Jupiter upbeat after new oil find

Kazakhstan-focused oil explorer JupiterEnergy said its latest exploration wellstruck oil, raising hopes that the compa-ny's oil field is substantial enough toenable it to soon start exporting oil fromthe Central Asian country. Jupiter, whichis listed in both Britain and Australia, saidyesterday that its fourth well near Aktau,in-land fr

cityam 2012-01-26

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