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THE FEDERAL Reserve paved the wayfor a multi-billion dollar dividend bonanza last night by passing 15banks in its latest stress tests, allowingthem to return cash to shareholders.

The US central bank said most ofthe largest American institutions

with the exception of Citigroup andthree others had sufficient capital buffers even if a fresh global crisistriggered a spike in unemployment

and a collapse in the housing market.Bank of New York Mellon came out

top on the Feds wargaming, with acore Tier 1 capital ratio of 13.1 percent, followed by State Street and American Express on 12.5 per centand 10.8 per cent respectively.

JP Morgan Chase announced one ofthe largest payouts, raising its quarter-ly dividend by five cents to 30 cents

and pledging to buy back up to $15bnof its shares.American Express said it will buy

back up to $5bn of its own shares and

increase its dividend while Bank ofAmerica passed the tests but has notasked permission to make a payout.

The failure of Citi, however, shockedanalysts and sent its shares tumblingnearly five per cent after-hours.

The market had been expecting theUSs third-largest bank to raise its divi-dend for the first time since the finan-cial crisis but the Fed said Citi, Ally

Financial and SunTrust came outworst in its scenario with Tier 1 capitalratios of 4.9 per cent, 4.4 per cent and4.8 per cent respectively.

The regulator also failed MetLife,the largest life insurer in the US, onthe basis of its risk-based capital ratio.It was lower than any of the otherbanks examined.

The Fed based its forecasts on a newglobal slump including a rise in USunemployment to 13 per cent, a dropin house prices of 21 per cent, a halv-ing in equity markets and another

downturn in Europe.Overall it estimated the 19 bankholding companies worst-case lossesat $534bn over the 27 months to the

end of 2013. Every institution tested,however, is in a stronger position thanafter the 2008 crisis, it said.

The Fed rushed out the results twodays early after JP Morgan broke ranksand said the Fed had approved itsplans for a dividend increase.

JP Morgans statement provided alate spark for the US market, whichposted its best day this year. The Dow

Jones industrial average jumped217.97 points, or 1.68 per cent, to closeat 13,177.68.

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WALL STREET PASSESCRUCIAL STRESS TESTBY PETER EDWARDS

BANKING

But Fed says Citigroup, Ally, MetLife and SunTrust are barred from joining in dividend bonanza

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Banking special4 CITYA.M. 14 MARCH 2012

THE FEDERAL Reserves stress testresults, released two days ahead ofschedule yesterday, put banks balancesheets through a projected financialmeltdown over a two and a quarteryear period.

The Fed said the 19 banks takingpart would lose a total of $534bnunder the worst-case scenario, includ-ing loan losses, market shock as well asoperational risks such as fraud, com-puter systems failure and employeelawsuits.

While some of the failed banks criti-cised the Feds methods and stan-dards, others were impressed by thestringency of the probes.

Theres so much more credibilitywhen you actually have some of thesebanks fail the stress tests, said KeithDavis at Farr, Miller & Washington.

Tests looked atfraud, lawsuitsand meltdownBANKING

Angry bankshit out at FedTHE THREE US banks and an insurerthat failed Federal Reserve stress testslast night signalled the start of a bat-tle with the regulator.

MetLife, the largest life insurer inthe US, led the criticism after it wasdenied permission for a $2bn (1.27bn)share buyback and a 49 per centincrease in its annual dividend. TheFed judged its capital ratio in a newcrisis to be 6.3 but failed it on riskgrounds.

Chief executive Steve Kandariansaid the Feds assumptions werebank-centric and wrong for insur-ance companies. MetLife is regulatedas a bank holding company because ofits online retail banking operations although they are being sold toGeneral Electric.

Citigroup, which caused the biggestshock when its capital ratio came outof the stress tests at 4.9 per cent, calledon the Fed to release more details of itsmodels and said it would engage fur-ther with the regulator.

Ally Financial described the resultsas inconsistent and said: The analy-sis dramatically overstates potentialcontingent mortgage risk, especiallywith respect to new vintages of loans.

SunTrust said its own models aresignificantly more favourable thanthose of the Fed and said it expected tobeat quarterly earnings estimates.

BY PETER EDWARDS

BANKING

CAR LOANS SPEED UP AT CLOSEBROTHERSClose Brothers has reported stronggrowth at its banking arm in the sixmonths to 31 January, but profitswere held back by its securities andasset management divisions. Profitsat the banking division have grownsince the start of the financial crisis,as it expanded into gaps left by largerretail banks, such as motor finance.

TCHENGUIZ AND RAHIMIAN HALTLEGAL DISPUTE Vincent Tchenguiz and his formerfriend Keyvan Rahimian have endedtheir legal dispute a week into theirHigh Court trial. The billionaire prop-erty investor was due to take to the

witness stand this week in a dispute with Mr Rahimian, who was suing

him for over 6m. Mr Tchenguiz wascounter-suing for 2m.

AUDI IN TALKS TO BUY ITALYS DUCATIVolkswagens Audi brand is in talksto buy the Italian motorcycle makerDucati from its private equity owner,as the German group seeks to extendits automotive empire and fulfil itschairmans ambition.

TCI TAKES ON COAL INDIA The Childrens Investment Fund hasthreatened legal action against state- backed Coal India in a rare sign ofshareholder activism in India thatcould further hamper New Delhis fal-tering divestment programme, accus-ing it of being reckless and lackingintegrity towards minority investors.

BLOCKADE ON LABORATORY TESTANIMALS HITS RESEARCHMedical research is being put at riskbecause Britains ferry operators andairlines have capitulated to thedemands of animal rights activistsnot to allow the transportation ofmice, rabbits and rats into the coun-try for testing.

FSA CHIEF SAYS CONSUMERS AREBEING HOODWINKED The head of the Financial ServicesAuthority has launched a broadsideagainst innovation in the City, accus-ing parts of the Square Mile of devel-oping complex products that misleadregulators and hoodwink consumers,in an interview with The Times.

M&S MOVES INTO SAVILE ROW, WHILELONG-SERVING DIRECTOR QUITSThe countrys biggest clothes retailerhas taken a lease on an office in theheart of Londons tailoring district.Marc Bolland, CEO, also hit back ataccusations the management team isunhappy, after Andrew Skinner, thenon-food merchandising director andmember of the management commit-tee, left the business after 28 years.

CABLE TO UP ATTACK ON EXEC PAYVince Cable will step up his war on fat-cat pay by launching his controversialplans to make corporate remunera-tion reports subject to a binding voteby investors, every year, he is expectedto say at a formal launch today.

RISK PROVISIONS CUT INTO GERMANCENTRAL BANK PROFITDeutsche Bundesbank President JensWeidmann said yesterday that higherrisk provisions weighed on the cen-tral banks profit, reducing themoney it can transfer to the Germanfederal government.

FRENCH FLOUR INDUSTRY FINEDFrances antitrust watchdog yesterdayfined French flour millers for riggingthe domestic retail market for morethan 40 years. In addition, it finedFrench and German flour producersfor restricting cross-border sales formuch of the past decade. The finestotaled 242.4m, the fourth-largestamount it has imposed since 2000.

WHAT THE OTHER PAPERS SAY THIS MORNING

Wall Street finally out of the woods

WALL STREETS financial crisis isalmost over or so the Federal Reservewould like us to believe. It rushed outthe results of its stress tests of the 19biggest US banks last night: just fourfailed in all cases relatively narrow-ly a test which gauged their ability to withstand a financial shock thatincludes unemployment hitting 13per cent, a 21 per cent drop in houseprices, a 50 per cent slump in equitymarkets and chaos caused by a bankcollapse elsewhere (read Europe). Theyneeded to be able to show that theywould retain Tier I common capital

above 5 per cent; only then wouldthey be allowed by the Fed to startreturning money to shareholders.

Some major institutions did wellenough to be allowed to launch mas-

sive dividend payouts and share buy- backs, including JP Morgan and American Express. So should werejoice? Is the Fed right that the crisisis almost over, at least as defined bythe financial health and robustness of Wall Streets largest institutions?Investors certainly think so. TheNasdaq finished over the 3,000 markfor the first time since December2000; the Dow reached 13,177, its bestlevel since before Lehman Brotherswent bust. The S&P 500 has had itsbest start to the year since 1991.

Last nights developments are goodfor London, where US banks such asGoldman Sachs, Bank of AmericaMerrill Lynch, State Street, Bank ofNew York and Morgan Stanley employtens of thousands of workers and indi-rectly support many tens of thousandsothers in fund management, law, con-

sulting, IT and recruitment, as well asproperty, retail and all other walks oflife. That said, Citigroup failed thetest, as did insurers MetLife, anotherbig London employer.

Some critics believe US banksshould not have been allowed to paydividends until they met all of theBasel III rules, even though these arenot actually binding yet. I disagree:these tests were tough enough.

As Capital Economics points out, banks were examined not just forpotential losses on loans and securi-ties holdings, but also on trading andcounterparty positions under a severeshock to global financial market ratesand prices. Such a scenario wouldmean $534bn of losses over the nextnine quarters (including $341bn inloan losses and $116bn in trading loss-es), more than offsetting $294bn inrevenues. It is unlikely that US houseprices, which have collapsed and arenow cheap in many states, will plungea further 21 per cent on any realisticscenario, so the test seems to make

sense, unlike some of the nonsenserecently released by the Europeanauthorities. The US economy is recov-ering, with much better job creation.

But while US banks are doing better,

the rest of the world isnt out of trou-ble. Many institutions remain in crisisin the Eurozone, though their imme-diate problems have been camou-flaged by the European Central BanksLong-Term Refinancing Operations.These have injected huge amounts ofliquidity into the system, which iswhat central banks are meant to do incontemporary monetary systems. Butthe LTRO has also served to secretlybail out insolvent institutions, which isnot right; numerous banks across theEurozone remain in dire straits, even before any further sovereign crisis.Wall Street is on the mend but hugeproblems remain in the Eurozone andChinese financial systems. Until theseare tackled, the global economy willremain under a cloud.

allister.heath@cityam.comFollow me on Twitter: @allisterheath

NEWS of the stress test resultshelped send the Dow Jones industri-al average to its highest level since2007 yesterday, with a late sparkcoming from JP Morgan and its divi-dend announcement.

And the Nikkei opened above10,000 this morning to hit a seven-month high on the back of thestrong performance in US markets.

While stocks had been riding high

all day, buoyed by strong US retailsales and supported by a slightlyimproved outlook from the FederalReserve, the late push came fromfinancial stocks as the prematurestress test results trickled out.

The central bank said earlier inthe day that it expects moderategrowth over coming quarters withthe unemployment rate declininggradually.

US Treasury debt prices tumbled,while the dollar rose to an 11-monthhigh against the yen.

BYMARION DAKERS

MARKETS

Dow hits a four-year highFederal Reserve chairman Ben Bernanke will keep monetary policy loose

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

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

Vikram Pandit, chiefexec of Citigroup, calledon the Federal Reserveto release more detailsof its calculations

4th Floor, 33 Queen Street, London, EC4R 1BRTel: 020 3201 8900 Fax: 020 7248 2711Email: news@cityam.com www.cityam.com

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SHARES in JP Morgan Chase soaredlast night after it became the first bank to say it would boost its divi-dend after passing the FederalReserves stress tests.

The banks stock closed up morethan seven per cent at $43.39, makingit the highest riser on the Dow Jones,after it said it would raise its quarter-ly dividend by five cents to 30 centsand buy back up to $15bn (9.55bn) of

shares.Its core Tier 1 capital ratio came

through the tests at 5.9 per cent. Thebank has permission from the Fed topurchase $12bn of stock this yearalthough it said its purchases willdepend on market conditions.

Chief executive Jamie Dimonhailed the announcement, whichcame after years of banks slashing orsuspending their dividends becausethey needed to hoard capital follow-ing the crisis.

We are pleased to be in a position

to increase our dividend and to estab-lish a new equity repurchase pro-gramme. We expect to generatesignificant capital and deploy thatcapital to the benefit of our share-holders, he said.

The Fed had been due to publish itstest results tomorrow but rushedthem out yesterday night after JPMorgan went public and said the reg-ulator had approved its plans toincrease the dividend.

Dimon has long argued that bankswill have more capital than they need

as losses from the financial crisis arereduced. His banks most recentlypublished figures showed fourth-quarter net income of $3.72bn, or 90cents a share.

Meanwhile Bank of America stockrose 6.3 per cent yesterday to $8.49 onthe markets best day of the year.

Larry Peruzzi, senior equity traderat Cabrera Capital Markets in Boston,said the gains put us into fourthgear here... The financials have beensuch a drag on the whole market forthe last couple of years.

JP Morgansparks a USdivi bonanza DEUTSCHE Bank is plotting an over-haul of its corporate and investmentbank that could see up to 1,000 jobsslashed, City A.M. has learned.

The cuts, which will not affectGermany, come in addition to the 500announced last October. That numbersparked surprise at the time because itwas significantly less than rivals.

But with Anshu Jain due to take overas co-chief executive of the group in June and revamping the whole topmanagement team, the investment bank is now playing catch-up on jobslashing.

The cull will exclude Germany andis unlikely to fall in the US, where thebank is still hiring. Instead, the rest ofEurope and Asia will bear the brunt,meaning London could see hundredsof posts go.

Insiders said that the overhaul willinvolve working out which divisionsare not pulling their weight, withthe possibility that whole businesslines could be shut down.

A source said bankers expect thenew management to bring a culturalshift from a model where some olderexecs almost had tenure to one morefocused on efficiencies and returns.

A spokesman for the bank declinedto comment on the strategic reviewbut said: We do not have a redundan-cy programme.

Deutsche to cull1,000 jobs in itsinvestment bank

BY PETER EDWARDS

BANKING

Banking specialCITYA.M. 14 MARCH 2012 515 OUT OF 19 BANKS PASSED THE STRESS TEST, HITTING OVER FIVE PER CENT CAPITAL

2013 Ti er 1 common capi ta l ratio Buybacks,under stress wi th cap ital rais ing s div idend s

BY JULIET SAMUEL

EXCLUSIVE

Ally Financial 4.4 (failed)

American Express 10.8 cleared to buy back up to $5bn,dividend up to 20 cents

Bank of America 6.2

BNY Mellon 13.1 cleared to buy back $1.2bn stock,

13 cents dividend per quarter

BB&T Corp 6.4 dividend raised to 20 cents

Capital One 8.8

Citigroup 4.9 (failed)

Fifth Third Bancorp 6.3

Goldman Sachs 7.2 potentially raising divi and buyback

JP Morgan Chase 5.9 buyback of up to $15bn,quarterly divi up to 30 cents

Keycorp 5.3 $344m buyback, possible divi rise

MetLi fe 6.3 (fa iled on r isk-basedmeasurement)

Morgan Stanley 7.6 cleared to buy extra stake inMorgan Stanley Smith Barney

PNC Financial Services 5.9 divi rise and modest buyback

Regions Financial 6.8 raising $900m

State Street 12.5

SunTrust 4.8 (failed)

US Bancorp 5.4 $100m buyback, divi up to 78 cents

Wells Fargo 6.3 dividend raised to 22 cents

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INSURANCE giant Prudential has saidits future lies in Asia, underliningfears that the firm will relocate fromLondon to Hong Kong if tough newrules for insurers based in Europe areimplemented.

Speaking to reporters as heannounced a seven per cent increasein worldwide operating profit to2.07bn, chief executive Tidjane Thiam added that he saw littlegrowth potential in the British busi-ness.

He also reiterated that the heftycapital requirements in Solvency II,the EUs tough new rulebook forinsurers, would destroy its Americanbusiness.

I can tell you, fighting US competi-tors who dont have to worry aboutSolvency II, we just wont have a mar-ket, we wont be able to sell any prod-

ucts at all, he said.Prudential could avoid the rules ifit moved its base outside the EU.

Since 2008 the firms Asian profitshave tripled from 257m to 709m,making Hong Kong a likely destina-tion.

News that the firm was consider-ing leaving the City prompted MayorBoris Johnson to launch a campaignto keep its headquarters in London as first revealed byCity A.M.

Since then, David Cameron hasalso pledged to fight against SolvencyII, which will be introduced from2013 onwards.

Shares in the firm closed up 1.8 percent at 763p.

EU rules loomas Prudentialeyes UK exit

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BY JAMESWATERSON

INSURANCE

THE TREASURY is expecting imminentEU approval for its 20-40bn credit eas-ing programme this week ahead of the budget, according to a Treasurysource.

The government has faced monthsof negotiating a torturous path between banks requirements and

European state aid rules that imposestrict parameters on stimulus pro-

grammes that target particular sectorsof a countrys economy.

As part of those conditions, partici-pating in any such scheme must incura hefty fee for banks, which hadthreatened to derail the policy.

But the Treasury is believed to haveworked out a solution so that most ofthe UKs major banks are willing totake part.

The scheme aims to make credit 100basis points cheaper for small firms.

EU finally gives nod to Osbornes20bn credit easing programmeBANKING

News6 CITYA.M. 14 MARCH 2012

Chief executive Tidjane Thiam said Solvency II would put it at a disadvantage GETTY

Man from the Pru could hang up his hat THE MAN from the Pru, that greatBritish icon, can hang up his bowlerhat: Prudential is no longer a Britishcompany. Last year, for the first time,Asia contributed more to its profitsthan either the UK or the US.

On the face of it, things are still

pretty close. On an IFRS basis, Asiagenerated a profit of 709m, around34 per cent of the group total, com-pared to a third each for the UK andthe US, which pulled in 683m and694m respectively.

But take a look at new businessprofit (NBP) a key measure of wherethe growth is going to come from and the comparison becomes stark.Asia contributed over 1bn of NBP in2011, around half of the group total,

compared to 815m from the US anda paltry 260m from the UK.

Even excluding the threat ofSolvency II, a set of punitive newrules for European insurers, thereseems to be little case for keepingPrudentials HQ in the EU, where it

generates just 12 per cent of operat-ing profit.Hong Kong, Asias financial power-

house, looks like a more sensible bet,and some analysts are even suggest-ing that the insurer could cut its UKoperations loose altogether by break-ing the group up.

As things stands, that option looksrash. The mature UK business stillthrows off huge amounts of cash 577m in 2011 allowing Prudential

to fund its rapid Asian expansion. Butthat wont always be the case:Prudential expects Asia to be generat-ing enough cash by 2013 to sustainitself independently.

Make no mistake: moving a com-plex company like Prudential would

be an expensive headache. It wouldhave to get a huge amount of supportfrom shareholders, retain and movekey staff and deal with a new regula-tory regime. Hong Kong is hardly alight touch. But if Solvency II is imple-mented in its currently plannedform, it will be a price worth paying.

BOTTOMLINEAnalysis by David Crow

ANALYSIS l Prudential PLC

p

7 Mar 8 Mar 9 Mar 12 Mar 13 Mar

770

760

750

740

730

720

710

700

763.0013 Mar

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STANDARD Life beat expectations torecord a 28 per cent increase in itsearnings for 2011, helped by cost cut-ting and a strong performance fromits Canadian unit.

The Edinburgh-based firm,Britains fifth-biggest insurer, made apre-tax operating profit of 544m lastyear, up from 425m.

Profits rose 70 per cent at itsCanadian division and there was a64m gain from changes to its UKstaff pension scheme.

The company also managed toboost its dividend by 6.2 per cent to13.8p, well ahead of expectations.

Despite this the firm hinted thatnew business growth had been slug-gish in early 2012 and observers saidthere was limited room for growth.

Todays results again demonstratethat we are well on track to transformthe operational and financial per-

formance of Standard Life. We arewell positioned to benefit from mar-ket changes and the new regulatoryenvironment, said chief executiveDavid Nish.

Marcus Barnard, an analyst at OrielSecurities, said the results were betterthan expected but added that he con-tinues to see a fairly weak invest-ment case as the firm is carrying alot of new business that has yet toprove its profitability.

Its shares closed up 0.3 per cent.

Canada boostfor StandardLife earningsBY JAMESWATERSON

INSURANCE

HEALTHCARE group Bupa yesterdayannounced pre-tax profits of 220mfor 2011, up from 118m the yearbefore.

This was assisted by improved per-formance from overseas divisions,with income up 14 per cent to 3.9bn.

But revenue in its traditional

Europe and North American marketswas down two per cent at 2.93bn.

Outgoing chief executive Ray Kingsaid that although his firm achievedsatisfactory levels of occupancy atUK care homes, they have been forcedto control costs to to mitigate the worryingly inadequate public fund-ing of residential aged care.

Global customer numbers were upthree per cent to 10.84m.

Bupa has no shareholders, allowing

profits to be re-invested into the com-pany.

Bupa posts healthy profits butboss warns of care funding crisisHEALTHCARE

A TOP Bank of England official hit outat European insurance regulations yes-terday, saying the new rules may over-whelm regulators and fail to cut downrisks in the industry.

Paul Tucker, deputy governor forfinancial stability, said the Bank is dis-mayed by how much it is costing theindustry and the regulator to adapt to

Solvency II, and warned it risksbeing too complicated in its desire tointroduce a risk sensitive regime.

He expressed worries insurers maybecome risky shadow banks, engag-ing in poorly supervised activities.

The insurers can raise funds by lend-ing securities like shares to financialinstitutions, and then invest the earn-ings in higher-yielding assets.

These are essential to the work-ings of capital markets, he said, but

warned they lack transparency andstructure.Like banks, they may borrow short-

term and lend long-term, leavingthem vulnerable to a run if creditorsdoubt the firm can honour its obliga-tions as happened to AIG, bringingdown the insurance giant in 2008.

One solution may be to make insur-ers hold more capital, he suggested, tomake sure policyholders are well pro-tected.

Solvency II is complex andexpensive, says Banks TuckerBY TIMWALLACEREGULATION

News 9CITYA.M. 14 MARCH 2012

ZURICH Financial said yesterday it would propose outgoing Deutsche Bank chief executiveJosef Ackermann as its chairman after a shareholder meeting on 29 March. The 63-year-oldSwiss-born Ackermann will hand the reins of Deutsche to Anshu Jain and Juergen Fitschenduring the annual shareholders meeting at the end of May. Picture: GETTY

ANALYSIS l Standard Life PLC

p

7 Mar 8 Mar 9 Mar 12 Mar 13 Mar

246

244

242

240

238

236

234

232

238.5013 Mar

ACKERMANN UP FOR ZURICH CHAIR

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THE UK government wants to borrowcash on a perpetual or super long basis, by offering bonds that maynever actually be paid off.

Some new loans will last for 100 years, twice as long as the currentlongest maturing bonds.

In next weeks Budget chancellorGeorge Osborne is expected to unveilthe plan that he hopes will lock inthe governments current low rates ofinterest.

Osborne believes the move couldsave the Treasury billions in interestpayments over the next few years.

This is about locking in for thefuture the tangible benefits of thesafe haven status we have today, aTreasury source said last night.

The prize is lower debt interestpayments for taxpayers for decades tocome.

Treasury set tointroduce neverending bonds

UK ECONOMY

News10 CITYA.M. 14 MARCH 2012

THE PRICE of iPads, cans of stout,and packets of foam sweet will all beincluded in inflation calculationsfrom now on, as the Office forNational Statistics (ONS) changes itscalculations to reflect evolvingspending habits.

Every year the official statisticsagency updates its list of 18,000goods and services in an attempt toprovide an accurate picture of thechanging price pressures facing con-sumers.

Some items, like boiled sweets,casserole dishes and certain types of

photographic film have fallen out offavour with shoppers, while teen lit-erature, like the Twilight books,fruits like pineapples, and continen-tal soft cheese are all being pur-

chased in increasing numbers.The weights given to each item in

the basket have also been adjusted toreflect changes in spending habits.

Alcohol, for example, has had its weight reduced steadily since thelate 1990s, while housing costsincreased sharply as a proportion ofhousehold spending from 1987though to 2007, before flattening off.

Efforts have also been made to bring the British measures in linewith European standards the TVlicence, for example, has been addedto the consumer price index calcula-tion, as have subscription fees fortrade union and professional organi-sation membership.

Such changes also bring the CPIcloser to the retail price index (RPI), which has traditionally includedtaxes as well as mortgage interestpayments.

Latest gadgets andfashionable booze

added to ONS listBY TIMWALLACE

UK ECONOMY

NEW ITEMS

Hot oat cereal

Soft continental cheese

Pineapple

Bag of chocolate sweets

Bag of non-chocolate sweets

Four cans of stout

Walking boots

Vehicle excise duty

Bundled comms service

Tablet computers

Television licence

Teenage fiction book

Chicken & chips takeaway

Baby wipes

Trade union subscription

4 cans of stout

Tablet computers

Bundledcommunicationsservice

Hot oat cereal

DROPPED ITEMS

Candy coated chocolate

Bag of boiled/jellied sweets

Outdoor adventure boot

Glass casserole dish

Step ladder

Leisure centre membershipDevelop & print 135/24 colour film

Subscription to cable TV

Glass casserole dish

Colour photographic film

Old-fashioned sweets

Step ladder

Cinven sewsup new fundBUYOUT firm Cinven hassparked hopes of a significantrecovery in private equityfundraising by hitting a 3bn(2.5bn) first close on its latestfund.

The London-based firm tookaround six months to raise thecash and expects to have raised5bn by the time it reaches itsfinal close, City A.M. under-stands.

It comes just weeks after BCPartners the owner of gymschain Fitness First and Swedishcable group Com Hem pulledin 6.5bn, in the largestEuropean fundraising since theonset of the financial crisis.

Cinven offered discounts onfees to early investors, like manybuyout groups who are compet-ing for cash in a changed mar-ketplace.

Yesterday it told investors ithad held a first close, whichallows it to start investing themoney.

It attracted existing and newinvestors and will spend thecash on its core sectors of busi-ness and financial services, con-sumer, healthcare, industry andtelecoms, media and technology.

The fundraising caps a busyperiod for the European firm. Ithas returned 2.8bn to investorsover the last year after lucrativesales including healthcaregroup Phadia and its stake intravel bookings firm Amadeus.

BY PETER EDWARDS

PRIVATE EQUITY

Alliance Trusts activist shareholderLaxey makes a fresh set of demands

ACTIVIST shareholder LaxeyPartners has renewed its battle with investment fund AllianceTrust by asking it to consider out-sourcing the management of itsassets.

The hedge fund also called onAlliance to look at how to improvethe performance of its invest-ments and the discount at whichits shares trade relative to their

net asset value (NAV).

In a letter it urged the board toreject a poor status quo overfund management.

We believe that an externalmanager would result in a lowerflat fee which, if allied to a per-formance fee, would protect share-holders from excessive chargingin falling markets and incentivisesthe manager to maximise thereturn to shareholders in all mar-ket conditions.

It is a controversial move by the

two per cent shareholder. It hopes

to tap into lingering investor dis-content following last years dis-pute, when it lost a bid to forceAlliance to buy back shares whenits share price fell more than tenper cent below NAV.

However Alliance, which last week raised its dividend, is pri-vately confident it can win anoth-er battle.

The hedge funds resolutions will be put to shareholders atAlliances annual general meeting

on 27 April.

INVESTMENT

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The full Mountie. For less.August 15 27, 2011

BMW, the worlds largest premium carmaker, yesterday forecast it wouldreach its long-term sales target fouryears earlier than planned, presentingrival Audi with a bigger challenge if ithopes to catch up with the Munich-based company.

BMW Group said sales would sur-pass the 2m vehicle mark in 2016,including its Mini and Rolls-Roycebrands, without profitability sufferingas a result.

We are targeting new record highsin vehicle sales and pre-tax earningsfor 2012, chief executive NorbertReithofer said at the groups annualnews conference in Munich.

In order to accelerate growth, BMWaims to expand its reach further intoemerging economies, coining theterm BRIKT markets for Brazil, Russia,India, South Korea and Turkey.

BMW does not even include Chinaamong the list, since it already sellsmore cars there than in any other

country except the United States andGermany.

2012 will be a decisive year for thefurther internationalisation of theBMW Group, Reithofer said.

BMW reaffirmed its core car busi-ness would achieve an operating profitmargin of between eight and 10 percent sustainably going forward.

Reithofer said he expects car sales tofinish 2012 at the upper end of thisrange, despite higher investments andexpenditure to improve engine effi-ciency and expand its global manufac-turing footprint.

BMW expectssales to hit arecord in 2012BYHARRY BANKS

AUTOMOTIVE

News12 CITYA.M. 14 MARCH 2012

ANALYSIS l BMW AG

7 Mar 8 Mar 9 Mar 12 Mar 13 Mar

72

71

70

69

68

67

70.7413 Mar

BMW has forecast bumper sales growth for 2012 Picture: GETTY

www.RateSetter.com Customer Phoneline: 08442490115

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PHIL HAY | RBS

German manufacturing has a good reputation for well-made prod-ucts thats always been why German cars have done well. Peoplewill always go for the reliable choice.

DAN MCNAMEE | TREVOR SMITH

High net worth individuals in emerging markets are still makingmore money, which theyll spend on luxury. Germanys manufactur-

ing base is more rationalised, and its cheaper to make cars there.

GABRIEL FEDERICI | MINTEL

When people think of Germany they think of efficiency and reliabili-ty. Excellence combined with luxury always sells and even more intimes of recession. Its the same with the beauty market.

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

CITY VIEWS: WHY IS GERMANYS UPMARKETCAR SECTOR DOING SO WELL?* Interviews by Lauren Davidson

NEWS | IN BRIEF

Jaguar adds 1,000 jobs in the UKJaguar Land Rover announced yesterdayit will create 1,000 new jobs at itsMerseyside factory, to help supply thesignificant demand for some of itsmost popular models. The companynamed the Range Rover Evoque andLand Rover Freelander 2 as among the

in-demand models that will boost theworkforce in Halewood to almost 4,500.

Porsche posts bumper profitPorsche posted the highest profit lastyear in the German sports-car makers80-year history, powered by sales of theCayenne sports-utility vehicle and thePanamera sedan. Operating profit rose22 per cent to 2.05bn (1.7bn) whilerevenue increased 18 per cent to10.9bn, the company said yesterday inan e-mailed statement. Vehicle salesincreased 22 per cent to 119,000 unitslast year with the Cayenne, Porschesbest-selling model, accounting for about60,000 cars. Panamera sales rose by afifth to about 28,000 units.

Inchcape sees demand in AsiaCar dealer Inchcape posted a higher full-year profit yesterday as demand for pre-mium vehicles in the Asia-Pacific and

emerging markets drove growth, offset-ting supply issues in Japan. Inchcape saidit was confident of its earnings growthpotential in 2012, helped by continuedexposure to fast-growing emergingeconomies and market share gains drivenby new products from its brand partners.The London-based firm, which sells anddistributes cars for manufacturers such asToyota, Mercedes-Benz and BMW in 26countries, said it would pay a final divi-dend of 7.4p, taking its total dividend to11p, up two-thirds from a year ago.

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Weir drops offer for Ludowici

WEIR shares jumped 2.6 per cent yes-terday after it ended its pursuit of

Australian machinery makerLudowici. The FTSE 100 engineering group,

which last month had its A$10 ashare bid trumped by Danish rivalFLSmidth, said yesterday it wouldmake no further offer and had with-drawn from the race.

Its offer lapsed in February whilethe Australian regulators were exam-

ining FLSmidths of fer.FLSmidth last week got clearance

for its A$324m (217m) or A$11 ashare offer, despite its chief executivepledging to not raise its initial bid in

January before then hiking it by morethan 50 per cent.Weir had asked the watchdogs to

look at his comments, as under Australian law a company thatdeclares a bid final can be held tothat statement and prevented fromraising its offer.

Weir chief executive KeithCochrane said yesterday: Whilst

Ludowici represented an attractiveopportunity to expand our marketleading Australian business, ourfocus in any acquisition is to createvalue for Weir shareholders.

A materially higher offer wouldnot have met the rigorous financialcriteria which we apply to all acquisi-tions.

FLSmidth and Weir have beenattracted to Ludowici, which makescoal centrifuges and other miningequipment, by its exposure toAustralias fast-growing coal and ironore mining sectors.

BYMARION DAKERS

INDUSTRY

SHARES in support services groupMitie leaped as much as 8.5 per centduring trading yesterday after itsaid it was the preferred bidder for acontract with Lloyds BankingGroup.

The contract news which wouldsee the winning bidder provide inte-grated facilities and energy manage-ment for the entire Lloyds branch

network and offices sent Mitiesshares to their highest level since

April 2009.Earlier this year Mitie partneredwith the UKs prison service to bidfor a 15-year management contractfor services to nine prisons.

Its shares have risen more than 17per cent since the start of the yearfollowing a series of contract wins. They closed yesterday up six percent at 285p.

Mitie climbs most in threeyears on Lloyds work win

SUPPORT SERVICES

News 13CITYA.M. 14 MARCH 2012

ANTOFAGASTA cut back on dividendsyesterday to spend more on a new gen-eration of growth projects, a shift that

the copper miner said was also behindthe abrupt departure last week of itslong-standing chief executive.

The Chilean miner disappointedmarket hopes for another bumper pay-out, announcing a full year dividendof less than half 2010 levels, thoughprofits rose 32 per cent on strongmetal prices.

The groups dividend cut followedthe unexpected exit of chief executiveMarcelo Awad on 7 March.

MINING

Antofagastacuts dividend

RUSSIAN billionaire Viktor Vekselberg quit yesterday as chair-man of the worlds largest alumini-um producer, UC Rusal, saying theheavily indebted company was indeep crisis after a long battle withrival oligarch Oleg Deripaska.

Vekselbergs exit widens a rift with controlling shareholdDeripaska, who had sought to builda Russian metals and mining busi-ness on a global scale by mergingRusal with Norilsk Nickel, the worlds top nickel and palladiumminer.

MINING

Rusal chairmanquits the firm

WHAT DO YOU MAKE OF THE OUTLOOK FOR G4S?By Elizabeth Fournier

JONATHAN JACKSONKILLIK & CO

2012 will see G4Sbenefit from the OlympicGames ... Recent contractwins and extensions areexpected to drive further topline growth, but followingtodays guidance on borrowing costs, we

would expect to see some modest down-grades to consensus earnings estimates.

ROBERT MORTONINVESTEC

Overall thegroup achieved

a good level of organicgrowth in the period,even if results arebehind our expecta-tions. We will be reducing our forecasts

for the current and next year by aroundthree per cent.

CAROLINE DE LA SOUJEOLE | SEYMOUR PIERCE

The outlook statement is a mixed bag: the statement mentionsgood trading momentum, an encouraging outlook in secure solutions butno improvement in the outlook for the more cyclical Cash Solutions.Contract phasing and mobilization costs may impact margins in the shortterm although for the year as a whole they are expected to recover. Onbalance the positives outweigh the negatives with organic growth antici-pated to be higher than the 4.5 per cent achieved in FY11.

SECURITY group G4S was one of thebiggest losers on the FTSE 100 yester-day after it posted a 17 per cent slumpin profits and admitted a 50m hit onits failed merger with a Danish cater-ing firm.

Pre-tax profit fell to 279m for 2011,a turbulent year in which G4S wasforced to scrap a 5.2bn tie-up withISS, which would have created a sup-port services giant with more than 1mstaff.

The collapse of the deal left G4Swith fees bill of 50m and promptedchief executive Nick Buckles to turndown a bonus.

Yesterday Buckles revealed the64m acquisition of a facilities servicesfirm in Brazil at the end of last yearand vowed to focus on expansion thereas well as in India and China. G4S hasset aside 200m to buy more compa-nies in security and facilities manage-ment.

Brazil is the fourth-largest security

market in the world. We have somecapability and a footprint there, butwe need to acquire more and that isreally our main objective for this year,Buckles said.

The firm, which also runs prisons,provides cash-guarding services and isthe official security provider for the2012 Olympic Games, posted an oper-ating profit of 531m for the year, 1mahead of 2010. It said it would pay afinal dividend of 5.11 pence to give atotal of 8.53p, up eight per cent on theprevious year.

Shares closed down 2.07 per cent to283.5p.

G4S profit is

hit by faileddeal with ISSBY PETER EDWARDS

SUPPORT SERVICES

ANALYSIS l G4S PLC

p

7 Mar 8 Mar 9 Mar 12 Mar 13 Mar

295.0

292.5

290.0

287.5

285.0

282.5

280.0

277.5

283.0513 Mar

G4S chief NickBuckles said thefailed mergerwith ISS cost thefirm 50m in fees

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FINANCE, LEGAL & I.T.

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14 CITYA.M. 14 MARCH 2012

The CapitalistGot A Story? Email thecapitalist@cityam.com

TARGETS EXCEEDED AS WE DRAW TOA CLOSE DEBUT CHARITY APPEALincredible 1.5m. Included in this fig-ure is a number of large corporategifts from the likes of Lloyds BankingGroup and Bank of America MerrillLynch.

The funds will be used by ourappeal charity partner, OpportunityInternational, to enable some of thepoorest people in Malawi to helpthemselves out of poverty. Your dona-tions will help Opportunity, whosepatron is Princess Anne, provide small

business expansion loans, savingsaccounts and microinsurance cover toover 10,000 people.

We are working closely withOpportunity to see how the appealfunds are put to work, says AllisterHeath, editor ofCity A.M.

We will report back to you in June,six months on from the appeal, bring-ing the key facts, figures and storiesthat will be the direct result of yourgenerosity.

Opportunity CEO Edward Foxexplained that our support is especial-ly important right now: Malawis cur-rent economic challenges includemassive shortages of fuel, food andforeign exchange. As is always thecase, this is hitting the poorest peoplehardest. This is why your generosity isso timely.

By helping us extend our financialservices to more poor people, you willhelp them have a better chance of

One of Opportunitys clients

WHEN a group of us sat downto dinner with Princess Anne last autumn to dis-cuss this newspapers first-

ever charity appeal, City A.M.managing director Lawson Muncasterset an initial financial target of

250,000, an amount that seemed tothose present to be both ambitiousand stretching.

Now, as we close proceedings, weare delighted to report that our initialhopes have been massively exceeded.

In the weeks following the appealin December, readers continued togive, raising our total to 753,325.Thanks to gift aid and the UK govern-ments pound for pound match, ourappeal total has now exceeded an

growing their businesses, increasingtheir profitability, providing for theirfamilies and saving for that inevitablerainy day.

Our final 1.5m total was made pos-sible by the governments UK AidMatch scheme that matched publicappeal donations pound for pound.Andrew Mitchell, secretary of state forInternational Development, said:"This is a hugely generous response

from the readers of City A.M. Wevematched readers donations poundfor pound in recognition of this over- whelming public support forOpportunity Internationals work.

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FINANCIAL firms must work harderto align their business models withthe interests of customers ratherthan pursuing aggressiveapproaches that could result in mis-selling, the FSA has said.

In its assessment of the risks fac-ing consumers, the City watchdogsaid that increasing complexity ofproducts and cost-cutting hasincreased the risk of customersbeing ripped off.

The FSAs Martin Wheatley alsorevealed that he is not a fan of the

UKs predominant retail bankingmodel of free banking.

THE FINANCIAL Services Authority(FSA) has fined Nicholas Kyprios, headof European credit sales at CreditSuisse in London, 210,000 forimproper market conduct in disclos-ing client confidential informationahead of a significant bond issue inNovember 2009.

The regulators fine follows onclosely from a series of punishmentshanded out to a number of marketparticipants, including AndrewOsborne of Bank of America MerrillLynch, in relation to an equity fund-raising for Punch Taverns, also in2009.

Credit Suisse acted on behalf ofLiberty Global during its takeover ofUnityMedia, which was part-financedby a 2.5bn bond issue.

So that he could market the bondto clients, on 9 November 2009,Kyprios was wall-crossed regardingthe takeover and the proposed bondissue.

He was given confidential informa-tion by Credit Suisse, told that it wasinside information and instructed in

writing not to disclose it to third par-ties.

Kyprios then told a fund managerhe was getting warmer when askedquestions about the bond issue.

Tracey McDermott (pictured), act-ing director of enforcement andfinancial crime, said: While the FSAaccepts that he did not set out to dis-close the information, Kyprios con-duct in trying to push to the limit what he could say resulted in himcrossing the line.

Kyprios remains at Credit Suissebut he has lost part of his bonus. The bank said yesterday: We deeplyregret that one of our employees wassanctioned by theUK FSA forbreaches relat-ed to ourinformationpolicies.

C r e d i tS u i s s e sdecision toretain itsemployeewas seen asa bold oneyesterday.

Credit Suisse

banker hit by210,000 fine

SIMON Mackenzie-Smith, who hasbeen drafted in to reinforce Bank ofAmerica Merrill Lynchs battered UKcorporate broking unit, has hiredPeter Luck from UBS as he strives toretain the banks long list of clientsfollowing a raft of executive depar-tures.

Luck will be a senior player in the

team at Merrill Lynch, which inrecent months has lost its two heads,Simon Fraser and Mark Astaire, as well as one of its star deal-makers,Andrew Osborne.

Mackenzie-Smith has been in thisposition before. Colleagues speak ofthe time in 2004 when a number ofcolleagues left for Morgan Stanley,leaving the Merrill team bereft ofexperienced corporate brokers.

Merrill has the second highest

number of FTSE 100 clients of any ofthe banks and will be desperate tohang on to as many of these as it can,given that lucrative ancillary busi-ness usually follows on from abroking relationship.

Astaire is on three months garden-ing leave before joining BarclaysCapital. BarCap is expanding itsbroking coverage and recently founditself added to the team for Xstrata inits merger talks with Glencore.

BofA Merrill Lynch moves toboost weakened broking unit

LLOYDS and RBS have implementedaround 1,900 job cuts in the UK aspart of the headcount slashes theyboth announced last year.

The news prompted calls by Unitethe union for the government tointervene to prevent the job losses.

Unites David Fleming said: Howcan there be any justification for thegovernment not intervening as thesemuch needed jobs are lost?

At Lloyds, 1,300 jobs will go, while300 will be moved abroad, meaning workers will have to move to keep

their roles. RBS is cutting 460 butcreating 150 jobs.

Lloyds and RBSmake job culls FSA warns Cityagainst rip-offsREGULATION

BANKING

BYDAVID HELLIERADVISERS

News 15CITYA.M. 14 MARCH 2012

Simon Mackenzie-Smith is boosting the banks depleted broking team Picture: CITY A.M.

BYDAVID HELLIER

REGULATION

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Duddy (pictured) has repeatedlydefended Argos store portfolio of759, arguing that none of them arelosing money, while a big clo-sure programme would comewith a heavy restructuringcost.

He plans to review 180stores as they come up forlease renewal or have breakclauses over the next fiveyears.

Duddy is likely to high-light tomorrow thatthe decline in salesin the fourth quar-

ter slowed, after Argos reported an8.8 per cent slump in sales over the18 weeks to 31 December.

City analysts already expect a60 per cent fall in pre-tax profitsto 99m for the year to 25February at Home Retail,which also owns DIY retailerHomebase, after a profit

warning in January.Shares in the company,

which have lost over halftheir value in the last

year, closed upfive per cent at110p.

HOME RETAIL Groups profits for2013 are expected to fall significant-ly short of expectations as sales at itstroubled retailer Argos suffer fromfalling consumer demand and com-petition online.

Analysts believe chief executiveTerry Duddy and John Walden, thenew managing director of Argoswho joined last month, will issue aprofit warning sooner rather thanlater as Walden focuses on over-hauling the group, analysts reckon.

The risk of material downgradesat the companys fourth quarterresults on Thursday or at its full yearresults in May seem high, one ana-lyst told City A.M,warning the groupcould ditch its final dividend.

He predicts pre-tax profits for 2013could fall as much as 25 per cent

below City expectations of 84.1m.Last week, Philip Dorgan, an ana-lyst at Panmure Gordon, slashed hisprofit forecasts for the company byas much as 35 per cent citing thecontinued management inactionon store closures.

Alluding to interviews in which Walden said he had been given a blank piece of paper on Argos,Dorgan said he needs to start writ-ing a list of store closures on it.

Home Retail in linefor profit warningBYKASMIRA JEFFORD

RETAIL

Tesco boss Philip Clarke can look forward to annual growth of 6.8 per cent Pic: GETTY

TESCO may be losing market share inthe UK, but the supermarket chain isforecast to grow faster than its threemain global rivals over the next threeyears, according to research by retailanalyst IGD.

The grocer is set to grow at an annu-al rate of 6.8 per cent between 2011and 2015, compared with Walmart at4.85 per cent, Metro at five per centand Carrefour at 4.2 per cent, IGD said.

However, Asdas owner Walmartwill still keep its title as worlds largestretailer with sales of387m (323m)by 2015. That is nearly triple the value

of Carrefours sales of134m over thesame period, while Tescos turnoverwill be98m and Metros 81m.

The key to growth for these globalretailers will be presence in the right

markets at the right time. The domes-tic markets remain critical forCarrefour, Metro, Tesco and Walmart,but they are also increasingly relyingon emerging markets to sustain stronggrowth, Joanne Denney-Finch, IGDschief executive, said.

Tescos international markets, par-ticularly China, Turkey and India, willbe key to driving long-term growth.

Tesco: the fastestgrowing of the top

four global grocersBYKASMIRA JEFFORD

RETAIL

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ANALYSIS l Home Retail Group PLC

p

7 Mar 8 Mar 9 Mar 12 Mar 13 Mar

112

110

108

106

104

102

110.0013 Mar

TESCO is looking to make majorchanges to its pension scheme, which will see the supermarkets 172,000staff wait two years longer to obtaintheir full pension.

The grocer has begun a consultationabout extending the retirement agefor members of its pension schemefrom 65 to 67 from 1 June as it looks toease burgeoning costs, due in part dueto people living longer.

However, Tesco emphasised that it will be keeping its defined benefitscheme open to new members andthat staff could still choose to retireafter the age of 55.

The defined benefit scheme, whichhas a total 293,000 members, is basedon average pay throughout workerscareers and Tesco remains one of thefew large companies to offer such ben-

efits.Tesco also plans to switch from the

Retail Price Index to the currentlylower Consumer Price Index to meas-ure contributions to staff pension pots.

Supermarketspension age toincrease to 67

RETAIL

ANALYSIS l Tesco PLC

p

7 Mar 8 Mar 9 Mar 12 Mar 13 Mar

322.5

320.0

317.5

315.0

312.5

310.0

320.6013 Mar

8/2/2019 Cityam 2012-03-14

18/36

ASTRAZENECA said yesterday it was suing the Food and Drug Administration (FDA) after the USregulator refused to delay the mar-ket entry later this month of gener-ic versions of top-sellingantipsychotic Seroquel.

The drugmaker is seeking aninjunction barring the FDA fromgranting final marketing approvalof generic forms of the drug, whose chemical name is quetiap-

ine, until 2 December 2012, or atleast until a federal court has achance to review the agencysaction.

Last week, the FDA denied AstraZenecas Citizen Petitionsrequesting the agency withholdapproving any generic withlabelling that did not have certainwarning language required for itsbranded version.

Generic copies of the originalinstant-release form of Seroquel

are due to hit the US market on 26March when AstraZeneca's patentexpires an event that will have asignificant impact on both salesand profits.

AstraZeneca is currently budget-ing for a 2012 revenue fall at thegroup level of more than 10 percent, in large part as a result of lossof exclusivity on Seroquel in boththe US and Europe.

Seroquel is a particularly prof-itable medicine for the drugmakerand analysts at Berenberg estimateits loss could knock 330 basis

points off the groups pre-R&Dmargin.

With acid reflux treatmentNexium also facing US generics in2014 and top-selling cholesterolfighter Crestor losing patent pro-tection in 2016, AstraZeneca is step-ping up the drive to buy inreplacement products through aseries of acquisitions.

Shares in AstraZeneca closed up0.3 per cent at 23.84 yesterday,valuing the firm at 37.5bn.

AstraZenecasues FDA overgeneric drugBYHARRY BANKS

PHARMA

News18 CITYA.M. 14 MARCH 2012

NEWS | IN BRIEF

GlobeOp investor switches sidesSS&Cs takeover advances towardsGlobeOp Financial Services got a boostyesterday when a prominent sharehold-er withdrew its support for a rival bidfor the hedge fund administrator.Aberforth Partners, which controlsaround three per cent of GlobeOp stock,

said it no longer intended to complywith its letter of intent in favour ofTPGs potential offer. GlobeOps inde-pendent directors said last week theywould be willing to recommend SS&Cs517m bid if and when it occurs, havingpreviously backed TPG.

Game shares take a fresh fallGame shares crashed a further 10 percent yesterday, leaving the stock wortha shade over a penny and the firm witha market cap of 4.5m, as it fights forits survival on the high street. The groupwarned on Monday that it was uncer-tain whether discussions with lendersand suppliers would succeed, and thatthe stock could be left worthless, justweeks after securing a new loan facilityfrom its banks. Rival Gamestop, restruc-turing group Hilco and private equityfirm OpCapita have all been touted aslikely suitors for the firm.

Hedge fund launches reboundThe number of new hedge funds surgedlast year to the highest level since 2007,despite one of the most miserable annu-al performances in the industry's history,according to data released yesterday.The number of new hedge funds totaled1,113 in 2011, according to fund trackerHedge Fund Research. While that figuredid not eclipse the 1,197 launches in2007, it was the most openings since thefinancial crisis.

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NATIONAL Lottery operator Camelothas launched a judicial review againstthe Gambling Commission for mak-ing a fundamental error in approv-ing the Health Lottery, recentlylaunched by Richard Desmond.

Camelot said it has been in ongo-ing correspondence with theCommission since the Health Lottery was founded in September byDesmonds Northern and Shell, whichowns Channel 5 and the DailyExpress, but had not received a satis-factory response.

Camelot chief executiveDianne Thompson (pictured)said the law only allows forone national lottery, along-side smaller local draws.

But she claimed theHealth Lottery contravenesthis legislation as it is brand-ed, advertised and televisedacross the nation, with tickets avail-able all aroundthe country.

Thompson said:We believe thatthe Health

Lottery is in clear breach of this cru-cial market separation envisaged byParliament.

She argued the existence of a rivalnationwide draw has a devastatingeffect on how much money goes togood causes and the Treasury via theNational Lottery.

A letter from the GamblingCommissions lawyers said Camelotsclaim has no arguable grounds andno realistic prospect of success andrequires us to use only the most dra-conian of our regulatory powers.

Commission boss Martin Hall calledCamelots claims devoid of merit.

Camelot, represented by LordPannick QC, will lodge formal

papers with the High Courtearly next week.

The judicial review willexamine whether theprocess used by theGambling Commission to

reach its decision in approv-ing the Health Lottery

was sound. If thecourt finds infavour ofCamelot, theclaim can pro-ceed to a hear-ing.

TABLET and smartphone chip design-er Arm has unveiled a micro-proces-sor that will see hundreds of devicesconnected to the internet to save timeand power.

The worlds most energy-efficientchip design, dubbed Flycatcher, willbe used to control appliances such aswhite goods, traffic lights and med-

ical devices without sacrificing powerconsumption or space.

The Cambridge-based companysaid its chip design would create aninternet of things for example,traffic lights could be controlled viathe internet to ease congestion onbusy roads or after accidents, while white goods such as dishwasherscould turn themselves off to saveenergy if the homes electricity net-work is being over-used.

Medical devices such as stetho-scopes might be able to send informa-

tion to doctors surgeries. Arm said it expects electricity

demand to outstrip supply within thenext 20 years, but the Flycatcherdesign will be able to run for years onminimal battery power and will cre-ate a smart network of devices.

The chip just 1mm by 1mm isexpected to sell for between 13p and20p. Arm will collect a one to two percent royalty, creating a strong rev-enue stream within a decade.

Cisco forecasts there will be 25bnconnected devices by 2015 and 50bn

by 2020, compared to the 10-15bntoday.

ARM unveils its new chip designed tosave energy and control traffic lights

CHIPMAKER Intel is developing aninternet-based TV service for con-sumers in a strategic shift from itstraditional business, and has report-edly reached out to media companiesin a bid to obtain the rights to shows.

The worlds top chipmaker plans tocreate a virtual cable operator thatwould offer TV channels in a bundleover the internet via television sets,

computers, tablets and smartphones.The product, which the chip com-

pany wants to roll out before the endof the year, could use an Intel set-topbox and Intels name.

In October, Intel wound down itsefforts to make chips for digitalsmart TVs, although it continues tomake chips for set-top boxes.

At the same time, it formed theIntel Media business group, headed by former BBC executive ErikHuggers, aimed at promoting digitalcontent on Intel-based platforms.

An Intel spokeswoman declined tocomment.

Intel plans strategic shifttoward internet televisionTECHNOLOGY

REBEKAH Brooks was arrested yester-day morning as police swooped on sixpeople suspected of conspiracy to per-vert the course of justice.

The former News Internationalchief executive was arrested at herOxfordshire home alongside her hus- band, racehorse trainer CharlieBrooks, in the latest move from Oper-ation Weeting the Metropolitan

Police Services inquiry into the phone-hacking of voicemail boxes.

News International confirmed thatits head of security Mark Hanna wasalso arrested yesterday.

The other three people arrestedwere a 39 year old man from his homein Hampshire, a 46 year old man fromWest London and a 48 year old man ata business address in East London.

Unlike previous arrests of formerand current journalists from The Sun,

these were not prompted by informa-tion passed to the police by NewsCorps management and standardscommittee.

This brings the number of peopleheld under Operation Weeting to 23.

Brooks was held for 48 hours in Julyon suspicion of conspiring to interceptcommunications, and has also beenarrested on suspicion of corruptionunder the Operation Elveden investi-gation of illicit payments to police.

THE NEXT generation of mobile con-nectivity could be in the UK this year

after Ofcom yesterday issued approvalfor Everything Everywhere to updatethe airwaves it already owns for 4Guse.

This comes less than a week after Apple revealed its new iPad wouldoffer a fourth generation (4G) connec-tion, which will give a significantlyfaster internet speed for mobiledevices and enhance services such asvideo streaming, high-definition gam-ing and social network usage.

With Ofcoms approval, telecomshybrid Everything Everywhere willnow be able to start upgrading its cur-rent airwaves, which are on the1800MHz spectrum, for 4G use.

This means 4G could hit UK air-waves before the other mobile opera-tors are given a chance to bid forairwaves on the 800MHz spectrum which currently hosts analogue TV in an auction early next year.

Ofcom said EverythingEverywheres change of spectrum useis likely to bring material benefits toconsumers including faster mobile broadband speeds and... potentiallywider mobile coverage in rural areas.

A Vodafone spokesperson said itcame as a surprise that the regulatoris now considering giving the largestplayer in the market permission to useits existing spectrum for 4G.

The rival mobile network providerargued that the lack of competitionwould hinder the full benefits of 4G being realised: We seriously doubtthat consumers best interests will beserved by giving one company a signif-icant head start.

But Ofcom said it believed its deci-sion on this matter would not distortcompetition.

There is a four week window to sub-mit views on the proposed change.

Ofcom gives approval for 4GBY LAUREN DAVIDSON

TELECOMS

Desmond hit

by challengeto his lotteryBY LAUREN DAVIDSON

LEISURE

BY LAUREN DAVIDSON

TECHNOLOGY

News 19CITYA.M. 14 MARCH 2012

Former IBM chief executive Sam Palmisano was paid $31.8m (20.2m) by the tech com-pany in 2011 his last year at the helm before being replaced by Ginni Rometty. This isslightly more than the $31.7m, including a $1.8m salary, he made the year before.

Picture: REUTERS

FORMER IBM CHIEF EARNED $31.8M LAST YEAR

Rebekah Brooks and her husband Charlie were two of six people arrested as part of Operation Weeting yesterday Picture: GETTY

Ex-News International chief RebekahBrooks arrested as part of Met probeMEDIA

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BUSINESS secretary Vince Cable (pic-tured) yesterday used new datashowing an increase in thenumber of women on UK cor-porate boards to rail againstthe idea of mandatory quo-tas, saying it would beinappropriate forEurope to imposethem.

A report released bythe department of

business, innovationand skills yesterdaycoincided withCranfield School ofM a n a g e m e n t sannual survey show-ing the largest-everannual increase inthe percentage ofwomen on boards inthe year since LordDavies published his 10recommendations.

I believe that we are finally seeing aculture change taking place right atthe very heart of British business inrelation to how women are seen with-in the workforce, said Lord Daviesyesterday.

The report showed that 17companies in the FTSE 100 had

already reached the target setby Lord Davies of reaching

25 per cent female boardrepresentation by 2015, with a further 28 firms

close to the goal atbetween 20-25 per cent.

This report providesreal evidence that busi-ness is taking the issueof board diversity seri-

ously and is voluntarilyworking to bring about

the necessary changes. Itdemonstrates why we donot support the notion ofquotas and why we think itwould be inappropriate forEurope to impose them,said Cable.

Cable: Quotasfor boards areinappropriate THE 1,000 tonne diggers that willcarve out Crossrails path acrossLondon were unveiled by Mayor ofLondon Boris Johnson yesterday.

Ada and Phyllis, the two giant bor-ing machines, are set to start diggingat Royal Oak in west London next week, as part of the four-mile firstleg of the Crossrail train tunnel net-work.

The 150m-long machines will digeast through Bond Street and Tottenham Court Road, arriving inFarringdon by autumn 2013.

The two diggers, the first of eightmachines that will eventually workon the route over the next threeyears, were named after early com-puter scientist Ada Lovelace andPhyllis Pearsall, who compiled theLondon A to Z.

The 73-mile Crossrail project isdue to open in 2018, spanning sta-tions from Maidenhead andHeathrow in the west to Shenfieldand Abbey Wood in the east.

Crossrail chairman Terry Morgansaid: The start of tunnelling is ahugely significant and symbolicmilestone. Massive progress has beenmade since the start of Crossrail con-struction in May 2009 with workunderway at nearly twenty sitesalong the route.

Ada and Phyllisget started onCrossrail tunnel

BY ELIZABETH FOURNIER

CORPORATE GOVERNANCE

TRANSPORT

News20 CITYA.M. 14 MARCH 2012

SARKO TAKES FIRST ROUND POLL LEAD

FRENCH President Nicolas Sarkozy overtook socialist challenger Francois Hollande forthe first time yesterday in an opinion poll on the first round of Frances April-May elec-tion after attacking the European Unions trade and immigration policies. The conserva-tive incumbent was still shown losing to Hollande in a second-round runoff, but by anarrower margin of nine points, down from 13 points a fortnight ago.

8/2/2019 Cityam 2012-03-14

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GREECE will have to slash spendingeven further in the coming years if it isto meet agreed fiscal targets underpin-ning the second international bailoutfor Athens, a European Commission(EC) report has said.

The country needs to cut an addi-tional 5.5 per cent of GDP from govern-ment spending in 2013 and 2014,according to the Compliance Report,written by the EUs executive.

It describes the progress of Greekreforms necessary for the release ofnew Eurozone money to Athens andrecommends the first disbursementbe made as soon as possible.

The report, obtained by Reuters,said a package of savings adopted byGreece in early 2012 worth 1.5 per cent

of GDP should allow Athens to meetthe target of bringing the primarydeficit down to one per cent this year.

However, current projectionsreveal large fiscal gaps in 2013-14, theCommission report said, adding thatthe shortfall for the two years totalled5.5 per cent.

Therefore, substantial additionalexpenditure cuts will have to beannounced and adopted by Greece inthe coming months, in particular when Greece updates its medium-term budget in May 2012.

The report said that in preparationfor the new cuts the government wasreviewing public spending pro-grammes, focusing on savings in socialtransfers, defence and the restructur-ing of central and local administra-tion.

There would be job cuts in the pub-lic sector according to a redundancyand recruitment rule of one entry forfive exits. Athens is to further cut phar-

maceutical spending and operationalspending of hospitals as well as wel-fare cash benefits.

Greece set tomiss targetsBYHARRY BANKS

EUROZONE

A GROWING competitiveness gapthreatens the stability and even exis-tence of the Eurozone, EuropeanCentral Bank President Mario Draghiwarned yesterday.

Increasingly larger and persistentcurrent account deficits have resultedfrom significant losses of national

competitiveness, Draghi told a con-ference in Paris.

These current account imbalances within the euro area should be asource of concern for policy makers.

Draghi noted that wage costs hadrisen 2.5 times as quickly in thoseEurozone countries which were run-ning a balance of payments deficitcompared with those in surplus.

Unless we proceed with our struc-tural reforms all together, it will be

difficult to keep the area together, hesaid.

Draghi: Eurozone may fall apartif competitiveness is not boostedEUROZONE

EUROPEAN stocks jumped yesterdayon hopes that the German economyis picking up speed.

The ZEW index of sentimentincreased for the fourth consecutivemonth, rising sharply from 5.4 inFebruary to 22.3 in March its high-est level since June 2010.

Currently, it seems as if the crisis

in the Eurozone has taken a pausefor breath, said ZEW president DrWolfgang Franz.

In Germany, due to the goodemployment situation, domesticdemand is likely to continue to stim-ulate growth. Nevertheless, risksremain due to the low business activ-ity in important European countriesand the disruptions in the bankingsector.

Germanys DAX stock index rose

1.37 per cent in the day, the FrenchCAC jumped 1.72 per cent and theFTSE100 rose 1.07 per cent.

Meanwhile Italy received a furtherboost as the government paid just 1.4per cent to borrow8.5bn (7.1bn) inone-year debt, down sharply from the2.23 per cent paid a month ago, indi-cating investors are increasingly con- vinced that Prime Minister MarioMontis efforts to cut the deficit andreform the economy will work.

European markets rejoice asGermanys confidence soarsBY TIMWALLACEEUROZONE

News 21CITYA.M. 14 MARCH 2012

CHAMPAGNE SALES ON THE RISE

THIRSTY drinkers in emerging economies shrugged off worries over the global economylast year, splashing out more of their hard-earned cash on imported champagne. China,Russia and Brazil all imported more than a million bottles of champagne each, whileIndias appetite spiked by a head-spinning 58.7 per cent to 290,286 bottles. But Britainremains the biggest consumer, importing 34.5m bottles. Picture: GETTY

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THE UKS trade deficit rose in January as the weak EUeconomies bought fewer Britishgoods and services, official fig-ures showed yesterday.

However, chancellorGeorge Osborne (picturedright) is closer to his goal ofrebalancing the economytowards foreign sales asexports to non-EU countriesrose sharply, the figuresfrom the Office for NationalStatistics revealed.

Goods imports rose 2.6 percent in the month from34.4bn to 32.75bn, outstrip-ping the two per cent rise inexports, from 25.56bn to26.06bn, increasing thedeficit from 7.18bn to7.53bn.

Meanwhile servicesexports and importsboth fell by 2.7 per cent,

with imports down to 9.45bnand exports down to 15.24bn,leaving a surplus of 5.78bn.

The overall trade deficitincreased from 1.2bn inDecember to 1.8bn in January,

though that still repre-sents an improve-

ment fromN o v e m b e r s

3.2bn.By region,

goods exports tothe EU fell 0.3per cent to13.14bn whileimports from

the coun-tries rose

1.4 percent

to 17bn, increasing the deficitto 3.85bn.

Meanwhile goods exports tonon-EU countries jumped 4.4 percent to 12.92bn, faster than the3.9 per cent rise in imports,which rose to 16.6bn to leave adeficit of 3.68bn.

Car and oil exports were par-ticularly important, rising0.5bn and 0.3bn respectively.

Despite the monthly deterio-ration and discouraging EUtrade data, the deficit has beendeclining overall importantly,the UK is now on a morefavourable trading position withemerging Asia, said DanielSolomon from the Centre forEconomics and BusinessResearch.

This trend is likely to contin-ue as the effects of the latestround of quantitative easingfeed into the economy, pushingdown real interest rates andputting further downwardpressure on the pound.

UK trade deficit up

as EU exports dropBY TIMWALLACE

UK ECONOMY

ACTIVITY jumped in the housing market in Januaryas first-time buyers rushed to beat the end of thestamp duty holiday this month, but house pricesfell in January according to government data.

Figures from the Council of Mortgage Lenders(CML) showed a 23 per cent rise in lending to first-time buyers compared with January 2011.

However, higher levels of activity did not boostprices, according to the Department forCommunities and Local Government (DCLG), whose seasonally adjusted prices index showed afall of 0.7 per cent in the month, to an average of206,523.

Furthermore, data from the Financial Services Authority shows that outstanding mortgage debtbarely changed in the final quarter of 2011, up just0.1 per cent on the quarter to 1,218bn.

The DCLG data reinforce our view that houseprices will drift downwards the coming months inthe face of relatively low consumer confidence,said economist Howard Archer from IHS GlobalInsight. Despite a recent limited pick up, housing

market activity is still low compared to long-termnorms.

Housing marketgets brief boost

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NEWS | IN BRIEF

Japan invests in Chinese debtJapan will buy 65bn yuan (6.5bn) ofChinese government debt, the country'sfinance minister said yesterday, givingChina a mark of approval in the credibility

of the yuan as an international currency.Other countries are investing in Chinathrough state agencies, but Japansinvestment is by far the biggest in theyuan.

Layoffs cost 28.6bn in BritainAlmost 2.7m people have been maderedundant in Britain over the last fouryears, according to research from theChartered Institute of Personnel and

Development. The layoffs have costemployers a total of 28.6bn, the reportestimates, while the loss of output to theeconomy amounts to between 87bn and135bn.

Its not easy to please all of two-speed Europe

WHAT is the economic futurefor Europe and what roledoes public opinion play init? Tomorrow sees the

YouGov-Cambridge Symposium onPublic Opinion, EconomicGovernance and the Future Of

Europe where speakers such asAlistair Darling, Francis Maude, LordGriffiths and Jim ONeill will discussjust that.

YouGov-Cambridge has conductedwhat the editor of this newspaper yes-

terday called the most sophisticatedpolling on European attitudes yet to beconducted a cross-country national-ly representative survey of 11,000 peo-ple.

While Allister discussed the colli-sion course that the UK and Europeare heading for in terms of greater orless integration, I want to foc