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DOUBLE TROUBLE

ISSUE 1,620 THURSDAY 26 APRIL 2012

Certified Distribution

27.02.2012 till 01.04.2012 is 99,462

BY TIM WALLACE

Chancellor under fire as Britain officially back in recession

This is a recession made inDowning Street by David Cameronand George Osborne, said Laboursshadow chancellor Ed Balls, whoblamed cuts for the double dip.

However, George Osborne arguedthe painful austerity measures wereunavoidable, and will help the econ-omy in the long run.

Over many years this countrybuilt up massive debts, which weare having to pay off. Its mademuch harder when so much of therest of Europe is in recession or

heading into it, he said.The one thing that would make

the situation even worse would beto abandon our credible plan anddeliberately add more borrowingand even more debt.Analysts forecast years of slow

growth to come. Economic growthis likely to remain subdued as fiscalausterity, squeezed householdincomes and economic weakness inthe Eurozone all bear down on theoverall pace of recovery in the UK ,said Scott Corfe from the Centre for

Economics and Business Research(CEBR). He added he did not expectannual growth to breach the twoper cent mark until after 2016.They also warned the chancellor

would miss his deficit targets by ahuge margin, as tax receipts grow ata much slower rate than anticipat-ed. Corfe said: We expect publicborrowing in 2016-17 will standsome 70bn higher than forecast bythe Office for Budget Responsibility.The decline in GDP was broad

based, but led by a three per cent

fall in construction sector output in large part because of governmentcuts to infrastructure spending.

Manufacturing output fell 0.1 percent on the quarter and servicesexpanded by a tiny 0.1 per cent,dragged down by a 1.9 per cent fallin finance output.

Meanwhile government and otherservices rose 0.2 per cent, with NHSoutput described by the ONS as astrong point.

THE ECONOMY fell back into reces-sion at the start of this year, it wasrevealed yesterday, leaving GeorgeOsbornes credibility and his

deficit reduction plan in tatters.Every sector of the economy disap-

pointed, dragging GDP down 0.2 percent in the first quarter, following a0.3 per cent contraction at the endof 2011 and leaving the economy ina technical recession, according toinitial estimates from the Office forNational Statistics (ONS).

Many economists queried thescale of the slump and the accuracyof the official figures, which contra-dict more upbeat surveys, but allagreed that the economy was weak.

Output is back down to where itwas in the first quarter of 2011, andmore than four per cent below itscredit crunch peak a far worse per-formance than that of competitorslike the US and the Eurozone,which have recovered far more ofthe lost ground than the UK has.

FSA considersNews Corp bidemails probeTHE FINANCIAL Services

Authority could look intoemails sent by Jeremy Huntsoffice to News Corp inrelation to possible marketabuse.

The culture secretarysstaff appear to have givenNews Corp executivesadvance warning of Huntsdecision to give the firmmore time to alter its ill-fated

bid for BSkyB last year.The FSA has seen the

emails released on Tuesdayand a source familiar withthe watchdog told City A.M. itcould fall within its remit toinvestigate market abuse,although they cautioned thefull facts were not yet known.

The emails released to theLeveson inquiry into mediaethics yesterday claimed theirfirst scalp, as Hunts specialadviser Adam Smith resignedfor going too far in hiscommunications with NewsCorp executives while his

boss was probing thecompanys deal.

The FSA declined tocomment.

BY MARION DAKERS

George Osborne has led the UK into its first double-dip recession since the 1970s, and output remains well below its 2008 peak

UK falls back into recession

2007 2008 20102009 2011 2012

0%

1%

1.5%

0.5%

-0.5%

-1%

-1.5%

-2.0%

-2.5%

1.1% 1.1%1.2% 1.2%

0.6% 0.6%

0.2% 0.2%

0.7% 0.7%0.4%

-1.3%

-2%-2.3%

-1.6%

-0.2% -0.2%-0.1%

-0.5%-0.3%

GDP

changeon

prev.

quarter

BORIS Johnson yesterday admitted themayoral race would go all the way to thewire as the Conservative governments woesthreaten to derail his re-election campaign.

On the day that a double-dip recession wasconfirmed bookmaker William Hill slashed

the odds on a Ken Livingstone victory from4/1 to 5/2 following a flurry of bets on theLabour candidate to win on 3 May.

Im optimistic but to say Im confident

would be an exaggeration, Boris Johnson toldCity A.M.yesterday. As we go into Bechers

Brook its neck and neck and Ive alwaysthought that this would be a very toughfight. No ones going to take it for granted.

William Hill spokesman Graham Sharpe

said that punters were convinced Boris wasset for an easy victory but a sudden surge of

support for Ken has seen his odds tumble totheir shortest level of recent weeks.The last YouGov opinion poll gave Johnson a

slim 51-49 lead over Livingstone.

...and bookmakers think it could cost Boris the London mayoral electionBY JAMES WATERSON

Britain is recovering less quickly than its peers

2008 2009 2010 2011 2012

2%

4%

0%

-2%

-4%

-6%

-8%Changein

GPD

since

2008

US Germany France UK

MORE: P6-7ALLISTER HEATH: P2, MORE: P 2ANDREW SENTANCE: P26

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Economists question thereliability of GDP figuresTHE UK might not actually be in arecession, economists said yesterday,fearing the Office for NationalStatistics (ONS) is using dodgy datato work out the GDP figures and ifthey are correct, the ONS might havedelivered a blow to confidence bydeclaring a recession incorrectly.

Survey data over the past monthshas indicated a relatively healthyrecovery across the services, manu-facturing and construction sectors all of which came in for a beatingaccording to the ONS.

Manufacturing output increasedmodestly in the last three months,according to theConfederation ofBritish Industrysindustrial trends sur-vey. A net balance offive per cent of manu-facturers reportedoutput growth, and abalance of 30 per centplan to increase invest-ment spending overthe next 12 months.

Similarly Nationwidesconsumer confidencestudy, out today,showed sentiment ris-

4 NEWS

BY TIM WALLACE

To contact the newsdesk email [email protected]

IS this a recession made inDowning Street? In part, yes.Obviously, Gordon Brown is themain culprit. It will take years to

recover from his mismanagement offiscal, monetary, tax and regulatorypolicies, as well as from the global,cheap money bubble. But George

Osborne can no longer escape blameeither. His desire to cut the budgetdeficit is absolutely right but hisother policies have failed. There arefour main domestic reasons for theUKs poor performance (and theyhold, even if as is likely, the officialGDP figures out yesterday turn out tobe substantially revised).

The first problem has been the com-position of the austerity package.Much of the tightening has been viatax hikes rather than spending cuts capital gains, national insurance,stamp duty, value added tax, and now

EDITORSLETTER

ALLISTER HEATH

A recession made in Downing Street but not caused by cuts

THURSDAY 26 APRIL 2012

pasties and the rest. That was thewrong choice: lower taxes are goodfor growth, higher taxes are bad. Thetrick is to deliver austerity by cuttingspending, not by hiking taxes.The next issue is that the govern-

ments supply-side agenda has failedmiserably. By now, developers shouldhave been set free to build new air-ports and even cities; the labour mar-ket should have been liberalised;job-reducing red tape eliminated; thetop rate of tax abolished; mad EU

rules abolished, and so on and soforth. Britain needed a revolution; itwas granted a few over-hyped reforms.With the exception of some smallcuts to corporation tax, and someother changes, there is more red tapeand more people face higher margin-al tax rates now than when Labour

was in power. There has been a mas-sive onslaught on the financial servic-es industry, much of it unrelated tosorting out the crisis. Its madness.Add to that the ongoing war onwealth, the demonisation of success-ful people and business executives,and the decision to relentlessly attack rather than reform to strengthen the City and one begins to under-stand why firms are spending theircash abroad, rather than at home.

Next, inflation. This is a recessionmade in Threadneedle Street, homeof the Bank of England, as much as in

profligate. The budget deficit in 2011-12 was a massive 126bn, down just10.9bn from the 136.8bn the yearbefore. The national debt is still rock-eting: public sector net debt at theend of March 2012 was 1,022.5bn(66.0 per cent of GDP) compared with905.3bn (60.5 per cent of GDP) at the

end of March 2011. Current spendingrose in cash terms from 604.8bn to617bn in 2011-12. The OECD says UKpublic spending was 49.8 per cent ofGDP in 2011. Public sector net borrow-ing remains at a catastrophic 8.3 percent of GDP. All of this remains utter-ly unsustainable yet the public havewrongly been told that the UK istackling its debt. Osborne has been adisappointing chancellor but notfor the reasons cited by the left.

Downing Street: excessive inflationhas slashed real incomes and realwealth; this, rather than cuts, is whathas depressed spending the most.Osborne should have changed theBanks remit, and been stricter wheninflation overshot. Ultra-low rates andQE have become counter-productive.

Last but not least, banking rules. Itwas right to ensure banks held morecapital and that credit became pricedrationally but the reforms have spi-ralled out of control. UK, EU and Baselrules are forcing banks to hold toomuch cash in reserve against loansthey make to small businesses andothers, reducing supply and increas-ing cost. We need a stable banking sys-tem not a dead one.What is most depressing is that the

double-dip (if that is indeed what it is)will wrongly discredit austerity, eventhough the state remains incredibly

ing to a nine-month high, in stark con-trast with the official GDP data.The ONS readily admits its initial esti-

mate of GDP is made up of only 40 percent of the final data, and so is

prone to later revisions the aver-age revision is 0.2 percentagepoints, which could easilymean output was flat in thequarter.We know construction was

weak in February, in part dueto very bad weather, but it

showed a strong rebound inMarch and I suspect

a lot of March datawas not includ-

ed, said ChrisWil lia mson,economist atMarkit whoc o m p i l e sinfluential

purchasing managers indices.It was the same in services and man-

ufacturing.He points to the third quarter of 2009

as an example of major revisions,when initial estimates of another quar-ter of recession turned out to be wrong the economy was actually growingagain. At the time, the ONS said thatthe UK had shrank by 0.4 per cent; itnow says it grew by 0.2 per cent.

Business and consumer confidenceflipped on the news that we were stillin recession, said Williamson.

However, the ONS disagrees its datais taken from 40,000 sources, com-pared with up to 700 firms in anyMarkit survey and 394 companies inthe most recent CBI study.

Furthermore, when it sees surprisingresults, as in yesterdays constructionfigure, the ONSs statisticians repeated-ly check the data at its source.

Ed Balls blames cutsfor the new recession

QCan we trust theONS data?

AThe firstestimate only

uses about 40 per centof the data, so we know it probablyisnt exactly right. It isnt usuallyrevised a lot, but when the economyis on the brink of recession, a fewdecimal points look very important.

QHow could anyone elses be better?

ASurvey data can be much more upto date. PMIs, for example, ask a

simple question about output levelsfor the month, get a fast response,and are not revised later.

Q

Are there problems with those surveys?

APMIs only ask if output rose, fellor stayed the same when working

out the main figure. RBS economistRichard Barwell argues this removesthe size of output changes. He saysPMIs are only useful in times ofrapid change, and fail to track GDPclosely normally. On top of that, theyonly survey a few hundred firms,rather than the ONSs thousands.

QWhat actually happened with theeconomy?

ARegardless of whether GDP fell 0.2per cent or rose 0.2 per cent, the

economy remains very weak unemployment is high, businessesare very cautious with their cash. Donot expect good news any time soon.

QAand

The doubts aroundofficial GDP figures

VICKY REDWOODCapital Economics

Assuming under-lying growth is

also held down by the fis-cal squeeze, weak banklending and falling realearnings, our forecast fora 0.5 per cent contraction in UK GDP in2012 overall looks about right.

GEORGE BUCKLEYDeutsche Bank

Not only did we

slip back intorecession in the first quar-ter of this year, but currentquarter GDP is unlikely toshow a strong recoveryeither. The Queens Jubilee holidays inearly June are likely to curtail output.

SCOTT CORFECEBR

We dont expect asignificant

improvement in the sec-ond quarter, reflectingunderlying weakness andalso temporary distor-tionary factors. We could well seeanother quarter of negative growth.

ANALYST VIEWSWILL THE ECONOMY GROW

ANY TIME SOON?Interviews by Tim Wallace

This slump has lasted longer than the 1930s recession

0 6 12 18 24 30 36 42 48

2%

0%

-2%

-4%

-6%

-8%

Months since start of recession Source: ONS,NIESR The Spectator

CumulativeGDPchangefrom

peak 1930 Q1 1973 Q2 1979 Q2 1990 Q2 2008 Q1

Flowers leaves US for London berthChristopher Flowers, the veteran privateequity investor, has moved to Londonfrom the US, seeing a shift in the balanceof investment opportunities to Europe.

Banks take PPI provisions past 6bnThree of the UKs biggest banks arebraced to increase their provisions formis-sold loan insurance by as much as athird following a sharp rise in the numberof complaints received in recent weeks.Lenders have been battling to deal with asurge of compensation requests from

customers with payment protectioninsurance (PPI), largely prompted byincreased activity from claimsmanagement companies.

GE suffers activist shareholder revoltShareholders in General Electric havecome close to winning a vote that wouldhave given them more direct control overthe the largest US industrial group bymarket capitalisation against the wishesof its board. A proposal at GEs annualmeeting in Detroit on Wednesday to allowshareholders to make decisions about thecompany by written consent won thesupport of some 47.5 per cent of the vote.

Global builder fined $56m for scamThe construction company that built theathletes village for the London Olympicshas pleaded guilty to fraud byovercharging for work on some of NewYorks most famous landmarks, includingCiti Field, home of the Mets baseball team.

More cuts for policePolice forces face having to make evendeeper cuts in manpower and servicesafter a Whitehall spending watchdogtoday highlights a 500 million shortfallin planned savings.

Qatar royals buy Greek island for 5mThe 1,236-acre uninhabited island of Oxia inthe Ionian Sea was bought for 5m (4.1m)by the Qatari royal family. Previously ownedby a Greek-Australian family, it had been onthe market for close to 7m.

Mothercare loses finance directorMothercare, the struggling retailer, has beenhit by the departure of its finance director.Neil Harrington resigned from his role at thecompany to join an unnamed private equityfirm, just days ahead of the arrival of newchief executive Simon Calver.

SEC questioned about tipster policyThe SEC faced fresh questions about itsefforts to attract whistleblowers who mighthelp regulators uncover wrongdoing on WallStreet, following revelations that the agencyunwittingly revealed a tipsters identityduring a probe.

Banker pleads guilty in bribery caseAn ex- head of Morgan Stanleys real-estateinvesting operations in China pleaded guiltyyesterday to violating a US anticorruptionlaw in a case that involved alleged bribes toa Chinese official in exchange for business.

WHAT THE OTHER PAPERS SAY THIS MORNING

The new jobs website for London professionalsCITYAMCAREERS.com

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GETTY

THE UKS banking reforms will costthe taxpayer 10-20bn in lost valueon RBSs shares, the banks chiefexecutive Stephen Hester told aroomful of business students yester-day.

He said that despite beating itsrecovery targets by slashing its bal-ance sheet quickly, the bank hadbeen hit by an extra avalanche of reg-ulation, in large part due to theBritish government.

The UK regulatory reforms ontheir own have probably cost 10-20bn from our future market value,he said, raising the question ofwhether taxpayers will ever see thereturn of their 45bn bailout.

Hester has been a vocal critic ofthe governments banking reforms,drawn up by the VickersCommission, which will force RBS toringfence its retail arm from therest of its businesses.

Hester also fired a shot at therelentlessly negative commentari-at for undermining morale andcausing shock and disillusion atthe bank.

No company has had a greaterkicking or is subject to greater hostil-ity from the commentariat, he said.Our people have to face those pres-

UK reforms to

cost taxpayersup to 20bnBY JULIET SAMUEL

sures, as they have also had to faceloss of personal savings, loss of prideand confidence, and the loss of over35,000 jobs. It is uncomfortable towork at RBS.

He also alluded to the politicalpressures that ownership creates onthe bank: Government... ownershipcan cause political controversy ofitself, and create pressures that hin-der the progress of the subject com-pany, he said. He has previously toldCity A.M. that political meddling hasforced him to compromise on how heruns the company.

But he tried to sound a note of opti-mism by rebranding the bank thenew RBS that will drive us into thefuture and said it is on track in hisfive-year recovery plan, which shouldbe completed in two years.

Fed stands ready to deliver QE3if recovery stalls, Bernanke saysTHE FEDERAL Reserve would nothesitate to kick off yet another

spell of monetary stimulus if itthought the US recovery requiredmore assistance, its chairman BenBernanke said last night.

We remain entirely prepared totake additional balance sheetactions if necessary to achieve ourobjectives, he told reporters inWashington DC. So those toolsremain very much on the table.

The Fed decided to continue withits current policy at Aprils

BY JULIAN HARRISmeeting, with Bernanke supportingthe Feds stance of keeping interestrates at their historic low whilecontinuing to purchase long term

assets as part of its scheme coinedOperation Twist.We see monetary policy as being

approximately in the right place atthis point, Bernanke said. Thatdoesnt mean we might not takefurther action, we are certainlyprepared to take further action butfor the time being it appears that weare more or less in the right place.

The chairman, often seen asbeing towards the dovish side of the

Feds thinking, said that inflationhad been temporarily hit by petrolprices and ought to moderate toabout two per cent later this year.

Our intention is to maintain ahighly accommodative stance onpolicy for the foreseeable future,and we remain able and willing totake further action if necessary,Bernanke said.

Four of the most hawkishmembers Plosser, Kocherlakota,Bullard and Fisher have no votethis year, noted Ian Shepherdson ofHigh Frequency Economics.

Hester said that RBS has faced hostility and that it is uncomfortable to work at RBS

Royal Bank of Scotland Group PLC

19 Apr 20 Apr 23 Apr 24 Apr 25 Apr

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NICOLAS Sarkozy ruled out anypartnership with Marine le PensNational Front party yesterdaydespite stepping further to theright since losing the first round inthe French presidential elections.

In an interview on French radioyesterday, Sarkozy said, We needto speak to the 18 per cent who

voted for Marine le Pen.But I dont want ministers from

the National Front, he added.

There will be no deal with them,no ministers for them.

Sarkozy rules out alliance withNational Front despite right turn

BY LAUREN DAVIDSON The comments came amidaccusations from socialistcandidate Francois Hollande thatSarkozy has been trying to seducethe far right with his speechesabout protecting Frances borders,reducing immigration anddefending the French way of life.

Sarkozy became the firstincumbent French president to losein the first round of an election

when Hollande won 28.6 per centof the vote to Sarkozys 27.2 percent on Sunday. Le Pen took 17.9

per cent of the vote the highestever for a far-right candidate.

FED BOOSTS WALL ST: Page 24

THURSDAY 26 APRIL 20125NEWScityam.com

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BBC

RUPERT Murdoch yesterday stressed,during his appearance at the Levesoninquiry, that he has never asked fornor been offered any favours by aPrime Minister.The octogenarian appeared to

emerge from his first day at themedia ethics inquest largelyunscathed despite being driven todefend repeatedly his relationshipswith senior politicians.

In the ten years he was in power Inever asked Mr Blair for anything, nordid I receive any favours, Murdochclaimed as he banged his hand on the

table.The media mogul also felt com-

pelled to reiterate several times, inresponse to claims that he holds toomuch political influence, that henever lets commercial considera-tions affect the stances his newspa-pers take.

I want to put it to bed once and forall... it is a complete myth that I usedsupposed political power to getfavourable treatment, Murdoch stat-ed.

Murdoch seniordefends talks

with politiciansBY LAUREN DAVIDSON The News Corp chief executive

admitted that he gave former Suneditor Kelvin MacKenzie a hell of abollocking over the April 1992 head-line Its the Sun wot won it whichsuggested counter to Murdochsclaims yesterday that the tabloidwas instrumental in John Majorsascension to Number 10.

Rupert Murdoch also delved intodetails of his spat with GordonBrown, calling the former PrimeMinister unbalanced.

Describing a conversation whichsupposedly took place after the Sunremoved its support of the Labourparty, Murdoch said Brown declared

war on his company and seemed notto be in a balanced state of mind.

Murdoch accused Brown of fabricat-ing claims that The Sun hacked intohis private medical records, sayinghe knew very well how the tabloiddiscovered details of his sons illness.

Brown later issued a statement say-ing that Murdochs serious allega-tion is wholly wrong and called forthe tycoon to have the good grace tocorrect his account.

Murdoch senior, who said he has a

THURSDAY 26 APRIL 20126 NEWS cityam.com

Media mogul Rupert Murdoch will continue his testimony to the Leveson inquiry today

warm relationship with Scotlandsfirst minister Alex Salmond and findshim an attractive person, also toldthe Leveson inquiry that the idea ofScottish independence appeals tohim on an emotional level.

n I welcome the opportunity [to speak atthe Leveson inquiry] because I want toput certain myths to bed.

n Dont take my tweets too seriously.

n I take a particularly strong pride in thefact that we have never pushed ourcommercial interests in our newspapers.

n The Sun has never been as good as it istoday. I couldnt say the same for itscompetitors.

n I never interfered with The News of theWorld Im sorry to say. I have always beencloser to The Sun its a daily paper,theres a sense of urgency.

n Meetings were typically initiated by the

politician or a third party.

n I dont believe in using hacking orprivate detectives, its a lazy way ofreporters doing their job.

n Celebrities need to be looked at. I dontthink people with public responsibilitiesare entitled to the same privacy as theordinary man on the street.

n My relationship with Gordon Brownwas always warm before he becamePrime Minister and after. I only hope itcan be repaired.

n Politicians go out of their way toimpress people in the press. Thats part ofthe democratic process, thats the game.

WHAT RUPERT MURDOCH SAID: BEST OF THE REST

WEB OF INFLUENCE:

10.00

10.30 - The StrandRupert Murdoch appbefore the Leveson ISeeming much moreconfident than the cperformance he gavCommons committeJuly, he insists: Ive

asked a primminis

an

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Hunt pleads ignorance overhis offices News Corp emailsCULTURE secretary Jeremy Hunttook to the floor of the Commonsto fight for his political lifeyesterday, pleading ignorance ofthe emails that show hisdepartments apparent closenesswith News Corp.

Hunt said his special adviserAdam Smith had unintentionallyoverstepped the mark in hisfrequent emails, calls and textswith top News Corp staff duringHunts scrutiny of the firms bidfor the rest of BSkyB. Smithresigned yesterday morning.

The tranche of emails, releasedto the Leveson inquiry onTuesday, appear to show Huntsadvisers giving information andadvice to News Corp lobbyistFrederic Michel on the progress ofthe firms bid with regulators.

Hunt argued: I didnt knowthe content, volume or tone ofthose communications.

Labour MPs, however, pointedto the ministerial code, which

BY MARION DAKERS gives ministers responsibility fortheir advisers conduct.

And while he tried to distancehimself from his special adviser,Hunt was unable to prove to somefrustrated MPs how much or littlehe actually knew.

When Tory MP Peter Bone askedHunt how Michel came to havedetails of a speech before it wasmade to Parliament, Huntresponded: Im unableto come to theHouse today andsay what thetruth was.

In answer tomany MPsquestions, hepromised to give afull record ofevents to theLevesoninquiry, hisappearanceat whichhas been

broughtforward

to late May.He also repeatedly pointed out

that he took independent advicefrom Ofcom and the CompetitionCommission before making anydecision on News Corps bid forcontrol of BSkyB.

Hunt instead rounded onLabour MPs, noting that theMurdoch familys presence in theUK media is something thatbedevilled politics for many yearsand that he was disappointed withthe opposition for jumping onthe political bandwagon.

David Cameron used his weeklyPrime Ministers Questions slot togive his full support to Hunt.

Meanwhile, it emerged thatHunt flew to New York to meetwith News Corp executives in

August 2009, before theConservatives took power.The visit was declaredon the MPs register ofinterests.

Potentially, but we havent heardHunts side of the story yet. Weve

only heard James Murdochs hes an astutespeaker, and has been briefed very well.Until youve heard the other side of thestory, you cant have a measured opinion.

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

ROBIN HARRISCOMO GROUP

It hasnt happened at a very goodtime considering all the stresses

and pressures of the Budget, and I know thatDavid Camerons under a bit of flak for that.But I dont think theres going to be anyreally big implications.

RYAN BENTLEYPUSH TECHNOLOGY

I dont think it will hurt the gov-ernment I dont think that it can

really be held accountable for one person,because its not the entire party. So I thinkobviously its a bit of a revelation, but Idont think it should harm them.

CHARLOTTE DAUGHTREYPERTRAC

HOW MUCH WILL THE REVELATIONS OF JEREMY HUNTS BSKYBEMAILS DAMAGE THE GOVERNMENT ? Interviews by Clare HillCITYVIEWS

Hunt urged MPs not tojump on the bandwagon

GOVERNMENT adviser AdamSmith admitted yesterday hehad gone too far in hiscorrespondence with News Corpduring its BSkyB bid then wentone step further, by resigning.

Smith, one of culturesecretary Jeremy Hunts mostsenior advisers, fell on his swordafter a string of emails releasedto the Leveson inquiry showedhim passing information andadvice on Hunts BSkyB probe toNews Corp execs.

News Corp lobbyist FredericMichel said his source ofinformation from within Huntsoffice was almost invariablySmith, to the extent that Michelreferred to Jeremy and JHwhen relaying Smiths thoughtsback to boss James Murdoch and

others at the company.Smith appeared to have a

direct line to Hunt when it cameto News Corp. Jeremys [sic]response to this persuasive,

he told Michel after receiving a

briefing note in October 2010.And in May 2011, Smithforwarded Michel an open letterHunt had written about TVregulation a day before it wasreleased, with the warning: Notpublished until later/tomorrowso keep it to yourself for now.

But the emails do not paintSmith as unfailingly helpful.After Michel badgered him for ameeting with culture ministerEd Vaizey, Smith gave a tersereply: You cannot seriouslythink that Ed meeting withNews Corp whilst the deal isgoing on wouldnt be an issue.

Hunt paid tribute to hisadvisers integrity yesterdayand spoke of his regret at thedecision to stand down.

Opposition politicians jumpedon Smiths resignation as

evidence of wrongdoing. LabourMP Dennis Skinner declared inParliament: When posh boysare in trouble, they sack theservants.

Top adviser forced tostand down overcontact with lobbyist

BY MARION DAKERS


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HOW THE DAY UNFOLDED AT THE LEVESON INQUIRY AND IN WESTMINSTER

13.30David Cameron asks thecabinet secretary towrite to governmentdepartments to clarify

how to handlequasi-judicialcases such asHunts

scrutiny of theNews Corp bid.

11.30 - WestminsterJeremy Hunts specialadviser Adam Smithresigns from his postin the wake of emailsshowing his closecontact with NewsCorp execs. He admitshis actions went toofar and gave theimpression of a cosyrelationship. He saysthis was done withthe culture secretarysknowledge.

12.00David Cameron usesPrime MinistersQuestions to pledgehis full support forHunt, though headmits: We all did toomuch cosying up toRupert Murdoch.

Ed Milibandmeanwhile blasts theshadow of sleazethat Hunt is castingover the coalition.

12.30Jeremy Hunt makesa short statementinsisting he hasstrictly followeddue process. Hespends over an houransweringquestions from MPs,distancing himselffrom Smith andpromising to givefull answers whenhe appears atLeveson himself.

12.00 12.30 13.00 14.00 16.00

11.40Murdoch defends hismedia empire: I go tothe polls every daypeople can choose tostop buying mynewspapers at anytime. He adds that hisnewspapers can andoften do print storiesthat he does not agreewith personally.

16.00Following Murdochsevidence, former PrimeMinister Gordon Brownreleases a statementclaiming he neverthreatened to makewar with News Corp.

14.00Outside the court,lobby group Avaazlaunches a campaigndemanding JeremyHunts resignation.Meanwhile Murdochsays it is a completemyth... that I used theinfluence of The Sun orsupposed politicalpower to getfavourable treatment."

12.50The questions turn to hisrelationship with GordonBrown. Murdoch claimsthat the former PrimeMinister declared war onNews Corp, but he wasnot in a balanced stateof mind. He claimsBrown knew very wellthat The Sun had nothacked into his personalmedical records.

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G E T T Y

A RETURN to profitability for itsinvestment bank helped CreditSuisse to narrowly avoid a loss inits first quarter despite a SFr1.5bn(1bn) accounting charge on itsown debt.

The Swiss bank yesterday posteda net profit of SFr44m a 96 percent fall from SFr1.13bn last year

but a marked turnaround from itsgrim fourth quarter and a betterresult than analysts had expected.

Pre-tax profit at the investmentbank was down 33 per cent toSFr993m compared to the sameperiod a year ago, as revenuedeclined on the back of a drop incorporate lending and the sale ofstructured products. Nonetheless,the performance beat thedivisions SFr1.44bn pre-tax loss ofthe fourth quarter.

The investment bank benefitedfrom a favourable showing frominterest rate products, foreignexchange trading, emergingmarkets and debt products, CreditSuisse said.

Credit Suisses fixed-incomesales and trading also bolsteredthe quarterly net profit which wasSFr1.355bn without the debteffect.

Credit Suisse in

profit despite1bn debt feeBY KATIE HOPE

Despite the better than expectedperformance, chief executive BradyDougan was cautious on the yearahead, saying market conditions sofar in April had been lessfavourable than the January toMarch period. Brady, however, saidhe was confident it would deliverits target return on equity (ROE) of15 per cent or more. First-quarterROE was 15.9 per cent whenstripping out the debt loss.

Credit Suisses improvementagainst what the market expectedis largely due to the investment

bank and fixed-income sales andtrading, which dampensenthusiasm somewhat because itsnot what I see as sustainable long-term profits, Bank Sarasin analystRainer Skierka said.

MORE than ever before, banksmust be wishing they couldsimply play their first-quarterperformances on repeat.

Judging by business activity so farthis year, Credit Suisse is now deliver-ing returns comfortably within its tar-get range, having booked a return onequity of 15.9 per cent during the firstquarter of this year once you strip

out a theoretical accounting loss.That is well above most banks costof capital (which is generally around10 or 11 per cent), even in these febriletimes. Many British banks have, bycontrast, been forced to slash theirreturns targets from 12-15 per cent toa break-even level.

But it is just as well that CreditSuisse chief executive Brady Douganis using the relatively fat times to get

BOTTOMLINE

JULIET SAMUEL

Credit Suisse chief Brady Dougan warned conditions had been less good recently

Credit Suisse Group AG


23.00

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LLOYDS of London insurer Canopiussaid it had agreed to buy rival Lloydsinsurer Omega after raising its offer to164m in a recommended cash deal,thereby putting to an end a near 16month process.

Canopius said it will pay 67p pershare, increasing an offer it made ear-lier in April by 2p per share to securethe support of the board.The suitor said institutional share-

holders owning 49 per cent of Omega,

including Invesco, Threadneedle andAviva, said that they would accept the

Canopius finally gets the nodon a 164m offer for Omega

BY DAVID HELLIER offer, including crucially the invest-ment fund run by Neil Woodford.Woodford was going to roll his

funds near 30 per cent shareholdinginto an enlarged group but instead USinsurer Tower will be taking a 10 percent shareholding in the group.

Omega was advised by Gavin KellysKinmont and Cenkos, with Canopiusbeing advised by West Hill, AonBenfield and Keefe, Bruyette andWoods.

Small Lloyds of London players areseen as vulnerable to takeovers with

persistently weak insurance pricesweighing on their shares.


Dougan simply cant afford to rest on his laurels

ahead on cost-cutting annualisedsavings are now SFr1.5bn, more thanthe slated SFr1.2bn.

Like his American rivals, Douganadmitted this quarters performanceis not sustainable. Already, activitylevels are falling off, he toldinvestors, as the confidence boughtby the European Central Banks 1trillion cash injection in Decemberstarts to wane.

And even the bumper first quarterhas delivered revenues below levelsseen in 2011: they have fallen by 26per cent compared to the firstquarter of last year.

With the post-2008 trend veryclear, it is little wonder that investorsshowed little enthusiasm for thebanks stock yesterday. A widelyexpected new cull of investment

bankers failed to materialise. Insteadthe bank has bought back some of itsdebt and said its overhaul is ontarget.

The debt buyback follows severalother clever schemes, like issuingnew convertible bonds andtransferring bankers bonus potsinto a new-fangled fund. But thetruth is that jiggery pokery will onlyget you so far in a post-2008 world.

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INSURER Standard Life yesterday

announced a smaller than expecteddrop in revenues, assisted by strongBritish pension sales.

The Edinburgh-based firm saidnew business sales hit 5bn for thefirst quarter of 2012, down from5.8bn in the same period last yearbut ahead of expectations.

We had indicated to the marketthat the lack of consumerconfidence will depress salesnumbers in first two quarters of2012 and we will see better growthin the second two quarters, chieffinancial officer Jackie Hunt told CityA.M.I think against that backdropits a solid performance.

The firm does not issue quarterlyprofit figures but investors wereencouraged by the announcement,pushing shares up one per cent to226.5p.

Total assets under administration

stood at 206.8bn at the end ofMarch, up from 194.5bn a yearearlier and the firm administers thepension schemes of more than 1.16mpeople, an increase of 26,000.

Standard Lifehelped by UKpension sales

BY JAMES WATERSON

GOLDMAN Sachs has put aside $684m(424m) for its 2011 UK tax bill, twothirds more than it has budgeted forthe previous year, it was revealed yes-terday as chief executive LloydBlankfein spoke out to defend thebanks corporate culture.

Although the bank has so far onlypaid over $6.6m to the exchequer forits 2011 activities due to a $1.8bnaccounting loss on staff share payouts,it now expects to have to stump uphundreds of millions.

The predicted tax bill for 2011 is sig-nificantly higher than the equivalentfigure for 2010, which totals $412m.

The increase is due to the profitsbooked through its UK entity risingfrom $1.2bn to $3.1bn. The figureswere revealed in the annual report forthe banks UK entity, Goldman Sachs

Goldmans taxbill unveiled as

Blankfein talksBY JULIET SAMUEL International, which break down itsBritish tax bill in more detail.

The news came as Goldman chiefexecutive Lloyd Blankfein last nightended a two-year media silence todefend the banks corporate culture,and reject a former employees criti-cism. Goldmans mantra remainedalways put the client first, Blankfeinsaid in a CNBC TV interview.

Bank of America Merrill Lynchfights back in talent stakesBANK of America Merrill Lynch(BAML) took the first step towardsreplenishing talent for itsEuropean investment bankyesterday, poaching one of theCitys most senior bankers to bepresident of Europe and EmergingMarkets, and recruiting one of itsformer charges to co-head its UKcorporate broking team.After a period during which the

investment bank has been worry-ingly haemorrhaging talent, BAMLsees these recent hirings as pivotal.There was some sweet revenge in

the hiring of Alex Wilmot-Sitwellfrom UBS, since that rival bank hasbeen responsible for hiring severalBAML employees including starbanker Andrea Orcel and Jim Forbesin the US over the last few weeks.Wilmot-Sitwell, one of the key

advisers on the governments finan-cial restructuring of Lloyds BankingGroup, will take over the role of

president of Europe and EmergingMarkets recently vacated byJonathan Moulds.

Wilmot-Sitwell was most recently

chairman of the UBS InvestmentBank, although he had also recentlyserved time in Asia.

In an internal email to staff, BoAschief operating officer Tom Montagwrote: I am delighted that we areable to welcome one of the worldsmost experienced internationalbankers to our leadership team.

His role will be mainly a figure-head one and he will focus on riskcontrol, corporate governance, reg-ulatory and community relations.

Orcel had campaigned for the jobthat Wilmot-Sitwell will now bedoing and had gone through sever-al discussions with the FinancialServices Authority to get his regula-tory clearance. However, just as heappeared set to take up the role,Orcel announced he was leaving forUBS.Just as important for BAML, how-

ever, is the re-hiring of MichaelFindlay. He rejoins as co-head of cor-porate broking for Europe, theMiddle East and Africa where hewill be partnered by Ed Peel, an

equity salesman, who joined lastsummer from Nomura.Findlay joins from Moelis, the bou-

tique investment bank started by

the former UBS star Ken Moelis,where he worked with Mark Aedy.

The appointment of one of the for-mer lynchpins of the investmentbank from its days prior to themerger with Bank of America isbeing viewed positively within thebank as it seeks to move forwardafter a series of staff departures.The corporate broking depart-

ment, which remains under theauspices of Simon Mackenzie-Smith, chairman of UK & Irelandcorporate and investment banking,recently lost its joint heads, MarkAstaire and Simon Fraser.

Astaire was poached by Barclayswhilst Fraser took early retirement.The department was also hit by thedeparture of Andrew Osborne, thehighly-rated oils expert, who leftshorty before agreeing to aFinancial Services Authority fine foralleged market abuse.Andrew Tusa continues to look

after some of the banks largest cor-porate client relationships and willfurther develop the banks corpo-

rate advisory practice.At the same time, it emerged thatanother senior banker, MichaelRubinoff, was leaving BAML.

BY DAVID HELLIER

Goldman Sachs Group Inc


111

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$ 113.9825 Apr

PROFILE: ALEX WILMOT-SITWELL


Standard Life chief executive David Nish heralded a resilient start to 2012

Alex Wilmot-Sitwell is a household namein the City of London. He was born in1961, the son of Peter, a former SGWarburg chairman.SG Warburg may have disappeared as abrand after the firms acquisition bySwiss bank UBS, but through Alexsefforts the Wilmot-Sitwell name has beenmore enduring in the world of finance.Educated at Eton, he graduated with aBachelors degree in modern history atBristol University in the early 1980s.After a stint as director of corporatefinance for Robert Fleming in South

Africa, he stayed in the country and fol-

lowed his fathers path by joining SBCWarburg in 1996, which later becameUBS.Making a fast and steadyascent, at 37 he becamehead of UK i nvestmentbanking at UBS and movedback to London.The UBS veteran has held sev-eral senior positions, includ-ing joint head ofEuropean investmentbanking and Asia-Pacific co-chief execu-

tive, during which

time he was based in Hong Kong. In2009, he became one of Londons mostsenior bankers when he was appointedco-chief executive of UBS InvestmentBank.During his time at UBS, he worked onsome of the biggest deals around, includ-ing the restructuring of Lloyds BankingGroup and fending off Xstratas hostile

takeover of Anglo American.He is said to enjoy tennis, golf, ski-

ing, diving, opera and fine wine.He is also a vice president of thecharity Save the Children UK.

By Clare Hill

ANALYST VIEWSWILL STANDARD LIFESSHARE PRICE GO UPDURING 2012?Interviews by James Waterson

Upbeat numbers that beat estimates for new business sales, fund flowsand assets under administration. The outlook statement points to a goodperformance against a fragile economic environment. HOLD.

MARCUS BARNARD ORIEL SECURITIES

The star was the core UK business which was nine per cent down at3.6bn. We continue to recommend the stock as it looks cheap on oursum of-the-parts valuation and it has good yield support. BUY.

KEVIN RYAN INVESTEC

The market remains challenging but the company is probably one ofthe best equipped in terms of the challenges posed by the introductionof the Retail Distribution Review later this year. HOLD.

BARRIE CORNES PANMURE GORDON

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EMPLOYERS can force the retirementof older staff if they are able to proveit is in the interests of the wider work-force, according to a landmarkSupreme Court ruling yesterday.

Five judges rejected an appeal byLeslie Seldon, a former partner at aKent law firm, who had claimed hesuffered age discrimination when hewas forced to retire at 65.

They said employers could considerthe public interest when tellingstaff to retire but sent Seldons caseback to an employment tribunal todetermine whether 65 was the cor-rect age.

Seldon initially brought the caseafter leaving Clarkson, Wright andJakes (CWJ) in 2006, before the aboli-tion of the default retirement age.The firm argued that its stance waslegitimate and justifiable in orderto support its planning and to giveyounger workers the chance to moveto higher positions.

Individual employers are now likelyto have to prove they are ready tohand out promotions, however,rather than simply being able to pushout partners when they reach a partic-ular age.The case was closely watched

because of rising youth unemploy-

BY PETER EDWARDSment and an ageing population buthas provoked uncertainty over compa-ny retirement policies.

This ruling confirms that, at leastin principle, companies are able to settheir own retirement age. However,this does nothing to fill the vacuumleft by the governments scrapping ofthe default retirement age, said NeilCarberry, CBI director for employmentand skills policy.

If employers want to set a retire-ment age that is suitable for theirworkforce, and know for sure whetherit is legitimate, they will still have togo through a costly and lengthy legalprocess, he added.

Michelle Mitchell, charity directorgeneral of Age UK said the case was awake-up call that age discriminationis no longer legally acceptable.

David Walker, employment partnerat Dundas & Wilson, said: More than50 per cent of workers aged over 55now plan to work beyond state retire-ment age. This will place a greateremphasis on proper performancemanagement. If they do not do so thisis likely to result in a surge in age dis-crimination claims if older employeesare dismissed for reasons that cannototherwise be justified.Andrew Wright, managing partner

at CWJ, said the case had been timeconsuming and expensive.

Tobin tax could hit the City evenif UK does not introduce oneBRUSSELS is stepping up its efforts

to find ways of hitting the City witha Tobin tax even if UK does notconsent to impose one itself.

If adopted, the measures couldamount to a tax grab on the Cityworth hundreds of billions ofpounds.

A committee of EuropeanParliament members says it hasfound a way to create a wider andstronger net for a tax on f inancialtransactions even for countries that

BY JULIET SAMUEL do not impose their own tax.The Economic and Monetary

Affairs Committee says that it has

found ways to tackle tax evasion bysovereign states that do notintroduce the tax.

It would work by throwing intoquestion a securitys legalownership rights if a buyer doesntpay the levy. If the buyer of asecurity did not pay the FTT[financial transaction tax], he or shewould not be legally certain ofowning that security and wouldhence be unable to clear the trade

centrally, the committee says.MEPs have also said they could

beef up the tax by requiring it to bepaid on any security issued within

the states that agree to the tax. Forexample, Siemens shares, issued inGermany and traded between aHong Kong institution and one inthe US would have to pay the tax,they say.

That is a significant addition tothe current proposal drawn up bythe European Commission, wherebyany trade executed by an institutionwith an established presence in theTobin tax zone would be hit.

DIAMONDS PAY SLAMMED BY IOD

THE FREEDOM of companies toadvertise graduate level jobs hasbeen cast into doubt by a SupremeCourt ruling over age discriminationtowards an ex-policeman.

Judges said Terence Homer, aformer detective inspector whoworked at the Police National legalDatabase, had faced indirectdiscrimination following theintroduction of a new system ofthree salary tiers. Homer, then 62,

was effectively disqualified from thetop tier because he did not have a

Warning over graduate jobadverts after new legal ruling

BY PETER EDWARDSlaw degree and there was notsufficient time to obtain one andreturn to work by the expectedretirement age of 65.

He went to the Supreme Courtafter an earlier tribunal victory wasoverturned.

Lawyers said yesterdays rulingcould affect both the requirementsfor job applicants and the treatmentof longstanding workers. NikiWalker, partner at Taylor Wessing,said: This case will affect manymore older workers who may not

have the qualifications or trainingnow expected by their employers.

THURSDAY 26 APRIL 201212 NEWS

cityam.com

Solicitor loses

appeal overretirement age

HEAD of the Instituteof Directors (IoD)Simon Walkeryesterdaycriticised the size ofBarclays chiefexecutive BobDiamondsremunerationpackage.I think Barclays,

overall, is out oforder and thatincludes BobDiamond. Barclayspays three timesmore in bonuses totop executives than itdoes in totaldividends to all itsshareholders, hesaid at its conferencein London yesterday.

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IN BRIEFPeugeot sees tough times ahead

nPSA Peugeot Citroen, Francesbiggest carmaker, forecast a toughsecond quarter yesterday, sayingdemand continued to sag in itsdomestic and core southern Europeanmarkets, sending first-quarter salesdown seven per cent. Revenue fell to14.3bn (11.7bn), compared with aforecast for 13.9bn. Sales in itsautomotive division fell 14 per cent to9.72bn.

Product bug hits TomTom profit

n Dutch vehicle navigation makerTomTom yesterday swung to a first-quarter loss, citing weaker car sales, thedebt crisis in Southern Europe, and aproduct bug which made it necessary toincrease the number of customerservice agents. The group said it took a13m provision in the quarter to fix theissue, reducing its gross margin to 49per cent from 53 per cent last year.

Diageo completes China deal

nDiageo yesterday completed itstender offer for Chinese liquor makerSichuan Shuijingfang, which it wascompelled to undertake, with negligible

uptake and so stays as the largestshareholder in China's No 4 white spiritsgroup. Diageo bought a four per centstake in joint venture Sichuan ChengduQuanxing last July to bring its stake to53 per cent, and under Chinese rulesbecause Quanxing itself holds 39.7 percent in Shuijingfang, Diageo wascompelled to launch a tender offer forall the remaining shares in Shuijingfang.UBS acted as offshore adviser to Diageoon the deal.

DAVID Cameron yesterday called onKen Livingstone to publish the fulldetails of his tax arrangements, say-ing Labours candidate owes thiscountry transparency about his taxesand about his company.

He also joked about Labourin-fighting over their candi-date, adding: I dont muchagree with what Lord Sugar

has to say, but when he saidLondoners should not backKen Livingstone, he wasspot on.

Livingstone has beendogged by accusationsof hypocrisy after itwas revealed that hepaid himself througha company calledSilveta Ltd, allegedlyto reduce the size ofhis tax bill.

Cameron callson Ken to issue

full tax returnAlthough he has published theincome taken out of the company hehas yet to detail the earnings that werepaid into it.A spokesperson for Ken Livingstone

said further publication was unlikely:With one week until the electionwere focusing on the issues that mat-ter to Londoners cutting the fares,reinstating a London education main-tenance allowance and putting morepolice on the streets.

Cameron has repeatedly returned tothe topic of Livingstones tax arrange-ments, saying last week: The Labourcandidate for Mayor is paying less onhis earnings than the people whoclean his offices. I think thats dis-

graceful.With just one week to gountil polling dayLivingstones team arefocussing all their effortson associating BorisJohnson with his unpopu-lar Conservative party, call-ing on London not to letthe Tories get away with it.

LAURALEAN/CITYAM

Livingstone has yet todisclose his full accounts

MAYOR Boris Johnson yesterdaypromised to generate 1,000apprenticeships every week overthe course of the next mayoralterm if he is elected on 3 May double his existing commitment.

Were going to create 200,000jobs and it is absolutely vital thatyoung people in London shouldhave the skills, motivation andattitude to get the jobs when theyare created, he said.

Apprenticeships are so

Boris pledges to create at least1,000 apprenticeships a week

BY JAMES WATERSON important because theres no pointin creating jobs if theyre taken by

talented people coming in fromother countries.

Companies including Microsoft,HSBC, Virgin Media have offeredapprenticeships under Johnsonsscheme.

The Mayor also revealed to youngapprentices in Lambeth that hisfirst job was campaigning againstthe Greater London Council in the1980s but he quit after realising hedidnt actually believe in thecause he was espousing.


Boris Johnson says 84 per cent of apprenticeships are converted into real jobs

BY JAMESWATERSON

MAYORALELECTION

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EU demands above

inflation budget riseTHE EUROPEAN Commission (EC)yesterday called for a 6.8 per centincrease in the EUs budget ademand the UK vowed to fight.

Commissioners have beenpushing member states to cut theirown budgets, arguing sustainedfiscal discipline is necessary toovercome the debt crisis.

However, it wants member statesto give it 136bn (111.3bn) in 2013,an increase of 6.8 per cent.

Commissioner JanuszLewandowski argued the budgetwill focus on investment and act asan anti-crisis package.

We will not restore growth by

cuts only; Europe needs to investwisely for its own future starting

BY TIM WALLACEtoday, he said.

However, UK Treasury ministerMark Hoban said the planned rise isunacceptable at a time whengovernments across Europe aremaking difficult decisions on publicspending.

We will be pushing for a morerealistic budget that recognises theeconomic reality facing Europe.

Analysts at Open Europe describedthe ECs opening demand as anegotiating tactic.

The EC have established anoutlier, and in negotiations hope itwill end up with something morethan zero, said Mats Persson.

For the UK, even half that risewould be unacceptable, and really

anything other than a freeze will beseen as a negotiation failure.


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ECBs Draghi wantsto boost lending

Draghi tells Eurozone leadersto focus on pro-growth reformTHE EUROZONES governmentsneed a growth compact to boosttheir economies, European CentralBank (ECB) boss Mario Draghi saidyesterday, as the bank revealed its1 trillion (818bn) cash injectionhas not helped lending as much asfirst thought.

There are growing expectationsin financial markets that the ECBwill have to ride to the rescueagain with Spain under intensepressure, the Dutch governmenthaving collapsed over budget plansand the latest data showing theEurozone is being driven back intorecession.

However, the word from thecurrency blocs central bankers isvery different having pumpedbanks full of cheap money

BY HARRY BANKSthrough its three-year long termrefinancing operations (LTROs) inan effort to avert a credit crunch,the ECB says governments andbanks have been given space to cutdebt and clean up balance sheets.

Draghi called for Eurozone statesto pursue growth-enhancingstructural reforms.

Weve had a fiscal compact.Right now what is most presentin my mind is to have a growthcompact, he told theEuropean Parliament, callingfor this to be founded onEuropes six pack of tighterbudgetary rules.

He also pressed leadersto pursue structuralreforms to help

generate this growth, saying theECBs contribution was to deliverstable prices.

Are we doing all we can forgrowth? Our task is not that. Ourtask is to ensure price stability andthrough this contribute to growth.Thats what I think we aredelivering, he told MEPs.

Meanwhile the ECBsquarterly lending surveyshowed a smallimprovement in the supplyof credit since the LTROstook place, but a lack ofdemand to take it up.

A net balance of 30 percent of banks reported

falling demand forbusiness loans, asinvestment isfalling across the

currency area.

HOLLAND will not hit its budgetdeficit target this year, Fitch warnedyesterday, but should retain its topcredit rating as its national debt iswell below that of heavily indebtednations like the UK and Germany.

Fitch expects the deficit will comein at 4.5 per cent of GDP this year,and could miss next years three percent target as a result of budgetnegotiations breaking down.

The main reason for the highdeficit is the weak state of theeconomy Fitch expects a 0.8 percent contraction this year, hittingtax receipts and raising spending.

However, its triple-A credit ratingshould be safe, as its total debt, at65.2 per cent of GDP, is significantlybelow that of its larger triple-A peers,

Germany, France, the UK and the US[all above 80 per cent].

Dutch triple-Arating is safe

BY TIM WALLACE

US corporate results round-upBOEING posted a higher-than-expected quarterlyprofit yesterday, helped

by an increase incommercial airplanedeliveries, and the

worlds largestaerospace and defencecompany raised its

earnings forecast for theyear.

Boeings first-quarter

net profit rose to $923mfrom $586m a yearearlier. Earnings were$1.11 per share, beatingthe average estimate of94 cents.

Boeings profit beats expectations

CATERPILLAR reporteda 29 per cent rise infirst-quarter profit

yesterday as the firmrelied on its growingmining business andsales to US buyerslooking to replaceequipment.

Caterpillar said netearnings were $1.6bn,or $2.37 per share,

compared with $1.2bn,or $1.84 per share, ayear earlier. It said thefirst-quarter EPS figure

was its highest onrecord.

Caterpillar boosted by mining division

TWO major US airlines,US Airways and Delta,reported operating

losses for the firstquarter yesterday as fuelcosts increased, but

both said there wassolid demand ahead ofthe summer season.

US Airways Group,which saw a smaller lossthan estimates, cited

overall strength inpassenger demand.Delta Air Lines said it

expects profits for thefull year despite higherfuel prices.

Delta and US Airways hit by fuel hikes

HARLEY DAVIDSONreported a stronger-than-expected rise inquarterly profit

yesterday, saying the USeconomy is on themend, youngcustomers areembracing its brand

and it will ship moremotorcycles this yearthan it had expected in

January.Net earnings rose to

$172m, or 74 cents pershare, from $119m, or51 cents per share, a

year earlier.

Harley bullish as US sales increase

DR Pepper SnappleGroup posted a lowerquarterly profit thatmissed Wall Streetestimates yesterday ashigher commodity costshurt margins, but thesoft drinks maker stood

by its full-year targets.

The maker of Sunkistand 7UP sodas, as wellas its namesake

beverages, earned$102m, or 48 cents ashare, for the firstquarter, down from$114m or 50 cents ashare, a year earlier.

Dr Pepper misses Wall St estimates

SPRINT Nextel posted aquarterly loss

yesterday that wasnarrower than manyon Wall Streetexpected as its wirelessoperating income was

boosted by weaker-than-expectedsubscriber numbers,

which helped savedmoney. Sprint, thethird-largest US mobileservice provider posteda loss of $863m, or 29cents per share,compared with a lossof $439m, or 15 centsper share, in the year-ago quarter.

Sprint Nextel sees losses narrow

IN BRIEFGreece clamps down on fraud

n Greece has stopped variousbenefits, including pensions, to200,000 people who lied to get theirmonthly cheques or were in fact dead,a labour ministry official saidyesterday. The number is roughly twoper cent of the Greek population.Debt-laden Athens discovered thefraud after beginning basic data crosschecks and means-testing, underpressure from its international lendersto cut its deficits. The governmentterminated payments to families that

continued to receive the pensions oftheir dead seniors. It also stoppedbenefits to wealthy recipients whohad posed as poor to become eligible.

EU approves Hungary plans

n The EU opened the way to talkswith Hungary on financial aidyesterday, ending a five-monthdispute over the independence of itscentral bank, but it kept pressure onPrime Minister Viktor Orban by

sending a row over the judiciary toEuropes top court. The EuropeanCommission said it was satisfied withBudapests assurances that its centralbank law would be brought back inline with that of the European Union,allowing Hungary to discuss aprecautionary International MonetaryFund loan to stabilise its indebtedeconomy.

Germany fails to sell all bonds

n Bund futures fell yesterday andsome investors shunned a sale of new

German 32-year bonds, as therelatively low risk they carry provedinsufficient to compensate for ultra-low returns. Germanys 2.405bn(1.96bn) sale of bunds drew fewerbids than the total volume offered,meaning the sale was technicallyuncovered. This was the second poorbund auction in two weeks after abenchmark 10-year sale suffered thesame fate, showing that investors maybe getting more picky about theirsafe-haven purchases.

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IN BRIEFCorrection

n An article in yesterdays edition ofthe newspaper incorrectly attributed aquote to Moodys chief credit officerAlastair Wilson. The quote began: Itsincumbent on all of us, including

ratings agencies, to do the role weplay... It and the response to aquestion by Andrew Leadsom MP wasin fact said by Fitch managing directorDavid Riley. City A.M. apologises forthe error.

Lloyds sells 1.4bn SME bond

n The government fully guaranteed1.4bn of debt raised by Lloyds bankyesterday to put towards the Treasuryscredit easing programme. The bank willpay 1.5 per cent on the five-year bond,lower than its normal borrowing costs,but it has a duty to pass on the cost-savings to small businesses in the formof cheaper loans. It will also pay a feeto the government for participating inthe programme. The scheme forms partof the Treasurys efforts to get smallfirms to invest and hire.

Luxury division cushions PPR

n French luxury and retail group PPRposted a rise in first-quarter revenueyesterday, helped by buoyant luxurysales, which offset sluggish growth atits retail outlet Fnac and sports andlifestyle company Puma. The luxurydivision, which includes Gucci and YvesSaint Laurent and accounts for almosthalf of company sales, grew 17.8 percent stripping out acquisitions and cur-rency fluctuations, due to stronggrowth in mainland China and touristpurchases in Europe and the US.

DRUGMAKER GlaxoSmithKline (GSK)said yesterday its $2.6bn (1.6bn) bidfor long-time partner HumanGenome Sciences was full and fairand it was the only obvious owner forthe US biotechnology firm.After releasing disappointing first-

quarter results, and revealing plans toraise its targeted buyback in 2012 to

between 2bn and 2.5bn frombetween 1bn and 2bn previously,Britains biggest drugmaker insistedits $13 a share offer was generous.Chief executive Andrew Witty playeddown the possibility of increasing theprice.We absolutely believe that weare the compelling owner for this

business, he said on a conference call.We have the rights and the opera-

tional control for the three mainassets and we believe this is the righttime to maximise value for both setsof shareholders.

GSK is emerging from a troughcaused by patent expiries, but it strug-gled to grow in the first quarter, when

Glaxo defends

bid for partneras ups buyback

BY HARRY BANKSrevenue increased just one per cent less than expected due to pressureson its business from government pricecuts in Europe.

Investors were disappointed by theresults, which were flattered by thesale of US rights to a bladder drug thatadded some 170m to turnover.Witty reiterated that GSK was well

on track to return to sales growth overthe whole of 2012, after a difficult few

years, with gradually improving mar-gins. Quarterly sales were 6.64bn,generating core earnings per share(EPS) up five per cent at 27.3p.

PREMIER Foods, Britains biggest foodmanufacturer, said yesterday that f irst-quarter sales rose slightly and itscost-cutting and restructuringprogramme was on track.

The maker of Bisto gravy and Hovisbread, which has been worki ng to turnits business around, said the consumerenvironment would be less challengingthan 2011, and it would continue todivest some businesses. Quarterly salesrose one per cent to 427m.

Our focus for 2012 remainsunchanged, to stabilise the business and

invest in our recovery, said chiefexecutive Michael Clarke, who joined

Premier Foods from Kraft lastSeptember.

Food manufacturers are facingpressure on margins from the risingcosts of ingredients and raw materials.

Premier Foods, whose debt hadballooned following th e acquis itions ofRHM and Campbell Soups UK and Irishbusiness in 2006, h as been selling asset sand cutting costs and jobs. Premier saidit would continue to concentrate oneight key brands: Ambrosia, Batchelors,Bisto, Hovis, Loyd Grossman, Mr Kipling,Oxo and Sharwoods.

The companys shares, which have

nearly tripled since January, fell almostfive per cent to 15.75p yesterday.

BY CITY A.M. REPORTER

GlaxoSmithKline PLC


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BRITISH industrial conveyor beltmaker Fenner yesterday reporteda higher first-half profit on strongdemand from its energy andmining customers, and said it wasconfident of continued progressthrough the year.

Trading was very strong in thefirst half as growth drivers in ourcore businesses remainedpositive, chairman Mark

Abrahams said in a statementyesterday.

Our order book remainshealthy, we are trading inaccordance with expectations and

we remain confident in our ability

to continue to make progress inthe second half, he added.

Fenners profit rise powered

by energy and mining sectorsBY CITY A.M. REPORTER For the six months to 29

February underlying pre-tax profitjumped 53 per cent to 48.1m.

Sales at Fenner, whose belts arepredominantly used in the miningindustry, were 24 per cent higherat 412m. The company had saidlast month it expected asignificant rise in first-halfprofits. The strong resultsprompted Fenner to increase itsinterim dividend by 32 per cent to3.5p per share. Fenner, an expertin the use of polymers, grewrapidly in the 1990s with tworights issues. Fenner Groupemploys over 3,700 people

worldwide, with annual turnoverin excess of 400m and is

administered from headquartersbased on the outskirts of Hull.

BRITISH Airways is launching a new route between London City airport and Aberdeen,with three return flights per day. BA CityFlyer will operate the service starting inSeptember, in addition to the seven return flights it already runs between Heathrowand the Scottish city.

BRITISH AIRWAYS LAUNCHES NEW ROUTE

Losses worsen at airport ownerBAA on pension scheme chargesAIRLINE owner BAA saw its losses

widen in the first quarter of theyear as a pensions chargehammered its bottom line.

The firms pre-tax loss grew 9.4per cent to 231.3m in the quarter,as the firm booked pensioncharges worth 128.9m as itsdefined benefit scheme movedfrom a surplus into a deficit.

It said the slump, whichbrought with it extra costs, is dueprincipally to the impact of

BY MARION DAKERS changes in forecast inflationrates.

Employment costs rose 12.4 per

cent to 89.6m, and BAA warnedthese costs will remain higher thanfirst forecast throughout 2012thanks largely to the pensionscheme.

When those exceptionalexpenses are stripped out, the firmposted an adjusted pre-tax loss of80.7m for the quarter slightly

better than the 107.7m loss postedfor the same period last year.

Revenues rose 11.5 per cent to

537m as BAAs fees rose andpassengers spent more while at thefirms airports, which include

Stansted, Southampton andGlasgow.Heathrow, Europes busiest

airport, grew passenger numbersto 15.7m, up 4.4 per cent on thesame quarter last year.

Chief executive Colin Matthewssaid the results show Heathrowremains resilient in a challengingeconomic environment and thatits US market continues to perform

well.

THE FUTURE of Four SeasonsHealth Care, Britains largestcare homes operator, is set to bedecided in the coming days

following talks with possiblebidders.Guy Hands Terra Firma is

believed to be in talks with FourSeasons, as well as a consortiumof Patron Capital and FormationCapital.

Four Seasons is tradingprofitably and the bedoccupancy rate is around 89 percent but it has debts of 780m.Its options include refinancing

Four Seasons closes in on anew debt deal with lenders

BY PETER EDWARDS loans, raising new equity fromexisting and new investors, or acombination of these options, toensure it has adequate funds

before its debt matures inSeptember.

A spokesman said yesterdaythat there would be no impacton continuity of care at thefirm.

In 2009 Four Seasons halvedits debt by exchanging it forequity, a deal that resulted inRoyal Bank of Scotland takingclose to a 40 per c ent stake inthe company.

RBS, Terra Firma and Patrondeclined to comment.

Sales increase at Bisto and Hovismanufacturer Premier Foods

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NASDAQ OMX declared its first

quarterly dividend yesterday, butsaid first-quarter net earningsdeclined due in part to lower UStrading volumes for stocks andderivatives.

The exchange operator said itwould pay a quarterly dividend of13 cents a share, a two per centyield, reflecting its strong cash flowand capital generation. It also saidit would continue to repurchaseshares.

It is a material dividend, but it isrelatively conservative, said EdDitmire, an analyst at Macquarie.Its the lowest payout ratio of anydividend-paying exchange, so thatmeans itll have plenty of room toraise it in years to come.

The Nasdaq Stock Market parentsaid it earned $85m (53m), or 48cents a share, in the first quarter,down from $104m, or 57 cents a

share, a year earlier.Stripping out an impairment

charge and expenses forrestructuring and strategicinitiatives, Nasdaq said it hadearned 61 cents a share, on par witha year earlier.

Analysts on average expected theNew York-based company to earn 63cents a share.

Revenue at Nasdaq fell to $411mfrom $413m . Analysts expected$418.6m.

Nasdaq upbeatas declares itsfirst dividend


OVERSEAS expansion helped cush-ion Spanish bank BBVA from theworst of the crisis in its home coun-try as it yesterday revealed a betterthan expected 1.01bn net profit forthe first quarter.

The smaller than expected 13 percent decline in profit from 1.15bna year earlier was largely thanks toits performance beyond Spain.

BBVA, Spains second-largestbank, earned430m from Mexico,370m from South America and229m from its Eurasia division,compared to just 229m in its

home market in the three monthsto the end of March.

The bank also revealed that ithad managed to hit its core tier onecapital target two months ahead ofthe end of June deadline imposedby the European Banking Authority(EBA). The lender said it hadachieved a core capital ratio ameasure of resilience of 10.7 percent, higher than the EBAs nineper cent target.

However, BBVA also said that it

Overseas unitshelp to protect

profit at BBVABY KATIE HOPE

had had to set aside about 1.5bn inprovisions against Spanish property a key concern for investors.

The bulk of the writedown wouldbe made in coming quarters, chiefexecutive Angel Cano said. Despitethe provision, analyst JP Morgansaid BBVA was lagging rivalSantander in the property clean-up,with coverage of capital againstproperty assets at 34 per centagainst Santanders 50 per cent.

Spains latest banking reform,introduced in February, urgedbanks to put aside around 54bn ofprovisions for property losses.BBVAs shares closed up 2.2 per cent.

Banco Bilbao Vizcaya Argentaria S.A.


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HSBC will announce that it isculling 2,000 jobs in the UK thismorning as part of its programme

to cut 30,000 roles by the end ofnext year.

The cuts will include someLondon-based jobs in wealthmanagement, which it isunderstood the bank is shrinkingin response to the retaildistribution review (RDR), a newset of regulations on investmentmanagement that will come intoforce next year.

HSBC expects the RDR to shrinkthe revenues it can generate from

HSBC to slash 2,000 UK jobsin global cost-cutting spree

BY JULIET SAMUEL the wealth management division.Many of the other cuts will fall

on IT and retail positions as partof the strategic review that kickedoff last year, which is now in its

second phase.Job cuts have already fallen on

the banks businesses in HongKong and the Middle East as partof chief executive Stuart Gulliversefforts to cut costs by slimmingdown the bank.

Staff will be told this morningwhether their jobs are on the line.

HSBC, which employs 52,000 inBritain, made a profit of $3.5bn(2.1bn) in its British businesseslast year, up from $2.4bn in 2010.

Stuart Gulliver is trying to improve returns by cutting costs

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GERMAN business software group

SAP fell short of expectations forsales of a new database productcalled Hana, raising concerns aboutthe success of the product andsending SAP shares down against thesector trend.

Although the worlds biggestmaker of business software said itsaw strong momentum for its mainproducts, including Hana and itsmobile software unit, and kept itsfull-year outlook, its shares lagged arise in the technology sector as awhole.

The company and its investorshave high hopes Hana will snatchmarket share from main competitorOracle, but Hana and the mobilesoftware unit another area whichSAP sees as potentially key infuture only fetched49m in salesin the first quarter.

Hana came to market last year and

generated 160m in sales throughthe end of 2011. SAP wants to doublerevenue from the product to 320mand double sales from mobilesoftware to 220m.

Software firmSAP maintains2012 forecasts


GETTY

THE Worlds largest mobile net-work gear maker Ericsson report-ed first-quarter core profit aboveexpectations yesterday as it got aboost from higher margin net-work projects.

But it warned that operatorsremained cautious on spendingdue to the weak global economicoutlook.

Earnings before interest and tax,excluding the companys loss-mak-ing joint ventures, but includingrestructuring charges, were 2.8bn(257m) Swedish crowns versus amean forecast of 2.5bn.The telecoms equipment market

recovered strongly through mostof 2011, but the final quarter sawrenewed concern about globalgrowth and, for Ericsson, a shift inbusiness that cut deeply into mar-gins.

The fi rst quarter saw no changein the trends and sales in the com-panys key networks unit weredown 18 per cent year-on-year.

In the quarter, business trends

Bolt runs Virgin Mediato record first quarter

BY HARRY BANKS from H211 (the second half) pre-vailed with cautious operatorspending in regions with macro-

economic or political uncertainty,the company said in a statement.Total sales were 51bn crowns

against a forecast of 52.9bn.Ericssons gross margin did

improve, however, to 33.3 per centfrom 30.2 per cent, accounting forthe positive profit surprise.The company said the quarter-on-

quarter rise in gross margin wasdue to seasonal effects, a greatershare of higher margin capacityexpansion projects and a lowershare of services business.

Ericsson beats hopesdue to margin boost

VIRGIN Media yesterday reportedrecord first quarter revenues as itraced past the 1bn line on theback of a prominent ad campaignfeaturing Usain Bolt.The Branson-branded media

company grew revenues 2.4 percent to just over 1bn while oper-ating income climbed 18 per centto 131m.Virgin Media boasted its lowest

customer churn in two years as itreported gaining 21,200 net newcustomers in the period, itsstrongest growth in two years.The Usain Bolt advertising cam-

paign was the most recognisedadvert in February, the companysaid.

But while boosting customerretention figures, the expensivecampaign dented the firms free

BY LAUREN DAVIDSON

Virgin Media Inc


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GERMAN engineeringconglomerate Siemens slashed itsfull-year outlook yesterday afterincurring another major chargerelated to delayed offshore windpower projects in the second

quarter.The announcement comes a day

after Siemens named a new chieffor the affected PowerTransmission division, having

Siemens cuts full-year outlookas delayed wind projects weigh

BY CITY A.M. REPORTERousted the units former chiefexecutive Udo Niehage.

We are addressing the problems(at Power Transmission)systematically, group chiefexecutive Peter Loescher said afterSiemens reported a two-thirds dropin fiscal second-quarter net profit

from continuing operations to1.05bn. Siemens now sees netprofit from continuing operationsfor the fiscal year throughSeptember at 5.2bn to 5.4bn.

LG ELECTRONICS, the worldssecond-largest television maker,more than trebled its quarterlyprofit to $393m on improvedmargins and a pick-up in high-endTV sales, underscoring SouthKoreas dominance in an industryonce ruled by Japanese rivals.

LG had a more than 13 per centshare of the global televisionmarket in the fourth quarter,according to DisplaySearch, and

will launch a 55-inch flat-screen TV

using the latest technology inEurope next month, earlier than it

Sales of high-end televisionsboost income at LG Electronics

BY CITY A.M. REPORTER had originally planned, a sourcefamiliar with the matter said.Quarterly profits from the TVdivision nearly doubled to 217bn

won, and margins jumped to 4.1per cent.

LGs handset business reported asecond consecutive profit, of 35bn

won, after six quarterly losses, butprofitability remains near

breakeven as sales of its Optimusline-up failed to win customersaway from the Galaxy and ApplesiPhone.

January to March operating

profit jumped to 448bn won from131bn won a year ago.

REGIONAL newspaperpublisher Johnston Pressposted a seven per cent fall inits underlying profit asadvertising revenuecontinued to fall amid atough economic climate.The company, whichpublishes the Yorkshire Post,also said it had reached anagreement with lenders topush the maturity of its debtto September 2015 from 2012

and had signed a new 393mdebt facility.

Johnstonsprofits fall



Siemens chief Peter Loescher saw second quarter net profit drop over 66 per cent

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