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Businessesback return

of O-levelsBUSINESS groups last night wel-comed the news that educationsecretary Michael Gove wants todrop GCSEs and bring back tradi-tional O-level exams in an attemptto boost academic rigour.

Businesses have steadily lost con-fidence in the ability of the educa-tion system to deliver young peoplewho are ready for the world ofwork, said Adam Marshall of theBritish Chambers of Commerce.

If this is a route that leads moreemployers to say more young peo-ple are ready for the world of work,then it will have been successful.Yesterday Gove told the House of

Commons he wants to tackle theculture of competitive dumbing-down and see every student inthis country able to take world-classqualifications.

Neil Carberry, head of education& skills policy at the CBI, said thatrigorous standards are essential ifan exam system is to produceyoung people with the right skills,attitude and aptitude to succeed inthe workplace. We are concernedthat GCSEs in their current form

may not be delivering onthese requirements.

But Gove faces a struggleto implement the propos-

als as the Lib Demshave signalled theywill fight the changes,

in another blow tothe unity of thecoalition.

BRITISH banks were among 15 globalfinancial institutions hit by a sweep-ing set of downgrades from ratingagency Moodys late last night.

Barclays credit rating was cut twonotches, while HSBC and RBS eachhad a notch knocked off their ratings.

In a separate but concurrentannouncement, Lloyds also had itsrating downgraded by one notch.The move had been widely expect-

ed throughout yesterday evening,but nonetheless threatens to cost theworlds biggest lenders billions inextra borrowing and collateral costs.The Dow Jones in New York

endured its second worst day of theyear, with some banks closing downon fears of an impending downgradefrom Moodys.

I expect the FTSE will open downthis morning by around 50 points,commented Joshua Raymond of CityIndex late last night.There was some relief after the

announcement for Morgan Stanley,however, which saw its rating cut byjust two notches a less severe ver-dict than the three-notch cut thatMoodys had previously threatened.

Morgan Stanley shares gained justover three per cent in after hourstrading, following the statement.

The harshest knock was dealt toCredit Suisse, which was listed as theonly bank to be downgraded by threenotches. The decision adds to a mis-

erable fortnight for the lender, afterthe Swiss National Bank said lastweek that Credit Suisse must bolsterits capital buffers more quickly.

All of the banks affected by todaysactions have significant exposure tothe volatility and risk of outsizedlosses inherent to capital markets

activities, warned Greg Bauer, abanking director at Moodys.Yet many banks are expected to

publish retorts today, in a bid to

defend their credit worthiness. Lastnight Lloyds was the first to react:

We believe this change [to ourcredit rating] will have limitedimpact on our funding costs andmarket capacity, Lloyds said. It isimportant to note that Moodys hasconfirmed that Lloyds short-term

funding rating remains unchanged.RBS also hit back: The group dis-agrees with Moodys ratings change,which the group feels is backward-

looking and does not give adequatecredit for the substantial improve-ments... made to its balance sheet,funding and risk profile.

Moodys had announced in midFebruary that a review was under-way into global investment banksratings, arguing that existing ratings

did not adequately take into consid-eration the more fragile fundingconditions, wider credit spreads andincreased regulatory burdens.

BY JAMES WATERSON

FTSE 100 M5,566.36 -55.93 DOW M12,573.57 -250.82 NASDAQM2,859.09 -71.36 /$ M1.56 -0.01 / 1.24 unc /$ M1.25 -0.01

BUSINESS WITH PERSONALITY

LONDON2012

days to go

FRANKIE DETTORI WINS THE GOLD CUP ON COLOUR VISIONSee Page 30

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Michael Gove wantsto reform exams

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Follow me on Twitter: @allisterheath

IN BRIEFUK rejects European pension plannBritain rejected EU pension plans in

the strongest terms yesterday, withminister Steve Webb vowing there willbe no compromise on Solvency II.Webb described the rules as pointless,and catastrophic, as they wouldeffectively mean the end of final salarypension schemes and cost UK firmshundreds of billions of pounds. Theplans are based on insurance regulationsthat force firms to hold a capital bufferagainst short-term shocks somethingwhich pension funds are less likely toface, thanks to the long-term nature oftheir business. However, the governmentneeds more allies to oppose the move,as even the combined opposition of theUK, Germany, the Netherlands andIreland is not enough to defeat themeasure under the EUs voting system.

Greece may be dropped from MSCI

n Crisis-racked Greece has become thefirst country to face the threat ofrelegation to emerging market statusfrom the elite league in MSCI's equityindices, although the index provider saidyesterday any such move is unlikelybefore 2014. Analysts say that anydowngrade would likely happen only ifGreece exits the euro, a scenario thecountry's new coalition government iskeen to avoid. MSCI, which has $7 trillion(4.46 trillion) benchmarked against itsindices globally, said yesterday thatGreece was no longer in line withmarkets' size requirements. It also saidGreek authorities had not addressedconcerns over certain transactions. MSCIcriteria include investor access, marketsize and liquidity, and the country'soverall wealth.

REUTERS

Spain needs up to 62bnto save struggling banksINDEPENDENT auditors said yester-day debt-laden Spanish bankswould need up to 62bn in extracapital to enable them survive theeconomic crisis.

The result of the independentaudit of Spains banks put the gapin their finances at between 16bnand62bn similar to the 50bncalculated by the InternationalMonetary Fund (IMF) two weeksago, but well below the maximumof100bn that Eurozonegovernments have already offeredSpain to bail out its banks.

Yesterdays independentassessment of Spains banks, byRoland Berger and Oliver Wyman,will be used by the government inMadrid to calculate the final sumwhen it makes its formal petitionfor bailout money from Europesrescue funds.

Madrid's economy minister saida formal request would be madein days for the bailout, which wasagreed two weeks ago.

The Bank of Spain said the100billion euros offered to Madridtwo weeks ago would give a widemargin of error. Spains threebiggest banks would not needextra capital even in a stressedscenario, it said. The governmentsaid it did not expect to shut any

THE EUROPEAN Central Bank isdiscussing a medium-term plan toscrap rating rules on Eurozonesovereign bonds and instead settheir value when used as collateralin lending operations on its owninternal assessment, central banksources said yesterday.

The discussions come as Spainbraces for a downgrade from smallrating firm DBRS, which without achange in ECB rules will trigger anextra five per cent penalty onSpanish bonds when used to getultra-cheap ECB funding.

ECB members have heavilycriticized the actions of ratingagencies during the Eurozone crisisand have vowed to reduce relianceon their assessments.

In the case that the ECBGoverning Council decides this, it

would reduce the widely criticizedinfluence of Standard and Poors,Moodys and Fitch, said onecentral bank source, speaking onthe condition of anonymity.

On the other hand, this couldalso expand the shrinking pool ofcollateral which banks in troubledcountries have available.

The decision on more immediatechanges to help squeezed Spanish

banks, such as expanding the rangeof debt backed securities acceptedas collateral, remains wide open,said another central banker.

ECB may scrap

credit ratings onEurozone debt

Spains Prime Minister Mariano Rajoy is trying to ease concerns over its debt-laden banks

2 NEWS

BY HARRY BANKS

BY KATIE HOPE

To contact the newsdesk email [email protected]

FOR the first time in livingmemory, Britain has agovernment that is on the brinko f d e l i v e r i n g h u g e

improvements to the state educationsystem. Michael Gove, the secretary ofstate, has a masterplan: he wants toaxe GCSEs, replace them with much

tougher O-Levels, introduce analternative vocational qualificationand sweep away the nationalcurriculum. Yet once again thecoalition could be about to snatchdefeat from the jaws of victory,courtesy of the Liberal Democrats.

Let us hope Gove is able to see off hisenemies. Primary and secondary edu-cation is the only real success storythat this otherwise shambolic govern-ment can boast of. Reversing 40 yearsof failed dogma by reintroducingproper exams and ending dumbingdown and grade inflation is exactly

EDITORSLETTER

ALLISTER HEATH

Cameron must back Gove for the sake of Britains children

FRIDAY 22 JUNE 2012

the kind of change this country needsif it wants to be able to provide oppor-tunities for its citizens in a globalisedworld. Children in Singapore alreadytake British O-Levels; if it works forthem it should for us.

It is a scandal that Nick Clegg is upin arms over the plans; and it isdeeply depressing that some ofCamerons advisers, desperate to keeptheir man in power at any cost, aretrying to scupper such a radicalimprovement. It is time for the Tories

to put the country first and stopworrying about the Lib Dems, whoare merely the junior partners in thecoalition. The shake-up doesntrequire any legislation; so unlessCameron orders Gove not to imple-ment the change tragically, a realpossibility there is nothing the Lib

Dems can really do to stop it.Gove, unlike many in politics, trulycares about the poor, about building ameritocratic society and about revers-ing the economic and culturaldecline that is crippling this country.Employers know that millions cantspell or write properly. Mass educa-tional failure is one of the greattragedies of modern Britain; it is thebiggest reason for insufficient socialmobility and the scourge of inheritedpoverty. There are tens of thousandsof hard-working, brilliant teachers inthis country but they stand no

impact on funding costs but suchcosts would reflect real risks, notsome Alice-in Wonderland fantasythat nothing can ever go wrong. It isvital that governments sever their tiesto their banking systems, which mustbecome entirely private once more.That is the only way to prevent bank

failures from dragging down entirecountries, as happened in Ireland.Just as importantly, getting rid ofimplicit guarantees is vital to re-estab-lishing confidence in capitalism: theidea that high-paid financial jobs aredependent on the taxpayers largesse,with gains privatised and lossesnationalised, has helped fuel hatredtowards the City. Last nights bankingdowngrade is a major story but it isnot an unmitigated catastrophe.

chance against the ideological non-sense, the bureaucratic incompetenceand the self-interest of the education-al establishment. If Cameron gen-uinely wants to be remembered as areformer, he must back Gove.

DOWNGRADE NOT ALL BAD

There are unhealthy as well as posi-tive reasons for the banking creditdowngrade. The Eurozone crisis andglobal slowdown means that banksare more likely to make losses, mayfind it harder to raise funds and aretherefore riskier. This is entirely bad.

But the fact that some countries arereducing their guarantees towardstheir banking sector is excellent news even though that means that bankbonds are more likely to lose some oftheir value, and are therefore nowdeemed riskier.

In both cases, there may be an

banks and would restructure thosein trouble.

In Luxembourg, finance ministersdecided Spain should initially applyto the Eurozones temporary rescuefund, the European FinancialStability Facility, with the loantaken over by the permanentbailout fund the European StabilityMechanism (ESM) once it is up andrunning after 9 July.

The financial assistance will beprovided by the EFSF until the ESMbecomes available, and then it willbe transferred to the ESM, Jean-

Claude Juncker, who chairs theEurogroup of finance ministers,said.

This solution should avert aproblem which had concernedinvestors: debt issued by the ESMmust be paid back first in case of aSpanish default, relegating privatecreditors lower in the pecking order.Because the new bailout debt willoriginate from the EFSF it will beissued without that requirement,assuaging investors concerns.

EUROZONE CRISIS: Page 6nn

RBS suffers blow over branches dealRoyal Bank of Scotland is set to receive upto 300m less than it expected for apackage of branches it is selling toSantander UK because the business hasfailed to hit a number of targets outlinedin the deal. A sharp deterioration in theeconomy since the sale was struck inAugust 2010 has constrained theprofitability of the business, whichconsists of 318 branches.

Brussels acts over garlic taxThe European Commission is taking

Britain to court in a battle over an unpaidbill of millions of pounds in duty onimports of garlic. The EuropeanCommission announced legal action afteran ultimatum to pay 15m to Brussels orface action in the European Court ofJustice expired .

Triton in European Directories offerTriton, the northern Europe-focusedprivate equity firm, has offered to takeover European Directories afteraccumulating a sizeable share of thedirectory companys debt. Triton has overthe past six months amassed 29 per centof the firms debts, at a value of 240m.

Landlords fight for Games rentSome of Britains largest landlords arepreparing to sue PwC over theadministration of Game Group in anattempt to recoup millions of pounds ofunpaid rent.

Starbucks, for a great cuppa... tea?The worlds biggest coffee shop operatoris brewing up plans to open a tea shop.Starbucks has announced plans for a storeunder the Tazo Tea brand near its Seattleheadquarters. Starbucks has owned Tazosince 1999.

IPO rules need overhaulUS regulators should overhaul rulesgoverning how companies go public in thewake of Facebooks multi-billion dollarflotation, according to a powerfulCongressional committee.

Northerners pay 92 more for theirgas and electricity than SouthernersEnergy prices differ between regions byup to 92 a year and some of the highestcosts hit areas with the mostunemployment, a study has found.

Roche probed over safety reportsEuropes main medicine regulator said itis investigating Swiss drug giant RocheHolding for failing to properly vet 80,000reports of possible drug-safety issuesreceived from patients and doctors.

Weinstein gets new film fundingIndependent movie producer WeinsteinCo, which has struggled financially evenwhile turning out Oscar-winning films,said yesterday it closed deals for $225min new financing, giving it fresh access tocredit ahead of a production-heavy fall.

WHAT THE OTHER PAPERS SAY THIS MORNING

The new jobs website for London professionalsCITYAMCAREERS.com

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EMERGENCY measures to boost

growth blur the boundaries betweenfiscal and monetary policy and couldthreaten the Bank of Englandsindependence, top official MartinWeale warned yesterday.

The new measures include anemergency liquidity facility forbanks, and a funding for lendingscheme which allows banks toborrow cheaply from the Bank ofEngland, as long as they pass thoseloans on to firms and households.

I suspect that, pound for pound,the new interventions will do moreto support the economy than woulddeploying the same sums on furtherasset purchases, said Weale.

However, he also warned thedistinction between monetarypolicy, fiscal policy, regulatory policyand macro-prudential policy is no

longer clear-cut.As a result, if the

schemes are continuedfor an extended period,policymaking will loseits independence

unless new frameworksevolve to manage thepolicy mix.

Plans to boostloans risk BoEindependence

BY TIM WALLACE

XSTRATA urged investors to focus onthe business merits of its mega-merg-er with Glencore yesterday after aninfluential investor group issued itsmost severe warning against thefirms huge pay packages for top staff.The Association of British Insurers

issued a red top warning againstretention payments promised todirectors at Xstrata if the merger goesthrough, adding in a rare public state-ment it was concerned that the pay-outs are in no way linked toperformance.

But the ABI, whose members own

almost a fifth of the British stock mar-ket, said it had no opinion on the wis-dom of the miners merger deal, onlythe pay awards attached to it.

Xstrata plans to hand over some170m to 73 managers if they stickwith the firm following the tie-upwith commodities giant Glencore.

Chief executive Mick Davis is in thespotlight for his 30m reward forremaining in charge for three years.

Xstrata underfire for merger

bonus packageBY MARION DAKERS Shareholders in Xstrata are due to

vote on the merger on 12 July, andmust approve the pay awards if thedeal is to succeed.

The key issue for shareholders is toevaluate the business and investmentcase of this merger and determinewhether the merger ratio is fair forXstratas shareholders, a spokesper-son for Xstrata said in a statement.

Central to this evaluation are thegovernance and managementarrangements which are integral todelivery of the investment case andminimise risk to our shareholders.

Facebook settlement on ad caseFACEBOOK has agreed to allow usersmore control over how theirpersonal information is used in itsSponsored Stories ad feature, partof a deal to resolve litigation againstthe social networking company.

The value to Facebook membersresulting from the changes is about$103m, in the opinion of oneeconomist hired by the plaintiffs.

But the amount Facebook willactually pay to settle the case is justover $20m, according to courtdocuments filed on Wednesday.

A Sponsored Story is anadvertisement that appears on amembers Facebook page and

BY HARRY BANKSgenerally consists of anotherfriend's name, profile picture andan assertion that the person likesthe advertiser.

Five Facebook members filed alawsuit seeking class-action statusagainst the social networking site,saying it violated California law bypublicizing users likes of certainadvertisers without paying them orgiving them a way to opt out.

The case involved over 100mpotential class members.

Under the terms of a settlementagreement, Facebook members willbe able to control which contentcan be used for Sponsored Stories.Facebook agreed to maintain these

changes and other new disclosuresfor at least two years, according tocourt documents.

Attorneys for the plaintiffs saythe changes to Sponsored Storiesare worth $103.2m, based on aneconomists analysis of the revenueeach ad brings to Facebook. Thosefigures were redacted in the courtdocuments.

Facebook has agreed to pay $10mto organisations devoted toeducating people about how to usesocial networking technology safely.

Facebook will also pay anadditional $10m for plaintiffattorneys fees. A Facebookrepresentative declined to comment.

Xstrata PLC

21 Jun15 Jun 18 Jun 19 Jun 20 Jun

840

860

880

900

920

940 p

841.8021 Jun

NATWEST and RBS were hit by atirade of angry complaints

yesterday after technical glitches

prevented customers fromaccessing their accounts.

In a major embarrassment forthe banking group, transactions

were not processed, accountbalances were not updated andcustomers were not able to loginto online services.

NatWests Ideas Bank, a forumto encourage dialogue fromcustomers, was plastered with

Not so helpful banking: clientsfurious over glitches at Natwest

BY LAUREN DAVIDSON comments from disgruntled users.We may lose our new house

and 1,000 because of this. Theycant progress our mortgage untilthe system is available. Game

over! one person posted.RBS apologised and confirmed

no customers would remainpermanently out of pocket, whileover 1,000 NatWest branchesstayed open until 7pm.

It is unclear how many clientswere affected, but RBSs Irishbranch Ulster said 100,000 of itscustomers were hit by this majortechnical issue.

FRIDAY 22 JUNE 20123NEWScityam.com

Stephen Hesters RBS Group suffered an embarrassing loss of services yesterday

*Exc

lusions

apply.

See

in

store

fordetails.

BRENT crude oil slid nearly fourper cent yesterday, dropping below$90 a barrel for the first time in 18months as weak economic datafrom China, the US and Europepointed to slower oil demand.

A technical breakdown in crudefutures on both sides of the

Atlantic spurred further selling,with no bottom in sight, analystssaid. Brent has fallen by nearly $40a barrel since hitting $128.40 inearly March, as increasedproduction from Saudi Arabia hasled to a rise in stockpiles.

Brent crude oilhits mega low

BY CITY A.M. REPORTER

Weale warned overnew measures

Twitter takesads worldwideTWITTER will roll out itsadvertising products to 50countries by the end of this year asit focuses on building revenuesfrom its free-to-use website.

The companys promotedtrends, tweets and accounts arecurrently only available in a fewcountries, but will becomeavailable in western European andLatin American countries by theend of 2012.

The microblogging site is said tobe expecting advertising revenuesof $1bn by 2014.

BY LAUREN DAVIDSON

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Credit subject to acceptance. Credit is provided by external finance companies as determined by DFS. 4 years interest free credit from date of order. Delivery charges apply. After event prices apply from 11.06.12 - see instore or online for details. Headrest optional extra. Accent

cushions not included unless otherwise stated. Mobile charges may apply when calling 0800 110 5000. DFS is a division of DFS Trading Ltd. Registered in England and Wales No 01735950. Redhouse Interchange, Doncaster, DN6 7NA.

Visit your nearest store, order direct at www.dfs.co.uk or call free on 0800 110 5000 24 hours a day, 7 days a week

4 years interest free credit on everything

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WORKERS throughout the EUincluding Britain have the right toreclaim holiday time affected byillness, European judges ruledyesterday.

The European Court of Justiceruling was made after an appeal by aSpanish trade union.

The Luxembourg-based court saidthe EU Working Time Directivegrants workers a right to at least fourweeks paid annual leave evenwhere such leave coincides withperiods of sick leave. The UKs opt-out from the Working TimeDirective only applies to the 48-hourlimit on the working week.

Sick workers toget extra leave

BY KATIE HOPE

GETTY

LAW firms have toughed out a chal-lenging year to grow their fee incomeby an average of 6.6 per cent ahealthy increase on the previous 12months.An annual survey released today of

the top 100 law firms by global rev-enue has shown that growth inimproving across the sector despiteoperating against a backdrop of large-ly stagnant marketplaces and agloomy marco outlook.

Overall fee income across the firmspolled for Deloittes quarterly legalsector survey was up by 6.6 per cent, alarger increase than the 3.9 per centaverage rise seen in the previous 12months.

The figures for the year show a pos-itive level of fee generation, especiallywhen considering the current finan-cial climate, said Deloittes JeremyBlack.

Interestingly, the firms ranked 26-50th in the revenue leagues turned in

Law firms showstrong growth

in tough yearBY ELIZABETH FOURNIER

Rules over redundancytalks set to be relaxedTHE GOVERNMENT announcedplans to cut back red tape

surrounding large scaleredundancies yesterday, in a movewelcomed by business groups butopposed by trade unions.

Under new proposals firms willno longer have to consult employeesfor at least 90 days if planning to layoff more than 100 staff, thedepartment for business, innovationand skills (BIS) said.

The minimum consultationperiod is likely to be slashed to 45

BY JULIAN HARRIS or 30 days, while BIS wants toencourage better quality talksbetween firms and employeesthreatened with redundancy.

The reality is typically that thecompany has already made up itsmind and the consultation is just abox ticking exercise, employmentpartner Michelle Chance fromKingsley Napley told City A.M.

The Institute of Directors andBritish Chambers of Commerce(BCC) both welcomed the change.

But the TUC said it would worsenan already deeply unsettling timefor staff at risk of redundancy.

BUS routes across London are set for severe disruption today after the Unite unionpromised to go ahead with a day of industrial action. Last-gasp talks with Acas failed lastnight, and the union said workers at 17 out of 20 firms will walk out today. Three bus firmswon an injunction to prevent strike action, which Unite called an affront to democracy.

LONDON SET FOR BUS STRIKES TODAY

YEAR ENDED 30 APRIL 2012


Tier of firm 1-10 11-25 26-50 51-100 All

Increase in fee income 6.7% 6.7% 9.7% 5% 6.6%

All changes relate to the year ended 30 April 12 compared with the year ended 30 April 11

FORECAST FOR FULL YEAR 2013Tier of firm 1-10 11-25 26-50 51-100 All

Forecast fee income change

for year to April 2013 (*) 4.1% 8.7% 6.9% 4.1% 5.7%* compared with the year to April 2012

the strongest performance their feeincome shot up by almost 10 percent suggesting that so-called mid-tier firms are adjusting more readilyto new challenges that the sector isfacing.

Theres certainly more competitionas a result of the new Legal ServicesAct, said Black. With a potential sur-plus of suppliers firms need to workout a unique selling point and thinkmuch more strategically about wheretheir future, particularly when plan-ning office openings and lateral hires.The introduction of the Legal

Services Act last October has dramati-cally liberalised the UKs traditionallyclosed legal market, opening the doorto high-street players such as The Co-operative to offer legal services to their

customers.Despite the tricky background, firmsare still targeting expansion over thecoming 12 months, forecasting feeincome growth of 6.7 per cent for theirfirst quarter and an annual increase of5.7 per cent.

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G E T T Y

THE International Monetary Fundurged the Eurozone yesterday to chan-nel aid directly to struggling banksrather than via governments andcalled for the European Central Bankto cut interest rates, saying the futureof the euro was at stake.

The stark message from IMFmanaging director ChristineLagarde, delivered to Eurozonefinance ministers who met inLuxembourg, will increase pressureto forge a unified approach totackling problems at strugglingbanks such as those in Spain.

We are clearly seeing additionaltension and acute stress applying toboth banks and sovereigns in the

euro area, Lagarde said. Adetermined and forceful movetowards complete European

IMF urges bondbuys and direct

banking supportBY HARRY BANKS monetary union should bereaffirmed in order to restore faith,"she said. At the moment, theviability of the European monetarysystem is questioned.

Lagarde spelled out a plan thatenvisioned the issuance of jointlyguaranteed Eurozone debt as well asmore centralised economic controlin the 17 countries that use the euro.

As ministers prepared to provideup to 100bn in aid for Spain toshore up its stricken banks, Lagardesaid financial support for banksshould be given directly, rather thanvia the state.

Analysts believe such a modelcould entail allowing the Eurozonespermanent rescue scheme, theEuropean Stability Mechanism (ESM)

to directly inject capital into banksin return for a shareholding, or tolend at penalty rate of interest.

FRIDAY 22 JUNE 20126 EUROZONE CRISIS cityam.com

ANGELA Merkel's government and the opposition reached an agreement yesterday oneconomic growth measures for Europe that will allow Germanys parliament to approve thepermanent bailout scheme for the Eurozone and the fiscal pact next week. Merkel needsopposition support to get a two-thirds majority in parliament on 29 June to ratify the plans.

MERKEL GETS AGREEMENT ON FISCAL PACTGreek bailout wishlist sets upshowdown with Europe leadersGREECES new governmentpromised yesterday to renegotiate

the terms of the countrys bailoutwithout endangering its future inthe euro, responding to intensepressure to ease mounting socialtensions but also risking ashowdown with European powers.

The three-party coalition calledfor changes to the deal that ishelping Greece avoid bankruptcyafter the announcement of an 18-member cabinet dominated by theconservative New Democracy party

BY CITY A.M. REPORTER of Prime Minister Antonis Samaras.National Bank Chairman Vassilis

Rapanos was named financeminister and New Democracy

deputy leader DimitrisAvramopoulos became foreignminister.

Once jailed for fighting Greeces1967-74 military dictatorship,Rapanos must now cure its sickpublic finances while negotiatingwith Eurozone leaders who arelosing patience with Athens aftertwo multi-billion euro bailoutssince 2010 that have failed to endthe crisis.

The unity governments goal isto tackle the crisis, open the road togrowth and revise terms of thebailout without putting at risk the

countrys European course, nor itsEurozone membership, said apolicy document endorsed by thecoalition.

Samaras, 61, was sworn in onWednesday. At his first cabinetmeeting, the Harvard-educatedeconomist said his ministers wouldtake a 30 per cent pay cut and toldthem to use government cars aslittle as possible in an effort to leadthe debt-laden nation by example.

THE SPANISH government sawborrowing costs jump sharply in a2.2bn (1.8bn) bond auction

yesterday, as investors fled therisky assets.

Yields on five-year debt hit aeuro-era high of 6.072 per cent, upfrom 4.96 per cent a month ago.

Meanwhile French government

borrowing costs dropped asinvestors favoured the safer nation.

Investors fleeSpanish bonds

BY TIM WALLACE

THE EUROZONE current accountsurplus narrowed in April 2012,according to data from the EuropeanCentral Bank published yesterday.

Shrinking from 10.3bn to 4.6bnit was still the second highest level ofthe last year, as part of a cumulative18.8bn surplus since April 2011.

Surpluses in goods and services

were partially offset by a large deficitin current transfers.

Eurozone seessurplus drop

BY BEN SOUTHWOOD

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TROUBLED exchange operator PlusMarkets appears to have entered itsfinal weeks after finalising the saleof its stock exchange unit to ICAPyesterday.

Completion of the controversialdeal which will leave Plusshareholders with 640,000 means that the group will pressahead with plans to wind-up therest of the business.

City A.M. understands that manyof the remaining Plus staff involved

in group functions and itsderivatives exchange unit have nowreceived their redundancy notices.

Shareholders threatened to rebelover the terms of the ICAP deal,which will see executives CyrilTheret and Nemone Wynn-Evanswalk away with a 423,000 pay-offdespite the companys failure.

But ultimately investors voted infavour of the sale after Plus said theFSA would revoke its license if adeal was not agreed by yesterday.

Following the vote activistshareholder Simon Chapman toldthis newspaper he expects theboard to lose their jobs at nextweeks annual general meeting,adding there are moves afoot tocreate a new business using theshell company.

ICAP has bought Plus stockexchange as a platform that will

enable the firm to move intofutures trading.

ICAP finalisespurchase ofPlus Markets

BY JAMES WATERSON

REX

INDIVIDUAL investors will have thechance to buy bonds from FTSE 100utilities firm Severn Trent, the com-pany announced yesterday.

The company hopes to raise up to100m from the scheme, which willoffer individuals a return of 1.9 percent above retail price inflation (RPI)over the next 10 years.

Theres a lot of private investorswho have funds in SIPPs and ISAswho will be looking for products toenhance their investment, SevernTrents chief financial officer MikeMcKeon told City A.M..

Our understanding is that a flatcoupon rate would have to be at leastfive per cent and you can get a cheap-er flat rate in wholesale. But in anindex-linked market we can get bet-ter value for the company.

Given the majority of our businessis RPI-based regulated UK water utili-ty so our group is well-positioned tohave index linked products, headded.The bonds will be offered for sale

until 4 July before trading begins in

Severn Trent totarget bonds atretail investors

BY JAMES WATERSON London on 11 July. The minimumsubscription will be 2,000 and theycan be bought in 100 units. Barclaysand Investec have been appointedjoint lead managers of the issue.

Severn Trent is the fourth UK com-

pany to turn to retail-focused all-in-one bond issuing platforms to meetits capital funding needs, meetingdemand from investors who have fledweak Eurozone countries.

Other firms to offer similar prod-ucts include Tesco, National Grid andJohn Lewis. But retail bond investorsare not covered by the same compen-sation schemes that apply to savings.

Shares in the firm yesterday closeddown 1.6 per cent.

Severn Trent CEO Tony Wray knows his firm has to invest 2.5bn over five years.

Severn Trent PLC


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Severn Trents inflation-linked bond issue isthe first move by a water company into thefast-growing market for RPI-linked bonds.The deal was jointly arranged by Investecand a Barclays team that included directorsToby Croasdell of the fixed income syndicateand Charlotte Weir of corporate debt capitalmarkets. This deal means that the Barclaysteam has worked on all three of the mostrecent UK retail transactions listed on the

London Stock Exchanges Order Book for

Retail Bonds (ORB). Besides Severn Trent,this includes last Novembers Tesco Bankissue and Octobers Provident Financialbonds. In addition the team has arrangedand distributed a number of landmark retailbond issues, helped by the growing ma rketfor UK corporate issuers. Transactionsinclude National Grids 282.5m RPI-linkedbond 10-year sterling issue, the first infla-tion-linked bond listed on ORB. As an ORBmember Barclays is a market maker forbonds listed on the electronic trading plat-form. Yesterday Severn Trents Mike McKeonsaid the RPI-linked bond market was verythin at the moment but that he expectedmore use of the format, which has proved tobe a success in the US. Barclays will hopethat this means that it can profit from this

development.

ADVISERS

BARCLAYSTOBY CROASDELLCHARLOTTE WEIR

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9

Addleshaw Goddard mpartner Paul Devitt

FRIDAY 22 JUNE 2012NEWS

Worldwide M&A Ranking 2012 year-to-date (YTD)

Target Industry Breakdown (US$m)

Global M&A Volumes by Quarter (US$bn)$1,000

$900

$800

$700

$600

$500

$400

$300

$200

$100

2012 YTD

Rank

Industry Total 1,001,605

1 1 Goldman Sachs & Co 273,134 175

2 Morgan Stanley2 215,766 152

3 JP Morgan5 189,445 123

4 Deutsche Bank9 185,332 108

5 Credit Suisse4 181,524 108

6 Barclays7 159,230 97

7 Citi6 150,671 92

8 Nomura14 104,365 86

9 Bank of America Merrill Lynch3 99,354 89

10 Rothschild8 83,038 106

16,282

Rank Value

$USm

No. of

deals

2011 YTD

Rank

Financial

Advisor

2008 2009 2010 2011 20121Q 2Q 3Q 4Q 1Q 2 Q 3Q 4Q 1Q 2 Q 3Q 4Q 1Q 2 Q 1Q 2Q3 Q 4Q

666

898

795

509 492441 463

614

513545

670709

738689

558 566

498 504

19% Energy & Power$187,944m

14% Materials$141,296m

12% Financials$117,933m

9% Industirals$96,431m

9% Real Estate$87,857m

8% High Technology$78,218m

7% Healthcare$72,847m

6% Consumer Staples$61,373m

5% Consumer Products & Services$51,848m

4% Telecomms$39,332m

11% Other

LAW firm Addleshaw Goddard saidyesterday it had begun arestructuring process that could seeit lose up to 24 of its fee earners, as itreported a 37 per cent rise in profitsper partner (PEP).

Overall profits at the firm rose by 30per cent, from 34.4m to 44.9m,while PEP a key indicator of law firmprofitability increased from328,000 to 450,000.Addleshaws litigation practice

brought in the biggest share of

income, earning 37.4m for the firm,closely followed by its finance andprojects and real estate work.The corporate and commercial serv-

ices divisions lagged behind slightly,earning 29.2m and 23.4m respec-tively.The firm said the cuts to headcount

would impact across each UK officeand all five divisions.

There are continuing significantmarket pressures and

whilst our businessis in a strong posi-tion, we are deter-mined not to becomplacent, saidmanaging partnerPaul Devitt.

Addleshaws to

cut staff as feeincome rises

BY ELIZABETH FOURNIER

GLOBAL M&A volume has fallen by aquarter so far this year compared tothe same period in 2011, according toresearch unveiled yesterday.

Data from Thomson Reuters showsthat worldwide M&A volumes havehit just $1,002bn (640bn) so far in2012, a decline of 25 per cent, as theongoing uncertainty surroundingthe Eurozone crisis took its toll oninvestors.

If M&A activity is confidence driv-en then it is hardly surprising to seedepressed volumes in the first half of2012, explained Leon SaundersCalvert, head of global deals atThomson Reuters. Higher risk dealmaking in particular has suffered,including private equity buyouts andcross border acquisitions, which inturn has had consequences foremerging markets heavily reliant onforeign investment.

Governments are playing a signif-icant and direct role in driving activ-ity and indeed it is the politicians,whom the market is dependent

upon to create genuine deal makingopportunities through the healthy

Worldwide M&Avolume drops aquarter in 2012

BY JAMES WATERSON resolution of the Eurozone crisis. Thesuccess, or otherwise, of these talkswill determine the M&A pipeline forthe rest of the year and into 2013.

Banks are fighting harder than everfor a reduced number of deals but

Goldman Sachs once again toppedthe table for M&A advisory work inthe first six months of this year.

Goldman has been involved in dealsworth $273bn while Morgan Stanley,its nearest rival, could only manage$215bn. Japanese bank Nomura wasthe biggest riser year-on-year, jump-ing from 14th place to 8th.

On a regional basis the Americas ledthe way, accounting for 41 per cent ofglobal activity in the year-to-date peri-od, ahead of Europe on 35 per cent.

But this masks sluggish US perform-ance, where activity in the first halfof 2012 totalled $299bn, down 44 percent on the same point last year. Thisrepresents the slowest start to theyear for US deal making since 2003.

Energy and Power continues to bethe dominant sector and was respon-sible for a fifth of all transactions byvolume. Materials and Financials

were in second and third placerespectively.

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IN BRIEF

HOME shopping retailer ShopDirect has hired Lombard banker

Alex Baldock as its new chiefexecutive.

Shop Direct, which ownsLittlewoods and the online guiseof Woolworths, said Baldock will

join in September whenincumbent Mark Newton-Jonesretires after nine years.

Baldock, 41, has a financialrather than retail background,having worked for Barclays, Bain& Company and Ernst & Young.

Baldock has most recentlyworked as a managing director atLombard, which offers financingto smaller companies.

The Oxford graduate also has adegree from Harvard.

Newton-Jones said in Januarythat he hoped to pursue newchallenges in the medium termas he left the retailer.

Shop Direct,owned by theBarclay brothers,also runs onlineclothescompanies Veryand Isme.

Shop Directpicks bankeras new chief

BY MARION DAKERS

GETTY

THE CHIEF executive of Dixons Retailsaid the group is planning to axe afurther 40 stores on UK high streetsas it reported a 17 per cent fall in pre-tax profits to 70.8m.

Sebastian James, who replaced JohnBrowett in February, said he intendsto trim down its estate of 557 shopsto about 400 over the next threeyears, down from its previous targetof 440.The extra cut will come from its

high street stores, leaving Dixonswith just 30 to 40 shops in town cen-tres. Dixons said staff would be trans-ferred to out-of-town stores.James said many of the stores were

too small and instead Dixons wouldfocus on slightly larger urban toyshops such as Westfield Stratfordwhere customers have space to trialfun exciting new technology.

His comments came as the groupreported that sales for the year to 28April fell from 8.3bn to 8.2bn, bet-ter than analysts had expected.

BY KASMIRA JEFFORDA good performance in the UK and

Nordics was offset by a weaker per-formance in southern Europe and itsonline Pixmania business.The company wrote off 190m in

total for its Greek, Italian andPixmania units.James outlined plans to make a fur-

ther 90m in cost savings this year, inpart by merging its Currys and PCWorld stores.

He said sales of TVs had done sur-prisingly well during the year butplayed down the influence of theJubilee and sporting events on sales.

RETAIL sales showed a sharpuptick in May compared to a yearearlier, Office for NationalStatistics data released yesterdayshowed.

The overall 3.3 per cent year onyear rise was drive by increases inexpenditure of 3.9 per cent onhousehold goods, 0.7 per cent ontextiles and most importantly 4.1per cent on food.

Internet sales increased 21.6per cent on the year, withespecially large increases againcoming in food and householdgoods.

Their average weekly value

climbed to 510.9m, making up8.8 per cent of all non-fuel sales.

BY BEN SOUTHWOOD Small businesses, of 10-39employees, enjoyed 12.2 per centgrowth whereas those with over100 employees grew just 2.9 percent.

The seemingly shy sunshine,hardly seen since March, hadcreated pent-up demand forsummer goods which was finallyunleashed, said StephenRobertson, British RetailConsortium Director General.

Modest sales of coats andcarpets gave way to much bettersales of T-shirts and barbecues asinterest finally turned outdoors.he added.

Abstracting from recentvolatility, the overall level of

retail sales was broadly the samein May as at the start of the year,

said Samuel Tombs at CapitalEconomics.

Tombs warns the sector willmake a negative contribution toGDP growth in the secondquarter, unless June sales increaseby at least one per cent.

Nida Ali, economic adviser atErnst & Young said the robustboost was due to a combinationof one-off factors, and believesthat the growth is likely to betemporary.

David McCorquodale, Europeanhead of retail at KPMG, yesterdayput the figures down to acombination of summer sun andheavy discounting.

He warned this discounting

would have a negat ive impact onretailers profitability.

Dixons Retail PLC

18 Jun 19 Jun 20 Jun 21 Jun15 Jun

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p 17.1921 Jun

COMEDIAN Jimmy Carr said hemade a terrible error of judgementin using a legal offshore tax schemeto reduce his payments to HMRC.

I appreciate as acomedian, people willexpect me to make lightof this situation, but Im

not going to in thisstatement, Carr said onTwitter. Although Ivebeen advised the K2 Taxscheme is entirely legal, andhas been fully disclosed toHMRC, Im no longerinvolved in it and will in

Carr apologises for terrible error of judgementBY MARION DAKERS future conduct my financial affairs

much more responsibly. Apologies toeveryone.

Carr, who recently poked fun atBarclays for its tax avoidancemeasures, is one of several high

profile personalities to make use ofsuch a Jersey-based schemeknown as K2, according to aninvestigation by the Times.

His apology came after PrimeMinister David Cameronbranded aggressive tax

avoidance schemes morallywrong during an interview.

And Treasury ministerDavid Gaukeyesterday saidwealthy taxpayers

such as Carrshould consider

Th

enewjobswebsiteforLondonprofessionals

C

ITYAMCAREERS.com


The continued strength of Nordics...and the improved performance fromUK & Ireland clearly show the success of the renewal & transformation plan and thegrowing traction of the KNOWHOW service proposition...we continue toview Dixons as a long-term winner in electricals, hence our buy stance.

ANALYST VIEWS

Dixons results for the year ending 28 April demonstrate a solid perform-ance against a challenging market backdrop with underlying PBT of 70.8m com-pared to the guidance given in the pre close trading update of 65-70m. Weleave our forecasts unchanged and maintain our buy recommendation.

In a difficult market, the businesses in UK and Nordics are performing very

well, while the execution and competitive position in each market continues toimprove. This continues to be offset by Pixmania and Southern Europe andwe would expect a broadly similar outcome in the year ahead.

IS DIXONS RETAIL IN AGOOD POSITION FOR THEYEAR AHEAD?Interviews by Kasmira Jefford

DAVID JEARY INVESTEC

JOHN CUMMINS WH IRELAND

SIMON IRWIN LIBERUM

Chief executive Sebastian James completed his first 100 days at Dixons last week

DO YOU THINK THE UK TAX SYSTEMIS TOO COMPLICATED? Interviews by Lisa

Moravec and Ed Hume-Kendall

I think the system is too complicated and aflat tax is worth looking at in light of Jimmy

Carr. A flat tax could be worked out, we just need thepolitical nerve to do it. This wouldnt be unfair onlower earners.

I think its actually quite straightforward ifpeople play by the rules and its because of

this that people look for ways to avoid paying tax. Flat

tax might work, but I think people would be scared of thehigh rate it could be set at.

I dont think hand outs should be given topeople who dont deserve them, but I do

believe a flat tax in some form would achieve a bettersort of balance in society.

GEORGE JAMESEPS PAGE

CITYVIEWS

PHIL MORSEDT

ANDREWSHEEHANSMBC EUROPE

their moral stance as well as legalrequirements.

It is the type of contrived,artificial arrangement that is franklypushing it a bit when you think thatmost people are paying tax ... at 32per cent or 42 per cent, he told SkyNews, as he promised tougher actionto close tax loopholes.

Carrs mea culpa was obviously

welcome, said a Number 10spokesperson, adding that HMRC isworking to investigate and closedown aggressive avoidance schemes.

HMRC has recently come under firefor its settlements of large tax dis-putes with companies. Last week theNational Audit Office said it was notappropriate to set up governancearrangements specific to certaincases.

Jimmy Carr comesback onshore

Alex Baldock hasjoined the retailer

Dixons plans to

shut 40 shopsas profits sink

Tills ring again in May after

discounting and summer sun

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

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IN BRIEFWindows 8 on new Huawei phonen Chinese phone maker Huaweiyesterday confirmed it will launch asmartphone later this year on the newWindows 8 platform, competing withWindows 8 handsets made by Nokia,

Samsung and HTC. Huawei, whichmakes cheaper smartphones, ispushing into the high-end market.

Apple fined for false advertisingn Apple was fined A$2.25m (1.45m)by an Australian court yesterday formisleading advertising of its latestiPad. The tech giant said its new iPadis compatible with 4G, which is notthe case outside of the US. Apple isfacing an investigation by the Britishadvertising watchdog for the sameincorrect claims about 4G.

MEPs reject anti-piracy measuren European lawmakers rejected theglobal Anti-Counterfeiting TradeAgreement (ACTA) yesterday, whichaims to crack down on piracy. The

European Commission has backed thetreaty, but opponents argue it wouldcensor free expression and criminalisepeople unnecessarily.

Chelsea property goes for 147mn Moore House, part of the GrosvenorWaterside Development in SW1, hasbeen snapped up by London &Stamford Propertys new joint venturefor 147m. The residential building bought from Qatari Diar subsidiaryProject Red comprises 149 units, witha lettable area of 117,090 square feet.

GETTY

INVENSYS shares plunged 14 per centto 220p yesterday after the engineer-ing technology company disclosed ithad received a takeover approachfrom Emerson Electric but admittedthat discussions are over.

It is understood that tight-lippedInvensys, which had until yesterdayrefused to comment on takeover spec-ulation despite ongoing fluctuationin its share price, issued the state-ment with its arm firmly twisted bythe Takeover Panel.The London-listed firms stock

jumped 27 per cent on Wednesday fol-lowing speculation that EmersonElectric, the Fortune 500 company,was interested in Invensyss controlsbusiness and would buy the wholecompany to secure the win.This report was merely the latest in

an ongoing saga of speculation thatplaced Invensys at the centre of a hottakeover battle, with Siemens,General Electric, ABB and Emersonmentioned as key players.

BY LAUREN DAVIDSON But Invensys yesterday said it is nolonger in discussions with Emerson,adding: Furthermore there are noother discussions taking place in rela-tion to an offer for the group.While buyout rumours have been in

the air for years, analysts pegged anoffer as more likely since Invensysshares plunged in January following aprofit warning.

But the company is plagued by a4.2bn pension scheme, which it triedto offload last summer but was forcedto give up when costs escalated to1.7bn.

Everything Everywhere ownersdeny they are looking for a saleTHE French and German owners ofBritains largest mobile operator,Everything Everywhere, are notinterested in selling and haveenough cash to invest in thebusiness, France Telecoms chiefexecutive said yesterday.

Investment banking sources hadtold Reuters last week that formerchief executive Tom Alexanderapproached private equity groupssix months ago to gauge interest inan 8bn offer for the FranceTelecom and Deutsche Telekomjoint venture.

Investment banking sources saidfirms Alexander approached

BY CITY A.M. REPORTERincluded CVC, KKR and Providence,but he gained little traction in suchdifficult funding conditions.

We are happy with the jointventure, France Telecom chiefexecutive Stephane Richard said.The Germans are also happy to bethere, they do not wish to sell. We donot wish to sell either. If we receivean offer that makes sense, of coursewe will look at it. But that does notmean we will accept it.

France Telecom's Orange joinedforces with Deutsche Telekoms T-Mobile in 2010 to become the biggestoperator in the competitive Britishmarket, with more than 27m

customers. The group pledged3.5bn of cost savings, largely by

creating one network and takingdown excess towers.

The synergies have taken time tocome through and the group is onlynow starting to gain traction it alsoannounced an extra dividend of250m yesterday.

A private equity deal of the size ofEverything Everywhere would runagainst the trend in a marketfocused on deals under a billionpounds because banks have cutlending.

One person familiar with thethinking of private equity groupsthis week said it would be nearimpossible to finance an Everything

Everywhere deal in the currentmarket.

UNIVERSAL Music Group yesterdaypitched the case for its 1.2bntakeover of EMIs record label to aUS Senate judiciary committee justhours after New Zealandauthorities approved the bid.

Universal chairman and chiefexecutive Lucian Grainge and EMI

boss Roger Faxon led the charge,arguing that the deal would benefitthe debt-ridden music firm.

Universal believes that despite itsincreased market share, the realpower in the music industry lies

Universal and Warner go headto head before the US Senate

BY LAUREN DAVIDSON with the digital retail giants such asApple iTunes and Amazon.

But the takeover is beingvehemently opposed by rival musicgiant Warner, which bidunsuccessfully for EMI last year.

Warner claims the deal, whichwould give the company a marketshare of above 50 per cent inseveral countries, would knock theentire music market, from theartist to the consumer. The Senatehearing is not part of the officialFederal Trade Commission (FTC)probe, but its outcome could affectthe FTCs decision.

MICRO Focus yesterday reported a30.4 per cent jump in annual pre-tax profits, sending its shares up

by almost six per cent.Executive chairman Kevin

Loosemore said: The year ended30 April 2012 was a period ofstabilisation of Micro Focus

business after thedisappointments of the previous

year and the opportunisticapproaches from private equity.

The FTSE 250 company was atthe centre of ongoing takeovertalks for several months last year

with a number of suitorsincluding private equity firmsBain Capital and Advent

International but discussions fellthrough in August.

Micro Focus stabilises after year

of bid talks with profits jumpBY LAUREN DAVIDSON Micro Focus said revenues were

in line with guidance, coming inflat at $434.8m, as strong tradingin Asia Pacific and Japan offsetdeclining income from itsInternational division wheremacro economic conditionsremained challenging.

Despite a three per cent drop inmaintenance revenues, down to$230.9m, licence revenues whichdeclined significantly the year

before climbed five per cent to$176.6m.

Pre-tax profits jumped byalmost a third to $149.3m, from$114.5m the previous year.

The Berkshire-based company,which has 1,200 employees across20 countries, raised its final

dividend per share by 44 per centto 23.4 cents.


Universal, whose star clients include U2, won the EMI bid in November for 1.2m

Silence isnt necessarily golden, but the handcuffs areC

AN Invensys blame the marketfor not entirely believing theengineers belated assurancesyesterday that there are no

other discussions taking place inrelation to an offer for the group?On Wednesday, the British firmsshares soared by more than a

quarter, but the firm stubbornlyrefused to comment on this extremeprice action. Its shares fell back by 14per cent yesterday after a statementadmitting that discussions withFortune 500 company EmersonElectric had come to nothing. Thefailure of shares to return to theirpre-spike levels indicates somesuspicion of another offer hiding inthe long grass. Invensys is anunusually small firm in its sector

and could be a tempting target forthe right buyer. Other potentialbuyers could include GeneralElectric and Siemens.

So will all this on-again, off-againattention be the catalyst for a newoffer? If another player does stepinto the ring, Emerson can reopennegotiations as well, but otherwisemust wait another six months to

keep the regulators happy. Invensysmay hope that its taciturnwrongfooting of the markets endsup creating a healthy bidding warfor the industrial power systemsspecialist. Those who were fooled byits silence earlier this week will bedistinctly unimpressed with the

firm and its adviser JPMorganCazenove.

REDTOP WARNINGMeanwhile the 56bn Glencore-Xstrata tie-up looks increasinglyrocky. The mining firm and thecommodities trader might seemmade for each other, but the non-Glencore shareholders of Xstrata willhave the final say on 12 July. Theirreservations at the price have begun

to pale against their objection to theaccompanying pay deal, intended tolock in senior staff for the first fewyears of the joint venture. Yesterdaythe Association of British Insurers(ABI) agreed, assigning a red topwarning to the pay deal, somethingonly assigned to around 10 per cent

of cases. The governance bodydoesnt officially provide votingadvice, and remains neutral on thedeal itself, but its intervention canonly add fuel to the fire.

Its not as if the situation wasntalready looking bad. BecauseGlencore owns 34 per cent of Xstratabut is not allowed to vote on themerger or the accompanying paydeal, the number of shareholdersable to scupper the whole thing is

uncomfortably small. While it willtake 25 per cent of eligible voters toveto the takeover, that would onlyneed owners of 17 per cent ofXstratas shares to band together.The pay deal might seem less of aworry: that would require 33 percent of Xstrata shareholders to

dissent. The problem is, Xstrata hasalready suffered a 40 per centshareholder rebellion against itsremuneration plan on 1 May. As anon-negotiable part of the merger,this must be passed or it all fallsthrough. Will Xstratas owners reallyvote down their payday over a pair ofgolden handcuffs? The numberscertainly dont look promising.

Marc Sidwell is City A.M.s managingeditor.

BOTTOMLINE

MARC SIDWELL

Invensys tanks

after admittingend of bid talks

Invensys PLC


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MORE THAN 245,790 Britons owna property worth in excess of1m, a new survey shows, up 12per cent on last year.

Despite stagnant houseprices across most of the UK,there are more than 6,682streets with properties valued

over 1m. More than a third ofthese million pound streets are

located in London, followed byGuildford and Leatherhead, bothpopular commuter towns.

The property rich list, publishedby property website Zoopla, showsthat Kensington is by far the mostexpensive neighbourhood in theUK, with prices averaging 1.9m, upfive per cent on last year.

The exclusive borough, home tothe Duke and Duchess ofCambridge and steel tycoonLakshmi Mittal, also claimsBritains most expensive street Kensington Palace Gardens wherethe average house price is an eye-

watering 22.2m.Nine out of the top 10 most

expensive neighbourhoods are inthe capital, including Chelsea,Knightsbridge and Notting Hill and

West Brompton. Virginia Water inSurrey is the most expensive areaoutside London where propertyprices fell 2.94 per cent to anaverage of 968,009 last year.

UK property millionaires up 12 per cent

MORTGAGE lending jumped sharplyin May, rebounding from a weak fig-ure in April and showing solidgrowth on the year, according toindustry data published yesterday.

However, analysts warned the over-all level of lending is still well belowthat seen in the pre-crisis years, andsaid banks are facing regulatory pres-sures holding back the market.

Gross mortgage lending rose to12.2bn in May, the Council ofMortgage Lenders (CML) revealed yes-terday.That represents a 24 per cent rise

on the month in part becauseAprils lending was depressed afterfirst time buyers rushed to takeadvantage of the stamp duty holidaywhich expired at the end of March,shifting some lending forwards by amonth.

But the rise was still substantial ona longer-term basis lending is up 13per cent from the 10.8bn recordedin May of last year.

This sharp upwards spike does not

Mortgage loans

rebound fromcollapse in April

BY TIM WALLACE


Rising demand pushes capitalsrents up to highest ever levelLONDONS rents hit a new recordhigh in May, according to industry

data published today, while pricesin the south east also recordedrapid growth.

The average renting Londonernow pays 1,038 per month, up0.6 per cent on the month to Mayand 4.2 per cent on the year, LSLProperty Services buy to let indexshows.

The previous record high camein November 2011 when rentsstood at an average of 1,033.

That compares with an average

BY TIM WALLACErent of 712 per month acrossEngland and Wales as a whole arise of 0.4 per cent on the monthand 2.3 per cent on the year.

The south east saw the nextfastest increase, with rents rising0.5 per cent on the month and 3.1per cent on the year to an averageof 729, while the second mostexpensive area is the east ofEngland, where average rents are733 per month.

LSLs director David Newneswarned that high rental demandwas unlikely to disappear any timesoon in part because high pricesare stopping savers building up

deposits to buy a house.The reality is that thousands of

frustrated buyers are stillfinancially trapped between a rock

and a hard place, he said.Historically high rents androck-bottom savings rates arehampering attempts to save forthe larger deposits banks nowrequire not to mention meetingthe cost of the reinstated stampduty tax.

On top of that, Newnes believesthe flexibility of renting appeals tomore families in tough economictimes, adding further to demandand keeping price pressures high.

Plaza Centers in $1.4bnUS shopping centres salePLAZA CENTERS, the London-Warsaw listed property developeryesterday said it has sold off 47 of its49 US shopping centres in a deal

worth around $1.43bn.The group sold the assets via itsUS joint venture EPN to a jointventure between private equity firmBlackstone and DDR.

The deal first announced inJanuary has generated a cash flowof $120m for Plaza, which owns a22.7 per cent stake in EPN.

The portfolio includes shoppingcentres in states such as New York,Colorado, Connecticut and Florida.

A spokesperson for the company

BY KASMIRA JEFFORD said negotiations to sell its tworemaining US shopping centres foraround $30m are still ongoing.

The successful completion of thesale of 47 US based shopping centres

marks the realisation of a highlysuccessful and profitable firstinvestment in the US for Plaza,president and chief executive RanShtarkman said.

Plaza is primarily focused ondeveloping western-style shoppingmalls in emerging markets and hasalready completed 31 leisure centresin markets such as Hungary, Poland,the Czech Republic and India.Itrecently opened its first shoppingmall in Serbia.

KENSINGTON (W8) isthe most expensive postcode

where the average housevalue is 1.9m

THE UK HAS

6,682

1mSTREETS

UK propertymillionaires on

the increaseBY KASMIRA JEFFORD

VIRGINIAWATER, SURREY

tops the list ofmost valuable

towns......where the averagevalue of property is

968,000signify the return of the mortgagemarket, just a return to historicallylow activity levels. Only buy-to-let isshowing any genuine signs of life,said Jonathan Samuels fromDragonfly Property Finance.

The owner-occupier mortgage mar-ket remains lacklustre, due to ongo-ing weakness in demand and a nowinveterate conservatism among thehigh street lenders.

However, CML economist BobPannell argued new governmentplans to boost the economy couldhelp mortgage lending over the restof the year.

Mortgage lending jumped sharply in May

15 Jun16 Mar15 Dec15 Sep15 Jun

14,000

13,000

12,000

11,000

10,000

9,000

8,000

Gross mortgage lending

m

35%of the UK's 1m

properties are in London

LONDON 2012 IMAGE OF THE WEEKGIANT Olympic rings havebeen unveiled atHeathrow to welcomeathletes and spectators toLondon. Measuring 12metres in width, andmade of aluminium, theywere uncovered at anopening ceremony onWednesday by formerOlympian Mark Foster.

Between now and thestart of the Olympics,City A.M. is publishingits Olympic Image of theWeek. If you have a shotyou think our readerswill like, please [email protected] IOW2012 in thesubject line.

equipment from diggers to smalltools, said clients looking to savecash by renting rather than buyingexpensive equipment in slowmarkets had boosted profit.

Full-year revenue at Ashteads USSunbelt business grew 23 per centto 945.7m, and the group said it

was focused on expanding itsfootprint this year mainly throughorganic growth, although optionsfor small bolt-on acquisitions wereincreasing. In the UK, rentalrevenue at its A-Plant business

grew by nine per cent and Ashteadsaid its ability to invest whenothers cant meant it would growprofit again this year despite its

dismal outlook for the country,exacerbated by continental Europe.

INDUSTRIAL equipment hire firmAshtead more than quadrupled itsannual profit and upgradedexpectations for this year as slowconstruction markets push a

growing number of cash-strappedcustomers to rent rather than buyequipment.

The British firm, which makesover 80 per cent of revenue fromits US business Sunbelt, yesterdayposted a pre-tax profit of 130.6mfor the year to 30 April.

Shares in the FTSE-250 firm,which had started the day up 41per cent on their price a year ago,

closed 1.76 per cent up at 254.80p.Ashtead, which hires out

Ashtead gains as morebuilders rent equipment

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LOW interest rates might bedesigned to help boost the economy,but can also hurt banks profits andso have serious implications forfinancial stability, according to Bank

of England research out yesterday.That means othermacroprudential policy tools arerequired to stop efforts to hit onepolicy goal the inflation target from impacting on another financial stability, the report said.

The paper also found that asudden rise in the base rate canimpact on bank profits, as short-term deposit prices may changemore quickly than long-term loanprices, a friction that stops bankstaking immediate advantage ofhigher interest rates, hitting profits.

However once that squeeze fades,profits tend to be higher as theinterest rate is now higher.

Because short run profitability isa major determinant of bankcapital, it follows that monetarypolicy may have implications for theresilience of the financial system,

the report explained.As a result, it suggests using

macroprudential tools to tackle theinteraction between the policygoals.

Low rates hitbank stability

BY TIM WALLACE

GETTY

UK factoriesstill upbeat

BY TIM WALLACE

Eurozone debt crisisslows Asian progressTHE FALLOUT from the Eurozonecrisis has now spread to East Asia

including the worlds second largesteconomy, according to data releasedyesterday.

The HSBC Chinese manufacturingPurchasing Managers Index (PMI)for June dipped to a seven-monthlow of 48.1. Any value below 50marks a contraction, and yesterdaysresult means the index has nowdeclined for eight consecutivemonths. Meanwhile, the sub-indexfor new export orders saw the mostdramatic fall, to 45.9 its lowestlevel since March 2009.

HSBCs Hongbin Qu, warned thatexports are likely to decelerate inthe coming months and expectsmore decisive policy stimulus toreverse the slowdown.

Mark Williams and Qinwei Wangof Capital markets judged that withrisks to foreign demand mounting,and a sensitive political transition

approaching, policymakers are liketo ease further.

Similarly in Japan manufacturerswere pessimistic for the first time infour months, a Reuters poll found

BY BEN SOUTHWOODyesterday. A triple whammy of astrong yen, slowing emergingmarkets, and the Eurozone crisis alltook their toll on manufacturers

sentiment, which fell to minusthree, having been at plus two inMay. On the other hand the indexshowed positive values for non-manufacturing industry, withoptimistic responses outweighingpessimistic ones.

Kyohei Morita and Yuichiro Nagaiat Barclays said the non-manufacturing result reaffirmedthe strength of domestic demand.

Despite Japans macro weaknessthe yen remains a superior safehaven currency than the dollar,harming competitiveness, addedInvestecs Lee Mc darby.

IN BRIEFFirms call for new nuclear plantsn Increased investment in nuclearpower will help provide cheap, safeand popular energy, according to areport out today from the Institute ofDirectors. The business group argueselectricity from new nuclear plantswould cost 70 per megawatt hour,compared with 95 from gasgeneration and 130 from coal. Windis even more expensive 145 permegawatt hour for onshore turbines.The survey found 84 per cent of firms

back building more nuclear plants.

Millionaire pensions fail to saven Men on average have earned about1m before tax when they reach theage of 51, while women need to keepworking until 72 to become million-aires, revealed a survey published byPrudential today. Yet only 37 per centhave saved enough during their work-ing years to enjoy a comfortable pen-sion. Prudentials Vince Smith-Hughessaid: Pensions remain highly efficienttax saving vehicles which can helpsavers to claw-back some of the tax

that they have paid over the years.

800m Olympic spending boostn The Olympic games will bringLondon an 800m consumer spendingboost, a Visa report claims today, withinternational visitors spending about749m. The profit made by hotels,supermarkets, high street retailers andthe travel sector is expected to createan additional 1.21bn for the economy.The Olympics may have a long-termbenefit as increased internationalmedia coverage and recommenda-tions passed on by visitors could raise

5.33bn in the next two years.

THE number of people seeking USunemployment benefits dipped last

week but not by enough to signal abetter month of hiring in June,according to Department of Labordata released yesterday.

New benefit claimants for theweek ending 16 June edged down a

minuscule 2,000 to 387,000; but thiswas an improvement on theincrease of 9,000 seen during theprevious week. Yet stats showedoverall seasonally-adjusted insured

BY BEN SOUTHWOOD unemployment unchanged for theweek to 9 June, at 3,299,000.

The new unemployment datacame in tandem with PhiladelphiaFederal Reserve data showing 40per cent of American firmsreporting declines in activity,

versus 22 per cent reportingincreases.

Firms also reported significant

price declines, but weresurprisingly optimistic about thefuture, with 34 per cent expectingincreased activity, and only 14 percent expecting a decrease.

The economy will be the major issue for Obama in the upcoming presidential elections


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MANUFACTURING output is set torise in the coming months, asorders improve and confidencegrows in the sector, according toindustry data out yesterday.The industrial trends survey from

the Confederation of BritishIndustry (CBI) also found compa-nies expect price pressures to easefurther.

Demand showed a solid improve-ment, with 17 per cent reportingorder books were above normaland 28 per cent said they werebelow normal, leaving a net bal-ance of minus 11 per cent.That is a rise from minus 17 per

cent in May, and is above the long-term average of minus 17 per cent.

Export orders drove much of theimprovement the balanceimproved from minus 12 per centto minus four.

As a result, a net balance of sevenper cent of manufacturers nowexpect output to increase in thenext three months.That represents a rebound from

the balance of minus three per centrecorded last year a sudden nega-tive blip after four months of posi-tive forecasts.

But despite the improvements inorders and outlook, economistswarned the economy remains frag-ile, and said a strong recovery is notyet on the cards.

UK manufacturers clearly face avery challenging domestic andinternational environment, saidHoward Archer from IHS GlobalInsight. Domestic demand is hand-icapped by a still appreciablesqueeze on consumers purchasingpower as well as by tighter publicspending.

Meanwhile, Eurozone economicweakness, in particular, is limitingoverall foreign demand for UK man-ufactured goods.The price expectations balance

fell from 12 to two, its lowest levelsince November 2011, driven by

falling oil prices a factor whichcould lead the Bank of England toboost its quantitative easing pro-gramme in an effort to stimulatedemand.

China GDP growth and PMI

2008 2009 2010 2011 201230

35

4045

50

55

60

65 PMI

ManufacturingPMI

6

7

8

9

10

11

12GDP%

GDP

US recovery stalls but firms areoptimistic for renewed growth

BACKBENCH MPs have urged thefinancial watchdog to quickly crackdown on the mis-selling of interestrate swaps to small businesses.

Conservative MP Guto Bebb toldparliament that thousands of smallfirms have bought products toinsure against interest rate changeswithout a proper explanation ofthe risks, with evidence of hard-selltactics and misrepresentation.

[I]n the current economicclimate we should not accept theloss of any businesses or jobs as aresult of mis-selling, he said.

Caroline Nokes MP said one ofher constituents who had lostsubstantial sums in a swap saidthey would have been better offgoing to Wonga.

Bebb said he expects theFinancial Services Authority toproduce a report on the matter bythe end of July, and called on themto clamp down on instances of mis-selling as soon as possible.

The Federation of SmallBusinesses backed the debate,saying in a statement: The last

thing banks need now is anothermis-selling scandal.But exposing it is the only way

of dealing with the problemeffectively.

MPs call forswaps probe

BY MARION DAKERS

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IN BRIEFDoctors strike figures disputedn The Department of Health claimedjust eight per cent of doctors working inthe NHS in England, or 11500, showedtheir support for a strike yesterday, butstrategic health authorities claimed upto a fifth of GP practices had been hit bythe industrial action. Doctors took actionfor the first time in a lmost four decadesover the Government's pension reforms.

Amec signs deal with AibelnEngineering and project managementfirm Amec said yesterday it had signed acollaboration agreement with NorwaysAibel, one of Norways largest oilservices firms. The agreement will allowAMEC and Aibel to jointly deliverprojects for the oil and gas industry inthe Norwegian Continental Shelf.

Norcros increases dividendn UK and South Africa-focusedconsumer products group Norcrosupped its dividend yesterday after its

group revenue increased by 5.6 per centin the year to 31 March. Profits of 12.1mwere 3.5 per cent higher than in 2010.The company will issue a final dividendof 28p per share in addition to theinterim dividend of 14p.

Wood Group wins Shell contractn Energy services firm Wood Group hasbeen awarded a multi-year engineering,procurement and constructionmanagement (EPCM) frameworkagreement by Shell Oil Products US. Theagreement has been awarded to WoodGroups Mustang division.

BY JOHN DUNNE

SHARES in transport group Go-Aheadslipped 1.9 per cent yesterday as a dis-appointing outlook for its rail busi-ness overshadowed a good overallperformance last year.

Go-Ahead said its bus network wasgrowing well, and the firm expects afour per cent like-for-like revenue risein the year to the end of June, thanksin part to fare increases.

In London, where it operates aroundone in six buses, like-for-like revenuesrose by around six per cent, and con-tract wins look set to boost mileagegrowth next year.

But the firm said its rail businesshas disappointed, and its Southernfranchise in particular is on course tofall short of its expectations as theeconomic slump slows growth.

In 2009, when Go-Ahead retainedthe Southern franchise, it forecast sixper cent revenue growth per year dur-ing its tenure. Shore Capital said yes-terday rail profits are likely to fallaround 4m in 2013 due to the slug-gish economy.

Looking ahead to the next financial

Go-Ahead sees

a difficult yearahead for railBY MARION DAKERS

year, we expect the performance ofour bus business to remain strong,the firm said in its pre-close update.

In rail, we expect slower thanassumed economic growth rates toimpact performance and, as stated inApril, 6m of rail bid costs are forecastnext year.

Panmure Gordon analyst GertZonneveld said the results confirm thecautious outlook for the firm, addingin a note: Winning additional railfranchises remains crucial, especiallyif the company wants to sustain itscurrent level of dividends over themedium to longer term, but we seefew catalysts in the short term.

Irish minister says Ryanairsbid for Aer Lingus is too lowSHARES in Aer Lingus dipped 3.2per cent yesterday after the firms

board and the Irish governmentdismissed Ryanairs takeover bidfor the former flag carrier.

But Aer Lingus stock closed at1.05, above Ryanairs 1.03 pershare offe

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