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SKYNEWS

IMF slashesUK growth

forecastsTHE UK ECONOMY will grow muchmore slowly than was forecast justthree months ago, the InternationalMonetary Fund (IMF) warned yester-day, hampering efforts to bringdown the huge budget deficit.The rapid worsening of the debt cri-

sis in the Eurozone was largely toblame, although the IMF alsowarned in its global update that theUS must avoid letting tax breaks andspending projects expire this year.

But the IMF saved its most dramat-ic outlook cuts for the UK.

GDP is now expected to grow byjust 0.2 per cent this year downsharply from Aprils forecast of 0.8per cent and last Junes prediction of2.3 per cent. Growth in 2013 is set toreach 1.4 per cent, down 0.6 percent-age points from Aprils prediction.That compares with US growth of

two per cent in 2012 and 2.3 per centin 2013, each down 0.1 percentagepoint on the previous outlook.As a result the IMF now expects the

UKs budget deficit to come in at 8.1per cent of GDP, worse than the 7.9per cent predicted in April.

Meanwhile Germanys outlook hasbeen upgraded the IMF expects itsGDP to expand by one per cent thisyear, up 0.4 percentage points on theprevious forecast.The IMF also argued only a real res-

olution to the Eurozone crisis wouldlift global growth, calling for a fullbanking union and sustainedreforms to the peripheral economies.The IMF also trimmed its outlook

for France by 0.1 percentage point,

and now expects economy to con-tract 0.3 per cent in 2012. It has alsoapproved Portugals latest 1.48bntranche of loans linked to its bailout.

Del Missier (l) contradicted Diamond, while the FSAs Turner (r) said he had pushed for the CEO to go

REGULATORS claimed last night thatthey felt gamed by Barclays as for-mer executive Jerry del Missier toldMPs that Bob Diamond had instructedhim to lower the banks Libor rate sub-missions.Appearing in front of the Treasury

select committee del Missier, Barclaysex-chief operating officer, admittedinstructing traders to reduce Libor sub-missions but said he would not havegiven the order if he did not think ithad the backing of the Bank ofEngland.

Mr Diamond told me [deputy gover-nor of the Bank of England] Mr Tuckerhad given the instruction, he said.

What was communicated to me byMr Diamond was that there was politi-cal pressure on the Bank regardingBarclays health and that we shouldget our Libor rates down.This is in stark contrast to Diamonds

account of the same conversation. Theformer boss has claimed there had

been no direction from the Bank ofEngland and he had not told delMissier to alter the Libor rate.

Despite this del Missier struggled to

explain to MPs why he did not double-check the instruction.

At the time it seemed appropriategiven everything that was going on...itdidnt seem a significant event.

In a new development it wasrevealed that Barclays compliancedepartment was informed of theOctober 2008 instruction to lower

Libor submissions at the time butapparently took no action.

The money market desk informedcompliance of the request that hadcome in. There was no follow up with

me or anyone in senior management,del Missier told the committee.At the same hearing Andrew Bailey,

head of the prudential business unit

BY TIM WALLACE

FTSE 100 M5,662.43 -3.70 DOW M12,727.21 -49.88 NASDAQM2,896.94 -11.53 /$ 1.56 unc / 1.27 unc /$ 1.23 +0.01

BUSINESS WITH PERSONALITY

LONDON2012

days to go

See The Capitalist Page 9, Debate Page 17, Sport Pages 23-24

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at the Financial Services Authority(FSA), said Barclays had a culture ofgaming and gaming us that camefrom board level.

Although I could not find the evi-dence that [Bob Diamond] had hishands on these things, you couldntescape the fact that the culture wascoming from the top. The relationshipwas not antagonistic. He would comein and say I hear what youre saying.But I could not see action.Yesterday minutes were released of a

Barclays board meeting held inFebruary this year and addressed byBailey. He told directors that some reg-ulators felt Barclays was not all that itshould be and that the bank can beseen as relatively aggressive.

FSA chairman Lord Turner saidBarclays was the only bank he has writ-ten to with concerns about corporateattitude, adding he told Barclays chair-man Marcus Agius that Diamondwould have to go on 29 June, two daysafter news of the Libor scandal broke.

His colleague Tracey McDermott con-

firmed that the FSA is investigatingseven institutions over their allegedinvolvement in Libor-fixing, addingthat not all are British.

FSA: BARCLAYSWASGAMINGUS

Del Missier says hebelieves Bob Diamondtold him to rig rates

Head of watchdoggave clear messageBarclays boss must go

Regulator says it isinvestigating sevenbanks in Libor probe

Claims that Barclayscompliance team knewof market manipulation

FIRST ATHLETES HIT LONDONHEATHROW COPES BUT OLYMPIC LANES TRIGGER TENSIONS

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[email protected]

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IN BRIEFPension pots to be more portablenPension pots will follow workers as

they change jobs, according to newplans announced by pensions czar SteveWebb today. Many employees pensionsare tied to their employer under currentrules, meaning that when they move jobthey can lose access. But the new planswill consolidate the small individualfunds built up at different firms into oneindividual-centred pot. The Associationof British Insurers came out firmlybehind the measure, saying the planswill cut down on the number of lostpots and increase choice for savers.

Hedge fund pioneer dies at 79nBarton Biggs, a former chief globalstrategist for Morgan Stanley whopredicted that the internet bubblewould burst a year before it did, hasdied, the bank said yesterday. Biggsalso played a significant role in the

hedge fund industry where he co-founded one of its first firms, FairfieldPartners, in 1965. Nearly four decadeslater in 2003 he founded hedge fundfirm Traxis Partners and remained oneof its portfolio managers until the endof his life.

Banks state support halvedn The taxpayer was still supporting thebanking sector to the tune of 228bn inMarch, said the National Audit Officeyesterday. This is down from last yearsfigure of 456bn and an earlier peak of1.2 trillion. The Treasury estimates thataccounting for all economic costs, thesupport schemes have represented atransfer of 5bn or more from taxpayersto the financial sector.

REUTERS

PTT to take over Cove asShell pulls out of auctionSHELL dramatically pulled out ofthe bidding war for Cove Energyyesterday, leaving the path clearfor Thailands PTT to buy theBritish explorer for 1.2bn.

Shell, which initially had theblessing of Coves board for itstakeover advances, said yesterdayit would not improve its latest1.12bn offer for the Mozambique-focused energy firm.

Coves Aim-listed shares tumbled13 per cent to 238p below PTTs240p offer price after investorswanting to see the next round of abidding ding-dong were disap-pointed.

Shell gave no reason for its depar-ture from the fight, on the sameday the Takeover Panel prepared toflush out the f irms final offers bystarting a sealed auction process.

PTT, which muscled in on thesale process in February, hasextended its offer until 25 July andhopes to close the takeover withinmonths.

Last week it had secured accept-ances from just 0.25 per cent ofinvestors, who after months oftakeover interest were made upchiefly of hedge funds sitting ontheir hands while the chance of animproved bid remained.

Philip Wolfe, one of the bankers

Greece cuts executive rewardsGreeces coalition government hasstripped the executives of loss-makingstate electricity producer of a monthly3,500 allowance paid on top of theirsalaries, in a move signalling theirintention to cut wasteful public sectorspending.

Delancey bids to use park mediacentre as a data storeDelancey, the property company thatteamed up with Qatari investors to buythe Olympic village for 557m, is funding

a bid to convert the games media centreinto a data storage facility.

Google revises Brussels offerGoogle has submitted a revised packageof concessions to address the concerns ofEuropes top competition authority,bringing the talks to settle the EUantitrust investigation to a criticaljuncture. Joaqun Almunia, the EUscompetition commissioner, recently spoketo Eric Schmidt, Google chairman, andrequested the US group clarify its informaloffer submitted two weeks ago. The initialgoogle proposal came after Almuniadelivered an ultimatum demanding achange in Googles business practices.

Coalition support plungesPublic confidence in the Conservatives torun a competent and united governmenthas plunged since the Budget, a Populuspoll reveals today after more direeconomic news.

Third of BBC presenters paid offpayrollThe BBC has revealed that it pays 148 outof its 467 regular presenters almost onein three as well as thousands of otherstaff, through limited companies that canbe used to avoid tax.

Ryanair in bid to thwart UK probeinto Aer Lingus stakeRyanair has made an opportunistic moveto quash the UK CompetitionCommissions investigation into its 29.8per cent stake in Aer Lingus. The low costairline mounted a legal challenge againstthe investigation yesterday.

Banks bid for Cinvens 1bn IPOPrivate equity firm Cinven has held aselection process for investment banks tooversee the 1bn flotation of its pensioncompany Partnership Assurance.

Merkel calls for new KyotoagreementGerman Chancellor Angela Merkelyesterday urged internationalenvironment ministers to follow throughon commitments made in the landmarkKyoto treaty to reduce greenhouse gases.

GM sees expanded European lossesGeneral Motors expects to reportsubstantial losses in Europe for the rest o fthe year, damping hopes of a second-halfrecovery that the auto maker earlier hadanticipated, according to sources.

RATINGS agency Moodysdowngraded eight Italian banks

yesterday, due to worsened feelingsabout Italian government debt,following Italys sovereigndowngrade on Friday.

The UniCredit and IntesaSanpaolo groups saw theirmembers long-term ratings cutacross the board, to Baa2 or Baa3.Smaller banks Instituto ServiziMercato Agricolo Alimentare, GECapital, Cassa Depositi e Prestiti,Credito Emiliano, Banca Carigeand Cassa di Risparmio di Parma ePiacenza also saw their ratings cut.

Moodys cutsItalian lenders

Cove, led by John Craven, will be taken private by Thailands energy firm PTT

2 NEWS

BY BEN SOUTHWOOD

BY MARION DAKERS

To contact the newsdesk email [email protected]

NO other trend is as important asthe population explosion sincethe Industrial Revolution: thereare now more human beings

than ever before. This holds true alsofor the UK: yesterdays 2011 UK censusresults showed another huge rise. Thepopulation of England and Wales

surged by 3.7m in the last decade 7.1 per cent reaching 56.1m, aged 39on average. This was the largest risein any 10-year period and compareswith a 1.6m rise in 1991-2001. The UKpopulation is now around 63.1m up4m. The stats came as a shock to theauthorities: there are 476,000 more ofus than they predicted, which helpsto explain why our infrastructure iscreaking at the seams.

Only four EU countries Cyprus,Ireland, Luxembourg and Spain grew faster than the UK. The numberof households is up 7.5 per cent, 0.4

EDITORSLETTER

ALLISTER HEATH

Britains booming population has reinforced Londons power

TUESDAY 17 JULY 2012

points more than the population, sug-gesting average sizes are stabilising(partly because kids are staying longerwith their parents).

Twenty years ago, the North andLondon/South East had almost identi-cal populations; today, the latter areahead by a combined 1.9m. Londonspopulation is 8.174m, up 11.6 per centover the past 10 years and 19.7 percent over the past twenty. The SouthEast now houses 8.635m, up 7.6 percent over ten years and 13.1 per cent

over 20. But while Londons popula-tion has rocketed, its population ofover-65s has remained static since2001. All of these figures are crucialfor marketers: more of their wealthi-est, working audiences are now basedin London and its commuter belt,while the UK counts more women

and young people than expected.The UKs booming population alsoreminds us that GDP growth is a mis-leading indicator what counts isGDP growth per person. The UKsrecent performance has thus beeneven poorer than previously thought.The largest jumps in population

were seen in Tower Hamlets (up 26.4per cent) and Newham (up 23.5 percent), with Hackney, Hounslow,Greenwich and Waltham Forest alsogrowing strongly. These surges werefuelled by immigration and redevel-opment of derelict industrial areas

that there are not huge problems,especially when the framework isflawed: the government, which con-trols education, health and infra-structure, is hopeless at planning. Weneed a welfare system that encour-ages the integration of migrants.Those who move here must embrace

their new country. There should bezero tolerance of extremists.Immigration has partly been fuelled

by the inadequate skills and attitudesof too many UK-born citizens: weneed welfare and educational reformto increase the supply of domesticlabour and thus reduce the demandfor migrants. But the pessimistsshould remember this: there is some-thing worse than a growing popula-tion, and that is a shrinking one.

into residential properties (TowerHamlets, home of the Isle of Dogs andCanary Wharf, is a case in point). Thebiggest jump in the South East was inMilton Keynes, up 17 per cent.Kensingtons population dropped 2.2per cent its properties are now moreoften used as part-time pads, and

young families have been priced out.Overall, 56 per cent of the increasewas caused by immigration, with thedifference between deaths and birthsaccounting for the rest (though theretoo immigration played a part). I amrelaxed about this and populationincreases more generally. Like JulianSimon, the US academic, I believethat human beings are the UltimateResource. Malthusians are wrong.With the right institutional frame-work, an increased population can beaccommodated and lead to increasedprosperity. But that doesnt mean

at UBS working for PTT, told City A.M.the acquisition will be inThailands national interest. Its byfar the biggest deal that PTT has everdone, and it gets them ahead ofother Asian national oil companies[in Africa].

Market-watchers said Shell couldnow turn to other stakeholders inMozambiques gas resources, such asAnadarko, as a route into the region.

Coves key asset is an 8.5 per centstake in the Rovuma offshore fields,thought to be among the worldsbiggest gas deposits.

Energy majors including BP, Totaland Exxon were among the firmslooking at Coves data room when itrevealed it hoped to sell out at theend of 2011.The Takeover Panel said last week

that it would kick off a sealed auc-tion today if a clear winner did notemerge. The firms would have sub-mitted bids with a daily deadlineuntil one company bested the other.

Had it gone ahead, the auctionwould have been the first time since2008 that the panel had used thispower.

Cove Energy PLC

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The new jobs website for London professionalsCITYAMCAREERS.com

WHAT THE OTHER PAPERS SAY THIS MORNING

YAHOO unveiled Marissa Mayer aspresident, chief executive, and

board member last night, its fifthboss in four years not countingcaretaker heads.She joins the ailing web giant with

13 years of experienceat Google, havingstarted as its 20themployee in 1999. Shesaid she washonoured and

delighted tostart in her

new post as oftoday.

Yahoo taps upGoogles Mayer

BY BEN SOUTHWOOD

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MICROSOFT last night unveiled a new

version of Office, its flagship softwaresuite, in an attempt to drive usage ofits upcoming Windows 8 operatingsystem and Surface tablets.

The technology giants chief execu-tive Steve Ballmer, called it the mostambitious release of Office weveever done at yesterdays press con-ference in San Francisco.

The new version is the first to bedesigned for tablets as well as PCs,and was revealed weeks afterMicrosoft announced Surface, itscompetitor to Apples iPad.

The latest software, called Office2013, will also store and edit docu-ments online in the cloud, so thatthey are available on other comput-ers, tablets and phones.

Office is Microsofts most prof-itable division, and dominates thebusiness application market. Its suc-cess is seen as crucial to Microsofts

plans for Surface and Windows 8.The smaller of the two Surface

models will run the Windows RT ver-sion of the operating system, whichincludes the touchscreen release ofOffice, while the desktop version willonly run on Windows 7 and 8, mean-ing those running older softwarewill have to upgrade.

Microsoft did not reveal Office2013s price or release date.

Microsoft looksat Office 2013to drive sales

BY JAMES TITCOMB

REUTERS

PHARMACEUTICAL mammothGlaxoSmithKline (GSK) has acquiredHuman Genome Sciences (HGS) in afriendly $3bn (1.9bn) cash offer, fol-lowing months of hostile pursuit.The sweetened offer of $14.25 per

share is a premium of 99 per centover HGSs undisturbed share price.

HGS had previously rejected asinsufficient an offer of $13 pershare, which valued the company atjust under $2.6bn.

But the British behemoth endedup persuading its long-time partnerto sell out, in a tie-up that is expect-

ed to achieve $200m cost savings by2015.

We are pleased to have reached amutually beneficial agreement withHGS on friendly terms and believethe combination of GSK and HGSrepresents clear financial and strate-gic logic for both companies and ourrespective shareholders, said GSKchief executive Sir Andrew Witty.

Both Witty and the boss of HGS, H

Glaxo clinchesHGS with new

$3bn cash offerBY BEN SOUTHWOOD Thomas Watkins, pointed to

Benlysta, the blockbuster lupusdrug, as a major reason for the deal.

HGS has had a long and produc-tive working relationship with GSK,and together we will be uniquelypositioned to achieve the full poten-tial of Benlysta for the benefit ofthose battling serious diseasearound the world, Watkins com-mented.

GSK will also get full ownership ofalbiglutide and darapladib, experi-mental medicines for diabetes andheart disease in the later stages ofdevelopment.

GLAXOSMITHKLINE took advice from

Lazard and Morgan Stanley throughout itsmulti-billion dollar acquisition of HumanGenome Sciences.The Morgan Stanley team was made up ofClinton Gartin, Thomas Sheehan, SusanHuang, Steven Harr and Ari Terry, all man-aging directors.Although a Morgan Stanley spokespersonsaid the banks culture was more aboutteamwork than individual stars, Clinton

Gartin has long been the banks rainmakerin the sector, thought to be involved inmore than $110bn of healthcare deals in2009 alone.Gartin advised on both US drugmakerPfizers $68bn capture of rival Wyeth, andMercks $46bn reverse merger withSchering-Plough.The Lazard team was led by AntonioWeiss and David Gluckman, the latter aformer physician and co-founder of thefirms biotechnology practice.Glaxos legal advisers were ClearyGottlieb Steen & Hamilton, and WachtellLipton Rosen & Katz.Human Genome Sciences took financialadvice from Goldman Sachs and CreditSuisse, and for legal advice it turned toSkadden Arps Slate Meagher & Flom.

ADVISERS MORGAN STANLEY, LAZARD, GOLDMAN SACHS, CREDIT SUISSE

CLINTON GARTINMANAGING DIRECTOR,MORGAN STANLEY

Olympic blow at G4SSHARES in security giant G4Splummeted 8.5 per cent yesterdayon investor fears that the firmsfailure to provide enough Olympic

guards will cause long-termreputational damage.

Chief executive Nick Buckles willappear in front of parliamentshome affairs select committeetoday to explain what went wrong.

But he is fighting to stay in hisjob as the 50m cost of paying for3,500 members of the armed forcesto make up the shortfall looks setto be dwarfed by the publicrelations disaster.

BY JAMES WATERSON

G4S has evidently over-stretcheditself with a high profile contract,

which could have widerimplications for the groups abilityto win work, said Espirito Santoanalyst David Brockton. [This]could result in either seniormanagement change or loss offuture prospects.

Robert Plant at JP MorganCazenove added: Around 10 percent of G4S revenue is for UKpublic sector contracts andmanagement had said that the UKpublic sector was one of the moreactive parts of the pipeline.

G4Ss stock dropped to 254.6pyesterday, leading the FTSE 100loserboard.

GlaxoSmithKlines chief executive Sir Andrew Witty wanted Human Genome for months

GlaxoSmithKline PLC


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TUESDAY 17 JULY 20123NEWScityam.com

FORMER AstraZeneca chiefexecutive David Brennan has

waived his right to a 2012 bonusand will lose out on two yearss

worth of performance-relatedshares, the pharmaceuticals giantrevealed yesterday.

Brennan was one of the firstscalps of this years so-calledshareholder spring, stepping downin June after investors voiced theiranger over declining share pricesand loss of patents.

At the end of 36 years with the

Brennan waives AstraZenecabonus but leaves with millions

BY JENNY FORSYTH firm, Brennans severance payincludes 11 months salary, worth914,122, plus shares awarded in2010 worth 1.5m. He also has apension pot of around 14m.

In a statement, AstraZenecasaid: Mr Brennan informed theremuneration committee that hedid not wish to be considered for a

bonus in respect of that part of2012 during which he was chiefexecutive officer.

After Brennans resignation,Aviva boss Andrew Moss andTrinity Mirrors Sly Bailey alsosuccumbed to investor pressure.

HSBC executives are set to face theUS Senate today to answer questionson the banks money launderingcontrols.

A Senate committee last nightpublished a scathing reportfollowing a year-long inquiry intoHSBCs efforts to stop illegal moneyflows between its US andinternational offices.

Politicians are due to questionbank staff and regulators today.HSBC chief exec Stuart Gulliver hassaid the bank will acknowledgeand apologise for its shortcomings.

Senate to grillHSBCs execs

BY CITY A.M. REPORTER

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CITIGROUP profits fell again in thesecond quarter, its results revealedyesterday, as a loss on the sale of itsstake in Turkish institution Akbankadded to the headwinds it faces fromthe Eurozone crisis and a substantialdrag from troubled assets left overfrom the financial crisis.

Net income came in at $2.95bn(1.85bn), down 12 per cent from$3.34bn in the same three-monthperiod of 2011, while revenues slid 10per cent to $18.4bn. This is the banksthe third consecutive fall in profits.

But the drop was smaller than mar-

kets expected, pushing shares up sixper cent to $26.81 last night.

Citi lost $424m on the sale of its10.1 per cent stake in Akbank and$920m on bad housing assets in CitiHoldings, while investment bank rev-enues slumped 21 per cent to $854mon lower market activity in largepart due to the uncertainty createdby the Eurozone crisis.

But the bank continued to build upits capital buffers in advance of theBasel III rules coming into force.

Eurozone woesand bad assets

hit Citi profitsBY TIM WALLACE

Citis core tier one capital ratio nowstands at 7.9 per cent under the latestguidelines, up from 7.2 per cent inthe previous quarter. That is expect-ed to hit eight per cent by the end of2012.

Meanwhile chief finance officerJohn Gerspach sounded quietly confi-dent on the Libor scandal.

With Barclays Libor settlement itcertainly raised questions about otherLibor submitting banks, he told theconference call, adding that Citi is co-operating fully with the authorities.

But I would caution you that oneshould not infer from the situation ofone Libor submitting bank that everybank is the same or similar.

Chief executive of Citigroup Vikram Pandit said it remained focused on managing risk

CITIGROUPS shareholdersrejected chief executive VikramPandits $15m (9.6m) payaward in March, amid

complaints that it didnt sufficientlyreflect company performance.Yesterday, Americas third-biggestbank did its best to show them itsperformance was on the up. Its share

price did rise, although only becausethings were less bad than feared.

The trouble is, back in March Citialso failed the Federal Reserves stresstest. As a result, its near-term mission,as its presentation yesterdayindicated, is maintaining strongcapital and liquidity levels.

After its $476bn bailout, regulatorswill do everything they can to stopthis systemically-important financialinstitution from taking more risks.Whatever the consequences for the

global economy, that cant be good forequity-holders returns. Pandit hasmooted an increased dividend by theend of the year, but for now it remainsan aspiration as the repairwork goeson.

It may have been a mistake forPandit to agree to be paid $1 a yearwhen things were at their worst. InCitis constrained circumstances, itmight just give shareholders ideas.

Marc Sidwell is City A.M.s managingeditor

Citigroup Inc


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SWEDISH banking group SEB saidyesterday it had the right buffers inplace to protect it from Europesdeep sovereign debt problems, as itposted second-quarter operating

profit well above forecast.SEBs core tier one capital levelrose to 15.3 per cent in the quarterfrom 13.9 per cent in the firstquarter. The banks core netinterest income was 4.5bn Swedishcrowns (408m), beating a 4.2bncrown forecast by a poll of analysts.Operating earnings from April to

June were 3.95bn crowns.

SEB buffers andtakings pick up

BY CITY A.M. REPORTER

STOCKBROKER Arden Partnersrevealed a 50 per cent fall in pre-tax

profits yesterday, as chief executiveJonathan Keeling blamed theEurozone crisis for challengingtrading conditions.

Pre-tax profits fell from 1.2m to600,000 in the six months to 30April, on revenues that slipped to5.6m from 7.4m a year earlier.During the period it took a one-offhit of 400,000 for share paymentsand reorganisation costs. The firmalso said yesterday it would pay aninterim dividend of 0.65p per share.

Profits fall atbroker Arden

BY ELIZABETH FOURNIER

TUESDAY 17 JULY 20124 NEWS cityam.com

The cost of a bailout continuesto bite after a flunked stress test

BOTTOMLINE

MARC SIDWELL

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MARKETS took a hit across the pondyesterday after data revealed that USretail sales have sunk for threestraight months, prompting fearsover the strength of the recovery.

Despite the old adage to neverunderestimate the American con-sumer, retail sales last month fell 0.5per cent disappointing analystswho had predicted a small rise.

The last time US retail sales fell forthree months on the trot was late2008, Capital Economics noted.And we know what happened then.

Stocks dipped both in New Yorkand elsewhere in the world, the dol-lar lost ground, and the yield on 10-year Treasuries fell to a record low.

The Dow Jonesdropped 0.7 per

cent in early trad-ing, ending down0.39 per cent at12,727.21 despiteparing some of its

US consumers

thrift promptsrecovery fearsBY JULIAN HARRIS losses during the day.

The yield on benchmark 10-yearTreasury notes fell to 1.442 per cent,matching the level set on 1 June,which was the lowest going back tothe early 1800s.

Investors will continue to look forhints of further stimulus measuresfrom the Federal Reserve when itschairman Ben Bernanke takes thestand for his latest testimony beforecongressional panels today andtomorrow. The Fed recently decidedto extend its so-called OperationTwist programme, yet resisted morequantitative easing (QE3).The New York Fed yesterday report-

ed a rise in manufacturing activityfor July across the state. Yet the break-down of the figures ensured that itwould remain a blue Monday for USeconomic data, revealing a worryingdecline in new orders. Forward-look-ing new orders contracted to minus2.69 in the index, the lowest levelsince September last year.

Meanwhile separate data from theUS Census Bureau showed that man-ufacturers and trade inventorieswere up 0.3 per cent in May, althoughsales were down 0.1 per cent.

EUROPES banks could be tens ofbillions further behind their BaselIII capital targets than previouslyexpected if planned new trading

book rules to calculate buffers areadopted, researchers from EspiritoSanto warned yesterday.

The Basel Committee isconsulting on changes to the waytail risks and market liquidity risksare measured, and wants increasedstandardisation of the models used

by banks to calculate requirements.In its preliminary estimates of

the impact of the mooted changes,Espirito Santo believes banks core

Capital requirements could getstiffer with trading book tweak

BY TIM WALLACEtier one ratios could be hit by asmuch as 88 basis points amounting to several billion eurosfor some banks, and a total of tensof billions across the sector.

However, the impact remainsuncertain. The consultation runsuntil September, and Basel III is notcoming fully into force until 2019.

Meanwhile Ernst & Youngwarned banks who appear to havemet the nine per cent capital target

will have a tough time maintainingthat as capital deductions arephased in and instruments phasedout next year. That means more

must be raised next year apressure which could hit lending.

MORE ECONOMICS: Page 13


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WITH UK institutionalshareholders effectivelyclosing the door onsupporting money-raising

for anything that has the smell ofrisk about it, like an IPO or newissue for instance, some companiesand their financial advisers have

been scurrying around to find newmethods of raising capital.One such instrument that has

been gaining currency in recentmonths has been the retail bond,which plays well to the needs ofinvestors whose savings choices arelimited by the historically low levelof interest rates.

These instruments tend to offera coupon of around five per centor more per year, far higher than

rates of interest currently beingoffered in bank or building societyaccounts (even though there isobviously greater safety in leavingones money in a bank or buildingsociety).

Last week Primary HealthProperties, a company that buildsand manages doctors surgeries andpharmacies, raised 75m, reachingits target a week earlier than

expected due to the strong demand.Managing director Harry Hyman

said: The demand for the issue wasincredibly strong. The chance to getfive per cent plus interest isattractive to investors whereas theconditions in the market for a largeequity raise are not strong.

Most strong companies such asPrimary Health, with highly certainrevenues from long rentalagreements with governmentagencies, would be able to raiseequity, even in these below parmarket conditions.

But often issuers find they haveto do so at a big discount to theirexisting share price, which becomesdilutive to investors that do notwish to participate.

In the case of Primary Health thebond that was issued had a 5.4 percent coupon, which compares veryfavourably with seven year giltyields that are currently around oneper cent.

Most of the recent issues areregulated by the London Stock

Exchange and the bonds issued aretradeable in the event of investorswishing to trade ahead of theirfixed term, although some, such asthe John Lewis one, arent.

Those that have tried the retailbond market include some largecompanies such as National Grid,Severn Trent, Tesco Bank andProvident Financial with advisersincluding Barclays Capital,Evolution and Investec.

The advisers to the PrimaryHealth issue are Independent DebtCapital Markets, a firm co-foundedby former ABN Amro executiveStuart Bell in 2009. He told me thatthe retail market has providedanother source of capital in areasonably efficient manner where

the pricing of an unsecured bond isset between the cost of equity andsecured finance.

In 2011, there were 10 new issueson the official stock exchangemarket, raising more than 1.1bn.

As equity issues continue tostruggle, this is a market lookingset to expand.

INSIDETRACK

DAVID HELLIER

Retail investors step in where others fear to tread

[email protected] me on Twitter: @hellierd

Feds Ben Bernanketestifies today

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Its not quite another prawncocktail offensive but Labourleader Ed Miliband is tonight

launching a drive to get individualswith a business background toseek election as candidates for theparty.Says shadow business secretaryChuka Umunna: We want morepeople from the world of businessin our ranks from ourcouncillors to our MPs. There aresome already: like our MPs in theshadow business team; all of whomhave set up and run businesses or

worked for business.

Labour seeksbusiness types

ATHLETES from around theworld started arriving inLondon yesterday ahead ofthe Olympics, just in time for

a snarl-up caused by confusion overOlympic lanes, giving the first signof the widely predicted chaos onthe capitals congested roads.The immediate cause of the hold-

up appeared to be the launch of thefirst section of road reserved forOlympic athletes and officials. Onelane of the M4 linking Heathrowwith the western edge of the capitalwas yesterday closed to all non-Olympic traffic.This lane will form part of a 30

mile (48km) network of road lanesdesigned to whisk 82,000 athletesand officials through Londonsstreets.

Observers yesterday said that somedrivers on the A4 (pictured right)believed the Olympics lane hadcome into force, when it hadnt.

Critics have nicknamed theOlympic lanes Zil lanes after theroads reserved for the limousines ofsenior officials in the old SovietUnion.

Traffic jam chaos greets athletes

London mayor Boris Johnson saidthe city was ready for the Games, thetransport system would cope and vis-itors would be safe. Johnson tried tolaugh off the fact that a bus trans-porting hurdles champion KerronClement got lost for four hours.

Given the problems, it may nothave been the best time for LondonCouncils, a body representing thecapitals 33 local councils, to publishthe findings of a survey suggestingthe majority of Londoners didntexpect the Games to affect theirwork and travel arrangements.

Perhaps Ipsos Mori, the pollingfirm, would get different results if it

conducted the survey again.Better sporting facilities are the

most-cited benefit among all agegroups with the exception of 18- to24-year-olds, who are more likely toidentify increased tourism, econom-ic benefits and better transport.

One in four Londoners say they donot see any legacy or benefit, one in10 say they dont know and just oneper cent said there would be a nega-tive impact from debt or the cost tothe taxpayer of hosting the Games.

But new poll say Londoners positive aboutthe benefits stemming from the Olympics

Because we want to make sure were doing a good job, we may monitor and/or record our calls. We hope you dont mind.

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cityam.com/the-capitalistTHECAPITALISTTaxi hire firm Addison Lee ismixing business with pleasure

or should that be little treasures byallowing staff to care for babies whileworking in the office. What may seeman absurd idea is apparently an

effective way of encouraging staff toreturn to work following maternityleave. So far, eight babies have beenaccepted at the Euston HQ as part ofthe trial. According to MD Liam Griffin,each mother is assigned a buddy sowhen she is needed at meetings theycan take over her role. As you canimagine, no worker wanted to take overnappy changing duty, so thats down tothe parents taking it in turns.


The new Olympic lanes causes chaos on the A4 yesterday, with drivers shown here onSky News merging into two lanes, unaware the new lane rules are not yet enforced

SKYNEWS

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NATIONAL Grid hit out at Ofgemover its plans to curb the cost of fuelbills yesterday, with the regulatorsinitial 22bn proposals for upgrad-ing Britains networks falling shortof expectations.

Ofgem will allow bills to rise by onaverage 11 a year for the next eightyears, with a 7 increase next yearrising to 15 in 2021.

National Grid, which had beenpushing for an increase of up to 20a year to fund an investment of over30bn, said yesterday it was clearthat Ofgems plans differ substan-tially from its own in several

important areas.National Grid will spend 15bn on

upgrading electricity networks andhigh pressure gas networks inEngland and Wales, including

National Grid inenergy bill spat

with regulatorBY JAMES TITCOMB attaching new offshore wind farmsto the energy grid, and 7bn on gaslines for homes and businesses.

Ofgems chairman Lord Mogg saidBritain has an unprecedentedneed to replace ageing infrastruc-ture and meet environmental tar-gets.

Ofgems final proposals are due tobe published at the end of the year.

WHAT DO YOU MAKE OF OFGEMSINVESTMENT PLANS?Interviews by Jamie Sutherland and Francesca Davie

I think you expect these increases, but there are waysto avoid them. With new devices on the market, you

can cut your own costs. There are a lot of things people can do todrive costs down without going through the normal networks.

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

RICHARDWHITEHEADEUROPA

The cost of living is increasing, and so are our bills

surely there should be a concerted effort to keep billsdown in the current economic situation. Renewable energy is agood thing but Im not sure this is the right time to invest.

CHRIS JONESCOMMERZBANK

Regulators should be staying away from increasing

our costs. Most businesses margins are comingdown, and so should those of energy companies. These costsshouldnt be passed on to the average household.

FRANK THOMAS

ALAN DAY VW

National Grids chief executive Steve Holliday wants to raise bills by up to 20

CITYVIEWS

National Grid PLC


682.5

685.0

677.5

680.0

687.5

690.0

692.5

695.0 p

682.5016 Jul

THE COST of comprehensive carinsurance has fallen by 47 in thelast six months and now costs anaverage of 797 across the UK,according to analysis of 5m quotes

from Confused.com by consultantsTowers Watson. East London is thearea with the highest premiums at1,628. The average quote for thirdparty, fire and theft cover isaround 1,149.

Car insurancecost drops 50

BY JAMES WATERSON

CHINESE telecoms equipment makerZTE saw shares fall 17 per cent totheir lowest level for three yearsyesterday after it warned that half-year profits could fall by 80 per cent

compared with last year.The smartphone and tablet

manufacturer blamed a drop indomestic demand, foreign exchangerates and lower investment income.

ZTE plummetson profit fears

BY JAMES TITCOMB


FACTORY SALE

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Dave and Nick renew vows asbusiness heads back rail plansPLANS to invest 9.4bn in railprojects between 2014 and 2019were given a warm reception bybusiness leaders yesterday, as thecoalition partners insisted theywould spend the entireparliamentary term together.

As expected, the governmentyesterday confirmed a programmeof investment that will see theMidland Main Line electrifiedbetween Sheffield and Londonand bottlenecks removed acrossthe north of England and on theEast Coast Main Line.

Speaking at the launch, PrimeMinister David Cameron and hisdeputy, Nick Clegg, dismissed

suggestions they were like awarring couple, adding that theTories and Lib Dems plan to worktogether until an election in 2015.

Its tough to be in governmentin difficult times, its not always awalk in the park, or in the rosegarden, Clegg said. None of thatwill stop us from continuing togovern in the national interest forthe whole country.

Transport commentatorChristian Wolmar told City A.M.the coalition has shown it iscommitted to rail. Politically itsinteresting because it shows thegovernment sees the railways asgood news. A generation or twoago they were seen as a Victorianbackwater that needed closing

down. Even when privatised therailways were seen as industry indecline, he said. The variousprojects around the country arepolitically motivated but thatdoesnt mean theyre wrong.

John Longworth, director generalof the British Chambers ofCommerce, also applauded thespending plans: Investment in ourrail infrastructure is important toBritish business. So theseannouncements are welcome, if inmany cases long overdue.

The coalition said the plan alsoincludes the electrification ofbranch lines across the Thamesvalley and a commitment toelectrifying freight lines across theMidlands.

BY JAMES WATERSON

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IN BRIEFTata vehicle sales rise six per centnTata Motors global vehicle sales rosesix per cent in June from a year earlier,the Indian company said yesterday,

mainly helped by a 39 per cent rise insales of its luxury Jaguar Land Rovervehicles. Tata Motors, part of the salt-to-steel Tata Group conglomerate, sold94,055 vehicles in June. The firm sold28,215 Jaguar Land Rover vehicles in themonth.

H&M figures buck retail gloomn Hennes & Mauritz, the worldssecond-largest clothing retailer, grewannual sales at established stores inJune. The Swedish budget fashion firmsaid yesterday sales growth at storesopen a year or more was steady in themonth the first of its fiscal thirdquarter at three per cent in localcurrencies. Total sales were up 13 percent from a year earlier.

Profits fall at recruiter SThreenWhite-collar recruiter SThree saidyesterday its profits before tax fell 16.9per cent to 9.3m in the half year ended27 May, on revenues that grew by nineper cent to 278.4m. The firm blamedhigh property costs and an increase innew sales heads for the fall in profits, butalso said it planned to maintain itsinterim dividend at 4.7p per share.SThree announced last month that chiefexecutive Russell Clements will retirenext April.

LAW firm Travers Smith said

yesterday its profits per equitypartner (PEP) grew by a huge 24per cent in 2011-12, as revenuesjumped by 16 per cent.

Turnover at the firm was83.8m, up from 72m in theprevious 12 months, helpingnet profit increase by a quarter.

PEP for the year hit 804,000,its highest level since beforethe financial crisis in 2006-2007. The average size of thepartnership firm edged up veryslightly, from 43 to 43.66.

Profits perpartner soarat Travers

BY ELIZABETH FOURNIER

GETTY

SKY launches its own internet tel-evision service Now TV today inan attempt to compete with film-streaming rivals Netflix andLoveFilm.The broadcasting giant, which

is trying to reach the 13m Britishhouseholds without a paid TVsubscription, will charge 15 amonth for on-demand access tohundreds of movies, and offer apay-per-view service for between99p and 3.49 a film.The service will expand to

include sports coverage laterin the year, followed by showsfrom Skys entertainmentchannels. Now TV will launchon PCs, Android phonesand Macs today beforebecoming available foriPhone, iPad, games con-soles and the forthcom-

Skys Now TVlaunches torival Netflix

BY JAMES TITCOMB ing YouView set-top box later inthe year.

Sky has seen its dominance ofpay television threatened by inter-net services such as Netflix andAmazons LoveFilm, which charge5.99 and 4.99 a month respec-tively for on-demand films. A SkyTV package with movie channelscosts at least 37.50 a month.

BSkyBs managing director ofsales and marketing Stephen VanRooyen said Now TV is purposelydesigned to attract new cus-tomers.The broadcaster is betting oncustomers being willing to payextra for Now TVs offering ofexclusive content, with new

films available to subscribersa year before they appearon other services.

STANHOPE SNAPS UP BBC TELEVISION CENTRE

THE BBC has sold itsTelevision Centrecomplex in the WhiteCity area of London todeveloper Stanhope forabout 200m. The BBCput the 14-acre site onthe market in June 2011and exchangedcontracts withStanhope at theweekend, it saidyesterday. Stanhope,reportedly backed byJapanese propertycompany MitsuiFudosan, has notrevealed what it will dowith the doughnut-shaped site, part ofwhich has protectedstatus. The BBC intendsto vacate TelevisionCentre by 2015.

The Woman in Black is onNow TV before its rivals


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IN BRIEFGerman delays over bailout fundn The German constitutional courtsaid yesterday that it would keepBrussels waiting for nearly two moremonths before announcing on 12September whether the core Eurozonecountry can legally ratify Europe'spermanent bailout scheme and thefiscal pact for budget discipline.Constitutional experts see the courtapproving the European StabilityMechanism (ESM) and fiscal pact,albeit with warnings, whileparliament's approval of Spainsbanking bailout on Thursday requiresonly a simple majority, providingsome relief for under-pressureChancellor Angela Merkel.

Euribor rates hit new record lowsn Eurozone bank-to-bank lendingrates hit new all-time lows yesterday,pulled down by record low ECB interestrates and its move to stop paying banksinterest on their overnight deposits.

The ECBs overnight deposit rate, whichit cut to zero on 5 July, acts as a floorfor money market rates as banks onlylend to rival banks if they are able toearn a better rate of interest than at theECB. Three-month Euribor rates hit anew all-time low of 0.477 per centyesterday, down from 0.486 per cent.

Renters cant afford to buyn Prospective first time buyers in theUK are being squeezed out of theproperty market, according to a surveyreleased yesterday. Over four in 10 (42per cent) of renters are unable to savefor a deposit, while just under a third(31 per cent) are spending over halftheir post-tax income on rent, thewebsite spareroom.co.uk found. Sky-high house prices inflict a doublewhammy of pain on renters and

would-be first time buyers, saidDuncan Stott of the Priced Outcampaign group.

HOUSEHOLDS spending powerincreased in June the first rise in ayear as the long squeeze onincomes at last begins to ease,according to a Lloyds report outtoday.

Spending power in June was 0.7 percent higher than in the same monthof 2011, the bank revealed, as incomegrowth outstripped inflation for thefirst time in 12 months.That leaves consumers an average

of 80 per year, or 7 per month,more to spend on discretionaryitems.

Income growth came in at 2.8 percent on the year, while growth inessential spending rose 3.3 per cent.

Growth in spending on non-essen-tials fell to 1.9 per cent, leaving con-sumers with more discretionaryspending power.The improvement was driven by

debt repayments falling 0.6 per centand petrol and diesel spendinggrowth slowing to 1.6 per cent asharp fall from 11 per cent at thestart of the year.That has contributed to a six per-

centage point jump in the numberreporting they have money left over

at the end of the month.But that takes the total to only 50per cent, leaving the other half of thepopulation still feeling squeezed and

Long squeeze

on pay eases asinflation slides

BY TIM WALLACE failing to save.We are still a long way from con-

sumers having a huge amount of con-fidence in the economy, but there aresmall signs that inflation is one thingthey are worrying less about, saidLloyds TSBs Jatin Patel.

That more people have money leftover once they have covered theirmonthly outgoings is positive, butwith many still negative about theoutlook for employment, it is unlike-ly that this will translate into a lotmore spending in the high street.

It is more likely that we will seepeople concentrating any spare cashon paying down debts or savings for arainy day.The survey found 91 per cent believe

the countrys employment situationis not good down just one per-centage point on Mays figure despitepositive official jobs data for themonth.

Economists urge UK to work smarterWORKING smarter would boostthe UK economy by up to 52bn,adding 455,000 jobs, accordingto a study released this morningby the Centre for Economics andBusiness Research (CEBR).

The UK has room forimprovement when it comes togood management practices, thereport reveals, with public sector

industries particularly culpable.In a ranking of sectors,

BY JULIAN HARRIS education comes bottom with ascore of just three out of 10, whilepublic administration, defenceand social security is secondbottom with five out of 10, andhealth and social work is thirdfrom bottom on six out of 10.

The UK can boost its economyhugely by focusing on increasingthe quality of the processes usedto produce all goods andservices, the CEBR said.

So-called quality managementtechniques already add 90bn, or

six per cent of GDP, to the UKeconomy, the groups analystshave calculated.

Despite public sector areasfaring worst in the analysis,improvements in the UKsbiggest sector services couldprovide the strongest shot in thearm for the economy.

Better quality managementpractices in the service sector,including finance and related

businesses, would add 12bn ayear to UK GDP, estimates show.

If businesses and the publicsector redoubled their efforts toclose the quality gap, thiscould go some way to pullingthe UK out of recession, theCEBR said. In particular,improving the quality of publicservice delivery could protectfrontline services while tacklingthe deficit.

Emerging economies arebenefiting from improved

quality management combinedwith lower costs, the report said.

Discretionary spending power rose in June

Jun 1Dec 11Jun 11Dec 10Jun 10

-2

-4

-6

0

2

4

6

8

%c

hangeonyearearlier

Income growth after inflation

After inflation

Before inflation

INSOLVENCY among small firmsslid last month, as the number of

bigger firms going out of businessclimbed, according to researchreleased today by information

services firm Experian.Firms with between one and 100employees saw their rate ofinsolvency slump from 0.19 percent in June last year to 0.12 percent this June.

But firms with between 101 and500 employees were twice as likelyto fail compared to last year, at 0.16per cent. Firms with more than 500employees had a failure rate of 0.15per cent, up from 0.12 per cent.

Overall there was a decrease onboth the month and the year, as

Small firms stay in business asbigger enterprises get battered

BY BEN SOUTHWOOD1,650 businesses became insolventlast month, compared to 1,841 inMay and 1,783 in June 2011.

Although the overall figures forJune show a fairly stableenvironment, the higher rate at thetop end will have an impact on the

supply chain, said Experiansmanaging director Max Firth.Many smaller suppliers will findthemselves short of a majorcustomer... They will need to movequickly to fill the gap in theircustomer base, he added.

Separate data from theFederation of Master Builders said37 per cent of small and mediumsized constructors had loweremployment levels in the secondquarter, slightly worse than at thestart of the year.


Eurozone recovery hopes raisedby healthy export growth spurtEUROZONE exports rose in May,according to official data out

yesterday, which could substantiallyreduce the depth of the recession.Meanwhile Eurostat figures also

showed inflation slowly falling inline with economists expectations,continuing the downward trendwhich led the European CentralBank to cut rates further at thestart of this month.

Goods exports rose 0.3 per centon the month while imports fell 0.9per cent, leaving a surplus of6.9bn(5.4bn) with the rest of the worldin May, compared with a deficit of

BY TIM WALLACE1.2bn in the same month of 2011.

Countries on the periphery of thecurrency union provided much ofthe lift figures for the year to April

show Greek imports fell 13 per centwhile exports rose 13 per cent andPortuguese exports rose nine percent and imports fell five per cent.

To soften the impact of toughfront-loaded austerity and reformsin the Eurozone, external demandneeds to offset some of the hit todomestic demand fortunately, thetrade data for the Eurozone showsthat, said Berenberg BanksChristian Schulz.

In terms of goods trade, thesouthern European crisis countries

still have a long way to go torebalance, but the trend is clearlypositive.

Meanwhile consumer price

inflation came in at 2.4 per cent inthe year to June, unchanged on theyear to May.

But within that headline numberenergy price inflation slowed from7.3 per cent to 6.1 per cent, foodslowed from three per cent to 2.7per cent, and alcohol and tobaccoslid from 4.4 per cent to 2.6 per cent.

For this year, we continue toexpect an annual inflation rate of2.3 per cent, which is likely todecline to two per cent in 2013, saidFabio Fois of Barclays.

WERE GETTING OLDER...

1 in 6 people were 65 and over

The median age in England

and Waleswas 39.In 1911,it was 5.

40

011

001

1911

38

430,000

340,000

13,000

Number of residents aged 90 and over

7.6m

56.1m

8.5m

3.1m53m

Population ofWales

Population ofEngland

The population across the whole of

England and Wales increased by 7%to

+

8.mpopulation

increase of 12% from 7.3m in 2001

Average population density

VS

LONDON

5,00 peopleper km2

LONDON

ENGLAND AND WALES

371 peopleper km2

LONDONS population grew at a far faster rate than in any other part of England orWales across the most recent decade measured by the Census, the Office for NationalStatistics revealed yesterday. In the capital the population expanded by 12 per cent,compared to an average of seven per cent across all of England and Wales.

CENSUS 2011 REVEALS GROWING, AGEING POPULATION

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IN BRIEFTullow drops on well worriesn Tullow Oil yesterday said it hadstopped drilling a well off the coast ofGuyana due to safety concerns, addingthat it had already discovered some oilin the shallower parts of the well, whichthe firm and its partners have spent fivemonths drilling. Tullows shares fell3.28 per cent on the news.

Glencore cleared for Viterra dealn Glencore has won a Canadianregulators approval for its roughlyC$6.1bn (3.8bn) takeover of grainhandler Viterra, bringing the deal astep closer to completion. Glencore inMarch offered to pay C$16.25 per sharefor Viterra, which owns the largestshare of Western Canada's grainstorage and farm supply outlets.

Evraz reports fall in productionn Russian steel and mining groupEvraz said yesterday steel productionfell six per cent in the second quarterfrom previous three months, due tomaintenance work at its mills andweaker demand in Europe and SouthAfrica. FTSE 100-listed Evraz said in anupdate that prices for most steel prod-

ucts were marginally flat.

Menzies to cut aviation cargo armn John Menzies said its aviation servic-es arm would shut cargo operations atfour airports in the UK by next monthand take a related charge of 3m.Menzies Aviation will exit its cargooperations at Glasgow, Birmingham,East Midlands and Manchester airports,to return its UK cargo business to prof-itability, it said yesterday.

BRITISH software group Sage yester-day said anticipated growth in main-land Europe had not materialiseddue to what it called a tougheningeconomic environment.The company, which is Britains

largest listed software firm based onmarket capitalisation, said trading inEurope had been flat and was belowprevious forecasts, although sales onthe whole had been broadly in linewith expectations.

The firm reported growth in the UKand Ireland and in North America,but poor sales in mainland Europe which makes up 60 per cent of Sages

business meant its shares droppedby over three per cent yesterday.

Sage had previously said it expectedtrading in Europe to pick up afterreporting disappointing first-half fig-ures in May.

Whilst we remain cautious on theoutlook for Europe, and watchful ofthis regions economic climate, thestrong fundamentals of our businessmodel remain and we continue tomake good progress, Sages chiefexecutive Guy Berruyer said.

European woeslead to stalled

growth at SageBY JAMES TITCOMB The company has attempted toreduce its reliance on Europe by tar-geting growth in emerging markets,including purchasing a 75 per centstake in Brazilian software firmFolhamatic for 125m last month.Sage also saw strong performancesin South Africa and Australia.The firm, which sells software to

small and medium-sized businesses,has suffered from the difficult condi-tions in mainland Europe, especiallyin Spain, where 23 per cent of busi-nesses employing between 10 and 100people have closed down since thedownturn started. Analysts warnedyesterday that Sages problems couldspread to France and Germany.

Sage chief Guy Berruyer said the business was continuing to make good progress

Sage Group PLC


276

278

280

282

284

286 p

276.0016 Jul

While UK growth has been good, Europe overall is flat, implying thatmainland Europe is into negative territory. It is appropriate to be cautious aboutQ4 and beyond and we pull our recommendation back to Hold from Add.

ANALYST VIEWS

WHAT DOES THE FUTUREHOLD FOR SAGE?

Interviews by James Titcomb


While the US is slowly improving and emerging markets are solid,mainland Europe seems to have slightly worsened. The stock is not par-ticularly cheap and post the recent bounce, we expect it to fall back.

With a lean summer ahead, in our view, Euroland gets worse before it

gets better. The valuation looks toppy for Sage and in the absence ofgrowth, we retain our Hold recommendation.

WILL WALLIS NUMIS

JULIAN YATES INVESTEC

GEORGE OCONNOR PANMURE GORDON

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15

ENGINEERING group Smiths said

yesterday it had sold its interest inUS biometric specialist Cross MatchTechnologies for $77m (49.4m).

The sale to Francisco Partners ispart of Smiths move to offload non-core businesses. Smiths will receive$69m in cash on completion fromthe Florida-based private equityfirm.A further $8m will go into an

escrow account to meet any possiblelegal claims for up to 15 months.

Smiths landed the stake in CrossMatch as part of a deal for theHeimann Biometrics business in2005.

Chief executive of the FTSE 100

BY JOHN DUNNE company Philip Bowman said: As Iindicated at our interim results inMarch, we are looking to simplify our

portfolio.This disposal helps us to focus onour core businesses in driving rev-enue growth, operational improve-ments, enhanced margins and strongcash conversion.At the end of May the company

announced that Paul Cox, presidentof its oil and gas subsidiary JohnCrane, was stepping down immedi-ately.

Meanwhile in its most recent trad-ing update Smiths said that in thenine months to 28 April sales hadrisen thanks to the acquisition ofPower Holdings. It paid $235m forthe engineering business last year.

TUESDAY 17 JULY 2012cityam.com

DASHBOARDCITYYOUR ONE-STOP SHOP FOR JOB MOVES,BROKER VIEWS AND MARKET REPORTS

BORDERS & SOUTHERN Petroleumsaid yesterday its latest well drilledin the Falkland Islands as part of acontroversial exploration drive did

not find oil or gas, pushing itsshares down 71 per cent.Borders & Southern, which is lead-

ing efforts to find oil off the southcoast, chalked up an initial success

April, when it found gas condensate,a liquid which often trades at a pre-mium to crude oil, at its first well.Analysts said investors should not

give up on the southern area.This is clearly a disappointing

result, but one that we believe doesnot completely write-off the south-ern Falkland basin, Numis analystSanjeev Bahl said.

The fact is that they have foundhydrocarbons in both wells. In the

Borders & Southern sharesplunge on Falklands results

BY CITY A.M. REPORTER worst case, its going to be a verygassy basin, but if were looking atmulti-trillion cubic feet discoveriesin terms of volumes, its still verycommercial.

Borders has said it expects the

results of tests in August on the dis-covery it made at its Darwin well.The firms fortunes contrast with

those of Rockhopper, which struckoil in the Sea Lion field in theremote Falklands, home to 3,000inhabitants. The explorations haveinflamed tensions between Britainand Argentina, which claims sover-eignty over the islands.A $1bn deal between Rockhopper

and Premier Oil for development ofoil found north of the FalklandIslands in 2010 was announced last

week. Companies looking for oil inthe Falklands have ignored legalthreats from Argentina.

LONDON REPORT

Pioneer InvestmentsThe investment managementgroup has appointed NealJenkins as head of sales, MiddleEast, Central Asia and Africa. Hejoins from Janus Capital, wherehe was head of Middle East andAfrica business. Jenkins has over20 years financial marketsexperience, and previouslyworked at Merrill Lynch.

KPMGTom Brown has been appointed global head of investment

management at the advisory firm. He is currently European

head and deputy head of investment management, and hehas been a partner at KPMG since 1999.

KentzEli Wawi has been appointed group director of engineeringat the engineering solutions provider. He has over 25 yearsexperience in oil and gas engineering and has formerly heldpositions at KBR and Shaw Group. Wawi joins Kentz fromCH2M Hill Energy and Chemicals UAE, where he was vicepresident for Middle East, North Africa and India.

Barings Asset ManagementMike Levy has been appointed to the role of seniorinvestment manager in the Europe, Middle East and Africa

equity team at the investment management firm. He joins

from AllianceBernstein.

Exponent Private EquitySimon Davidson has been promoted to the partnership atthe private equity firm. He joined in 2008 from ApaxPartners, and works on retail, consumer and leisureinvestments.

British Property FederationBill Hughes, managing director of Legal & General Property,has been appointed junior vice president of the BritishProperty Federation. He will subsequently becomepresident of the membership organisation in two years.Hughes joined Legal & General in 2007, and was previously

UK head of real estate at RREEF.

WHOS SWITCHING JOBS Edited by Tom Welsh

+44 (0)20 7092 0053morganmckinley.comSPECIALISTS IN GLOBAL PROFESSIONAL RECRUITMENT

Citigroup liftsmarket despitedecline in retail

ASURPRISE decline in June retailsales was the latest worryingsign from the economy,pushing stocks slightly lower

yesterday, but Citigroup earningslimited losses in another forecast-beating report from a bank.

The S&P 500 has fallen in seven ofthe last eight sessions, weighed downby concerns about the economy. Still,in a sign of resilience, the index is uproughly seven per cent from a low hitearly in June despite the worseningeconomic data.The drop in retail sales in June, the

third consecutive monthly decrease,contrasted with economists expecta-tions for a small increase and was thelatest sign the recovery is flagging, amajor concern for investors.

Shares of Citigroup gained around

one per cent after the third largest USbank reported profit that came inabove analysts estimates. That wasdespite a 12 per cent drop in quarterlyearnings due to losses from credit cri-sis-era assets.

Citigroup earnings follow resultsfrom JP Morgan Chase on Friday thatsparked a rally and broke a six-daystreak of losses by the Dow industrials.The Dow Jones industrial average

dropped 28.65 points, or 0.22 per cent,to 12,748.44.The Standard & Poors 500 Index fell

1.63 points, or 0.12 per cent, to1,355.15. The Nasdaq Composite Indexdropped 7.42 points, or 0.26 per cent,to 2,901.05.

Three months in a row of lowerretail sales is pretty concerning. Peopleare going to have to lower their GDPestimates, said Paul Zemsky, of INGInvestment Management in New York.

Given that, Im surprised the marketis holding so well.

B

RITAINS top share index edgedlower in low-volume trade

yesterday, led by banks and miningstocks, as concern about theoutlook for corporate earnings keptinvestors cautious.The FTSE 100 ended down 3.7 points, or

0.1 per cent, at 5,662.43 in volume, justunder two-thirds of its 90-day daily average.

Investors are not keen to make majorshifts to their portfolios at this stage asthere is nervousness about earnings, saidIan Williams, a strategist at Peel Hunt.

The market has been short of inspira-tion growth data continued to disap-point last week and the US earnings seasondid not kick off to a great start.

Security firm G4S led individual fallers,down 8.7 per cent, dropping for the thirdstraight session to its lowest level since lateDecember.

G4S shares were traded at more thanseven times their daily 90-day average aftera number of bearish broker notes prompt-ed by the companys admission it would be

unable to fulfil a contract to supply guardsfor this months Olympics.

Weakness in several heavyweight cyclicalsectors, including mining, prevented the

broader market from rising and suggestedthat Fridays sluggish growth data fromtop metals consumer China would contin-to put pressure on the industry.

Banks were also among the worst-per-forming sectors, mirroring weaknessacross Europe, with Barclays the top faller,down 2.7 per cent, weighed further by theLibor scandal. But US peer Citigroup got aboost from stronger-than-expected secondquarter profits.

FTSE dips on mining and bankingwhile security firm G4S is top faller

BESTof the BROKERSAshmore Group PLC

10 Jul 11 Jul 12 Jul 13 Jul 16 Jul

p340335330325320315310305

321.1016 Jul

ASHMOREPeel Hunt hasdowngraded its forecastsfor the fund manager byseven and fifteen per centin 2012 and 2013respectively, but keeps abuy rating on a lowertarget price of 390p.

CITY MOVES

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NEW YORKREPORT

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FTSE


5,700

5,680

5,660

5,640

5,620

5,600

5,662.4316 Jul

Provident Financial PLC


p1,2401,2301,220

1,210

1,200

1,190

1,1801,170

1,216.0016 Jul

PROVIDENTFINANCIALNumis has downgradedthe personal creditprovider from buy tohold with a targetprice of 1,321p, sayingthe firm now justifies itspremium valuation.

METRO AG


21.2021.00

20.80

20.60

20.40

20.20

20.00

20.8916 Jul

METROUBS has upgraded theGerman retailer fromsell to neutral with atarget price of 20, sayingforecasts are morerealistic and its sharelevels now reflect a fair

valuation for the stock.

Smiths sells stake inCross Match for $77m

IN BRIEFRevenue growth returns to Emapn Business to business publisher Emapsaw its revenues grow by two per centin the first half of 2012 the firstincrease in more than five years as itsawards business did particularly well.Parent company Top Right said itsoverall revenues were up by eight percent on a like-for-like basis, as its i2iEvents business and digital information

group 4C also saw an improvement.

London hotel prices rise by 70pcn The average daily rate for a hotelroom in London has soared to an aver-age of 189 over the Olympics period,up more than 70 per cent compared tothe same period last year. According tohotel data provider TravelClick, com-mitted occupancy across the capitalshows rooms currently reserved for theOlympics stands at 77 per cent though this could decrease due to arecent return of rooms by organiserLocog, which could see prices slashed.

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ILIVE just outside HemelHempstead, where one of itsmost famous landmarks hasrecently been converted into anapartment complex. Kodak

Tower, as it is commonly known,was built in the 1960s as KodakEastmans European headquarters.Its a beaming symbol of thecompanys presence in the town.Designed by Thomas Bennett, it wasarchitecturally bold and divisive.When it was built, the Americanimaging company was one of themost famous in the world.

Its degeneration into a tackyresidential edifice is a starkreminder of the forces of creativedestruction. The Austrianeconomist Joseph Schumpeter

coined this phrase to capture the

IS ELECTRIFYING branch lines in

Wales a top priority for transportinvestment? It seems unlikely. Butthen again the governmentsplans to invest 9.4bn in rail

infrastructure show scant regard foreconomics. Cynical politicalcalculation seems to be the drivingforce.

Regional interests have long com-plained that London receives a dispro-portionate share of transportspending. Now the provinces will get

their pet projects: the north ofEngland gains more services throughthe much-hyped Northern Hub; theEast Midlands benefit from the electri-fication of the Midland Main Line; andso on.

But most of these schemes are diffi-cult to justify from an economic per-spective. In commercial terms they areloss-making and require substantialtaxpayer support. Indeed, it seems like-ly that, as the number of train servicesincreases, additional operating subsi-dies will be required. Taxpayersalready pay around 5bn per yeartowards the railways.

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16TUESDAY 17 JULY 2012

RICHARD WELLINGS

The government is off track withits uneconomic transport policy

The government has claimed thatmuch of the cost will be recoupedfrom higher passenger numbers andefficiency gains. This is doubtful.

There are numerous examples of railplanners forecasting passengergrowth that failed to materialise. Andwhile efficiency gains are possible,they will be difficult to deliver giventhe complex artificial structureimposed on the industry.Then there is the argument that rail

improvements deliver wider regenera-tion benefits, boosting growth. This isalso questionable. There is little evi-dence of economic resurgence inmany of the provincial towns alreadyenjoying fast rail links, such asDoncaster, Darlington or Wigan.Worse still, new rail projects often

become magnets for expensive taxpay-er-funded regeneration schemes, pro-moted by local political elites. Thegovernment has spent billions alongthe route of High Speed 1, for exam-ple. Such regeneration efforts arecounterproductive. If favoured areasimprove, others tend to decline, due tothe redistribution of taxpayersmoney.The railways are a classic example of

a politically distorted market. There ishuge variation in the level of subsidy

to different parts of the network.London commuter routes generallyreceive little funding from govern-ment, in marked contrast to ruralprovincial routes that are almostentirely dependent on handouts. Thissystem means passengers on moreprofitable lines (including in andaround London) may end up cross-sub-sidising those on loss-making ones. Atthe same time, those choosing to driveinstead of travelling by train face veryhigh rates of taxation through theimposition of both VAT and fuel duty a clear instance of unfair competition.

Many of these distortions are deliber-

ate. New Labour pursued policies toforce people out of their cars and on tothe trains. A combination of strictplanning policies and regenerationsubsidies was used to push economicactivity into congested city centresand around public transport hubs. Atthe same time, measures were intro-duced that artificially raised the costsof commuting by car and road invest-ment was slashed. As peak-time trains

became more and more crowded, thepressure increased for investment innew capacity, even though demandhad been artificially inflated by vari-ous government interventions.

In this context, the governmentshould be extremely cautious aboutinvesting in rail. Rather than riskingbillions of pounds of taxpayers

money, it should focus on creating alevel playing field in transport so thatinvestment can be based on genuinepatterns of demand.

Phasing out taxpayer subsidies touneconomic lines should be a key pri-ority. Another important step wouldbe to introduce more f lexibility fortrain operators to tackle overcrowdingwithout the need for expensive newtrack infrastructure, for example byproviding more frequent services andextra rolling stock. Further action is

also needed on planning controls.Businesses should be free to operate inuncongested, out-of-town locations,even if this means fewer people usingpublic transport.A radically different policy on invest-

ment is needed. Ideally it should beleft to the private sector, which wouldonly undertake rail schemes that werecommercially viable. However, in theabsence of a larger role for privateinvestors, the government should takea far more rigorous economicapproach to new infrastructure.Dr Richard Wellings is head of transport

at the Institute of Economic Affairs.

process of capitalism, wherebyinnovation always generatesdisruption. In no company is thatbetter exemplified than Kodak.

Founded in Rochester in 1889,Kodak became a global giant, at itsheight commanding about 90 percent of the market forphotographic film. And yet, at theturn of this year it filed for

bankruptcy. Despite creating the

first digital camera in the 1970s, itsprofits were driven by selling anddeveloping film. It is a classicexample of the difficulty inknowing when to lead innovationwithout undermining your existingstrengths. The bottom line:monoliths are inherentlyvulnerable.

One of Karl Marxs critiques ofcapitalism was that it generates anincreasing concentration of capital.Indeed, the fear that theres avicious circle between efficiencyand scale still drives anti-monopolylegislation. But what is theempirical evidence?

In 1987, Forbes magazinereleased a study looking at howlarge companies fare over time. It

took the 100 biggest companies in

1917 and looked at what hadhappened to them since. Ratherthan see the big companies gettingbigger, they found the opposite. Asthe chart shows, 61 per cent of thecompanies becamedefunct. 21 per centstill existed, buthad fallenoutside the top100. That leftonly 18 of thebiggest 100companies in1917 stillthere 70 yearslater. Of those,16 companiesunderperformedthe market as a

whole, leaving just

two companies that managed tobeat the market. One of thosecompanies was GE, and the otherwas Kodak.

Fast forward 25 years, Kodaksbankruptcy shows how rare it is forlarge firms to retain their strength.

Consumers shouldnt fearcorporate giants thesebehemoths should befearful of becoming thenext Kodak.Anthony J. Evans is associ-

ate professor of economics atESCP Europe Business School.www.anthonyjevans.com

FRONTLINEECONOMICS

ANTHONY J. EVANS

Creative destruction means corporate giants rarely outlast their usefulness

%

61

21

16

2

Defunct

Outside top

Behindmar

Beatmarket

Defunct

Outside top 100

Behind market average

Beat market average

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17

Building problems[Re: London homes still horribly expensivefor first time buyers, yesterday]Unfortunately, policy-makers are stuck in ahouse building dilemma. If they supplymore homes to help first-time buyers, theprice of the average home will drop therefore moving many existinghomeowners into negative equity.

Stephen Bishop

Private sector contractors are certainlybetter than public ones, but only providedthere is competition and not one companyproviding the service. For example, if themanagers running the Oyster card systemwere incompetent, could the governmenteasily replace them with an alternative?

Steve Okare

Better capitalists[Re: Supporters of capitalism must helpexpose blundering firms, Thursday]Theres no problem with capitalism. It justdoesnt work if long-term goals are ignored,if unrealistic yearly growth is blindly chased,and if governments step in and distort themarket with bailouts, tariffs and subsidies.

Jonathan King

[Re: Shareholders can find a potent ally inactivist funds, yesterday]Gil Shidlo may be right to be optimisticabout a better approach to reformingcompany management by activist funds.But can we be certain that they can overridethe anti-capitalist crowing of ShareholderSpring proponents?

Karl Carter

DAVID Cameron risks facinghis own personal Europeangroundhog day. A watershedEuropean summit lastmonth advanced proposals

for a Eurozone banking union. Finalapproval is due in December. Theaim is to break the fatal link betweeneuro area banks and sovereigns. Lesspainful for Germany thaneurobonds, but seen as credible byfinancial markets, it will turn the

European Central Bank (ECB) inFrankfurt into a Bank of Englandstyle super-regulator.

Unlike the fiscal compact the PrimeMinister vetoed last December, bank-ing union is an essential step towardsresolving the Eurozone crisis. ForBritain, the risks or rewards of newEurozone banking structures dependon how they interact with the singlemarket, arguably the EUs greatestunifying achievement.About a quarter of the firms based

in London are headquartered in theEurozone, and whatever rules thenew banking union established willapply to them.

One example of potential risk is theECBs demand that central counter-parties offering euro-denominatedclearing must be based within theEurozone. The UK has rightly takenthe ECB to the European Court ofJustice over this on the grounds thatsuch a requirement is discriminato-ry. If allowed to stand, big clearinghouses based in London may upstakes and move into the Eurozone.A single market compatible bank-

ing union requires consultation withnon-euro members, includingBritain, to ensure that commonrules safeguard the free movementof capital and financial services areapplied equally. It also meansupholding the mandates of theEuropean Banking Authority basedin London and the European

TOP TWEETSIts not only first time buyers with problems inLondon. Moving from a flat to a house isimpossible because of the price difference.@jasonjamesstone

Olympic lanes, bus lanes, cycle lanes. Whatabout somewhere for us hardworking driv-ers? We pay for the roads.@GrumpyOldEA

The IMF has downgraded UK growth morethan for any other advanced economy. Manyof our problems are clearly domestic.@DuncanWeldon

Why do these big infrastructure projects takeyears to even get underway? We need infra-structure now, not in years.@Donal_Blaney

Does London need designated Games lanesto manage road traffic during the Olympics?

YESThe Olympic Road Network (ORN) is a requirement of the Host

City contract and is vital in ensuring all athletes, officials and theworlds media get to their London 2012 Games events on time. Intotal, the ORN covers 109 miles across London, although Gameslanes will only be used on 30 miles of the network. With theathletes, coaches, technical officials and the worlds media nowin London, roads are exceptionally busy and we are working hardto support a great Games and keep London moving. From 25 Julythe Games Lanes will be enforced and our message to motoristsis clear dont get caught out, avoid driving in central London,around the ORN or around Games venues. But if a journey isabsolutely essential, plan ahead visitGetAheadoftheGames.com and allow extra time.Gareth Emmerson is chief operating officer, surface transport, atTransport for London.

Gareth Emmerson

NOCharlie Mullins

The starting pistol has been fired on the first Olympic event, the

insane dash to total gridlock. Were pretty good at traffic jams inLondon on a normal day, but these Games lanes are about totransform doing business and commuting in the city to a goldmedal-winning performance in masochism. Having lanes forOlympic VIPs will halve the capacity of key routes like VictoriaEmbankment and Knightsbridge, leaving firms like mine, with afleet of more than 120 vehicles, to face weeks of major disruption.And were not the only ones this is going to affect. Businesses willwatch their income drain away as they sit in jam after jam, asathletes and dignitaries cruise by. Its easy to shut the roads for thegreater good of the Olympics and offer advice not to drive in centralLondon. Its not so easy when you run a business thats based ondriving around the capital.Charlie Mullins is an entrepreneur and founder of Pimlico Plumbers.

RAPIDresponses Why Britain must

not veto bankingunion for Europe

Systemic Risk Board. These bodieswork for all the EUs 27 members andwould work to coordinate the ECB

and non-Eurozone national regula-tors.

Economically liberal member stateslike Germany value the integrity ofthe single market and do not want tosee Britain become an associatemember of a two-tier club. GeorgeOsborne has said the demands theUK made at the December summitare more relevant than ever. No UKfinancial institution asked for a vetoon financial services then, nor areany making such demands now.The veto is a blunt instrument.

Making such demands, and wieldingit when they are not met, fatallyundermines our ability to make thecase for protecting the single market.Perhaps this has sunk in: DavidCameron has said that any new struc-tures should be set up in the EUsexisting treaties.

It is not difficult to imagine whatsuccess looks like. An EU with astrong euro. A barrier-free single mar-ket stretching across 27 (soon 28)members encouraging competition,job creation and growth. A globalEuropean financial centre inLondon, with the critical mass to pro-vide capital for projects at home andin developing markets. We mustfight for what is essential and attain-able rather than demanding some-thing that is neither and ending upwith another pointless veto.

Roland Rudd is chairman of Business forNew Europe.


ROLAND RUDD

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LOOKING ahead to the startof the Olympic Games, thereis no end of attempts tomake tie-ins official or not

with the festival of sport. Butwho are going to be the realwinners and losers in businessthi

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