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The Prime Minister hopes to rejuvinate the coalition with new ministers

BUSINESS WITH PERSONALITY

DAVID Cameron last night launchedhis first cabinet reshuffle bypromoting Andrew Mitchell to theposition of chief whip.

The decision to move the formerinternational developmentsecretary, who once served as a UNpeacekeeper, is an attempt to instildiscipline into the parliamentaryConservative party.

Mitchell will replace PatrickMcLoughlin, who is set to stay in thegovernment. Last night multiplereports suggested that McLoughlincould replace Justine Greening astransport secretary.

But Cameron has limited roomfor manoeuvre because mostleading members of the cabinet,

including chancellor GeorgeOsborne, foreign secretary WilliamHague, home secretary Theresa Mayand business secretary Vince Cable,

are set to retain their positions.Welsh secretary Cheryl Gillan did

not confirm that she has left thecabinet but has removed allmention to her ministerial rolefrom her biography on Twitter.

Full details of the reshuffle areexpected today, including a likelyreturn to government for leadingLiberal Democrat David Laws.

Meanwhile Deputy PrimeMinister Nick Clegg yesterday toldthe Commons that the governmenthas officially withdrawn plans toreform the House of Lords followinga successful protest by backbenchConservative MPs.

Clegg also confirmed that inretaliation the Lib Dems would voteagainst forthcoming reforms toconstituency boundaries, although

the government still intends topush ahead with a vote on the issuenext year.

INVESTMENT bankers pay tumbledfurther this year, with junior staffsbonuses plunging on poor marketconditions, a lack of competition inthe sector and sustained pressure toavoid public outrage.

Average bonuses fell 25 per cent onthe year for analysts in the investmentbanks merger and acquisitions (M&A)units, following a fall of 10 to 20 percent the previous year, according toDartmouth Partners.

But base pay increased slightly,leaving total incomes down anaverage of 20 per cent for the youngtrainees, who are typically recentgraduates in their first three years atthe banks.

That leaves the average first-yearanalyst on 65,000, with a 45,000base salary and 20,000 bonus;second-year staff on 83,000, with a51,000 salary and 32,000 bonus; andthird-years on 104,000, with a58,000 salary and 46,000 bonus.

The highest paid third-years workfor Barclays and Morgan Stanley, on111,000, while the lowest paid are atUBS on 96,000.

Between 10 and 20 per cent ofanalysts received no bonus this year something that was very rare beforethe financial crisis.

Base salaries began to shoot up afew years ago when there was a lot of

scrutiny on bonuses at the top, andthat fed through to those lower downthe chain, said Dartmouth PartnersLogan Naidu.

www.cityam.com FREE

But now bonuses are falling thanksto poor trading conditions.After several years, this could

become a long-term shift analysts

may start to see these levels as normal,and will not expect a return to pre-crisis pay levels.

BY JAMES WATERSON

FTSE 100L5,758.41 +46.93 DOW 13,090.84 CLOSED NASDAQ 3,066.96 CLOSED /$ 1.59 unc / 1.26 unc /$ 1.26 unc

BY TIM WALLACE

DIRECT LINENEARS FLOATSee Page 7See The Forum, Page 20

LEGAL LEAGUE TABLES: Page 6LL

MORE: Pages 4 and 21LL

Certified Distribution

02/07/12 til 29/07/12 is 131,194

DAVID DAVIS ON WHY WE NEED A SUPPLY-SIDE REVOLUTION

THIRD YEAR ANALYSTS PAY ACROSS BANKS (THOUSANDS)Company Base 2012 2011 Bonus 2012 2011 Total 2012 2011

ISSUE 1,709 TUESDAY 4 SEPTEMBER 2012

BANKS SLASH

JUNIORS PAY57 54 111

57 49 106

57 49 104

57 52 109

57 44 101

57 49 106

60 40 100

57 54 111

60 39 99

62 38 100.5

57 39 96

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110.5

TIME FOR A FRESH START

Camerons first cabinet

reshuffle gets underway

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[email protected]

Follow me on Twitter: @allisterheath

MARK Brown is leaving his positionas chief executive of CanaccordGenuity in the UK, Europe and AsiaPacific, just months after puttingtogether the merger with CollinsStewart Hawkpoint, the firm heformerly led, City A.M. has learned.

The Canadian bank Canaccordwill today announce a replacementfor Brown, whose early departurewas not expected within investmentbanking circles. It was reported lastnight that former BAML and Lazardbanker Alexis de Rosnay has beenlined up to take over.

When the 253m deal with CollinsStewart was completed lastDecember, Brown was given the topjob in the UK, with the formerCanaccord UK boss Tim Hoare beinggiven the post of chairman ofCanaccord Genuity.

At the time of the merger Brownsaid: We were not looking to sell atall but the very strong strategicrationale of this deal persuaded meto give up our independence whichwe did not do lightly.

Like all investment banksCanaccord Genuity has beenstruggling in London and in NewEurope because of a downturn incorporate activity but it has acted ona number of deals such as the $6.1bntakeover of Viterra by Glencore andthe Global Radio acquisition of GMGRadio.

Canaccord boss

leaves monthsafter mergerBY DAVID HELLIER

PwC overtakes KPMG asBritains biggest auditorBIG FOUR auditor PwC hasleapfrogged its rival KPMG tobecome the top British auditor byclient numbers, according to fig-ures out yesterday.

PwC only added three net newlisted clients in the third quarter,but with a total of 370 it wasenough to overtake KPMG, whichlost a net 12 clients to put its totalat 368, a report by Morningstarshows.

KPMG, which last month warnedof looming redundancies in its UKbusiness, suffered a number of bigand small client losses in the quar-ter including banking groupInvestec.

PwC also continued its domi-nance of the FTSE 100, auditingaccounts for 42 of the biggest bluechips. KPMG is in second place with24 after adding one auditing man-date, followed by Deloitte and Ernst& Young.Together, the big four account for

over 98 per cent of profits repre-sented by the Morningstar rank-ings.

Grant Thornton remained theauditor of choice for firms on thejunior stock market, though thefirm lost a net seven Aim-listedclients in the quarter to take itsmandate haul in the sector to 165.

New regulation takes up execs timeTop executives at UK financial firms arespending the equivalent of one day a weekdealing with changing global and localregulatory requirements much more thanthey did three years ago.

Frenesius drops hospital chain bidFrenesius has buried its ambition to becomethe largest private hospital operator inEuropes biggest market by dropping a four-mont-old3.1bn takeover bid forRhn-Klinikum, one of Germanys leading

hospital chains. The announcement from theGerman healthcare group came after tworivals bought stakes in Rhn to block themerger. Putting Germanys two largesthospital chains together, they feared, wouldhave had a profound effect on the hospitalsand equipments markets.

Teva steps up defence of key drugTeva, the worlds largest generic drugsgroup, is redoubling its focus on the qualityof its medicines as it steps up efforts todefend its own blockbuster patentedmultiple sclerosis medicine fromcompetition by stressing its extensive safetyrecord and distinctive characteristics.

German defence chief ejectedThe German defence industry executiveblamed for the woes of the EurofighterTyphoon left the company yesterday in amove that may presage a widermanagement shake-up at EADS.

Hibu investors head for the exitShares in hibu, the name that Yell Groupselected to distance itself from its troubledpast, crashed 60 per cent to below half apenny after investors faced up to theprospect of a debt-for-equity swap.

Fyffes warns of higher banana pricesFyffes, the world's oldest fruit brand,reported a jump in profits but warned itmay have to raise the cost of its bananasand pineapples due to higher costs.

Pentagon to fight SECs $100m fineLewis Chester, the former ConservativeParty donor, has put his beleagueredhedge fund into administration in a movethat could leave the US Securities andExchange Commission nearly $100m(63m) out of pocket.

US Steel and union reach pactThe United Steelworkers announced atentative three-year labour deal thatcovers 16,000 employees at US SteelCorp.

Baidu seeks mobile presenceBaidu released its own mobile-internetbrowser and said it would invest in a newcloud-computing center in a bid to gainmore control over how internet users inChina access the web throughsmartphones.

EU RIGHTS and justice vice-president Viviane Reding plans toforce boards to put more women intop positions, after significant butslow voluntary progress, aEuropean Commission sourceconfirmed last night.

The proposals will requirenational governments to imposepenalties such as fines or a loss of

government contracts if morethan 60 per cent of a f irms non-executive directors are of the same

gender in 2020. State-ownedcompanies will have to meet therequirement by 2018.

Only firms that employ morethan 250 people, turn over morethan 50m, are listed publicly, orare owned by the state will besubject to the rules, and industries

with a low employee base in onegender will have some flexibility intheir implementation, the sourcetold City A.M.

In May Reding said she was not afan of quotas, but in a draftdirective to be released in autumnshe says self-regulation has failed todrive progress, with women stillonly making up 13.7 per cent of

board members in large publiccompanies.

France, Italy, Spain and theNetherlands already have formalquotas, but the UK and Swedencurrently have no imposed limits.

EU to impose

gender quotason boardrooms

Ian Powell boss PwC has seen his firm build on its position at the top of the big four

4 NEWS

BY BEN SOUTHWOOD

BY MARION DAKERS

To contact the newsdesk email [email protected]

IT took a long while coming butDavid Cameron has at last swunghis axe. His ministerial reshuffle,which began last night, will only

be fully completed this morning,when all of the details of thepersonnel changes become clear.There will be some substantial moves

though crucially George Osborneremains Chancellor and Vince Cablebusiness secretary.

But long-term the reshuffle wont bethe most important political momentof 2012. Yesterdays confirmation byNick Clegg that the Liberal Democratswill be voting against proposals toreduce the number of MPs and tochange constituency boundaries tomake the system fairer will cost theTories twenty seats at the next elec-tion. At present, constituencies rangefrom 109,902 electors to just 21,780.This is bizarre. Because the large con-

EDITORSLETTER

ALLISTER HEATH

Cleggs veto of fairer seats more important than reshuffle

TUESDAY 4 SEPTEMBER 2012

stituencies tend to be in rural areas,where the Tories are strongest, andthe smallest in urban ones, whereLabour tends to do better, the systemmeans each Tory vote translates intofewer seats than each Labour vote.Making the seats closer in size wouldpartly eliminate this anomaly and isgenerally accepted by independent,non-party analysts to be fairer.

Under the current boundaries, theConservatives would need an aston-ishingly large 10.5 percentage point

lead over Labour to win an outrightmajority at the next election; theywould have needed to be just 7.6percentage points ahead under theproposed new boundaries. Labourjust needs a three point lead to guar-antee a majority.As ConservativeHome, which repre-

sents Tory grassroot members, recent-ly reminded us, this undemocraticbias in the voting system isnt new.John Major got a majority of 21 seatsin 1992 with a large 8 per cent leadand a 42 per cent share of the votewhile, in 2005, Tony Blair got a 66majority with just 36 per cent of thevote and a 3 point lead. That said, theTories only managed to grab 36.1 percent of the vote at the last election, a7.1 percentage point lead overLabours 29 per cent; both partiesdeserved to lose and the Tories cer-tainly failed to win, hence the need

some public sector workers enjoy pre-miums of as much as 25 per cent. Thereason for this is public sector nation-al pay bargaining: workers are paidthe same regardless of where theylive, despite varying living costs andirrespective of local labour markets.The government must start to allow

local public sector employers tochoose pay that reflect local livingconditions and vary awards accordingto individual performance. It is thatsort of reform that would save money,create jobs by making private sectorjobs competitive again, and eventual-ly help Cameron fight back. We willfind out more about his reshuffle thismorning, but in of itself it wont beenough to rescue his ailing govern-ment.

for a coalition. But regardless oftodays reshuffle, Cameron looksunlikely to grab the substantiallyhigher vote needed to overcome theelectoral bias and win an outrightmajority in 2015, and is therefore oncourse to lose the general election.

Instead of relying on the reshuffle,

which is unlikely to change much, heshould be thinking the unthinkableto create jobs. He should certainlyconsider Policy Exchanges proposaltoday to rebalance the pay and pen-sions of public sector workers to alignthem with equivalent private sectoremployees. This would save 6.3bn ayear and create 288,000 private jobs.

The average public sector premium the additional pay a typical publicsector worker receives over a privatesector worker now stands at 7 percent, increasing to 14 per cent withpensions. In parts of the country,

Morningstars league tables forfinancial advisers were more stablein the quarter. For FTSE 100 clients,only JP Morgan Cazenove and Bank ofAmerica Merrill Lynch managed topick up a single client each.

On the stockbroking side JP MorganCazenove kept up its winning streak,adding one FTSE 100 client andretaining its number one position.

UBS, BAML, and Morgan Stanley fol-lowed, with little change at the top ofthe broking business.A growing resurgence in Aim list-

ings helped Cenkos keep its spot as

the leading nominated adviser forfirms on the junior market, addingfour clients to take the brokerage to78.

Cenkos also jumped one place totake joint top spot in the Aim stock-broker tables, adding six clients tobump its total to 83, putting it intothe joint top spot with finnCap.A strong quarter for WH Ireland

pushed it up two spots to third place.Slaughter & May retains its crown

as the most prolific blue chip legaladviser, with 42 clients.

LEGAL RANKINGS: Page 6LL

The new jobs website for London professionalsCITYAMCAREERS.com

WHAT THE OTHER PAPERS SAY THIS MORNING

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BRITAINS manufacturing sectordeclined at its slowest rate in fourmonths in August, a widely-regarded

survey revealed yesterday.Yet many analysts remained down-beat over the industrys prospects.

A purchasing managers index(PMI) conducted by Markit and theChartered Institute of Purchasingand Supply edged up to a score of49.5 last month, from 45.2 in July.The rate of decline is shown by how

far the figure is below the no-changelevel of 50.

British manufacturing appeared tobe bouncing back from recessionstrongly in 2010, yet Markits PMI hasrecorded sub-50 scores in nine of thepast 14 months, as global economicwoes take their toll.

The [headline] rise was driven bythe decent rise in the output balancefrom 43.3 to 48.7, commentedCapital Economics in a note.

However, on the basis of past form,the latter balance is still consistent

with sharp falls in the official meas-ure of manufacturing output of

Surveys revealfactory slumpeased in August

BY JULIAN HARRISaround on per cent a quarter.

Lee Hopley, chief economist at themanufacturers group EEF, added:Taken together with another roundof awful data from Europe, the out-

look for export-focused manufactur-ers, and hopes of an export-ledeconomic recovery, continue to lookpretty challenging.

New orders at UK factories were vir-tually flat last month, providingsome relief after they plummeted inJuly with a score of 41.8.

Yet Nida Ali of the Ernst & YoungItem Club said that she still expectsGDP to have grown in quarter two.

Retailers unhappy with Olympicfailure to stop sales from divingRETAIL sales recorded their second

worst month of the year in Augustwith the Olympic Games failing tolift activity in the UKs shops, anindustry group said this morning.

Like-for-like retail sales sank by0.4 per cent last month comparedto the same time in 2011, the BritishRetail Consortium (BRC) said.

And separate data from the LocalData Company (LDC), also releasedtoday, says that consumer spendinghas fallen back to 2002 levels.

BY JULIAN HARRIS The shop vacancy rate rose to 14.6per cent in the first half of the year,LDC reports, up by 0.3 percentage

points from the second half of lastyear.And the BRC says the situation is

not improving. Theres no evidencehere of any Olympic boost to retailsales overall, said its directorgeneral Stephen Robertson.

Sadly, apart from April distortedby Easter timings August saw theworst sales growth this year.

Total sales, which include newshop floor areas, were up 1.6 per

cent in August compared to a yearearlier. But even this was weakerthan at any point since November

last year, excluding Aprils Easter-affected result.The Olympics boosted sales of

food and drink, the BRC found, yetthe rise was offset by a steep drop innon-food sales.

Its clear people were absorbed bythe magnificent Olympics and hadlittle interest in shopping, especiallyfor major items, Robertsonconcluded.

William Vereker is leaving his role as joint head of investment banking at Nomura

UK factories are still in recession

2006 2008 2010 201230

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50= nochangeonpreviousmonthIncreasing rate of growth

Increasing rate of contraction

WILLIAM Vereker, one of the Citysbest known dealmakers, is steppingdown as joint head of investmentbanking at the Japanese bankNomura, it emerged yesterday.

Vereker, who is one of the advisersto Xstrata on its proposed but falter-ing mega merger with Glencore, willbecome vice-chairman and focus onclient relationships, an internalmemo said yesterday.Vereker made his name in the City

as a banker specialising in the utili-ties sector while at Morgan Stanley.He then went to Lehman, many of

Nomuras City credibility takesa knock as Vereker moves aside

BY DAVID HELLIER whose European businesses ended upwith Nomura.

Kentaro Okuda is assuming soleleadership of global investment bank-ing, the memo said.James DeNaut and Charles Pitts-

Tucker have been appointed jointinternational heads of investmentbanking, both reporting to Okuda, isadded.

Xstrata aside, Nomura has beenstruggling to make an impression inthe advisory side of the Europeaninvestment banking.

One colleague on the Xstrata dealsaid yesterday: Williams got a greatpersonal brand.

SUPERMARKET BOUNCE: Page 11LL

GLOBAL FACTORY DIP: Page 13LL

TUESDAY 4 SEPTEMBER 20125NEWScityam.com

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COMBINED profits at the UKs 100biggest law firms have topped 5bnfor the first time, as the legal sectorsrecovery continues to outpace the restof the economy.Total billings by the UKs 100 largest

law firms hit 17.67bn in the 2011-12financial year, sending profits eightper cent higher to 5.39bn, accordingto new research from Legal Businessmagazine.

DLA Piper topped the revenue tablewith a turnover of 1.4bn, boosting itsprofits per equity partner (PEP) by fiveper cent to 766,000.

PEP is used as an indicator of lawfirm success but does not necessarilyrelate directly to each partners paypackage, as the figure is separate fromthe base salary and partly used tocover firm costs such as insurance.

Based on UK revenues alone, magiccircle firm Linklaters moves up from

third place to the front of the pack,

BY ELIZABETH FOURNIER earning 513.5m of its total 1.2bnturnover domestically.

The research also reveals firms prof-its per lawyer the average amounteach employee brings in minus thecost to the firm of employing them.

By this metric, London corporatepowerhouse Slaughter and May comesout on top, earning a profit of304,000 per lawyer against an averagebilling of 621,000.

The figures also reveal that the legalprofession is still struggling with gen-der equality just 14 per cent of equitypartners are female.The survey marks the 20th year of

Legal Business research into the sector,which began in 1992 when the top 100firms collectively billed clients just2.7bn and made profits of 891m.

The UK legal market has growneightfold over this period, which ... iseven more remarkable when com-pared against the wider economy,which has grown by just 2.5 times,

said national editor Mark McAteer.

WHAT DO YOU MAKE OF THECOALITIONS GROWTH PLANS?*Interviews by Will Calder and Mark Harper

Infrastructure projects must be ones that peopleare going to want with some legacy benefit. It

cant be just paying one lot of people to make the holesand another lot to fill them in. That sounds Keynesian.

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

CHRIS OULTONCORE TREASURY SOLUTIONS

Its difficult but I think they need to do more. Theextra runway at Heathrow is very contentious,

especially if you live in the area, but they do need to look atthe overall position because we must remain competitive.

ROSA SHAWDEUTSCHE BANK

New business banks should provide competitionfor the banks that are holding back on lending to

small firms and maybe give the small businesses somefavourable rates. It benefits everyone.

DARREN KELLUMVTB CAPITAL

CITYVIEWS

TRANSPORT minister TheresaVilliers yesterday defended herdepartments decision to award the

West Coast rail franchise toFirstGroup, but could offer noupdate on when the contract will

be signed, raising fears of furtherdelays.

Villiers told MPs in a writtenstatement that Firsts bid for the13-year franchise represent[s]significant improvements forpassengers and will provide a goodreturn for taxpayers.

But she gave no word on whenFirsts contract, due to be signedlast week, will be completed,following an 11th-hour legalchallenge by current operator

Virgin Trains.

The competition remains live. I

BY MARION DAKERS cannot give the full commercialdetails of the winning bid, orindeed of the other bids, she said.

Virgin Trains yesterday hit out atthe lack of access to details ofFirsts rival bid, which is wortharound 1bn more to the

government than its own proposal.The firm said in a statement that

if it was awarded the route, moretrains would be refurbished and it

would offer firmer commitmentsto infrastructure upgrades.

The controversial franchiseprocess could be put under freshscrutiny in parliament. MPs withconstituencies on the route and theLabour party are pressing for achance to discuss the decision.

The backbench businesscommittee meets today to consider

giving the issue time in parliament,

sparked by an e-petition.

TUESDAY 4 SEPTEMBER 20126 NEWS cityam.com

THE UKS 10 LARGEST LAW FIRMS BY TURNOVER SOURCE: LEGAL BUSINESS *DENOTES PROFIT FIGURES NOT PROVIDED BY THE FIRM

Company Turnover (change from 2011) Profit margin Profit per equity partner (change from 2011) Profit per lawyer

DLA Piper 1.4bn (+12%) 25% 766,000 (+5%) 85,000

Clifford Chance 1.3bn (+7%) 33% 1,078,000 (+7%) 143,000

Linklaters 1.2bn (+1%) 43% 1,184,000 (+2%) 202,000

Allen & Overy 1.18bn (+6%) 38% 1,059,000 (-) 170,000

Freshfields Bruckhaus Deringer 1,139m (-) 47% 1,300,000 (-1%) 235,000

Hogan Lovells 1,039m (-4%) 36% 729,000 (+7%) 152,000

Norton Rose* 822.3m (+69%) 33% 559,000 (+15%) 123,000

CMS 692m (n/a) 34% 464,000 (n/a) 95,000

Herbert Smith 480m (+3%) 23% 840,000 (-6%) 79,000

Squire Sanders 462.5m (n/a) 18% 500,000 (n/a) 67,000

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Minister backsFirst but warnsof more delays

Top law firm profitssmash through 5bn

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GETTY

DIRECT Line Group yesterday gavethe strongest indication yet thatthe firm is ready to float on theLondon Stock Exchange as itdeclared its independence fromcurrent owner RBS.

Other than some transitionalservices provided by RBS Group, wehave essentially achieved the goalof operating as a standaloneinsurance company, said chiefexecutive Paul Geddes.

Direct Line also issued its first sep-arate interim results statement, con-firming first-half operating profitgrew seven per cent to 224.2m andsaid it was setting a target of 15 percent return on tangible equity ameasure of profitability.

RBS is being forced to sell DirectLine by European regulators as partof its deal that saw it bailed out by

BY JAMES WATERSON the UK government.Despite interest from private

equity firms the bank is pursuing afloat currently pencilled in forOctober that is expected to raise atleast 3bn and will catapult thegroup into the FTSE 100 on its ownmerits.

Meanwhile the insurer, whosebrands include Churchill and GreenFlag as well as Direct Line, said thenumber of in-force policies rosefour per cent to 20.1m in the firsthalf of the year.

This could be seen as aggressivegrowth in a weak market, howeverthe increase is seen coming fromcommercial and rescue rather thanmotor and home, said OrielSecurities analyst Marcus Barnard.

Headline pre-tax profit fell from187.5m to 106.5m due to costsrelating to the restructuring andseparation from RBS.

Ready to thrive on its own butstill waiting for the launch date

I

T IS A slow year for IPOs, so hopesof a Direct Line Group flotation

are high, even as it awaits finalconfirmation.Direct Line is keen to stress the

extent to which it has now prepareditself to operate separately from RBSGroup, but it should also still benefitfrom the connection. A f ive-yearagreement for it to continue toprovide general insurance productsto RBS is expected to be finalisedlater this month. Its a good sign,especially alongside its recentagreements to extend its contractswith Nationwide Building Societyand Sainsburys Bank.

The separation is not withoutshort-term costs profit before tax isdown 81m compared to the firsthalf of 2011 as a result. The group iscommitted to making gross costsavings of 100m annually by theend of 2014, although this representsless than 10 per cent of its 2011 cost

base. Perhaps more important for itsfortunes after it goes its own way is

its new, open-ended aim of a returnon tangible equity of 15 per cent.That may seem ambitious, with thecurrent annualised 2012 figure at10.2 per cent, but it was apparentlybrought down from 12.1 per cent bythe 800m in dividends paid to RBSand 500m of debt issuance.

Together with an operating profitfor the first half of 2012 of 224.2m,up seven per cent on the sameperiod of 2011, it all suggests thatDirect Line Group could have apromising future going its own way.So long, of course, as all this doesnt

make it too tempting a bargain forprivate equity to resist.

BOTTOMLINE

MARC SIDWELL

FORMER News of the World editor Rebekah Brooks appeared in court yesterday accused ofconspiring to hack the phones of hundreds of other high-profile victims. Brooks has deniedeither authorising or being aware of phone hacking and promised to vigorously defendherself. She is due to return for a further hearing at Southwark Crown Court on 26 September.

BROOKS IN COURT OVER PHONE HACKING

7NEWScityam.com

Direct Line Group

severs ties withRBS ahead of float

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CITY analysts, consultants andMPs yesterday rejected GeorgeOsbornes plan for a business

bank, claiming it would fail tohelp the economy and could endup doing more harm than good.

Conservative Douglas Carswellargued this is not the time forthe government to take financialrisks by underwriting firmsdebts.

It is not as if the governmenthas a great deal of money it hasdebts of its own, he told City

A.M.State subsidised debt is going

to make things a lot worse years into the crisis thegovernment is still using Gordon

Browns policies.KPMGs Giles Williams said the

plan to boost lending will simplyshift the problem into the future,rather than fix the underlyingissues as pressure on bankfunding is a long-term concern.

The government will want toturn this credit off at some point,and the same problem will ariseagain, he said.

And Citis Michael Saundersargued that even if the plan hada solid foundation, without extracash from the government, it will

be unable to boost lending.The banking system is not

lending on anything like normalterms or a normal scale. Itappears that the new scheme willnot do this either, he said.

Business bank could raiserisk of hit to state coffers

BY TIM WALLACE

MOODYS moved the EUs triple-Acredit onto a negative outlook lastnight, based on similar downgradesto key constituent members, asEurozone figures continued to battleover measures to resolve the euroareas sovereign debt crisis.

Moodys said it placed the EU on anegative outlook after doing the sameto the UK, Netherlands, France andGermany, who pay in 45 per cent ofthe blocs budget.This came as Mario Draghi, pres-

ident of the European CentralBank (ECB), claimed that it

would not breach EU law ifthe ECB bought memberstate bonds.

If we are in the short termpart of the market wherebonds have a length oftime maturity of up toone year, twoyears or eventhree years,these bonds will

EU loses stableoutlook for its

triple-A ratingBY BEN SOUTHWOOD easily expire, Draghi told the

Economic and Monetary AffairsCommittee of the EuropeanParliament.

So there is very little monetaryfinancing effect at all in what we aredoing, he said, going on to argue thatthe Banks mandate to maintain pricestability could justify bond-buying.

Committee boss Olli Rehn also madethe case for interventionism in themeeting. Our approachenvisages anambitious mechanism with a relative-ly broad coverage, which will overseeall banks in the euro area, with theECB at the heart of the system, Rehn

said.

But Germany opposes such a wideremit for the Bank, with financeminister Wolfgang Schuble argu-

ing that only the systemicallymost important banksshould be monitored.

Spain injects capital into Bankiaas Andalucia asks for a bailoutSPAINS BANK rescue fund last nightapproved a capital injection into

embattled lender Bankia.The bailout from the Fund forOrderly Bank Restructuring (FROB)will go ahead following approvalfrom the Bank of Spain and thegovernment.

And Spain may also need to bailout Andalucia, which became thelatest region to request emergencyfunding yesterday, asking for a stateloan of1bn (792m).

FROB will pump 4.5bn into

BY BEN SOUTHWOODbeleaguered Bankia, which reporteda 4.4bn loss on Friday, in order todrive its core capital up towards thestringent levels required by the

Spanish bailout plan. On Friday,Bankia recorded a 6.3 per cent corecapital ratio, well below the nine percent it will need to attain by the endof the year and its parent companyBFA had just 1.8 per cent.

A source had told Reuters that thetroubled lender would receive thefunds by 14 September buteconomic tsar Luis de Guindosyesterday said the bank wouldreceive the funds through the night.

Despite these pressures, the deGuindos said yesterday that thefourth largest Eurozone economywas committed to meeting its deficit

target for 2012. The country hasalready borrowed an extra 4.6 percent of GDP this year out of a total6.3 per cent allowed by its target but the minister assured radiolisteners the goal would be met.

The commitment of thegovernment to meet the 6.3 per centtarget is very high, de Guindos saidon a Spanish radio station. It is ournumber one priority when it comesto our economic policy.

Mario Draghithinks bond-buying is legal

MONTHLY car registrations fellagain in France and Italy in August

with mass brands suffering mostas Mediterranean countries borethe brunt of the Eurozone debtcrisis and its withering effect onconsumer demand.

French sales tumbled 11 percent to 96,115 cars in August, for atenth monthly decline, the CCFAindustry association said

yesterday, while Italian sales fell 20per cent to 56,447 units, theirninth consecutive double-digit fall,

according to automotive thinktank Promotor.

European carmakers sales slowin August as crisis hits demand

BY CITY A.M. REPORTER The August decline ledPromotor to trim its full-yearforecast to 1.370m units from aprevious 1.379m, itself a cut froman outlook of more than 1.4munits at the end of June.

Without intervention to helpboost the purchasing power offamilies via tax reductions and arelaunching of consumption it will

be very difficult to see any sign ofrecovery, Jacques Bousquet,president of Italy's car industryassociation UNRAE, said yesterday.

Spanish car sales rose 3.4 percent as customers rushed to

complete purchases and beat asales tax rise in September.

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VETERAN financiers Bill Blain andJim St-Johnston announced yesterday

that they are to join brokerage MintPartners, after leaving previousemployers Newedge in July.

Blain told City A.M. that Mint,which is a subdivision of New York-based financial services firm BGCPartners, had the right kind ofattitude and fit with the duosambition to create a knowledge andexpertise based brokering business.

The old paradigm of bank drivenliquidity has been stifled by themorass of Basel III and regulatorygridlock and the need forindependent knowledge-basedbrokers to stimulate moribundmarket liquidity has never beenhigher, he said in his statement.

Asked about his longstandingpartnership with St-Johnston, Blaintold City A.M.:Jim and I arevery much a

team.

St-Johnstonand Blain joinMint Partners

BY BEN SOUTHWOOD

LLOYDS Banking Groups private equi-ty arm said yesterday it has agreed toprovide 20m for a new restaurantfund set up by the former boss of TheClapham House Group.

Paul Campbell is setting up the fundthrough his vehicle Hill Capital inpartnership with LDC to invest inrestaurant businesses with a smallnumber of outlets but offering poten-tial for significant expansion.

It expects to make initial invest-ments of between 1m and 4m ineach business, which could be basedin London or outside of the capital.

Campbell, a well-known industryplayer, set up Hill Capital in 2010after selling Gourmet Burger Kitchenowner Clapham House for 30.4m toCapricorn Ventures International, the

Lloyds ploughs20m into new

restaurant fundBY KASMIRA JEFFORD owner of the peri-peri chicken chain

Nandos.His investment and advisory firm

also holds stakes in Hawksmoor, theupmarket steakhouse chain, andTortilla burrito bars.

LDC is one of the UKs most activemid-market investors. Its most recentinvestments include Compleat Food, achilled meals maker, and its purchaseof the Benson Group, which makespackaging for brands sold in Asda andTesco.

The restaurants and bar businessesare growth sectors for those with theimagination to provide fresh andnovel concepts, said Tim Farazmand,

LCD London managing director.We are going to invest in some great

companies over the next few years andare already looking closely at our firstinvestments.

AFTER more than two decades in the restau-rant business, Paul Campbell the formerPizza Express and Clapham House director says he is as passionate about the sector asever. Even more so, he tells City A.M.,because he has been able to enjoy watchingthe industry grow up.And that best describes what his investmentand advisory firm Hill Capital encompasses:spotting young restaurant and bar business-es with potential and helping them grow upinto thriving businesses.

Campbell is himself a trained accountantand qualified with PwC before moving intocorporate finance and working for supportservices firm Capita Group. He then jumped

over to the leisure industry and becamechief executive of Relaxion, a gym andleisure business, which grew to over 100centres across the UK.In March 2002, David Page, chief executiveof Pizza Express, hired Campbell as thegroups finance director. Following its salein 2003 for 278m, Page and Campbellcooked up a new venture, The ClaphamHouse Group, which was set up as a 15mAim-listed shell to make acquisitions in thefood sector. The group, which backed

Gourmet Burger Kitchen, delivery firmBombay Bicycle Club and the Real Greek,was sold in November 2010, promptingCampbell to set up Hill Capital that year.

VODAFONE said yesterday it hasstruck up a partnership withKuwaiti-based telecoms operatorZain that will expand itsfootprint in the Middle East.

Under the agreement,Vodafone will work with Zaincompanies in Saudi Arabia,Bahrain, Kuwait, Jordan and Iraq,to improve network coverage andcuts costs.

The deal will also allowVodafone to offer its customerslower roaming fees whentravelling in the region.

In return Zain, which has over41.4m customers across eightcountries, will be given access toVodafones brand, devices andservices in its home markets and

BY KASMIRA JEFFORD become its preferred partner ofVodafone in those regions.

The British telecoms giant,which has recently completed ascaling back of its portfolio afteryears of rapid expansion, isseeking new agreements withlocal operators to spread itscoverage while avoidingexpensive buyouts or heavyinvestments.

By teaming up with Zain,Vodafone aims to offer morecompetitive roaming deals thanrivals can offer to encouragecustomers to use their phoneswhile abroad.

Its presence in the Middle Easthas been limited to Qatar, Egyptand Libya and the deal will nowincrease the number of countriesin which it has partner market

agreements to more than 50.By combining the geographical

reach of our companies respectivenetworks, we can strengthen anddeepen the benefits to ourcustomers operating in these largeand dynamic markets, saidRavinder Takkar, chief executiveof Vodafone Partner Markets.

FREESAT, the free-to-air digitalsatellite television service, isramping up competition withsubscription products with thelaunch today of catch-uptelevision.

Its new hi-tech boxes will allowviewers to watch programmes upto eight days after broadcast aservice that has until now beenoffered by subscription servicessuch as Virgin Media andYouView.

A spokesman for Freesatyesterday denied rumours that itwould increase competition stillfurther with a tie-up with on-

demand service Netflix, but saidit plans to launch additional

BY JENNY FORSYTHpaid-for movie andmusic services in thefuture.

We continue to talkto a number of differentservice providers. Wewill announcelaunches onlywhen confirmed,he said.

Freesat hailedits new set-topbox the firstmodel priced at279 as itsgreatestimprovementsince its 2008launch.

As well as on-demand downloads,

it allows users to catch up onprogrammes and flags up thelatest highlights, such as lastweekends return of Dr Who.

The on-demand servicecurrently includes

programmes from its jointowners, BBC and ITV, butwill extend to 4OD andDemand 5 by Christmas.

The company also pledgedto introduce apps forremote control fromsmartphones and tablets.

While 2.6m have takenup the service, Freesat istargeting a possible 14m.

Vodafone Group PLC

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Freesat will allow Dr Who totravel eight days in time

Bill Blain leftNewedgein July

Freesat turns up competition with launch of

catch-up TV without a monthly subscription

PROFILE: PAUL CAMPBELL


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CAMPARI, the Italian drinkscompany, said yesterday it has

agreed to buy Jamaicas LascellesdeMercado & Co for $414.7 m(261m), marking its first forayinto the rum market.

The family-controlled group,best known for its eponymousbitter orange-flavoured aperitif,said it will buy an 81.4 per centstake in Lascelles from Caribbeanconglomerate CL Financial.

It will also make a formaltender offer for all outstandingshares.

Lascelless brands includeAppleton Estate, Wray & Nephewand Coruba. Its rum and spiritsportfolio reported a sales volumeof 3.5m nine litre cases in 2011.

The acquisition is the thirdbiggest in Camparis historyfollowing its purchase of the WildTurkey bourbon brand fromPernod Ricard in 2009 and the US

vodka maker Skyy Spirits in 2001.Chief executive Bob Kunze-

Concewitz said the deal will give ita market-leading position in

Jamaica while strengthening itspresence in the US, Canada andMexico. The deal is expected toclose in the fourth quarter of 2012.

Shares in Davide Campari-Milanoclosed up 7.96 per cent at 5.90.

Campari snapsup Appletonrum producer

BY KASMIRA JEFFORD

THE RETURN of the warmer summerweather together with the Olympicsand the use of vouchers helped gro-cers enjoy their best trading perform-ance of the year last month, in a rarebright spot amid the gloom across therest of the retail industry.According to the latest figures from

Nielsen, grocery sales in the fourweeks to 18 August were 3.5 per centhigher than the same period last year.A strong performance in so-called

sharing categories such as softdrinks, snacks and confectioneryhelped boost sales volumes by 1.7 percent, putting a stop to an 18 month

trend of volume declines.But in other grocery and household

categories growth remain subdued.General merchandise sales fell back0.3 per cent in value and 1.4 per centin volume, which Nielsen said sig-nalled weak underlying consumerconfidence.

Upmarket and discount retailerscontinued to outperform the middle

Supermarketsenjoy a rare lift

during summerBY KASMIRA JEFFORD

market, with Waitrose outpacing therival big four supermarkets with asales growth of more than nine percent during the 12 weeks to 18 August.

Meanwhile discounter Aldis salessurged by an eye-watering 43 per centin the period, while Lidl and Asdagrew sales by 9.3 per cent and five percent respectively.Tesco, the UKs largest supermarket,

continued its recent improved per-formance, increasing sales four percent, as chief executive Philip Clarkes1bn fightback plan begins to gaintraction.

Morrisons, however, continued totrail behind rivals with sales growth ofjust 1.4 per cent while Sainsbury saw

basket spend rise by 3.4 per cent.Retailers have clearly looked to max-

imise the sales opportunity aroundthe London 2012 Olympics, NielsensMike Watkins said.

He added that the supermarketscontinued use of money-off vouchers,coupons and special offers throughoutthe summer also helped to increaseconsumer spending.

ONLINE dating firm Cupid yesterdayannounced a 51 per cent rise in first-half revenues to 38.6m, boosted bysubstantial growth in new markets.

The Edinburgh-based companyattributed the performance toeffective use of the advertisingbudget for its sites, which includeBe Naughty and Mature Dating UK.

Over the past six months wehave taken the business on to anew tier, growing from 53.6mannual revenues in 2011 to

BY JAMES WATERSON

annualised revenues of 77.2mbased on first half figures, largelythrough organic growth deliveredthrough intelligent and targetedmarketing spend using our in-housesoftware platform that allows us tomeasure marketing performance inreal-time, said chief executive BillDobbie.

Although the firm recorded a 122per cent jump in income from newmarkets which includes USA,Canada, Spain and Germany overall profits were stubbornly flatat 5.9m.

Shares in the firm closed down1.4 per cent.

Cupid PLC


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HOTEL RATES OVERSEAS FOR UK TRAVELLERS

VILNIUS,LITHUANIA

55KRAKOW,POLAND

62

HO CHI MINHCITY, VIETNAM

60

MOSCOW,RUSSIA

161

MUSCAT,OMAN

179RIO DEJANEIRO,BRAZIL182

MONTECARLO,FRANCE

197

NEW YORK,USA

171

RIGA,LATVIA

58

BRATISLAVA,SLOVAKIA

61

*all prices are based on average per night in the first six months of 2012

When Cupid's revenues are a multiple of the current level we expectCupid to be bought out, hopefully at a premium valuation. But in the meantimethere is long road of organic growth opportunity ahead.

ANALYST VIEWS

SHOULD INVESTORSCONTINUE THEIR LOVEAFFAIR WITH CUPID?Interviews by James Waterson

IVOR JONES NUMIS

Cupid continues to deliver excellent revenue growth. Adjusted earningsof 5.9m was ahead of our 5.5m forecast, and the year will be first-half weight-ed because of the timing of marketing spend in January-April.

PAUL MORLAND PEEL HUNT

Cupid has already made a substantial progress in the US and they dontneed to get many percentage market share points to become a serious player.Theyve spent a lot of time getting their platform right.

FIONA ORFORD-WILLIAMS EDISON RESEARCH

Cupid targets investors heartswith substantial revenue boost

THE AVERAGE price of a hotelroom worldwide increased bynearly two-thirds in the first half of2012, though the Eurozoneseconomic troubles have kept a lidon hotel bills on the continent.

The Hotels Price Index (HPI), asurvey by online accommodationprovider Hotels.com, revealedMonte Carlo as the most expensivecity for UK travellers, where theaverage hotel rate jumped by 19 percent to 197 a night compared withthe same period last year.

Rio de Janeiro came second, at182, with prices up by 31 per cent

followed by Muscat with 179 andNew York at 171.

Results across Europe weremixed as the Eurozone crisiscontinued to impact prices,particularly in cities and beachresorts across Spain and Greece.Rates in Benidorm and Alicante

both dropped eight per cent to 70and 65 respectively and Athensfell by 10 per cent to 72.

Travellers to the Middle Eastwere faced with steep priceincreases, with prices in Dubai and

Abu Dhabi up 21 per cent and 12per cent respectively while Japansrecovery following last yearsearthquake lifted rates across Asia.

BY KASMIRA JEFFORD

Holidaymakers facing steeperhotel bills in popular hotspots

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MANUFACTURING sectors are indecline throughout Europe, whilefactories in emerging markets arealso being hit by the weaker demandfrom the global economy.A range of purchasing managers

indices (PMI) released by Markit yes-terday showed that manufacturing isstill contracting in the vast majorityof surveyed nations.Across the Eurozone, manufactur-

ing sank to a reading of 45.1 inAugust slightly worse than the ear-lier estimate of 45.3.

Scores below the no-change 50mark indicate economic contraction.

Ireland was the only surveyed statein the single currency area to recordfactory sector growth and even thiswas at the weak rate of 50.9.

Even the Eurozones supposedpower-house, Germany, recordedanother negative score (44.7).And European countries outside of

the euro area are also faring badly,with the Czech Republic (48.7) andPoland (48.3) both struggling.

Factories across

world are hit byweak demandBY JULIAN HARRIS

While Russias manufacturersreported growth with a PMI score of51 other emerging economies,known as BRICS, were not as positive.

Chinas vast factory sector has beenbadly hit by slowing new orders, twocomplementary surveys showed, in aworrying sign for the worlds second-largest economy.The final reading of the HSBC China

PMI for August fell to a seasonallyadjusted 47.6, its lowest level sinceMarch 2009, down from 49.3 in July.

It followed Chinas official factoryPMI, which fell to a lower-than-expect-ed 49.2 in August, the NationalBureau of Statistics said on Saturday.

Factory growth was recorded innearby India, yet even there the indexscore edged down to 52.8 the lowestpace of expansion for the year.And Indias economy will grow by

only 5.1 per cent in the current fiscalyear, Morgan Stanley predicted yester-day knocking 0.7 percentage pointsoff its previous forecast.

Back in the UK, meanwhile, PMI lift-ed from 45.2 to 49.5 in August, an eas-ing in factory sector contraction.

SOURCE:MARKIT/CHARTERED

INSTITUTEOFPURCHASING&

SUPPLY

PAYING government workers thesame as local private sectoremployees could save 6.3bn andcreate more than a quarter of amillion new jobs, a Westminsterthink-tank claims this morning.

Public sector workers are oftenpaid considerably more than inequivalent private sector jobs intheir area, Policy Exchange says.

The report argues that wagesshould not be calculated by asystem of national pay bargaining,

by which pay is increased on a UK-wide basis, resulting in relativelyhigh wages in parts of the country

with lower average remuneration.In some parts of the country,

some public sector workers areseeing premiums over their private

Westminster think-tank calls for

end to national pay bargainingBY JULIAN HARRIS sector counterparts that are ashigh as 25 per cent, it says.

The report suggests enablinglocal public sector employers tochoose systems of pay that reflectlocal living conditions and vary payawards by the performance ofemployees.

Over 685m is redistributed tothe north east through state sectoroverpayment, Policy Exchange hascalculated, while the system seesLondon and the south east losenearly 3.2bn through salaryunderpayment.

Yet the trades union Unite hitback. National bargaining isabsolutely essential for stability inpublic services, a spokespersontold City A.M. Ending it would

cause a race to bottom for hardworking public servants.


MANUFACTURING SECTORS ARE SHRINKING ACROSS MOST OF THE CONTINENT

UK: 49.5

EUROZONE AVG: 45.1 NETHERLANDS:49.7

GERMANY: 44.7

AUSTRIA: 46.7

POLAND: 48.3

FRANCE: 46 CZECH REPUBLIC: 48.7

TURKEY: 50

RUSSIA: 51

IRELAND: 50.9

SPAIN: 44

ITALY: 43.6

GREECE: 42.1

Scores under 50 = contraction

CAMBODIAN authorities havearrested a co-founder of Pirate Bay,one of the worlds biggest free file-sharing websites, and areconsidering a request from Sweden

to send him there, where he facesjail for breaching copyright laws.Gottfrid Svartholm Warg has

been living in Cambodia for sometime.

An appeals court in Swedensentenced three others behind thesite to between four months and 10months in prison plus fines in 2010.

Warg failed to attend thathearing due to illness and hissentencing was deferred.

Head of PirateBay arrested

BY CITY A.M. REPORTER

VANITY FAIR magazine publisherConde Nast soared to a 14 percent increase in pre-tax profitslast year boosted by a surge inUK turnover, according to

accounts obtained yesterday.The firm, which publishesTatler, GQ , Vogue and Glamourmagazines, took pre-tax profits to17.3m versus 15.1m a yearpreviously.

The strong performance fromthe firm, which is led bypublishing supremo NicholasColeridge, was helped by a 5.2 percent spike in revenues over the

year, taking it up to 117.8m.

Conde Nast bucks publishingtrend to deliver profit boost

BY MICHAEL BOWAccounts filed at Companies

House show markets in both theUK and the rest of the worldadded solid revenue streams,

with revenue from magazinesand products sold in the UK up4.1 per cent to 89.8m and

revenue from the rest of theworld up 8.9 per cent to 28m.However, this year has seen the

firms circulation decreaseslightly. ABC figures for the firsthalf of 2012 reveal its circulationdropped 3.7 per cent, led by adouble digit drop from Glamourmagazine. Around 1.5m copies ofmagazines from its stable nowsell in the UK, according to the

ABC figures.

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FEEL-GOOD fear hormones were fly-ing round the City yesterday after ateam of daredevil volunteers includ-ing the Duke of York Prince Andrew abseiled down the outside of Europestallest building, the Shard.Joining the Prince at the top of the

1,016ft tower in the early hours of yes-terday morning were a host of Citynames, keen to take advantage of theonce-in-a-lifetime opportunity to scalethe glass spire.

Shearman & Sterling managingpartner Nick Buckworth was amongthe lucky (translation: crazy) few, hav-ing been at the meeting where PrinceAndrew proposed the idea last year.

Yesterday he told The Capitalist thatthe descent, from the was an exhila-rating experience, and one that real-ly only required one majorchallenge stepping off the edge.

Theres definitely a moment whereyou just have to take a big deep breathand step off, he said. You just cant

imagine how high it is until youre upthere.With the total descent taking more

than an hour, most participants justcompleted the most terrifying part,the top 10 storeys or so, including PwCboard member Richard Oldfield, whohas raised over 45,500 with gift aid sofar more than 4,500 per floor.

Even with a little cloud at 7am, youcan see for miles in every direction,he said yesterday. The top was exhila-rating, but quick, so doing morewould have been awesome.

Also joining the team were City sib-lings Natasha Brook-Walters, globalhead of FX sales at the Royal Bank ofCanada Capital Markets, and herbrother Nigel, regional sales directorat global asset management companySEI.The intrepid volunteers were raising

money for the Royal MarinesCharitable Trust Fund and OutwardBound, with an overall target of 1m.

Brother and sister team Nigel and Natasha Brook-Walters (left) and PwCs Richard Oldfield

THOSE looking for a place to rest their head within spitting distance of the Citysgreatest landmarks have a new option, after The D&D Group opened its first hotel in theSquare Mile yesterday between Moorgate and Liverpool Street. The New South PlaceHotel is pitching itself as a culinary destination, saying it will place greater emphasis oncatering than conventional hotels, with three bars and two restaurants. One of therestaurants, Angler, will serve British seafood overseen by Tony Fleming, the former

executive chef at One Aldwych. Mark Harper

VISITORS TO THE SQUARE MILE GET NEW HOTEL

Got A Story? Email

[email protected]

14 cityam.com

HOUSING minister Grant Shappsfancies himself as something of a

social media guru. But yesterday he wasembarrassed by the actions of MichaelGreen, who used to run online marketingbusiness HowToCorp with Shapps wife.

Not only did Green promote softwarewith the dubious promise that buyerswould make $20,000 in 20 daysguaranteed but he also authored a self-help book entitled How To Bounce BackFrom Recession that recommendsignoring expert opinion. Whats theproblem? Well, Green was yesterdayrevealed to be the nom de plume of GrantShapps himself. Who is hopefully sendinga copy of his book to the Treasury.


THECAPITALIST

NERVY investors were alarmedyesterday after news startedfiltering through that theEuropean Union was on the vergeof collapse. Yes, full scalecollapse. But before the City wasforced to hit the panic button itsoon became clear that it was notthe decades old political andtrading union that was underthreat, but the vessel that houses

European Union is close tocollapse due to policy cracks

it the EU parliament. Officialswere forced to close part of thebuilding above the debatingchamber, located in Brussels,after three cracks were detectedin its wooden beams, leaving it atthe threat of collapse. Officialssaid it came to light as a result ofa rigorous inspection system.Rigorous inspection in the EUdebating chamber - surely not!

Endorphins highafter Shard drop

cityam.com/the-capitalist

Shearmans Nick Buckworth with hisclimbing hero Sir Chris Bonington(above) and entrepreneur JohnCaudwell dressed as Spiderman (right)

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IN BRIEFBlackstone invests in Indian Blackstone has invested 2.43bnrupees (27.5m) to buy a significantminority stake in unlisted Indian

fragrance maker SH Kelkar &Company, the firms said in a jointstatement yesterday. The US privateequity giant has bought a 34.5 percent stake in the company, sourcessaid. Keynote Corporate Services wasthe adviser for the transaction.

Profits dip at City of London IGn City of London Investment Groupyesterday posted a 12 per cent drop infull year profits and said funds undermanagement had fallen 18 per centover the period to 2.9bn. Pre-taxprofits dropped to 11.5m from 13.1m,reducing basic earnings per sharefrom 35.1p to 33.8p. It kept its full yeardividend of 24p. Chairman AndrewDavison said the results proved thegroup could generate dividends evenin difficult market conditions.

AXA Private Equity buys data firmn AXA Private Equity yesterdayannounced it had acquired Frenchdata collection company Place desLeads. It follows on from the groupspurchase of a majority stake inGerman clothing exporterSchustermann & Borenstein lastmonth. AXA Private Equity directorAntoine Lacour said in a statement:This investment was attractive large-ly thanks to the significant expertiseof the Place des Leads managementteam.

RUPERT Murdochs son Lachlanyesterday acquired the remaining50 per cent of Daily Mail & GeneralTrusts (DMGT) Australian radiobusiness that he did not alreadyown.

Lachlan Murdochs privateinvestment vehicle, Illyria, tookfull control of the radio firm in adeal worth more than 65m,having initially paid A$112m(63m) for half of the business in2009.

DMGT said yesterday it will use

the proceeds of the sale to reducedebt.

Murdochs sonbuys stake inDMGT radio

BY CITY A.M. REPORTER

CLOUD computing firm Phoenix ITGroups shares plunged 35 per centyesterday after a probe into one ofits subsidiary firms revealed 14mof accounting irregularities.The Northampton based compa-

ny, listed on the FTSE 250, said amanager from the finance divisionof its Servo Ltd subsidiary in Leedshad been suspended on the back ofthe discovery.

It came after mis-statements ofaccounts over three consecutiveaccounting periods were found fol-lowing a restructure of its businessdivisions.

PwC and Nabarro have beenappointed by the firm to carry outa forensic investigation into theaccounts.

The information currently avail-able suggests that certain controlprocesses within the finance func-tion at Servo Limiteds Birstall sitein Leeds have been repeatedly anddeliberately circumvented, the

Phoenix IT hit

by accountingirregularities

BY MICHAEL BOW firm said yesterday.The mis-stated balances are under-

stood to total around 14m of netassets on a post-tax basis, or 19mbefore tax.

Analysts downgraded their ratingson the stock from Buy to Hold fol-lowing the revelation.

Numis analyst Will Wallis said ina research note: Uncertaintyremains high, but we think it likelythat recent underlying profitabilityhas been considerably below statedfigures.

Shares closed at 135p.

Man Group and Nomura teamup for fixed income futures fundHEDGE fund Man Group yesterdayrolled out a new venture with

investment bank Nomura tocapitalise on the ripe fixed incomefutures market.The two firms, who have previous-

ly worked together, have opened afixed income futures fund to swoopon a market largely made vacant bybanks darting from the environ-ment due to a rash of regulatorypressures.The fund, which has been seeded

with an initial 50m to get it run-ning, has been in the works sinceJanuary 2010 and quietly trading for

BY MICHAEL BOW a few weeks but was formallylaunched yesterday.The Nomura Man Systematic Fixed

Income Fund, as it is known, will

have no external leverage and will becomprised of very liquid fixedincome products, such as interestrate futures and other fixed incomefutures a market previously occu-pied by investment banks.A rapid exit from interest rate trad-

ing by them since 2008 has left themarket ripe for fresh entrants, ManGroup said.

Sandy Rattray, chief investmentofficer of Man Systematic Strategies,a division of Man running the fund,said: The worlds bond markets are

roughly twice the size of the worldsequity markets yet much less moneyis managed by fixed income than byequity alternative investment man-

agers.In an environment where marketparticipant risk-taking in interestrates has been considerably reducedsince 2008, this creates attractivealpha opportunities.

Man will be tasked with runningthe fund, with former AHL head offixed income Andre Rzym appointedas fund manager. Nomura will beresponsible for distributing thefund.A UCITS version of the fund is also

believed to be under consideration.

Phoenix IT Group PLC


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OIL explorer Mediterranean Oil &Gas yesterday refuted thesuggestion it misrepresented theproductivity of an oil block tofellow explorer Leni Gas & Oil.

Leni yesterday said it couldlaunch legal proceedings againstits former partner Mediterraneanover the sale of an explorationlicence off the coast of Malta.

Mediterranean sold a majoritystake in the Malta Area 4 oil blockto former BP chief executive TonyHaywards Genel Energy, just

weeks after Leni sold its 10 percent stake back to its Aim-listed

Mediterranean rebukes Lenislegal threat over sale to Genel

BY CATHY ADAMS

former partner.Genel Energy paid $10m (6.3m)

for a 75 per cent stake in the blockand said it would fund the cost ofdrilling the first well on it, plus upto $30m of the second well.

Neil Ritson, chief executive ofLeni, said yesterday: Leni wouldnot have sold its interest for $1plus liabilities had it been aware ofinterest from Genel Energy orother potential farm-in partners.

Mediterranean has now handedthe matter over to its lawyers todeal directly with Leni.

Shares in Leni, which is listed onthe junior stock market, rose by2.26 per cent to 0.68p yesterday.


Genel Energy is the oil vehicle of Tony Hayward (left) and Nat Rothschild (right)

Professional servicesboost profit at KofaxSOFTWARE company Kofaxreported a higher full-year profityesterday on strong growth inprofessional services and forecastmid to high single-digit revenuegrowth for fiscal 2013.

The company, which specialisesin software used in scanning andfor automating business operationssuch as processing invoices, alsosaid it expects adjusted Ebitdamargin to hold steady in 2013.

Total revenue climbed 7.6 percent to $262.5m (165.2m).

Profit from continuing businessfor the year to 30 June rose to

BY CITY A.M. REPORTER $27.4m from $26m a year earlier.The professional services

segment, which accounts for 12percent of Kofaxs overall revenue,grew 23.2 per cent to $31.4m for theyear to 30 June.

BLACKROCK, the worlds biggestfund manager, yesterday unveiledplans to float a US-basedinvestment trust in London nextmonth, as investors seek to

capitalise on strong S&P 500performance.The fund manager, which runs

$3.35trn (2.11trn) for clientsglobally, will seek a premiumlisting on the London StockExchange when the trust has itsIPO in October.

The fund, expected to raise inexcess of 100m, will be run fromNew York and invest in large USlisted companies which focus onhigh dividend growth.

Investors will be looking to tap

BlackRock set for US trust floatdespite tough market for IPOs

BY MICHAEL BOW strong performance from the S&P500. The index is more than 11 percent in the year to date versus aseven per cent increase from theFTSE.

The fund will be led by formerMerrill Lynch Investment

Managers stalwarts Bob Shearerand Kathleen Anderson, who bothjoined BlackRock when the twohouses merged in 2006.

However, the venture, called theBlackRock North AmericanIncome Trust, will be launching ina tough market for investmenttrust floats. In July, the IPO of theF&C Barrow Hanley US Trust waspulled after it failed to raise the50m it was seeking and theBlackRock trust is aiming fordouble this amount.

FITCH Ratings, the influentialrating agency, yesterday warnedmainland European assetsmanagers they were falling behindtheir US and UK counterparts inhaving flagship funds largeenough to add value to their

businesses.Fitch, which rates funds and

asset managers, said houses withhigh profile funds over 1bn(793m) were more competitivecompared to asset managers witha smaller range of funds.

The US and UK currentlydominate the large fund space,

with just 430 funds out of 12,000

cross border offerings in mainlandEurope having assets of over 1bn.

Fitch flags supersize funds as

key to asset manager successBY MICHAEL BOW

Fitchs managing director for itsfund and asset manager group

Aymeric Poizot told City A.M.: "USand UK fund managers are moreactive in emerging market funds,

global bond funds and multi asset,where recent growth has been.

If you are an asset manager andyou want more assets undermanagement you need to addcapacities where growth will be.

But most mainland Europeanmanagers are not as diversified for

business and most will havemissed the emerging marketsstory. They also need to be moreactive on a cross border basis."

Of the top ten players with thelargest number of funds but

smallest flagships, nine are basedin mainland Europe.

Kofax PLC


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G E T T Y

THE ROYAL Bank of Scotland (RBS)reacted quickly and effectively to its ITcrisis in late June, an influential com-mittee of MPs has declared today but now bears a major responsibilityto restore faith in the system.The Treasury Select

Committee has published aseries of letters to and fromRBS boss Stephen Hester andFSA head Lord Turner, reveal-ing the steps the bank and reg-ulators took to clean up themeltdown, whichleft tens of thou-sands of cus-

tomers withoutkey services.

Hester in par-ticular receivedpraise for hisrapid responseto the crisis,

RBS praised forquick clean-up

of IT meltdownBY TIM WALLACE including immediately agreeing towaive all fees and charges related tothe problems, and working with cred-it ratings agencies to ensure customersdid not lose out.

Mr Hester took swift action to reme-dy the failure; he also took full respon-

sibility on behalf of RBS. He did theright thing, said committee chair-man Andrew Tyrie.

A full report into the breakdownis set to be published by RBS this

year, while the FSA has also com-missioned an independent review.But the episode also has implica-

tions for the wider industry.Every bank should be

checking its IT systems.

We need to have confi-dence that such a fail-ure cannot happenagain, said Tyrie.

IN BRIEFMaverick German economist diesn Norbert Walter, Germanys best-known economic analyst and amaverick free-marketeer whoconsistently opposed excessive stateintervention in the economy, diedyesterday at the age of 67. Walter madehis name as Deutsche Banks chiefeconomist between 1990 and 2009, andsolidified his reputation by correctlypredicting the harshness of the Germancontraction due to the financial crisis.

Green Party elects new leadern The Green Party of England andWales yesterday elected formerGuardian journalist Natalie Bennett tobe its new leader. Born in Australia, shetook 42 per cent of the vote on a 3,111turnout and has pledged to increase thenumber of Green MEPs from two to sixat the next election. Bennett replacesCaroline Lucas, the partys only MP, whostepped down as part of a strategy toboost the media profile of other Greens.

MICHAEL Gove yesterdayconfirmed plans to replaceGCSEs the standard exam for16-year-olds in England, Walesand Northern Ireland with amore rigorous qualification

based on the old O-level tests bythe autumn of 2014.

The education secretary alsosaid he would phase out modularassessment of students in theaftermath of this years row overchanging boundaries for GCSE

grades in English.

Michael Gove promises to pushahead with abolition of GCSEs

BY JAMES WATERSON Gove said the decision to alterthe boundary between a C and aD grade halfway through theacademic year was unfair andinappropriate.

But he refused calls fromopposition politicians to orderexam regulator Ofqual toinvestigate the change in

marking standards from oneterm to another.If ministers were to interfere

in Ofquals decisions they wouldbe meddling where they shouldnot interfere, he explained.


Michael Gove aims to put an end to grade inflation with a rigorous new exam

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Fred Goodwin to be targetedby shareholders in legal battleFORMER RBS chief executive FredGoodwin could be sued

personally by a shareholderactivist group if campaignerssuccessfully raise enough moneyto launch their suit, it emergedyesterday.

The RBoS Shareholders Act ionGroup plans to begin legalproceedings in the next month,accusing RBS and several keybosses at the bank of misleadingthem about the strength of thebank during a 12bn rights issue

BY TIM WALLACE in 2008.Shortly after the cash call the

bank needed bailing out by thegovernment, and shareholders

were left out of pocket.The 3.3bn lawsuit will begin ifthe shareholders can find roughly15m to buy insurance againstlosing the case.

RBS believes there aresubstantial and credible legaland factual defences to theclaim, pledging to defend itselfvigorously from the suit.

The claimants expect t he caseto cost tens of million of pounds

in legal fees, as the bank haspledged to fight the claims.

But although Goodwin, as wellas former RBS chairman Sir Tom

McKillop and ex-investmentbanking head Johnny Cameron,are being targeted personally,they should not have to pay outindividually if the case does findthem to have been in the wrong.

As directors of a majorcompany they are covered byinsurance against such aneventuality, giving them and thebank protection against theclaims.

Andrew Tyrie wants toprevent future failures

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OIL and gas explorer Lochard Energyis putting itself up for sale.The exploration firm, which has a

10 per cent interest in the Athenafield in the North Sea, last year triedto farm out two other discoveries,but offers fell short.

Australia-based Lochard, which islisted on junior stock market Aim,said: Following discussions with anumber of parties regarding a farmout, the board believes that therewould be a higher level of interestwere they to seek a buyer for thecompany.

Production started at the Athenafield in June, and current outputstands at 10-11,000 barrels of oil aday. The oil field, which is operatedby Ithaca Energy, is Lochards flag-ship asset and has 18m barrels of oilin reserve, of which 2m belong toLochard.The sale comes as Lochard reported

a pre-tax loss for the first half of the

year of A$7.76m (5m), up fromA$4.38m the year before.

Aussie explorerLochard huntsfor a new buyer

BY CATHY ADAMS Revenue was up to A$1.81m, fromA$20,000 the year previously.

Non-executive chairman of LochardClive Carver said yesterday: The diffi-culties of the past are now quantifiedand are now behind us.

Our immediate strength comesfrom the continuing cashflows fromour interest in the Athena field,which after summer 2013 are expect-ed to become substantial, he added.

Lochard declined to comment onany interest from buyers, or put aprice on the deal.The shares gained 7.27 per cent on

the news, closing at 7.38p.

IN BRIEFOphir Energy doubles estimatesn Shares in Ophir Energy soared yester-day as it doubled its resource estimatesat its site in Tanzania. The East Africa-focused oil and gas company said thereis now between four and nine trillioncubic feet of potential resources at theUpper Cretaceous Mzia discovery block,up from previous estimates of two to sixtrillion cubic square feet.

Max Petroleum strikes oiln Kazakhstan-focused Max Petroleumhas struck oil in an exploration well inthe Baichonas West prospect in theMiddle Eastern country. It reached adepth of 1,430 metres, although thereservoir quality is slightly thinner thananticipated. Shares rose 6.5 per cent.

Sirius unveils UK potash plantn UK mining company Sirius said yes-terday it will construct a 6bn potashproject in York, but will do so withoutharming the North York Moors NationalPark. The firm pledged to employaround 1,000 people at the project, andsaid it expects to produce 1.5m tonnesof potash sulphate around 10 per centof the estimated global demand by

2024.

Eland Oil & Gas floats on Aimn Energy company Eland Oil & Gas yes-terday floated on the junior stock mar-ket in a placing worth 118m, aftercompleting the purchase of a stake in aNigerian oil block. At the placing price of100p a share, the market capitalisationof Eland is expected to be 135m.

BASE metal miner Talvivaara, which focuses mainly on nickel and zinc, yesterday soaredon the stock market, closing up nearly 12 per cent at 140p. Investors were buoyed bynews that its balance sheet was stable a nd that no job cuts were in the pipeline.

MINER TALVIVAARA DEFENDS CAPITAL POSITION

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CIBC World Markets, based in Canada, is act-ing as the financial adviser on LochardEnergys sale. Ashley Gardyne, executivedirector of energy investment banking atCIBC, is the lead on the deal, working along-side colleague Sameer Peethe, also an exec-utive director. Prior to joining CIBC, Gardyneworked for RBS, ABN Amro and the ReserveBank of New Zealand and gained a Mastersdegree in finance from the University of

Otago in New Zealand. Gardyne has experi-

ence working with junior companies. Earlierthis year he advised Dragon Oil on its possi-ble merger with Bowleven. CIBC is also nostranger to smaller natural resources com-panies, as it advised Yamana Gold on itsacquisition of Extorre in June. Meanwhile,finnCap is acting as the adviser and brokerfor Lochard, and worked with Lochard earli-er this year when it listed on the junior stockmarket. Matthew Robinson, corporatefinance director at finnCap, is the leadadviser. He has provided takeover advice toresource companies including Aim-tradedKopane, which was bought by fellow Aimcompany Firestone Diamonds for 51m,African Diamonds, bought by LucaraDiamonds for 80m, and the copper explor-er Kiwara when bought for $260m (163m)

by mining major First Quantum.

ADVISERS CIBC WORLD MARKETS

ASHLEY GARDYNECIBC

VIOLENCE erupted at a second SouthAfrican gold mine yesterday, asaround 50 Lonmin miners werefreed after murder charges againstthem were dropped.

Fierce clashes erupted at theModder East near Johannesburgyesterday morning after around 60ex-workers, who were dismissed afteran illegal strike in June, protested atthe entrance to the mine.

Meanwhile, striking Lonminminers have been released as murdercharges against them were dropped.They were charged last week inconnection to 44 deaths last monthat Lonmins Marikana mine.

Violence hitsmore SA mines

BY CATHY ADAMS

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LONDON REPORT

Bulls pin hopeon ECB despitenegative data

EUROPEAN stocks ended higheryesterday, extending theprevious sessions rally asinvestors hopes of further

stimulus from central banksovershadowed grim manufacturingdata from China and Europe.The FTSEurofirst 300 index of top

European shares ended 0.8 per centhigher at 1,091.61 points, with the

index experiencing its lowest tradingvolumes since last DecembersChristmas week, due in part to thefact that Wall Street remained closedfor a public holiday. The Eurozonesblue chip Euro STOXX 50 index added0.9 per cent, to 2,463.17 points.The rally was broad based, with

French pharma group Sanofi adding2.2 per cent and Italian lenderUniCredit gaining 1.7 per cent.

Despite figures showing theEurozone manufacturing sector con-tracted faster than previously thoughtlast month and data from China sig-nalling that the pace of the countryseconomic growth will weaken wellinto the third quarter, investors con-tinued to focus on this weeksEuropean Central Bank policy meet-ing.The ECB is expected to unveil details

of a plan to buy bonds from Spain andItaly to lower the two countries bor-rowing costs and ease debt.Yesterday, ECB President Mario

Draghi was reported as saying thatthe purchase of sovereign bonds witha maturity of up to three years by thecentral bank would not breach EUrules, easing worries about the planspotential hurdles.

Despite yesterdays gains, FrancoisChevallier, strategist at BanqueLeonardo, warned that equities willstruggle to extend their rally startedin late July.

UK blue chips broke a four-day losingstreak in thin volume yesterday asmining stocks rallied onspeculation about new economic

stimulus from the worlds top metalsconsumer, China.

Mining shares rose 1.3 per cent afterweak manufacturing data from Chinaraised expectations that Beijing wouldlaunch new monetary stimulus measuresto revive its economy.

China is very reminiscent of what wereseeing at a global level, Chris Wyllie,chief investment officer at Iveagh.

We seem to have this drug-addictedmarket, looking for stimulus in China,overreacting to growth slowdowns,assuming that it must inevitably be theharbinger of the next bear market, andtherefore looking for the drug fix inresponse.

Shares in the UK mining sector have fall-en around 20 per cent since early Auguston the back of largely lacklustre tradingupdates, which showed that second-quar-ter earnings fell on average by 44 per centdue to decline in Chinese demand.

Wyllie warned that Chinese authoritiesmay be reluctant to act given that part ofthe slowdown seen in new orders was dueto anaemic growth in the Eurozone andcould not be stimulated by Beijing.The FTSE 100 closed up 46.93 points, or

0.8 per cent, to 5,758.41, having shed 2.6per cent over the previous eight tradingdays, although volumes were low as theUS market closed for Labor Day.Among the few heavily traded stocks,

Admiral Group fell three per cent to thebottom of the FTSE, after both CreditSuisse and Canaccord Genuity cut theirratings.

FTSE breaks four-day losing streakon hopes of Chinese fiscal stimulus

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ADMIRALCredit Suisse has cut theinsurance firms targetprice to 1250p from1300p and downgradedits recommendation toneutral fromoutperform. The notecited weak car growth.

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MORRISONNomuras rating of thesupermarket giant hasbeen slashed to neutralfrom buy while thetarget price is down to300p from 350p. A

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ARM HOLDINGSDeutsche Bank has cutthe UK tech firms ratingfrom hold to sell andpulled down the targetprice from 465p to 400pdue to fallingsmartphone chip pricesand competition fromIntel.

AXA Real EstateDietrich Heidtmann has been

appointed global head of investorrelations and capital markets atthe real estate fund. He joins fromGrosvenor, where he wasresponsible for capital raising andinvestor relations. Heidtmann hasalso held roles at Morgan StanleyInternational.

CofaceFrederic Bourgeois has been appointed managing directorof the credit insurance firms UK and Ireland business. He

joined in 2004 after seven years as a financial analyst atNatexis. Bourgeois replaces Xavier Denecker, who is retiring.

Ignis Asset ManagementSimon Cowan has been appointed fund sales director at theasset management firm. He was previously regional salesmanager at Old Mutual Asset Managers, and has also heldsales roles at Lazard Asset Management, Invesco AssetManagement and Friends Ivory & Sime.

Pioneer InvestmentsNicholas Pothier has been appointed senior portfoliomanager in the investment management firms multi-assetbusiness. He joins from HSBC Global Asset Management,

where he was senior portfolio manager. Pothier has alsoheld roles at AXA Investment Management.

RBC Wealth ManagementThe wealth management division of the Royal Bank ofCanada has appointed Ben Taylor as a director on itsLondon-based Middle East and Levant desk. He joins fromHSBC Private Bank, where he has been a relationshipmanager for the region since 2010.

Carmignac GestionMarkus Kulessa has been appointed as an analyst in theasset management firms European equities team. He joinsfrom KPMGs mergers and acquisitions department.

WHOS SWITCHING JOBS Edited by Tom Welsh

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

CITY MOVES

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EVER since the RepublicanParty decided it would set up acommission on returning tothe gold standard,commentators have been

discussing the pros and cons ofbacking the dollar with the yellowmetal. One strand of criticism hasbeen the cost of using gold. Whilethere are strong arguments againstreturning to a gold standard, thisparticular criticism holds little water.

In contrast to todays fiatcurrencies, which are backed bynothing, a gold standard wouldensure that real resources were usedto back your bank notes and depositaccounts. The main benefit of such aregime is that politicians cant print

money at will to serve political ends.

THERE is one, single policy issuethat dominates British politicstoday: the economy. It is thepreeminent issue thatdetermines the welfare of

British citizens. Whether they have ajob, how well paid they are in thatjob, what taxes they have to pay, whathealthcare and pensions they get,how good their childrens educationwill be all of this depends on thehealth of the economy. And thehealth of that economy is pretty dire.We are making heavy weather of

deficit reduction. The governmentborrowed 3.4bn more in July than inthe same month last year. And growthprospects look poor. Quite simply, weare bumping along the bottom.

Of course, the chancellor can quiteproperly point to reasons beyond hiscontrol: the spectacular debt over-hang that he inherited from a fiscallyincontinent Labour government; thedepression of our export market bythe incompetent and futile policies ofthe Eurozone powers; the devastatingimpact on our economy of the bankfailures. He is right to point these out,but an alibi is not a policy.

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The Forum wants you to join the debate. Top responses will be reprinted in The Forum.

20TUESDAY 4 SEPTEMBER 2012

DAVID DAVIS

Weve been here before: Britainsdecline and fall is not inevitable

There is a risk that by focusing onparcelling out blame, we accept ourcircumstances with too much fatal-ism. In economics, to understandshould not be to excuse. The parlous

circumstances should not be anexcuse for inaction, but rather a spurto dramatic action.There are those who think that our

comparative decline is inevitable; thatthe rise of massive low-cost competi-tion from China, India, Brazil and theother emerging economies means aninevitable decline of the West in gen-eral, and Britain in particular; that weface a future of low growth and poorprospects; that this is the new nor-mal. This is fatalistic nonsense.We have been here before, of course.

In the 1970s the British establishmentwas convinced that the job of the gov-

ernment was to manage ourinevitable decline to accept that therise of the

cityam 2012-09-04

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