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FTSE 100 5,598.48 +51.40 DOW 10,860.26 +197.84 NASDAQ 2,381.22 +54.14 /$ 1.58 +0.01 / t1.17 -0.01 /$ 1.35 +0.02 Certified Distribution02/08/10 29/08/10 is 93,782

HSBC facesshareholdercriticism

INVESTORS in HSBC, still reeling fromone of the most poorly-handled suc-cession processes in the banks histo-ry, have highlighted pressing concernsover the appointment of financedirector Douglas Flint as chairman.

Flints appointment to steward thebank has sparked fears over the extentto which the former executive can betruly objective in the future, given thathe has not come in to chair the bankfrom outside it.

One shareholder said: Theres anelephant in the room and thats Flint.

The chairman must be able to chal-lenge decisions and hold the board toaccount, especially at difficult times,and its hard to see how Flint can dothat having worked so closely in thepast with Stuart Gulliver.

Gulliver, HSBCs head of investmentbanking, replaces Michael Geogheganas chief executive at the end of the

year. Though he and Flint are widelyrespected in the City, with a combined45 years of HSBC experience behindthem, investors have also voiced dis-content over the way HSBCs board,led by senior independent non-execu-tive Sir Simon Robertson, handled theappointments.

It now looks as if the formerGoldman Sachs veteran John

Thornton will also be leaving thebank after missing out on the chair-

mans role. Thornton would bemissed for his experience in south-east Asia in particular.

MORE P8

BY VICTORIA BATES

BANKING

Ed Miliband beat his brother in the Labour leadership race thanks to trade union support Picture: REUTERS

ED MILIBANDS policies could havevery serious consequences for theeconomy, a City pressure group

warned yesterday, after the newLabour leader used his first majorinterview to launch a scathing attackon bankers.

Ed Miliband, who beat his brotherDavid in the race to become Labourleader by mopping up trade union

votes, yesterday said he would increasetaxes on banks and bankers to help cutthe deficit.

I think we can do more on taxationfrom banks. Why is it is important totake more from the banks? Theycaused the crisis, Miliband said in aninterview with the BBCs Andrew Marr.

He added: Of course for people cre-ating wealth there need to be incen-tives, but for people destroying wealth,people were rightly appalled by that.

The new Labour leader said, if elect-ed, he would make the 50p tax ratepermanent and try to narrow the gap

between the wealthiest and poorest byintroducing a High Pay commissionand a new higher living wage.

In his leadership campaign,Miliband also argued for a financialtransactions levy or Tobin tax.

But yesterday Stuart Popham, chair-man of lobby group TheCityUK andsenior partner at law firm CliffordChance, said such policies could dam-

CITY SAYS RED EDIS ANTI-BUSINESSBY DAVID CROWAND VICTORIA BATESPOLITICS

www.cityam.comIssue 1,228 Monday 27 September 2010 FREE

ROOS WOESCONTINUE

UNITED MISS THE

CHANCE TO CLOSE

THE GAP P31

WHY BOVIS HOMES ISSTOCKPILING LANDWE TALK TO ITS CEO P17

BUSINESS WITH PERSONALITY

age the British economy.He said: Each of these policies

would have an impact individually,but their aggregated impact couldlead to very serious consequences forour economy.

Tim Linacre, chief executive of stock-broker Panmure Gordon, said the

Labour party needed to recognise theimportance of business in generatingwealth to tackle the deficit.

He added: Many of the policies he

has proposed have the potential todrag Britain back very far indeed, andsuch an anti-business position is mad-ness. I think and hope that there will

be quite a significant change in EdMilibands position as Labour leaderrather than as a leadership hopeful.

Meanwhile, Miliband sounded the

death knell for New Labour, insisting:The era of New Labour has passed, anew generation has taken over.

He distanced himself from former

chancellor Alistair Darlings plan tocut the deficit in half within four

years. I think as far as Alistairs plan isconcerned we should keep looking atthat plan and see how to improve it.

And he said Tony Blair was wrong tosay bank regulation had gone too farsince the crisis. New Labour got stuck

in an orthodoxy that deregulation wasthe answer. We need to be reformers.LABOUR LEADERSHIP: ALLISTERHEATH P2: MORE ON PAGES 4-5

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MCVITIES manufacturer, UnitedBiscuits (UB) is in talks with one ofChinas largest food groups about apossible takeover that could value theBritish company at almost 2.5bn.

The Shanghai-based foods groupBright Food yesterday confirmed thatit was in talks with UB to pen a dealthat would potentially hand theChinese group a large chunk of theBritish food industry.

If the two agree a deal, Bright Foodwill acquire UB, which is also behindbrands such as Hula Hoops, McCoysand Twiglets, from private equity own-ers Blackstone and PAI.

It is understood that Bright Food hasturned to Rothschild for financialadvice.

UB was put up for sale in July afterBlackstone and PAI hired GoldmanSachs and JP Morgan to prepare for anauction of the business. The two

bought the food company in 2006 for1.6bn.

Already a number of bidders haveexpressed interest in UB, includingNew Jersey-based Campbells.

In August, Campbells, which manu-

factures canned soup and pasta sauces,emerged as a lead bidder for UB. TheUS company, however, was just inter-ested in UBs biscuits business and notits snacks operation.

Food giants Kraft, Kelloggs andPepsiCo were also thought to be inter-ested in UB, as well as Indias Britannia.

UB, which was founded in 1948, lastyear saw profits rise by 13.4 per cent to223.4m. It has annual revenues of1.3bn and net debt of 1.2bn.

Bright Food, meanwhile, last yeargenerated roughly 200m in profits onsales that reached 4.3bn. Its brandsinclude Big White Rabbit candy andShikumen yellow wine

Despite the fact it is already foreignowned, a possible deal with BrightFood is likely to spark concern over thefuture of UBs British employees andcould trigger interest from the inter-

ventionist Vince Cable.

Chinese set to

eat up UnitedBiscuits deal

TESCO boss Sir Terry Leahy haslaunched a stinging attack on Cityinvestors for failing to act in the bestinterests of Britains public compa-nies.

Writing in todays Times, Leahysaid shareholders would benefit from

becoming more engaged with thefirms they invest in.

This would also free up managersfrom dealing with the goals of shortterm investors and allow them to cre-ate more wealth in the long-run.

He said: Many investors dontwant to get under the skin of thebusiness or dont have the patiencefor long-term value creation.

While executives may invest manyyears... in one company, investors mayconsider that a long-term interest in acompany lasts only a year or two.

Tesco boss slamsshort-term investors

BETFAIRS hopes of achieving a valua-tion above 1.4bn in its upcomingfloat have received a blow from a rivalonline bookie.

Bodog was forced to slash its oddson Betfair failing to hit the sum aftera rush by shrewd punters. Bodog ini-tially offered 8/11 on the IPO failing tohit 1.4bn but was forced to cut theprice twice, first to 1/2 then to 1/3.

The bookie also reported a numberof customers setting up accountsespecially to place bets against Betfairreaching the figure, seen as a warn-

ing sign in the industry.A Bodog spokesman said: We have

had 182 bets on the downside com-pared to just 22 on the upside. For a

bet this niche this is quite a lot.Having a lot of experience in thisindustry Im pretty certain these peo-ple will turn out to be right.

We even had people setting upmultiple accounts so they could getthree bets at the maximum of 500 a

bet.The worlds biggest online betting

exchange is not planning on raisingnew capital in the flotation but willput a minimum of 10 per cent ofthe company on the marketthrough the sale of shares of exist-ing stakeholders.

It expects to announce its pricingafter its annual meeting next month.

Blow to Betfair as odds on 1.4bnfloat valuation are slashed by rival

BYHARRY BANKSUK ECONOMY

BY STEVE DINNEEN

GAMING

BY EMMA SADOWSKI

FOOD

News 3CITYA.M. 27 SEPTEMBER 2010

Profits reached 223.4m last year. Sales reached 1.26bn last year. Net debt reached 1.2bn last year.Manufactures: McVities, Jaffa Cakes,McCoys, Twiglets, Hula Hoops and Phileas Fogg.

FAST FACTS | UNITED BISCUITS

Jeff Van der Eems

is chief operatingofficer for UnitedBiscuits (UB), whichmay be sold toChinese group

Bright Food. UBsbrands include

HobNobs and HulaHoops

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ED Miliband was last night desperate-ly trying to get his older brother to

become shadow chancellor, althoughhe has not yet sealed the deal.

An aide to David Miliband, whowas narrowly beaten in the battle tobecome Labour leader by his youngersibling, said he hadnt decided

whether to put his name forward forelections to the shadow cabinet.

It had been assumed that the elderMiliband would agree to serve underhis brother if he failed to win thecrown, but yesterday his campaignteam rowed back from that position.

He doesnt have to decide untilWednesday at 5pm, when nomina-

tions for shadow cabinet close, saidone. He wont make a decision untilshortly before then.

Sources close to the new Labourleader said he thinks shadow chancel-lor is the only job David Miliband canaccept without losing face.

However, the brothers differingopinions on deficit reduction couldcause difficulty. David Milibandagrees with Alistair Darlings propos-al to cut the deficit in half withinfour years, whereas his younger

brother says that this is a plan thatneeds to be improved.

If David Miliband decides to rejectthe job offer, most think that EdBalls, the former schools secretaryand Brown ally, will get the majoreconomic brief.

But sources within the Ed Milibandcamp were yesterday talking up thechances of Yvette Cooper, the formerpensions secretary and Balls wife.

Former cabinet ministers like TessaJowell and Alan Johnson two of theremaining Blairites will also bestrong contenders for big jobs, in a

bid to unify the right and left of theparty. Newer faces like David Lammy,

Sadiq Khan and John Healey are alsounder consideration.

Rivals jostleto be shadowchancellorBYDAVID CROW

POLITICS

THERE is undisguised mirth in Torycircles at the election of Ed Milibandas Labour leader. On Saturday night,shortly after the result wasannounced, staff at Conservative HQ

were popping open the champagne.

Advisers to David Cameron think thenext election is more winnable thanever.

Much of this relief is understand-able. Ed Milibands victory has sound-

ed the death knell for New Labour,that election-winning machine whichthe party has come to hate. The Torieshave always said Tony Blair wasunbeatable and feared that DavidMiliband, his last disciple, would alsoprove a tough opponent. They will beglad his only shot at leading the oppo-sition has passed.

Ed Miliband sees no shame in clos-ing the door on the Blairite past, andeverything it stood for. The era of NewLabour has passed, a new generation

has taken over, he said yesterday, inhis first major interview since winningthe crown.

There is nothing new about theteam that now leads Labour, however.

Ken Livingstone is not only the partysmayoral candidate, but also toppedthe poll in the race to sit on itsNational Executive Committee (NEC).Lord Kinnock, flag bearer for the left

wing, was one of Ed Milibands mostvocal supporters. Despite Blairsattempts to consign them to history,the union barons are once again animportant voice in the political debate.

Its not just the same old faces. Goneis the emphasis on social mobility, onreward for hard work and entrepre-

The Tories shouldnt write-off Red Ed

Labour Leadership4 CITYA.M. 27 SEPTEMBER 2010

neurial spirit. It will be replaced byequality, essentially old-fashionedredistribution of wealth. Labour nolonger wants to grow the pie it just

wants to cut it up more evenly.

The banks will be bashed; the richwill be soaked; the private sector willbe banished from public services. Thisis the manifesto on which Labour willfight the next election. And they could

well win despite what the Toriesthink.

For Ed Miliband is not the joke thathis opponents are trying to portrayhim as. No, he is not as good as Blair,few politicians are. But he is still one ofthe most credible Labour leaders inrecent times.

He is much better than NeilKinnock, the Welsh windbag that

voters simply wouldnt vote for in 1992 no matter how much they hated

John Major and his completely dividedgovernment. As Gordon Brownsfavourite number cruncher, he is clear-ly economically literate, unlike HarrietHarman, and will be able to twist factsand figures to attack the government

as only a Brownite can. He is no pro atTV, but his smile is nowhere near asscary as Browns.

If he can convince the big tradeunions to keep industrial unrest incheck, his populist brand of socialismcould tap into the banker-bashing zeit-geist. As could his claim that thedeficit can be reduced without muchpain. Voters might say they back toughcuts right now, but its easy to say that

before their impact starts to bite.Worst of all for Cameron, Ed

Miliband is an unknown both in pol-itics and public. A fresh face gives himan enormous advantage.

DAVID CROWPOLITICAL EDITOR

Wife swap: Ed Balls is hoping to becomeshadow chancellor but his wife, Yvette

Cooper, is also a strong contender

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Labour Leadership 5CITYA.M. 27 SEPTEMBER 2010

SHADOW CHANCELLOREd Balls 49%

Yvette Cooper 37%David Miliband 35%

SHADOW FOREIGN SECRETARYDavid Miliband 52.35%Yvette Cooper 24%Alan Johnson 10%

SHADOW HOME SECRETARYAndy Burnham 35%Ed Balls 35%Alan Johnson 15%

*odds from Smarkets

ANALYSIS |SHADOW CABINET ODDS

ANALYSIS | DOWN TO THE WIRE

ED MILIBAND DAVID MILIBAND

15.52%

15.20%

19.93%

50.65%

17.81%

18.13%

13.40%

49.35%Ed Miliband beat hisbrother in the Labour lead-ership race

Picture: GETTY

CHARLIE Whelan, the outgoing polit-ical director of the Unite union, yes-terday claimed he delivered a victoryfor Ed Miliband by pressuring sixLabour MPs to change their vote.

The former Gordon Brown spindoctor said he convinced the MPs,who rely on trade union funding, to

put Ed Miliband as their second pref-erence. Under Labours electoral col-lege, an MPs vote is worth about 600ordinary party member votes.

The claim will come as anembarassment to Ed Miliband, whowon the election by sweeping up thevotes of trade union members. Hisbrother David was more popular withboth MPs and members.

Unions accused of foul

play in Labour campaignPOLITICS

CANDIDATE

MPsANDMEPs

PARTYMEMBERS

TR

ADEUNIONS

TOTAL

AN

DAFFILIATES

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VENEZUELA has granted BP permis-sion to negotiate the sale of its assetsin the South American OPEC mem-ber, Venezuelan Oil Minister RafaelRamirez said yesterday.

Last month, he said BP would needauthorisation from the administra-tion of President Hugo Chavez to sellits minority stakes in two explorationand production joint ventures withVenezuelas state oil company PDVSA,as well as its interest in thePetromonagas crude upgrader.

The assets are valued at between

$850m (537m) and $1bn. BP hasbeen seeking to raise up to $30bn.

THE financial services sector grew atfaster rate in the past three monthsthan any time since June 2007 butthe increasing burden of regulation ishitting businesses hard, a CBI-ledreport warned today.

A poll carried out by the CBI in tan-dem with professional services firmPwC revealed an increasingly upbeatCity with the profitability and vol-ume of businesses improving for thefifth consecutive quarter.

The overall number of peopleemployed in the sector increased forthe first time since December 2007although the banking sector buckedthe trend as jobs were slashed.

A total of 37 per cent polled saidtheir volumes had risen in the threemonths to September while only nineper cent said they fell. The remaining54 per cent said there had been nochange. Banks volumes jumped aftertwo quarters of declines and buildingsocieties saw the fast rise since March2008. Meanwhile investment man-agement also saw an upturn withprofitability, while finance housessaw a rapid rise in profitability.

The proportion of firms whothought markets would deterioratefell to 10 per cent, highlighting thegeneral mood of cautious optimism,according to the CBI/PwC FinancialServices Survey.

CBI chief economic adviser IanMcCafferty said: Activity picked upin the financial services sector for inthe last three months at a pace notseen since the credit crunch. He saidthat forecasts had suggested a biggerlift than the report had found butthat things were heading in the rightdirection. However, he said the finan-cial services sector was facing mount-ing pressure with a tide of newregulation.

His views were echoed by PwCs UKbanking chief Andrew Gray. He said:While the capital requirement pro-posals are less stringent than someexpected, they do place significantfinancial demands on the banks which will have consequences forpricing, business models and strate-gy. He added that there were con-cerns among firms that there was nota level playing field and that theCity was being clobbered harder, andmore quickly, than some financialcentres abroad.

City sees lift

in financialservices poll

Exchange Traded Funds

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HSBC ETFs plc is an investment company with variable capital and segregated liability between sub-funds, incorporated inIreland as a public limited company, and is authorised by the Financial Regulator. The company is constituted as an umbrellafund, with segregated liability between sub-funds. Investors and potential investors should read the full Prospectus, andrelevant Simplified Prospectus and Supplement for a full list of risk warnings prior to making a decision to invest. These can beobtained free of charge from HSBC Global Asset Management (UK) Limited, 8 Canada Square, London, E14 5HQ, UK. UKbased investors in HSBC ETFs plc are advised that they may not be afforded some of the protections conveyed by the FinancialServices and Markets Act (2000), (the Act). The company is recognised in the United Kingdom by the Financial ServicesAuthority under section 264 of the Act. The shares in HSBC ETFs plc have not been and will not be offered for sale or sold inthe United States of America, its territories or possessions and all areas subject to its jurisdiction, or to United States Persons.Affiliated companies of HSBC Global Asset Management (UK) Limited may make markets in HSBC ETFs plc. HSBC GlobalAsset Management (UK) Limited provides information to Institutions, Professional Advisers and their clients on the investmentproducts and services of the HSBC Group. Approved for issue in the United Kingdom by HSBC Global Asset Management (UK)Limited. Authorised and regulated by the Financial Services Authority. HSBC Global Asset Management (UK) Limited 2010.All rights reserved. 18924/0910 FP10 -1494

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COMCAST chief operating officerSteve Burke will take the reins at NBCUniversal when his firm completes itsacquisition of the entertainmentcompany.

He will succeed Jeff Zucker as chiefexecutive of the firm when Comcastfinalises the purchase of a 51 per centstake in NBC Universal from GeneralElectric. Comcast chief executiveBrian Roberts said: Steve Burke is anexperienced, talented and visionaryleader with over 25 years in the mediaand entertainment industry.

Burke will have his work cut out tochange the fortunes of the network.

Burke to head upNBC UniversalBP free to sellin Venezuela

BY JOHN DUNNE

FINANCIAL SERVICES

OIL

MEDIA

the number of businesseswho thought marketswould fall significantly

10%said their volumes had

risen in the pastthree months

37%

said theirvolumes would fall

9% the last time activity inthe financial servicesindustry grew at the

current rate

June 2007

News 7CITYA.M. 27 SEPTEMBER 2010

CBI chief economic adviser Ian McCafferty(l) launched the report with PwC executivesPars Purewal (above) and Andrew Gray (r)

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MICHAEL GEOGHEGAN, the outgo-ing chief executive of HSBC, will haveearned a potential payout of up to23m by the time he leaves the banknext year, in the wake of an effectivecoup at the helm of the group.

Geoghegan is in line for a severancepayout of 1.24m, while he is also eli-gible for a bonus of up to 4.2m forthe current financial year. He owns6.2m of shares built up throughouthis 37-year career at HSBC, around

4m worth of restricted shares fromprevious bonuses yet to vest, and7.2m in a long term incentive plan.

But the actual amount Geogheganwill take home will almost certainly beconsiderably less than 23m, due tothe stringency of the targets to whichHSBCs long term incentive plan isaligned. The scheme typically onlypays out a quarter of its value overtime. He has also previously donatedbonuses to charity, including 4m inthe prior financial year, meaning the

2010 award and restricted shares mayend up in third sector coffers.

HSBCs treatment of Geogheganduring the succession process, whenlurid details of a rift on the boardwere leaked to the press, has comeunder fire from investors despite thebanks denial of any bad blood.

George Godber, a fund manager atMatterley, said: There have beenmany raised eyebrows about theprocess, which was very out of charac-ter for HSBC, a deeply conservativeorganisation. It all just seemedextremely unprofessional.

23m payoutsoftens blowto Geoghegan

HSBCs Michael Geoghegan could be laughing all the way from the bank Picture: GETTY

BYVICTORIA BATES

BANKING

News8 CITYA.M. 27 SEPTEMBER 2010

Managementteam has itswork cut out

THE coup that cost MichaelGeoghegan his job was caused by adramatic boardroom rift in a bankfamed for its conservatism. Whilethis kind of putsch might beexpected at one of its rivals, HSBCis a gentlemanly outfit wheredecorum is all. No-one can denythat the bank has promoted two ofits best to the chair and chief exec-utive role. Few in the industryhave a bad word to say aboutDouglas Flint or Stuart Gulliver.But the sorry episode has exposedsome of HSBCs failings. The topjobs should not be automaticallyhanded to heir apparent candi-dates: no-one should feel they areentitled to any particular position.

Because while HSBC avoidedsome of the riskier activities thatproved so toxic for its rivals, it stillhas much to do. Despite talking

the Asian talk, it walks with a dis-tinctly western swagger, garner-ing 44.1 per cent of pre-tax profitsfrom Europe, the UK and theAmericas (compared to just sevenper cent for rival StandardChartered). The new managementteam has its work cut out.

BOTTOMLINEAnalysis by David Crow

ANALYSIS l HSBC

28 Jun

600

640

660

680

700

620

p

16 Jul 5 Aug 25 Aug 15 Sep

666.3024 Sep

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SIR Nigel Rudd, the chairman of air-port operator BAA, at the weekendwarned that preventing Heathrowfrom building a third runway poses asignificant threat to the UKs compet-itiveness.

Rudd said that the decision to pullplans for the third runway, a centralpromise made by the coalition gov-ernment after the general election inMay, would make Heathrow a sec-ond tier airport, lagging behind itsEuropean peers.

The question I want answering is,if there is going to be no third run-way, and no more in the South East ofEngland, how does the nation copewith the fact that were going toreceive an ever decreasing share ofinternational passengers as all theother major international airportsare expanding? Rudd asked in aninterview with the Sunday Telegraph.

Were becoming less competitive,he added. Even if we continue tomake operational improvements,[Heathrow] will still be a world classbut second tier airport.

Rudd, who made his business

name building up conglomerateWilliams Holdings with Centricachairman Roger Carr in the 1980s,said BAAs major investors werebefuddled by the decision not to goahead with the third runway.

Majority owner Ferrovial, theSpanish construction group, andsmaller stakeholder GIC, theSingapore-backed investment compa-ny, dont understand why were notchampioning the UK, Rudd said.

His comments come after theTories and Liberal Democrats official-ly pledged in their coalition agree-ment in May to drop the thirdrunway at Heathrow. The govern-ment also agreed to block future newrunway developments at Stanstedand Gatwick.

The issue has previously drawn anemotive response from the businessworld as well as green campaigners.

Last year, a group of influentialCity figures including Kingfisherchief executive Ian Cheshire, CreditSuisse banker Russell Chambers,Sainsburys boss Justin King, privateequity guru Jon Moulton and CharlesDunstone of Carphone Warehouse united to lobby against the new run-way.

Rudd: lack of

third runwaywill harm UK

TALKS between US bank M&T andSantander over a $7.14bn (4.5bn)merger of their US operations are nolonger on a source close to the dealhas told City A.M.

The negotiations over a mergerbetween M&T and Santander-owneSovereign Bank collapsed onThursday. The deal also has implica-

tions for Anglo Irish Bank (AIB),M&Ts largest shareholder.A deal would have seen the merged

bank come under the control of M&Tchief executive Robert Wilmers withSantander taking a majority stake inthe combined entity. That wouldhave seen Santander buy AIBs 22.5per cent stake in M&T helping AIBraise $1.61bn towards the $9.9bn itdesperately needs to raise by the endof December to meet new bank rules.

Santander talkswith US bank fail

THE owner of Gatwick airport is innegotiations to sell a minority stakein the transport hub to an unidenti-fied investor.

Global Infrastructure Partners (GIP)is believed to be holding talks with aglobal institutional investor with theaim of selling one final minoritystake in the airport it acquired fromthe British Airports Authority for1.5bn in October 2009.

The stake is likely to be the same

size as the 12 per cent GIP sold toSouth Koreas national pension fund

for just under 100m.The identity of the buyer is

unknown although a Sunday newspa-per said bankers thought it most like-ly to be a sovereign wealth fund fromeither Asia or the Middle East.

It has already syndicated nearly 40per cent of its shareholding, selling 12per cent to the South Korean nationalpension fund, 15 per cent to the AbuDhabi Investment Authority foraround 125m and most recently 12per cent to US public pension fundCalpers in June.

GIP intends to retain a 51 per centshareholding in the airport.

Gatwick airport ownersto sell a minority stake

BYVICTORIA BATES

AVIATION

TRANSPORT

BAA chairman SirNigel Rudd haswarned that thelack of a third run-way at Heathrowwill drag the air-port down into thesecond tier

BYMATTHEWWESTBANKING

News 9CITYA.M. 27 SEPTEMBER 2010

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ahead while another is behind, it isthe consistent drivers that utilise all

of their tools of alpha that consistent-ly end up leading the race at the end,Robbins concludes, brightly. Thus,while we are disappointed that thesecond quarter brought heavy traffic,we are satisfied with our navigationalskills as a team, and we believe we areon pace to arrive at our commonobjectives safely and securely.

Thats alright, then.

BOOK WORMVince Cables not having a good timeof it of late, what with the thunder-ous reception to his anti-businesssecretary speech at the Lib Dem con-ference last week and all. Now budgethotel chain Travelodge has anotherpiece of dire news apparently,Cables book The Storm: The WorldEconomic Crisis and What it Meansis the third most readily-discardedtome in the groups hotel rooms sofar this year.

This for the man who, when inter-viewed byCity A.M. earlier this year,couldnt give away his work quicklyenough, foisting the books on his hap-less guest in any number of weird andwonderful foreign languages.

Still, at least he can take solace inthe fact that Simon CowellsUnauthorised Biography and Ant &Decs biography were both placed

even higher in the abandonmentleague table.

COLOUR FLASHWord reaches The Capitalist thatDeloitte is busy persuading all stafffrom diverse cultural backgrounds towear traditional ethnic dress into theoffice on Fridays, as part of its diversi-ty programme. Brings a new andcolourful meaning to dress-downFridays, doesnt it?

MANAGING A HEDGE FUND? SIMPLE,ITS LIKE DRIVING THE SCHOOL BUSYOUVE got to hand it to GlenviewCapital hedge fund manager LarryRobbins The Capitalist has rarelyheard such a creative defence of aperiod of negative returns.

Robbins, in his latest newsletter toclients following a four per centdecline in his portfolio over the sec-ond quarter, touched on the equitymarkets and the wider economicenvironment, but boiled the perform-

ance down to a simple analogy: com-paring his job to that of a bus driver.

Taking his Monday morning rou-tine as an example, Robbinsexplained how driving his children toschool in New York was actually acombination of alpha and beta thelatter being the flow of traffic eachday, and the former his own combi-nation of knowledge, skill and luck,attempting to choose the correct

lane, the alternate route, the bestshortcut to weave along the 15 milejourney.

Our job at Glenview is very similarto my job as Monday bus driver, hecontinued with his investors capi-tal akin to his precious human cargo,and his own mandate to reach theirinvestment goals on time.

While at any point and time itmay appear as though one car is

Glenviews Larry Robbins is certainly creative Pictures: GETTY, Micha Theiner/City A.M.

Flat bed seats may not be available in the event of aircraft substitution. Fifth daily service begins on 31 October, 2010. 2010 Continental Airlines. Inc.

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Cables book is high on the abandoned list

TO THE Nipa Thai restaurant at the RoyalLancaster Hotel last week for a spicy mid-week lunch feast, where our diners whet-ted their appetites with two bottles ofLouis Roederer Cristal Brut before gorg-ing themselves on traditional Thai delica-cies.

They started with soups, soft shell craband fishcakes, moving on to samplesweet and sour seabass, scallops withasparagus and king prawns in red currysauce for main course and traditional icecreams for dessert.

Their banquet was washed down withtwo bottles apiece of Chteau SmithHaut Lafitte and Chteau Malartic-Lagravire, while a round of Hennessy

cognacs and Taylors port brought thebill to 1,222.30 before service.

BILL OF THE WEEK

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BRITISH households felt their walletsstretched even further in Septemberas a combination of rampant infla-tion, job market uncertainty andstatic incomes caused a marked dete-rioration in households finances,the Markit Household Finance Indexwill show today.

Markits survey revealed that 27per cent of households reported adeterioration in September com-pared to just 7 per cent recording animprovement. The index rose to 40.2from 37.9 in August but remainedwell below the 50 no-change level.

Households gloom is not expectedto shift soon 41 per cent of house-holds anticipate a worsening in theirfinancial situation over the next 12months compared to 23 per cent thatforecast an improvement.

Tim Moore, economist at Markit,said: Septembers survey adds to agrowing weight of evidence that UK

households are braced for a renewedsqueeze on their finances in themonths ahead. Concerns over payand job security remain at the fore-front of peoples minds, while stub-bornly high inflation and animpending VAT rise are becomingincreasingly difficult to ignore.

Consumers confidence is notbeing helped by the gloomier out-look for the UK housing market.Hometracks monthly housing sur-vey, published today, showed pricesfalling across all regions for the firsttime since April 2009.

Nationally, house prices fell by 0.4per cent and for the third consecutivemonth. Hometrack expects this peri-od of falls to continue well into 2011.

Agents report that there are fewerpurchasers and that those pur-chasers looking to buy are both cau-tious and choosy the return to abuyers market seems inevitable inthe coming months, said RichardDonnell, director of research atHometrack.

Britons hit byuncertainty

you

gives

If

lemons

life

BY JESSICAMEAD

UK ECONOMY

British shoppers are feeling the economic pinch Picture: Micha Theiner/City A.M.

News12

ECONOMIST VIEWS: HOW CONFIDENT DO YOUTHINK UK HOUSEHOLDS ARE? Interviews by Jessica Mead

HOWARD ARCHER | IHS GLOBAL INSIGHT

With the latest evidence pointing to a significant moderation in growthin the third quarter, we suspect that consumers may have become gloomier againabout the economic outlook and how they might be affected. In particular, con-sumers remain worried over the fiscal squeeze that will increasingly bite.

ALAN CLARKE | BNP PARIBAS

Confidence should be really hurting as a result of the upcoming austeri-ty measures. Just the anticipation of cutbacks and public sector job losses isupsetting peoples confidence. House prices are looking worse and worse and ourreal take-home pay is dropping.

JEREMY BATSTONE-CARR | CHARLES STANLEY

Stock markets have been driven higher but in a real economy plaguedby unemployment, the threat of further job losses, austerity (in the UK andEurope) and falling house prices it hardly feels like a cause for celebration for theman or woman on the street.

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MORE than a fifth of Europes 100most influential women sit at the topof some of the largest companies

within the financial services sector,according to new findings.

According to the fourth annual listof the 100 most influential womencompiled by Financial News, morethan 20 per cent of the listed womenin the European finance sector retainthe chief executive role.

Up to one-third of the list holdmanaging director titles, while 10are regional heads and 15 are headsof department.

The listed women work across theinvestment banking, asset manage-ment, hedge fund, private equity,

wealth management, pensions,financial regulation, exchanges andtrading sectors.

Financial News said this yearsselection showed the industrys con-tinued focus on regulation, theincreased role of corporate gover-nance and the scrutiny by pensionfunds as asset owners. The list alsoreflects the endless work that hasgone into restructuring companiesin the wake of the global financial

crisis.

But, according to the UK Equalitiesand Human Rights Commission,only 44 per cent of the banking,finance and insurance sector is madeup of women and that number is sig-nificantly under-represented at thesenior level.

Financial News argued that the listis proof there is potential to turn thataround.

The City features highly in thisyears list, which includes womenwho work across Europe, the MiddleEast and Africa.

Some of the listed names include,Ann Cairns, who heads the Europeanfinancial services department at

Alvarez & Marsal, Baroness Hogg,chairwoman of the FinancialReporting Council (FRC) andMagdalene Bayim-Adomako, wholeads the bank finance team inLondon for law firm White & Case.

Margaret Cole, director of enforce-ment at the Financial Services

Authority is on the list for a secondyear running.

Financial News, which is owned byNews Corp and is a sister title to TheSunday Times, compiled the list aftercanvassing the industry for morethan 250 nominees.

The results are published today.

Top 100 list

shows womenat senior level

J SAINSBURY has sent a team to Chinato decide whether the supermarketgroup can begin a war on a new front

with its arch-rival Tesco.Senior executives met with officials

from Chinas Ministry of Commercewhen they visited London this week.

Darren Shapland was moved fromfinance director to a business devel-opment role at Sainsbury in June,

charged with looking at possible over-seas expansion, among other moves.A Sainsbury spokesman told City

A.M. the companys position had notchanged since June, when it said it

would conduct fact-finding missionsoverseas, but that it had no short ormedium term aspirations to openstores there.

Tesco has plans to invest 2bn inChinese mall stores over the next five

years.

Sainsbury pondersexpansion in China

BY EMMA SADOWSKI

FINANCIAL SERVICES

Top (l-r): Baroness Hogg, Ann Cairns, Kim McFarland. Bottom (l-r): Magdalene Bayim-Adomako, Tiina Lee and Theodora Zemek.

News 13CITYA.M. 27 SEPTEMBER 2010

THE CITY'S MOST INFLUENTIAL WOMEN

Name Title and Company

1) Margaret Cole Director of enforcement, Financial Services Authority

2) Baroness Hogg Chairwoman, Financial Reporting Council

3) Magdalene Bayim-Adomako Head of London bank finance, White & Case

4) Angela Knight Chief executive, British Bankers' Association

5) Theodora Zemek Head of fixed income, AXA Investment Managers

6) Tiina Lee Head of UK strategy, Deustche Bank

7) Kim McFarland Chief operating officer, Investec

8) Danielle Ballardie Vice president equities electronic trading, BarCap

9) Ann Cairns Head of financial advisory group, Europe, Alvarez & Marsal

10) Saba Nazar Co-head global financial sponsors group, Nomura

CONSUMER

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US Democrats do not have the votesin the Senate to pass their proposal toextend tax breaks for all but the rich-est Americans, Senate majority whipDick Durbin said yesterday after theUS lower house left the door open fora vote on the proposals to be delayeduntil after the mid-term elections.

Under the Democrats proposals, atax break introduced by the previousBush administration would beextended to individuals earning up to$200,000 (126,000) and couples whoearn $250,000 jointly. Republicans

want the tax break extended to all cit-izens. Those affected by theDemocratic proposals represent thetop two per cent of earners in the US.

The tax breaks are due to end on 31December.

Republicans, and a few Democrats,

say the tax reductions should apply toall as raising taxes in an atmosphereof high unemployment and slowgrowth risks slowing recovery.

There are also disagreements overthe timing of the vote after the Houseof Representatives left it open to delay

beyond 2 November, the date ofmidterm elections in which theDemocrats expect to fare badly in.We know we dont have the 60 votesfor our position, Durbin said yester-day.

WAITROSE is to take Tesco head onafter the supermarket giant revealedthat it will price match its rival onover 1,000 branded products.

Starting today, Waitrose will useTesco as a benchmark when pricingits top-selling everyday branded prod-ucts, such as Persil, Ribena and HeinzBaked Beans.

Managing director Mark Price said

this is likely to mean the supermarketwill take a 26m hit on its margins tokeep its prices as low as Tescos.

Price said the move was not to starta war with Tesco but that it was usingthe supermarket as a comparator

because it is the largest.Waitrose said the move builds on

the success of its own in-housebrands, which already make up 17 percent of its sales.

Waitrose will monitor the price-matched items twice a week.

US Senate isdivided in rowover tax breaks

Waitrose to take Tescohead on in price contest

Waitrose managing director Mark Price said he isnt starting a war Picture: REX

US ECONOMY

News14 CITYA.M. 27 SEPTEMBER 2010

BY EMMA SADOWSKIRETAIL

CITY veteran Brian Winterflood hasjoined London Stock Exchange (LSE)chief executive Xavier Rolets call forthe Square Mile to oppose the govern-ments proposed splitting up of theUKs share listing regulations.

According to an audience memberat a Quoted Companies Alliance(QCA) dinner last Thursday,

Winterflood gave an impassionedspeech, calling on all those present tomake submissions opposing the gov-

ernments proposals. These alsoinclude the setting up of a compa-nies regulator, before the consulta-tion deadline in October.

Insiders said Winterflood, theQCAs new president, said the Citymust stay competitive. One told CityAMhis speech came across as veryimpassioned and very supportive ofthe views held by Xavier Rolet.

The backing of Winterflood willcome as a huge boost to Rolet, whocalled on City firms to back his oppo-

sition to the governments proposals.Winterflood is a popular member ofthe City establishment, having

worked in London over 50 years andhelping to found the QCA in 1992.

Two weeks ago the LSE made clearits opposition to government plans tomerge the UKLA and FinancialReporting Council (FRC) arguing theproposals would mean the City would

be under-represented at the EuropeanSecurities and Markets Authority andcould mean the current tri-partiteauthority would simply be replaced

with a new equally complex regulato-

ry structure.I dont speak for others but I

would say that I would not be sur-prised if a number of other partici-pants issued similar views to ours,Rolet told City AMtwo weeks ago. I

want to encourage them to maketheir views known. We need a robustresponse to the consultation.

The proposals are viewed with sus-picion in City circles as business secre-tary Vince Cable would have ultimatecontrol of an expanded FRC.

Winterfloodbacks LSE onrules changeBYMATTHEWWEST

REGULATION

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News 17CITYA.M. 27 SEPTEMBER 2010

The housebuilding chief executivewho can see clear blue skies aheadBovis Homes bossDavid Ritchie tookover in 2008 and isbattling his way outof the housing crisis

FOR A MAN who took over a house-

builder in the middle of a devastat-ing financial and property crisis,David Ritchie, the chief executive of

Bovis Homes, looks remarkably relaxed.But it is certainly fair to say the pain has

eased in recent months for the firm, eventhough Ritchie remains in the middle of

turning it around. Bovis stopped buildingaltogether at one stage and its new CEOhas slashed its costs by half since he tookover in July 2008, in the depths of the hous-ing market collapse and recession. Ritchie,

who has worked at the firm for 12 years,took over the baton from Malcolm Harris,

who moved up to become chairman whenhe hit 60.

We have now resized the business, saysRitchie, who has a soft-spoken Falkirkaccent. We are on the third phase of recov-ery for the business, which is to aggressive-ly buy up land. If we are right this is the

bottom of the market.He says that over the next two years we

want to buy twice as much land as we use.This is a great opportunity to buy a key rawmaterial at the bottom of the cycle.

Ritchie is speaking in his large modernoffice at the firms headquarters in New

Ash Green, Kent. He is short and so lean hecould pass for a long distance runner, butthe married father-of-two says the moststrenuous things he does is cut the grasson his motorised lawn mower and chaseafter his young sons at the weekends.

The Bovis Homes boss says that landtracks house prices in a ratio of aroundthree to one. If house prices move up oneper cent, land will move up three per cent,and vice versa. So since national houseprices are on average 20 per cent belowtheir summer 2007 peak, this makes landcheap to buy. Ritchies thinking is themore land it snaps up now the greater thechance it will have to build profitably

when the market picks up. So far this yearBovis, one of the UKs smallest listed house-

builders, has added 1,874 new plots, boost-ing its landbank to 13,113 units. The firm isin negotiations to buy another 3,000 plots.

Bovis is a mid-market builder that typi-

cally sells three and four bedroom brickhouses on greenfield sites on the edge oftowns or villages in the south of England.In the last year, 80 per cent of the land it

bought was in the south in places likeBristol, Reading and Cheltenham.

Ritchie sold a lot of houses in 2009, cutcosts, and carried out a 60m share plac-ing last September. This saw him moveBovis into a position of having 112m inthe bank with 150m of undrawn bankdebt to call on.

Last month, the housebuilder reported afirst half profit of 3.5m, an improvementfrom a loss of 8.6m a year ago. It sold 803houses, up from 754 in the same period 12months ago. However, the average price at

which the properties were sold fell one percent to 158,500 from 159,700, mostlydue to Bovis selling a higher percentage ofits homes as cheaper social housing. Thefirm also plans to reinstate its dividend atthe end of this year after suspending it inthe housing crisis almost two years ago.

Ritchie adds that if house prices fell afurther five per cent he would still becomfortable with the profit the businessmade. However, he thinks prices will actu-ally remain stable for quite some time.He adds: I see a U-shaped recovery. But thequestion is how long the bottom of the U

will be. I feel now it will be longer than Ihad thought a year or so ago.

A recent Savills report thought therewould be no sustained recovery in thehousing market until 2012, althoughRitchie wont be drawn on when he thinksthe market will pick up.

Still, Bovis has a long way to go to getback to the levels it was at before the mar-ket collapse in early 2007 when it sold 50houses a week. Currently it sells 27.

The recession has had a profound effecton mortgage approvals, which ran to110,000 in August 2007, but plummeted to23,000 in December 2008. Currently, theyare running at between 45,000 and 50,000

a month.In was during this freefall that Ritchie

was handed the top job two years ago.By the middle of 2008 it was clear that

we were looking at something very seriousindeed, he says.

Ritchie explains: We began a three-stepprogramme. The first step we had to take

was to set about stopping spending money.We simply stopped building. In an orderedway, we completed what we were contract-ed to finish. Other houses we made weath-er-proof and then halted.

The chief executive also took an axe tocosts, cutting staff numbers from 1,000 toaround 400, and cutting overheads in halfto 25m.

In 2008 the firm doubled the percentageof cheaper social housing homes it usuallysold to 30 per cent because somethinglike 90 per cent of our private customersdisappeared. This is because Bovis targetsfirst and second time buyers, who usuallyneed large mortgages. The business madea pre-tax loss of 78m in 2008.

By the start of 2009 Ritchie had cut

costs, but he was still left with 1,000unsold homes and 2,000 partly built hous-es on his books.

Ritchie says: The second step was torelease the cash we had in the business.

We had to sell houses, which we did, notfor as much as we would have liked to butthose were the market conditions that pre-

vailed. In that year the business only built800 houses, but sold 1,800. This year thefirm plans to sell 1,900 homes.

This brings us to the third step inRitchies plan, began at the start of 2010,

which is to buy up cheap land to takeadvantage of the recovery when it comes.

But for Ritchie a rise in housing activityis more important than simply a rise inprices. He says: It is all about getting peo-ple to get access to mortgages. Thats what

we need to build a bigger business.As an example of how tough things are

for first time buyers, Ritchie says that inthe last quarter of 2006 around 8,000 first-

time buyers were able to get mortgages of90 per cent or more. In the same period in

2009 that figure fell to less than 100.Bovis attempted to kick start the first

time buyer market by entering into a dealwith the Woolwich in June. The pairlaunched a 90 per cent mortgage, which

will see Bovis pay for the mortgage insur-ance cover if buyers lose their jobs for up to12 months. The idea is that we will sharesome of the pain. But the result is that only

we are promoting 90 per cent mortgages.Ritchie had no figures for the take up so

far, saying it takes a while for schemes likethis to bed in. He adds he expects to see anumber of real prospects coming in overthe next few months. On the current stateof the housing market Ritchie says he feelsokay about life. Any business that hascash in the bank today is well placed.

But investors are sceptical, and Bovis,along with most other housebuilders hasseen its market values fall beneath its netasset values for large parts of the year. InBovis case the value of its net assets is cur-rently 692.8m, while its market capitali-

sation is around 515m.Ritchie says: Shareholders buy ourBovis story, but they are not so sure aboutthe housing market, so we are saying tothem: When you come back to this sectormake us your housebuilder of choice. I canunderstand their nervousness.

Ritchie says the coalition governmentis committed to building more houses.

The October spending review is likely tosee central government compel local coun-cils to streamline their applications forplanning permission and relax theamount of social housing a housebuilderis forced to allocate to a project.

However, all the indications are thathousing activity will trail behind the 2007peaks for years to come. House prices arefalling again, according to Rightmove,

which will eventually make homes moreaffordable but could hit housebuilders.

One thing is clear: Ritchie, and theinvestors in his sector, are playing a long

game. It will be several years before weknow whether their bet has paid off.

41

Appointed chief executive in 2008,Ritchie was group managing director from2007 to 2008 and group finance directorfrom 2002 to 2006. He joined BovisHomes in 1998 as the group's financialcontroller. He was previously employed byKPMG and was involved in advising clientson acquisitions, disposals and flotations aswell as audits.

Reading University, readeconomics and accounting

Married, with two children

Just outside Tunbridge, Kent

Works in his garden at weekends

CV | DAVID RITCHIE

Bovis Homes chiefexecutive David

Ritchie in the groundsof his headquarters atNew Ash Green, Kent

Picture:Micha Theiner

/City A.M.

We will buytwice asmuch land aswe use. Thisis a greatopportunityto buy a keyraw materialat the bottom

of the cycle.

WORDS BY ROGER BAIRD

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Banking CommissionFocus18 CITYA.M. 27 SEPTEMBER 2010

STEPHEN Hester, the chief executiveof the Royal Bank of Scotland, at the

weekend became the first of the UKsbiggest bank bosses to commit toplaying a role in the independent

banking commissions upcomingpublic debates.

The debates, five of which will beheld before the New Year, aredesigned to engage the general pub-lic in the commissions inquiry intothe future shape of the bank sector.

The first is expected to be heldaround the end of next month, whenthe commission is set to invite adiverse mix of bank bosses, regulato-ry figures, consumer body represen-tatives and academics to discuss theprimary issues facing the sector.

An RBS spokesman confirmed thebank is very willing to engage inwhatever way we need to.

RBSs commitment to the processcomes after the commission, chaired

by former Office of Fair Trading bossSir John Vickers, on Friday launchedits initial issues paper. The paperconfirmed that the commission willanalyse in depth ways to reform bankstructure including the separationof retail and investment banking, theintroduction of wind-down require-ments such as living wills and limitson proprietary trading and invest-ment as well as investigating thelevel of concentration in the UKsretail banking market.

The commission will this weekissue the main UK banks includingRBS, Lloyds, Barclays, HSBC, StandardChartered and Spanish bank

Hester to joincommissionspublic debateBYVICTORIA BATES

BANKING

Risky lending should not have state insurance

The Vickers Commission issuespaper floats a number ofoptions for structural reform ofthe banking sector. As expected,

one such option is a strict divisionbetween retail and investment banks,and another is an even more radicalswitch to narrow or limited pur-pose banking, in which fractionalreserve banking is simply ended.

What problem are these proposalsattempting to address? No politician

wants to be Argentine PresidentFernando De la Rua, forced to flee byhelicopter from the roof of the presi-

dential palace to escape a baying mobafter the collapse of the banking sys-tem left depositors unable to accesstheir funds. When banks come underpressure, the natural political tenden-

cy will be for politicians to bail themout, sparing bondholders. Even ifbanks are allowed to go under, depos-itors are typically provided with stateinsurance.

Since bank deposits are thusimplicitly or explicitly insured by thestate, what the bank does with thosedeposits is of virtually no concern tothe depositors themselves, and (inso-far as regulation allows it) the bankscan therefore use deposits to takelarge risks. If all turns out well, the

bankers and shareholders receivehigh returns. If matters turn out

badly, then the state bails out thebondholders and depositors.

The retail/investment split isintended to limit this gaming of gov-ernment insurance. But it doesntreally address the problem, because

banks can still make commercial

loans to businesses or personal loansto households, both of which arerisky. A retail/investment split wouldthus encourage banks to make reallyrisky business or personal loans at

high interest rates. The basic prob-lem isnt solved, but in the meantimewe destroy an industry in whichBritain is strong internationally universal banking.

Narrow banking and limitedpurpose banking do address theproblem, but go too far. With nar-row banks, for example, deposit-tak-ing banks would have to back anydeposits 100 per cent with govern-ment bonds, ending fractionalreserve banking. But fractionalreserve banking has been the mainform of banking in the UK for abouttwo hundred years, and has becomeenormously sophisticated and suc-cessful. Furthermore, it is economi-cally efficient to use fractionalreserves.

Many commentators suggest thatwe should do neither of these things,

but instead just rely upon high capi-tal and liquidity ratios to stop banksever going bust and hence the issue of

bailouts ever arising. But companyfailure is an essential part of a

healthy capitalist economy. If there isno risk of failure, there is not enoughrisk.

There is a combination of solutionsthat addresses the real problem with-out destroying our banking system.

The most important component ofthese is a change to the structure ofdeposit-taking, whereby every banklicensed to accept retail depositsmust offer a storage depositaccount that is 100 per cent backed bygovernment bonds.

These accounts would be legallyinsulated from the rest of the bank,akin to the nesting of an old-fash-ioned savings bank (like the trusteesavings banks) inside every fraction-al reserve bank. Storage deposits

would be insured by the governmentwithout limit.

In addition, banks could offer

investment deposit accounts stan-dard fractional reserve deposits thatthe bank could use to invest in com-mercial loans, equities, derivatives, or

whatever else its business model

employed. Investment depositswould be completely uninsured bythe state and depositors would be

warned before moving monies out ofstorage and into investment depositsthat they could lose their money

but would be subject to standard pru-dential regulations on capital and liq-uidity. Some banks would attractinvestment deposits by being boringand safe; others by being risky andoffering higher interest rates. Thisstructural reform addresses the coreof the issue, removing state insurancefrom risky lending, and yet leaves uni-

versal banking (and fractional reservebanking in general) intact. I thinkthats the way to go.

Andrew Lilico is the Chief Economist ofPolicy Exchange, and the author of WhatKilled Capitalism and IncentivisingBoring Banking.

RBSs Stephen Hesterhas become the first UKbank boss to commit toupcoming publicdebates. He will appearat at least one.Picture: Micha Theiner

/City A.M.

EXPERT VIEW

ANDREW LILICO

Banks threatening to quit UK over new plans

FOR SOME time now, the City ofLondon has warned of a tippingpoint a point in time wherethe benefits of being based in

the UK no longer outweigh the taxand regulatory burden.

Many commentators have dis-missed this warning as an emptythreat from an industry looking for areturn to the pre-crisis status quo.

However, it is now becoming clearthat there is a tipping point. Three ofthe five biggest lending banks in theUK HSBC Holdings, Barclays andStandard Chartered have statedthey will seek to relocate if the gov-ernment forces banks to split retailand investment divisions.

Last Friday, the GovernmentsIndependent Banking Commissionpublished an Issues Paper outliningthe agenda for its year-long investiga-

tion into the structure of the Britishbanking system.

Personally, I do not think theCommission will recommend UK-

based banks be split up but the ideawas included in the Issues Paperand thus remains a realistic option.

We must remember that it was notthe integrated banks that failed andeconomic historians have suggestedthat commercial banks with affiliatesare less likely to fail than stand alonecommercial banks.

Striking out on our own like thiswould represent a huge risk noother major economy has shown any-inclination to follow this path.

Artificially restricting the ability of

banks based in the UK to service all ofthe business needs of their clients

then would result in many of thesebanks moving overseas. This wouldleave us with fewer jobs and lower taxrevenues and would be hugely detri-mental to the UKs future prosperity.

There are better ways to add securi-ty and certainty to the financial mar-ketplace and there is a great deal ofregulation due to come into force

before the Commission announces itsresults next summer, not least BaselIIIs recommendations setting outhigher capital and liquidity require-ments. But the final recommenda-tions may well surprise us all and it

would be very hard for the govern-

ment to ignore any major proposalsput forward by its own Commission.

Speculation is already mounting asto the attitudes of the five individualson the panel. The Commission must

be strong enough to withstand exter-nal pressures and must also be pre-pared to accept that this is not apopularity contest.

It is the responsibility of the bank-ing sector to uphold and, where nec-essary, to repair its tarnished imagej.Much progress has already beenmade; it is the job of the IndependentBanking Commission to ensure our

banking system is structured so itminimises the risks and maximisesthe benefits to the UK taxpayer.

Nick Anstee is the Lord Mayor of the City ofLondon

MAYORS COMMENT

NICK ANSTEE

Santander, which bought Bradford &Bingley, Alliance & Leicester and

Abbey during the crisis with a ques-tionnaire about their operations,likely to range in scope from theirfinancial health to future strategy.

After the public phase of the con-sultation concludes at the end of the

year, the bosses of those banks will behauled before the commission togive evidence in private. They willface Vickers and the other four mem-

bers of his team ex-Barclays bossMartin Taylor; Claire Spottiswoode,the former head of energy regulatorOfgas; JP Morgans ex-co-head ofinvestment banking Bill Winters;and FT columnist Martin Wolf.

ANALYSIS l Barclays

28 Jun

300

340

360

260

p

16 Jul 5 Aug 25 Aug 15 Sep

311.7524 Sep

ANALYSIS l Lloyds

28 Jun

65

75

80

55

p

16 Jul 5 Aug 25 Aug 15 Sep

76.6524 Sep

ANALYSIS l RBS

26 Aug

46

48

50

51

44

p

3 Sep 10 Sep 13 Sep

49.2924 Sep

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THE Institute of Directors (IoD) has crit-icised government proposals to abolishthe default retirement age (DRA) of 65saying the proposals will make it hard-er to create jobs.

The government is currently con-sulting on plans to scrap the DRA inOctober 2011 arguing many older peo-ple are forced into retirement.

But the IoD said yesterday a betteroption would be to raise the DRA pro-gressively in line with both the rise in

life expectancy and the national statepension age.

It said if the DRA were abolished,employers would be forced to sackunderperforming staff rather than letthem retire leading to a lengthy andexpensive dismissal process. It wouldalso mean management time wasdiverted away from growing business-es and jobs into fighting claims ofunfair dismissal.

Small firms without a humanresources (HR) department would feelunder pressure to live with underper-forming staff over the age of 65, itadded, which would have a damagingeffect on business performance anddeny promotion opportunities tohigher performing staff.

Moreover, bigger companies know-ing they could no longer rely on the

DRA to retire staff at 65 wouldinstead concentrate on removingthem by means of performance cri-tieria earlier, meaning most people

would effectively be retired at the ageof 60.

Miles Templeman, director-generalof the IoD said the governments pro-posal to abolish the DRA showed min-isters were not interested insupporting the business community.

Removing the DRA, which givesemployers flexibility in managingemployees, is incompatible with thegovernments stated desire to boost

enterprise and create new jobs. In thisera of high unemployment the gov-ernment should be making it easierfor businesses to employ people, notharder, Templeton added.

But pensions expert Dr Ros Altmanaccused the IoD of living in the darkages.

She said: We all know age discrim-ination is a real problem in the work-place. In this day and age people arenot old at 50 or 60 anymore. All theproposals mean is that if employers

want to get rid of their older employ-ees they will have to justify doing soon the basis of their performance inthe same way as they would have to a40-year old. Its not a good enoughreason to simply get rid of someone

because they have reached the age of65.

Governmentretirementideas slatedBYMATTHEWWEST

UK ECONOMY

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THE CO-FOUNDER of CarphoneWarehouse is set to break up hisproperty empire and dispose ofdebt-laden assets, according toreports yesterday.

David Ross has hired propertyconsultants Jones Lang LaSalle andCushman &Wakefield to advise onthe options for his Kandahar Group

retail property company, reportedthe Sunday Telegraph. Neither com-pany could confirm the claims yes-terday.

There are several parties interest-ed in puchasing the entire compa-

ny, according to the reports, butRoss has begun to plan for a 230msale of the Drake Circus shoppingcentre in Plymouth in case a biddercannot be found.

Ross has been using his ownmoney to meet interest paymentsand keep Kandahar afloat since thefirm breached banking covenantsin December 2009.

Kandahar was set up as a 500mjoint venture with Morgan Stanley,

but was badly hit by tumbling prop-erty values during the financial cri-sis.

Ross was caught up in an FSAinvestigation after he inadvertently

broke shareholder disclosure rules

through Kandahar in 2008. He usedhis 20 per cent stake in Carphone

Warehouse as security forKandahars refinancing, but did nottell the boards of the companies.

He stepped down from a series ofhigh-profile roles at Carphone

Warehouse, National Express andthe London Olympic Games in the

wake of the news, and promptedthe FSA to declare an amnesty forthe scores of other directors who

had also pledged shares to back per-sonal loans.Kandahar was unavailable for

comment yesterday, while the on-duty manager at Drake Circusdeclined to comment.

David Ross considers dismantlingdebt-laden property firm Kandahar

BYMARION DAKERS

PROPERTY

US alone inyuan focusfor the G20

US Treasury Secretary TimothyGeithner faces a lonely campaign tomake Chinas currency a major issueat the next Group of 20 summit as

would-be allies shrink from con-fronting Beijing.

Pressured by US lawmakers,Geithner vowed last week to mobilisecountries at the 11-12 November sum-mit in South Korea to press China forfaster appreciation of the yuan.

Interviews with officials from G20countries suggest that Geithner

who has acknowledged that fewcountries are willing to confrontChina could be leading a posse ofone in Seoul.

The US is more determined than

the rest of the G20 to get somethingout of China on the yuan, aEurozone monetary official said,speaking on condition of anonymity.

Its largely a bilateral matter withthe rest looking on as spectators,either because they dont countenough or because they arent veryinterested, the official said.

South Korean Finance MinisterYoon Jeung-hyun ruled out the yuanas a G20 topic, saying the forummight take up exchange rates in gen-eral or their impact on the globaleconomy.

Geithners drive to make Chinascurrency policy a G20 summit issueappears to be a way to buy time forPresident Barack Obamas adminis-tration in the run-up to the 2November elections.

BYHARRY BANKS

BANKING

JAPAN KEEPS CLOSE EYE ON YENS IMPACT

JAPAN will ease monetary policy appropriately if necessary, while keeping an eye on theimpact of the yens rise on the economy, Bank of Japan (BOJ) governor MasaakiShirakawa (pictured) said. He also said the BOJ was watching the downside risk to theeconomy more closely. Picture: GETTY

NEWS | IN BRIEF

Coke to stay on Wall StreetCoca Cola Enterprises (CCE) willremain listed on Wall Street althoughit could one day take a secondary list-ing on the London Stock Exchange(LSE), an insider has told City AM. Thenews comes as the board of CCE,which bottles and distributes the softdrink, votes on whether to sell itsNorth American distribution businessto Coca-Cola on 1 October in a dealvalued at 9.5bn. The deal had

prompted speculation that CCE, whichemploys around 4,500 people in the

UK, might move to the LSE. The sourcesaid a listing in London would only besomething that would happen in thelong term and it would only ever be asecondary listing. CCE would maintainits primary listing on the New YorkStock Exchange and would remain list-ed in dollars.

UAE set to agree on BlackBerryThe United Arab Emirates is very opti-mistic about reaching an agreement

in a dispute with BlackBerry makerResearch In Motion before an official

deadline, a top Abu Dhabi official said.The UAE has threatened to suspendResearch In Motions BlackBerryMessenger, email and Web browserservices from 11 October until the gov-ernment could get access to encryptedmessages. "We are very optimisticabout the outcome. We both are work-ing very hard trying to resolve theissues.. .its going to be solved beforethe deadline," Mohammed al-Bawardi,secretary general at Abu Dhabis exec-

utive council, said yesterday. The UAEhas some 500,000 BlackBerry users.

News 19CITYA.M. 27 SEPTEMBER 2010

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ESTATE agent Knight Frank said itexpects to suffer after the govern-ments spending review next month,as the firm announced a 168 per centrise in profit to 58.4m for last year.

The group said yesterday that all ofits branches were in profit, with par-ticular strength in the UK and Asiapushing revenue up 13 per cent to288m for the year to 31 March.

However, senior partner NickThomlinson said: Going forward,

with public sector debt the equivalentof more than half of the UK GDP, theissue remains to what extent therecovering private sector will be ableto compensate for the anticipated cutsto the public sector.

Consequently 2011 is expected tobe a more difficult year, both in eco-nomic and property performanceterms.

Thomlinson added that propertyprices continued to rise over the sum-mer, though the pace of growth had

slowed.Meanwhile, the firm benefited

from sales in Hong Kong, whererental rates increased at the fastestpace in the world last year. It saidmodest rises seen in Shanghai, Sydneyand Singapore last year should spreadto the rest of Asia by 2011.

Last years profit translated into anaverage bonus of 600,000 for each ofKnight Franks 59 partners, thoughthe firm declined to say how muchindividual partners received. KnightFrank more than doubled its budgetfor bonuses and commission, spend-

ing 35.5m last year.The company said it remains free of

debt, with around 74m availablecash and a 30m unused debt facility.

Knight Frankcautious afterbumper year MCGRIGORS, one of Scotlands largestlaw firms, has overhauled its manage-ment structure after appointing KirkMurdoch as the new UK-wide senior

partner.Murdoch, who has been a partner

with the law firm for 28 years, willassume the newly created role at thestart of next month.

His new post, which will effectivelysee him act as the firms chairman,will hand him responsibility for thefirms entire network of offices inScotland, England and NorthernIreland.

The move is a step away fromMcGrigors original structure, whichsaw the senior partner post sharedbetween two individuals but onlyoversaw the firms English andScottish business.

Murdoch had shared the seniorposition with London-based partnerPhillip Burroughs, who is set to standdown from the board at the end ofthe month.

McGrigors is hoping thatMurdochs appointment will help tobolster its profile beyond its Scottishpractice and compete with the likesof Eversheds.

As part of the management over-haul, Richard Masters will remain asmanaging partner.

McGrigors looksat UK expansionwith new post

Knight Frank chief Nick Thomlinson sees trouble ahead Picture: Micha Theiner/City A.M.

BYMARION DAKERS

PROPERTY

LEGAL

The estate agent operates from 209 officesin 43 countries Notable deals include advising on the 671mWhite Tower asset sale and acting as leasingagent on the Walkie Talkie skyscraper

FAST FACTS | KNIGHT FRANK

News20 CITYA.M. 27 SEPTEMBER 2010

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News 21CITYA.M. 27 SEPTEMBER 2010

Caxton FXThe foreign currency exchange brokerhas appointed John Craig as its newchief operating officer.

Craig, 45, joins from Northern TrustWealth Management, where he was asenior vice president responsible forstrategic development across the

Europe, Middle East and Africa (EMEA)region, focusing on the ultra high networth sector.

JefferiesGerard Reid has joined the investmentbank as a managing director and seniorequity research analyst in London,focusing on clean technology.

Reid was most recently Europeanhead of Ardour Capital Investments.

He has also previously held positionsas a managing director at Berlin-basedOikovest, advising clients in the alterna-tive energy sector, and head of researchand a senior partner at independentequity research house First Berlin.

SVM Asset ManagementThe boutique investment group hasappointed Neil Veitch, manager of itsSVM UK Opportunities Fund and co-manager of the SVM All Europe SRIfund, as a board director.

Veitch joined the group in 2005 fromKempen Capital Management, wherehe managed both retail and institution-al pan-European small and mid-capportfolios.

KPMGThe accountancy giant has hired threenew staff to its financial services reme-diation practice.

Jarrod Nicholson, John Seaton and

Caroline Walters all join fromHuntswood, as a director and seniormanagers respectively.

CISIThe Chartered Institute for Securitiesand Investment has appointed DrRobert Barnes, Fionnuala Carvill andNick Parkes to its board of directors.

Barnes is currently a managing direc-tor in the equities business at UBS,while Carvill, an ex-director ofRothschild, is commission secretary atthe Guernsey Financial ServicesCommission. Parkes is a partner at cor-porate finance advisory firm NovitasPartners.

CITY MOVES | WHOS SWITCHING JOBS Edited by Victoria Bates

BarclaysLeigh Clifford, the chairman of Qantas Airways,is to step down from his role as a non-executiveon the Barclays board at the end of the month.

Clifford joined the banks board in October2004. In addition to his position at Qantas, heis also a director of engineering giant BechtelGroup and a senior adviser to private equityfirm Kohlberg Kravis Roberts.

He was formerly chief executive of Rio Tintofrom 2000 until 2007.

+44 (0)20 7557 7245morganmckinley.com

To appear in CITYMOVESplease email your career

updates and pictures to citymoves@cityam.com SPECIALISTS IN GLOBAL PROFESSIONAL RECRUITMENT

in association with

BEST OF THE BROKERS

ANALYSIS l BHP Billiton

1,650

1,750

1,950

1,850

2,050

28 Jun 16 Jul 5 Aug 25 Aug 15 Sep

p 2,009.5024 Sep

BHP BILLITONEvolution Securities says the balance ofprobabilities moving forward on BHPBillitons bid for Canadian owned PotashCorporation is in the mining companysfavour. The broker reiterates a buy forBHP because the company is not stintingon other growth investments by virtue ofits strong balance sheet.

ANALYSIS l Groupe Eurotunnel

5.2

5.6

6.4

6

28 Jun 16 Jul 5 Aug 25 Aug 15 Sep

6.39

24 Sep

GROUPE EUROTUNNELNomuras confidence in its forecasts forEurotunnel is increasing. The broker isbecoming more confident that the focus onhigher-yielding smaller customers, com-bined with the market growing again dur-ing the first half, should see Eurotunnelsmarket share return to previous levels. Thebroker reiterates a buy.

ANALYSIS l EADS

15.5

16.5

18.5

17.5

19.5

7 Jul 27 Jul 16 Aug 3 Sep 23 Sep

19.2524 Sep

EADSJP Morgan Cazenove upgrades EADS to anoverweight rating based on healthy trad-ing posted by Airbus. After a decade oftrading Airbus profits at a rate 20 per centbetter than the prevailing spot rate, thebroker says hedge and spot rates have nowconverged. The broker expects Airbus toremain in profit despite production issues.

To appear in Best of the Brokers email your research to notes@cityam.com

GOLDMAN Sachs headquarters inLondon has been taken over bylenders after the owner fell intoreceivership, it emerged yesterday.

The buildings in Fleet Streetbelonged to Antedon, an offshorereal estate firm, which has default-ed on a loan, according to a week-end report.

Antedons lenders, led byLandesbank subsidiary Berlin Hyp,have appointed Jones Lang LaSalleas receiver for the properties.

A spokesperson for Jones LangLaSalle confirmed this yesterday,adding: We are currently reportingto stakeholders on strategic optionsfor these assets. No decision on anydisposal has been made at thisstage.

Antedon is thought to havebought Peterborough Court andDaniel House for 355m in 2007,the height of the property boom. Acompany trading as Jesta Capitalnow claims to own PeterboroughCourt on its website, but does not

explain what, if any, relationship ithas with Antedon. Jesta refused toanswer questions when contacted

yesterday.Carter Lemon Camerons, the law

firm said to be acting for Antedon,was unavailable for comment.

Goldman has a lease on the twobuildings until 2026, which shouldnot be affected by the receivershipproceedings.

The banking group also occupiesthe River Court building in FleetStreet, which has been owned by aconsortium of Irish investors sinceit was built in 2000. Reports overthe summer claimed the building,previously home to the DailyExpress, would be put on the mar-ket shortly.

Goldman has based its Europeanheadquarters on Fleet Street since1991, and now has more than 5,000employees in its London offices. ThePeterborough Court building is theformer headquarters of the Daily

Telegraph, and its art deco entranceis often used as a setting for filmand television productions.

Lenders takeover GoldmanSachs officesBY MARION DAKERS

PROPERTY

FASHION retailer White Stuff hasdefied the recession to increase prof-its by 59 per cent compared to last

year.The company, which was set up by

Sean Thomas and George Treves, alsosaw a 43 per cent lift in turnover inthe year to the end of May.

The firms turnover jumped from58.4m to 83.7m and it also saw a

healthy hike in profits, from 9.2m to14.6m before tax.

It reported growth across all areasof the business, especially in homshopping, where revenue doubled to8.9m.

White Stuff, which currentlyemploys around 1,300 people, is nowlooking to expand, with an extra 270employees likely to be taken on this

year.It is also looking to open another

10 stores by the end of the year anddouble the size of its distribution cen-tre.

Despite the recession-beating suc-cess, chief executive Sally Bailey saidthe company was unlikely to main-tain such a high level of growth.

She said as well as facing the obsta-cles of the expected government cutsand tax increases, the bottom line

was likely to be affected by theincreasing cost of cotton.

White Stuff shows it has the right stuffRETAIL

ACCOUNTING firm PwC is set tobecome the first accountancy prac-tice to add independent directors toits board after the appointment ofthree senior businessmen as non-executive directors.

Former Rio Tinto chairman, PaulSkinner will be joined by WMMorrison chairman Sir Ian Gibsonand Cable & Wireless chairman SirRichard Lapthorne as independentdirectors to sit on PwCs board.

The accountancy firm has alsoappointed Dame Karen Dunnell, for-

mer head of the Office of NationalStatistics and vice-chancellor of the

University of Oxford, as non-execu-tives to its newly created public inter-est body.

The move by the big four firmcomes as a response to new regula-tions outlined by oversight body, theFinancial Reporting Council, requir-ing the top eight accounting firms inthe UK to add independent directorsto ensure effective governance.

It is understood that Deloitte, Ernst& Young and KPMG are set to makethe same move in the comingmonths.

PwC first to add seniorCity figures to the board

PROFESSIONAL SERVICESPRIVATE equity group ECI Partners

has snapped up a majority stake in

XLN Telecom, the UKs largestprovider of fixed-line, mobile andinternet services to small businesses.

ECI has backed the current man-agement and has pledged to injectfunds to double the size of the busi-ness.

The firm bought the controllingstake from Zeus Private Equity for anundisclosed fee. However, City A.M.understands Zeus received a multipleof 4.5 times its initial investment of6.63m, valuing the stake at approxi-mately 29.8m.

Niche telecoms provider XLN hasseen its revenue grow from 27m in2007 to 54m this year.

Tom Wrenn, who led the deal forECI, said: XLN is a superb growth

business in a sector that has per-formed strongly during the recentdownturn. It is led by a high-qualitymanagement team that has a clear

vision for the future. XLN has consid-erable scope to add more productsand services and is in an excellentposition to act as a platform for con-solidation in the fragmented tele-coms market. We will provideadditional capital to continue togrow the business.

Christian Nellemann, chief execu-tive of XLN Telecom said: We have

been able to transform a niche andhistorically overlooked sector of themarket.

We now have a highly profitableand scalable business that will allow

us to rapidly expand the range of serv-ices we deliver to the small businessmarket. We are delighted that ECI

will be a key part of the firms nextchapter.

ECI snaps up a stake in XLNBY STEVE DINNEEN

TELECOMS

ECI manages private equity funds with acapital base of over 880m and has providedfunds for over 250 companies. It specialises in buyouts, buy-ins and develop-ment capital deals of 10m to 150m.

FAST FACTS | ECI

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22

Markets&InvestmentCITYA.M. 27 SEPTEMBER 2010

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