Cityam 2011-09-01
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BUSINESS WITH PERSONALITY
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Issue 1,458 Thursday 1 September 2011
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BANKING PROFITS AT&T bid FACE VICKERS HIT
US tries to block $39bn
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TELECOMS BY STEVE DINNEEN
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BANKING BY JULIET SAMUEL
BRITAIN’S banks could see earnings slashed by nearly a third due to reforms proposed by John Vickers and his Independent Commission on Banking (ICB), analysts have said. But they will at least have several years to implement the reforms. An aide to Nick Clegg has told City A.M. that despite fiery rhetoric from Vince Cable, the Liberal Democrats are willing to accept a long transition period. “It’s fair to say that Vince rose to the bait,” said the aide. “What we want is a commitment to implement the legislation. We appreciate it will take a very long time [for banks] to implement.” The changeover period will be welcome because the industry is already struggling under an avalanche of international regulation that experts say will destroy the viability of many banks. But analysts say the ICB rules, coming on top of global initiatives, will put the City’s banks at a disadvantage compared to their foreign peers. They could also raise the cost of credit in the UK, even in the run up to implementation. JP Morgan Cazenove’s Kian Abouhossein has estimated that Barclays and RBS would see their 2012 profits drop by 29 and 28 per cent respectively if they had to operate under Vickers’ regime. Lloyds would see earnings plunge by a quarter while
FTSE 100 ▲5,394.53 +125.87
John Vickers is already under fire for his ringfence proposal. HSBC would see four per cent sliced off its bottom line. Vickers wants lenders to ringfence their retail operations into a subsidiary, capitalised separately from their investment banking operations. But the City is waiting on tenterhooks to hear exactly how the plan will work when the ICB’s final report is published on 12 September. Chancellor George Osborne has already endorsed the policy, despite
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Picture: REUTERS
not knowing what any of the key details will be, which will make it difficult for the Treasury to change course. Abouhossein estimates it could raise banks’ cost of funding by 94-113 basis points by making it impossible to transfer capital between certain business lines. Despite the additional cost, however, he says that the policy will not protect the global financial system: “A ringfence of a bank or part of a bank will not actually solve systemic
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global issues with UK banks having about £1 trillion of derivative fair value counterparty risk.” Abouhossein’s model assumes that the ringfenced retail bank will need a core tier one capital ratio of ten per cent and an additional two per cent in contingent convertible bonds (cocos). It also assumes a maximum allowable loan-to-deposit ratio of 150 per cent, higher than in the ICB interim report. ALLISTER HEATH: P2, MORE: P4
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US REGULATORS have sensationally moved to block AT&T’s $39bn (£24bn) takeover of T-Mobile USA over competition concerns. The move, which AT&T has vowed to fight, could cost the telecoms provider a staggering $6bn in break-up fees, including $3bn in cash, mobile spectrum and a roaming agreement. The Justice Department filed a lawsuit yesterday claiming that eliminating T-Mobile as a competitor would be disastrous for consumers and would raise prices, particularly because the smaller provider offers cheaper deals. If successful, the lawsuit would scupper the biggest deal of the year and trigger an even bigger collapse than Prudential’s failed $35.5bn for Asian insurance giant AIA last year. It would also result in around $150m in lost advisory fees for the seven investment banks working on the deal – JP Morgan Chase, Greenhill and Evercore for AT&T and Morgan Stanley, Deutsche Bank, Credit Suisse and Citi for T-Mobile. The breakdown of the deal will provide a boost up the advisory rankings for Bank of America, which missed out on the lucrative contract. Sprint Nextel, the smallest of the top three US carriers, is now being viewed as a potential vulture, stepping in to bid for T-Mobile. AT&T shares slumped 3.85 per cent on the news, while Sprint rose 5.9 per cent. T-Mobile USA owner Deutsche Telekom tumbled 7.6 per cent. Certified Distribution 04/07/2011 till 31/07/2011 is 93,093
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CITYA.M. 1 SEPTEMBER 2011
Bank reforms missing the big picture making most banks non-viable if they fail to shrink or restructure. Most of this will be caused by the Basel III accord and other shake-ups; none of this is surprising to those who actually follow the financial world, rather than spout demagogic and populist nonsense to win votes. Some of the reforms have been good; return on equity was artificially inflated by low capital and liquidity, and high leverage levels that would never have existed in a truly free market. Many other reforms or proposals have been disastrous and are costing jobs and growth. Ringfencing would not have stopped sub-prime lending, nor prevented the demise of HBOS, Bear Stearns, Lehman Brothers or Northern Rock. The real, truly big reform we now need – and this is in motion in the US, the Eurozone and the UK – is to finalise resolution procedures to allow banks to fail in an orderly, organised manner that doesn’t cripple the entire economy, destroy innocent bystanders or trigger chaos. Even giants wouldn’t
be too big to fail under such a system. Such measures already exist with airports and nuclear power plants; they are well established with smaller US retail banks. We also need systems so that bail-ins become automatic, with debt turning into equity if things go wrong. The aim must be to banish taxpayer assistance, eliminate bail-outs and put in a place a structure that makes banks think and behave like all other firms, accounting properly for risk and reward. This would get rid of moral hazard and faulty decision making fuelled by the knowledge that the authorities will always step in to save firms or the system if things get too crazy. Barclays, to its credit, is nearly there; everybody else must follow suit. There are three choices: the corporatist, bail-out culture of the past; the destructive, anti-City, regulate regardless of cost, present mood; or a move to something closer to real capitalist discipline. I vote for the latter. [email protected] Follow me on Twitter: @allisterheath
NEWS | IN BRIEF Record yen intervention in Japan Japanese authorities splashed a fresh daily record high of 4.513 trillion yen (£36.2bn) on currency intervention last month, official data revealed yesterday. The measures were overseen by thenminister of finance Yoshihiko Noda, who has since been named as the country’s new Prime Minister. The Bank of Japan is believed to have intervened in the currency markets on 4 August, temporarily boosting the dollar against the yen. The official data, released yesterday, does not detail how interventions were made.
IT is hard to know whether to laugh or whether to cry about the latest round of banker-bashing, fuelled as ever by Vince Cable, who always knows exactly what the public wants to hear, though rarely what the economy actually needs. The biggest problem, as ever, is that the argument about the Independent Commission on Banking’s proposals has been framed to mislead. On the one hand lies a supposedly “unreformed” banking industry and its lobbyists who are trying to maintain this supposedly happy state of affairs to “keep their big bonuses”;
on the other is an enlightened Commission which is going to propose the “most far-reaching reform to the industry for a generation”, and which bravely wants to “split” (note the inaccurate nod to Glass-Steagall) the “ultra-risky casinos” from the lovely “utility” banks. Who could possibly oppose any of this, barring idiots, greedy fools or paid lackeys? Virtually all of these assumptions are nonsense; sadly, I don’t have space to address them all. The biggest untruth is the view that those who oppose or doubt a particular reform oppose all changes. Equally wrong is the view that these are the first significant reforms: banking is already undergoing a massive regulatory revolution, with rules on everything from derivatives to pay changing drastically. The changes are so huge that McKinsey & Co estimates that, without drastic action, investment banks’ returns on equity will drop to seven per cent from 20 per cent. That is below their 9-11 per cent cost of equity,
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Darroch invests salary in Sky
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BSKYB’S chief executive could be set for a bumper payday after piling the equivalent of a full year’s wage into a lucrative share plan. Jeremy Darroch has agreed to buy £384,670 worth of shares at £6.41 a share, accounting for almost his entire after-tax salary of £426,240. Sky will match his investment with £1.3m worth of stock at an equivalent per-share price, dependent on the company reaching a target level of growth in the three years to 30 June 2014, at which time the awards will vest. At the stock’s current price Darroch would collect £1.7m. However, analysts expect Sky to rocket in the meantime, making the potential payday far bigger. In three recent notes Deutsche Bank placed a target price on Sky of £9, Bank of America £9.40 and Citi £9.99. If Sky reaches the top valuation, Darroch’s stock would be worth a
Mongolia's government plans to list state-owned Erdenes-Tavan Tolgoi, which controls one of the world's largest untapped coking coal deposits, in Hong Kong, London and Ulan Bator. The initial public offering in the three cities would take place if the government could “overcome technical and logistical hurdles”, it said. The Tavan Tolgoi deposit, in Mongolia's south Gobi region, has estimated reserves of six billion tonnes of coal, including the world's largest untapped deposit of coking coal, which is used in steelmaking.
ANALYSIS l BSkyB Group PLC
MEDIA BY STEVE DINNEEN
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Triple IPO for Mongolian miner
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cool £2.7m, including £600,000 from his personal investment and £2.1m from stock handed over by the company. This would then be subject to
tax. Darroch earned £2.68m last year, including a £1.7m bonus, and is taxed around 50 per cent of his salary.
Friends of Darroch said the investment was a vote of confidence in BSkyB’s share price, which has tumbled some 25 per cent since its biggest shareholder News Corp dropped its bid to buy the 60.9 per cent of BSkyB stock it didn’t already own following a public outcry over phone hacking. Darroch has led the firm to a blistering run of results, taking the company’s subscribers through the 10m mark. Chief financial officer Andrew Griffith also agreed to invest the equivalent of 75 per cent of his aftertax salary in the scheme.
PLANNING REVOLT FUELS FEARS OVER ECONOMY
MELROSE RAISES CHARTER BID TO £1.44BN
IRENE SETS OFF A STORM OVER SPENDING
Ministers must defy opposition to plans that would ease restrictions on building in the countryside, one of the country’s foremost business leaders has warned. The government must “hold its course” as the row intensifies over proposed changes that would create a “presumption in favour of sustainable development”, David Frost, the departing chief of the British Chambers of Commerce, told The Times.
Melrose has sweetened its bid for Charter by around £40m, bringing it close to landing the £1.44bn takeover of the UK engineering group. The two sides have been locked in talks over the past week, with Melrose's decision to raise its 840p-a-share indicative offer by about 20p looking enough to convince the Charter board to agree the deal.
Hurricane Irene relief is becoming the focus of the first national spending debate since the debt and budget deal reached a month ago. Disaster relief, like war spending, is often less subject to partisanship than many other programs. But House majority leader Eric Cantor says new federal spending for hurricane recovery must be offset by spending cuts elsewhere, and Democrats are accusing him of playing politics with disaster.
BERLUSCONI FACES FRESH STORM OVER CUTS TO BUDGET
Chris Lucas, the Barclays finance director, has brushed off an attack by Vince Cable on banks and warned the Government against prescriptive reform of the sector. He said that if the Government wanted to put in place “workable” changes to avoid a repeat of the 2008 financial crisis, it needed to include banks.
Jeremy Darroch has overseen a blistering run of form at Sky
Pic:Micha Theiner/City AM
WHAT THE OTHER PAPERS SAY THIS MORNING OFCOM PLANS SUPERFAST WIRELESS TOBACCO TRADE GROUP CHIEF QUITS The head of the UK tobacco industry’s main trade body has resigned after failing to persuade the coalition government to rescind anti-tobacco measures introduced under Labour. Christopher Ogden will step down in October following a review of the organisation’s structure initiated by its members, British American Tobacco, Imperial Tobacco and Gallaher, a division of Japan Tobacco.
LONDON COUNCILS TO ISSUE BONDS Wandsworth is known for having one of the lowest council taxes in the country but now it appears set to lead its peers in another respect: by being among the first in decades to sell bonds. The Local Government Association said it was to appoint advisers to examine how it might set up a collective agency to issue aggregate council bonds.
Ofcom is to announce plans on today for the first superfast wireless communication in Europe employing unused parts of the airwaves that had been reserved for television. “White space” gaps in the spectrum will allow businesses and consumers to tap into the powerful signals normally used by broadcasters. The effect will be similar to a faster and more powerful version of WiFi.
PORTUGAL PROMISES BIGGEST CUTS IN DECADES Portugal has announced new austerity measures designed to cut its budget deficit to almost zero in under five years, promising the biggest cuts in government spending for more than 50 years. Vítor Gaspar, finance minister, said yesterday the planned reduction in public expenditure by 2015 – by seven percentage points to 43.5 per cent of gross domestic product – was “without precedent” in recent Portuguese history.
With Italy still threatened by the eurozone crisis, Silvio Berlusconi is being accused of fiddling while Rome burns. The Italian Prime Minister, facing popular protest, has begun backtracking from key parts of an austerity programme.
BARCLAYS FINANCE CHIEF BRUSHES OFF VINCE CABLE ATTACK
SWITZERLAND CUTS AID PACKAGE FOR ECONOMY The Swiss government surprised markets Wednesday by more than halving the size of its stimulus package for the country’s economy, worrying exporters and raising doubts about the economy’s capacity to weather the franc's strength.
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CITYA.M. 1 SEPTEMBER 2011
BNY MELLON CHIEF STEPS DOWN
Darling: I almost got rid of exasperating Mervyn King ▲
POLITICS BY JULIET SAMUEL
FORMER chancellor Alistair Darling has revealed that he and Gordon Brown almost fired Bank of England governor Mervyn King in 2008. In extracts of his forthcoming memoir that have appeared online, Darling calls King “amazingly stubborn and exasperating” and suggests that his term as governor
would not have been renewed for a second time had the government been able to find a viable alternative. Darling also suggests that King’s faults led to a “prickly and strained” relationship between him and FSA chair Lord Turner that contributed to the financial crisis. The revelations shed new light on the tensions between the Bank and the last government in its waning
Great pictures today. BANK of New York Mellon Corp said Robert Kelly (pictured) has stepped down as chairman and chief executive officer after three years, following differences in approach to managing the company. The company named board member Gerald Hassell as chairman and CEO, effective immediately, sending its shares down more than one per cent in late trading.
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GERMAN Chancellor Angela Merkel won vital backing from her cabinet for changes to the Eurozone’s main bailout fund yesterday, prompting a short relief rally in the euro. The proposed changes to the European Financial Stability Facility (EFSF) must now go to Germany’s lower house for ratification on 29 September, where Merkel is expected to face a strong rebellion from more than 25 members of her governing coalition. If she is forced to rely upon opposition support to get the measures through, it could prompt calls for an election, which would throw German politics into chaos at a fragile time for the region.
days. King has since endorsed the current coalition government’s deficit reduction plans, to criticism from Labour. Darling’s book also reveals his unease at Brown’s attempt to “keep an eye” on him by appointing loyal MPs as Treasury ministers. He describes Gordon Brown as “brutal and volcanic” and criticises Brown’s lieutenants Ed Balls and Shriti Vadhera.
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Merkel gets bailout relief EUROZONE BY JULIET SAMUEL
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The changes to the EFSF are controversial because they enable it to deploy an enlarged capital pot without returning to paymaster countries for permission, in order to, for example, recapitalise a country’s banks or buy sovereign bonds in the secondary market. The changes are part of a deal on Greece’s second bailout, worked out at a July summit of Eurozone leaders. But they must be ratified by member states before Greece can receive its new aid. Greece has already faced calls to supply collateral in return for the cash. Finland said it had reached a bilateral agreement for cash collateral, prompting other paymaster countries to demand similar guarantees. There was even a suggestion that Greek bank shares could be used as collateral.
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EQUITY market turmoil caused 15 US corporate IPOs to be withdrawn in August, the highest number since April 2001, data from Dealogic showed yesterday. August saw the number of completed floats reach the lowest volume since 2009 as fears over US and European sovereign debts caused a mass sell-off in equities. Just four IPOs got off the ground in August, compared with 14 in July, listings showed. The withdrawn IPO data covered straightforward corporate IPOs, excluding sectors such as REITs that have seen large market changes.
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CAPITAL MARKETS
ENFORCEMENT
A FORMER trader at the Galleon Group hedge fund was sentenced yesterday to five-and-a-half years in prison, a term the judge said should serve as a warning to Wall Street that insider trading was a serious crime. Craig Drimal, 55, who pleaded guilty in April, was arrested as part of a sweeping government crackdown on insider trading. He has also been ordered to forfeit $11m (£6.77m). Judge Richard Sullivan said he would impose a more severe prison term than Drimal’s defence team had requested to put the financial industry on notice.
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CITYA.M. 1 SEPTEMBER 2011
WHAT DO THE BANKS SAY ABOUT THE RINGFENCE? LLOYDS
BARCLAYS
HSBC
RBS
l Lloyds has taken the most pro-ringfence stance of all the banks – and argues that almost all of Lloyds’ operations should be inside the fence. l Chief executive António Horta-Osório (pictured) argues that a ringfence should form a crucial part of a resolution plan to allow regulators to wind up failing banks in an orderly way.
l Analysts estimate that Barclays would be worst hit by a ringfence, although chief Bob Diamond (pictured) insists that its investment bank does not use the retail bank for funding. l Barclays opposes a retail ringfence and instead suggests “operational subsidiarisation”: ringfencing off the bank’s infrastructure like payments systems.
l HSBC has the least skin in the game compared to rivals and will take a only small hit. Chairman Douglas Flint (pictured) sees the measure as unnecessary given the avalanche of other regulation in the works. l However, Flint suggests that if it must be brought in, it should divide assets on an accounting basis, with mark-to-market assets outside the retail ringfence.
l Like Barclays, RBS will suffer substantially from a ringfence. Chief Stephen Hester (pictured) argues that a ringfence could actually damage financial stability by concentrating risk-taking in a ringfenced retail bank that has an effective state guarantee. l Hester argues that bail-in debt – bonds that turn into equity – would better discourage risk-taking.
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MPs call for bank reforms to be delayed POLITICS BY DAVID CROW
A GROWING number of Tory backbenchers are calling for sweeping banking reforms to be delayed over fears they could damage the fragile economic recovery. Their intervention came as Vince Cable (pictured), the business secretary, attacked UK banks for being “disingenuous in the extreme” after they argued the Vickers reforms could force them to scale back lending to consumers and businesses. Mark Field, the Conservative MP for the Cities of London and Westminster, hit out at Cable, accusing him of “playing to the gallery” with his “unhelpful comments”. Field told City A.M.: “Cable feels vindicated
by the BSkyB fiasco and is now flexing his muscles after a period of silence. “To rush ahead with any reforms would be a huge mistake and a case of politics overshadowing substance.” Sajid Javid, Tory MP for Bromsgrove and a former Deutsche Bank investment banker, also called for the implementation of any reforms to be delayed by “five to ten years”. He said: “Timing wise the government must be very careful. Banks have not recovered from the first crisis, which has resulted in lots of regulatory changes already. “There are storm clouds on the economic horizon and we want banks to lend.” Meanwhile, the Prime Minister refused to be drawn on a timetable for the implementation of the Vickers report, which is expected to recommend that banks ringfence their retail operations from their investment banks.
CITY VIEWS: IS NOW THE RIGHT TIME TO BRING IN BANKING REFORMS? Interviews by Lydia Ellis and Phoebe Torrance CHRIS BATCHELOR |
JAMES GIBSON |
LLOYDS
CRONE CORKILL/WILLIS
“It's not the right time as it will increase the cost of retail banking. The inability to get mortgages will destabilise the housing market, shaking the economy.”
“No, I think that we should hang on six months to see what happens; recently the FTSE has been volatile, and we are still in a fragile economic climate.”
JIM PACKHAM | OXFORD INSURANCE BROKERS “Yes, it is definitely a good idea to act now – as soon as the financial markets crashed they should have brought in bank reforms. Ringfencing is a great idea as banks will then be fully aware of the downside of their debt.” * These views are those of the individuals above and not necessarily those of their company.
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CITYA.M. 1 SEPTEMBER 2011
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Shell poised to sign $800m deal for Ukrainian shale gas ▲
ENERGY BY KASMIRA JEFFORD
ROYAL DUTCH Shell, the world’s largest oil producer, is poised to sign an $800m (£492m) deal to explore and develop shale gas fields in the Ukraine, a presidential official told journalists yesterday. President Viktor Yanukovich’s chief of staff said Shell and Naftogaz, the Ukrainian state-run gas and oil
company, intend to sign a deal today in a move that will help to cut the former Soviet republic’s dependence on Russian imports. “The agreement envisages $200m for exploration and $600m for gas production. This concerns shale gas rather than Black Sea shelf,” he said. Ukraine, which imports about 60 per cent of gas for domestic consumption from Russia, has been locked in disputes with its neigh-
bour over high gas prices for more than a decade. A stand-off between the Ukraine and Russia in 2006 and again in 2009 choked gas supplies across several European countries. In the latest dispute, the Ukraine yesterday threatened to take Russia to the Stockholm court of arbitration over what it pays for natural gas from Russia’s Gazprom if it fails to secure a “fair” price by October.
US Non Farm Payrolls The lucrative oil fields that slipped through BP’s grasp when Rosneft teamed up with Exxon
Friday 1.30pm (London Time)
New blow for BP as Russian office raided ▲
ENERGY BY KASMIRA JEFFORD
BAILIFFS and armed special forces stormed BP’s Moscow’s offices yesterday, just a day after the Kremlin rubbed salt into the oil giant’s wounds by signing a coveted Arctic exploration deal with US rival ExxonMobil. BP was ordered to let bailiffs search through all documents by a court in Siberia, where Andrei Prokhorov, a minority shareholder in BP’s Russian joint venture TNK-BP, is suing two BP companies and two BP employees for £1.84bn. A spokesperson for BP said the raid on the offices of BP EOC was “completely without merit”, adding that the company had no connection with the court case in Tyumen. Tuesday’s deal between Exxon and Rosneft, Russsia’s state-owned oil explorer, marks a fresh blow for BP,
which failed to seal a similar deal with Rosneft earlier this year. TNK-BP won an injunction in February barring the deal, claiming that BP was obliged to pursue all its Russian ventures through TNK-BP. “It was a mystery as to how BP could try and do [a deal] without the participation of TNK-BP,” said Iain Armstrong, an oil and gas analyst at Brewin Dolphin. Andrew Bell, chief executive of the Witan Investment Trust, with 1.6 per cent of its holdings in BP, said the Exxon deal was an “embarrassing” reminder of BP’s own collapsed agreement but was now “an old event”. Bell said there was unlikely to be mounting shareholder sentiment against BP’s chief executive Bob Dudley but added that the company needed to clarify its strategy. “People aren’t quite sure what the company’s strategy is. There is a range of things that could happen.”
Higher taxes hurt profit at JKX Oil as the firm forgoes dividend ▲
ENERGY
SHARES in FTSE 250-listed JKX Oil and Gas fell more than four per cent yesterday after the energy group posted a drop in first-half operating profit, weighed down mainly by higher taxes in Ukraine. Pre-tax profits at the eastern Europe-focused oil group fell 32 per cent to $32.7m (£20.1m) for the six months to 30 June, from $49.1m for
the same period last year. The oil and gas producer also scrapped its interim dividend, citing higher project costs in Russia and higher taxation in Ukraine, which are both impacting its cash flow. It paid a dividend of 2.4p last year. JKX’s shares, which have lost around 41 per cent in value since it said in March that its key gas project in Russia would be delayed by about three months, closed at 187.4p.
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HOLLYWOOD A-LISTERS HIRED BY M&S
MARKS & Spencer has unveiled a new marketing campaign starring Hollywood A-listers Rosie Huntington-Whiteley and Ryan Reynolds. Transformers star Huntington-Whiteley and romcom actor Reynolds will be used to plug the firm’s Autograph collection. The move by boss Marc Bolland is aimed at widening the retailer’s international appeal.
Earnings at Hermes flying as luxury market booms ▲
RETAIL
HERMES unveiled record profit margins yesterday as the sale of luxury items continued to weather the overall consumer downturn. The company, best known for its bags and scarves, saw a 49 per cent jump in half-year profits to €290.9m (£257.4m). Sales were up by 22 per cent at €1.31bn, with jewellery and watches performing particularly strongly,
Hermes said. The Paris-based company said its US sales had proved resilient. Hermes confirmed its full-year forecast, saying it expected sales growth of between 12 and 14 per cent for the year and that its operating margin would be “close to the record high” of 2010. But chief executive Patrick Thomas warned that a lack of stock to meet demand in some product lines would have an impact.
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CITYA.M. 1 SEPTEMBER 2011
Carrefour issues profit alert ▲
RETAIL BY JOHN DUNNE
above rivals such as E Leclerc and Intermarche.
WH Smith plans to buy back £50m more shares ▲
CARREFOUR has warned its 2011 profits will slump 15 per cent as it cuts prices in a bid to reverse falling market share and tackle an increasingly tough economic environment. The French retailer said it was scaling back its Carrefour Planet hypermarket revamp as it continued to face headwinds in Greece and Italy. It also said that high commodity prices had eaten into purchasing savings.
Europe’s largest retailer has spooked investors with four profit warnings in less than a year. Its latest dire forecast came as it reported an unexpected first-half net loss, hit by €884m (£783.5m) one-off charges linked mainly to writedowns at its Italian business. “We are biting the bullet in 2011 and rebuilding momentum in 2012 to deliver long-term sustainable profitable growth,” chief executive Lars Olofsson said. He also conceded the firm had made mistakes, such as raising prices in its main French market
ANALYSIS l Carrefour ¤
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WH Smith is to double its share buyback scheme by mopping up another £50m of stock, the retailer said yesterday. In October the group announced a share repurchase programme for the 12 months to 31 August of £50m, which was then extended by a further £5m. The group will now buy back another £50m for the year ended 31
August 2012. The retailer is seen as one of the few high street names that has weathered the consumer downturn relatively well, with profit fuelled by the firm’s travel outlets and cost cutting. The company said the buyback will be “managed by an independent third party” but did not identify who that was. Chief executive of the FTSE 250-listed company, Kate Swann, was paid £4m last year.
Tesco to quit Japan after eight years ▲
RETAIL BY JOHN DUNNE TESCO yesterday announced that it would quit Japan after a bruising eight years in which it failed to gain a profitable foothold in the market. Japan is known as a difficult market to crack for western companies, especially in the notoriously tough grocery sector. Tesco has 129 stores, mainly in the Tokyo area, having started with the purchase of two C-Two Network supermarkets in 2003. In the last financial year like-for-like sales in the country were down by 8.1 per cent. New Tesco chief executive Philip Clarke admitted the retailer had failed to make its operations in Japan viable. “Having made considerable efforts in Japan, we have concluded that we cannot build a sufficiently scalable business,” he said. He added that a formal sale process would be launched in the coming months.
It is understood that Goldman Sachs will be advising Tesco on the sale. French rival Carrefour pulled out of Japan in 2005 having found the market too tough. Tesco’s performance in the US has also come under the spotlight in recent months, with its loss making Fresh & Easy business struggling to make an imprint. Clarke, who took over from Sir Terry Leahy in March, has also ordered a shake-up of the company’s clothing business, which he has identified as underperforming. ANALYSIS l Tescos
378.60
p
31 Aug
410 400 390 380 370 360 350 Jul
Aug
Asian exit sends message to ailing US arm IF a butterfly flaps its wings in China, it changes the weather in New York. And if Tesco exits Japan, it sends a chill wind through its US business. The decision to pull out of Japan was a no-brainer. It had a sub-scale operation of just 140 stores, a workforce of 4,367, and annual sales of £476m. In the year to February 2011, the business knocked around £20m off group profit. The future of Tesco’s US operation Fresh & Easy is less secure after this announcement. On paper, the business is remarkably similar, with 164
stores, headcount of 4,134, and annual sales of £495m. One major difference is the scale of losses. Last year, the US operation lost £186m, – almost £150m more than Japan. So far, the retailing giant has racked up a staggering £700m worth of cumulative losses since it tried to crack America in 2008. Fresh & Easy has some things going for it. Like-for-like sales were up 9.4 per cent in 2010-11, compared to an 8.1 per cent fall in Japan, while total sales grew by almost 40 per cent. Crucially, Tesco is trying to intro-
duce the far superior European grocery model to Americans. The kind of high quality ready meal that is common in the UK – think stuffed chicken wrapped in prosciutto – doesn’t exist there. If Tesco does succeed, the rewards could be very great indeed. By exiting Japan, Clarke is serving time on America. Global ambition doesn’t come at any cost.
BOTTOMLINE Analysis by David Crow
10
The Capitalist
EDITED BY HARRIET DENNYS
CITYA.M. 1 SEPTEMBER 2011
Got A Story? Email [email protected] Follow The Capitalist on Twitter: @citycapitalist
HOW JAMES MURDOCH CAN TRUMP BROOKS’S GOOD NEWS for anyone looking forward to joining James Murdoch at the bar of the prestigious gentlemen’s club Brooks’s, as its secretary Graham Snell has confirmed all is not yet lost for the News Corp heir’s membership application. As those of you who read The Capitalist’s original story on 9 August will recall, things were not looking good for Murdoch when the hacking scandal broke just when it was understood his application was due to be put to the members ballot. Except, as Snell cleared up on his return from Brooks’s summer recess yesterday, Murdoch (below) was actually first nominated more recently than two years ago, meaning his application is still “on the first leg”. “James is still a candidate,” confirmed Snell, explaining that candidates remain in membership limbo for a minimum of two years before their application is taken further. “He is in the waiting stage,” he added. “Hence the waiting list.” Snell refused to elaborate on exactly how long that wait might last – “that is the private business of the club” – but offered this insight into whether Murdoch Jnr will succeed in his quest to be accepted by the establishment. “I think it would be a prerequisite that he can play bridge. If he doesn’t, he wouldn’t be very welcome in any case.” So forget the pesky detail of testifying on press ethics to Lord Justice Leveson next month: Murdoch’s greatest challenge will be mastering the basics of finessing and cross-ruffing. Play his cards right, and he could yet come up trumps after all…
TWEET NOTHINGS DON’T BE put off by the fact Fitzdares is offering 8/1 on the long-dead race-
Above: the Credit Suisse triathletes reach the Eiffel Tower
horse Shergar on its new website; the traditional bookmaker says it is looking to the future with the launch of its online and iPad gambling services. “We will tweet with the best of them,” declared founder Balthazar Fabricius, who has mostly been updating clients about gold prices since the site went live yesterday. Also coming soon from the gentlemen’s betting exchange: an online shop in the style of Monocle magazine. Expect a rush on backgammon boards, ties and playing cards when it opens for business “just in time for Christmas”.
PARIS MATCH
WE’LL always have Paris, Credit Suisse employees are thinking fondly, after spending the bank holiday weekend in a bonding triathlon that finished at the Eiffel Tower. Starting from their office in Cabot Square, the bankers completed a 90mile running relay from London to Dover, followed by a 25-mile swim-
Cards on the table: Bridge-playing skills are a must for the members of Brooks’s
ming relay across the Channel and an 180-mile cycling relay from Calais to the French capital. The Credit Suisse team’s time of 17 hours and 53 seconds – excluding the cross-Channel swim, which had to be cancelled seven-and-a-half hours in for “safety reasons” – was enough to beat rival firms including BarCap, PwC, Accenture and UBS in the fundraising Enduro Challenge event, organised by healthcare charity Nuffield Health.
OFFICE POLITICS TIME TO start getting into the spirit of the Olympics, says Adecco, which yesterday
launched its Workplace Games campaign to encourage the wage-slaves of Britain to take up office chair rowing and boardroom table tennis. So that explains the picture of Colin Jackson in the “office hurdle” event (below), as the former Olympian motivates Britain’s workers to film themselves taking part in Olympic-style challenges in the office and post the results online. Each video uploaded to the Workplace Games Facebook page will earn a £20 donation to Paralympic GB from Adecco, while the most imaginative entrants will win tickets to the Olympics. The campaign is supported by Paralympians Clare Strange, a wheelchair basketball medal hope, and Danny Crates, who recently retired from international competition after setting 800m records. Crates, who now plans to become one of Britain’s top motivational speakers, has been impressed by the entries he has seen so far, some of which are “off the wall”. “But I’m not going to say which the best ones are,” he said. “Because I don’t want to jeopardise their chances.”
News
CITYA.M. 1 SEPTEMBER 2011
11
Buchan rejects payout as he exits Southern Cross ▲
SUPPORT SERVICES BY ALISON LOCK
JAMIE Buchan, the chief executive brought in to turn around care home operator Southern Cross, refused to accept a final payout of more than £400,000 as he left the firm yesterday. Buchan declined a £430,000 golden handshake and a £64,000 pension payment after cutting his basic salary by 20 per cent in February.
His austerity comes as Southern Cross prepares to cut 6,000 jobs and transfer its 752 homes to new operators after becoming unable to manage the costs of renting the sites. Christopher Fisher, Southern Cross’ chairman, said Buchan’s decision to leave without the severance pay was “entirely consistent with the tireless and selfless approach he has adopted while leading the management team at Southern Cross”.
Buchan will step down “once the process of transitioning homes is well advanced”, Southern Cross said. That is likely to be this autumn, as City A.M. understands it has found new operators for more than 90 per cent of its homes and expects the rest to be settled shortly. NHP, which owns almost a third of the homes, has said it will operate its estate through a new joint venture with Court Cavendish.
Southern Cross CEO Jamie Buchan declined a £400,000 golden parachute
NEWS | IN BRIEF
ACHING FOR A BREAK?
India and China mint millionaires IBM buys British analytics firm Asia will add 1.66m dollar-millionaires by 2015, taking the total number of wealthy to 2.82m as the world's fastest-growing major economies of China and India continue to mint millionaires, a report from Julius Baer said yesterday. The Swiss wealth manager forecast that the total wealth of people with $1m or more in investable assets would nearly triple to $15.8 trillion in the five years to 2015.
IBM has agreed to buy British security analytics software firm i2 for an undisclosed sum, it said yesterday, as it continues to devour companies that can help its clients deal with growing mountains of data. Privately held i2, which says its software helped US forces track down former Iraqi leader Saddam Hussein, is based in Cambridge and has 350 staff in Britain, the US, Canada and Australia.
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Slaughter and May, run by Chris Saul (left), boasts a profit margin of 49 per cent, while Linklaters, where David Cheyne (right) is senior partner, has the highest UK revenues.
UK law firm revenues top £15bn in 2011 Law firms’ fortunes are on the up after a tricky couple of years, writes Elizabeth Fournier. But London’s contribution to the recovery is waning
A
FTER a bleak couple of years for the UK’s legal sector, revenues at the country’s biggest law firms are looking far healthier this year, as the most successful firms look to international markets and strategic mergers to grow profits. Total revenues at the top 100 law firms in the UK rose by 13 per cent this year, hitting £15.5bn according to the latest Legal Business 100, the trade magazine’s annual look at the country’s top 100 solicitors, published today. Average net income across the top ten firms rose by two per cent in 20102011, compared to a fall in net income of 3.5 per cent for previous year. Things seem to be looking up, and the relative return to health means that partners at the most successful
firms are reaping the benefits. DLA Piper’s top partners earned an average of £2.5m in 2011 – up a staggering £1m from last year’s figure, and though gains at the rest of the top ten earners were more modest, only three of the highest pay packets among the top ten firms decreased. Top pay rose by £200,000 at Berwin Leighton Paisner, and was up £162,000 at Slaughter and May. City favourite Slaughters also booked the most impressive profit margin, at 49 per cent, on a turnover of £440m. Profits per equity partner (PEP) at the corporate-focused firm rose by seven per cent to lead the field at £1.75m, well above its nearest rival Freshfields Bruckhaus Deringer, which saw PEP fall by seven per cent
Where equity partners at the top earn the most Top 10 firms ranked by highest top of equity 1
DLA Piper
2
Slaughter and May
3
Dickson Minto
4
Gordons
5
Allen & Overy
6
Linklaters
7
Freshfields Bruckhaus Deringer
8
Berwin Leighton Paisne
9
Watson, Farley & Williams
10 Clifford Chance Source: Legal Business
Equity partners: non-equity partners
416:802 123:4 14:1 9:22 398:89 442:31 416:29 89:108 59:39 379:173
% of lawyers that are equity partners
34% 97% 93% 29% 82% 93% 93% 45% 60% 69%
Profits per equity partner
£728k £1,753k £950k £856k £1,055k £1,165k £1,308k £694k £457k £1,005k
News
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Allen & Overy, led up by senior partner David Morley (left), overtook Clifford Chance on London revenues. Sir Nigel Knowles’ (right) DLA Piper was top ranked for global revenue. on revenues flat at £1.14bn. Despite its lack of growth, Freshfields remained among the elite City firms reporting a turnover of more than £1bn, joining Clifford Chance, Allen & Overy, Linklaters, DLA Piper and Hogan Lovells at the top of the table. That the latter two are among the leaders of the pack is testament to the increasing influence of UK law firms’ overseas operations on their top line.
LOOKING ABROAD FOR REVENUE DLA Piper for example, which jumped four places from last year’s ranking to the top of the table, garners just 22 per cent of its annual revenue in the UK. The firm’s global revenue was taken into account for the first time in this year’s survey, an acknowledgement of the increasing popularity of its Swiss Verein structure, which separates liabilities within an international network. Norton Rose – another convert to the Swiss Verein model – also benefited from its international game plan, growing revenues by 59 per cent in a year that saw it merge with firms in Australia, Canada and South Africa. “This is the first full year with Australia as part of the group and we are already seeing the benefits,” Norton Rose’s chief executive Peter Martyr told City A.M. in June, when the firm released its latest figures. And though many of the highest earning firms are still considered as traditional London players, the survey
London office revenues Rank (change from 2010)
London change revenue as from % of global 2010 turnover
%pt change from 2010
LONDON TURNOVER 2011
London revenue per lawyer
£510.4m
£521,000 3%
43%
-1
1
(-)
2
(+1) Allen & Overy
£448m
£448,000 3%
40%
-1
3
(-1) Clifford Chance
£430m
£464,000 -1%
35%
-4
4
(-)
Slaughter and May
£422m
£637,000
4%
96%
0
5
(-)
Freshfi elds Bruckhaus Deringer
£410m
£552,000 6%
36%
2
6
(-)
Herbert Smith
£304m
£361,000 0%
65%
-4
7
(-)
Hogan Lovells
£258m
£375,000 2%
24%
-19
8
(+1) Berwin Leighton Paisner
£204m
£331,000 14%
92%
1
9
(-1) Ashurst
£181m
£336,000
1%
60%
-3
£169m
£323,000 0%
35%
-18
10 (-)
Linklaters
shows they are becoming increasingly reliant on rapidly expanding markets in Asia and other emerging economies are offsetting slightly less impressive domestic performances. Freshfields now generates 64 per cent of its revenue outside of London, while Allen & Overy books 60 per cent of turnover abroad, and Linklaters 57 per cent. Even Herbert Smith, which still relies on London for 65 per cent of its revenues, is looking to shift focus, aiming for a 50/50 split between home turf and its 12 international offices. “It is interesting to compare the UK billings against worldwide revenues,” said Legal Business city editor Emma Sadowski. “DLA may be the UK’s largest law firm by worldwide revenue, but just 22 per cent of its billings originate in the UK. By UK billings it is only just inside the top 10.” By a breakdown of UK revenue, Linklaters – headed up by outgoing senior partner David Cheyne – is the highest earner, booking a UK turnover of £510.4m, up three per cent from last year. Among the mid-table firms, London and New York-based Mishcon de Reya was the star performer, jumping 11 places to 47 in the table as its net fee income rose 37 per cent to £65m. Litigation expert Stewarts Law entered the top 100 for the first time, after increasing its revenue to £28.5m, a jump of 42 per cent.
Norton Rose
Source: Legal Business
14
News
CITYA.M. 1 SEPTEMBER 2011
Third bidder circles loss-making Omega ▲
INSURANCE BY ALISON LOCK
TROUBLED Lloyd’s insurer Omega Insurance yesterday said it hoped to secure a buyer soon, as it posted a $49.1m (£30m) loss for the first half of the year. The third bidder for Omega emerged yesterday as Mark Byrne, the founder of Bermuda-based insurer Flagstone Re and son of insurance scion Jack Byrne, who managed GE’s insurance business. Byrne’s investment vehicle Haverford is understood to lead the list of keen bidders for Omega and has spent at least two months in discussions and raising capital to fund an offer for the insurer. But other bidders, including Bregal Capital-backed private insurer Canopius and US group Barbican, have been in talks to buy Omega since January and the tar-
get’s board yesterday made it clear it wanted to move the discussions forward at pace. “Omega has received a number of approaches that may lead to an offer being made for the company, and the directors will continue to review these approaches,” chief executive Richard Pexton said in a statement. “We are striving to conclude the process shortly.” Industry sources said the delay in securing a buyer was in part due to the number and frequency of catastrophes over the past six months. Omega took $51.3m of losses after reinsurance cover, and said the combination of earthquakes, tornadoes and floods had been exceptional. But it emphasised that it had taken drastic action to de-risk its portfolio and position itself to perform better as rates rise.
The group’s shares bounced more than ten per cent in trading yesterday, closing up 8.2 per cent as investors took heart from the bid talk. But Espirito Santo analyst Joy Ferneyhough said the continuing losses meant Omega’s prospects as a standalone company were weak. “Investors may become more anxious if a formal bid is not forthcoming promptly,” she said.
ANALYST VIEWS: WHAT ARE THE POSITIVES FROM OMEGA’S RESULTS? Interviews by Alison Lock Its catastrophe losses represent about 15 per cent of its 2010 net tangible assets, a relatively favourable performance. Its $1m reserve release, compared with a $12m strengthening a year earlier, is clearly positive. Additional reinsurance has also been purchased for the US windstorm season.
NICK JOHNSON | NUMIS
@ @
” ” ”
First-half catastrophe losses are the highest in the sector relative to premium income – but low relative to net tangible assets given Omega’s strong capital position. We consider its top-level capital ratios to be one of the strongest in the sector, with zero debt and a high NTA to gross premium ratio.
JOY FERNEYHOUGH | ESPIRITO SANTO
MORE NEWS ONLINE AT www.cityam.com
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ADVISER: CENKOS IAN SOANES
SARAH LEWANDOWSKI | PEEL HUNT
“ “ “
ANALYSIS l Omega Insurance Holdings Ltd
Omega has worked hard to reduce catastrophe exposure and improve the efficiency of its reinsurance programmes. This has clearly worked as tangible book value fell just ten per cent, in line with likes of Hiscox or Beazley and ahead of Amlin and Hardy – but it has moved away from better-priced business.
ADVISING Omega on its numerous potential bids is Ian Soanes of Cenkos. Soanes is notably a co-lead on the team that launched Lord Levene’s new bank, NBNK, onto the public market to raise £50m last year. He also works with a range of fast-growing property and tech companies. He advised Assura, the UK’s biggest healthcare property owner, on the sale of its medical business to Virgin, while he helped raise £23m for real estate investor NewRiver Retail in 2009.
News
CITYA.M. 1 SEPTEMBER 2011
Northern Rock owner to credit check clients ▲
Market drops hurt Chesnara
BANKING
INSURANCE BY ALISON LOCK
▲
THE administrator of failed lenders Northern Rock and Bradford & Bingley is monitoring its 750,000 mortgage-holding customers for signs of financial stress and will offer advice to any it feels may be struggling, it emerged yesterday. UK Asset Resolution checked customers’ creditworthiness to identify those that may need to cut spending to continue paying their mortgages and is now contacting about 30,000 to offer advice on managing money. It is calling about 30,000 of its borrowers at a rate of about 2,000 every week to suggest that they spend less to give them more financial leeway. UKAR is particularly concerned that some may struggle to meet higher repayments as interest rates rise from the current ultra-low level. “We always treat customers fairly. Where there are signs that any of our customers may be getting into difficulty with their mortgage we call them to offer help and advice,” it said.
Chesnara CEO Graham Kettleborough blamed erratic markets for the results
Sanlam weighs up Merchant Securities ▲
INSURANCE BY ALISON LOCK JOHN East’s investment group Merchant Securities became the latest City broker to be eyed for takeover yesterday as it said its South African life and savings provider Sanlam had made a bid approach. Shares in Merchant Securities, which bought fellow brokerage John East & Partners in 2007, leapt more than 30 per cent to close at 15p after it said it was in early stage talks with Sanlam. Merchant said Sanlam also bought a 9.7 per cent stake yesterday, buying the shares at 14p apiece, a 22 per cent premium to its closing share price on Tuesday. Yesterday’s closing price values the business at about £7.7m but Sanlam may pay a further premium to that.
Merchant has more than 30 smaller-cap UK-listed clients as well as a wealth management arm. Sources close to the firm told City A.M. it had not previously been considered up for sale but the board was pleased with the progress of talks so far. ANALYSIS l Merchant Securities Group PLC p
15.00 31 Aug
16 14 12 10
Jun
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31 Aug
Bregal Capital in exclusive talks with Irish group IFG ▲
PRIVATE EQUITY
PRIVATE equity firm Bregal Capital entered into exclusive talks with Irish financial services company IFG Group yesterday over a possible €231m (£204m) buyout. Dublin-based IFG said Bregal Capital, which is already a backer of Lloyd’s insurance company Canopius, had proposed making a cash offer of €1.80 for each IFG share and would also pay a dividend. Bregal’s proposal is subject to additional due diligence and conclusion of banking facilities, IFG said.
15
IFG has agreed to work exclusively with Bregal for up to six weeks during this due diligence period, with the exclusivity due to expire on 10 October. In June, it said it was talking to two potential buyers. IFG, a pensions adviser and administration expert, also said its pre-tax profit for the first half of the year jumped to £7.1m, up from an £0.1m loss a year ago. Revenues rose about 15 per cent to £56.3m compared with 2010, IFG said. London-based Bregal has €3bn in committed funds largely invested in financial services companies.
VOLATILITY in equity and bond markets battered European life insurance consolidator Chesnara in the first half of this year, cutting its profits to just £3.8m, it said yesterday. Chesnara’s Swedish business Movestic was hit by low investment returns, while its newest acquisition, Save & Prosper, fell to a £1.2m operating loss due to lower interest rates. Chesnara’s group pre-tax profit of £3.8m was 68 per cent down from the £12m profit seen in the first half of 2010 on a combination of shifts, such as much lower releases from prior year reserves this year and a £4.2m “with profits strain” from Save & Prosper. But Chesnara chairman Peter Mason said its founding business, Countrywide Assured, delivered an £8m profit in line with expectations and Movestic’s £1.2m loss showed the business was gradually improving.
“Like many businesses, we have been affected by the ongoing turmoil in the equity and debt markets,” Mason said. “However, we remain strong financially and believe we are well-placed to deliver good ongoing returns to shareholders.” “We believe the cash generation which supports the dividend will remain resilient at least into the medium term even if markets remain difficult,” said Panmure Gordon analyst Barrie Cornes. ANALYSIS l Chesnara p
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CITYA.M. 1 SEPTEMBER 2011
17
FT app dropped from Apple store over fee and data row ▲
TECHNOLOGY BY STEVE DINNEEN
Acts like Rihanna failed to ward off a decline in profits at Universal Music Pic: REUTERS
APPLE yesterday kicked the Financial Times from its App Store after the two failed to reach a compromise over subscription fees and user data. The Cupertino-based firm insists on taking a 30 per cent slice of ongoing subscription revenues as well as collating valuable customer information.
There has been animosity between the FT’s publisher Pearson and Apple over the issue for months, and talks finally broke down yesterday. The publisher says it has developed a work-around that allows users to access an app-like interface through a web browser. Apple is facing increasing resistance from businesses using its online store, with Amazon pulling support for e-book purchases from its app to
avoid handing over the 30 per cent cut. Meanwhile, the battle between Amazon and Apple could escalate further with rumours the world’s biggest online retailer is ready to launch a rival tablet to the iPad. Amazon hopes it can emulate the success of its Kindle e-reader, with analysts speculating it would soon become the second biggest player in the market.
Games offset music slump at Vivendi ▲
MEDIA BY STEVE DINNEEN
IN a sign of the changing entertainment landscape, a blistering performance by Vivendi’s video games division has offset a slump in its music business. Vivendi’s Universal Music, host to acts including Rihanna and U2, saw its first half underlying earnings fall 17 per cent to €132m (£117m), on revenues down 1.9 per cent at €1.86bn. But this was more than balanced by games business Activision Blizzard, which was buoyed by the roaring success of games including Call of Duty and World of Warcraft, pushing earnings 34.4 per cent higher year-on-year to €833m. Revenues of €1.86bn – a hike of nine per cent – rivalled the music business for the first time. The winning streak looks set to continue after the firm received record pre-orders of upcoming title Modern Warfare 3. The French conglomerate saw its overall pre-tax profit rise 20.2 per cent to €1.83bn, boosted by favourable, oneoff tax credits linked to its minority buyout of SFR. Its revenue was up 1.9 per cent to €14.25bn.
The mobile business, acquired from Vodafone for €8bn, is competing in a tough French telecoms market, with a fierce price-war raging. Mobile operating margins slipped to 25.4 per cent in the first half of the year from 27.3 per cent a year earlier. Chief executive Jean-Bernard Levy said: “This first half has meant a very major milestone for Vivendi... with disposal of our minority stake in NBC Universal and the deal with Vodafone to buy the SFR stake. “Activision Blizzard and [Brazilian unit] GVT have fueled the growth of Vivendi and are clearly above our own expectations. Activision Blizzard has fantastic properties and franchises that will lead to recurring profit.” ANALYSIS l Vivendi SA ¤
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Japan tech trio RBS inks deal tie up LCD arms for mobile apps JAPAN’S tech giants Sony, Toshiba and Hitachi will merge their liquid-crystal display operations using 200bn yen (£1.6bn) of government-backed funds to fend off growing competition from rivals in South Korea and Taiwan, the groups said yesterday. The firms were all making losses on small panels until last year so the merger will allow them to focus on their main operations. The state-backed Innovation Network Corp of Japan will take a 70 per cent stake in the venture in return for its investment, with the trio each taking 10 per cent.
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CITYA.M. 1 SEPTEMBER 2011
888 hits expectations despite writedown on acquisition ▲
GAMING BY STEVE DINNEEN
GAMING firm 888 said it is performing well in a tough market as it unveiled a pre-tax loss of £15.5m for its first half, in line with expectations. Its accounts included a £20.2m writedown on its Mytopia social media business, which it acquired in 2010. Its revenue jumped 18 per cent from £130m in the first half of last year to £153m.
Brian Mattingley, deputy chairman of 888, said: “This is a very strong set of results driven by good operating performances across our business lines. “We are in good shape and, bolstered by our renewed strategic focus, are well positioned to take advantage of opportunities in newly regulated markets. “The third quarter, which includes the traditionally quiet summer period, has to date seen strong trading across all our business lines.”
ANALYSIS l 888 p
30.50
31 Aug
36 34 32 30
Jun
Jul
Aug
31 Aug
Co-chief executive Jim Ryan welcomed the results, despite a dent from restructuring costs
Bwin.party surges 14pc despite loss ▲
GAMING BY STEVE DINNEEN
BWIN.PARTY surged 13.91 per cent yesterday after an upbeat forecast, despite slumping to a first half loss. The world’s biggest listed online gaming firm, formed by the merger of Austria’s Bwin and PartyGaming earlier this year, reported a pre-tax loss of €50.8m (£45m), down from a profit of €22.8m the year before. It was hit by higher gaming taxes, stronger competition in poker, tough comparisons with last year’s World Cup and significant restructuring costs. Bwin.party said its performance had been strong so far in the second half following the suspension of Full Tilt’s European poker licenses. The rival gaming firm was indicted in the US for alleged gambling offences, money laundering and bank fraud. Analysts had predicted that the
suspension would be positive for remaining European poker operators. Bwin.party also said it had lifted its target for annual cost savings to €65m from €55m at the time of the merger. Shares in Bwin.party have lost half their value since the start of the year owing to regulatory uncertainty. A company spokesman said yesterday: “We remain confident about the group’s prospects for the rest of the year and beyond.” ANALYSIS l Bwin.party Digital Entertainment Plc p
125.30
150
31 Aug
140 130 120 110 100 Jun
Jul
Aug
31 Aug
NEWS | IN BRIEF Volvo in Siemens partnership
Orders up at comms group Vislink
German industrial group Siemens and Swedish carmaker Volvo have formed a partnership to develop technology for electric cars and ancillary equipment. The two companies said yesterday that an electric version of Volvo’s small C30 hatchback will serve as a test platform and will be on test tracks by the end of the year. Volvo will deliver up to 200 vehicles to Siemens for further testing by the end of 2012, the companies said in a statement. Volvo, bought last year by China’s Zhejiang Geely Holding Group from Ford, aims to double its 2010 production within ten years.
Secure communications specialist Vislink has posted its interim results for the six months ended 30 June, showing that underlying orders received in the period grew 19 per cent to £23.7m. Vislink said that it was cautiously optimistic that the second half of 2011 will show a further strong improvement in trading. However underlying revenue was six per cent lower than last year at £19.1m. Total underlying costs fell by 19 per cent to £12m. In June Vislink acquired Essex based wireless camera manufacturer Gigawave in a deal worth £3.75m.
News
CITYA.M. 1 SEPTEMBER 2011
19
How to solve the scourge of youth joblessness ANTHONY BROWNE
I
T is not a good time to be young. Much has been stacked against them – poor job opportunities, rising house prices and tuition
fees, collapsing pensions, and the burden of having to pay off the national debt. Last week, figures showed a shock rise in youth unemployment, with nearly one million under 25 year olds not in education, employment or training. The government is striving to kick start the economy, but it must also strive to ensure that the growth benefits the young. A massive boost is being given to apprenticeships, and the ambitious work programme will help the young unemployed into jobs. But a lot more needs to be done.
The government has introduced a one year National Insurance holiday for new companies, but the NI holiday should be extended to any existing company with fewer than ten staff that takes on extra employees. There are more than a million such microenterprises in Britain – if each took on just one person, that would be a million new jobs. At present the young unemployed are on a level playing field with more experienced workers from the UK as well as immigrants, but it should be tipped a little in their favour – all companies should have a one year NI holiday if they take on
someone under the age of 25 who has been unemployed for more than three months. That should eventually be extended to the jobless of any age. Finally, the government should shift the emphasis further from paying people not to work, in the form of benefits, to paying benefits to companies that take people off the dole. It is already doing this with the work programme, paying agencies by results to move people from the dole to sustained employment. It should extend this directly to companies – any business that takes on someone
London’s rent continues to edge upward ▲
HOUSING BY JULIAN HARRIS
NEWS | IN BRIEF UK growth downgraded by BCC The UK economy will expand by just 1.1 per cent this year, the British Chambers of Commerce (BCC) said this morning, revising down their previous forecast of 1.3 per cent growth. The business group expects growth of 2.1 per cent in 2012, another downward revision from 2.2 per cent in its last forecasts.
Inflation expectations hold up Inflation expectations held steady last month, a survey by YouGov revealed yesterday. Inflation is expected to average 3.5 per cent in the year ahead, down from expectations of 3.9 per cent in June. Over the next five to ten years, inflation is still expected to remain stubborn, with respondents forecasting 3.7 per cent year on year price hikes.
Positive data for American jobs Adam Posen wrote that more QE is needed to reap better results
Picture: BLOOMBERG
Chief dove calls for more QE across G7 countries ECONOMY BY JULIAN HARRIS
▲
STRONG demand and weak supply continues to hike up London rents, with many young people struggling to get a step onto the property ladder. “Rental growth in London and the south has outperformed the rest of the country, though all regions have seen a pickup in rents,” the Royal Institution of Chartered Surveyors (RICS) said yesterday. In the three months to July, a positive balance of 34 per cent of surveyors reported higher rental costs across the UK – a slightly slower rate of growth than in the three months to April (+42 per cent). “Surveyors are once again highlighting the shift of would-be first time buyers into the rental market as they struggle to access mortgage finance,” the report said. In London, the positive balance of respondents reporting higher rents was closer to 50 per cent – the highest of all regions in the UK. Across the UK, 25 per cent more chartered surveyors reported a rise in demand than a fall. “The inevitable outcome is that rents will continue to increase,”
warned RICS spokesperson James Scott-Lee. “Our research shows that on average there are more than seven people searching for every room that comes onto the rental market,” added Matt Hutchinson for the website Spare Room. “And in desirable areas where rooms in flat and house shares are snapped up almost as soon as they appear online, landlords can charge a premium.” One in eight people living in shared accommodation is over the age of 40, according to the website, suggesting that more mature adults are being forced into living as housemates. The group’s research also showed that one in 10 people in shared accommodation have given up hope of ever being able to afford their own property. The economic squeeze is also reflected in RICS’s figures. The group revealed yesterday that more people are seeking government assistance. “Social lettings are now at their highest level since the series began in 1999, at 13 per cent of all new lets, up from eight per cent,” RICS said in the research.
who has been unemployed for more than twelve months should get paid their benefits for up to a year. Huge employers like Tesco and local authorities would then be given an incentive to employ those who are often least employable, opening the world of work for them. Most of these measures would pay for themselves by cutting benefits or increasing tax revenues. Only by such imaginative measures will we get a job-rich recovery that will benefit young and old alike. Anthony Browne is a board member of theCityUK [email protected]
THE BANK of England’s chief dove, Adam Posen, yesterday urged authorities across the G7 to throw themselves into a last ditch programme of quantitative easing, designed to stimulate growth. “Additional monetary stimulus is the last line of defence for the advanced economies today, and G7 central banks should purchase more
assets if we are to have any hope of our economies ever catching up,” Posen said. The American economist has long been a lonely voice on the Bank’s monetary policy committee, calling for an extension of QE, although some colleagues appear to be on the verge of supporting him. “The evidence is clear that the Bank’s and the Fed’s asset purchases had a positive significant effect,” Posen claimed in a Reuters opinion piece.
American private sector employers added 91,000 new jobs this month after expanding payrolls by 114,000 in July, the latest ADP report announced yesterday. While there are often gaps between the ADP data and official figures, the news provided some hope that businesses had not pulled back hiring amid recession fears.
Factory gains slow in the US Growth in factory activity in the US Midwest slowed just a bit in August, according to the latest ISM figures from Chicago. ISM said its business barometer fell to 56.5, the lowest since November 2009, from 58.8 in July. But the reading was above expectations and indicated that activity continued to grow.
High street sales dip in Germany German retail sales slipped by 0.2 per cent in July from the previous month, official data showed yesterday. Yet seasonally adjusted, sales were flat, beating the expectations of economists.
Rising unemployment and steady price British mortgage sales pressures suggest ECB could cut rates decline across the board EUROZONE annual inflation was unchanged in August while the number of people without jobs grew, data showed yesterday, adding to expectations that the next ECB interest rate move could be a cut rather than a hike. EU statistics office Eurostat said inflation in the 17 countries using the euro was 2.5 per cent year-on-year in August, the same as in July, as expect-
ed by economists. The European Central Bank wants to keep inflation below but close to two per cent, and economists had been expecting the bank to raise interest rates a third time this year to 1.75 per cent from 1.5 per cent to stem price pressures. Eurostat said unemployment was 10 per cent in July, unchanged from an upwardly revised June rate, which was initially reported at 9.9 per cent. But the number of unemployed in the Eurozone rose by 61,000 in July
against June to 15.757m. “The latest data and surveys fuel belief that the ECB’s ultimate next move may actually be to trim interest rates although it is likely to need sustained Eurozone economic weakness to... do a U-turn,” said Howard Archer, economist at IHS Global Insight. Fuller data will be published on 15 September. “We think the stabilisation was the combined result of a decline in energy price inflation and a rise in the core inflation rate,” said ABN Amro economist Aline Schuiling.
▲
▲
EUROZONE ECONOMY BY HARRY BANKS
HOUSING
MORTGAGE sales in the year to April sank to their lowest rate since the Financial Services Authority (FSA) began gathering the figures in 2005, it emerged yesterday. “Overall, mortgage sales declined by seven per cent from 2009-10 to 201011,” the FSA said. The decline was across the board, with sales of mortgages to first-time buyers, re-mortgagers and home movers all falling in 2010-11 compared
to the previous year. Fixed rate mortgages continued to be most popular for borrowers, yet their proportion of the market slipped from 63 per cent to 53 per cent. “Initial rates on fixed interest rate mortgages have been consistently higher than variable rates but the gap is shrinking,” the report said. The proportion of mortgages with advice also fell sharply, from 74 per cent in the second quarter of 2010 to 68 per cent in the first quarter of this year.
20
News
CITYA.M. 1 SEPTEMBER 2011
Global warming agenda to hit living standards MATTHEW SINCLAIR
L
OOKING at the scale of the fiscal correction needed, does anyone seriously think that a major new burden on the households who rely on benefits the most is remotely affordable?
Politicians are clinging to their climate change policies but that is going to become increasingly untenable as the costs mount. Citigroup expect that in order to meet environmental targets, €229bn (£200bn) will need to be invested in Britain’s energy sector alone. Paying for all that investment will take higher profits and higher prices. They believe it will require a 52 per cent increase in dual fuel bills above inflation. The government thinks it can avoid putting more pressure on families by improving energy efficiency. But someone needs to pay for all that investment. Citigroup says that even with energy efficiency gains there
The Square Mile’s event of the year.
will be a 35 per cent increase in bills, and that’s before paying for the insulation work which could offset the savings. It is no accident that cutting emissions is expensive. Ever since the Industrial Revolution, growth has been associated with using fossil fuels more and emitting more carbon dioxide. While we get more efficient over time, and can try to accelerate the process, cutting emissions too quickly will almost certainly mean cutting living standards. The government makes it worse by picking losers. It insists large shares of the emissions cuts have to come through renewables and have to happen by
2020. Therefore, there isn’t time for relatively low cost options like nuclear and we have to rely on offshore wind. With offshore wind dependent on £90/MWh subsidies that means higher prices. Electricity from conventional gas plants costs half as much. They then give the least economic sources of power the most in subsidy, so solar power can get over £400/MWh. Benefits for poor and elderly households are the biggest items in the government’s budget. Higher energy bills will make it much harder for them to stomach the long term fiscal adjustment that the country needs. Industry will also suffer. Energy intensive sectors like steel, alumini-
um and chemicals employ tens of thousands of workers. They won’t stand a chance if energy prices rise sharply here and not in other industrialised countries. Some companies are making fat profits right now from climate policy. But that won’t last. Rising profits and rising prices will mean a backlash. The only question is whether we get an early reversal of this failing agenda rather than something much more self-destructive like a windfall tax. That will depend on whether the public know what is going on. Matthew Sinclair is the Director of the TaxPayers’ Alliance and the author of Let Them Eat Carbon, published by Biteback Publishing, price £9.99
Aer Lingus upgrades full year outlook ▲
AVIATION BY KASMIRA JEFFORD
IRISH airline Aer Lingus saw a surge in second quarter profits but blamed the effects of industrial action by its cabin crew for overall losses in the first half of the year. The airline, which is owned in part by the Irish government and Ryanair, posted an operating loss of almost €28m (£24.6m) in the year to 30 June compared with €19m last year. Following a miserable first quarter when the group made a €15m loss from cabin crew disputes, the second quarter was more positive, with operating profits rising to €25.9m from €18.8m a year earlier. “While we wont reach the same profit levels we reached in 2010 they will certainly be above what we were expecting in the first quarter,” chief operating officer Stephen Kavanagh told City A.M.
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ANALYSIS l Aer Lingus Group PLC € 0.80
0.64
31 Aug
0.75 0.70 0.65 0.60 0.55 Jun
Jul
Aug
31 Aug
Swift hit with £8m penalty for layering ▲
For more information, contact Jo Pead I 020 8267 4043 I [email protected]
Passenger numbers were up by 8.3 per cent in the second quarter whilst the yield or fare per passenger increased 6.6 per cent. The group said that while economic conditions in Ireland “remained challenging”, it was confident that a pickup in bookings and strong trading prospects meant it would recover to post a better than expected full-year operating profit.
ENFORCEMENT
THE FINANCIAL Services Authority has slapped Swift Trade with an £8m fine for market manipulation, a decision the now-dissolved Canadian firm is appealing. Under new powers intended to crack down on market abuse, the FSA revealed in May that it planned to fine Swift before any appeals were complete. This is only the second time the FSA has used this power. The watchdog said Swift used manipulative trading known as “layering”, which involves placing large orders on one side of the London Stock Exchange order book, to give
the appearance of high demand. The FSA said Swift then took advantage of such price shifts in a number of LSE-listed stocks before cancelling the original large orders. It estimates that Swift made a profit in excess of £1.75m through the trades in 2007. Swift Trade has lodged an appeal with the Upper Tribunal, which has powers to uphold, vary or cancel the FSA fine. Peter Beck, chief executive of Swift in 2007, said earlier in the week that he expects the tribunal hearing to take place in spring 2012. Judicial review proceedings are also ongoing.
News
CITYA.M. 1 SEPTEMBER 2011
CITY MOVES | WHO’S SWITCHING JOBS The European equity boutique with £1.1bn of assets under management has appointed Edward James, formerly head of operations at Octopus Investments, as chief operating officer. Prior to Octopus, James worked at Euroclear, where he led the firm’s expansion into the UK fund processing model and managed the purchase of EMXCo, and at Gerard Asset Management, where he was part of the management team that restructured the business to enable its sale to Barclays Wealth.
Drax The board of Drax Group has appointed Paul Taylor as an executive director, in the capacity of retail and trading direc-
tor. Taylor, who joined Drax in July 2005 as head of trading, rising to director of retail and trading, is a member of the company’s executive com-
To appear in CITYMOVES please email your career updates and pictures to [email protected]
mittee and chairman of the group’s electricity supply business, Haven Power Limited.
Fairfax The stockbroker has appointed Stuart Gledhill, previously of Panmure Gordon and BDO Stoy Hayward, to its equities corporate finance division.
RBC Capital Markets
Chase Manhattan Bank, also joins as a director and high yield analyst.
Solutions as institutional sales director.
IGF
The law firm has appointed Philippe Thomas, fomerly a partner at Hogan Lovells, as a partner in its employment law practice in Paris. Thomas specialises in advising on all aspects of French employment law.
The commercial finance company has appointed John Offord as regional sales director. Offord previously ran his own broking and consultancy business before joining Ultimate Finance as regional director.
F&C
The investment banking arm of Royal Bank of Canada has appointed Christiane Schuster, formerly of MF Global, as a managing director and head of non-investment grade credit sales and trading. Steven Chapman, formerly of Lehman Brothers and
The investment manager has made two hires to its UK institutional sales team, based in London. Simon Bentley joins from UBS Global Asset Management as client director and Simon Mooney joins from Psolve Asset
SPECIALISTS IN GLOBAL PROFESSIONAL RECRUITMENT
BEST OF THE BROKERS 547.00
p
31 Aug
650
ANALYSIS l Shire PLC 2,100
1,987.00 31 Aug
p
Artemis Rosanna Burcheri will complete the global select team at Artemis Investment Management when she joins on 3 October. Burcheri will join from FrontPoint Management, where she is a partner and pan-European fund manager.
+44 (0)20 7092 0053 morganmckinley.com
2,050
13 12
550
1,800
11
1,850
10
1,800 Aug
31 Aug
14 ¤
2,000
500
12.29
ANALYSIS l Ferragamo
600
Jul
Dechert
To appear in Best of the Brokers email your research to [email protected]
ANALYSIS l Mondi
Jun
in association with
Edited by Harriet Dennys
Argonaut Capital Partners
21
Jun
Aug
Jul
Jul
Aug
MONDI
SHIRE PHARMACEUTICAL
FERRAGAMO
Citi maintains its “buy” rating on the South African London-listed paper producer, but lowers its target price from 770p to 740p to reflect its revised earnings forecasts. The broker reduces its pre-tax earnings expectations by four to 18 per cent for 2011-12, due to the demerger of MPact, share consolidation and lower global growth expectation. Citi’s South African Rand target price remains unchanged at ZAR90 (790p).
UBS reiterates its “buy” rating on the pharma group, and maintains its target price of 2,380p. The broker sees Shire’s attention deficit hyperactivity disorder (ADHD) franchise as outperforming the market, with both its Adderall and Vyvanse market share boosted in recent months, despite the launch of generic Concerta as a rival to the latter. Delays to rival Genzyme’s Fabrazyme could mean an upside of six to seven per cent to 2012-13 earnings.
JPMorgan Cazenove rates the Italian luxury goods group as “neutral” with a target price of €12.70, after the company’s second quarter results call highlighted strong like-for-like trends and robust trading. The broker has raised its EBITDA margin forecasts for 2011 to 18 per cent from 17.2 per cent. Full-year profits before tax are also upgraded by 10.7 per cent to €141.5m, increasing the earnings-per-share forecast for the year by 5.4 per cent.
FTSE 100 ends August on a Wall St edges into high despite economic fears positive territory THELONDON REPORT
B
RITAIN’S top share index climbed 2.4 per cent yesterday as poor economic data in Britain and abroad fuelled expectations of further economic stimulus but it still recorded the worst monthly performance since February 2009. The benchmark FTSE 100 index closed up 125.87 points or 2.4 per cent at 5,394.53, on the final trading day in August. The index, however, was down 7.2 per cent on the month in which the US lost its triple-A credit rating. Without the final day surge, August could have been the FTSE’s worst month since the collapse of Lehman Brothers in 2008. Throughout August, worries over the health of the global economic recovery and the lack of unity shown by governments worldwide in tackling the slowdown have dented investor appetite for riskier assets such as equities. “With fiscal policy nowhere, investment bankers are being forced to take on the role of sorting out the economy because politicians can’t,” said Louise Cooper, markets analyst at BGC Partners.
Yesterday’s economic data continued to fall foul of market expectations as UK consumer confidence fell to its lowest level in four months in August. Analysts at Exane BNP Paribas became the latest to cut their world GDP forecasts, reducing global growth estimates to just 3.8 per cent for 2011 and 3.7 per cent for 2012. The troubling data and downgrades are concerning policymakers and the minutes released on Tuesday from the most recent Fed board meeting indicated several policymakers backed further monetary easing to support growth. “What we learned from the minutes was that ‘a few members’ had wanted even more aggressive action at the August meeting, but accepted the language change as a ‘measured’ step in that direction,” analysts at RBS said. Further quantitative easing would likely lead to lower interest rates for longer, which tends to spur lending, spending and economic expansion. Lower rates also suppresses appetite for other asset classes such as cash and bonds, and fuel demand for riskier assets such as equities, with smashed down mining and oil and gas shares being picked up on the cheap. Thomson Reuters Datastream showed the FTSE 100 carrying a oneyear forward price-to-earnings of 9.9, against a 10-year average of 14.1.
Commodities trader Glencore rose 5.5 per cent, while global miner Xstrata added 5.2 per cent. Building supplies firm Wolseley climbed five per cent in light volumes as Exane BNP Paribas raised its rating on the firm to “outperform” on valuation grounds, but in the same note cut its rating and earnings estimates on the European building materials sector on concerns over slowing growth. Elsewhere, Smith & Nephew, the maker of artificial knees and hips, rose 4.9 per cent, as long-standing bid talk was reheated with US rivals Stryker Corp and Biomet mentioned in press reports as potential suitors. On the downside, British Land shed 0.9 per cent after double-downgrades for both by Morgan Stanley in a cautious review of the European real estate sector. Schroders dropped as Citigroup downgraded its rating for the firm to “hold” from “buy”.
ANALYSIS l FTSE
5394.53
6,200
31 Aug
6,000 5,800 5,600 5,400 5,000 4,800
22 Jun
25 Jul
23 Aug
THENEW YORK REPORT
U
S stocks closed out the worst month in more than a year on an up note yesterday, with sharp gains in the last several days still not enough to repair the damage from a US credit downgrade and fears of a slide back into recession. Sentiment turned dramatically in recent days on expectations the Federal Reserve will again intervene to support the economy. With yesterday’s gains, the Dow was back in positive territory for 2011. Banks led a late-day surge, helping to extend a four-day rally, followed by industrial shares. JPMorgan Chase rose 1.3 per cent to $37.56 while Caterpillar Inc was up 1.3 per cent at $91.00. Minutes from the most recent Fed policymakers’ meeting released on Tuesday that indicated several Fed members favored more monetary easing bolstered the appetite for equities. “The market has been somewhat schizophrenic lately, but the idea of more stimulus lets you put a rosy spin on everything,” said Steve Sosnick, equity-risk manager at Timber Hill/Interactive Brokers Group.
The Dow Jones industrial average finished up 53.58 points, or 0.46 per cent, at 11,613.53. The Standard & Poor’s 500 Index was up 5.97 points, or 0.49 per cent, at 1,218.89. The Nasdaq Composite Index was up 3.35 points, or 0.13 per cent, at 2,579.46. The S&P 500 rose in seven of the past eight sessions for total gains of 8.5 per cent, led by sectors tied to economic growth. For August, though, the S&P fell 5.7 per cent, its worst month since May 2010. The Dow fell 4.4 per cent in August while the Nasdaq slumped 6.4 per cent. It was the fourth straight down month for all. Equities yesterday were volatile late in the session, turning briefly negative before snapping back into positive territory. Still, the volatility did not compare to early in the month, when Wall Street was marked by massive swings of more than three per cent. “The market has no conviction one way or the other, and the low volume exaggerates all the moves we get,” said Carl Kaufman, who helps manage just under $2bn at the Osterweis Strategic Income fund Tech shares weighed on the Nasdaq, with Apple off 1.3 per centand chipmaker Nvidia Corp down 2.7 per cent. Industrial stocks were among the top gainers, with the S&P industrials index up 0.7 per cent. Honeywell International gained 1.1 per cent.
22
CITYA.M. 1 SEPTEMBER 2011
Wealth Management | Funds
Dog funds draining investor wealth It is time market participants demanded cheaper and better funds from the industry, writes Philip Salter
E
VEN in the boom years, sticking with expensive fund managers that consistently fails to even beat its index is careless – during the bust years it is unforgivable. Yet Bestinvest has revealed in its biannual Spot the Dog report that £23.16bn of retail investors’ money is currently being misallocated in 94 underperforming dog funds, a 74 per cent increase since the last report in November 2010. Dog funds are defined as funds that have underperformed their benchmark in each of the last three years and cumulatively underperformed it by at least 10 per cent over the past three years.
OVER THE ODDS Adrian Lowcock of Bestinvest says: “Once again it’s clear that the industry has little appetite to address abject underperformance,” adding “too few investors are willing to vote with their feet. Until they do,” he says, “it’s doubtful whether fund managers will ever be sufficiently motivated to clear up after their dogs.” Besides their underperformance, Bestinvest also reveals that investors have paid £348m in management charges over the last 12 months to these dog funds, equating to well over £1bn in charges over the three years upon which the report is based. As Patrick Connolly of AWD Chase de Vere says: “Many actively managed funds consistently underperform their benchmark index and investors unwittingly pay high charges for this poor performance.” The Retail Distribution Review (RDR) might push things in the right direction – despite the risk that RDR will price some investors out of the market for financial advice, it should also make charges more transpar-
ent, bringing down costs.
WHEN ACTIVE IS PASSIVE – OR WORSE Even if your fund isn’t a Bestinvest dog, you could still be better off moving your cash. Jason Whitcombe of Evolve questions much of what passes for active management, describing many active funds as closet trackers that hug the index. Whitcombe asks: “Given that most actively managed funds fail to beat the index, is there any point in chasing alpha if the odds of actually achieving it are stacked against you?” He adds: “High charges leave you on the back foot from day one. In fact, what is fundamentally wrong with getting the return, beta, that capitalism provides us?” For passive investment in the UK, Danny Cox of Hargreaves Lansdowne recommends HSBC’s All Share tracker, which charges 0.25 per cent, while Connolly and Lowcock both commend HSBC’s FTSE100 Index and Legal & General’s UK Index. Lowcock also puts forward the iShares FTSE100 for consideration. When it comes to the US, Connolly uses Legal & General’s US Index and HSBC’s American Index. Lowcock also mentions the latter, as well as the iShares S&P500 ETF and for emerging markets recommends the iShares MSCI Latin America ETF. However, Connolly cautions that it “is also important to understand that even for a passive fund, cheapest is not always best.” He says: “Different passive funds use different techniques to track their target indices and if their strategy is not effective then a passive fund can potentially underperform or outperform significantly.” As always, thorough research or professional advice is a must
Some funds are a sink estate for your hard earned cash Picture: GETTY
ACTIVE’S ADDED VALUE Although the Spot the Dog report illustrates only too well that investors aren’t always getting what they pay for, there are circumstances when a highly paid active manager is worthy of their fee. Due to its size, the US market is more efficient than most, so US large cap fund managers find it hard to beat the index. In contrast, Lowcock says small caps and Asian and emerging market funds are particularly suited to active management. “There are some excellent and respected managers who add real expertise to our investment planning,” claims Stephen Barber of Selftrade. Cox is also a believer in paying for good fund management and is happy to pay standard fees for that. He recommends Invesco Perpetual Income fund (1.5 per cent
fees) and Aberdeen Emerging Markets fund (1.75 per cent fees). On active funds, Lowcock suggests the Schroder UK Core, adding that active emerging market funds are engaged in markets “where full cost active managers have been able to demonstrate good value.” At the end of the nineteenth century, Oscar Wilde in The Picture of Dorian Gray censured: “Nowadays people know the price of everything and the value of nothing?” One hundred and twenty-one years later many people appear to know neither the price nor the value of their investments. Step one: get your diminishing wealth out of dog funds and move it into cheaper passive funds. Step two: research and move some investments into costlier funds if and when you are confident that the manager is deserving of the fees. But as Lowcock cautions, the most important thing is not to blindly follow any manager.
FIVE FUND MANAGEMENT GROUPS WITH MOST DOG ASSETS UNDER MANAGEMENT
Management Dog fund assets under % in dog mangement (£bn) group funds
Main culprit
Manager
Assets under management (£bn)
Fidelity
3.4
22
Fidelity European
Sam Morse
3.1
Newton
2.1
19
Newton Int Growth
Johnathan Bell
1.3
BlackRock
2
29 BlackRock UK Dynamic Mark Lyttleton
1.3
Schroders
1.7
12 Schroder UK Mid 250
Andy Brough
1.6
Scottish Widows
1.5
27
Alastair Reynolds
0.3
Source: Bestinvest
Emerging Markets
CITYA.M. 1 SEPTEMBER 2011
Wealth Management Institutional FX
23
|
Carry trading geysers a risk for Iceland Dangerous currency flows could erupt again, writes Craig Drake
O
N the surface of things, Iceland appears to be on the road to recovery. However, trouble could be bubbling under the country’s crust. On 17 August, it took the decision to raise its main interest rate by a quarter point to 4.5 per cent, the first such move since the country’s banks collapsed in 2008. But just how wise is this move? With this increase in interest rates, the Icelandic central bank has stated that it wishes to revive the carry trade, whereby institutions borrow in low yielding currencies and carry the funds into higher-yielding markets such as the Icelandic krona. There are a number of reasons why this should set alarm bells ringing for investors. In the years preceding the 2008 implosion of the Icelandic banking system, its financial sector bloated massively as the Icelandic government artificially raised interest rates in order to encourage investors to borrow in cheaper sterling, dollars and euros and dump this money into Icelandic assets. But this was not without risk. When the Icelandic krona eventually depreciated against these foreign
Fiat currencies can surge out of control Picture: GETTY
currencies, some investors were hit with sizeable losses. So, with other countries also engaging in this why was the kroner a more attractive target than others? At its peak in March 2008, monthly inflows of kroner investments hit 1.2 trillion (£6.5bn), despite Iceland’s GDP for the entire year being only 1.5 trillion kroner. But despite investors knowing they were playing with fire, Iceland had a big draw compared to other high yielding assets – implicit agreements by the Icelandic government and the IMF that they would prop up any fail-
ing bank and so the perceived exchange rate risk was reduced.
HERE WE GO AGAIN With Iceland’s credit default (CDS) swap rates so low, just 3 years after its banking sector crumbled into the tundra, it appears that we are seeing a return of the under-pricing of risk which allowed Icelandic banks to rack-up foreign currency denominated liabilities and drove speculation. “With 5-year CDS spread of 67 basis points between the EU average and Iceland, on the surface it can appear to be
the better option,” says Brenda Kelly, market strategist at CMC Markets. “You have to wonder if European banks and other financial institutions see that as a sufficient margin given recent history?” Iceland’s bankruptcy wreaked havoc on the Icelandic economy as well as damaging the economies of the UK and others. But as the authorities set out to actively encourage currency speculation again, they appear not to have learnt from the dangers of government intervention, and the damage that can be caused by the manipulation of monetary systems.
24
Markets & Investment
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Business Features
25
| Careers
New approaches: network your way to the top in a private members’ club Donata Huggins asks insiders which exclusive haunts are best for building career enhancing contacts MORTON’S, MAYFAIR
THE IVY, SOHO
EIGHT CLUB, BANK
TYPICAL MEMBER: Members are usually already well connected. Duncan Bannatyne, Andrew Lloyd Webber and the BBC’s Mark Thompson have been spotted there recently.
TYPICAL MEMBER: Eight Club is the home of mainstream business people. “More banker types than entrepreneurs,”says one member.
TYPICAL MEMBER: The Mayfair home for hedge funders. Attracts “the older, Annabel’s crowd and younger women,” says one visitor.
STYLE: The management are hell bent on privacy. No cameras or phones. Membership is through recommendation only.
STYLE: A stylish multi-purpose venue. The management are happy for members to use the place for work and play.
STYLE: Competitively small and quiet for a private club. Prides itself on exclusivity.
EASE OF NETWORKING: Great speaker events give you access to big-name celebrities.
EASE OF NETWORKING: “It’s not easy to strike up a conversation with a stranger, but you can always take a guest there on a Friday night and get a seat at the bar.”
EASE OF NETWORKING: The small setting and calm atmosphere is great for having those “get to know you” chats. The flashy decor helps if you’re trying to impress.
HOME HOUSE, MARYLEBONE
BATTERY CLUB, CANARY WHARF
SHOREDITCH HOUSE , SHOREDITCH
TYPICAL MEMBER: A down-to-earth habitat for the super successful. “It attracts more hedge fund managers than traders,” says one member.
TYPICAL MEMBER: The Canary Wharf home for those who work in finance.
TYPICAL MEMBER: Come here to network with uber-trendy media types. An insider says the founders of successful startups like MindCandy and Moo are attracted to it.
STYLE: Utterly unpretentious. Everyone is welcome – even children and dogs.
STYLE: Riverside views, classic cocktails and a more conservative design gives this place a relaxed but relatively formal feel.
EASE OF NETWORKING: “It’s not hard to strike up a conversation with strangers. The relaxed atmosphere and regular events make it easy to meet people.”
EASE OF NETWORKING: This calm, inoffensive space has the potential to take the edge off more difficult conversations.
INSTITUTE OF DIRECTORS, PALL MALL
STYLE: “Quite pretentious. They don’t want bankers as members. If you work in finance think carefully about how to describe yourself on your application form.” EASE OF NETWORKING: Shared trendiness brings people together in this haunt.
THE LONDON CAPITAL CLUB, THE CITY
OTHER IDEAS | CLUBBING IF YOU prefer the idea of taking your contacts to a different place every time you see them, you should consider taking them clubbing, says Tim Badham, the director of concierge service Innerplace. “Clients love to be entertained in the right sort of club.” Here are Badham’s top three.
BUNGALOW 8. Inside St. Martin’s Lane Hotel, this exclusive night club attracts plenty of high-net worths.
TYPICAL MEMBER: Full membership is strictly for company directors. STYLE: “It’s more of a campaigning, educational organisation. It just so happens to offer you access to its stunning premises and bar.” EASE OF NETWORKING: The management actively encourage it: regular events and workshops offer plenty of opportunities for you to meet other directors.
TYPICAL MEMBER: Old school bankers. Angela Knight is on the board and BCG’s media spokesman David Buik has been spotted there. STYLE: Seriously old fashioned. EASE OF NETWORKING: Great if you want to socialise with the older generation. Absolutely no wacky modern art or drum and base.
THE BOX. Simply the coolest place to go in Soho at the moment if you’re a City boy or girl. MADDOX. “The ideal place to entertain clients late into the evening,” says Badham. Contact: Innerplace on www.innerplace.co.uk
26
Lifestyle
CITYA.M. 1 SEPTEMBER 2011
| Technology
Gadgets, technology and luxury on the waves PUTTING THE SUPER IN SUPERYACHT
Stay in touch on the move
Watch out Roman, there’s about to be a new superyacht in town – literally. The Big Fish, a remarkable boat that’s designed equally for adventure on the high seas as it is for sitting in the marinas of Monaco and Mustique, will be appearing on the Thames tomorrow, mooring at Butler’s Wharf next door to HMS Belfast for a few daysto entice prospective buyers. As well as every kind of luxury amenity, including anti-slip granite decking, a gym, an audiovisual atrium with a 22-foot high video wall and Jacuzzis and bars galore, it’s kitted out with its own submarine and scientific lab. If you haven’t got the £27m or more needed to buy it, you can rent it for a week – that only costs around £120,000. www.mybigfishcharters.com
A good Bluetooth headset is the key to remote working, writes Timothy Barber
H
AVING a Bluetooth headset permanently stuck in your ear is pretty much at the epicentre of uncool. However, if you’re someone who travels a lot, at some point you have to accept that it’s a necessity. Plug-in headphones with a microphone attachment really don’t cut the mustard if you’ve important calls to make, while Bluetooth technology has now evolved to the point where sound quality, signal strength and comfort can be pretty well aligned. Here are the top picks for making that all-important conference call from wherever you happen to be.
Plantronics Discovery 975
Etymotic EtyBLU2
The extended boom-mic on this headset and the brilliant sound quality from headphone specialist Etymotic makes it a very good option for using if you work in noisy places – you won’t have to shout to make yourself heard. £87.29 www.amazon.co.uk
A simple, smart design meets ease of use in this headset that covers all the basis. Dual mics capture the voice and cancel background noise, and there are three levels of wind noise protection. £69, www.amazon.co.uk
GAMING HEAVEN IN A NOTEBOOK It looks like one more, common-or-garden laptop, but Samsung’s newly-announced notebook is designed specifically for gamers. The Series 7 Gamer is stuffed with features gaming fans will love, including a 3D 17.3 inch HD display (it shops with 3D glasses) and an Intel Core i7 Quad Core processor for speedy performance. There’s also an extra 8GB of flash memory on the motherboard. £1,499 www.samsung.co.uk
Bose Bluetooth
Jawbone Era
California’s Jawbone specialises in high-performing Bluetooth sets that don’t actually make you look like a complete div. The Era mixes HD audio quality with motion technology – shake or tap it to operate it. £99.99 www.jawbone.com
You’d expect something pretty tasty from the leading hi-fi specialist – and you’d be right. It can read surrounding ambient sound and adjust its volume level accordingly, while the microphone filters out noise to make your voice clearer. £129 www.bose.co.uk
THE NEW SONY RANGE AT A GLANCE STEVE DINNEEN
EREADER WITH ENHANCED 1. 6”TOUCHSCREEN
E-readers from Sony have always looked the part; the problem is nobody buys them. This version is the lightest reader in the world, again using E-ink paper. It will offer connectivity to public libraries in the US but the decider will be price.
TABLET P MULTITOUCH 2. SONY FLIP-SCREEN
Sony’s most radical new release attempts to reinvent the wheel with a duel touch-screen folding tablet. Its appearance is part Nintendo DS and part iPad, and while watching films on it would be tough, it looks like a good bet.
L SERIES 3D TOUCHSCREEN 3. VAIO DESKTOP 4. VAIO S SERIES The Vaio L Series touchscreen desktop PC is a series of great ideas thrown into a single box; at once brilliant and unusable. And now it’s in 3D! It will be great to watch movies on but still struggles to justify its existence.
The new, lightweight S Series comes with a 15-inch screen and a slimmer design, in a somewhat familiar aluminium hue. It’s a powerhouse of a laptop, not cheap but a real contender at the premium (expensive) end of the market.
NOISE CANCELLING 5. MDR-NC200D HEADPHONES Need to get away from the world for a while? Sony says these headphones can cancel out 98.2 per cent of ambient sound, using AI to scan your surroundings and block out the noise. Expect to pay upwards of £200.
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Lifestyle | Food & Drink
CITYA.M. 1 SEPTEMBER 2011
Das Kapital: only this time, it’s erotic, says LSE fellow Zoe Strimpel is piqued but let down by a curiously flimsy book HONEY MONEY: THE POWER OF EROTIC CAPITAL BY CATHERINE HAKIM Allen Lane, £20
We’re starved of a holiday and it’s driving me up the wall Business has been bad for my boyfriend and we've had to cancel our holidays all year. I'm at my wits’ end – especially now that everyone's coming back all rosy and fresh from their August holiday. I'm feeling a lot of resentment. What should I do? Judy, IT, 31
hhhii THE best way to create a stir is to publish a book that claims that sex sells, and should do so more. Better yet, embed the claim in an argument for women to think and do more – not less – about their appearance and sexual appeal. Then, serve it up festooned in as much statistical evidence as you can get your hands on. If you’re Dr Catherine Hakim, a senior research fellow in sociology at the London School of Economics and an expert on the labour market, this is easy. You’re rolling in evidence and statistics, and in research methods and other ways to make a point seriously. But Hakim’s book shows – yes, with undeniable panache – that if a point is weak in the first place, no amount of statistics will be able to prop it up. Hakim’s argument that women should use (and be allowed or encouraged to use) their too-ignored sexual assets (“erotic capital”) more in the professional sphere – from the office to the brothel – is not agreeable to many. But my problem with the book is less political and more intellectual. Because while beautiful people are more popular and admired and thus appear to have an easier life, there is another side to all this that remains unexamined here. Namely, that as much as it can create wealth and happiness, beauty and a preoccupation with appearance can ruin women’s lives, professionally and sexually. It might make them more prone to harassment at work; or have more trouble being taken seriously. They may become obsessed with staying young and plastic surgery, ending up with very low confidence. And many employers may well prefer a woman to be welldressed, but to have skills that trump the more ethereal mixture Hakim describes as erotic capital (sexual appeal, charm and so forth), like intelligence. The other big point of the book is what Hakim calls the “sexual deficit”. This is another obvious idea, which says that men are more hungry for sex than women overall. But if men find women’s sexual availability in deficit, why should women bend over backwards to look great? Wouldn’t men be less choosy? Hakim also makes the point that men are increasingly part of the erotic capital dynamic as their appearance
VEXED IN THE CITY SOLVING YOUR WORK-LIFE PROBLEMS
I
becomes a greater source of concern and importance in the workplace. But then, why do most men in high-powered corporate roles look distinctly unattractive? (American politicians are a different category). On one hand, Honey Money is “substantial” – published by Penguin’s serious, sciency imprint, Allen Lane. On the other, it lacks the intellectual rigour such a bald thesis would require in order to take off. I wish the argument had been better furnished – with statistics that really showed you something new – as Hakim’s point is a juicy one, whether you agree with it or not.
SLEEPING WITH THE ENEMY: COCO CHANEL BY HAL VAUGHAN Chatto & Windus, £20
hhhii THE American, Paris-dwelling historian Hal Vaughan has it in for Coco Chanel – and the result is a refreshing, controversial book. In it, Vaughan asserts that the queen of French haute couture was a
rabid anti-Semite, a secret agent for the Germans and an acquaintance – if not friend – of Goebbels and Goering, with whom she shared the Ritz in Paris throughout the occupation. As Vaughan points out, most aspects of Coco’s life have been biographised, from her relationship with composer Igor Stravinsky to her vision of chic boy-like minimalism and the little black dress. Well, the mysteries and cautious language surrounding her wartime activities have just had a bucket of cold water poured on them. Through a good trawl of evidence, Vaughan makes (among others) the following assertions: Chanel was a registered German spy (Agent F-7124, code name Westminster); she traded missions for favours; acted as cover for other agents and tried to steal from her Jewish partners. Explosive stuff, but if you would like another view of the woman behind those iconic, raggedy-looking cloth suits – then you should pick up this well-written, well-researched and easy-to-read book. It also makes you wonder what else has been kept hushed up about the activities of the chic French during the war.
Sexual allure makes the financial as well as the rest of the world go round, says Hakim.
DON’T blame you: holidays aren’t just a break from work, they're a vital chance for couples to reconnect. There is no doubt, though, that the problem is made worse by the sight of all your friends returning from their summer holidays or talking about heading off on a late-summer trip. While your partner may feel as though he has no business heading off to sunny climes when money is hardly flowing and he needs to work as much as possible, I think he may need a gentle but firm conversation in which he is told – to put it frankly – that he has the wrong end of the stick. There are a few things at play here. One: materially it's unlikely that taking one week off is going to make much difference to business. Especially in holiday season when many potential clients are also away. Second: he sounds like he's in a rut: professionally and mentally. Getting away could be a very valuable chance for him to get some fresh perspective that can also lead to better ideas at work and greater success. It could be the catalyst to get things moving at work. Third: what planet is he on? Technology makes working from abroad – Thai beach hut, Wyoming shack, Cornwall cottage – entirely possible (time zones aside). But I wouldn't encourage him to take work on holiday, rather to think of it as an emergency measure. If his head is buried in his Blackberry while you’re taking your hard-won few days together, that could lead to a proper explosion. Finally, put it clearly that your relationship will suffer (is suffering) without time to reconnect together. Offer to plan the holiday yourself, say you'll bear in mind his requirements or concerns such as needing wifi access, budget and so on, but don't forget to take your own desires into consideration. You deserve a holiday too! Don't despair: Spetember and October is a lovely time to go away – better temperatures, fewer tourists, less expensive. Even a four day weekend can help. Good luck and enjoy. Got a problem? Email [email protected]
OUT OF OFFICE ZOE STRIMPEL
BOOK NOW: EPICUREAN DREAM BRINGS TOGETHER THE VERY BEST
The kind of food you can expect at Hurlingham.
For a truly first-rate foodie affair, blot out 9 and 10 September in your diary. Quintessentially Epicure is a luxury food festival at the Hurlingham Club that will see some of the world’s most renowned chefs including Hèlène Darroze, Marcus Wareing, Brett Graham, Giorgio Locatelli and Pierre Hermé, along with top international gourmet producers and the
very finest wines and spirits from across the globe, together in one place. Two days of epicurean bliss guaranteed. 9 and 10 September, www.quintessentiallyepicure.com
ART MEETS FISH AT FORMAN’S SMOKEHOUSE IN EAST LONDON Forman’s Smokehouse Gallery (as in the Forman’s of smoked salmon fame) presents the “the FishWick Papers”, an exhibition of
works by 50 members of the studio East London Printmakers, inspired by the liveliness and colour of Hackney Wick and from Fish Island and the Smokehouse itself. Formans Restaurant will be open during the show and we recommend combining a trip with a bite of such delights as the London Cure smoked salmon and the likes of panfried sole, herb crumb and charred limefennel salad. Exhibition is 2-4 Sep, at Forman & Field, Stour Rd, London E3 2NT. www.formans.co.uk
Lifestyle | TV& Games
TERRESTRIAL
CITYA.M. 1 SEPTEMBER 2011
BBC1
BBC2
ITV1
CHANNEL4
CHANNEL5
6pm BBC News 6.30pm BBC London News 7pm The One Show 7.30pm EastEnders: BBC News 8pm CHOICE Watchdog 9pm Torchwood: Miracle Day 10pm BBC News 10.25pm Regional News 10.35pm Our War: 11.35pm FILM House of Sand and Fog: Drama 2003; Holiday Weatherview
6pm Eggheads: Quiz, hosted by Dermot Murnaghan. 6.30pm Eggheads: 7pm Coast: A journey along the south coast of England. 8pm Monty Halls’ Great Irish Escape: Monty goes fishing for blue sharks. 9pm Jig: The Great Irish Dance-Off: The 2010 Irish Dancing World Championships. 10.30pm Newsnight: Weather 11.20pm The World’s Most Expensive Paintings: 12.20am The Tudors
6pm London Tonight 6.30pm ITV News 7pm Emmerdale 7.30pm The Working Life – Life After Work: Tonight 8pm Emmerdale 8.30pm Coronation Street 9pm 9/11: Day That Changed the World: 10.45pm ITV News 11.15pm London News
6pm The Simpsons 6.30pm Hollyoaks 7pm Channel 4 News 7.25pm 4thought.tv 7.30pm Athletics: IAAF World Championships 2011
6pm Meerkat Manor 6.25pm OK! TV 7pm 5 News at 7 7.30pm How Do They Do It?: How sand is turned into wine glasses; 5 News Update 8pm CHOICE Croc Man; 5 News at 9 9pm New Cowboy Builders 10pm Celebrity Big Brother 11pm Celebrity Big Brother’s Bit on the Side 12am SuperCasino
SATELLITE & CABLE
1.40am Sign Zone: Countryfile 2.35am Sign Zone: Food Fighters 3.25am Sign Zone: Saints and Scroungers 3.55am-6am BBC News
SKY SPORTS 1
7pm Sky Sports News at Seven 7.30pm Live Premier League Snooker 11pm Time of Our Lives 12am Ringside 1am Premier League World 1.30am Premier League Snooker 5am-6am Ringside
1.10am BBC News 3.55am-6am Close
11.20pm Help! I Caught It Abroad 2: 12.20am The Zone; ITV News Headlines 2.20am The Working Life – Life After Work: Tonight 2.50am ITV Nightscreen 4.30am-5.30am The Jeremy Kyle Show
BRITISH EUROSPORT
BBC THREE
7pm Live International Football 9.45pm ESPN Kicks: Extra 10pm UFC Unleashed 11pm FIM Enduro World Championship 12am European Rallycross 12.30am ESPN Press Pass 1am Live College Football 4am UFC Unleashed 5am-6am FIM World Enduro Championship
7pm Top Gear 8pm The World’s Strictest Parents 9pm Edinburgh Comedy Fest Live 2011 10pm EastEnders 10.30pm Lee Nelson’s Well Good Show 11pm Family Guy 11.45pm Wilfred 12.05am Edinburgh Comedy Fest Live 2011 1.05am Lee Nelson’s Well Good Show 1.35am Comedy @ The Fringe 2.05am The World’s Strictest Parents 3.05am Sex, Lies and Gagging Orders 4.05am-5.05am Jamelia: Shame About Single Mums
SKY LIVING
E4
4pm-12.30am Live US Open Tennis 2am-4.30am Live World Championship Athletics
ESPN
SKY SPORTS 2
4pm Live US Open Tennis. Coverage of men’s and women’s second-round matches. 12am Live US Open Tennis 4am IAAF Athletix 4.30am The Rugby Club 5.30am-6am What’s Your Goal?
SKY SPORTS 3
7pm Criminal Minds 8pm Teen Wolf 9pm Britain & Ireland’s Next Top Model 10pm Criminal Minds 11pm Chick Fix 12am Psychic Sally: On the Road 1am CSI: Crime Scene Investigation 2.40am Maury 3.30am Nothing to Declare 4.20am Charmed 5.10am-6am Jerry Springer
6.30pm Golf 7.30pm What’s Your Goal? 8pm The Rugby Club 9pm Ringside 10pm European Tour Golf 12am Golf 1am The Rugby Club 2am Racemax 3am What’s Your Goal? 3.30am NFL: Total Access 4.30am-5am America’s Cup Uncovered
8pm CHOICE Country House Rescue 9pm The Killing 10pm Undercover Boss USA
11.05pm Seven Dwarves 12.05am Music on 4: 360 Sessions 12.35am Music on 4: Hollyoaks Music Show 1.05am Music on 4: Sounds from the Cities 1.30am My Name Is Earl 2am Live Athletics: IAAF World Championships 2011: Day seven from Daegu. 4.45am IAU Trail World Championships 5.10am-5.55am Countdown
COFFEE BREAK
SUDOKU
KAKURO
Place the numbers from 1 to 9 in each empty cell so that each row, each column and each 3x3 block contains all the numbers from 1 to 9 to solve this tricky Sudoku puzzle.
Fill the grid so that each block adds up to the total in the box above or to the left of it. You can only use the digits 1-9 and you must not use the same digit twice in a block. The same digit may occur more than once in a row or column, but it must be in a separate block.
7pm How London Was Built. The city’s landmarks. 8pm I Am Alive: Surviving the Andes Plane Crash 10pm Storage Wars. The buyers explore a labyrinth-like storage centre. 11pm Deep Sea Salvage 12am Pawn Stars 1am Storage Wars 2am Deep Sea Salvage 3am How London Was Built 4am Pawn Stars 4.30am Storage Wars 5am-6am Ancient Discoveries
7pm A Baby Story 8pm Kate Plus 8 9pm I Didn’t Know I Was Pregnant 10pm I’m Pregnant and a Hoarder 10.30pm I’m Pregnant and Maybe Having a Dwarf 11pm Hospital Emergency 12am I Didn’t Know I Was Pregnant 1am I’m Pregnant and a Hoarder 1.30am I’m Pregnant and Maybe Having a Dwarf 2am Hospital Emergency 3am Kate Plus 8 4am A Baby Story 5am Bringing Home Baby 5.30am-6am Test Tube Babies
DISCOVERY
SKY1
HISTORY
7pm Mythbusters 9pm American Loggers 11pm Surviving the Cut 12am Bear Grylls: Born Survivor 1am American Loggers 3am Deadliest Catch 3.50am Wildest Africa 4.40am How the Universe Works 5.30am-6am Destroyed in Seconds
LAST ISSUE’S SOLUTIONS QUICK CROSSWORD C P C R A B H O R N A D U L C A R D S E A T H R I O T I S H O R T L P P A L E S T N K I D E A L L
Y B A A T H R E R S P A I N C Y Y
A B O O R S S H A T L I N E N I T
Y Y
E N T I C E
9 3 7 2 5 7 9 6 1 3 5 4 1 1 4 2 2 7 3 6 9 7 7 5 4 9 8 5
5 3 8 4 1 2
7
28
17 24
12 19 15 34
10
11
11
20 18
27 11
8 6 1 3 8 2 7 6 9 4 3 5 7 1 6 9 5 4 2 3 8 1 4 2 9 6 9 1
4
32 7
9 18
10
33
10
14
3 1 2 5 6
9 8 7 6 5
4 1 3 1
SUDOKU WORDWHEEL The nine-letter word was FINANCIER
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16 16
8
CROC MAN CHANNEL 5, 8PM Shaun Foggett’s plans for a breeding programme suffer a setback when he comes to the conclusion that his male Siamese is actually a female specimen.
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9 16
15 13
6
R E
R
A T
3
5
9
O
Y
17
21
D
22
P
Using only the letters in the Wordwheel, you have ten minutes to find as many words as possible, none of which may be plurals, foreign words or proper nouns. Each word must be of three letters or more, all must contain the central letter and letters can only be used once in every word. There is at least one nine-letter word in the wheel. 6 2 4 9 8
CHANNEL 4, 8PM Ruth Watson returns to Pentillie Castle hotel to find out if owners have followed her advice to run the property as a profitable business.
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WORDWHEEL
KAKURO
COUNTRY HOUSE RESCUE
7.30pm Futurama 8.30pm The Simpsons 9pm Trollied 9.30pm Wall of Fame 10pm An Idiot Abroad 11pm Law & Order 12am Danny Dyer’s Deadliest Men 1.50am Sun, Sea and A&E 2.40am Law & Order 4.20am Filth Files 5.10am-6am Oops TV
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BBC1, 8PM New series. Anne Robinson, Matt Allwright and Chris Hollins return to investigate more consumer issues and expose rogue traders.
QUICK CROSSWORD
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WATCHDOG
DISCOVERY HOME & HEALTH
Copyright Puzzle Press Ltd, www.puzzlepress.co.uk
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TV PICK
4am Meals in Moments 4.10am New Cowboy Builders 5am County Secrets 5.10am Wildlife SOS 5.35am-6am House Doctor
2.25am Skins 3.20am Glee 4.05am Accidentally on Purpose 4.50am-6am Switched
7pm Hollyoaks 7.30pm Friends 9pm The Big Bang Theory 9.30pm How I Met Your Mother 10pm Little Box of Horrors 10.30pm PhoneShop 11pm Beaver Falls 12.05am My Name Is Earl 1.05am How I Met Your Mother 1.30am Little Box of Horrors 2am PhoneShop
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ACROSS
DOWN
1 Condiment, sodium chloride (4) 3 Puts up (6) 6 Alleviate (4) 7 Mythical Greek hero who fought against Troy in the Iliad (4) 8 Preserve in vinegar (6) 9 Company that hires only union members (6,4) 14 Suitable to or usual for the time of year (10) 17 Coated with fat during cooking (6) 19 Banking system (4) 20 Open river valley (in a hilly area) (4) 21 Pleaded (6) 22 Contest of speed (4)
1 Look for (6) 2 Lone Star State of the USA (5) 3 Clairvoyance (inits) (3) 4 Harnesses (5) 5 Bulb, traditionally from Holland (5) 10 A person in general (3) 11 Musical composition for two performers (3) 12 Globe (3) 13 Earlier in time (6) 14 Roofing material (5) 15 Root vegetable (5) 16 Annoyance (5) 18 Informal term for a father (3)
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Sport
CITYA.M. 1 SEPTEMBER 2011
TIMELINE 9AM The day begins with wild speculation linking Bayern Munich winger Franck Ribery with a move to Chelsea and Napoli playmaker Marek Hamsik to Arsenal. Liverpool conclude the first significant deal of the day and confirm the arrival of Uruguay defender Sebastien Coates.
12AM
4PM Arsenal wait all summer to sign a defender and then two arrive in the space of an hour in the shape of Andre Santos and Per Mertesacker. Fulham bring in Czech full-back Zdenek Grygera and maintain an interest in Tottenham’s Alan Hutton.
10PM Craig Bellamy returns to Anfield on a two-year deal, while Peter Crouch arrives at the Britannia Stadium to rubber stamp his move to Stoke. Shaun WrightPhillips joins the Tony Fernandes fuelled revolution at QPR but a move for Sebastien Bassong is off as Spurs miss out on Gary Cahill.
11PM Arsenal beat the deadline and confirm the arrival of Mikel Arteta, while Bryan Ruiz to Fulham and Raul Meireles to Chelsea are late buzzer beaters.
Benayoun and Arteta arrive at Arsenal ▲
Birmingham’s Scott Dann is on his way to Blackburn. Liverpool continue to clear the decks by sending Joe Cole on a year-long loan to French champions Lille and Scott Parker finally completes his move to Spurs. Nicklas Bendtner’s proposed move from Arsenal to Stoke collapses.
London clubs leave it FOOTBALL BY FRANK DALLERES
ARSENAL manager Arsene Wenger underlined his new-found appreciation of experience when he finally completed late deadline day swoops for midfielders Mikel Arteta and Yossi Benayoun last night. Neither are the superstars that some fans might have hoped for after seeing captain Cesc Fabregas and midfield starlet Samir Nasri sold in recent weeks for a combined total close to £60m. But both, in common with the other three players Wenger has recruited since the weekend, share years of experience at the top level – something Arsenal’s callow youngsters who were thrashed 8-2 at Manchester United on Sunday lacked. Benayoun, 31, deemed surplus to requirements by Chelsea but with six seasons in the Premier League under his belt and the captain of Israel, has moved from Stamford Bridge on a season-long loan. Arteta, 29, who also has half a dozen campaigns in the English top flight to his name, signed a four-year contract at the Emirates Stadium after Everton accepted Arsenal’s £10m offer. Wenger failed in attempts to sign highly-rated French-based prospects Eden Hazard of Lille and Yann M’Vila of Rennes. The Gunners had earlier confirmed the arrivals of three more seasoned players in defenders Per Mertsesacker
Benayoun joined Arsenal on a season long loan from Chelsea Picture: PA
and Andre Santos, just a day after the signing of South Korea captain Chu Young Park. Mertesacker, who has 75 caps for Germany, called his £8m move from Werder Bremen “a dream” after signing a four-year contract thought to be worth around £80,000 a week. “Moving to London enables me to fulfil a dream and a further step in my career,” he said. “The Premier League has always represented a great challenge for me.” Wenger hailed the 6ft 6in former Real Madrid centre-back as “vastly experienced”. He added: “He is good on the floor and in the air. I believe he will be well suited to the Premier League and a tremendous asset to the team.” Reports in Germany last night suggested Mertesacker, 26, had in fact agreed last week to join Arsenal next summer, but that the Gunners fasttracked the move after missing out on other defensive targets, including Bolton’s Gary Cahill. Wenger called left-back Andre Santos “a quality player” and said he “looked forward to him having a big impact for us”. The 28-year-old, who has 22 caps for Brazil, replaced Roberto Carlos in the Fenerbahce side and scored 10 goals in 52 league appearances in Turkey. He said: “It was one of my dreams to play for a major European football club and I have accomplished this.” Wenger’s most high-profile departure was Danish striker Nicklas Bendtner, who joined Sunderland on a season-long loan.
Sunday 11th September (Kick-Off 4pm)
On General Sale
KIDS FOR A QUID! From £20 Adults and £1 Juniors* Buy online or call 0843 208 1234 (option 1)
*Junior (under 16) price increases on matchday. Subject to availability, terms and conditions apply.
Sport
CITYA.M. 1 SEPTEMBER 2011
31
Patel and England pile late to buy more misery on India ▲
FOOTBALL BY JAMES GOLDMAN
TOTTENHAM manager Harry Redknapp revealed his club succeeded in their summer long battle to keep hold of midfielder Luka Modric but only after Chelsea submitted a last ditch £40m bid. The Croatia international agitated for a move across London as soon as it became apparent Chelsea were interested in his services, and went as far as requesting to be left out of the Spurs side which was heavily beaten by Manchester City last Sunday. The 25-year-old will now remain at White Hart Lane, at least until January, but the Tottenham squad looks to have a number of gaping holes after the deadline day departures of five first team players and the failure to land primary defensive
target Gary Cahill from Bolton. England striker Peter Crouch and midfielder Wilson Palacios were offloaded to Stoke for a combined total of £18m, while Jermaine Jenas and Alan Hutton were both snapped up by Aston Villa, the former on a season long loan and the latter joining Alex McLeish’s side for £4m. Redknapp was able to conclude a deal for West Ham’s Scott Parker, with David Bentley moving on loan in the opposite direction, but the major triumph for the Spurs manager was the victory in his fight to keep hold of Modric in the face of Chelsea’s late money spinning offer. He said: “The chairman stood firm over Luka. I think £40m was apparently offered. Whether that is true or not, it is what I heard. “It is a big offer to turn down, that’s for sure. I am delighted the little man is still here.”
Allardyce’s window shopping boosts Hammers promotion bid ▲
FOOTBALL BY JAMES GOLDMAN
WEST HAM manager Sam Allardyce attempted to compensate for the loss of the inspirational Scott Parker with a flurry of deadline day signings. The Hammers, who have made an encouraging start to life in the Championship, signed Senegalese powerhouse Papa Bouba Diop on Tuesday and bolstered their midfield last night with the loan signings of David Bentley from Spurs and Henri
Lansbury from Arsenal. England Under-21 international Lansbury played a prominent part in Norwich’s promotion campaign last season and, despite the lack of midfield options at Emirates Stadium, was deemed surpluss to requirements. Bentley, who has been a massive disappointment since his club record £16m move from Blackburn in 2008, will be joined by his former Arsenal team-mate, Ivory Coast international defender Guy Demel .
SPORT | IN BRIEF Man Utd set for record profits
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CRICKET BY JAMES GOLDMAN
ENGLAND all-rounder Stuart Broad celebrated the first win of his reign as Twenty20 captain after Samit Patel ensured India’s miserable tour continued at Old Trafford. After a nine-wicket hammering at the hands of Sri Lanka earlier this summer, Broad handed debuts to youngsters Alex Hales and Jos Butler, but it was Patel who put the finishing touches on a six-wicket win, hitting three successive fours off the final over. England had seemed destined for a more comfortable win but an inability to clear the ropes in the latter stage of their innings meant they had to wait until the final over to seal victory. Despite the late wobble, Broad claimed he was never worried about his middle order getting the job done. He said: “The guys felt we had it under control. “Morgan played pretty well, and then for Ravi and Samit to finish it off was pretty special. “We’re delighted with the win, but there are things we can improve on. “We came back at India very well, especially in restricting them to 165 after the start they got. “We lost an early wicket but the way Morgan and the guys batted was fantastic. “The atmosphere was brilliant, and really helped the guys. To come back from the position we were in after 10 overs is fantastic.” India, who won the toss and opted to bat, made an explosive start to their innings and were 104-1 at one stage largely thanks to Ajinkya Rahane’s 61 from the 39 balls. Rahul Dravid, making his first and last Twenty20 international appearance at the age of 37, chipped in with a breezy 31 which included three consecutive sixes off the bowling of Patel. Suresh Raina, who struggled so badly in the recent Test series, made a vibrant 33 but he was the only one of India’s last seven batsmen to reach double figures as they were eventual-
Patel hit three fours in the final over to see England home ly bowled out for 165 with Jade Dernbach demonstrating excellent variation to end with four wickets. England’s response got off a terrible start when debutant Hales was out for second ball duck but the ship was steadied by Kevin Pietersen and Craig Kieswetter. The South Africanborn duo put on 58 for the second wicket but both departed within the space of six balls.
Picture: ACTION IMAGES
Eoin Morgan’s superb 49 took England to the brink of victory, but an equally skilled penultimate over from Munaf Patel put the game back in the balance and the hosts required 10 off the last six balls. They got home with a little bit of luck – eight runs squirting off the outside edge to third man – as Patel ensured England maintained the whip-hand over struggling India.
Murray cruises through but Robson US Open dream over ▲
begin his second bid for gold at the FOOTBALL: Manchester United are today World Championships in Daegu today in the 5,000m heats. expected to announce record operating profits of more than £100m – and a pretax profit of around £60m. United plan a Wiggins leads Froome in Vuelta partial float in Singapore later this year. CYCLING: Team Sky rider Bradley Wiggins leads the Vuelta a Espana from team-mate Chris Froome after the 11th Farah passed fit for 5,000m stage yesterday in Galicia. ATHLETICS: Britain’s Mo Farah will
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Spurs keep Modric but miss out on Cahill
TENNIS BY FRANK DALLERES
BRITISH No1 Andy Murray overcame the first hurdle of his latest quest for an elusive maiden grand slam title with a straight-sets victory over India’s Somdev Devvarman at the US Open last night. Murray did not have things all his own way against the world No64 but rarely had to get out of first gear to reach the second round 7-6 (7-5), 6-2, 6-3. The Scot got off to a wobbly start, Devvarman breaking in the very first game, and had to work hard to take the opening set in fierce heat. But from there Murray found his range
and rhythm and closed out the win to set up a second round clash with Holland’s world No41 Robin Haase. While Murray sailed through at Flushing Meadows, compatriot Laura Robson’s hugely encouraging run came to an end, the 17-year-old losing to 30th seed Anabel Medina Garrigues. The world No173, who cleared three qualifying rounds and saw her opponent retire in the first round proper, blamed too many unforced errors for
her defeat to the Spaniard. “I’ll take a lot of positives,” said Robson, who is likely to climb into the top 150 for the first time. “It was my first time qualifying for a grand slam and I won a round. I think today she just had more experience and that showed.” An ever higher-profile exit from the women’s draw was two-time winner Venus Williams, who withdrew last night with an unspecified illness before her secondround match with Sabine Lisicki.
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MIXED FORTUNES FOR BRITS AT US OPEN MURRAY THROUGH BUT ROBSON OUT: P31
Deadline day drama
Chelsea swoop to sign Meireles from Liverpool in £12m deal with just minutes to spare after failing to persuade Tottenham to let Modric join Crouch and host of others in leaving the Lane ▲
FOOTBALL BY FRANK DALLERES
CHELSEA and Arsenal left it until the last possible moment before pulling off two of the surprise deals of a frantic transfer deadline day on which Premier League clubs took their summer spending to £480m. The Blues completed a shock £12m swoop for Liverpool midfielder Raul Meireles in the final minutes before the 11pm cut-off – the last chance for European clubs to sign players until January. Simultaneously Arsenal were thrashing out the final details of Mikel Arteta’s £10m transfer from Everton following a day of on-off negotiations between the two sides. On a busy day at Emirates Stadium the Gunners also signed Chelsea mid-
fielder Yossi Benyoun on a seasonlong loan, and confirmed the arrivals of defenders Per Mertesacker and Andre Santos. Top-flight clubs went into overdrive in the final hours of the transfer window, taking spending for the whole summer period to around £480m. That total is around £100m more than last year and a little over the amount spent in 2009, but short of the record £500m spent in 2008. Chelsea’s 11th-hour move for Meireles came after they failed to prise long-term target Luka Modric from Tottenham, despite making a player-plus-cash bid thought to be worth £40m on Monday. Spurs had
£10m Arteta finally leaves Everton for Arsenal after a day of haggling as Gunners move to replace Fabregas and Nasri with Spaniard and Yossi Benayoun on loan from Chelsea
further cause for celebration after completing a £5m deal for West Ham and England midfielder Scott Parker, but deadline-day attempts to prise defender Gary Cahill from Bolton ran aground. White Hart Lane manager Harry Redknapp was more willing to off-load several other players, with striker Peter Crouch (inset) and midfielder Wilson Palacios both joining Stoke for a combined £18m. Full-back Alan Hutton and midfielder Jermaine Jenas also left Tottenham for Aston Villa, Hutton for £4m and Jenas on a season-long loan, while out-of-favour David Bentley moved across London
to West Ham for the season. Meireles, who signed a four-year deal, was not Liverpool’s only business, however, with manager Kenny Dalglish bringing forward Craig Bellamy back to Anfield on a two-year contract after he negotiated his release from Manchester City. Fulham saw off late interest from Newcastle to land Costa Rica forward Bryan Ruiz for £10.5m from Dutch outfit FC Twente, in one of the west Londoners’ biggest deals in history. QPR also flexed their new-found financial muscle to recruit £3m defender Anton Ferdinand from Sunderland and winger Shaun Wright-Phillips from Manchester City – who completed the signing of injury-plagued former England and Manchester United midfielder Owen Hargreaves on a free transfer. LONDON CLUBS LEAVE IT LATE: P30
SPEND REPORT Spending rose by more than £100m on last year and close to record levels
2006
£260m
2007
£470m
2008
£500m
2009
£450m
2010
£365m
2011
£480m
MEIRELES A BLUE ON DEADLINE DAY FRANTIC CLUBS FUEL SPENDING RISE P30-32
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BANKING PROFITS AT&T bid FACE VICKERS HIT
US tries to block $39bn
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TELECOMS BY STEVE DINNEEN
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BANKING BY JULIET SAMUEL
BRITAIN’S banks could see earnings slashed by nearly a third due to reforms proposed by John Vickers and his Independent Commission on Banking (ICB), analysts have said. But they will at least have several years to implement the reforms. An aide to Nick Clegg has told City A.M. that despite fiery rhetoric from Vince Cable, the Liberal Democrats are willing to accept a long transition period. “It’s fair to say that Vince rose to the bait,” said the aide. “What we want is a commitment to implement the legislation. We appreciate it will take a very long time [for banks] to implement.” The changeover period will be welcome because the industry is already struggling under an avalanche of international regulation that experts say will destroy the viability of many banks. But analysts say the ICB rules, coming on top of global initiatives, will put the City’s banks at a disadvantage compared to their foreign peers. They could also raise the cost of credit in the UK, even in the run up to implementation. JP Morgan Cazenove’s Kian Abouhossein has estimated that Barclays and RBS would see their 2012 profits drop by 29 and 28 per cent respectively if they had to operate under Vickers’ regime. Lloyds would see earnings plunge by a quarter while
FTSE 100 ▲5,394.53 +125.87
John Vickers is already under fire for his ringfence proposal. HSBC would see four per cent sliced off its bottom line. Vickers wants lenders to ringfence their retail operations into a subsidiary, capitalised separately from their investment banking operations. But the City is waiting on tenterhooks to hear exactly how the plan will work when the ICB’s final report is published on 12 September. Chancellor George Osborne has already endorsed the policy, despite
DOW ▲11,613.53 +53.58
Picture: REUTERS
not knowing what any of the key details will be, which will make it difficult for the Treasury to change course. Abouhossein estimates it could raise banks’ cost of funding by 94-113 basis points by making it impossible to transfer capital between certain business lines. Despite the additional cost, however, he says that the policy will not protect the global financial system: “A ringfence of a bank or part of a bank will not actually solve systemic
NASDAQ ▲2,579.46 +3.35
global issues with UK banks having about £1 trillion of derivative fair value counterparty risk.” Abouhossein’s model assumes that the ringfenced retail bank will need a core tier one capital ratio of ten per cent and an additional two per cent in contingent convertible bonds (cocos). It also assumes a maximum allowable loan-to-deposit ratio of 150 per cent, higher than in the ICB interim report. ALLISTER HEATH: P2, MORE: P4
£/$ ▼1.62 -0.01 £/¤ 1.13 unc ¤/$ ▼1.43 -0.01
US REGULATORS have sensationally moved to block AT&T’s $39bn (£24bn) takeover of T-Mobile USA over competition concerns. The move, which AT&T has vowed to fight, could cost the telecoms provider a staggering $6bn in break-up fees, including $3bn in cash, mobile spectrum and a roaming agreement. The Justice Department filed a lawsuit yesterday claiming that eliminating T-Mobile as a competitor would be disastrous for consumers and would raise prices, particularly because the smaller provider offers cheaper deals. If successful, the lawsuit would scupper the biggest deal of the year and trigger an even bigger collapse than Prudential’s failed $35.5bn for Asian insurance giant AIA last year. It would also result in around $150m in lost advisory fees for the seven investment banks working on the deal – JP Morgan Chase, Greenhill and Evercore for AT&T and Morgan Stanley, Deutsche Bank, Credit Suisse and Citi for T-Mobile. The breakdown of the deal will provide a boost up the advisory rankings for Bank of America, which missed out on the lucrative contract. Sprint Nextel, the smallest of the top three US carriers, is now being viewed as a potential vulture, stepping in to bid for T-Mobile. AT&T shares slumped 3.85 per cent on the news, while Sprint rose 5.9 per cent. T-Mobile USA owner Deutsche Telekom tumbled 7.6 per cent. Certified Distribution 04/07/2011 till 31/07/2011 is 93,093
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CITYA.M. 1 SEPTEMBER 2011
Bank reforms missing the big picture making most banks non-viable if they fail to shrink or restructure. Most of this will be caused by the Basel III accord and other shake-ups; none of this is surprising to those who actually follow the financial world, rather than spout demagogic and populist nonsense to win votes. Some of the reforms have been good; return on equity was artificially inflated by low capital and liquidity, and high leverage levels that would never have existed in a truly free market. Many other reforms or proposals have been disastrous and are costing jobs and growth. Ringfencing would not have stopped sub-prime lending, nor prevented the demise of HBOS, Bear Stearns, Lehman Brothers or Northern Rock. The real, truly big reform we now need – and this is in motion in the US, the Eurozone and the UK – is to finalise resolution procedures to allow banks to fail in an orderly, organised manner that doesn’t cripple the entire economy, destroy innocent bystanders or trigger chaos. Even giants wouldn’t
be too big to fail under such a system. Such measures already exist with airports and nuclear power plants; they are well established with smaller US retail banks. We also need systems so that bail-ins become automatic, with debt turning into equity if things go wrong. The aim must be to banish taxpayer assistance, eliminate bail-outs and put in a place a structure that makes banks think and behave like all other firms, accounting properly for risk and reward. This would get rid of moral hazard and faulty decision making fuelled by the knowledge that the authorities will always step in to save firms or the system if things get too crazy. Barclays, to its credit, is nearly there; everybody else must follow suit. There are three choices: the corporatist, bail-out culture of the past; the destructive, anti-City, regulate regardless of cost, present mood; or a move to something closer to real capitalist discipline. I vote for the latter. [email protected] Follow me on Twitter: @allisterheath
NEWS | IN BRIEF Record yen intervention in Japan Japanese authorities splashed a fresh daily record high of 4.513 trillion yen (£36.2bn) on currency intervention last month, official data revealed yesterday. The measures were overseen by thenminister of finance Yoshihiko Noda, who has since been named as the country’s new Prime Minister. The Bank of Japan is believed to have intervened in the currency markets on 4 August, temporarily boosting the dollar against the yen. The official data, released yesterday, does not detail how interventions were made.
IT is hard to know whether to laugh or whether to cry about the latest round of banker-bashing, fuelled as ever by Vince Cable, who always knows exactly what the public wants to hear, though rarely what the economy actually needs. The biggest problem, as ever, is that the argument about the Independent Commission on Banking’s proposals has been framed to mislead. On the one hand lies a supposedly “unreformed” banking industry and its lobbyists who are trying to maintain this supposedly happy state of affairs to “keep their big bonuses”;
on the other is an enlightened Commission which is going to propose the “most far-reaching reform to the industry for a generation”, and which bravely wants to “split” (note the inaccurate nod to Glass-Steagall) the “ultra-risky casinos” from the lovely “utility” banks. Who could possibly oppose any of this, barring idiots, greedy fools or paid lackeys? Virtually all of these assumptions are nonsense; sadly, I don’t have space to address them all. The biggest untruth is the view that those who oppose or doubt a particular reform oppose all changes. Equally wrong is the view that these are the first significant reforms: banking is already undergoing a massive regulatory revolution, with rules on everything from derivatives to pay changing drastically. The changes are so huge that McKinsey & Co estimates that, without drastic action, investment banks’ returns on equity will drop to seven per cent from 20 per cent. That is below their 9-11 per cent cost of equity,
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Darroch invests salary in Sky
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BSKYB’S chief executive could be set for a bumper payday after piling the equivalent of a full year’s wage into a lucrative share plan. Jeremy Darroch has agreed to buy £384,670 worth of shares at £6.41 a share, accounting for almost his entire after-tax salary of £426,240. Sky will match his investment with £1.3m worth of stock at an equivalent per-share price, dependent on the company reaching a target level of growth in the three years to 30 June 2014, at which time the awards will vest. At the stock’s current price Darroch would collect £1.7m. However, analysts expect Sky to rocket in the meantime, making the potential payday far bigger. In three recent notes Deutsche Bank placed a target price on Sky of £9, Bank of America £9.40 and Citi £9.99. If Sky reaches the top valuation, Darroch’s stock would be worth a
Mongolia's government plans to list state-owned Erdenes-Tavan Tolgoi, which controls one of the world's largest untapped coking coal deposits, in Hong Kong, London and Ulan Bator. The initial public offering in the three cities would take place if the government could “overcome technical and logistical hurdles”, it said. The Tavan Tolgoi deposit, in Mongolia's south Gobi region, has estimated reserves of six billion tonnes of coal, including the world's largest untapped deposit of coking coal, which is used in steelmaking.
ANALYSIS l BSkyB Group PLC
MEDIA BY STEVE DINNEEN
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Editorial
Triple IPO for Mongolian miner
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cool £2.7m, including £600,000 from his personal investment and £2.1m from stock handed over by the company. This would then be subject to
tax. Darroch earned £2.68m last year, including a £1.7m bonus, and is taxed around 50 per cent of his salary.
Friends of Darroch said the investment was a vote of confidence in BSkyB’s share price, which has tumbled some 25 per cent since its biggest shareholder News Corp dropped its bid to buy the 60.9 per cent of BSkyB stock it didn’t already own following a public outcry over phone hacking. Darroch has led the firm to a blistering run of results, taking the company’s subscribers through the 10m mark. Chief financial officer Andrew Griffith also agreed to invest the equivalent of 75 per cent of his aftertax salary in the scheme.
PLANNING REVOLT FUELS FEARS OVER ECONOMY
MELROSE RAISES CHARTER BID TO £1.44BN
IRENE SETS OFF A STORM OVER SPENDING
Ministers must defy opposition to plans that would ease restrictions on building in the countryside, one of the country’s foremost business leaders has warned. The government must “hold its course” as the row intensifies over proposed changes that would create a “presumption in favour of sustainable development”, David Frost, the departing chief of the British Chambers of Commerce, told The Times.
Melrose has sweetened its bid for Charter by around £40m, bringing it close to landing the £1.44bn takeover of the UK engineering group. The two sides have been locked in talks over the past week, with Melrose's decision to raise its 840p-a-share indicative offer by about 20p looking enough to convince the Charter board to agree the deal.
Hurricane Irene relief is becoming the focus of the first national spending debate since the debt and budget deal reached a month ago. Disaster relief, like war spending, is often less subject to partisanship than many other programs. But House majority leader Eric Cantor says new federal spending for hurricane recovery must be offset by spending cuts elsewhere, and Democrats are accusing him of playing politics with disaster.
BERLUSCONI FACES FRESH STORM OVER CUTS TO BUDGET
Chris Lucas, the Barclays finance director, has brushed off an attack by Vince Cable on banks and warned the Government against prescriptive reform of the sector. He said that if the Government wanted to put in place “workable” changes to avoid a repeat of the 2008 financial crisis, it needed to include banks.
Jeremy Darroch has overseen a blistering run of form at Sky
Pic:Micha Theiner/City AM
WHAT THE OTHER PAPERS SAY THIS MORNING OFCOM PLANS SUPERFAST WIRELESS TOBACCO TRADE GROUP CHIEF QUITS The head of the UK tobacco industry’s main trade body has resigned after failing to persuade the coalition government to rescind anti-tobacco measures introduced under Labour. Christopher Ogden will step down in October following a review of the organisation’s structure initiated by its members, British American Tobacco, Imperial Tobacco and Gallaher, a division of Japan Tobacco.
LONDON COUNCILS TO ISSUE BONDS Wandsworth is known for having one of the lowest council taxes in the country but now it appears set to lead its peers in another respect: by being among the first in decades to sell bonds. The Local Government Association said it was to appoint advisers to examine how it might set up a collective agency to issue aggregate council bonds.
Ofcom is to announce plans on today for the first superfast wireless communication in Europe employing unused parts of the airwaves that had been reserved for television. “White space” gaps in the spectrum will allow businesses and consumers to tap into the powerful signals normally used by broadcasters. The effect will be similar to a faster and more powerful version of WiFi.
PORTUGAL PROMISES BIGGEST CUTS IN DECADES Portugal has announced new austerity measures designed to cut its budget deficit to almost zero in under five years, promising the biggest cuts in government spending for more than 50 years. Vítor Gaspar, finance minister, said yesterday the planned reduction in public expenditure by 2015 – by seven percentage points to 43.5 per cent of gross domestic product – was “without precedent” in recent Portuguese history.
With Italy still threatened by the eurozone crisis, Silvio Berlusconi is being accused of fiddling while Rome burns. The Italian Prime Minister, facing popular protest, has begun backtracking from key parts of an austerity programme.
BARCLAYS FINANCE CHIEF BRUSHES OFF VINCE CABLE ATTACK
SWITZERLAND CUTS AID PACKAGE FOR ECONOMY The Swiss government surprised markets Wednesday by more than halving the size of its stimulus package for the country’s economy, worrying exporters and raising doubts about the economy’s capacity to weather the franc's strength.
News
CITYA.M. 1 SEPTEMBER 2011
BNY MELLON CHIEF STEPS DOWN
Darling: I almost got rid of exasperating Mervyn King ▲
POLITICS BY JULIET SAMUEL
FORMER chancellor Alistair Darling has revealed that he and Gordon Brown almost fired Bank of England governor Mervyn King in 2008. In extracts of his forthcoming memoir that have appeared online, Darling calls King “amazingly stubborn and exasperating” and suggests that his term as governor
would not have been renewed for a second time had the government been able to find a viable alternative. Darling also suggests that King’s faults led to a “prickly and strained” relationship between him and FSA chair Lord Turner that contributed to the financial crisis. The revelations shed new light on the tensions between the Bank and the last government in its waning
Great pictures today. BANK of New York Mellon Corp said Robert Kelly (pictured) has stepped down as chairman and chief executive officer after three years, following differences in approach to managing the company. The company named board member Gerald Hassell as chairman and CEO, effective immediately, sending its shares down more than one per cent in late trading.
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GERMAN Chancellor Angela Merkel won vital backing from her cabinet for changes to the Eurozone’s main bailout fund yesterday, prompting a short relief rally in the euro. The proposed changes to the European Financial Stability Facility (EFSF) must now go to Germany’s lower house for ratification on 29 September, where Merkel is expected to face a strong rebellion from more than 25 members of her governing coalition. If she is forced to rely upon opposition support to get the measures through, it could prompt calls for an election, which would throw German politics into chaos at a fragile time for the region.
days. King has since endorsed the current coalition government’s deficit reduction plans, to criticism from Labour. Darling’s book also reveals his unease at Brown’s attempt to “keep an eye” on him by appointing loyal MPs as Treasury ministers. He describes Gordon Brown as “brutal and volcanic” and criticises Brown’s lieutenants Ed Balls and Shriti Vadhera.
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The changes to the EFSF are controversial because they enable it to deploy an enlarged capital pot without returning to paymaster countries for permission, in order to, for example, recapitalise a country’s banks or buy sovereign bonds in the secondary market. The changes are part of a deal on Greece’s second bailout, worked out at a July summit of Eurozone leaders. But they must be ratified by member states before Greece can receive its new aid. Greece has already faced calls to supply collateral in return for the cash. Finland said it had reached a bilateral agreement for cash collateral, prompting other paymaster countries to demand similar guarantees. There was even a suggestion that Greek bank shares could be used as collateral.
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EQUITY market turmoil caused 15 US corporate IPOs to be withdrawn in August, the highest number since April 2001, data from Dealogic showed yesterday. August saw the number of completed floats reach the lowest volume since 2009 as fears over US and European sovereign debts caused a mass sell-off in equities. Just four IPOs got off the ground in August, compared with 14 in July, listings showed. The withdrawn IPO data covered straightforward corporate IPOs, excluding sectors such as REITs that have seen large market changes.
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CAPITAL MARKETS
ENFORCEMENT
A FORMER trader at the Galleon Group hedge fund was sentenced yesterday to five-and-a-half years in prison, a term the judge said should serve as a warning to Wall Street that insider trading was a serious crime. Craig Drimal, 55, who pleaded guilty in April, was arrested as part of a sweeping government crackdown on insider trading. He has also been ordered to forfeit $11m (£6.77m). Judge Richard Sullivan said he would impose a more severe prison term than Drimal’s defence team had requested to put the financial industry on notice.
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CITYA.M. 1 SEPTEMBER 2011
WHAT DO THE BANKS SAY ABOUT THE RINGFENCE? LLOYDS
BARCLAYS
HSBC
RBS
l Lloyds has taken the most pro-ringfence stance of all the banks – and argues that almost all of Lloyds’ operations should be inside the fence. l Chief executive António Horta-Osório (pictured) argues that a ringfence should form a crucial part of a resolution plan to allow regulators to wind up failing banks in an orderly way.
l Analysts estimate that Barclays would be worst hit by a ringfence, although chief Bob Diamond (pictured) insists that its investment bank does not use the retail bank for funding. l Barclays opposes a retail ringfence and instead suggests “operational subsidiarisation”: ringfencing off the bank’s infrastructure like payments systems.
l HSBC has the least skin in the game compared to rivals and will take a only small hit. Chairman Douglas Flint (pictured) sees the measure as unnecessary given the avalanche of other regulation in the works. l However, Flint suggests that if it must be brought in, it should divide assets on an accounting basis, with mark-to-market assets outside the retail ringfence.
l Like Barclays, RBS will suffer substantially from a ringfence. Chief Stephen Hester (pictured) argues that a ringfence could actually damage financial stability by concentrating risk-taking in a ringfenced retail bank that has an effective state guarantee. l Hester argues that bail-in debt – bonds that turn into equity – would better discourage risk-taking.
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MPs call for bank reforms to be delayed POLITICS BY DAVID CROW
A GROWING number of Tory backbenchers are calling for sweeping banking reforms to be delayed over fears they could damage the fragile economic recovery. Their intervention came as Vince Cable (pictured), the business secretary, attacked UK banks for being “disingenuous in the extreme” after they argued the Vickers reforms could force them to scale back lending to consumers and businesses. Mark Field, the Conservative MP for the Cities of London and Westminster, hit out at Cable, accusing him of “playing to the gallery” with his “unhelpful comments”. Field told City A.M.: “Cable feels vindicated
by the BSkyB fiasco and is now flexing his muscles after a period of silence. “To rush ahead with any reforms would be a huge mistake and a case of politics overshadowing substance.” Sajid Javid, Tory MP for Bromsgrove and a former Deutsche Bank investment banker, also called for the implementation of any reforms to be delayed by “five to ten years”. He said: “Timing wise the government must be very careful. Banks have not recovered from the first crisis, which has resulted in lots of regulatory changes already. “There are storm clouds on the economic horizon and we want banks to lend.” Meanwhile, the Prime Minister refused to be drawn on a timetable for the implementation of the Vickers report, which is expected to recommend that banks ringfence their retail operations from their investment banks.
CITY VIEWS: IS NOW THE RIGHT TIME TO BRING IN BANKING REFORMS? Interviews by Lydia Ellis and Phoebe Torrance CHRIS BATCHELOR |
JAMES GIBSON |
LLOYDS
CRONE CORKILL/WILLIS
“It's not the right time as it will increase the cost of retail banking. The inability to get mortgages will destabilise the housing market, shaking the economy.”
“No, I think that we should hang on six months to see what happens; recently the FTSE has been volatile, and we are still in a fragile economic climate.”
JIM PACKHAM | OXFORD INSURANCE BROKERS “Yes, it is definitely a good idea to act now – as soon as the financial markets crashed they should have brought in bank reforms. Ringfencing is a great idea as banks will then be fully aware of the downside of their debt.” * These views are those of the individuals above and not necessarily those of their company.
News
CITYA.M. 1 SEPTEMBER 2011
7
Shell poised to sign $800m deal for Ukrainian shale gas ▲
ENERGY BY KASMIRA JEFFORD
ROYAL DUTCH Shell, the world’s largest oil producer, is poised to sign an $800m (£492m) deal to explore and develop shale gas fields in the Ukraine, a presidential official told journalists yesterday. President Viktor Yanukovich’s chief of staff said Shell and Naftogaz, the Ukrainian state-run gas and oil
company, intend to sign a deal today in a move that will help to cut the former Soviet republic’s dependence on Russian imports. “The agreement envisages $200m for exploration and $600m for gas production. This concerns shale gas rather than Black Sea shelf,” he said. Ukraine, which imports about 60 per cent of gas for domestic consumption from Russia, has been locked in disputes with its neigh-
bour over high gas prices for more than a decade. A stand-off between the Ukraine and Russia in 2006 and again in 2009 choked gas supplies across several European countries. In the latest dispute, the Ukraine yesterday threatened to take Russia to the Stockholm court of arbitration over what it pays for natural gas from Russia’s Gazprom if it fails to secure a “fair” price by October.
US Non Farm Payrolls The lucrative oil fields that slipped through BP’s grasp when Rosneft teamed up with Exxon
Friday 1.30pm (London Time)
New blow for BP as Russian office raided ▲
ENERGY BY KASMIRA JEFFORD
BAILIFFS and armed special forces stormed BP’s Moscow’s offices yesterday, just a day after the Kremlin rubbed salt into the oil giant’s wounds by signing a coveted Arctic exploration deal with US rival ExxonMobil. BP was ordered to let bailiffs search through all documents by a court in Siberia, where Andrei Prokhorov, a minority shareholder in BP’s Russian joint venture TNK-BP, is suing two BP companies and two BP employees for £1.84bn. A spokesperson for BP said the raid on the offices of BP EOC was “completely without merit”, adding that the company had no connection with the court case in Tyumen. Tuesday’s deal between Exxon and Rosneft, Russsia’s state-owned oil explorer, marks a fresh blow for BP,
which failed to seal a similar deal with Rosneft earlier this year. TNK-BP won an injunction in February barring the deal, claiming that BP was obliged to pursue all its Russian ventures through TNK-BP. “It was a mystery as to how BP could try and do [a deal] without the participation of TNK-BP,” said Iain Armstrong, an oil and gas analyst at Brewin Dolphin. Andrew Bell, chief executive of the Witan Investment Trust, with 1.6 per cent of its holdings in BP, said the Exxon deal was an “embarrassing” reminder of BP’s own collapsed agreement but was now “an old event”. Bell said there was unlikely to be mounting shareholder sentiment against BP’s chief executive Bob Dudley but added that the company needed to clarify its strategy. “People aren’t quite sure what the company’s strategy is. There is a range of things that could happen.”
Higher taxes hurt profit at JKX Oil as the firm forgoes dividend ▲
ENERGY
SHARES in FTSE 250-listed JKX Oil and Gas fell more than four per cent yesterday after the energy group posted a drop in first-half operating profit, weighed down mainly by higher taxes in Ukraine. Pre-tax profits at the eastern Europe-focused oil group fell 32 per cent to $32.7m (£20.1m) for the six months to 30 June, from $49.1m for
the same period last year. The oil and gas producer also scrapped its interim dividend, citing higher project costs in Russia and higher taxation in Ukraine, which are both impacting its cash flow. It paid a dividend of 2.4p last year. JKX’s shares, which have lost around 41 per cent in value since it said in March that its key gas project in Russia would be delayed by about three months, closed at 187.4p.
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News
HOLLYWOOD A-LISTERS HIRED BY M&S
MARKS & Spencer has unveiled a new marketing campaign starring Hollywood A-listers Rosie Huntington-Whiteley and Ryan Reynolds. Transformers star Huntington-Whiteley and romcom actor Reynolds will be used to plug the firm’s Autograph collection. The move by boss Marc Bolland is aimed at widening the retailer’s international appeal.
Earnings at Hermes flying as luxury market booms ▲
RETAIL
HERMES unveiled record profit margins yesterday as the sale of luxury items continued to weather the overall consumer downturn. The company, best known for its bags and scarves, saw a 49 per cent jump in half-year profits to €290.9m (£257.4m). Sales were up by 22 per cent at €1.31bn, with jewellery and watches performing particularly strongly,
Hermes said. The Paris-based company said its US sales had proved resilient. Hermes confirmed its full-year forecast, saying it expected sales growth of between 12 and 14 per cent for the year and that its operating margin would be “close to the record high” of 2010. But chief executive Patrick Thomas warned that a lack of stock to meet demand in some product lines would have an impact.
News
CITYA.M. 1 SEPTEMBER 2011
Carrefour issues profit alert ▲
RETAIL BY JOHN DUNNE
above rivals such as E Leclerc and Intermarche.
WH Smith plans to buy back £50m more shares ▲
CARREFOUR has warned its 2011 profits will slump 15 per cent as it cuts prices in a bid to reverse falling market share and tackle an increasingly tough economic environment. The French retailer said it was scaling back its Carrefour Planet hypermarket revamp as it continued to face headwinds in Greece and Italy. It also said that high commodity prices had eaten into purchasing savings.
Europe’s largest retailer has spooked investors with four profit warnings in less than a year. Its latest dire forecast came as it reported an unexpected first-half net loss, hit by €884m (£783.5m) one-off charges linked mainly to writedowns at its Italian business. “We are biting the bullet in 2011 and rebuilding momentum in 2012 to deliver long-term sustainable profitable growth,” chief executive Lars Olofsson said. He also conceded the firm had made mistakes, such as raising prices in its main French market
ANALYSIS l Carrefour ¤
18.56
26
31 Aug
24 22 20 18 Jul
Aug
9
RETAIL
WH Smith is to double its share buyback scheme by mopping up another £50m of stock, the retailer said yesterday. In October the group announced a share repurchase programme for the 12 months to 31 August of £50m, which was then extended by a further £5m. The group will now buy back another £50m for the year ended 31
August 2012. The retailer is seen as one of the few high street names that has weathered the consumer downturn relatively well, with profit fuelled by the firm’s travel outlets and cost cutting. The company said the buyback will be “managed by an independent third party” but did not identify who that was. Chief executive of the FTSE 250-listed company, Kate Swann, was paid £4m last year.
Tesco to quit Japan after eight years ▲
RETAIL BY JOHN DUNNE TESCO yesterday announced that it would quit Japan after a bruising eight years in which it failed to gain a profitable foothold in the market. Japan is known as a difficult market to crack for western companies, especially in the notoriously tough grocery sector. Tesco has 129 stores, mainly in the Tokyo area, having started with the purchase of two C-Two Network supermarkets in 2003. In the last financial year like-for-like sales in the country were down by 8.1 per cent. New Tesco chief executive Philip Clarke admitted the retailer had failed to make its operations in Japan viable. “Having made considerable efforts in Japan, we have concluded that we cannot build a sufficiently scalable business,” he said. He added that a formal sale process would be launched in the coming months.
It is understood that Goldman Sachs will be advising Tesco on the sale. French rival Carrefour pulled out of Japan in 2005 having found the market too tough. Tesco’s performance in the US has also come under the spotlight in recent months, with its loss making Fresh & Easy business struggling to make an imprint. Clarke, who took over from Sir Terry Leahy in March, has also ordered a shake-up of the company’s clothing business, which he has identified as underperforming. ANALYSIS l Tescos
378.60
p
31 Aug
410 400 390 380 370 360 350 Jul
Aug
Asian exit sends message to ailing US arm IF a butterfly flaps its wings in China, it changes the weather in New York. And if Tesco exits Japan, it sends a chill wind through its US business. The decision to pull out of Japan was a no-brainer. It had a sub-scale operation of just 140 stores, a workforce of 4,367, and annual sales of £476m. In the year to February 2011, the business knocked around £20m off group profit. The future of Tesco’s US operation Fresh & Easy is less secure after this announcement. On paper, the business is remarkably similar, with 164
stores, headcount of 4,134, and annual sales of £495m. One major difference is the scale of losses. Last year, the US operation lost £186m, – almost £150m more than Japan. So far, the retailing giant has racked up a staggering £700m worth of cumulative losses since it tried to crack America in 2008. Fresh & Easy has some things going for it. Like-for-like sales were up 9.4 per cent in 2010-11, compared to an 8.1 per cent fall in Japan, while total sales grew by almost 40 per cent. Crucially, Tesco is trying to intro-
duce the far superior European grocery model to Americans. The kind of high quality ready meal that is common in the UK – think stuffed chicken wrapped in prosciutto – doesn’t exist there. If Tesco does succeed, the rewards could be very great indeed. By exiting Japan, Clarke is serving time on America. Global ambition doesn’t come at any cost.
BOTTOMLINE Analysis by David Crow
10
The Capitalist
EDITED BY HARRIET DENNYS
CITYA.M. 1 SEPTEMBER 2011
Got A Story? Email [email protected] Follow The Capitalist on Twitter: @citycapitalist
HOW JAMES MURDOCH CAN TRUMP BROOKS’S GOOD NEWS for anyone looking forward to joining James Murdoch at the bar of the prestigious gentlemen’s club Brooks’s, as its secretary Graham Snell has confirmed all is not yet lost for the News Corp heir’s membership application. As those of you who read The Capitalist’s original story on 9 August will recall, things were not looking good for Murdoch when the hacking scandal broke just when it was understood his application was due to be put to the members ballot. Except, as Snell cleared up on his return from Brooks’s summer recess yesterday, Murdoch (below) was actually first nominated more recently than two years ago, meaning his application is still “on the first leg”. “James is still a candidate,” confirmed Snell, explaining that candidates remain in membership limbo for a minimum of two years before their application is taken further. “He is in the waiting stage,” he added. “Hence the waiting list.” Snell refused to elaborate on exactly how long that wait might last – “that is the private business of the club” – but offered this insight into whether Murdoch Jnr will succeed in his quest to be accepted by the establishment. “I think it would be a prerequisite that he can play bridge. If he doesn’t, he wouldn’t be very welcome in any case.” So forget the pesky detail of testifying on press ethics to Lord Justice Leveson next month: Murdoch’s greatest challenge will be mastering the basics of finessing and cross-ruffing. Play his cards right, and he could yet come up trumps after all…
TWEET NOTHINGS DON’T BE put off by the fact Fitzdares is offering 8/1 on the long-dead race-
Above: the Credit Suisse triathletes reach the Eiffel Tower
horse Shergar on its new website; the traditional bookmaker says it is looking to the future with the launch of its online and iPad gambling services. “We will tweet with the best of them,” declared founder Balthazar Fabricius, who has mostly been updating clients about gold prices since the site went live yesterday. Also coming soon from the gentlemen’s betting exchange: an online shop in the style of Monocle magazine. Expect a rush on backgammon boards, ties and playing cards when it opens for business “just in time for Christmas”.
PARIS MATCH
WE’LL always have Paris, Credit Suisse employees are thinking fondly, after spending the bank holiday weekend in a bonding triathlon that finished at the Eiffel Tower. Starting from their office in Cabot Square, the bankers completed a 90mile running relay from London to Dover, followed by a 25-mile swim-
Cards on the table: Bridge-playing skills are a must for the members of Brooks’s
ming relay across the Channel and an 180-mile cycling relay from Calais to the French capital. The Credit Suisse team’s time of 17 hours and 53 seconds – excluding the cross-Channel swim, which had to be cancelled seven-and-a-half hours in for “safety reasons” – was enough to beat rival firms including BarCap, PwC, Accenture and UBS in the fundraising Enduro Challenge event, organised by healthcare charity Nuffield Health.
OFFICE POLITICS TIME TO start getting into the spirit of the Olympics, says Adecco, which yesterday
launched its Workplace Games campaign to encourage the wage-slaves of Britain to take up office chair rowing and boardroom table tennis. So that explains the picture of Colin Jackson in the “office hurdle” event (below), as the former Olympian motivates Britain’s workers to film themselves taking part in Olympic-style challenges in the office and post the results online. Each video uploaded to the Workplace Games Facebook page will earn a £20 donation to Paralympic GB from Adecco, while the most imaginative entrants will win tickets to the Olympics. The campaign is supported by Paralympians Clare Strange, a wheelchair basketball medal hope, and Danny Crates, who recently retired from international competition after setting 800m records. Crates, who now plans to become one of Britain’s top motivational speakers, has been impressed by the entries he has seen so far, some of which are “off the wall”. “But I’m not going to say which the best ones are,” he said. “Because I don’t want to jeopardise their chances.”
News
CITYA.M. 1 SEPTEMBER 2011
11
Buchan rejects payout as he exits Southern Cross ▲
SUPPORT SERVICES BY ALISON LOCK
JAMIE Buchan, the chief executive brought in to turn around care home operator Southern Cross, refused to accept a final payout of more than £400,000 as he left the firm yesterday. Buchan declined a £430,000 golden handshake and a £64,000 pension payment after cutting his basic salary by 20 per cent in February.
His austerity comes as Southern Cross prepares to cut 6,000 jobs and transfer its 752 homes to new operators after becoming unable to manage the costs of renting the sites. Christopher Fisher, Southern Cross’ chairman, said Buchan’s decision to leave without the severance pay was “entirely consistent with the tireless and selfless approach he has adopted while leading the management team at Southern Cross”.
Buchan will step down “once the process of transitioning homes is well advanced”, Southern Cross said. That is likely to be this autumn, as City A.M. understands it has found new operators for more than 90 per cent of its homes and expects the rest to be settled shortly. NHP, which owns almost a third of the homes, has said it will operate its estate through a new joint venture with Court Cavendish.
Southern Cross CEO Jamie Buchan declined a £400,000 golden parachute
NEWS | IN BRIEF
ACHING FOR A BREAK?
India and China mint millionaires IBM buys British analytics firm Asia will add 1.66m dollar-millionaires by 2015, taking the total number of wealthy to 2.82m as the world's fastest-growing major economies of China and India continue to mint millionaires, a report from Julius Baer said yesterday. The Swiss wealth manager forecast that the total wealth of people with $1m or more in investable assets would nearly triple to $15.8 trillion in the five years to 2015.
IBM has agreed to buy British security analytics software firm i2 for an undisclosed sum, it said yesterday, as it continues to devour companies that can help its clients deal with growing mountains of data. Privately held i2, which says its software helped US forces track down former Iraqi leader Saddam Hussein, is based in Cambridge and has 350 staff in Britain, the US, Canada and Australia.
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News
Slaughter and May, run by Chris Saul (left), boasts a profit margin of 49 per cent, while Linklaters, where David Cheyne (right) is senior partner, has the highest UK revenues.
UK law firm revenues top £15bn in 2011 Law firms’ fortunes are on the up after a tricky couple of years, writes Elizabeth Fournier. But London’s contribution to the recovery is waning
A
FTER a bleak couple of years for the UK’s legal sector, revenues at the country’s biggest law firms are looking far healthier this year, as the most successful firms look to international markets and strategic mergers to grow profits. Total revenues at the top 100 law firms in the UK rose by 13 per cent this year, hitting £15.5bn according to the latest Legal Business 100, the trade magazine’s annual look at the country’s top 100 solicitors, published today. Average net income across the top ten firms rose by two per cent in 20102011, compared to a fall in net income of 3.5 per cent for previous year. Things seem to be looking up, and the relative return to health means that partners at the most successful
firms are reaping the benefits. DLA Piper’s top partners earned an average of £2.5m in 2011 – up a staggering £1m from last year’s figure, and though gains at the rest of the top ten earners were more modest, only three of the highest pay packets among the top ten firms decreased. Top pay rose by £200,000 at Berwin Leighton Paisner, and was up £162,000 at Slaughter and May. City favourite Slaughters also booked the most impressive profit margin, at 49 per cent, on a turnover of £440m. Profits per equity partner (PEP) at the corporate-focused firm rose by seven per cent to lead the field at £1.75m, well above its nearest rival Freshfields Bruckhaus Deringer, which saw PEP fall by seven per cent
Where equity partners at the top earn the most Top 10 firms ranked by highest top of equity 1
DLA Piper
2
Slaughter and May
3
Dickson Minto
4
Gordons
5
Allen & Overy
6
Linklaters
7
Freshfields Bruckhaus Deringer
8
Berwin Leighton Paisne
9
Watson, Farley & Williams
10 Clifford Chance Source: Legal Business
Equity partners: non-equity partners
416:802 123:4 14:1 9:22 398:89 442:31 416:29 89:108 59:39 379:173
% of lawyers that are equity partners
34% 97% 93% 29% 82% 93% 93% 45% 60% 69%
Profits per equity partner
£728k £1,753k £950k £856k £1,055k £1,165k £1,308k £694k £457k £1,005k
News
13
Allen & Overy, led up by senior partner David Morley (left), overtook Clifford Chance on London revenues. Sir Nigel Knowles’ (right) DLA Piper was top ranked for global revenue. on revenues flat at £1.14bn. Despite its lack of growth, Freshfields remained among the elite City firms reporting a turnover of more than £1bn, joining Clifford Chance, Allen & Overy, Linklaters, DLA Piper and Hogan Lovells at the top of the table. That the latter two are among the leaders of the pack is testament to the increasing influence of UK law firms’ overseas operations on their top line.
LOOKING ABROAD FOR REVENUE DLA Piper for example, which jumped four places from last year’s ranking to the top of the table, garners just 22 per cent of its annual revenue in the UK. The firm’s global revenue was taken into account for the first time in this year’s survey, an acknowledgement of the increasing popularity of its Swiss Verein structure, which separates liabilities within an international network. Norton Rose – another convert to the Swiss Verein model – also benefited from its international game plan, growing revenues by 59 per cent in a year that saw it merge with firms in Australia, Canada and South Africa. “This is the first full year with Australia as part of the group and we are already seeing the benefits,” Norton Rose’s chief executive Peter Martyr told City A.M. in June, when the firm released its latest figures. And though many of the highest earning firms are still considered as traditional London players, the survey
London office revenues Rank (change from 2010)
London change revenue as from % of global 2010 turnover
%pt change from 2010
LONDON TURNOVER 2011
London revenue per lawyer
£510.4m
£521,000 3%
43%
-1
1
(-)
2
(+1) Allen & Overy
£448m
£448,000 3%
40%
-1
3
(-1) Clifford Chance
£430m
£464,000 -1%
35%
-4
4
(-)
Slaughter and May
£422m
£637,000
4%
96%
0
5
(-)
Freshfi elds Bruckhaus Deringer
£410m
£552,000 6%
36%
2
6
(-)
Herbert Smith
£304m
£361,000 0%
65%
-4
7
(-)
Hogan Lovells
£258m
£375,000 2%
24%
-19
8
(+1) Berwin Leighton Paisner
£204m
£331,000 14%
92%
1
9
(-1) Ashurst
£181m
£336,000
1%
60%
-3
£169m
£323,000 0%
35%
-18
10 (-)
Linklaters
shows they are becoming increasingly reliant on rapidly expanding markets in Asia and other emerging economies are offsetting slightly less impressive domestic performances. Freshfields now generates 64 per cent of its revenue outside of London, while Allen & Overy books 60 per cent of turnover abroad, and Linklaters 57 per cent. Even Herbert Smith, which still relies on London for 65 per cent of its revenues, is looking to shift focus, aiming for a 50/50 split between home turf and its 12 international offices. “It is interesting to compare the UK billings against worldwide revenues,” said Legal Business city editor Emma Sadowski. “DLA may be the UK’s largest law firm by worldwide revenue, but just 22 per cent of its billings originate in the UK. By UK billings it is only just inside the top 10.” By a breakdown of UK revenue, Linklaters – headed up by outgoing senior partner David Cheyne – is the highest earner, booking a UK turnover of £510.4m, up three per cent from last year. Among the mid-table firms, London and New York-based Mishcon de Reya was the star performer, jumping 11 places to 47 in the table as its net fee income rose 37 per cent to £65m. Litigation expert Stewarts Law entered the top 100 for the first time, after increasing its revenue to £28.5m, a jump of 42 per cent.
Norton Rose
Source: Legal Business
14
News
CITYA.M. 1 SEPTEMBER 2011
Third bidder circles loss-making Omega ▲
INSURANCE BY ALISON LOCK
TROUBLED Lloyd’s insurer Omega Insurance yesterday said it hoped to secure a buyer soon, as it posted a $49.1m (£30m) loss for the first half of the year. The third bidder for Omega emerged yesterday as Mark Byrne, the founder of Bermuda-based insurer Flagstone Re and son of insurance scion Jack Byrne, who managed GE’s insurance business. Byrne’s investment vehicle Haverford is understood to lead the list of keen bidders for Omega and has spent at least two months in discussions and raising capital to fund an offer for the insurer. But other bidders, including Bregal Capital-backed private insurer Canopius and US group Barbican, have been in talks to buy Omega since January and the tar-
get’s board yesterday made it clear it wanted to move the discussions forward at pace. “Omega has received a number of approaches that may lead to an offer being made for the company, and the directors will continue to review these approaches,” chief executive Richard Pexton said in a statement. “We are striving to conclude the process shortly.” Industry sources said the delay in securing a buyer was in part due to the number and frequency of catastrophes over the past six months. Omega took $51.3m of losses after reinsurance cover, and said the combination of earthquakes, tornadoes and floods had been exceptional. But it emphasised that it had taken drastic action to de-risk its portfolio and position itself to perform better as rates rise.
The group’s shares bounced more than ten per cent in trading yesterday, closing up 8.2 per cent as investors took heart from the bid talk. But Espirito Santo analyst Joy Ferneyhough said the continuing losses meant Omega’s prospects as a standalone company were weak. “Investors may become more anxious if a formal bid is not forthcoming promptly,” she said.
ANALYST VIEWS: WHAT ARE THE POSITIVES FROM OMEGA’S RESULTS? Interviews by Alison Lock Its catastrophe losses represent about 15 per cent of its 2010 net tangible assets, a relatively favourable performance. Its $1m reserve release, compared with a $12m strengthening a year earlier, is clearly positive. Additional reinsurance has also been purchased for the US windstorm season.
NICK JOHNSON | NUMIS
@ @
” ” ”
First-half catastrophe losses are the highest in the sector relative to premium income – but low relative to net tangible assets given Omega’s strong capital position. We consider its top-level capital ratios to be one of the strongest in the sector, with zero debt and a high NTA to gross premium ratio.
JOY FERNEYHOUGH | ESPIRITO SANTO
MORE NEWS ONLINE AT www.cityam.com
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ADVISER: CENKOS IAN SOANES
SARAH LEWANDOWSKI | PEEL HUNT
“ “ “
ANALYSIS l Omega Insurance Holdings Ltd
Omega has worked hard to reduce catastrophe exposure and improve the efficiency of its reinsurance programmes. This has clearly worked as tangible book value fell just ten per cent, in line with likes of Hiscox or Beazley and ahead of Amlin and Hardy – but it has moved away from better-priced business.
ADVISING Omega on its numerous potential bids is Ian Soanes of Cenkos. Soanes is notably a co-lead on the team that launched Lord Levene’s new bank, NBNK, onto the public market to raise £50m last year. He also works with a range of fast-growing property and tech companies. He advised Assura, the UK’s biggest healthcare property owner, on the sale of its medical business to Virgin, while he helped raise £23m for real estate investor NewRiver Retail in 2009.
News
CITYA.M. 1 SEPTEMBER 2011
Northern Rock owner to credit check clients ▲
Market drops hurt Chesnara
BANKING
INSURANCE BY ALISON LOCK
▲
THE administrator of failed lenders Northern Rock and Bradford & Bingley is monitoring its 750,000 mortgage-holding customers for signs of financial stress and will offer advice to any it feels may be struggling, it emerged yesterday. UK Asset Resolution checked customers’ creditworthiness to identify those that may need to cut spending to continue paying their mortgages and is now contacting about 30,000 to offer advice on managing money. It is calling about 30,000 of its borrowers at a rate of about 2,000 every week to suggest that they spend less to give them more financial leeway. UKAR is particularly concerned that some may struggle to meet higher repayments as interest rates rise from the current ultra-low level. “We always treat customers fairly. Where there are signs that any of our customers may be getting into difficulty with their mortgage we call them to offer help and advice,” it said.
Chesnara CEO Graham Kettleborough blamed erratic markets for the results
Sanlam weighs up Merchant Securities ▲
INSURANCE BY ALISON LOCK JOHN East’s investment group Merchant Securities became the latest City broker to be eyed for takeover yesterday as it said its South African life and savings provider Sanlam had made a bid approach. Shares in Merchant Securities, which bought fellow brokerage John East & Partners in 2007, leapt more than 30 per cent to close at 15p after it said it was in early stage talks with Sanlam. Merchant said Sanlam also bought a 9.7 per cent stake yesterday, buying the shares at 14p apiece, a 22 per cent premium to its closing share price on Tuesday. Yesterday’s closing price values the business at about £7.7m but Sanlam may pay a further premium to that.
Merchant has more than 30 smaller-cap UK-listed clients as well as a wealth management arm. Sources close to the firm told City A.M. it had not previously been considered up for sale but the board was pleased with the progress of talks so far. ANALYSIS l Merchant Securities Group PLC p
15.00 31 Aug
16 14 12 10
Jun
Jul
Aug
31 Aug
Bregal Capital in exclusive talks with Irish group IFG ▲
PRIVATE EQUITY
PRIVATE equity firm Bregal Capital entered into exclusive talks with Irish financial services company IFG Group yesterday over a possible €231m (£204m) buyout. Dublin-based IFG said Bregal Capital, which is already a backer of Lloyd’s insurance company Canopius, had proposed making a cash offer of €1.80 for each IFG share and would also pay a dividend. Bregal’s proposal is subject to additional due diligence and conclusion of banking facilities, IFG said.
15
IFG has agreed to work exclusively with Bregal for up to six weeks during this due diligence period, with the exclusivity due to expire on 10 October. In June, it said it was talking to two potential buyers. IFG, a pensions adviser and administration expert, also said its pre-tax profit for the first half of the year jumped to £7.1m, up from an £0.1m loss a year ago. Revenues rose about 15 per cent to £56.3m compared with 2010, IFG said. London-based Bregal has €3bn in committed funds largely invested in financial services companies.
VOLATILITY in equity and bond markets battered European life insurance consolidator Chesnara in the first half of this year, cutting its profits to just £3.8m, it said yesterday. Chesnara’s Swedish business Movestic was hit by low investment returns, while its newest acquisition, Save & Prosper, fell to a £1.2m operating loss due to lower interest rates. Chesnara’s group pre-tax profit of £3.8m was 68 per cent down from the £12m profit seen in the first half of 2010 on a combination of shifts, such as much lower releases from prior year reserves this year and a £4.2m “with profits strain” from Save & Prosper. But Chesnara chairman Peter Mason said its founding business, Countrywide Assured, delivered an £8m profit in line with expectations and Movestic’s £1.2m loss showed the business was gradually improving.
“Like many businesses, we have been affected by the ongoing turmoil in the equity and debt markets,” Mason said. “However, we remain strong financially and believe we are well-placed to deliver good ongoing returns to shareholders.” “We believe the cash generation which supports the dividend will remain resilient at least into the medium term even if markets remain difficult,” said Panmure Gordon analyst Barrie Cornes. ANALYSIS l Chesnara p
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CITYA.M. 1 SEPTEMBER 2011
17
FT app dropped from Apple store over fee and data row ▲
TECHNOLOGY BY STEVE DINNEEN
Acts like Rihanna failed to ward off a decline in profits at Universal Music Pic: REUTERS
APPLE yesterday kicked the Financial Times from its App Store after the two failed to reach a compromise over subscription fees and user data. The Cupertino-based firm insists on taking a 30 per cent slice of ongoing subscription revenues as well as collating valuable customer information.
There has been animosity between the FT’s publisher Pearson and Apple over the issue for months, and talks finally broke down yesterday. The publisher says it has developed a work-around that allows users to access an app-like interface through a web browser. Apple is facing increasing resistance from businesses using its online store, with Amazon pulling support for e-book purchases from its app to
avoid handing over the 30 per cent cut. Meanwhile, the battle between Amazon and Apple could escalate further with rumours the world’s biggest online retailer is ready to launch a rival tablet to the iPad. Amazon hopes it can emulate the success of its Kindle e-reader, with analysts speculating it would soon become the second biggest player in the market.
Games offset music slump at Vivendi ▲
MEDIA BY STEVE DINNEEN
IN a sign of the changing entertainment landscape, a blistering performance by Vivendi’s video games division has offset a slump in its music business. Vivendi’s Universal Music, host to acts including Rihanna and U2, saw its first half underlying earnings fall 17 per cent to €132m (£117m), on revenues down 1.9 per cent at €1.86bn. But this was more than balanced by games business Activision Blizzard, which was buoyed by the roaring success of games including Call of Duty and World of Warcraft, pushing earnings 34.4 per cent higher year-on-year to €833m. Revenues of €1.86bn – a hike of nine per cent – rivalled the music business for the first time. The winning streak looks set to continue after the firm received record pre-orders of upcoming title Modern Warfare 3. The French conglomerate saw its overall pre-tax profit rise 20.2 per cent to €1.83bn, boosted by favourable, oneoff tax credits linked to its minority buyout of SFR. Its revenue was up 1.9 per cent to €14.25bn.
The mobile business, acquired from Vodafone for €8bn, is competing in a tough French telecoms market, with a fierce price-war raging. Mobile operating margins slipped to 25.4 per cent in the first half of the year from 27.3 per cent a year earlier. Chief executive Jean-Bernard Levy said: “This first half has meant a very major milestone for Vivendi... with disposal of our minority stake in NBC Universal and the deal with Vodafone to buy the SFR stake. “Activision Blizzard and [Brazilian unit] GVT have fueled the growth of Vivendi and are clearly above our own expectations. Activision Blizzard has fantastic properties and franchises that will lead to recurring profit.” ANALYSIS l Vivendi SA ¤
16.97
31 Aug
19 18 17 16 15 Jun
Jul
Aug
31 Aug
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Japan tech trio RBS inks deal tie up LCD arms for mobile apps JAPAN’S tech giants Sony, Toshiba and Hitachi will merge their liquid-crystal display operations using 200bn yen (£1.6bn) of government-backed funds to fend off growing competition from rivals in South Korea and Taiwan, the groups said yesterday. The firms were all making losses on small panels until last year so the merger will allow them to focus on their main operations. The state-backed Innovation Network Corp of Japan will take a 70 per cent stake in the venture in return for its investment, with the trio each taking 10 per cent.
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TECHNOLOGY
TECHNOLOGY
ROYAL Bank of Scotland has penned a deal with mobile banking specialist Monitise to expand its phone banking and payments services. Monitise said the five year partnership will see it build new, more interactive mobile apps for RBS, NatWest and Ulster Bank customers, in an extension of existing ties between the two companies. Shares in AIM-listed Monitise, which reports annual results this morning, rose 9.6 per cent on the news of the deal. The firms did not reveal the value of the new contract.
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News
CITYA.M. 1 SEPTEMBER 2011
888 hits expectations despite writedown on acquisition ▲
GAMING BY STEVE DINNEEN
GAMING firm 888 said it is performing well in a tough market as it unveiled a pre-tax loss of £15.5m for its first half, in line with expectations. Its accounts included a £20.2m writedown on its Mytopia social media business, which it acquired in 2010. Its revenue jumped 18 per cent from £130m in the first half of last year to £153m.
Brian Mattingley, deputy chairman of 888, said: “This is a very strong set of results driven by good operating performances across our business lines. “We are in good shape and, bolstered by our renewed strategic focus, are well positioned to take advantage of opportunities in newly regulated markets. “The third quarter, which includes the traditionally quiet summer period, has to date seen strong trading across all our business lines.”
ANALYSIS l 888 p
30.50
31 Aug
36 34 32 30
Jun
Jul
Aug
31 Aug
Co-chief executive Jim Ryan welcomed the results, despite a dent from restructuring costs
Bwin.party surges 14pc despite loss ▲
GAMING BY STEVE DINNEEN
BWIN.PARTY surged 13.91 per cent yesterday after an upbeat forecast, despite slumping to a first half loss. The world’s biggest listed online gaming firm, formed by the merger of Austria’s Bwin and PartyGaming earlier this year, reported a pre-tax loss of €50.8m (£45m), down from a profit of €22.8m the year before. It was hit by higher gaming taxes, stronger competition in poker, tough comparisons with last year’s World Cup and significant restructuring costs. Bwin.party said its performance had been strong so far in the second half following the suspension of Full Tilt’s European poker licenses. The rival gaming firm was indicted in the US for alleged gambling offences, money laundering and bank fraud. Analysts had predicted that the
suspension would be positive for remaining European poker operators. Bwin.party also said it had lifted its target for annual cost savings to €65m from €55m at the time of the merger. Shares in Bwin.party have lost half their value since the start of the year owing to regulatory uncertainty. A company spokesman said yesterday: “We remain confident about the group’s prospects for the rest of the year and beyond.” ANALYSIS l Bwin.party Digital Entertainment Plc p
125.30
150
31 Aug
140 130 120 110 100 Jun
Jul
Aug
31 Aug
NEWS | IN BRIEF Volvo in Siemens partnership
Orders up at comms group Vislink
German industrial group Siemens and Swedish carmaker Volvo have formed a partnership to develop technology for electric cars and ancillary equipment. The two companies said yesterday that an electric version of Volvo’s small C30 hatchback will serve as a test platform and will be on test tracks by the end of the year. Volvo will deliver up to 200 vehicles to Siemens for further testing by the end of 2012, the companies said in a statement. Volvo, bought last year by China’s Zhejiang Geely Holding Group from Ford, aims to double its 2010 production within ten years.
Secure communications specialist Vislink has posted its interim results for the six months ended 30 June, showing that underlying orders received in the period grew 19 per cent to £23.7m. Vislink said that it was cautiously optimistic that the second half of 2011 will show a further strong improvement in trading. However underlying revenue was six per cent lower than last year at £19.1m. Total underlying costs fell by 19 per cent to £12m. In June Vislink acquired Essex based wireless camera manufacturer Gigawave in a deal worth £3.75m.
News
CITYA.M. 1 SEPTEMBER 2011
19
How to solve the scourge of youth joblessness ANTHONY BROWNE
I
T is not a good time to be young. Much has been stacked against them – poor job opportunities, rising house prices and tuition
fees, collapsing pensions, and the burden of having to pay off the national debt. Last week, figures showed a shock rise in youth unemployment, with nearly one million under 25 year olds not in education, employment or training. The government is striving to kick start the economy, but it must also strive to ensure that the growth benefits the young. A massive boost is being given to apprenticeships, and the ambitious work programme will help the young unemployed into jobs. But a lot more needs to be done.
The government has introduced a one year National Insurance holiday for new companies, but the NI holiday should be extended to any existing company with fewer than ten staff that takes on extra employees. There are more than a million such microenterprises in Britain – if each took on just one person, that would be a million new jobs. At present the young unemployed are on a level playing field with more experienced workers from the UK as well as immigrants, but it should be tipped a little in their favour – all companies should have a one year NI holiday if they take on
someone under the age of 25 who has been unemployed for more than three months. That should eventually be extended to the jobless of any age. Finally, the government should shift the emphasis further from paying people not to work, in the form of benefits, to paying benefits to companies that take people off the dole. It is already doing this with the work programme, paying agencies by results to move people from the dole to sustained employment. It should extend this directly to companies – any business that takes on someone
London’s rent continues to edge upward ▲
HOUSING BY JULIAN HARRIS
NEWS | IN BRIEF UK growth downgraded by BCC The UK economy will expand by just 1.1 per cent this year, the British Chambers of Commerce (BCC) said this morning, revising down their previous forecast of 1.3 per cent growth. The business group expects growth of 2.1 per cent in 2012, another downward revision from 2.2 per cent in its last forecasts.
Inflation expectations hold up Inflation expectations held steady last month, a survey by YouGov revealed yesterday. Inflation is expected to average 3.5 per cent in the year ahead, down from expectations of 3.9 per cent in June. Over the next five to ten years, inflation is still expected to remain stubborn, with respondents forecasting 3.7 per cent year on year price hikes.
Positive data for American jobs Adam Posen wrote that more QE is needed to reap better results
Picture: BLOOMBERG
Chief dove calls for more QE across G7 countries ECONOMY BY JULIAN HARRIS
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STRONG demand and weak supply continues to hike up London rents, with many young people struggling to get a step onto the property ladder. “Rental growth in London and the south has outperformed the rest of the country, though all regions have seen a pickup in rents,” the Royal Institution of Chartered Surveyors (RICS) said yesterday. In the three months to July, a positive balance of 34 per cent of surveyors reported higher rental costs across the UK – a slightly slower rate of growth than in the three months to April (+42 per cent). “Surveyors are once again highlighting the shift of would-be first time buyers into the rental market as they struggle to access mortgage finance,” the report said. In London, the positive balance of respondents reporting higher rents was closer to 50 per cent – the highest of all regions in the UK. Across the UK, 25 per cent more chartered surveyors reported a rise in demand than a fall. “The inevitable outcome is that rents will continue to increase,”
warned RICS spokesperson James Scott-Lee. “Our research shows that on average there are more than seven people searching for every room that comes onto the rental market,” added Matt Hutchinson for the website Spare Room. “And in desirable areas where rooms in flat and house shares are snapped up almost as soon as they appear online, landlords can charge a premium.” One in eight people living in shared accommodation is over the age of 40, according to the website, suggesting that more mature adults are being forced into living as housemates. The group’s research also showed that one in 10 people in shared accommodation have given up hope of ever being able to afford their own property. The economic squeeze is also reflected in RICS’s figures. The group revealed yesterday that more people are seeking government assistance. “Social lettings are now at their highest level since the series began in 1999, at 13 per cent of all new lets, up from eight per cent,” RICS said in the research.
who has been unemployed for more than twelve months should get paid their benefits for up to a year. Huge employers like Tesco and local authorities would then be given an incentive to employ those who are often least employable, opening the world of work for them. Most of these measures would pay for themselves by cutting benefits or increasing tax revenues. Only by such imaginative measures will we get a job-rich recovery that will benefit young and old alike. Anthony Browne is a board member of theCityUK [email protected]
THE BANK of England’s chief dove, Adam Posen, yesterday urged authorities across the G7 to throw themselves into a last ditch programme of quantitative easing, designed to stimulate growth. “Additional monetary stimulus is the last line of defence for the advanced economies today, and G7 central banks should purchase more
assets if we are to have any hope of our economies ever catching up,” Posen said. The American economist has long been a lonely voice on the Bank’s monetary policy committee, calling for an extension of QE, although some colleagues appear to be on the verge of supporting him. “The evidence is clear that the Bank’s and the Fed’s asset purchases had a positive significant effect,” Posen claimed in a Reuters opinion piece.
American private sector employers added 91,000 new jobs this month after expanding payrolls by 114,000 in July, the latest ADP report announced yesterday. While there are often gaps between the ADP data and official figures, the news provided some hope that businesses had not pulled back hiring amid recession fears.
Factory gains slow in the US Growth in factory activity in the US Midwest slowed just a bit in August, according to the latest ISM figures from Chicago. ISM said its business barometer fell to 56.5, the lowest since November 2009, from 58.8 in July. But the reading was above expectations and indicated that activity continued to grow.
High street sales dip in Germany German retail sales slipped by 0.2 per cent in July from the previous month, official data showed yesterday. Yet seasonally adjusted, sales were flat, beating the expectations of economists.
Rising unemployment and steady price British mortgage sales pressures suggest ECB could cut rates decline across the board EUROZONE annual inflation was unchanged in August while the number of people without jobs grew, data showed yesterday, adding to expectations that the next ECB interest rate move could be a cut rather than a hike. EU statistics office Eurostat said inflation in the 17 countries using the euro was 2.5 per cent year-on-year in August, the same as in July, as expect-
ed by economists. The European Central Bank wants to keep inflation below but close to two per cent, and economists had been expecting the bank to raise interest rates a third time this year to 1.75 per cent from 1.5 per cent to stem price pressures. Eurostat said unemployment was 10 per cent in July, unchanged from an upwardly revised June rate, which was initially reported at 9.9 per cent. But the number of unemployed in the Eurozone rose by 61,000 in July
against June to 15.757m. “The latest data and surveys fuel belief that the ECB’s ultimate next move may actually be to trim interest rates although it is likely to need sustained Eurozone economic weakness to... do a U-turn,” said Howard Archer, economist at IHS Global Insight. Fuller data will be published on 15 September. “We think the stabilisation was the combined result of a decline in energy price inflation and a rise in the core inflation rate,” said ABN Amro economist Aline Schuiling.
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EUROZONE ECONOMY BY HARRY BANKS
HOUSING
MORTGAGE sales in the year to April sank to their lowest rate since the Financial Services Authority (FSA) began gathering the figures in 2005, it emerged yesterday. “Overall, mortgage sales declined by seven per cent from 2009-10 to 201011,” the FSA said. The decline was across the board, with sales of mortgages to first-time buyers, re-mortgagers and home movers all falling in 2010-11 compared
to the previous year. Fixed rate mortgages continued to be most popular for borrowers, yet their proportion of the market slipped from 63 per cent to 53 per cent. “Initial rates on fixed interest rate mortgages have been consistently higher than variable rates but the gap is shrinking,” the report said. The proportion of mortgages with advice also fell sharply, from 74 per cent in the second quarter of 2010 to 68 per cent in the first quarter of this year.
20
News
CITYA.M. 1 SEPTEMBER 2011
Global warming agenda to hit living standards MATTHEW SINCLAIR
L
OOKING at the scale of the fiscal correction needed, does anyone seriously think that a major new burden on the households who rely on benefits the most is remotely affordable?
Politicians are clinging to their climate change policies but that is going to become increasingly untenable as the costs mount. Citigroup expect that in order to meet environmental targets, €229bn (£200bn) will need to be invested in Britain’s energy sector alone. Paying for all that investment will take higher profits and higher prices. They believe it will require a 52 per cent increase in dual fuel bills above inflation. The government thinks it can avoid putting more pressure on families by improving energy efficiency. But someone needs to pay for all that investment. Citigroup says that even with energy efficiency gains there
The Square Mile’s event of the year.
will be a 35 per cent increase in bills, and that’s before paying for the insulation work which could offset the savings. It is no accident that cutting emissions is expensive. Ever since the Industrial Revolution, growth has been associated with using fossil fuels more and emitting more carbon dioxide. While we get more efficient over time, and can try to accelerate the process, cutting emissions too quickly will almost certainly mean cutting living standards. The government makes it worse by picking losers. It insists large shares of the emissions cuts have to come through renewables and have to happen by
2020. Therefore, there isn’t time for relatively low cost options like nuclear and we have to rely on offshore wind. With offshore wind dependent on £90/MWh subsidies that means higher prices. Electricity from conventional gas plants costs half as much. They then give the least economic sources of power the most in subsidy, so solar power can get over £400/MWh. Benefits for poor and elderly households are the biggest items in the government’s budget. Higher energy bills will make it much harder for them to stomach the long term fiscal adjustment that the country needs. Industry will also suffer. Energy intensive sectors like steel, alumini-
um and chemicals employ tens of thousands of workers. They won’t stand a chance if energy prices rise sharply here and not in other industrialised countries. Some companies are making fat profits right now from climate policy. But that won’t last. Rising profits and rising prices will mean a backlash. The only question is whether we get an early reversal of this failing agenda rather than something much more self-destructive like a windfall tax. That will depend on whether the public know what is going on. Matthew Sinclair is the Director of the TaxPayers’ Alliance and the author of Let Them Eat Carbon, published by Biteback Publishing, price £9.99
Aer Lingus upgrades full year outlook ▲
AVIATION BY KASMIRA JEFFORD
IRISH airline Aer Lingus saw a surge in second quarter profits but blamed the effects of industrial action by its cabin crew for overall losses in the first half of the year. The airline, which is owned in part by the Irish government and Ryanair, posted an operating loss of almost €28m (£24.6m) in the year to 30 June compared with €19m last year. Following a miserable first quarter when the group made a €15m loss from cabin crew disputes, the second quarter was more positive, with operating profits rising to €25.9m from €18.8m a year earlier. “While we wont reach the same profit levels we reached in 2010 they will certainly be above what we were expecting in the first quarter,” chief operating officer Stephen Kavanagh told City A.M.
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ANALYSIS l Aer Lingus Group PLC € 0.80
0.64
31 Aug
0.75 0.70 0.65 0.60 0.55 Jun
Jul
Aug
31 Aug
Swift hit with £8m penalty for layering ▲
For more information, contact Jo Pead I 020 8267 4043 I [email protected]
Passenger numbers were up by 8.3 per cent in the second quarter whilst the yield or fare per passenger increased 6.6 per cent. The group said that while economic conditions in Ireland “remained challenging”, it was confident that a pickup in bookings and strong trading prospects meant it would recover to post a better than expected full-year operating profit.
ENFORCEMENT
THE FINANCIAL Services Authority has slapped Swift Trade with an £8m fine for market manipulation, a decision the now-dissolved Canadian firm is appealing. Under new powers intended to crack down on market abuse, the FSA revealed in May that it planned to fine Swift before any appeals were complete. This is only the second time the FSA has used this power. The watchdog said Swift used manipulative trading known as “layering”, which involves placing large orders on one side of the London Stock Exchange order book, to give
the appearance of high demand. The FSA said Swift then took advantage of such price shifts in a number of LSE-listed stocks before cancelling the original large orders. It estimates that Swift made a profit in excess of £1.75m through the trades in 2007. Swift Trade has lodged an appeal with the Upper Tribunal, which has powers to uphold, vary or cancel the FSA fine. Peter Beck, chief executive of Swift in 2007, said earlier in the week that he expects the tribunal hearing to take place in spring 2012. Judicial review proceedings are also ongoing.
News
CITYA.M. 1 SEPTEMBER 2011
CITY MOVES | WHO’S SWITCHING JOBS The European equity boutique with £1.1bn of assets under management has appointed Edward James, formerly head of operations at Octopus Investments, as chief operating officer. Prior to Octopus, James worked at Euroclear, where he led the firm’s expansion into the UK fund processing model and managed the purchase of EMXCo, and at Gerard Asset Management, where he was part of the management team that restructured the business to enable its sale to Barclays Wealth.
Drax The board of Drax Group has appointed Paul Taylor as an executive director, in the capacity of retail and trading direc-
tor. Taylor, who joined Drax in July 2005 as head of trading, rising to director of retail and trading, is a member of the company’s executive com-
To appear in CITYMOVES please email your career updates and pictures to [email protected]
mittee and chairman of the group’s electricity supply business, Haven Power Limited.
Fairfax The stockbroker has appointed Stuart Gledhill, previously of Panmure Gordon and BDO Stoy Hayward, to its equities corporate finance division.
RBC Capital Markets
Chase Manhattan Bank, also joins as a director and high yield analyst.
Solutions as institutional sales director.
IGF
The law firm has appointed Philippe Thomas, fomerly a partner at Hogan Lovells, as a partner in its employment law practice in Paris. Thomas specialises in advising on all aspects of French employment law.
The commercial finance company has appointed John Offord as regional sales director. Offord previously ran his own broking and consultancy business before joining Ultimate Finance as regional director.
F&C
The investment banking arm of Royal Bank of Canada has appointed Christiane Schuster, formerly of MF Global, as a managing director and head of non-investment grade credit sales and trading. Steven Chapman, formerly of Lehman Brothers and
The investment manager has made two hires to its UK institutional sales team, based in London. Simon Bentley joins from UBS Global Asset Management as client director and Simon Mooney joins from Psolve Asset
SPECIALISTS IN GLOBAL PROFESSIONAL RECRUITMENT
BEST OF THE BROKERS 547.00
p
31 Aug
650
ANALYSIS l Shire PLC 2,100
1,987.00 31 Aug
p
Artemis Rosanna Burcheri will complete the global select team at Artemis Investment Management when she joins on 3 October. Burcheri will join from FrontPoint Management, where she is a partner and pan-European fund manager.
+44 (0)20 7092 0053 morganmckinley.com
2,050
13 12
550
1,800
11
1,850
10
1,800 Aug
31 Aug
14 ¤
2,000
500
12.29
ANALYSIS l Ferragamo
600
Jul
Dechert
To appear in Best of the Brokers email your research to [email protected]
ANALYSIS l Mondi
Jun
in association with
Edited by Harriet Dennys
Argonaut Capital Partners
21
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MONDI
SHIRE PHARMACEUTICAL
FERRAGAMO
Citi maintains its “buy” rating on the South African London-listed paper producer, but lowers its target price from 770p to 740p to reflect its revised earnings forecasts. The broker reduces its pre-tax earnings expectations by four to 18 per cent for 2011-12, due to the demerger of MPact, share consolidation and lower global growth expectation. Citi’s South African Rand target price remains unchanged at ZAR90 (790p).
UBS reiterates its “buy” rating on the pharma group, and maintains its target price of 2,380p. The broker sees Shire’s attention deficit hyperactivity disorder (ADHD) franchise as outperforming the market, with both its Adderall and Vyvanse market share boosted in recent months, despite the launch of generic Concerta as a rival to the latter. Delays to rival Genzyme’s Fabrazyme could mean an upside of six to seven per cent to 2012-13 earnings.
JPMorgan Cazenove rates the Italian luxury goods group as “neutral” with a target price of €12.70, after the company’s second quarter results call highlighted strong like-for-like trends and robust trading. The broker has raised its EBITDA margin forecasts for 2011 to 18 per cent from 17.2 per cent. Full-year profits before tax are also upgraded by 10.7 per cent to €141.5m, increasing the earnings-per-share forecast for the year by 5.4 per cent.
FTSE 100 ends August on a Wall St edges into high despite economic fears positive territory THELONDON REPORT
B
RITAIN’S top share index climbed 2.4 per cent yesterday as poor economic data in Britain and abroad fuelled expectations of further economic stimulus but it still recorded the worst monthly performance since February 2009. The benchmark FTSE 100 index closed up 125.87 points or 2.4 per cent at 5,394.53, on the final trading day in August. The index, however, was down 7.2 per cent on the month in which the US lost its triple-A credit rating. Without the final day surge, August could have been the FTSE’s worst month since the collapse of Lehman Brothers in 2008. Throughout August, worries over the health of the global economic recovery and the lack of unity shown by governments worldwide in tackling the slowdown have dented investor appetite for riskier assets such as equities. “With fiscal policy nowhere, investment bankers are being forced to take on the role of sorting out the economy because politicians can’t,” said Louise Cooper, markets analyst at BGC Partners.
Yesterday’s economic data continued to fall foul of market expectations as UK consumer confidence fell to its lowest level in four months in August. Analysts at Exane BNP Paribas became the latest to cut their world GDP forecasts, reducing global growth estimates to just 3.8 per cent for 2011 and 3.7 per cent for 2012. The troubling data and downgrades are concerning policymakers and the minutes released on Tuesday from the most recent Fed board meeting indicated several policymakers backed further monetary easing to support growth. “What we learned from the minutes was that ‘a few members’ had wanted even more aggressive action at the August meeting, but accepted the language change as a ‘measured’ step in that direction,” analysts at RBS said. Further quantitative easing would likely lead to lower interest rates for longer, which tends to spur lending, spending and economic expansion. Lower rates also suppresses appetite for other asset classes such as cash and bonds, and fuel demand for riskier assets such as equities, with smashed down mining and oil and gas shares being picked up on the cheap. Thomson Reuters Datastream showed the FTSE 100 carrying a oneyear forward price-to-earnings of 9.9, against a 10-year average of 14.1.
Commodities trader Glencore rose 5.5 per cent, while global miner Xstrata added 5.2 per cent. Building supplies firm Wolseley climbed five per cent in light volumes as Exane BNP Paribas raised its rating on the firm to “outperform” on valuation grounds, but in the same note cut its rating and earnings estimates on the European building materials sector on concerns over slowing growth. Elsewhere, Smith & Nephew, the maker of artificial knees and hips, rose 4.9 per cent, as long-standing bid talk was reheated with US rivals Stryker Corp and Biomet mentioned in press reports as potential suitors. On the downside, British Land shed 0.9 per cent after double-downgrades for both by Morgan Stanley in a cautious review of the European real estate sector. Schroders dropped as Citigroup downgraded its rating for the firm to “hold” from “buy”.
ANALYSIS l FTSE
5394.53
6,200
31 Aug
6,000 5,800 5,600 5,400 5,000 4,800
22 Jun
25 Jul
23 Aug
THENEW YORK REPORT
U
S stocks closed out the worst month in more than a year on an up note yesterday, with sharp gains in the last several days still not enough to repair the damage from a US credit downgrade and fears of a slide back into recession. Sentiment turned dramatically in recent days on expectations the Federal Reserve will again intervene to support the economy. With yesterday’s gains, the Dow was back in positive territory for 2011. Banks led a late-day surge, helping to extend a four-day rally, followed by industrial shares. JPMorgan Chase rose 1.3 per cent to $37.56 while Caterpillar Inc was up 1.3 per cent at $91.00. Minutes from the most recent Fed policymakers’ meeting released on Tuesday that indicated several Fed members favored more monetary easing bolstered the appetite for equities. “The market has been somewhat schizophrenic lately, but the idea of more stimulus lets you put a rosy spin on everything,” said Steve Sosnick, equity-risk manager at Timber Hill/Interactive Brokers Group.
The Dow Jones industrial average finished up 53.58 points, or 0.46 per cent, at 11,613.53. The Standard & Poor’s 500 Index was up 5.97 points, or 0.49 per cent, at 1,218.89. The Nasdaq Composite Index was up 3.35 points, or 0.13 per cent, at 2,579.46. The S&P 500 rose in seven of the past eight sessions for total gains of 8.5 per cent, led by sectors tied to economic growth. For August, though, the S&P fell 5.7 per cent, its worst month since May 2010. The Dow fell 4.4 per cent in August while the Nasdaq slumped 6.4 per cent. It was the fourth straight down month for all. Equities yesterday were volatile late in the session, turning briefly negative before snapping back into positive territory. Still, the volatility did not compare to early in the month, when Wall Street was marked by massive swings of more than three per cent. “The market has no conviction one way or the other, and the low volume exaggerates all the moves we get,” said Carl Kaufman, who helps manage just under $2bn at the Osterweis Strategic Income fund Tech shares weighed on the Nasdaq, with Apple off 1.3 per centand chipmaker Nvidia Corp down 2.7 per cent. Industrial stocks were among the top gainers, with the S&P industrials index up 0.7 per cent. Honeywell International gained 1.1 per cent.
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CITYA.M. 1 SEPTEMBER 2011
Wealth Management | Funds
Dog funds draining investor wealth It is time market participants demanded cheaper and better funds from the industry, writes Philip Salter
E
VEN in the boom years, sticking with expensive fund managers that consistently fails to even beat its index is careless – during the bust years it is unforgivable. Yet Bestinvest has revealed in its biannual Spot the Dog report that £23.16bn of retail investors’ money is currently being misallocated in 94 underperforming dog funds, a 74 per cent increase since the last report in November 2010. Dog funds are defined as funds that have underperformed their benchmark in each of the last three years and cumulatively underperformed it by at least 10 per cent over the past three years.
OVER THE ODDS Adrian Lowcock of Bestinvest says: “Once again it’s clear that the industry has little appetite to address abject underperformance,” adding “too few investors are willing to vote with their feet. Until they do,” he says, “it’s doubtful whether fund managers will ever be sufficiently motivated to clear up after their dogs.” Besides their underperformance, Bestinvest also reveals that investors have paid £348m in management charges over the last 12 months to these dog funds, equating to well over £1bn in charges over the three years upon which the report is based. As Patrick Connolly of AWD Chase de Vere says: “Many actively managed funds consistently underperform their benchmark index and investors unwittingly pay high charges for this poor performance.” The Retail Distribution Review (RDR) might push things in the right direction – despite the risk that RDR will price some investors out of the market for financial advice, it should also make charges more transpar-
ent, bringing down costs.
WHEN ACTIVE IS PASSIVE – OR WORSE Even if your fund isn’t a Bestinvest dog, you could still be better off moving your cash. Jason Whitcombe of Evolve questions much of what passes for active management, describing many active funds as closet trackers that hug the index. Whitcombe asks: “Given that most actively managed funds fail to beat the index, is there any point in chasing alpha if the odds of actually achieving it are stacked against you?” He adds: “High charges leave you on the back foot from day one. In fact, what is fundamentally wrong with getting the return, beta, that capitalism provides us?” For passive investment in the UK, Danny Cox of Hargreaves Lansdowne recommends HSBC’s All Share tracker, which charges 0.25 per cent, while Connolly and Lowcock both commend HSBC’s FTSE100 Index and Legal & General’s UK Index. Lowcock also puts forward the iShares FTSE100 for consideration. When it comes to the US, Connolly uses Legal & General’s US Index and HSBC’s American Index. Lowcock also mentions the latter, as well as the iShares S&P500 ETF and for emerging markets recommends the iShares MSCI Latin America ETF. However, Connolly cautions that it “is also important to understand that even for a passive fund, cheapest is not always best.” He says: “Different passive funds use different techniques to track their target indices and if their strategy is not effective then a passive fund can potentially underperform or outperform significantly.” As always, thorough research or professional advice is a must
Some funds are a sink estate for your hard earned cash Picture: GETTY
ACTIVE’S ADDED VALUE Although the Spot the Dog report illustrates only too well that investors aren’t always getting what they pay for, there are circumstances when a highly paid active manager is worthy of their fee. Due to its size, the US market is more efficient than most, so US large cap fund managers find it hard to beat the index. In contrast, Lowcock says small caps and Asian and emerging market funds are particularly suited to active management. “There are some excellent and respected managers who add real expertise to our investment planning,” claims Stephen Barber of Selftrade. Cox is also a believer in paying for good fund management and is happy to pay standard fees for that. He recommends Invesco Perpetual Income fund (1.5 per cent
fees) and Aberdeen Emerging Markets fund (1.75 per cent fees). On active funds, Lowcock suggests the Schroder UK Core, adding that active emerging market funds are engaged in markets “where full cost active managers have been able to demonstrate good value.” At the end of the nineteenth century, Oscar Wilde in The Picture of Dorian Gray censured: “Nowadays people know the price of everything and the value of nothing?” One hundred and twenty-one years later many people appear to know neither the price nor the value of their investments. Step one: get your diminishing wealth out of dog funds and move it into cheaper passive funds. Step two: research and move some investments into costlier funds if and when you are confident that the manager is deserving of the fees. But as Lowcock cautions, the most important thing is not to blindly follow any manager.
FIVE FUND MANAGEMENT GROUPS WITH MOST DOG ASSETS UNDER MANAGEMENT
Management Dog fund assets under % in dog mangement (£bn) group funds
Main culprit
Manager
Assets under management (£bn)
Fidelity
3.4
22
Fidelity European
Sam Morse
3.1
Newton
2.1
19
Newton Int Growth
Johnathan Bell
1.3
BlackRock
2
29 BlackRock UK Dynamic Mark Lyttleton
1.3
Schroders
1.7
12 Schroder UK Mid 250
Andy Brough
1.6
Scottish Widows
1.5
27
Alastair Reynolds
0.3
Source: Bestinvest
Emerging Markets
CITYA.M. 1 SEPTEMBER 2011
Wealth Management Institutional FX
23
|
Carry trading geysers a risk for Iceland Dangerous currency flows could erupt again, writes Craig Drake
O
N the surface of things, Iceland appears to be on the road to recovery. However, trouble could be bubbling under the country’s crust. On 17 August, it took the decision to raise its main interest rate by a quarter point to 4.5 per cent, the first such move since the country’s banks collapsed in 2008. But just how wise is this move? With this increase in interest rates, the Icelandic central bank has stated that it wishes to revive the carry trade, whereby institutions borrow in low yielding currencies and carry the funds into higher-yielding markets such as the Icelandic krona. There are a number of reasons why this should set alarm bells ringing for investors. In the years preceding the 2008 implosion of the Icelandic banking system, its financial sector bloated massively as the Icelandic government artificially raised interest rates in order to encourage investors to borrow in cheaper sterling, dollars and euros and dump this money into Icelandic assets. But this was not without risk. When the Icelandic krona eventually depreciated against these foreign
Fiat currencies can surge out of control Picture: GETTY
currencies, some investors were hit with sizeable losses. So, with other countries also engaging in this why was the kroner a more attractive target than others? At its peak in March 2008, monthly inflows of kroner investments hit 1.2 trillion (£6.5bn), despite Iceland’s GDP for the entire year being only 1.5 trillion kroner. But despite investors knowing they were playing with fire, Iceland had a big draw compared to other high yielding assets – implicit agreements by the Icelandic government and the IMF that they would prop up any fail-
ing bank and so the perceived exchange rate risk was reduced.
HERE WE GO AGAIN With Iceland’s credit default (CDS) swap rates so low, just 3 years after its banking sector crumbled into the tundra, it appears that we are seeing a return of the under-pricing of risk which allowed Icelandic banks to rack-up foreign currency denominated liabilities and drove speculation. “With 5-year CDS spread of 67 basis points between the EU average and Iceland, on the surface it can appear to be
the better option,” says Brenda Kelly, market strategist at CMC Markets. “You have to wonder if European banks and other financial institutions see that as a sufficient margin given recent history?” Iceland’s bankruptcy wreaked havoc on the Icelandic economy as well as damaging the economies of the UK and others. But as the authorities set out to actively encourage currency speculation again, they appear not to have learnt from the dangers of government intervention, and the damage that can be caused by the manipulation of monetary systems.
24
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Business Features
25
| Careers
New approaches: network your way to the top in a private members’ club Donata Huggins asks insiders which exclusive haunts are best for building career enhancing contacts MORTON’S, MAYFAIR
THE IVY, SOHO
EIGHT CLUB, BANK
TYPICAL MEMBER: Members are usually already well connected. Duncan Bannatyne, Andrew Lloyd Webber and the BBC’s Mark Thompson have been spotted there recently.
TYPICAL MEMBER: Eight Club is the home of mainstream business people. “More banker types than entrepreneurs,”says one member.
TYPICAL MEMBER: The Mayfair home for hedge funders. Attracts “the older, Annabel’s crowd and younger women,” says one visitor.
STYLE: The management are hell bent on privacy. No cameras or phones. Membership is through recommendation only.
STYLE: A stylish multi-purpose venue. The management are happy for members to use the place for work and play.
STYLE: Competitively small and quiet for a private club. Prides itself on exclusivity.
EASE OF NETWORKING: Great speaker events give you access to big-name celebrities.
EASE OF NETWORKING: “It’s not easy to strike up a conversation with a stranger, but you can always take a guest there on a Friday night and get a seat at the bar.”
EASE OF NETWORKING: The small setting and calm atmosphere is great for having those “get to know you” chats. The flashy decor helps if you’re trying to impress.
HOME HOUSE, MARYLEBONE
BATTERY CLUB, CANARY WHARF
SHOREDITCH HOUSE , SHOREDITCH
TYPICAL MEMBER: A down-to-earth habitat for the super successful. “It attracts more hedge fund managers than traders,” says one member.
TYPICAL MEMBER: The Canary Wharf home for those who work in finance.
TYPICAL MEMBER: Come here to network with uber-trendy media types. An insider says the founders of successful startups like MindCandy and Moo are attracted to it.
STYLE: Utterly unpretentious. Everyone is welcome – even children and dogs.
STYLE: Riverside views, classic cocktails and a more conservative design gives this place a relaxed but relatively formal feel.
EASE OF NETWORKING: “It’s not hard to strike up a conversation with strangers. The relaxed atmosphere and regular events make it easy to meet people.”
EASE OF NETWORKING: This calm, inoffensive space has the potential to take the edge off more difficult conversations.
INSTITUTE OF DIRECTORS, PALL MALL
STYLE: “Quite pretentious. They don’t want bankers as members. If you work in finance think carefully about how to describe yourself on your application form.” EASE OF NETWORKING: Shared trendiness brings people together in this haunt.
THE LONDON CAPITAL CLUB, THE CITY
OTHER IDEAS | CLUBBING IF YOU prefer the idea of taking your contacts to a different place every time you see them, you should consider taking them clubbing, says Tim Badham, the director of concierge service Innerplace. “Clients love to be entertained in the right sort of club.” Here are Badham’s top three.
BUNGALOW 8. Inside St. Martin’s Lane Hotel, this exclusive night club attracts plenty of high-net worths.
TYPICAL MEMBER: Full membership is strictly for company directors. STYLE: “It’s more of a campaigning, educational organisation. It just so happens to offer you access to its stunning premises and bar.” EASE OF NETWORKING: The management actively encourage it: regular events and workshops offer plenty of opportunities for you to meet other directors.
TYPICAL MEMBER: Old school bankers. Angela Knight is on the board and BCG’s media spokesman David Buik has been spotted there. STYLE: Seriously old fashioned. EASE OF NETWORKING: Great if you want to socialise with the older generation. Absolutely no wacky modern art or drum and base.
THE BOX. Simply the coolest place to go in Soho at the moment if you’re a City boy or girl. MADDOX. “The ideal place to entertain clients late into the evening,” says Badham. Contact: Innerplace on www.innerplace.co.uk
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Lifestyle
CITYA.M. 1 SEPTEMBER 2011
| Technology
Gadgets, technology and luxury on the waves PUTTING THE SUPER IN SUPERYACHT
Stay in touch on the move
Watch out Roman, there’s about to be a new superyacht in town – literally. The Big Fish, a remarkable boat that’s designed equally for adventure on the high seas as it is for sitting in the marinas of Monaco and Mustique, will be appearing on the Thames tomorrow, mooring at Butler’s Wharf next door to HMS Belfast for a few daysto entice prospective buyers. As well as every kind of luxury amenity, including anti-slip granite decking, a gym, an audiovisual atrium with a 22-foot high video wall and Jacuzzis and bars galore, it’s kitted out with its own submarine and scientific lab. If you haven’t got the £27m or more needed to buy it, you can rent it for a week – that only costs around £120,000. www.mybigfishcharters.com
A good Bluetooth headset is the key to remote working, writes Timothy Barber
H
AVING a Bluetooth headset permanently stuck in your ear is pretty much at the epicentre of uncool. However, if you’re someone who travels a lot, at some point you have to accept that it’s a necessity. Plug-in headphones with a microphone attachment really don’t cut the mustard if you’ve important calls to make, while Bluetooth technology has now evolved to the point where sound quality, signal strength and comfort can be pretty well aligned. Here are the top picks for making that all-important conference call from wherever you happen to be.
Plantronics Discovery 975
Etymotic EtyBLU2
The extended boom-mic on this headset and the brilliant sound quality from headphone specialist Etymotic makes it a very good option for using if you work in noisy places – you won’t have to shout to make yourself heard. £87.29 www.amazon.co.uk
A simple, smart design meets ease of use in this headset that covers all the basis. Dual mics capture the voice and cancel background noise, and there are three levels of wind noise protection. £69, www.amazon.co.uk
GAMING HEAVEN IN A NOTEBOOK It looks like one more, common-or-garden laptop, but Samsung’s newly-announced notebook is designed specifically for gamers. The Series 7 Gamer is stuffed with features gaming fans will love, including a 3D 17.3 inch HD display (it shops with 3D glasses) and an Intel Core i7 Quad Core processor for speedy performance. There’s also an extra 8GB of flash memory on the motherboard. £1,499 www.samsung.co.uk
Bose Bluetooth
Jawbone Era
California’s Jawbone specialises in high-performing Bluetooth sets that don’t actually make you look like a complete div. The Era mixes HD audio quality with motion technology – shake or tap it to operate it. £99.99 www.jawbone.com
You’d expect something pretty tasty from the leading hi-fi specialist – and you’d be right. It can read surrounding ambient sound and adjust its volume level accordingly, while the microphone filters out noise to make your voice clearer. £129 www.bose.co.uk
THE NEW SONY RANGE AT A GLANCE STEVE DINNEEN
EREADER WITH ENHANCED 1. 6”TOUCHSCREEN
E-readers from Sony have always looked the part; the problem is nobody buys them. This version is the lightest reader in the world, again using E-ink paper. It will offer connectivity to public libraries in the US but the decider will be price.
TABLET P MULTITOUCH 2. SONY FLIP-SCREEN
Sony’s most radical new release attempts to reinvent the wheel with a duel touch-screen folding tablet. Its appearance is part Nintendo DS and part iPad, and while watching films on it would be tough, it looks like a good bet.
L SERIES 3D TOUCHSCREEN 3. VAIO DESKTOP 4. VAIO S SERIES The Vaio L Series touchscreen desktop PC is a series of great ideas thrown into a single box; at once brilliant and unusable. And now it’s in 3D! It will be great to watch movies on but still struggles to justify its existence.
The new, lightweight S Series comes with a 15-inch screen and a slimmer design, in a somewhat familiar aluminium hue. It’s a powerhouse of a laptop, not cheap but a real contender at the premium (expensive) end of the market.
NOISE CANCELLING 5. MDR-NC200D HEADPHONES Need to get away from the world for a while? Sony says these headphones can cancel out 98.2 per cent of ambient sound, using AI to scan your surroundings and block out the noise. Expect to pay upwards of £200.
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Lifestyle | Food & Drink
CITYA.M. 1 SEPTEMBER 2011
Das Kapital: only this time, it’s erotic, says LSE fellow Zoe Strimpel is piqued but let down by a curiously flimsy book HONEY MONEY: THE POWER OF EROTIC CAPITAL BY CATHERINE HAKIM Allen Lane, £20
We’re starved of a holiday and it’s driving me up the wall Business has been bad for my boyfriend and we've had to cancel our holidays all year. I'm at my wits’ end – especially now that everyone's coming back all rosy and fresh from their August holiday. I'm feeling a lot of resentment. What should I do? Judy, IT, 31
hhhii THE best way to create a stir is to publish a book that claims that sex sells, and should do so more. Better yet, embed the claim in an argument for women to think and do more – not less – about their appearance and sexual appeal. Then, serve it up festooned in as much statistical evidence as you can get your hands on. If you’re Dr Catherine Hakim, a senior research fellow in sociology at the London School of Economics and an expert on the labour market, this is easy. You’re rolling in evidence and statistics, and in research methods and other ways to make a point seriously. But Hakim’s book shows – yes, with undeniable panache – that if a point is weak in the first place, no amount of statistics will be able to prop it up. Hakim’s argument that women should use (and be allowed or encouraged to use) their too-ignored sexual assets (“erotic capital”) more in the professional sphere – from the office to the brothel – is not agreeable to many. But my problem with the book is less political and more intellectual. Because while beautiful people are more popular and admired and thus appear to have an easier life, there is another side to all this that remains unexamined here. Namely, that as much as it can create wealth and happiness, beauty and a preoccupation with appearance can ruin women’s lives, professionally and sexually. It might make them more prone to harassment at work; or have more trouble being taken seriously. They may become obsessed with staying young and plastic surgery, ending up with very low confidence. And many employers may well prefer a woman to be welldressed, but to have skills that trump the more ethereal mixture Hakim describes as erotic capital (sexual appeal, charm and so forth), like intelligence. The other big point of the book is what Hakim calls the “sexual deficit”. This is another obvious idea, which says that men are more hungry for sex than women overall. But if men find women’s sexual availability in deficit, why should women bend over backwards to look great? Wouldn’t men be less choosy? Hakim also makes the point that men are increasingly part of the erotic capital dynamic as their appearance
VEXED IN THE CITY SOLVING YOUR WORK-LIFE PROBLEMS
I
becomes a greater source of concern and importance in the workplace. But then, why do most men in high-powered corporate roles look distinctly unattractive? (American politicians are a different category). On one hand, Honey Money is “substantial” – published by Penguin’s serious, sciency imprint, Allen Lane. On the other, it lacks the intellectual rigour such a bald thesis would require in order to take off. I wish the argument had been better furnished – with statistics that really showed you something new – as Hakim’s point is a juicy one, whether you agree with it or not.
SLEEPING WITH THE ENEMY: COCO CHANEL BY HAL VAUGHAN Chatto & Windus, £20
hhhii THE American, Paris-dwelling historian Hal Vaughan has it in for Coco Chanel – and the result is a refreshing, controversial book. In it, Vaughan asserts that the queen of French haute couture was a
rabid anti-Semite, a secret agent for the Germans and an acquaintance – if not friend – of Goebbels and Goering, with whom she shared the Ritz in Paris throughout the occupation. As Vaughan points out, most aspects of Coco’s life have been biographised, from her relationship with composer Igor Stravinsky to her vision of chic boy-like minimalism and the little black dress. Well, the mysteries and cautious language surrounding her wartime activities have just had a bucket of cold water poured on them. Through a good trawl of evidence, Vaughan makes (among others) the following assertions: Chanel was a registered German spy (Agent F-7124, code name Westminster); she traded missions for favours; acted as cover for other agents and tried to steal from her Jewish partners. Explosive stuff, but if you would like another view of the woman behind those iconic, raggedy-looking cloth suits – then you should pick up this well-written, well-researched and easy-to-read book. It also makes you wonder what else has been kept hushed up about the activities of the chic French during the war.
Sexual allure makes the financial as well as the rest of the world go round, says Hakim.
DON’T blame you: holidays aren’t just a break from work, they're a vital chance for couples to reconnect. There is no doubt, though, that the problem is made worse by the sight of all your friends returning from their summer holidays or talking about heading off on a late-summer trip. While your partner may feel as though he has no business heading off to sunny climes when money is hardly flowing and he needs to work as much as possible, I think he may need a gentle but firm conversation in which he is told – to put it frankly – that he has the wrong end of the stick. There are a few things at play here. One: materially it's unlikely that taking one week off is going to make much difference to business. Especially in holiday season when many potential clients are also away. Second: he sounds like he's in a rut: professionally and mentally. Getting away could be a very valuable chance for him to get some fresh perspective that can also lead to better ideas at work and greater success. It could be the catalyst to get things moving at work. Third: what planet is he on? Technology makes working from abroad – Thai beach hut, Wyoming shack, Cornwall cottage – entirely possible (time zones aside). But I wouldn't encourage him to take work on holiday, rather to think of it as an emergency measure. If his head is buried in his Blackberry while you’re taking your hard-won few days together, that could lead to a proper explosion. Finally, put it clearly that your relationship will suffer (is suffering) without time to reconnect together. Offer to plan the holiday yourself, say you'll bear in mind his requirements or concerns such as needing wifi access, budget and so on, but don't forget to take your own desires into consideration. You deserve a holiday too! Don't despair: Spetember and October is a lovely time to go away – better temperatures, fewer tourists, less expensive. Even a four day weekend can help. Good luck and enjoy. Got a problem? Email [email protected]
OUT OF OFFICE ZOE STRIMPEL
BOOK NOW: EPICUREAN DREAM BRINGS TOGETHER THE VERY BEST
The kind of food you can expect at Hurlingham.
For a truly first-rate foodie affair, blot out 9 and 10 September in your diary. Quintessentially Epicure is a luxury food festival at the Hurlingham Club that will see some of the world’s most renowned chefs including Hèlène Darroze, Marcus Wareing, Brett Graham, Giorgio Locatelli and Pierre Hermé, along with top international gourmet producers and the
very finest wines and spirits from across the globe, together in one place. Two days of epicurean bliss guaranteed. 9 and 10 September, www.quintessentiallyepicure.com
ART MEETS FISH AT FORMAN’S SMOKEHOUSE IN EAST LONDON Forman’s Smokehouse Gallery (as in the Forman’s of smoked salmon fame) presents the “the FishWick Papers”, an exhibition of
works by 50 members of the studio East London Printmakers, inspired by the liveliness and colour of Hackney Wick and from Fish Island and the Smokehouse itself. Formans Restaurant will be open during the show and we recommend combining a trip with a bite of such delights as the London Cure smoked salmon and the likes of panfried sole, herb crumb and charred limefennel salad. Exhibition is 2-4 Sep, at Forman & Field, Stour Rd, London E3 2NT. www.formans.co.uk
Lifestyle | TV& Games
TERRESTRIAL
CITYA.M. 1 SEPTEMBER 2011
BBC1
BBC2
ITV1
CHANNEL4
CHANNEL5
6pm BBC News 6.30pm BBC London News 7pm The One Show 7.30pm EastEnders: BBC News 8pm CHOICE Watchdog 9pm Torchwood: Miracle Day 10pm BBC News 10.25pm Regional News 10.35pm Our War: 11.35pm FILM House of Sand and Fog: Drama 2003; Holiday Weatherview
6pm Eggheads: Quiz, hosted by Dermot Murnaghan. 6.30pm Eggheads: 7pm Coast: A journey along the south coast of England. 8pm Monty Halls’ Great Irish Escape: Monty goes fishing for blue sharks. 9pm Jig: The Great Irish Dance-Off: The 2010 Irish Dancing World Championships. 10.30pm Newsnight: Weather 11.20pm The World’s Most Expensive Paintings: 12.20am The Tudors
6pm London Tonight 6.30pm ITV News 7pm Emmerdale 7.30pm The Working Life – Life After Work: Tonight 8pm Emmerdale 8.30pm Coronation Street 9pm 9/11: Day That Changed the World: 10.45pm ITV News 11.15pm London News
6pm The Simpsons 6.30pm Hollyoaks 7pm Channel 4 News 7.25pm 4thought.tv 7.30pm Athletics: IAAF World Championships 2011
6pm Meerkat Manor 6.25pm OK! TV 7pm 5 News at 7 7.30pm How Do They Do It?: How sand is turned into wine glasses; 5 News Update 8pm CHOICE Croc Man; 5 News at 9 9pm New Cowboy Builders 10pm Celebrity Big Brother 11pm Celebrity Big Brother’s Bit on the Side 12am SuperCasino
SATELLITE & CABLE
1.40am Sign Zone: Countryfile 2.35am Sign Zone: Food Fighters 3.25am Sign Zone: Saints and Scroungers 3.55am-6am BBC News
SKY SPORTS 1
7pm Sky Sports News at Seven 7.30pm Live Premier League Snooker 11pm Time of Our Lives 12am Ringside 1am Premier League World 1.30am Premier League Snooker 5am-6am Ringside
1.10am BBC News 3.55am-6am Close
11.20pm Help! I Caught It Abroad 2: 12.20am The Zone; ITV News Headlines 2.20am The Working Life – Life After Work: Tonight 2.50am ITV Nightscreen 4.30am-5.30am The Jeremy Kyle Show
BRITISH EUROSPORT
BBC THREE
7pm Live International Football 9.45pm ESPN Kicks: Extra 10pm UFC Unleashed 11pm FIM Enduro World Championship 12am European Rallycross 12.30am ESPN Press Pass 1am Live College Football 4am UFC Unleashed 5am-6am FIM World Enduro Championship
7pm Top Gear 8pm The World’s Strictest Parents 9pm Edinburgh Comedy Fest Live 2011 10pm EastEnders 10.30pm Lee Nelson’s Well Good Show 11pm Family Guy 11.45pm Wilfred 12.05am Edinburgh Comedy Fest Live 2011 1.05am Lee Nelson’s Well Good Show 1.35am Comedy @ The Fringe 2.05am The World’s Strictest Parents 3.05am Sex, Lies and Gagging Orders 4.05am-5.05am Jamelia: Shame About Single Mums
SKY LIVING
E4
4pm-12.30am Live US Open Tennis 2am-4.30am Live World Championship Athletics
ESPN
SKY SPORTS 2
4pm Live US Open Tennis. Coverage of men’s and women’s second-round matches. 12am Live US Open Tennis 4am IAAF Athletix 4.30am The Rugby Club 5.30am-6am What’s Your Goal?
SKY SPORTS 3
7pm Criminal Minds 8pm Teen Wolf 9pm Britain & Ireland’s Next Top Model 10pm Criminal Minds 11pm Chick Fix 12am Psychic Sally: On the Road 1am CSI: Crime Scene Investigation 2.40am Maury 3.30am Nothing to Declare 4.20am Charmed 5.10am-6am Jerry Springer
6.30pm Golf 7.30pm What’s Your Goal? 8pm The Rugby Club 9pm Ringside 10pm European Tour Golf 12am Golf 1am The Rugby Club 2am Racemax 3am What’s Your Goal? 3.30am NFL: Total Access 4.30am-5am America’s Cup Uncovered
8pm CHOICE Country House Rescue 9pm The Killing 10pm Undercover Boss USA
11.05pm Seven Dwarves 12.05am Music on 4: 360 Sessions 12.35am Music on 4: Hollyoaks Music Show 1.05am Music on 4: Sounds from the Cities 1.30am My Name Is Earl 2am Live Athletics: IAAF World Championships 2011: Day seven from Daegu. 4.45am IAU Trail World Championships 5.10am-5.55am Countdown
COFFEE BREAK
SUDOKU
KAKURO
Place the numbers from 1 to 9 in each empty cell so that each row, each column and each 3x3 block contains all the numbers from 1 to 9 to solve this tricky Sudoku puzzle.
Fill the grid so that each block adds up to the total in the box above or to the left of it. You can only use the digits 1-9 and you must not use the same digit twice in a block. The same digit may occur more than once in a row or column, but it must be in a separate block.
7pm How London Was Built. The city’s landmarks. 8pm I Am Alive: Surviving the Andes Plane Crash 10pm Storage Wars. The buyers explore a labyrinth-like storage centre. 11pm Deep Sea Salvage 12am Pawn Stars 1am Storage Wars 2am Deep Sea Salvage 3am How London Was Built 4am Pawn Stars 4.30am Storage Wars 5am-6am Ancient Discoveries
7pm A Baby Story 8pm Kate Plus 8 9pm I Didn’t Know I Was Pregnant 10pm I’m Pregnant and a Hoarder 10.30pm I’m Pregnant and Maybe Having a Dwarf 11pm Hospital Emergency 12am I Didn’t Know I Was Pregnant 1am I’m Pregnant and a Hoarder 1.30am I’m Pregnant and Maybe Having a Dwarf 2am Hospital Emergency 3am Kate Plus 8 4am A Baby Story 5am Bringing Home Baby 5.30am-6am Test Tube Babies
DISCOVERY
SKY1
HISTORY
7pm Mythbusters 9pm American Loggers 11pm Surviving the Cut 12am Bear Grylls: Born Survivor 1am American Loggers 3am Deadliest Catch 3.50am Wildest Africa 4.40am How the Universe Works 5.30am-6am Destroyed in Seconds
LAST ISSUE’S SOLUTIONS QUICK CROSSWORD C P C R A B H O R N A D U L C A R D S E A T H R I O T I S H O R T L P P A L E S T N K I D E A L L
Y B A A T H R E R S P A I N C Y Y
A B O O R S S H A T L I N E N I T
Y Y
E N T I C E
9 3 7 2 5 7 9 6 1 3 5 4 1 1 4 2 2 7 3 6 9 7 7 5 4 9 8 5
5 3 8 4 1 2
7
28
17 24
12 19 15 34
10
11
11
20 18
27 11
8 6 1 3 8 2 7 6 9 4 3 5 7 1 6 9 5 4 2 3 8 1 4 2 9 6 9 1
4
32 7
9 18
10
33
10
14
3 1 2 5 6
9 8 7 6 5
4 1 3 1
SUDOKU WORDWHEEL The nine-letter word was FINANCIER
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16 16
8
CROC MAN CHANNEL 5, 8PM Shaun Foggett’s plans for a breeding programme suffer a setback when he comes to the conclusion that his male Siamese is actually a female specimen.
30
9 16
15 13
6
R E
R
A T
3
5
9
O
Y
17
21
D
22
P
Using only the letters in the Wordwheel, you have ten minutes to find as many words as possible, none of which may be plurals, foreign words or proper nouns. Each word must be of three letters or more, all must contain the central letter and letters can only be used once in every word. There is at least one nine-letter word in the wheel. 6 2 4 9 8
CHANNEL 4, 8PM Ruth Watson returns to Pentillie Castle hotel to find out if owners have followed her advice to run the property as a profitable business.
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WORDWHEEL
KAKURO
COUNTRY HOUSE RESCUE
7.30pm Futurama 8.30pm The Simpsons 9pm Trollied 9.30pm Wall of Fame 10pm An Idiot Abroad 11pm Law & Order 12am Danny Dyer’s Deadliest Men 1.50am Sun, Sea and A&E 2.40am Law & Order 4.20am Filth Files 5.10am-6am Oops TV
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BBC1, 8PM New series. Anne Robinson, Matt Allwright and Chris Hollins return to investigate more consumer issues and expose rogue traders.
QUICK CROSSWORD
17
23
WATCHDOG
DISCOVERY HOME & HEALTH
Copyright Puzzle Press Ltd, www.puzzlepress.co.uk
8
TV PICK
4am Meals in Moments 4.10am New Cowboy Builders 5am County Secrets 5.10am Wildlife SOS 5.35am-6am House Doctor
2.25am Skins 3.20am Glee 4.05am Accidentally on Purpose 4.50am-6am Switched
7pm Hollyoaks 7.30pm Friends 9pm The Big Bang Theory 9.30pm How I Met Your Mother 10pm Little Box of Horrors 10.30pm PhoneShop 11pm Beaver Falls 12.05am My Name Is Earl 1.05am How I Met Your Mother 1.30am Little Box of Horrors 2am PhoneShop
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ACROSS
DOWN
1 Condiment, sodium chloride (4) 3 Puts up (6) 6 Alleviate (4) 7 Mythical Greek hero who fought against Troy in the Iliad (4) 8 Preserve in vinegar (6) 9 Company that hires only union members (6,4) 14 Suitable to or usual for the time of year (10) 17 Coated with fat during cooking (6) 19 Banking system (4) 20 Open river valley (in a hilly area) (4) 21 Pleaded (6) 22 Contest of speed (4)
1 Look for (6) 2 Lone Star State of the USA (5) 3 Clairvoyance (inits) (3) 4 Harnesses (5) 5 Bulb, traditionally from Holland (5) 10 A person in general (3) 11 Musical composition for two performers (3) 12 Globe (3) 13 Earlier in time (6) 14 Roofing material (5) 15 Root vegetable (5) 16 Annoyance (5) 18 Informal term for a father (3)
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Sport
CITYA.M. 1 SEPTEMBER 2011
TIMELINE 9AM The day begins with wild speculation linking Bayern Munich winger Franck Ribery with a move to Chelsea and Napoli playmaker Marek Hamsik to Arsenal. Liverpool conclude the first significant deal of the day and confirm the arrival of Uruguay defender Sebastien Coates.
12AM
4PM Arsenal wait all summer to sign a defender and then two arrive in the space of an hour in the shape of Andre Santos and Per Mertesacker. Fulham bring in Czech full-back Zdenek Grygera and maintain an interest in Tottenham’s Alan Hutton.
10PM Craig Bellamy returns to Anfield on a two-year deal, while Peter Crouch arrives at the Britannia Stadium to rubber stamp his move to Stoke. Shaun WrightPhillips joins the Tony Fernandes fuelled revolution at QPR but a move for Sebastien Bassong is off as Spurs miss out on Gary Cahill.
11PM Arsenal beat the deadline and confirm the arrival of Mikel Arteta, while Bryan Ruiz to Fulham and Raul Meireles to Chelsea are late buzzer beaters.
Benayoun and Arteta arrive at Arsenal ▲
Birmingham’s Scott Dann is on his way to Blackburn. Liverpool continue to clear the decks by sending Joe Cole on a year-long loan to French champions Lille and Scott Parker finally completes his move to Spurs. Nicklas Bendtner’s proposed move from Arsenal to Stoke collapses.
London clubs leave it FOOTBALL BY FRANK DALLERES
ARSENAL manager Arsene Wenger underlined his new-found appreciation of experience when he finally completed late deadline day swoops for midfielders Mikel Arteta and Yossi Benayoun last night. Neither are the superstars that some fans might have hoped for after seeing captain Cesc Fabregas and midfield starlet Samir Nasri sold in recent weeks for a combined total close to £60m. But both, in common with the other three players Wenger has recruited since the weekend, share years of experience at the top level – something Arsenal’s callow youngsters who were thrashed 8-2 at Manchester United on Sunday lacked. Benayoun, 31, deemed surplus to requirements by Chelsea but with six seasons in the Premier League under his belt and the captain of Israel, has moved from Stamford Bridge on a season-long loan. Arteta, 29, who also has half a dozen campaigns in the English top flight to his name, signed a four-year contract at the Emirates Stadium after Everton accepted Arsenal’s £10m offer. Wenger failed in attempts to sign highly-rated French-based prospects Eden Hazard of Lille and Yann M’Vila of Rennes. The Gunners had earlier confirmed the arrivals of three more seasoned players in defenders Per Mertsesacker
Benayoun joined Arsenal on a season long loan from Chelsea Picture: PA
and Andre Santos, just a day after the signing of South Korea captain Chu Young Park. Mertesacker, who has 75 caps for Germany, called his £8m move from Werder Bremen “a dream” after signing a four-year contract thought to be worth around £80,000 a week. “Moving to London enables me to fulfil a dream and a further step in my career,” he said. “The Premier League has always represented a great challenge for me.” Wenger hailed the 6ft 6in former Real Madrid centre-back as “vastly experienced”. He added: “He is good on the floor and in the air. I believe he will be well suited to the Premier League and a tremendous asset to the team.” Reports in Germany last night suggested Mertesacker, 26, had in fact agreed last week to join Arsenal next summer, but that the Gunners fasttracked the move after missing out on other defensive targets, including Bolton’s Gary Cahill. Wenger called left-back Andre Santos “a quality player” and said he “looked forward to him having a big impact for us”. The 28-year-old, who has 22 caps for Brazil, replaced Roberto Carlos in the Fenerbahce side and scored 10 goals in 52 league appearances in Turkey. He said: “It was one of my dreams to play for a major European football club and I have accomplished this.” Wenger’s most high-profile departure was Danish striker Nicklas Bendtner, who joined Sunderland on a season-long loan.
Sunday 11th September (Kick-Off 4pm)
On General Sale
KIDS FOR A QUID! From £20 Adults and £1 Juniors* Buy online or call 0843 208 1234 (option 1)
*Junior (under 16) price increases on matchday. Subject to availability, terms and conditions apply.
Sport
CITYA.M. 1 SEPTEMBER 2011
31
Patel and England pile late to buy more misery on India ▲
FOOTBALL BY JAMES GOLDMAN
TOTTENHAM manager Harry Redknapp revealed his club succeeded in their summer long battle to keep hold of midfielder Luka Modric but only after Chelsea submitted a last ditch £40m bid. The Croatia international agitated for a move across London as soon as it became apparent Chelsea were interested in his services, and went as far as requesting to be left out of the Spurs side which was heavily beaten by Manchester City last Sunday. The 25-year-old will now remain at White Hart Lane, at least until January, but the Tottenham squad looks to have a number of gaping holes after the deadline day departures of five first team players and the failure to land primary defensive
target Gary Cahill from Bolton. England striker Peter Crouch and midfielder Wilson Palacios were offloaded to Stoke for a combined total of £18m, while Jermaine Jenas and Alan Hutton were both snapped up by Aston Villa, the former on a season long loan and the latter joining Alex McLeish’s side for £4m. Redknapp was able to conclude a deal for West Ham’s Scott Parker, with David Bentley moving on loan in the opposite direction, but the major triumph for the Spurs manager was the victory in his fight to keep hold of Modric in the face of Chelsea’s late money spinning offer. He said: “The chairman stood firm over Luka. I think £40m was apparently offered. Whether that is true or not, it is what I heard. “It is a big offer to turn down, that’s for sure. I am delighted the little man is still here.”
Allardyce’s window shopping boosts Hammers promotion bid ▲
FOOTBALL BY JAMES GOLDMAN
WEST HAM manager Sam Allardyce attempted to compensate for the loss of the inspirational Scott Parker with a flurry of deadline day signings. The Hammers, who have made an encouraging start to life in the Championship, signed Senegalese powerhouse Papa Bouba Diop on Tuesday and bolstered their midfield last night with the loan signings of David Bentley from Spurs and Henri
Lansbury from Arsenal. England Under-21 international Lansbury played a prominent part in Norwich’s promotion campaign last season and, despite the lack of midfield options at Emirates Stadium, was deemed surpluss to requirements. Bentley, who has been a massive disappointment since his club record £16m move from Blackburn in 2008, will be joined by his former Arsenal team-mate, Ivory Coast international defender Guy Demel .
SPORT | IN BRIEF Man Utd set for record profits
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CRICKET BY JAMES GOLDMAN
ENGLAND all-rounder Stuart Broad celebrated the first win of his reign as Twenty20 captain after Samit Patel ensured India’s miserable tour continued at Old Trafford. After a nine-wicket hammering at the hands of Sri Lanka earlier this summer, Broad handed debuts to youngsters Alex Hales and Jos Butler, but it was Patel who put the finishing touches on a six-wicket win, hitting three successive fours off the final over. England had seemed destined for a more comfortable win but an inability to clear the ropes in the latter stage of their innings meant they had to wait until the final over to seal victory. Despite the late wobble, Broad claimed he was never worried about his middle order getting the job done. He said: “The guys felt we had it under control. “Morgan played pretty well, and then for Ravi and Samit to finish it off was pretty special. “We’re delighted with the win, but there are things we can improve on. “We came back at India very well, especially in restricting them to 165 after the start they got. “We lost an early wicket but the way Morgan and the guys batted was fantastic. “The atmosphere was brilliant, and really helped the guys. To come back from the position we were in after 10 overs is fantastic.” India, who won the toss and opted to bat, made an explosive start to their innings and were 104-1 at one stage largely thanks to Ajinkya Rahane’s 61 from the 39 balls. Rahul Dravid, making his first and last Twenty20 international appearance at the age of 37, chipped in with a breezy 31 which included three consecutive sixes off the bowling of Patel. Suresh Raina, who struggled so badly in the recent Test series, made a vibrant 33 but he was the only one of India’s last seven batsmen to reach double figures as they were eventual-
Patel hit three fours in the final over to see England home ly bowled out for 165 with Jade Dernbach demonstrating excellent variation to end with four wickets. England’s response got off a terrible start when debutant Hales was out for second ball duck but the ship was steadied by Kevin Pietersen and Craig Kieswetter. The South Africanborn duo put on 58 for the second wicket but both departed within the space of six balls.
Picture: ACTION IMAGES
Eoin Morgan’s superb 49 took England to the brink of victory, but an equally skilled penultimate over from Munaf Patel put the game back in the balance and the hosts required 10 off the last six balls. They got home with a little bit of luck – eight runs squirting off the outside edge to third man – as Patel ensured England maintained the whip-hand over struggling India.
Murray cruises through but Robson US Open dream over ▲
begin his second bid for gold at the FOOTBALL: Manchester United are today World Championships in Daegu today in the 5,000m heats. expected to announce record operating profits of more than £100m – and a pretax profit of around £60m. United plan a Wiggins leads Froome in Vuelta partial float in Singapore later this year. CYCLING: Team Sky rider Bradley Wiggins leads the Vuelta a Espana from team-mate Chris Froome after the 11th Farah passed fit for 5,000m stage yesterday in Galicia. ATHLETICS: Britain’s Mo Farah will
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Spurs keep Modric but miss out on Cahill
TENNIS BY FRANK DALLERES
BRITISH No1 Andy Murray overcame the first hurdle of his latest quest for an elusive maiden grand slam title with a straight-sets victory over India’s Somdev Devvarman at the US Open last night. Murray did not have things all his own way against the world No64 but rarely had to get out of first gear to reach the second round 7-6 (7-5), 6-2, 6-3. The Scot got off to a wobbly start, Devvarman breaking in the very first game, and had to work hard to take the opening set in fierce heat. But from there Murray found his range
and rhythm and closed out the win to set up a second round clash with Holland’s world No41 Robin Haase. While Murray sailed through at Flushing Meadows, compatriot Laura Robson’s hugely encouraging run came to an end, the 17-year-old losing to 30th seed Anabel Medina Garrigues. The world No173, who cleared three qualifying rounds and saw her opponent retire in the first round proper, blamed too many unforced errors for
her defeat to the Spaniard. “I’ll take a lot of positives,” said Robson, who is likely to climb into the top 150 for the first time. “It was my first time qualifying for a grand slam and I won a round. I think today she just had more experience and that showed.” An ever higher-profile exit from the women’s draw was two-time winner Venus Williams, who withdrew last night with an unspecified illness before her secondround match with Sabine Lisicki.
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Sport
CITYA.M. 1 SEPTEMBER 2011
MIXED FORTUNES FOR BRITS AT US OPEN MURRAY THROUGH BUT ROBSON OUT: P31
Deadline day drama
Chelsea swoop to sign Meireles from Liverpool in £12m deal with just minutes to spare after failing to persuade Tottenham to let Modric join Crouch and host of others in leaving the Lane ▲
FOOTBALL BY FRANK DALLERES
CHELSEA and Arsenal left it until the last possible moment before pulling off two of the surprise deals of a frantic transfer deadline day on which Premier League clubs took their summer spending to £480m. The Blues completed a shock £12m swoop for Liverpool midfielder Raul Meireles in the final minutes before the 11pm cut-off – the last chance for European clubs to sign players until January. Simultaneously Arsenal were thrashing out the final details of Mikel Arteta’s £10m transfer from Everton following a day of on-off negotiations between the two sides. On a busy day at Emirates Stadium the Gunners also signed Chelsea mid-
fielder Yossi Benyoun on a seasonlong loan, and confirmed the arrivals of defenders Per Mertesacker and Andre Santos. Top-flight clubs went into overdrive in the final hours of the transfer window, taking spending for the whole summer period to around £480m. That total is around £100m more than last year and a little over the amount spent in 2009, but short of the record £500m spent in 2008. Chelsea’s 11th-hour move for Meireles came after they failed to prise long-term target Luka Modric from Tottenham, despite making a player-plus-cash bid thought to be worth £40m on Monday. Spurs had
£10m Arteta finally leaves Everton for Arsenal after a day of haggling as Gunners move to replace Fabregas and Nasri with Spaniard and Yossi Benayoun on loan from Chelsea
further cause for celebration after completing a £5m deal for West Ham and England midfielder Scott Parker, but deadline-day attempts to prise defender Gary Cahill from Bolton ran aground. White Hart Lane manager Harry Redknapp was more willing to off-load several other players, with striker Peter Crouch (inset) and midfielder Wilson Palacios both joining Stoke for a combined £18m. Full-back Alan Hutton and midfielder Jermaine Jenas also left Tottenham for Aston Villa, Hutton for £4m and Jenas on a season-long loan, while out-of-favour David Bentley moved across London
to West Ham for the season. Meireles, who signed a four-year deal, was not Liverpool’s only business, however, with manager Kenny Dalglish bringing forward Craig Bellamy back to Anfield on a two-year contract after he negotiated his release from Manchester City. Fulham saw off late interest from Newcastle to land Costa Rica forward Bryan Ruiz for £10.5m from Dutch outfit FC Twente, in one of the west Londoners’ biggest deals in history. QPR also flexed their new-found financial muscle to recruit £3m defender Anton Ferdinand from Sunderland and winger Shaun Wright-Phillips from Manchester City – who completed the signing of injury-plagued former England and Manchester United midfielder Owen Hargreaves on a free transfer. LONDON CLUBS LEAVE IT LATE: P30
SPEND REPORT Spending rose by more than £100m on last year and close to record levels
2006
£260m
2007
£470m
2008
£500m
2009
£450m
2010
£365m
2011
£480m
