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MPs say
Bank must
cede power
THE GOVERNMENT should use its over-
haul of regulation to bring about a rad-
ical shift of power from the Bank of
England back to the Treasury, an influ-
ential committee of MPs has recom-
mended.
The Treasury Select Committee,
headed by Conservative MP Andrew
Tyrie, says that the Banks antiquated
governance means it is not transparent
or accountable enough to wield the
new powers it is being given. Instead,
ultimate responsibility for financial sta-
bility in a crisis must rest with the
chancellor.
A chancellor can be expected to take
responsibility in times of turbulence,
the committee says, suggesting that the
Treasury should have the power to seize
control of decisions involving the use of
liquidity and credit facilities that could
risk public funds.
This would, it says, create a clear
line of accountability for decisions
taken through the chancellor to parlia-
ment. The MPs report on Bank
accountability also suggests slimming
down the court of the Bank from 12 to
eight members and renaming it the
supervisory board.
The board would then take responsi-
bility for conducting reviews of the
Banks activities and publishing them,
which the Bank has refused to do
despite recent requests.
In addition, the monetary policy
committee and new financial policy
committee must have a majority of
non-Bank members, MPs say.
TREASURY VICTORY ON RENMINBI: P5
BY JULIET SAMUEL
REGULATION
BERLUSCONI:
ONTHE BRINK
News
2 CITYA.M. 8 NOVEMBER 2011
YIELDS on Italian debt continued
their upward surge yesterday,
despite the European Central Bank
(ECB) appearing to have boosted its
bond purchase programme in a bid
to control debt costs in struggling
peripheral states.
Yields on 10-year Italian debt
reached a 14-year high of 6.67 per
cent yesterday, with analysts again
warning that the governments
finances could be rendered unten-
able if the figure rises above seven
per cent. Meanwhile, Italian five-
year credit default swaps (CDS)
increased by 2.15 per cent to
503.255.
The ECB has splashed a jaw-
dropping 183bn since it began
its bond-buying programme last
year. It revealed yesterday that
it bought 9.52bn in bonds last
week the most the bank has
spent since mid-September.
The jump in outlays
comes days after
Mario Draghi (right)
took over from Jean-
Claude Trichet as the ECBs new
president, and as the bank contin-
ues to publicly resist pressure
from among others -- the
US, Britain and Russia, to
step up the purchases.
In his first news con-
ference as ECB presi-
dent last week, Draghi
offered no commitment
to scaling up the banks
b o n d - b u y i n g ,
describing it
as a limit-
ed pro-
gramme.
ECB ups bond-buying
yet yields still rising
BY JULIAN HARRIS
EUROZONE
Cameron returns to UK
talking tough on Europe
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News
3 CITYA.M. 8 NOVEMBER 2011
BANK STOCKS DIVED AGAIN
3.08%
2.37%
3.64%
2.48%
1.264%
1.352%
2.438%
Lloyds
GOLD RISES AS
LOW-RISK ASSET
Commerzbank
RBS Deutsche Bank
Crdit Agricole Santander
GREEK party leaders are
struggling to agree on a new
prime minister, despite EU
demands that the political
class commit itself to the
nations financial salvation
and end the chaos threaten-
ing the entire euro project.
Yesterday came and went
without any accord on who
will lead a new national
unity coalition, despite talk
that a former vice president
of the European Central
Bank, Lucas Papademos,
would get the job. The cabi-
net is due to hold an emer-
gency session today, and
officials said negotiations
were under way on the 100-
day coalition that must win
parliamentary approval for a
Eurozone bailout.
Frustration was apparent
in Brussels where officials
said the government had to
show it was serious about
promises Athens has made
to the EU and IMF in return
for the 130bn bailout.
Greece struggles to
agree on new premier
EUROZONE
BANKING
HEDGE FUNDS
News
6 CITYA.M. 8 NOVEMBER 2011
BY PETER EDWARDS
HEDGE FUNDS
* These views are those of the individuals above and not necessarily those of their company.
There must be a lot of pressure on people this Christmas, but
personally this wont affect what I buy. There is no doubt the
retail industry is suffering, though.
PAUL CLAYTON | JRP UNDERWRITING
When you have a family and kids it is not always easy to cut down: you dont want to let them down. Not everyone is suffering, but for those
who are things have to get worse before they get better. People who cant afford to spend how they usually would should will cut back.
JACKSON SMITH | ROYAL BANK OF CANADA
CITY VIEWS: WILL RETAILERS SEE LOWER SALES THIS CHRISTMAS?
Interviews by Phoebe Torrance
IN ASSOCIATION WITH
www.RateSetter.com Customer Phoneline: 08442490115
Save or Borrow peer to peer at RateSetter.com
People will always try to find spare cash over Christmas, but
with the state the economy is in I think small retailers will
suffer. I am worried about independent shops.
PETER GODFREY | LLOYDS OF LONDON
Consumers are spending less on non-food items in the run up to Xmas
News
9 CITYA.M. 8 NOVEMBER 2011
CLERGY from St Pauls want to go
into City boardrooms to lobby direc-
tors about the gap between the rich
and the poor.
The Right Rev Peter Selby said he
wanted to use the publication of a
report delayed because of the
furore over the Occupy LSX
protests to debate appropriate
levels of pay with chief executives.
He was speaking as the survey
said the majority of City profession-
als think bankers, stockbrokers,
bond traders and FTSE 100 chief
executives are paid too much.
Asked if it meant clergy would
enter boardrooms to ensure recom-
mendations of the St Pauls Institute
report are acted on, Selby said: It
gives us something of a mandate... It
gives us cause, along with every-
thing which is going on, to take this
situation to higher levels and say,
what are you going to do about it?
The churchs institutional com-
plicity in finance had made it a diffi-
cult topic to address in the past,
added Selby, a retired bishop.
The report, Value and Values:
Perceptions of Ethics in the City Today,
includes contributions by St Pauls
former Dean, the Right Rev Graeme
Knowles, and former Canon
Chancellor, Rev Dr Giles Fraser, who
both resigned amid disagreements
over the response to the protests.
The study showed 75 per cent of
City workers think there is too great
a gap between rich and poor and
nearly two-thirds (64 per cent) of
those questioned said salary and
bonuses are their main motivation.
The survey, carried out before the
protests began, involved 515 inter-
views and was carried out to mark
the 25th anniversary of the deregu-
lation of the City. Just over half of
people said the Big Bang had led to
less ethical behaviour.
Last night Occupy LSX said the
report showed a conflict between
morality and financial incentives. St
Pauls has asked the activists to pre-
pare several written responses.
FORUM: P24
Vicars in the
boardroom
to check pay
BY PETER EDWARDS
POLITICS
Occupy LSX has run into a fourth week Pic: Laura Lean / CITY A.M.
NEWS International said yes-
terday its staff had ordered sur-
veillance on two lawyers for
victims suing the group over
the phone-hacking scandal
that has engulfed the group.
The UK newspaper arm of
News Corp admitted that the
action, the latest in a string of
embarrassing and damaging
revelations about illegal eaves-
dropping on phone messages,
was inappropriate.
Private detective Derek
Webb said he had been hired
by the now defunct News of
the World paper to spy on
Mark Lewis and Charlotte
Harris, who represent some of
the victims, the BBC reported.
Lawyers were spied
on says NewsCorp
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ALL MADE TO MEASURE SUITS
LLOYDS insurer Hiscox said steady
losses from catastrophes and a choosy
approach to underwriting this year
had put it in good shape yesterday,
but its investment portfolio lost value
since June as markets plunged.
Hiscox, which insures specialist
commercial risks and reinsurance,
said its revenue from premiums fell
by three per cent to 1.2bn in the
nine months to the end of September.
The only areas to grow were its UK
retail business, which wrote premi-
ums of 280m this year compared to
249.1m in the nine months to
September 2010, and a small increase
in its European business.
Chief executive Bronek Masojada
said Hiscox was waiting for insurance
rates to go up when policies renewed
in January.
The cumulative effect of interna-
tional catastrophes is pushing rein-
surance rates upwards. As nearly a
third of our income comes from rein-
surance, we are ready to benefit at
the January renewal season.
It also surprised analysts by saying
its investment portfolio had lost
value so far this year, making 0.5 per
cent return against inflation of close
to five per cent.
Hiscox has kept 210m reserved
against losses from catastrophes such
as the New Zealand earthquakes so
far this year, but reassured investors
that the only new loss to be added to
it was a net claim of less than 10m
from Hurricane Irene, which swept
the US east coast in August.
Hiscox looks
ahead to New
Year rate rise
INSURERS have warned the UKs
finance regulator that the industry is
unimpressed with the confusion
around the start of far-reaching new
regulation on their capital require-
ments.
The Financial Services Authority has
weathered an angry backlash from the
industry since October when it said it
would delay the start of new Solvency
II rules by a year until January 2014.
Insurers said the change would
force them to comply with two differ-
ent sets of reporting rules Solvency II
and the Individual Capital Assessment
(ICAS) at the same time.
Otto Thoresen, director-general of
the Association of British Insurers
(ABI), told an FSA briefing last week
that the regulator needed to avoid that
situation at all cost.
ABI members do not welcome the
delay in Solvency IIs implementation,
he said. We must provide firms with
viable alternatives.
The FSAs director of insurance,
Julian Adams, defended the change.
What it is emphatically not is a
wholesale delay in the implementa-
tion date, he said.
Our intention is to explore with
firms possible ways of avoiding the
costs associated with the dual running
of an ICAS and Solvency II model.
Insurers urge
FSA to ease
new rules start
BY ALISON LOCK
INSURANCE
INSURANCE
News
11 CITYA.M. 8 NOVEMBER 2011
ANALYST VIEWS: IS THE FALL IN PREMIUM
INCOME A PROBLEM FOR HISCOX? Interviews by Alison Lock
Hiscox expects less than 10m losses from Hurricane Irene Picture: PA
ANALYSIS l Hiscox
p
1 Nov 2Nov 3Nov 4Nov 7Nov
372.50
375.00
377.50
380.00
382.50
385.00
387.50
376.80
7 Nov
News
12 CITYA.M. 8 NOVEMBER 2011
BOODLES, the luxury jeweller
beloved by Kate and Pippa Middleton,
could be set for a global push after
seeing annual profits soar by more
than a quarter, City A.M. can reveal.
Pre-tax profits rose 25.5 per cent to
4.71m for the year to 28 February,
according to the accounts of Boodle &
Dunthorne, which were filed last
week. Turnover rose 13.8 per cent to
41.9m and the report also hints at a
strategy to boost global sales.
During the year the company
made sales to overseas clients around
the world of 8.359m (up from
7.822m in 2010)) which the directors
feel illustrates an increased interna-
tional interest in the brand. The direc-
tors consider the company to be
well-placed to take advantage of
opportunities arising in the future.
The firms high-end jewellery sells
for hundreds of thousands of pounds
an item, although it also provides a
range at more affordable prices.
In recent years both Middleton sis-
ters have been spotted at the Boodles
Boxing Ball, an annual event at which
pugilists compete for charity.
The firm is known for its long-serv-
ing staff, which its controlling
Wainwright family ascribe to their
efforts to run the business in a
Christian and ethical manner.
Middleton effect means sales sparkle for Boodles
RETAIL
LEISURE
Kate
Middleton is
one of the
many
Boodles fans
Picture: REX
ANALYSIS l BP
p
1 Nov 2Nov 3Nov 4Nov 7Nov
460
455
450
445
440
452.80
7 Nov
News
13 CITYA.M. 8 NOVEMBER 2011
THE vast majority of European
investors think it unlikely that other
countries will quickly follow the UKs
lead in forcing banks to separate their
retail and wholesale arms as recom-
mended by the Vickers Commission,
according to a survey by ratings
agency Fitch.
But other states could look into it
in the medium-term, the investors
said, which confirms worries
expressed to City A.M. that interest in
the idea of a ringfence around retail
banking operations could spread.
In the short-term, just 13 per cent
of the fund managers asked who
between them account for 5.8 tril-
lion (5 trillion) in assets under man-
agement think that other states are
in a hurry to put in place their own
version of the Vickers Commissions
proposals, which are currently being
considered by HM Treasury.
The data will raise concerns that
Britain risks damaging its competi-
tiveness as a global financial centre
by forging ahead with new regula-
tions on banks before other states
have done likewise.
The recommendations go beyond
other resolution regimes being devel-
oped. At a time when Eurozone banks
in particular are grappling with more
immediate risks, some of the ICBs
more radical recommendations, for
example around ringfencing, are
unlikely to see widespread replica-
tion anytime soon, said Fitch analyst
James Longsdon.
However, a sizeable minority of
those surveyed 42 per cent believe
that other countries could consider it
if they suffer another banking crisis.
One banking source told City A.M.
that regulators in Belgium, the
Netherlands and Italy have taken an
interest in the Vickers recommenda-
tion to ringfence retail banking oper-
ations from investment banks by
limiting their cross-selling and expo-
sure to one another.
And it is understood that European
banks have held talks with their UK
rivals over the proposals, with the
continental lenders fearful that their
local regulators could eventually take
action.
Other countries will be slow to copy
Vickers ringfence idea, say investors
RYANAIR raised its 2011 profit forecast
by 10 per cent yesterday, saying a focus
on more lucrative routes was pushing
up revenue per passenger and offset-
ting stubbornly high fuel prices.
The budget airline, headed up by
outspoken boss Michael OLeary, said it
had seen virtually no impact from the
global downturn in consumer confi-
dence, but warned traffic would fall in
the coming months as it grounded 80
aircraft because fuel prices made
routes unprofitable.
The airline, which flew over 70m
passengers last year, said it expected to
make a profit of 440m (377.6m) for
its 2011 financial year, up from its pre-
vious forecast of 400m.
Yields -- the keenly watched measure
showing average revenue gained per
mile per passenger -- will grow at 14
per cent in the six months to March,
up from 12 per cent previously fore-
cast. The airline earned 543.5m in the
six months to September, up 20 per
cent, on revenues of 2.71bn.
Focus on more
lucrative routes
boosts Ryanair
AVIATION
BY JULIET SAMUEL
BANKING
News
14
REPSOL MAKES ITS BIGGEST EVER SHALE FIND
ARGENTINE energy firm YPF, the local unit of Spains Repsol, said yesterday it had made a
very large shale oil discovery, identifying unconventional energy resources of 927m barrels of
oil equivalent (boe) in Patagonia. The find is Repsols largest ever, and could elevate
Argentina to becoming one of the worlds leading producers of the oil.
A NIGHT AT
THE OPERA
FOR LEGAL
SOPRANOS
BETRAYAL, revenge and murder it
was business as usual when the Magic
Circle decamped to the dress circle at
Sadlers Wells to watch Allen & Overys
modern-day reworking of Carmen set
in Seville Airport.
The opera, which follows last years
staging of The Magic Flute at
Glyndebourne, involved 74 of the firms
staff past and present. Ex-senior partner
Guy Beringer played El Dancairo, while
Carine Chassol, a banking partner in
the Paris office, played Michaela and
corporate partner Don McGown was the
jaded bullfighter Escamillo.
Trainee lawyers David McDonald and
Edward Rance also helped make the per-
formance a triumph that other City
firms can only dream of, as one client
emailed the next day, while another
described the opera as complete, well-
rounded and, frankly, magnificent.
With reviews like that, it is fair to say
no-one minded that trainee Matt
Farringdon was unable to complete his
star turn as Don Jos due to laryngitis, so
he mimed Act Four as substitute Ed Lee
sang his part from the wings. Nor did any-
one notice that one of the dancers had
been rushed back from hospital moments
before the start of show. No plans for a
transfer to the West End though at least
not in the short-term, said a still-hoarse
McGown, who doubles as head of the law
firms music programme.
SOCIAL NETWORK
FIRST THE Citys forex brokers had voice
trades; then electronic trading came
along and put a mute button on the
conversation.
So prepare yourself for the third act in
the Citys dealing communications says
Stefan Basiuk, the co-founder of
LetsTalkFX.com social FX, or bringing the
worlds most incestuous market closer
together through a private social network.
Electronic trading took away the per-
sonal relationships in the City, said
Basiuk, sitting in the Royal Exchange
where he once worked pre-Big Bang as a
local options trader on the Chicago
Mercantile Exchange. The new genera-
tion of 20-somethings coming into the
City have been using social media forever,
so what tools will they want to use?
Basiuk and his founding partners
who include JP Morgan Chase Private
Banks EMEA chief technology officer
Paul Ronan have so far staked 200k
that the answer is LetsTalkFX, which con-
nects the players in the $4 trillion global
FX community. There is nothing like
us, said Basiuk, as he lines up further
funding talks with five tech investors.
NOT IN THE GOOD BOOK
THESE are testing times in committee
room 15, where members of the
15 EDITED BY
HARRIET DENNYS
Got A Story? Email
thecapitalist@cityam.com
Follow The Capitalist
on Twitter: @dennysharriet
The Capitalist
CITYA.M. 8 NOVEMBER 2011
Left: Flamenco
dancers Kara Lone,
Martina Clay and
Harriet Stephenson
from Allen & Overy in
the firms staging of
Carmen
Above: The Royal
Artillery Band play
at Leadenhall Market
on London Poppy Day
Commons Public Accounts Committee
are trying to get to the bottom of tax deals
negotiated by HMRC with Vodafone and
Goldman Sachs.
Testing for committee chair Margaret
Hodge, certainly. She grew so frustrated
yesterday with the lack of forthcoming
answers from HM Revenues top lawyer
Anthony Inglese, she threw the book at
him, so to speak. She called for a Bible and
made Inglese take the oath.
Testing too for Inglese, who after an
hour more of no comments was asked
by Hodge how much taxpayer money had
been spent on his coaching. None, he
replied. I hope it did not show.
POPPY APPEAL
THE FINAL tally is in, and The Royal British
Legion has confirmed that Londoners
raised almost 450,000 on London Poppy
Day, a new Poppy Appeal record for a col-
lection in a single day.
Perhaps it was the six bands who
played around the capital last Thursday
including the Royal Artillery Band in
Leadenhall Market that encouraged
the City to dig so deeply, with 45,000
collected at Canary Wharf alone.
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News
16 CITYA.M. 8 NOVEMBER 2011
MORE NEWS
ONLINE
@
www.cityam.com
Its time for UK institutions to take more risk
W
OULD-BE investors in UK
stocks are in a bad place
right now. The long-only
funds have too few successes
to boast about and the hedge funds
are scared of ever-increasing redemp-
tions.
As far as the majority of the UK
investor base is concerned, IPOs of
untested UK companies are distinctly
off the menu.
Those same investors are also
loathe to back transformational
mergers too. Hence the G4S 5bn-plus
bid for ISS failed; some say it was tor-
pedoed by a reluctance from some
investors to buy out ISS investor
Goldman Sachs at what they believed
was too high a price.
It is too soon to say whether G4S
shareholders were right to have had
qualms about the ISS deal. But
investors in the Prudential, who
vetoed a $31.5bn deal for AIA last year
might be interested to know the
group they turned down is now
worth nearly $38bn.
The loathing of private equity sell-
ers is very real and follows instances
like the float of Debenhams where
private equity groups got out with all
the cream. The existence of private
equity advisers, groups who advise
private equity sellers, to get the high-
est price possible for their stakes, con-
tributes to this feeling of unease.
But if investors are wary of new
companies and transformational
deals, some also seem to be wary of
the very types of groups that are cur-
rently keeping the market alive; the
resource rich groups that are part
owned by Russian oligarchs or other
offshore shareholders. These groups
are often keen to gain a listing in
London and raise billions by offload-
ing a minority shareholding.
Here, UK institutions appear to be
behaving like they still lived in a
world where the FTSE100 index was
comprised of companies like Cadbury
and ICI (both now in the hands of for-
eign owners).
Rather than embracing the new
companies like Polymetal or Essar
Energy, they are running scared of
them, fearing their increasing influ-
ence on the indices and what that
means to their tracker fund offerings.
Yes, there has been the odd corporate
governance disaster (ENRC) but over-
all some of the foreign-owned
resource groups have done well.
As Bank of America Merrill Lynchs
head of equity capital markets Craig
Coben says: The tough markets have
affected the portfolio performance of
institutions, and when performance
suffers, it has a knock-on effect for
their appetite for new issues.
The new issue market will re-open
once we have a recovery in risk
appetite.
For the sake of the London mar-
kets, that appetite for risk had better
return soon.
david.hellier@cityam.com
INSIDE TRACK
DAVID HELLIER
NEWS | IN BRIEF
LOreal reiterates upbeat goal
Cosmetics maker L'Oreal reiterated its
full-year goal to outperform the market
and increase sales and profitability after
strong demand for its luxury products
helped third-quarter sales meet expecta-
tions. Revenue rose 4.8 per cent like-for-
like to 4.94bn (4.2bn) in the three
months to 30 September, the seller of
Garnier shampoo, Lancome creams and
Yves Saint Laurent perfume stated.
US bookseller launches tablet
US bookseller Barnes & Noble has intro-
duced its first ever tablet to compete
with Amazon and Apple for holiday sales.
Barnes & Noble will charge $249 (155)
for the Nook tablet, which is expected to
hit the shelves late next week. That com-
pares to the $199 price tag on Amazons
new Kindle Fire, which will be shipped on
15 November. The firm claims to have a
quarter of the US digital book market.
FORMER ENRC director Ken Olisa yes-
terday slammed as silly a plan by
the mining company to pay $650m
(405.6m) to buy the outstanding 75
per cent of Kazakh coal producer
Shubarkol Komir from its founders.
The ENRC directors were ill
advised to try to do this transaction.
Not because its a bad deal its not.
Its just a bad idea, Olisa told City A.M.
yesterday.
Their priority is to convince the
City that ENRCs corporate gover-
nance is beyond reproach. Trying to
pay $600m to the founding share-
holders so soon after the board revo-
lution was silly and is deeply
unhelpful to the wider debate about
the FTSE.
ENRC decided last week to post-
pone a vote on the deal, fearing the
board would suffer an embarrassing
defeat.
ENRCs independent sharehold-
ers excluding the three founder
shareholders who are selling the
Shubarkol shares had been due to
vote on the deal yesterday.
The London-listed miner planned
to secure control of Shubarkol by buy-
ing the remaining shares from its
founder shareholders for up to
$650m, a figure independently veri-
fied by Lazard, the investment bank.
The companys senior non-execu-
tive director Mehmet Dalman
favoured the deal, saying it gave ENRC
access to good quality thermal coal.
ENRC plan is
silly, says ex
director Olisa
CHIPMAKER InvenSense filed with US
regulators yesterday to sell fewer
shares at a lower price range than it
had originally expected in its initial
public offering (IPO) of common
stock.
InvenSense, which in August
delayed its IPO due to market condi-
tions, said it would sell up to 10m
common shares priced at $7.00-$8.50
(4.37-5.30) each.
The California-based company,
which had filed for an IPO of up to
$100m, originally planned to sell up
to 10.5m shares priced at $8.50-$10.50
apiece.
The companys common stock has
been approved for listing on the New
York Stock Exchange under the sym-
bol INVN, InvenSense said in a filing
to the US Securities and Exchange
Commission.
InvenSense makes motion sensing
chips used in smartphones and gam-
ing devices.
Goldman Sachs and Morgan
Stanley are the lead underwriters for
the offering.
The company was founded in 2003
and booked $130m in revenues for
the 12 months ended 30 September
2011. The deal is expected to price
during the week of 14 November.
InvenSense files
to raise up to
$85m in IPO
Mehmet Dalmans (above) plan was described as silly by ousted director Ken Olisa (below)
BY DAVID HELLIER
RESOURCES
News
CITYA.M. 8 NOVEMBER 2011 17
ANALYSIS l Eurasian Natural Resources Corp
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CAPITAL MARKETS
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Sale is a sensible move but its time to
break out the cava, not champagne
C
ARPHONE took the rough
with the smooth yesterday,
cashing in on one success
while taking the failure of
another on the chin. The US sale
crystallises value for Carphone
shareholders who are in for a pay-
day but the deal is not spectacular
in and of itself. Best Buy has fac-
tored in an expected slowdown in
smartphones in the US next year,
meaning Carphone has missed out
on a premium on the sale.
Shuttering the heavy loss-making
Big Box white goods stores in the UK
is sensible strip them out and
Carphones earnings before interest
and tax (Ebit) are 65m.
Demand for white goods and
flat-screen TVs both staples of the
out-of-town stores show no sign of
picking up in the new year, while
smartphones remain high growth
in the UK.
Rolling out the Best Buy Mobile
formula to emerging markets is a
smart move. The US business was
the only growth division for
Carphone, with Ebit hitting 45m.
However, duplicating the success in
the wildly different Chinese, Indian
and Latin American markets will be
no mean feat.
Chief executive Roger Taylor
called it a low risk move, which will,
in theory at least, limit expenditure
on the venture. One to watch.
BOTTOMLINE
Analysis by Steve Dinneen
CARPHONE Warehouse yesterday
confirmed it has offloaded its US
joint venture for $1.3bn (810m).
The sale of the blisteringly success-
ful mobile phone business to its part-
ner Best Buy was tinged with regret
over the failure of its UK Big Box
joint venture. It confirmed the long
expected shuttering of its 11 white
goods stores after it posted another
quarter of worse-than-expected losses.
Overall the firm posted revenues of
1.59bn, down 4.9 per cent year-on-
year as the slowdown in the con-
sumer electronics market and the
failure of Best Buy UK took its toll.
Pre-tax profits were 8.3m, compared
to 51.2m last year.
The results were broadly in line
with analyst expectations, with the
US deal sending its shares up as much
as 10 per cent before settling back to
close up one per cent.
The proceeds of the US sale will be
returned to shareholders, with
founder Charles Dunstone set for a
payout of around 235m from his 29
per cent stake in the firm.
Carphone said it will maintain its
relationship with Best Buy, and will
launch a new mobile venture cater-
ing for emerging markets. Chief exec-
utive Roger Taylor said: The sale of
our interest in Best Buy Mobile crys-
tallises significant value for our
shareholders. In addition, the agree-
ment is a low risk opportunity to
recreate the success of Best Buy
Mobile and roll out our strategy into
high growth emerging markets.
Carphone hits
forecasts as
it lets US go
BY STEVE DINNEEN
TELECOMS
News
19 CITYA.M. 8 NOVEMBER 2011
NEWS | IN BRIEF
Data traffic to jump ten-fold
Mobile data traffic will grow 10-fold
over the next five years as demand for
video on the go continues to drive
growth. According to new research by
Ericsson, mobile broadband subscrip-
tions grew 60 per cent in the last year
and are expected to jump from 900m
now to almost 5bn in 2016. Total smart-
phone traffic is expected to have tripled
by the end of this year. Ericsson expects
traffic generated by smartphones to
increase 12-fold to roughly equal mobile
PC-generated traffic by 2016.
Telecity to start paying dividend
Data centre operator Telecity said yes-
terday demand remains strong across its
European markets and said its cash
flows will enable it to start paying a divi-
dend next year. The group, whose facili-
ties are located in Europe's major
business centres like London and Paris, is
seeing growth from cloud computing
and social networking. Telecity, which
plans to nearly double its capacity over
the next four years, also announced an
additional server at the Dublin site it
acquired in August.
Google says disputes hurt progress
Googles lawyer has accused Microsoft
of using its patent portfolio to capitalise
on the success of Android, and that legal
disputes are hindering innovation in the
technology industry. Google's patent
counsel Tim Porter told the San
Francisco Chronicle that Microsoft is
trying to use its extensive patent portfo-
lio to make money after its Windows
Phone operating system struggled to
make an impact. Googles Android has
been dogged by patent suits from
Oracle, Apple and Microsoft.
Carphone founder Charles Dunstone is in for a payday after US sale Picture: REX
ANALYSIS l Carphone Warehouse
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1 Nov 2Nov 3Nov 4Nov 7Nov
380
370
360
350
340
330
348.00
7 Nov
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LAST CHANCE TO BOOK
HOMEBUILDER Taylor Wimpey said
trading in the busy autumn selling
period had been stable and it is on
track to meet margin targets.
The UKs second-largest volume
housebuilder by market value said its
current order book for future comple-
tions stood at 6,265 homes, against
5,496 homes at the same point last
year.
The group is targeting 10,000 sales
for the year and said it is on track to
deliver a double-digit percentage UK
operating margin in 2012.
Taylor Wimpey, which sold its
North American business earlier this
year, reported an average private net
reservation of 0.55 sales per outlet for
the second half to date, compared
with 0.47 in the same period last year.
Although mortgage availability
remains restricted, we have seen an
ongoing incremental improvement
since the half year results, said the
company in a statement.
This echoed comments from small-
er peer Redrow last week, which said
reservations and prices were stable
while underlying demand is set to
increase despite tough macro condi-
tions weighing on the sector.
But the UK housing market contin-
ues to tread water and housebuilders
are facing further uncertainty as pub-
lic spending cuts and rising unem-
ployment dents confidence. Taylor
Wimpey posted first-half pretax prof-
its of 28.9m earlier this year, against
a loss of 2.3m in the same period last
year. Meanwhile chief executive Pete
Redfern said that a further escalation
of Europes debt problems could
spark a damaging UK banking crisis.
The worse case scenario is that a
problem in Europe causes a UK bank-
ing problem, he said. While the
underlying housing market is strong,
if there was a withdrawal of banking
finance obviously that would be nega-
tive.
OLYMPUSs ousted chief executive
Michael Woodford said he will meet
a member of the third-party panel
probing past M&A deals at the endo-
scope maker in London next week.
I will meet the panel member Mr
Katayama in London, Woodford said
in an e-mail to Reuters.
Eiji Katayama, a lawyer, is one of
six members of a panel headed by
retired supreme court justice Tatsuo
Kainaka that was appointed by
Olympus to investigate a $687m
(429m) advisory fee paid in connec-
tion with its $2.2bn acquisition of
Britains Gyrus in 2008.
Fees paid to advisers in M&A deals
do not typically exceed two per cent.
The group will also scrutinise three
acquisitions in Japan that were quick-
ly followed by large write-downs.
Woodford said last week that he
wanted to meet investigators appoint-
ed to probe the scandal, but believed
it would not be safe for him to travel
to Japan.
The M&A deals have raised ques-
tions about governance at Olympus,
with an internal document showing
that the company replaced its auditor
in 2009 after a disagreement over
how to account for the acquisitions.
Olympus shares have lost more
than half their value since Woodford
was dismissed on 14 October after he
questioned the controversial pay-
ments.
Yesterday, they fell a further 7.5 per
cent to 1,034 yen (8.26).
Former Olympus chief to meet panel
member investigating M&A scandal
ENGINEERING consultant Costain
has said it is continuing to perform
well and that trading is in line with
its expectations.
The groups order book has risen to
2.6bn following major new contracts
awarded by Network Rail and the
development of London Bridge
Station.
In a statement the group said yes-
terday: As well as including in excess
of 600m revenue for 2012, the order
book also provides good long-term
visibility with over 1.8bn of revenue
secured for 2013 and beyond, the bal-
ance of the order book being the
remainder of 2011.
Costain said it was benefitting
from targeting blue chip customers,
which it helps with both general
maintenance and also with meeting
regulations. It also announced the
acquisition of Promanex, an industri-
al support services business operating
in the power, petrochemicals and
nuclear markets.
Costain order book hits
2.6bn with rail contract
ENGINEERING
Wimpey says
sales solid
for autumn
BY JOHN DUNNE
HOUSEBUILDING
HARRY BANKS
M&A
News
21 CITYA.M. 8 NOVEMBER 2011
DISNEY TEAMS UP WITH YOUTUBE
YOUTUBE and Disney yesterday announced they are partnering for a co-branded YouTube
channel devoted to family-friendly original series. Although relatively small from a cash per-
spective in the range of $10-$15m it adds another major collaborator to YouTubes new
original content plan. YouTube plans to create dozens of online channels with original con-
tent with the help of high-profile names like Jay-Z and Amy Poehler. Picture: REX
NEWS | IN BRIEF
Weir confident on 2011 outlook
British pumps and valves maker Weir
said it was confident of meeting its
expectations for 2011, supported by
strong demand from customers in the
mining and oil and gas sectors. The com-
pany said yesterday that revenue grew in
the three months to the end of
September, boosted by a swelling order
book. But it said margins across the
group were in line with the level seen in
the first half of the year. Weir said that
total orders rose 27 per cent in the three
months to September.
Essar Energy performance solid
India-focused energy company Essar
Energy yesterday reported a solid oper-
ating performance in the three months to
30 September, with energy generated
rising four per cent compared to the
same period a year ago. Export values
also rose, climbing to 42 per cent of the
otal against 31 per cent a year ago.
"While higher gas prices, resulting in a
higher generation cost, have impacted
demand at our gas based plants in recent
months, the quarter saw higher plant
load factors at Hazira (up 24 per cent)
due to increased demand from the
Gujarat State utility," the firm said.
Bunzl buys Brazilian safety firm
Business supplies distributor Bunzl said
yesterday it has bought South American
safety glove and glasses maker Danny
Comrcio Importao Exportao Ltda
from Nielzer and Rita Sudr. Danny is the
fourth acquisition that UK-based Bunzl
has made in Brazil since 2008.
ANALYSIS l Rentokil Initial PLC
p
1 Nov 2Nov 3Nov 4Nov 7Nov
71
70
68
66
69
67
66.30
7 Nov
ANALYSIS l Taylor Wimpey PLC
p
1 Nov 2Nov 3Nov 4Nov 7Nov
37.50
37.00
36.00
35.00
34.50
36.50
35.50
36.78
7 Nov
News
22 CITYA.M. 8 NOVEMBER 2011
HIGHER activity in the property mar-
ket has propped up house prices,
according to two leading surveys of
the industry.
Yet while the market has perked
up, activity remains slow by historical
standards, with prices largely remain-
ing flat over recent months.
The Halifax reported a surprise 1.8
per cent spike in house prices last
month compared to September. Yet
the three-monthly comparison,
which irons out volatility, shows
prices down 0.3 per cent compared to
May, June and July of this year.
And a separate survey of surveyors
released this morning showed that
over half are reporting stable prices.
Of those reporting a decline, almost
three quarters said prices were down
only between zero and two per cent.
It is encouraging that activity lev-
els appear to have edged upwards
over the past month, said Ian Perry
of the Royal Institution of Chartered
Surveyors (RICS), which conducted
the survey.
However, with the chaotic events
in the euro area threatening to
spillover to the UK and banks still
imposing tough conditions on loans
to first time buyers, any recovery in
sales is still likely to be relatively mod-
est, Perry warned. This will
inevitably leave many people who
would like to own a home unable to
access the market.
First time buyers in London may
also be deterred by rising prices,
which continue to buck the national
trend. Yet again the capital was the
only region to show increasing house
prices, according to RICS.
Yet supply and demand recovered
throughout the country, the survey
showed. Eight per cent more char-
tered surveyors reported newly
agreed sales rose rather than fell.
Although still at historically low
levels, this rise represents the best
reading since April 2010, the report
said. Some surveyors attributed this
increase to growing realism from
many sellers, who now appear to
more willing to take offers in order to
secure a sale.
Completed sales rose to the highest
level recorded for six months, averag-
ing 15 sales per surveyor over the past
three months. Both new buyer
enquiries and new instructions to sell
edged up in October.
Meanwhile, another survey claimed
that one in 10 buyers are prepared to
dip into credit card debt or bank loans
as part of their efforts to raise a
deposit. Funding a deposit remains
the biggest financial hurdle to home
ownership, SmartNewHomes said.
House prices
supported by
rising activity
BY JULIAN HARRIS
HOUSING
Taskforces
to lead tax
crackdown
TASKFORCES are being set up to target
different types of tax evasion in differ-
ent regions, HM Revenue and
Customs (HMRC) revealed yesterday.
Businesses are the particular focus
in London and the south east, with
those failing to submit statutory
returns for corporation tax, income
self assessment, PAYE and VAT seen as
core targets by the taskforce.
Five such taskforces have been set
up to target problems as they affect
each region. These include scrap
metal dealers and fast food restau-
rants in Scotland and landlords in the
north west and north Wales.
Taskforces bring together a group
of specialists in any one area, be in
VAT, corporation tax or any other tax
where there is a particularly large
problem in collection, HMRCs
Jonathan Hall told City A.M.
The team might look for plumbers
taking cash and failing to declare
their full income, for example, by see-
ing if their statements add up with
the level of activity they are doing.
HMRC said its reaction to wrongdo-
ing will be proportionate to offence,
whether it is encouraging small com-
panies who have accidentally fallen
behind to hand in the relevant forms,
or serial offenders who have not sub-
mitted tax forms for years.
Powers HMRC has acquired in
recent years mean you will be treated
more leniently if you come forward
voluntarily, Dawn Registers from law
firm BDO told City A.M.
BY TIM WALLACE
TAXATION
89
Smaller, lighter & better
than ever.