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Cityam 2013-01-15

Cityam 2013-01-15

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Published by City A.M.
Cityam 2013-01-15
Cityam 2013-01-15

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Published by: City A.M. on Jan 15, 2013
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LONDON woke upto the first snowflurries of the yearyesterday, andmore is forecastfor today and laterthis week. The icyconditions causeddelays on severalroads into the cityand speedrestrictions onsome rail routes.The Met Office hasforecast moresnow heading eastacross Englandtoday, expected toskirt round Londonagain by Friday,bringing with ittemperatures aslow as -6°C.
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Governmenttacklesrising statepension bill with £144-a-week flat rate
THE STATE pension will bestandardised to £144 a weekpayment for almost all workers,the government confirmed yesterday, claiming the move would encourage individuals totake responsibility for savingtowards their own retirement –as well as saving cash that wouldotherwise be poured into thestate’s soaring pension bill.The self-employed and those who have spent time out of the workforce – including many mothers – will benefit the most.But some high earners will behit, those who have contractedout of part of the state systemand their employers will have topay more national insurance, and young people will have to lowertheir expectations of what thestate can provide for them in oldage. The reforms could also hastenthe end of the few remaining finalsalary pension schemes in theprivate sector.“We’re making sure people intheir 20s will have a savingsculture,” pensions minister Steve Webb said. “The current statepension system is too complicatedand leaves millions of peopleneeding means-tested top-ups.”He admitted some high earners would be affected but said overallthere will be “far more winners”.“Our simple, single-tier pension will provide a decent, solidfoundation for new pensioners inan otherwise less certain world,” Webb added Joanne Segars of the National Association of Pension Funds welcomed the move: “For the firsttime in a generation, people willknow that it pays to save, and that whatever they put aside won’t beeroded by means-testing when they retire.”However the independentInstitute for Fiscal Studies warnedthat the overall effect of the policy change would be a cut in pensionentitlements for most people inthe long run.
FTSE 100
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HMV boss Trevor Mooreleft Jessops last year
HMV has collapsed into administra-tion after last-ditch attempts to savethe crisis-hit music retailer came toan abrupt end last night, putting4,000 jobs at risk and signalling theend of more than 90 years on theBritish high street.Deloitte, which has beenadvising HMV’s consor-tium of lenders led by Lloyds Banking Groupand Royal Bank of Scotland, has beenappointed as adminis-trators to the belea-guered firm.“The board regrets toannounce that it has beenunable to reach a position whereit feels able to continue to trade out-side of insolvency protection,” HMV said in a statement last night.Deloitte could still find a buyer forsome of HMV’s 230 stores across theUK, with the shops expected tocarry on trading while apurchaser is sought. Trading in the company’sshares, which closed at just1.1p last night, will be sus-pended from this morning.Hopes were raised that thehistoric UK brand could besaved last month, when US privateequity firm Apollo GlobalManagement – which has been buying up some of HMV’s debt –was reported to beplotting a takeover of the firm.But yesterday a source familiar with the situation said Apollo hadno intention of make any bid for itsoutstanding debt.HMV is the second major high-street name to collapse so far ina dreadful start to the New  Year for UK retailers, afterspecialist camera chain Jessops was liquidatedlast week with the lossof 2,000 jobs, spellingfurther bad news forBritain’s fragile retailsector.Last year saw the col-lapse of Comet, JJB Sports,Clinton Cards, Game Group,Peacocks and Blacks Leisure. The firm, which opened its firstflagship store on Oxford Street in1921, has struggled to survive in afast-declining music, DVD andgames market, and has facedintense competition from inter-net retailers and the rise of digital downloading.It has tried to turn itself around by focusing on new consumer technology products,live music and event ticketing, as well as making efforts to pay down debt by selling both its Waterstone’s
 book chain and its Canadian retailarm.In May the group also offloaded theHammersmith Apollo music venuefor £32m, allowing it to extend its£220m bank facility.But it has failed to stem decliningsales and in December HMV warned it was likely to breach its banking agree-ments after a poor start to Christmastrading, sending shares down 40 percent on the day.HMV, led by former Jessops chief executive Trevor Moore, has since been locked in talks with its syndicateof eight lenders over its debt, whichstood at £176.1m at its half year to27 October.Pressure mounted this weekendafter the group launched a 25 per centsale of products in a last ditch attemptto boost stricken sales.
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allister.heath@cityam.comFollow me on Twitter: @allisterheath
Pension changes cheeredbut high earners take a hit
BUSINESS leaders hailed the govern-ment’s plans for a “simple, under-standable, state pension” yesterday, but admitted that both employersand staff would have to take a finan-cial hit as part of the proposedreforms.“The introduction of a flat-ratestate pension, with an end to means-tested retirement income benefits, isessential if pension saving is to makesense for modest earners,” saidMalcolm Small, pensions adviser atthe Institute of Directors yesterday.“[This] will help give prospectivepensioners a clear idea of what thestate will provide – and just as impor-tantly, what it won’t.”ButTom McPhail, head of pensionsresearch at Hargreaves Lansdown, warned the new rules could meanhigh earners missing out on some of the pensions perks they have accessto today.“If you’re earning above-averageincome and are 30 you won’t have built up a pension of more than £144a week,” said McPhail. “You’re now not going to have a chance to buildthat – you’re going to pay the sameNational Insurance to get less.” At the moment there is a basicstate pension of £107 a week, whichcombines with various pension cred-its and earnings-related elements to
Junk-bond prices point to bulls return
The junk-bond market is sending a bullishsignal for the global economy in 2013,with investors in US high-yield securitiesearning higher returns so far this yearthan those who have bought investment-grade debt. High-yield bonds are an acutebarometer of risk appetite and rises intheir prices have often signalled a turn insentiment.
 Austerity gives drinkers bitter taste
Britain’s favourite pint of bitter is beingwatered down as austerity continues tobite and taxes rise. John Smith’s ExtraSmooth, billed as “no nonsense beer” , isbeing reduced from 3.8 per cent alcoholto 3.6 per cent in response to rising costsand reduced beer consumption.
EU berates China over steel subsidies
The European Commission has concludedthat China is providing illegal subsidies toits steel manufacturers, paving the wayfor European companies to seek higherimport tariffs on a wide range of Chineseproducts. A report obtained by theFinancial Times said organic coated steelmakers could buy materials at a low rate.
Bold new era for capital shopping
From next month Britain’s biggest ownerof shopping centres would like to beknown as “Intu”. Capital ShoppingCentres is changing its name after a year-long project at a cost of £7m, aided byLandor Associates, a branding agencywith clients such as Smirnoff and Citroen.
Seven-runway airport at Beijing
China’s political and military leaders havegiven the green light to a new seven-runway international airport for Beijing.
British banks admit poor lending
Britain’s largest banks privately admitthey are in a “downward spiral” of poorlending decisions and have a “computersays no” attitude to small businesses,according to the former chairman of HSBCLord Green, who is now the government’strade minister.
Iberdrola shelves Scottish Power sale
Spanish power giant Iberdrola has shelveda plan to sell off part of its Scottish Powerdivision. Iberdrola had mulled a sale of astake in its UK regulated power business.
 A blame game for forint’s fall
Hungary’s economy ministry blamedNouriel Roubini’s research firm forsparking a slide in the country’s currency.Roubini’s firm pointed to the minister’sown comments that hinted thegovernment would prefer a weaker forint.
France to pay EDF $6.57bn
The French government has agreed to paystate-controlled power utility Electricitede France €4.9bn (£4.1bn) to coversubsidies for green energy and the poor.
DAVID Cameron was dealt a blowlast night as peers voted to block a government plan for constituency  boundary changes.By 300 to 231, the House of Lords voted to delay the boundary review until 2018, scuppering themove to cut the number of MPsfrom 650 to 600.The Prime Minister is also facingopposition on his plans for theUK’s relationship with Brussels.Cameron will set out his plan forBritain to repatriate powers fromthe European Union on Friday morning, it has been confirmed.Downing Street said the PrimeMinister will deliver his long-awaited speech on the UK’s futuremembership of the EU in Amsterdam, following a meeting with Dutch PM Mark Rutte.Cameron is expected to say theEurozone crisis and the resultingdrive towards closer fiscalintegration offers a chance forBritain to establish a more arms-length relationship with the bloc’s26 partners.The Prime Minister yesterday disappointed some of his Tory  backbenchers by ruling out astraight referendum on the UK’scontinued membership of the bloc, though he strongly hintedthat the public would have theirsay on any renegotiated deal.
Blow to Cameronahead of crucialspeech on EU
Pensions minister Steve Webb said the current pension system is too complicated
To contact the newsdesk email news@cityam.com
O that’s it, then: HMV has finally gone into administration, thelatest, most tragic victim of therevolution that is sweeping away erstwhile giants. This comes just daysafter Jessops, the camera firm, wasliquidated, and after the demise of Comet, the electrical retailer.So who’s responsible? Quite simply,all of us. Consumers are all-powerful,and shifting tastes and technologiesmean that fewer of us had chosen toshop in these stores. We are the mas-ters, and the capitalists our servants.It’s become easier to buy goodsonline, or pick them up (or arrangefor them to be delivered) from a super-market – and of course music is now primarily digital, with films followingsuit thanks to the likes of Amazon’sLove Film. HMV still controlled 38 percent of what was left of the physicalmusic market.
HMV’s demise shows why even giant firms have feet of clay
It is always sad to see ancient busi-nesses die, and it is terrible news forthe staff, whose livelihoods have sud-denly evaporated. The governmentmust do more to liberalise the econo-my to make sure more entrepreneurscreate more firms and hence jobs.But that’s capitalism and theprocess of creative destruction: itensures ruthlessly that we get what we want, and that resources thatcease to be used in an economically rational manner are reallocated swift-ly. New models have emerged; they have displaced the incumbents by providing goods and services moreconveniently and cheaply. Those whomoan at HMV’s demise should look atthemselves in the mirror. There were also some cyclical fac-tors: the economy is not doing wellenough. But that wasn’t the real rea-son – and neither was the fact thatsome firms have a tax advantage overothers. No, the recent spate of bank-ruptcies – unlike some earlier ones – was almost entirely caused by theaccelerating technological revolution.Several other stories in today’s paperare also directly the result of this tech-nological revolution. Global PC salescollapsed 3.5 per cent last year, thefirst drop since 2001, according toGartner, despite strong global eco-nomic growth, thanks to the rise of tablets. And while Apple, whosetem is simpler. But there are prob-lems. Contracting-out, introduced inthe 1980s, was originally meant to bethe precursor for a system of fully-funded private savings accounts.Sadly, this never happened.But its abolition will hike thenational insurance (NI) paid by many employers and employees; this willdestroy some private pension provi-sion and hike taxes on labour. NI isnow officially meaningless, merely asecond tier of income tax. But at leastthis has the benefit of honesty – andit will make radical tax reform andthe merger of the two taxes much eas-ier to achieve. Now for the hard bit:the public will need to save much,much more in the years and decadesahead.iTunes helped kill HMV, is doing wellfrom this shift – its Macs are thriving,not just its iPads – even it is suffering:its share price tumbled as other, nim- bler competitors such as Samsung aregaining ground in smartphones. Thefallout from this endless technologi-cal revolution triggered yet anotherstory: Dell’s share price shot up afterrumours the firm may be taken pri- vate. There is no more brutal combi-nation that those of technologicalchange, globalisation, and consumerpower. Corporations may seem unbe-lievably powerful but in reality they are giants with feet of clay.
Many of the government’s pensionreforms are good – but some aren’t. The end to means-testing is excellent;saving will always pay. The contribu-tory principle remains. The new sys-produce a final payout. As a result twomillion retirees currently receive astate pension of over £150 a week, while others receive far less. The new plan combines the basicstate pension and the earnings-relatedelement. Everyone who pays NationalInsurance (NI) for more than 10 years –or is registered as carer or on qualify-ing benefits – will now receive somestate pension payments when they retire. The exact amount will increaseproportionate to how long they paidNI, with every year of contributions upto 35 years increasing the individual’spension until it hits a universal rate of £144 a week.People who have already built up anentitlement of more than this will beallowed to retain the higher sum. Butchanges will not come into effect until2017 at the earliest, meaning somepeople about to stop work will receivea pension well below £144 a week. All contracting out of pensions willcease when the new system is intro-duced, meaning a rise in NI paymentsfor those who still enjoy defined-bene-fit pension schemes. Critics say theincrease in contributions –whichcould see an employee on £40,040 a year pay an extra £481 in NI may bethe death knell for the remaining finalsalary schemes in the private sector.
The new jobs website for London professionals
The 25-year-old City worker
“Young people who expect to earnmore than the average person duringtheir career have missed out on thepotential to receive more than thebasic state pension,” explains PeterMcDonald, a PwC partner. “But theyface greater certainity as long as thegovernment’s promise not to meanstest the pension stays in place.” Allworkers will require 35 years ofcontributions before collecting theirstate pension, rather than 30 today.
High earners in their 30s and 40s
“Somebody nearer 40 who isearning around £40,000 a year willbenefit,” says McDonald. “But this isthe group that has been most affectedby closures to defined-benefitschemes.” People who have alreadybecome eligible for a weekly statepension of more than £144 will keeptheir advantage. But around 700,000contracted-out high-earners in privatesector defined-benefit schemes willpay more in National Insurance.
The 65-year-old about to retire
The reforms announced yesterdaywill not be implemented until 2017,after the next general election. As aresult those are due to retire in thenext few years –and people who arealready pensioners –will have theirpayments calculated under the oldsystem throughout their retirement,even if the sum is below the new flatrate of £144. “The cliff-edge nature ofthe policy is one thing for governmentto consider,” admits McDonald.
 THE Bakrie family yesterday threatened to renege on itsproposed divorce with Bumi if NatRothschild’s plans to re-installhimself on the miner’s board are voted through.Co-founder Rothschild last week called for a general meeting tooverhaul the board. The Bakrie family said they willuse “all legal means” to honour theterms of the relationshipagreement, which gives thepowerful Indonesian family theright to appoint key Bumipositions. The Bakries said yesterday thatthey would “seriously consider the withdrawal of its offer in the eventthat Rothschild wins support forhis proposal to change the board orindeed if the company fails tohonour all obligations under therelationship agreement”.In response, Rothschild’s vehicleNR Investments took itsshareholding in Bumi to more than18 per cent as a sign of confidencein the company “once a new boardhas been elected”, calling theBakrie threat “juvenile”. A spokesperson for NRI said thatthe relationship agreement is between the board and the Bakries,and does not affect whatshareholders can vote on at themeeting, and does not affect theirability to put in place a new board.
Bakries sayBumi deal offif board goes
BANK job losses are set to be matched by tough bonus cuts as the industry seeks to keep costs under control, with Barclays and Deutsche Bank yes-terday joining the long list of institu-tions thought to be preparing to keepa tight hold on the purse strings.Deutsche Bank is expected to cut its bonus pool by up to 20 per cent, aspart of a clampdown on costs which was announced last September. That review established a new remu-neration panel, as well as increasingthe vesting time for executives’ share bonuses. The bank is also in theprocess of cutting 2,000 jobs.Barclays is believed to be looking tochop the same amount from its pay costs, reflecting its third-quarterresults, which said the bank is cuttingthe investment bank’s compensationratio from 47 per cent to 39 per cent.It too is thought to be consideringcutting 2000 jobs to cut costs back fur-ther. But they are not the only bankslooking at trimming bonuses and jobs.Investment banks have had a tough year with the poor economic outlook 
Barclays andDeutsche to cutback bonuses
and low deal levels keeping a cap onearnings.Bonuses are designed to be variablepartly to reflect individual bankers’performance but also to make sure banks can easily cut their costs in lean years, like 2012.RBS’ bonuses are likely to be cut asthe bank faces a Libor fine of hun-dreds of millions of pounds, whileHSBC is believed to be restricting bonus rules after their fine for havingpoor money laundering controls.Even Wall Street’s highest paid boss Jamie Dimon of JP Morgan is likely tohave his payout slashed as a result of the London Whale derivatives tradinglosses last year.
Barclays PLC
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 JP MORGAN Chase was last nightordered by regulators to tighten uprisk controls after a trader knownas the London Whale lost the firm$6.2bn (£3.9bn).The investment giant was hit with two consent orders from theFederal Reserve and the Office of the Comptroller of the Currency,one for the trading losses, andanother requiring it to comply more closely with measures aimedat tackling customer money laundering. A spokesperson for JP Morganpromised the bank was taking steps
JP Morgan ordered to tightenrisk controls after Whale losses
to deal with both issues.“Complying with anti money laundering responsibilities is a toppriority for us,” a spokespersonsaid. And of the controlssurrounding the London Whalelosses: “We’ve been working hardto fully remedy the issuesidentified in the consent order.” As well as US authorities, theUK’s Financial Services Authority issued a statement saying it wasalso making a formal investigationinto the trading losses that not only hit the banking giant’s reputationand balance sheet, but also lost itthe right to buy its own stock forsix months.
JP Morgan chief executive Jamie Dimon has pledged to tighten risk controls

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