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Cityam 2013-02-06.pdf

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RBS set for a miserable day as FSA readies Libor fine
 TAXPAYER backed Royal Bank of Scotland is expected to be hit with afine of around £390m by the City  watchdog and US regulators today over its role in the Libor riggingscandal, piling further politicalpressure on the bank.RBS, which is 82 per cent owned by the state, is to announce asettlement with the UK Financial
Services Authority, US Departmentof Justice and US Commodity Futures Trading Commission overthe scandal following months of negotiations over the size andseverity of the punishment betweenthe parties. The fine, which will weigh in ataround £390m, is set to be revealedat midday, although a source saidthere could be last minute changesto the figure.Investment banking head JohnHourican, who joined after the bailout, is also understood to bequitting the firm.He will be forfeiting a £4m share bonus, despite the fact thatregulators and the bank’s boardacknowledge that he had noknowledge of, or involvement in,Libor-rigging.Hourican, who took over theinvestment division after the Liborrigging incidents, is expected toleave the bank with a minimumpayout of £700,000, equivalent to a year’s basic salary. The Libor fine will be the latest ina string of punishments handeddown by global financial regulators, which has seen Barclays fined£290m and UBS $1.5bn (£940m). RBSchief executive Stephen Hester haspreviously warned of a “miserableday” in the bank’s history when thefines are handed down. Publicationof embarrassing emails exposingthe extent of collusion betweentraders is also likely to heapscrutiny on the firm. The outcome could provepolitically explosive for the bank, which is still wrestling with its stateowned structure. Chancellor GeorgeOsborne has previously said finesshould be paid out of banking bonuses.
Computer maker Dell taken private in largestleveraged buyout since before the financial crisis
FTSE 100
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See The Capitalist, Page 13
See Page 11See The Forum, Page 18
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from 26/11/12 to 30/12/12 is 127,678
US billionaire John Malone closes in on$20bn deal for UK telecoms giant Virgin Media
 TWO of the biggest buyout dealssince the financial crisis struck  were revealed yesterday, asBritish communications firm Virgin Media and US computergiant Dell moved towards deals valued at more than £12bn each. Virgin Media, the UK’s secondlargest broadband supplier,signed off on talks late last night with US billionaire JohnMalone’s Liberty Global over adeal expected to be wortharound $20bn (£12.8bn).Meanwhile, PC manufac-turer Dell ended weeks of speculation over its future by announcing a $24.4bnprivate buyout led by chief executive MichaelDell. The deal is the biggest leveraged buyout sinceBlackstone took Hilton Hotelsprivate for$26bn in July 2007.Dell hasstruggled inrecent years asconsumersshun new PCsin favour of tablets andsmartphonesand as competi-Microsoft, which is looking torevive a PC industry which saw shipments fall for the first timein a decade last year, said it is“committed to the long termsuccess of the entire PC ecosys-tem” and that it “invests heavily in a variety of ways to build thatecosystem for the future”.However, Hewlett Packard, the world’s biggest PC manufactur-er, issued an unusual jibe at itsrival. “Dell has a very tough roadahead. The company faces anextended period of uncertainty and transition that will not begood for its customers,” HP said. Virgin Media yesterday con-firmed it was in talks withLiberty Global over “a possibletransaction”. This is understoodto be a sale, which could beannounced as early as today, when the broadband, pay TV and mobile phone company announces its annual results. The two parties met in New  York last night to sign the deal, which will pit Malone againsthis old rival Rupert Murdoch, who owns 39 per cent of VirginMedia competitor BSkyB.Following the announcement,shares in Virgin Media shot up18.5 per cent in New York to value the firm at $12.4bn. TheBritish company has almost£6bn in debt.
tion from the East hassurfaced.Michael Dell, whofounded the Texas- based company in1984, is rolling overhis 14 per cent stakeas well as putting ina sizeable portion of an estimated$16bn fortune.Buyout specialists Silver LakePartners will put cash into the deal,and Microsoft, which counts Dell asone of its biggest customers, is con-tributing a $2bn loan. Bank of  America Merrill Lynch, Barclays,Credit Suisse and RBC CapitalMarkets are adding debt financing.“I am committed to this journey and I have put a substantial amountof my own capital at risk together with Silver Lake, a world-classinvestor with an outstanding repu-tation,” Michael Dell said yesterday.
US billionairesMichael Dell, right,and John Malone,lead the deals
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allister.heath@cityam.comFollow me on Twitter: @allisterheath
UK service sector swingsback into output growth
 THE BIGGEST sector in the UK economy swung back into growthin January, banishing fears of atriple-dip recession.Markit’s purchasing managers’index (PMI) for services jumpedfrom 48.9 in December to 51.5 inthe first month of 2013, indicat-ing a rebound from slight declineto moderate improvement. With the January improvementin manufacturing activity, thismeant the all-industry compositeoutput index also moved intoexpansion, from 49.9 inDecember, suggesting marginalcontraction, to 52.0 in January. Analysts hailed the upbeat dataas squashing fears the economy  would register a second straightquarter of falling GDP, and there-fore a third technical recession in just over four years. A return toeconomic growth, after outputshrank 0.3 per cent in the finalthree months of 2012, would be amassive boon to the credibility of chancellor George Osborne.Chris Williamson, chief econo-mist at Markit said: “A huge sighof relief accompanies these num- bers, as a return to growth in theservice sector greatly reduces thelikelihood of the UK falling back into a triple-dip recession.”
Turner defends permanent printing
Lord Turner, outgoing chairman of theFinancial Services Authority, has launchedan impassioned defence of financinggovernment spending by printing money,arguing that within limits it “absolutelymdefinitely [does] not lead to inflation.Speaking ahead of a valedictory speech inLondon today, Lord Turner, who appliedto be the next Bank of England governor,called for “intellectual clarity” ineconomic policy, including breaking thetaboo that permanently printing moneyto pay for government is always bad.
Swiss banks end partner liability
Pictet and Lombard Odier, two ofSwitzerland’s oldest private banks, havebroken with more than 200 years ofhistory by calling time on their existenceas unlimited liability partnerships.
 Amazon launches virtual currency
Amazon is launching a virtual currencythrough which it will subsidise developers joining its service. Amazon said it wouldgive out “tens of millions of dollars” ofAmazon Coins to spend on apps andgames. Developers will get 70 per cent ofthe currency spent to convert to dollars.
University cities “best” for business
University cities led by Cambridge cametop in a league table assessing Britain’sbest places to do business. Oxford andEdinburgh take the second and thirdplaces in Santander’s Town and City Index
Kingfisher Airlines “lost £1m a day”
Kingfisher Airlines lost £1 million a day inthe final three months of last year, aperiod during which none of its aircraftmade a commercial flight. The carrierfounded in 2005 has never made a profit.
Compensation to 6,000 dead savers
More than 370,000 policyholders who hadtheir pensions wiped out by the collapseof Equitable Life have been paid partialcompensation, but 6,000 payments wentto estates of those who died waiting for it.
HMRC charge taxpayers twice
Up to a thousand taxpayers paying onlinethrough the BillPay system, managed bySantander Corporate Banking werecharged more than once for their tax billlast week due to a system failure at HMRC.
Lego to lay off 380 in Denmark
Lego said it will lay off hundreds ofworkers in Denmark in order to move itsassembly and packaging activities closerto “core markets.” in the Czech Republic,Hungary and Mexico
Pringles boosts Kellogg sales
Kellogg sales jumped 18 per cent in thefourth quarter, helped by its recentacquisitions of Pringles crisps, growth inLatin America and improving results inNorth America.
THE HOUSE of Commons backed gay marriage overwhelmingly lastnight, although more Tory MPs voted against David Cameron than with him.136 Conservative MPs opposedthe bill, which will allow same sexmarriage for the first time inBritain, while 127 backed it and 40abstained. 12 Tory ministers,including Owen Paterson, theenvironment secretary, and David Jones, the Welsh secretary,opposed the bill.Despite less than half of Conservative MPs voting in favourof the bill, widespread supportfrom Labour and the LiberalDemocrats pushed it through. 400 voted in favour, with 175 against.217 Labour MPs backed gay marriage with 22 opposed, while44 Lib Dems voted for the billagainst four who voted against it.London MPs to vote against the bill included Tories Sir MalcolmRifkind (Kensington) and DavidEvennett (Bexleyheath andCrayford), Lib Dem Sarah Teather(Brent Central) and Labour’sStephen Pound (Ealing North).Cameron said the vote was “animportant step forward for outcountry”. The bill will now bescrutinised in the House of Lords.
MPs back gaymarriage butCameron defied
A triple-dip recession would be a hammer blow to chancellor George Osborne
To contact the newsdesk email news@cityam.com
F you have savings, which assetclass you choose to allocate your wealth to is one of the mostimportant decisions you will evermake. It is vital to look at very long-term returns, and there is no betterplace to find this information thanCredit Suisse’s global investmentreturns yearbook, published today.Over the last 113 years, the real valueof UK equities, with dividends rein- vested, grew by a factor of 316.0, com-pared to 5.5 for bonds and 2.9 for bills.In other words, the very long-termperformance of equities – not justtheir capital gains or indice values, but crucially with reinvested income– is gigantically superior. Another way to look at the figures is annualisedreal returns: equities delivered 5.2 percent a year, bonds 1.5 per cent, and bills 0.9 per cent since 1900. The problem with these figures,
We will have to save far more as investment returns dwindle
however, is that nobody has a 113-yearinvestment horizon. Even multi-decade periods can vary substantially from these very long-run outcomes,an issue for real world investors.Investors who buy and sell at the worst times will massively underper-form. Wall Street suffered a real capi-tal loss of 67 per cent in 1929-32,followed by a huge rebound of 50 percent in 1933. It suffered a real capitalloss of 39 per cent in 2008, followed by a 23 per cent rebound in 2009. InBritain, there was a real capital loss of 36 per cent in 1920, then a gain of 75per cent in 1921-22. The 1970s werecrazy: UK equities collapsed 74 percent in real terms in 1973-74, beforesurging 86 per cent in 1975.It is clear that the world today – andprobably for the next few decades – will be very different to what we haveseen in recent decades. From 1950 todate, the real return on world equities was 6.8 per cent per year; from 1980,it was 6.4 per cent. The world bondreturns were 3.7 per cent and 6.4 percent, far higher than normal in thelast 33 years. We have just come out of a period of exceptionally high returnsfor many asset classes: even cash gavea high real return, averaging 2.7 percent per year since 1980, far morethan in previous decades.Perhaps most interestingly of all,the Credit Suisse data shows how sav-a year on an all-equity fund. Assume a 25-year old entering adefined contribution pension scheme with the hope of retiring at 65 on half their salary. If the after-costs realinvestment return is 4 per cent, they  will need to contribute 10 per cent of their salary. A more realistic assump-tion is that the after-costs real return will now be 1-2 per cent. This requiresa contribution rate of a crippling16-20 per cent, the authors calculate –and that is if they start at the age of 25. If they start any later, then the per-centage will be much higher. Who do you know saves a quarter ora third of their salary for their pen-sion? A horrible crisis is looming,caused by low returns, one worsethan almost anybody realises.agely equity investors have been ham-mered in recent years. Over the first13 years of the 21st century, the realreturn on the world equity index was just 0.1 per cent per year. Real bondreturns stayed extraordinarily high at6.1 per cent per year but the long bull market in bonds, which startedin 1982, is now over, in a dramaticand hugely important shift. The research’s conclusions aredepressing. The high returns madefrom stock market investments in thesecond half of the 20th century wereabnormal; the same is true of thehigh bond markets returns made of the last 30 years and the high infla-tion-adjusted interest rates since 1980. The future will be one of much lowerreturns. Credit Suisse estimates thatover the next three decades, globalinvestors can expect to earn a realreturn of a maximum of 3.5 per centIn a note Colin Edwards at theCentre for Economics and BusinessResearch (CEBR) agreed that the sizeof the service sector –it makes upabout three quarters of GDP –meant expansion there was evi-dence the UK economy wouldreturn to expansion.“Barring another dramatic turn of events, early signs suggest that theUK will more likely than not avoidcontraction in the first quarter atside-step a triple-dip recession,”Edwards forecasted.But other analysts stressed thatthe levels remained well-below pre-crisis norms.
UK services rebound to quash triple-dip fears
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Japan bank chief to leave early
Japanese markets are expectedto rise today, helped by a sharp fall inthe yen after central bank governorMasaaki Shirakawa decided to stepdown three weeks earlier thanexpected, possibly bringing forwardan anticipated shift to a moreaggressive monetary policy. PrimeMinister Shinzo Abe has made it clearhe wants someone in the job who willbe bolder than the outgoing bankchief in loosening monetary policy.
Huhne ex-wife sought revenge
Vicky Pryce, the ex-wife of formerenergy secretary Chris Huhne,attempted to destroy his career inrevenge for ending their marriage, acourt heard yesterday. Pryce haspleaded not guilty to perverting thecourse of justice regarding allegationsshe took speeding points on herdriving licence instead of Huhne.Having previously professed hisinnocence, Huhne pleaded guilty toperverting justice on Monday.
BlackBerry reports high demand
BlackBerry has said that sales of itsnew smartphones, released in the UKlast week, have beaten expectations,selling out in some stores. Phonesrunning new BlackBerry 10 softwarehave been made available in the UKbefore anywhere else. The release ofthe new handsets is seen as a make orbreak moment. “The response we’veseen exceeded all of our launchpartners’ expectations,” UK managingdirector Stephen Bates said.
SWISS bank UBS plunged to a loss in2012 as its huge Libor fine andongoing restructuring programmepushed income down and expensesup, the institution said yesterday. The bank also launched a SFr5bn(£3.5bn) bond buyback as it hassharply reduced its funding needsand wants to reduce its costs in line with that.Operating income for the yeardropped 8.4 per cent to SFr25.44bn, while operating expenses increased21 per cent to SFr27.22bn. That leaves a pre-tax operating lossof SFr1.77bn, compared with a profitof SFr5.31bn for 2011, and a lossattributable to shareholders of SFr2.51bn, compared with a 2011profit of SFr4.14bn.For the fourth quarter of 2012 the bank made a loss of SFr1.89bn, itssecond consecutive loss.UBS was hit with a Libor fine of SFr1.4bn in December and is already in the process of laying off 10,000staff as it shuts down much of thefixed income arm of its investment banking operations. The bonus pool has been cut banother seven per cent to SFr2.5bn toreflect that, and a bail-in element will be applied to those awards.But the bank is making progressin its restructuring, shrinking its balance sheet and reducing fundingneeds, leading to the bond buyback.
UBS takes lossas shake upgets underway
FINANCIAL advisers for the house- builder Crest Nicholson have man-aged to attract sufficient demandfor the upcoming IPO a week aheadof schedule. The demand for the offer has beenachieved despite the nervousness inthe financial markets on Monday and despite the paucity of new issues in the London markets overthe past couple of years.Sources close to the deal, which isthe first major IPO of the year inLondon, said yesterday that the book was fully covered at the bottom end of the 195p-230pprice range. With a week to go beforepricing is finalised, the group’sadvisers from Barclays, Lazard,HSBC and Numis, hope tonudge the price towardsthe middle of the range. The housebuilder, which was taken private by Scottish entrepre-neur Tom Hunter andHBoS in 2007, will havea market capitalisation
Crest Nicholsonflotation gets afirm following
of between £487m to 578m after thelisting, which will include the sale of new and existing shares.Crest hopes to raise £56m sellingnew stock, while existing sharehold-ers, including Deutsche Bank and Varde Partners, will sell as much as£175m worth of shares. Deutscheand Varde will make a healthy profiton their investment.Last month, the 50-year-old firmsaid it would return to the stock market to position itself for a house- building sector recovery five yearsafter being taken over during a hous-ing market crash. The group and its chief execu-tive Stephen Stone have beenholding back-to-back institu-tional meetings in the UK andUS in the past few days andtheir diaries are jammedfull until the closingdate next Tuesday. The issue is being watched by otherIPO contenders.
Stephen Stone’splans get backing
SCRAPPING the implicit subsidy for banks and making sure they will beallowed to fail when they get intotrouble should reduce publichatred for the sector and benefitthe City in the long run, JPMorgan’s former investment banking head said yesterday.Bill Winters argued US bankshave benefited from state supportand a sense of nationalism inhanding out punishments, but thatLondon will be better served by remaining open to global finance.“Banker bashing is a bad thing –if you wake up every morning to be
Ex-JP Morgan chief says cuttingstate aid for banks will aid City
lambasted in the headlines, it is lesslikely you will want to work in thefield, and that reaction to the crisishurt the economy,” he told theparliamentary commission on banking standards. “But if you getit right, international financierscan work in London withoutdomestic banks’ actions havingrepercussions for them and itshould make it more attractive forthem to work here.”In that way the UK is better thanthe US where bankers have beenattacked for decades, he said, butargued the UK must stop attackingthe industry if it wants to remain a good place for global finance.
Bill Winters holds some sway with MPs as he helped write the Vickers banking plans

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