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Cityam 2013-02-13

Cityam 2013-02-13

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Published by City A.M.
Cityam 2013-02-13
Cityam 2013-02-13

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“Managers prefer to have more financial flexibility,but such flexibility comes at a cost.”
Henri Servaes, Professor of Finance
Corporate Finance Programmes
Apply now for April start. 5-day and evening programmes available.
Visit
www.london.edu/cf/ 
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Email
finance@london.edu
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Call
+44 (0)20 7000 7397
 
Leading Financial Thinking
 
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Henri
nagers preersuch flexibili
Servaes, Professor of Financ
 
o ave morety comes at ananca excost.”
 
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www.london.edu/cf/ 
Leading FinancialThinking
Comcast tobuy stake inNBCUniversal
US CABLE provider Comcast is to buy out General Electric’s (GE)entire 49 per cent stake inNBCUniversal for $16.7bn(£10.7bn), taking full control of thecompany behind CNBC andUniversal Studios. The deal, which was announcedlate last night, comes more than a year ahead of the original datethat was agreed when GE and Vivendi sold their majority staketo Comcast in 2009. The initial sale contract gave GEthe option to sell back as much asall its remaining stake inNBCUniversal by mid-2014.Comcast said in a statement yes-terday that NBCUniversal will also buy the buildings it occupies at 30Rockefeller Plaza in New York andCNBC’s headquarters in EnglewoodCliffs, New Jersey, for about $1.4bn. The TV and film company ownsalmost 100 US and internationalcable channels including newsnetwork MSNBC, as well asentertainment channels E! andBravo.It also owns the UniversalStudios theme parks and filmstudios like Universal Pictures, which made movies including Jaws, ET and Jurassic Park.Comcast said the deal will befunded by $11.4bn of cash inhand, $4bn of subsidiary seniorunsecured notes to be issued toGE, $2bn of borrowings under bank credit facilities and $725mof subsidiary preferred stock issued to GE. The takeover must still beapproved by regulators and isexpected to be finalised by theend of the first quarter.INTERNATIONAL leaders yesterday failed in their attempt to reassureinvestors that a currency war wouldnot be allowed to escalate, after a joint-statement failed to convince analystsand prompted sharp fluctuations inthe foreign exchange markets.Finance ministers of the Group of Seven leading nations, known as theG7, sought to reaffirm their “commit-ment to market determined exchangerates” in response to leaders in somecountries, such as Japan and France,advocating policies that are designedto weaken currencies.But the statement also said that“excessive volatility and disorderly movements in exchange rates can haveadverse implications”. It was initially read as a defence of the status quo,forcing a G7 official to speak out andsay it had been “misinterpreted”.“The G7 is concerned about unilater-al guidance on the yen. Japan will bein the spotlight at the G20 in Moscow this weekend,” the official warned.Having caused the yen to ease follow-ing the publication of the first state-ment, the official’s words caused it tospike against major currencies, gain-ing nearly one per cent against theeuro and US dollar. The greenback dived to below ¥93 during trading, before recovering to hover around ¥93.5 last night. As a member of the G7, Japan wouldappear to support the statement. Itsfinance minister, Taro Aso, has insistedthat the G7 has no problem with its
www.cityam.com
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ultra-loose monetary regime. New Prime Minister Shinzo Abe is pursuingan aggressive policy of easing.European Central Bank chief MarioDraghi attempted to play down talk of a currency war yesterday, tellingreporters: “I think the term currency  wars is way, way over done. We are not witnessing anything like that.” Yet leading politicians continue tocontradict each other over the use of currency manipulation ahead of theG20 summit at the end of this week.Incoming Bank of England governorMark Carney, speaking in Canada,insisted that the G7 statement was apledge that monetary policy mustonly be for “domestic objectives”. “It’simportant that we as a G7 go in unitedand forcefully to the G20 to enlargethat commitment as quickly as possi- ble amongst the major emergingeconomies in the G20,” he said.Some members of the G20, whichincludes China, “have a lot of work todo” when it comes to supporting flexi- ble exchange rates, Carney admitted.
BY KASMIRA JEFFORD
FTSE 100
6,338.38 +61.32DOW
14,018.70 +47.46NASDAQ
M
3,186.49 -5.51£/$
M
1.56 -0.01£/€1.17 unc€/$
1.35 +0.01
BY JULIAN HARRIS
G7 FAILS TO HALTCURRENCY WARS
JENKINS SHAKESUP BARCLAYS
See Page 3 and The Forum, Page 20
Certified Distribution
from 31/12/12 to 27/01/13 is 127,008
“WE’VE NEVER BEEN STRONGER” –TIM COOK SAYS APPLE IS AT TOP OF ITS GAME
APPLE chief executiveTim Cook sounded abullish note at aGoldman Sachs eventyesterday, reassuringinvestors that “limit”was not a word in hisvocabulary, and that thefirm remained a “centreof innovation”. Speakingahead of the bank’sannual technology andinternet conference,Cook acknowledged thelawsuit brought againstthe firm by DavidEinhorn’s GreenlightCapital last week, callingit a “silly sideshow” butsaying the board was“carefully considering”Einhorn’s proposal thatApple should returnpreferred stock toinvestors.
BUMI NEARS CRUCIALFINANCING DEAL
News, Page 5; Interview with Nick Von Schirnding, Page 17
ISSUE 1, 1,818 WEDNESDAY 13 FEBRUARY 2013
BUSINESS WITH PERSONALITY
 
allister.heath@cityam.comFollow me on Twitter: @allisterheath
Retailer Republic poisedto fall into administration
REPUBLIC, the youth fashion retail-er, is poised to become the latesthigh street name to collapse intoadministration, putting 1,000 jobsand 121 stores at risk.Ernst & Young has been lined up asadministrators and the appointmentis expected to be confirmed thismorning. The group’s demise marks the lat-est in a string of casualties since thestart of the year after Jessops,Blockbuster and HMV all enteredadministration, with more than10,000 staff made redundant. The chain, which is owned by USprivate equity giant TPG, has strug-gled to stem falling sales amid a weak consumer demand and a chal-lenging economic environment, par-ticularly in the North of England where most of its stores are based.Former Asda chief executive Andy Bond stepped down as chairman atthe end of January and last week itemerged that KPMG had been hiredto advise it on offloading the loss-making stores in its 121-strongestate. The retailer, which is led by former TK Maxx chief executive PaulSweetenham had been hoping tomove to monthly rents but it isunderstood that talks with landlordshave been unsuccessful. TPG bought the chain in 2010 for
THE DOW Jones industrial averageindex is close to hitting an all-timehigh, after edging up 0.34 per centto close at 14,018.70 last night.The key New York index isapproaching the 14,164.53 markthat it reached over half a decadeago –in October 2007. Yet equities across the pondcould swing either way today,depending on how investors reactto President Barack Obama’s Stateof the Union address, which wasmade overnight.The Standard & Poor’s 500 Indexclosed up.16 per cent, at 1,519.43.
Dow Jones nearto all time high
Republic, which is headquartered in Leeds, runs 121 stores and employs 1,000 staff
2
NEWS
BY JULIAN HARRISBY KASMIRA JEFFORD
To contact the newsdesk email news@cityam.com
U
NEMPLOYMENT remainsobscenely high in today’sstagnant Britain, and far toomany people – young and old –have been on the dole or on other outof work benefits for far too long. Anything that allows them to break out of their present predicamentshould be welcome. The government should be able toask those on benefits to work for theirmoney or to attend training; whenhandled sensibly, and with safeguardsto prevent this from turning into acorporate subsidy, such measures willhelp integrate people back into the workforce. They should be welcomed by all who want to help the poor. There is, however, a view amongsome activists that workfare pro-grammes are tantamount to slavery:they don’t see that benefits are equiv-alent to a wage. They also argue that
EDITOR’SLETTER
ALLISTER HEATH
Work placements for the unemployed make a lot of sense
WEDNESDAY 13 FEBRUARY 2013
some workfare placements aredemeaning, or that claimants shouldhave the right to refuse placementsthey don’t like and continue toreceive benefits. Such arguments aremisguided; there is no slavery asclaimants can choose to take neither job nor benefit, just like potentialemployees can turn down a job andtherefore not get paid for it. Thesesorts of analogies are in truth horri- bly demeaning of genuine slavery.Fortunately, yesterday’s high courtruling, which struck down the cur-rent scheme on a technicality, madeit clear workfare wasn’t forced labourunder the Human Rights Act. The gov-ernment incompetently communicat-ed requirements, provided wronginformation about penalties andmade other procedural blunders.Once again, civil servants were slop-py and failed to produce legislation orimplement the policy in a robustmanner. The rules are now beingtweaked to ensure the programme’ssurvival, but the government could yet be forced to pay out millions. Themachinery of the British state is becoming more shambolic by the day.
HOUSING BUBBLES (CONT.)
 Two more pieces of evidence to cheerthose seeking to buy a house – and worry those who fear the coalition’sfunding for lending programme and This won’t end well. The only sustain-able solution is to tear up our archaicplanning rules and allow hundreds of thousands more homes to be built.
DEALS ARE BACK
 A healthier development is the returnof mergers and acquisitions, thoughthe trend remains far too American.Last night’s news that Comcast is pay-ing General Electric $16.7bn for the49 per cent stake in NBCUniversal itdidn’t already own is a major move; itfollows the increasingly contestedmulti-billion proposed buy-out of Delland the takeover of Virgin Media by Liberty Global. For the sake of theCity’s underworked bankers andlawyers, let’s hope more UK compa-nies soon start to splash out.credit subsidies are fuelling another bubble. The Council for MortgageLenders revealed that 216,200 first-time buyers became homeowners in2012, the first time the annual totalhas exceeded 200,000 since 2007 anda year-on-year rise of 12 per cent. Andas noted by Ray Boulger of Charcoal,the Marsden Building Society haslaunched a 3.99 per cent fixed rateloan to July 2015. While this only allows buyers to borrow £250,000,this is the first time for nearly 10 years that we see such a cheap fixedrate mortgage available on a loan to value of up to 90 per cent. Money isreturning to the housing market. Theproblem is that house prices remainaround 25 per cent overvalued com-pared to earnings, and even more soin much of London. The surge in new mortgages has also been accompa-nied by a reduction in home-building.£300m with the aim of doubling thesize of the business to over 200 stores.It hired Sweetenham a year ago tospearhead a major investment pro-gramme. Republic’s co-founder andchief executive Tim Whitworth thenstepped back from the day-to-day run-ning of the business. TPG also invested more than £7m inIT facilities to improve the chain’sonline presence and hired formerMango buying director MelissaMcDermott to revive its womenswearrange.But the latest accounts show salesdeclined by 2.3 per cent to £177m inthe year to January 2012. Pre-tax profitslumped from £27.3m to £3.2m. A source familiar with the company said Republic’s target market of 16 to25 year olds has been particularly hit by the recession while its loss-makingstores have also burdened the group.Republic was founded by Whitworthand Carl Brewins in 1986 in Leeds asBest Company, selling denim andmens’ jeans. It was eventually renamed Republic in 1998.Both Ernst & Young and TPGdeclined to comment.CARSTEN Kengeter, the former chief executive of UBS’s investment bank, isleaving the group sooner than expect-ed as part of a management shake-up.Kengeter was recently moved from being co-head of the investment bank  with Andrea Orcel, its current chief executive, to head the winding downof the group’s fixed income business.But last night the bank announcedthat Kengeter was leaving the groupimmediately and would provide adviceon a consultancy basis.Sources said: “There’s a point whenit’s just right to move on.”UBS is reducing its headcount by 10,000 across the world.Sam Molinaro will become head of the non-core and legacy portfolio, withimmediate effect, reporting directly toSergio Ermotti, the bank’s chief execu-tive. Molinaro joined in March 2012 asCOO of the investment bank. The co-head of UBS’s financial institutionsgroup (FIG) in Europe, Edouard de Vitry, is also leaving as part of changesimplemented by new investment banking head Orcel. JavierOficialdegui, co-head of the FIG unit who was brought in by Orcel, will besole leader of the advisory team.Darryll Uden recently left as co-head of equity capital markets (EMEA).Separately, the bank was fined£9.45m by the FSA yesterday forexposing customers to unacceptablerisk when it sold an AIG investmentfund.
Kengeter exitsUBS soonerthan expected
BY DAVID HELLIER
LABOUR yesterday accused the government of failing to takedecisive action and build large-scaleprojects that could help kickstartthe economy.The party’s analysis of the government’s nationalinfrastructure plan suggested only seven out of the 576 major buildingprojects on the list have beencompleted, while just only 18 percent are under construction. A Treasury spokesman hit back:“Under Labour no nationalinfrastructure plan even existed.”
Infrastructureplan attacked
BY JAMES WATERSON
IT groups’ tax accounts face scrutiny
MPs are preparing to scrutinise the taxaffairs of IT companies that supply thepublic sector before a crackdown onaggressive avoidance by contractors thatreceive billions from taxpayers. The publicaccounts committee has confirmed that itis considering calling in some of the ITsector’s biggest companies, as a FinancialTimes investigation into nine governmentsuppliers shows they use a range ofmethods to keep taxes low, includingrecording UK sales in low-tax jurisdictions.
Rush to invest in Yorkshire potash
The latest discovery under the county’srich soil has sparked their biggestinvestment frenzy since the rhubarbboom of the interwar years. This time thecommodity is potash, a vital ingredientfor the fertiliser needed to feed theworld’s growing population.
CBI lowers growth forecast
A leading trade body for business has cutits forecast for UK growth but expectsBritain to avoid a triple-dip recession. TheCBI said it expects the UK economy togrow one per cent this year.
Bonus up for BP’s chief executive
Bob Dudley has been awarded a bonus of£2.6 million in cash and shares, despitepresiding over a 20 per cent slump inprofits at BP last year.
Iberia to jettison 3,800 jobs
Iberia today announced a plan to cut3,807 jobs as it attempts to stem losseswhich have reached €850 million (£731million) over the past four years.The job losses, which represent about 19per cent of the workforce, were reducedfrom an original figure of 4,500.
Rogue trader sues Societe Generale
French rogue trader Jerome Kerviel istrying to render meaningless the €4.9bnin damages he owes to Societe Generaleby seeking the same amount from thebank in a labour court.
Economic hopes rise on oil demand
The outlook for the global economyappeared to brighten as OPEC, the cartelof oil-producing nations, predicted theworld will consume more oil this year thanpreviously thought.It cited better thanexpected growth at the end of last year.
Intel to launch web TV service
Intel confirmed plans to offer a paidInternet video service and accompanyingset-top box, an unusual gamble for a chipmaker that has rarely marketed directly toconsumers.
Lehman in $800m property deal
Lehman Brothers Holdings has agreed tosell the Manhattan office tower at 237Park Ave. to a venture of RXR Realty andWalton Street Capital in what would beone of the largest sales in Manhattan inthe past year.
 WHAT THE OTHER PAPERS SAY THIS MORNING
Find your next step at
CITY  AM
CAREERS.com
 
BARCLAYS shares soared as the bank announced a major cost-cutting plan yesterday, shutting four businessunits and shaking up another 32 of its75 units to streamline the institutionand shore up profits in the face of a weak economic outlook.Chief executive Antony Jenkinsannounced 3,700 job cuts – well abovethe 2,000 expected – as part of a driveto save £1.7bn per year. Most of those will come in the weak European busi-ness and Asian equities arm that the bank is cutting back, though hun-dreds of cuts could come in the UK. And the bank cut its bonus pool b14 per cent on the year to £1.85bn.In a bid to improve Barclays’ publicimage, he will be gradually shuttingdown all activities designed purely tocut customers’ tax bills, as well as agri-cultural commodities trading, eventhough these units bring in £500m of revenue per year. Jenkins pledged to increase returnon equity so that is it above the cost of equity by 2015. Currently it stands at7.2 per cent, well below the 11.5 per
Jenkins slashes jobs and pay toshore up profit
BY TIM WALLACE
cent cost. He expects much of that tocome from profitable and highgrowth units including Barclaycard,UK mortgages and African activities.He also vowed to increase the com-mon equity tier one ratio to 10.5 percent and raise dividends. The bank’sfull year results showed a 96 per centfall in pre-tax profits to £246m,though an own credit charge of £4.58bn, PPI provisions of £1.6bn andinterest rate swap provisions of £850maccount for much of that drop. On anunderlying basis, unadjusted profitsrose 26 per cent to £7.05bn.Shares jumped 8.57 per cent.
C
ONSIDERING the glee with which investors reacted to Antony Jenkins’ plans yesterday, you’d been forgiven for thinkinghis cost cuts and clean-up had comeout of the blue.But these changes were widely trailed –almost down to the letter –so why was an extra 26p added to the bank’s share price yesterday, on top othe 36 per cent that the stock hasclimbed since he joined last August? The answer seems to lie in Jenkinsability to keep both shareholders and banker bashers happy at the sametime. These cost savings aren’t only headline grabbing –they’re absolutely necessary if the new boss is going todeliver the return on equity of 11.5 percent that he’s promised by 2015.It’s an ambitious figure that just wouldn’t materialise if Jenkins reliedon increasing revenues, particularly not with a massive £2.7bn in restruc-turing costs lurking on the horizon.Investors’ and analysts’ positive reac-tion proves that the mess Jenkins wasleft with when he took over from BobDiamond last summer may actually have been a blessing in disguise. Withfines piling up and executives fallingon their swords all over the place, theretail man had a free pass to sweepaway the bad eggs –racking up costcuts that could have otherwise beenmet with a little more scepticism.It’s left him sitting pretty at thehelm of the UK’s top performing bank throughout the second half of 2012and into the New Year –but now thehard work begins. Jenkins has spent along time explaining what he wantsthe new-look Barclays to deliver andnow it’s time for his plan to be tested.Investors shouldn’t let him rest on hislaurels for long.
 Elizabeth Fournier is news editor of City A.M. @ej_fournier 
BOTT
 
OMLINE
ELIZABETH FOURNIER
Antony Jenkins made some big promises as he announced planned cuts to jobs and bonuses yesterday
Barclays PLC
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WEDNESDAY 13 FEBRUARY 2013
 
3
NEWS
cityam.com
Barclays’ new broom shows he can balance the books
         ”
There is no choice between doing wellfinancially and behaving well. We willnot be able to generate sustainablereturns over the long term unless weact at all times with good values.
         ”
We may sometimes fall short of thehigh standards that we have set. But I
p
romise you it won’t be for lack ofenergy, effort or intent. Where we doget it wrong, we will
p
ut things right.

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