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Cityam 2013-02-19

Cityam 2013-02-19

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Published by City A.M.
Cityam 2013-02-19
Cityam 2013-02-19

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02/19/2013

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GBP/USD
Feb 2013Jan 2013
1.6001.5501.5001.650
1.547
1.63
BUSINESS WITH PERSONALITY
This house believes that the future belongs tofemale leaders.
Register atwww.cassmba.comThe Cass MBA.Inspiring stories. Join us with our Cass Leadership Series onThursday March 7th,as our experts debate whether the best way to get business back on track is to put women in charge.
www.cassmba.com
The Cass MBA.Inspiring stories.
Sterling hitsseven-monthlow on dollar
STERLING slid to a seven-monthlow against the dollar yesterday,after the Bank of England’s Martin Weale suggested on Friday thatrate-setters wanted the pound to weaken in order to boost demand. The pound fell 0.5 per centduring the day to reach $1.5438, itslowest point since July last year,and five per cent below where itstarted 2013. This came after a speech in which Weale said the Bank shouldhold off from counteracting any rise in inflation that is caused by a weakening exchange rate. “To doany different would be to veertowards deflation as a means of restoring equilibrium,” Weale said.In the same day, the yenresumed its falls, after the G20group of major economies decidednot to censure Japanese monetary easing that has seen the currency  weaken 20 per cent against thedollar since November last year. And analysts said the yen would weaken further as Bank of Japan(BoJ) boss and monetary hawk Masaaki Shirakawa stepped downfrom his post, and premier Shinzo Abe said he would change BoJ law if the Bank did not boost inflation.
Boris Johnson called for banks to be allowed to set their own bonus levels –but also to pay a better wage to those at the bottom of the pay scale
BORIS Johnson last night told
City A.M.
that “we don’t need Europe butting inon bonuses,” as he launched a staunchattack on the EU’s plan to cap bonusesat the same level as salaries.“I’ll always be the first to defend theCity – we need to remain competitive,”said the Mayor, as he defended London banks’ right to pay their workers whatthey want. Negotiations have heatedup in recent days as politicians try tohammer out a deal on new reforms. Johnson fears a cap would have unin-tended consequences, pushing upsalaries and making the sector lessflexible. It is understood the Mayor’soffice is also concerned that the plans would make it harder for banks to cutcosts in a downturn, as well as affect-ing Britain’s competitiveness com-pared to other financial centres suchas New York and Hong Kong.But Johnson insisted banks must alsoconvince the British public that they  benefit the wider economy by payinggenerous wages to low-level staff andtaking part in philanthropic activities.“If our banks and our finance housesreward top staff so handsomely thenthey need to give something back. That starts with the London Living Wage,” the Mayor said. He is backing acampaign for London firms to pay allstaff a minimum of £8.55 per hour.European parliamentarians have been pushing hard for the cap on bonuses, and countries led by France
www.cityam.com
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have taken up the demands. If approved, bonuses will be capped atthe same level as the worker’s salary,though a two-thirds vote of sharehold-ers could double that level. The Irish presidency of the EU hasmade the reforms a priority for thenext six months, while Germany hasdropped its opposition to the cap. That leaves Britain alone in publiclopposing the plan. The UK favourspushing banks to pay more in shares,deferred for several years to allow  banks to claw back the bonuses if longterm performance is poor. The industry fears the UK will now  be defeated, hitting the sector.“George Osborne doesn’t want tostand up alone and argue for bigger bonuses, so we will lose out by default. The banks have no friends on this one,so the end result will be another lossto London’s competitiveness,” said oneindustry insider.“This cap will make other parts of the world more attractive to bankerslooking at where they want to work,”added TheCityUK’s Chris Cummings. The banks themselves are concernedthat pay packages designed to encour-age long-term success will now bescrapped in favour of the capped one- year bonuses. “This simply stops share-holders from having any redressagainst bad performance,” warned asource at a major UK lender. The Treasury declined to comment.
BY BEN SOUTHWOOD
FTSE 100
6,318.19 -10.07DOWCLOSED YESTERDAY NASDAQCLOSED YESTERDAY £/$1.55 unc£/€1.16 unc€/$1.34 unc
ISSUE 1,822 TUESDAY 19 FEBRUARY 2013
DON’T TAXFIZZY DRINKS
See the Forum, Page 21See Sport, Page 26
EXCLUSIVE
BY TIM WALLACE ANDJAMES WATERSON
ALLISTER HE
 
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from 31/12/12 to 27/01/13 is 127,008
 
 WENGER ON THE ROPES
ARSENAL BOSS UNDER PRESSURE AHEAD OF CRUCIAL BAYERN MATCH
BORIS TO EU: BACK
OFF ON BANK PAY 
 
allister.heath@cityam.comFollow me on Twitter: @allisterheath
Cameron demands Indiaopens up economy to City
DAVID Cameron yesterday called onIndia to open up its economy toBritish banks and insurers, in returnfor relaxing UK visa rules for execu-tives from the subcontinent.But the Prime Minister faced diffi-culty as he waded into the debateover two troubled defence contractsand tried to convince India to handmajor infrastructure contracts toBritish businesses.“Britain is an open economy and we encourage that investment,Cameron said in New Delhi. “I think,in return, we should be having a con- versation about opening up theIndian economy, making it easier todo business here, allowing insuranceand banking companies to do moreforeign direct investment. The Prime Minister is in the coun-try with a 100-strong trade delega-tion, as well as four ministers andnine MPs, in the hope of boosting business links with one of the world’s fastest growing economies. Yesterday he unveiled plans toallow Indians to receive a same-day  visa if they want to visit the UK on business by streamlining the exist-ing bureaucracy-heavy process.However large state-backed con-tracts remain the top prize. Cameroncontinues to argue that India shouldreconsider its decision to order 126
Employers work to avoid Obamacare
US companies that employ millions ofworkers are considering cutting theirhours or paying fines rather thanenrolling staff in health insurance plansunder Barack Obama’s landmarkhealthcare law. Employers are concernedthat the law increases the cost of insuringlow-wage employees on existing plans,partly by broadening their benefits, aswell as requiring companies to insureworkers not previously covered. Thepenalty for not providing coverage is$2,000 (£1,292) per worker.
EasyJet risks row with founder
EasyJet is weighing an aircraft order thatwould eventually return its fleet to onecomposed entirely of Boeing jets, a movethat could raise tensions with the low-costcarrier’s founder, Sir Stelios Haji-Ioannou,who believes the group already has toomany aircraft.
Dublin faces suits over liquidation
Ireland faces a raft of potential lawsuitsand a possible constitutional challengeover its decision to liquidate one of itsfailed banks as part of a deal torestructure €28bn (£24.2bn) in bankdebts.
 Austerity bites in Year of the Snake
A clampdown on bribery and extravagancehas also applied the brakes to Chinese retailsales. Despite being in the critical new yearspending period, they grew last week attheir weakest pace for four years.
Push for Republic to return to founder
Carl Brewins, the founder of Republichas won support from Denmark in hisattempt to reclaim the failed fashionchain, which has 121 stores, out ofadministration.
 Arms sales fall as BAE slips in league
Pressure on the global defence industrywas laid bare as arms sales fell for the firsttime since the mid 1990s, while BAESystems slipped from second to third in aleague table of the biggest arms makers.
Royal Mint strikes coin in India
The Royal Mint’s gold Sovereigncommemorative coins will be struck inIndia for the first time in nearly a century.The Royal Mint has licensed MMTC-PAMPto strike and market the Sovereign.
German recovery hinges on Eurozone
German Economy Minister Philipp Röslerwarned that the return to strong growth inEurope’s largest economy later this yeardepends on stabilisation of the Eurozone.
Hugo Chávez Returns to Venezuela
Venezuela President Hugo Chávez made asurprise return home yesterday after morethan two months in Cuba for treatment ofcancer, a move that is unlikely to quellspeculation that his health could force himfrom office after 14 years as premier.
TOP EUROCRATS yesterday cameout against the historic budgetdeal that would cut the limit ontheir spending for the first time. All 27 premiers of the EU’sconstituent states came to anagreement on a packagepencilling in €908.4bn (£784.3bn)of spending between 2014 and2020, with a limit of €960bn.This is down from the €994bnlimit in the previous seven year budget cycle, and from the €1.05trillion eurocrats had originally demanded.But senior figures in the three biggest parties in the EuropeanParliament, whose approval isneeded to pass the long-termplans, slammed the proposals,despite recession and austerity across Europe.Hannes Swoboda, who leadsthe second-biggest faction in thechamber, called the proposals“unacceptable”. Guy Verhofstadt,president of a liberal coalition,and Joseph Daul, chairman of the biggest bloc, the EuropeanPeople’s Party, joined the chorusof parliamentary displeasure.The budget deal was hailed as ahistoric victory for UK PrimeMinister David Cameron, at atime when his authority is beingquestioned by his own party, which trails Labour in the polls.
MEPs hit out atreduction to EUbudget ceiling
Prime Minister David Cameron is in talks with Indian prime minister Manmohan Singh
2
NEWS
BY BEN SOUTHWOODBY JAMES WATERSON
To contact the newsdesk email news@cityam.com
O
NCE again, Britain is about toshoot itself in the foot. Thelatest proposals from Brussels –this time, to impose a cap on bank bonuses – look like they may shortly be nodded through, withGeorge Osborne seemingly toofrightened by anti-City sentiment to block them. Bonuses may have to beno more than 100 per cent or at most200 per cent of base pay, though thedevil will be in the detail.Before I tell you why I think this lat-est EU plan is bonkers, bad for the UK, bad for jobs, bad for London, bad fortax receipts and bad for the stability of the financial system, let me remindreaders of what reforms I do support.Prior to 2007, profits were privatised but risks nationalised, with anappalling regulatory model eliminat-ing some core market disciplines butreplacing them with nothing.
EDITOR’SLETTER
ALLISTER HEATH
Brussels’ plans to cap bonuses will be a disaster for London
TUESDAY 19 FEBRUARY 2013
Some of the extensive reforms sincethen have been good, including therequirements to hold more capitaland liquidity (though some of thechanges have been too quick).Pay is rightly now structured differ-ently, with bonuses deferred to alignshareholder interests with staff com-pensation and to allow banks to can-cel payouts if they turn out to have been based on false or excessively hopeful accounting. We still urgently need proper resolution mechanismsand specially tailored bankruptcy rules to allow even the largest banksto be wound down without destroy-ing the overall economy or triggeringa Lehman-style panic in the event of failure, protecting depositors but wip-ing out bondholders, shareholdersand senior staff. There should never be any more taxpayer bailouts.But the bonus cap plan is wrong. Itinvolves the biggest violation of theright of companies and employees tofreely determine pay since the priceand wage controls of the 1970s, huge-ly distorting price signals. What willstart with banks will end up beingapplied to everybody.It wrongly assumes that successshould not be rewarded – of course, badly designed contracts can incen-tivise bad outcomes, but the chal-lenge is to design contracts properly and put in place strict monitoring sys-apply these rules globally, whichmeans they will become utterly uncompetitive in overseas locations.Some UK and EU universal banks may have to quit investment banking alto-gether. It may even make more sense,under these rules, for the likes of Barclays to float their investment bank in New York and move as man bankers out of the EU as possible.Given all of this, I have two ques-tions: why are so many City firms stillso keen on the EU, given its apparentdetermination to inflict as muchharm as possible on London; and why is the industry so shy at making itscase publicly and on the record, giventhat so many of its staff are about tosuffer the consequences?It’s truly baffling.tems to prevent unintended conse-quences – such as excessive risks,Libor-style fraud, or other improper behaviour motivated by the hope of making higher bonuses. It’s not rock-et science to design a system that works; yet the EU wishes to throw outthe baby with the bath water. The cap will lead to further boosts to base pay, increasing fixed costs andrisk. When business volumes drop,the only answer will be to sack peo-ple, rather than cutting bonuses. Thisis tricky and will further increasecyclical risks for the banking system. A banker at a US, Singapore, Swissor Tokyo branch of a large non-EU bank will be able to earn a large bonus, but not those in the Londonoffice. People doing the same job, inthe same team and performing iden-tically will be paid differently. Britishor European banks will be forced toFrench-built Rafale fighter jets infavour of the part-British Eurofighter, which he calls “a superior aircraft”.It appears that the UK is just as likely to lose a major defence contract withthe Indian government. On Friday New Delhi said it wanted to cancel a£480m deal to buy a dozen helicoptersfrom Anglo-Italian business AgustaWestland, which has a majormanufacturing base in Yeovil, overallegations of bribery which haveresulted in the arrest of the company’schief executive Bruno Spagnolini. The Prime Minister insisted the man-ufacturer was an “excellent company  who make brilliant helicopters” andsaid Britain’s Serious Fraud Office would decide whether to investigatethe allegations.Cameron also said he wanted British businesses to help develop the corridor between Mumbai and Bangalore, as wants the rules on the operations of foreign chains to be relaxed –pavingthe way for businesses such as Tesco toexpand in the country.Representatives of major firms suchas BP, BAE Systems and the LondonStock Exchange are also on the trip.
 WHAT THE OTHER PAPERS SAY THIS MORNING
IN BRIEF
Oscar Pistorius back in court
n
South African athlete Oscar Pistoriusis due back in court today to apply forbail after being charged withmurdering his girlfriend. Model ReevaSteenkamp was found shot dead in hisPretoria home in the early hours of lastThursday. Police say Steenkamp waskilled by more than one gunshot, thatPistorius, 26, was the only suspect andneighbours heard earlier disturbances.Pistorius stated he disputes the charge“in the strongest possible terms.”
Greece fails to cut state payroll
n
Greece yesterday refused to firealmost 1,900 civil servants earmarkedfor possible dismissal, despitepromising foreign lenders it wouldseek to cut the public payroll. Workerswere put last year into a “labourmobility” scheme, meaning theywould receive about two thirds oftheir salary and be dismissed within 12months if no other public sector jobswere found for them. Yesterday aGreek ministry found 2,400 vacancies.
Spain to take over small lender
n
The Spanish authorities will take amajority stake of 65 per cent in small,unlisted lender BMN after a cashinjection and the conversion of sharesinto capital, a source said yesterday. Ina statement to the Spanish stockexchange regulator released earlier onMonday, BMN had said the country'sbank restructuring fund would convert€915m (£788.7m) in preference sharesinto capital as well as fully subscribe acapital increase of €730m.
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 THE Big Four accounting firms willlearn this week whether the UK Competition Commission plans toshake up the industry to givesmaller challengers a better shot at winning audit work.KPMG, PwC, Ernst & Young andDeloitte, which together audit all but a handful of Britain’s biggestfirms, have told the commissionthat the industry is already competitive, giving firms adequatechance to change auditor. The House of Lords found in 2011that the average listed company keeps the same auditor for 48 years.“What we’re hoping for is apackage of interconnected reformsthat would help create a more levelplaying field, giving additional firmsa chance to prove themselves,” saidDavid Herbinet, a partner at Mazars. The commission, which started itsprobe in 2011 and has twice delayedreporting its findings on the auditmarket for FTSE 350 firms, said ithopes to reveal its recommendationsthis week. The findings will be closely examined by politicians in Europe, who have drafted laws that wouldforce companies to rotate auditorevery six years. The UK’s Financial ReportingCouncil already wants firms to puttheir audit contract out to tenderonce a decade.
Anti-trust bodyto rule on auditwork this week
BY MARION DAKERS
 THE BITTER battle for control at coalminer Bumi was blown wide open yes-terday as a key Indonesian investorsold his 10 per cent stake just days before the crunch vote, potentially scuppering co-founder NatRothschild’s bid to gain control of thecoal miner.Recapital Group, which owns 13 percent of Bumi voting rights, offloadedits stake yesterday just days before theemergency meeting on Thursday, where investors will vote on proposals by Rothschild to remove 12 out of 14current directors.Controlled by former Bumi non-executive director Rosan Roeslani’s,Recapital’s stake has been sold to the Tanoesoedibjo’s family Flaming Luck Investments and to hedge funds Avenue Asia Capital Management and Argyle Street Management. Sources with knowledge of the situation saidthe last-minute share sale could provepositive for the Bumi board. Yesterday’s sale lifts voting restric-tions on the shares. The UK TakeoverPanel ruled in December that majorIndonesian shareholders the Bakrie
Bumi stock saledeals blow toNat Rothschild
BY CATHY ADAMS
family and Roeslani should be consid-ered a concert party and have their voting power reduced to 29.9 per cent.Recapital said in a statement yester-day that the Takeover Panel confirmedthe buyers of Roeslani’s shares are notconsidered a concert party with theBakries, which is likely to tip the votein Bumi’s favour.Many investors have already showntheir hand in advance of this Thursday’s meeting.Schroders, Taube Hodson Stonex and Artemis are three large shareholdersthat have declared support forRothschild. And, St James’s MasterFund, led by Rothschild’s cousin TomDaniel, has recently bought shares in amove understood to have raised theircombined stake to 25 per cent.However, hedge fund Route One hasspoken out in favour of the board. The Abu Dhabi Investment Councilis one of the last Bumi investors yet to voice support for either side, but itsfour per cent holding could be enoughto sway the vote. A spokesman for Rothschild had nocomment yesterday.Shares in Bumi closed up 4.4 percent.
 AUTOMOTIVE icon Ferrari shiftedup a gear in 2012 despite atroubling world economic climate, boasting its best ever sales.The legendary carmaker enjoyedrecord sales in the US, Germany,China and the UK, selling 7,318road cars –4.5 per cent up on2011 –and turning over €2.43bn(£2.1bn). And despite poor economicconditions in the UK, US andEurozone, most of the company’s growth came from these maturemarkets –and not rapidly growingChina, Ferrari said.
Ferrari races to all-time recordof 7,318 car sales despite crisis
BY BEN SOUTHWOOD
Sales in the UK soared 20.4 percent between 2011 and 2012, thefirm said, while sales climbed 14.6per cent across the US and Canada,and 8.2 per cent in Germany.Similarly, Japanese customers bought 14.4 per cent more Ferrarislast year than the year before.By contrast, China, Hong Kongand Taiwan only boosted theirFerrari purchases by four per cent.This sales boom drove pre-taxprofits up 12.1 per cent, to reach€350m, according to Ferrari.This came as Ferrari was rankedthe world’s number one brand,ahead of Google, Coca-cola andPwC, in a list by Brand Finance.
TUESDAY 19 FEBRUARY 2013
3
NEWS
cityam.com
The cheapest new Ferrari retails at around £150,000 in the UK

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