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Cityam 2013-02-22

Cityam 2013-02-22

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Published by City A.M.
Cityam 2013-02-22
Cityam 2013-02-22

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Published by: City A.M. on Feb 22, 2013
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In 2013 the Financial Times ranked theCass Full-Time MBA programme 1
in theUK, 2
in Europe and 4
in the world forcareer progression, post graduation.
Raising gender to thetop of the agenda.
Register atwww.cassmba.comThe Cass MBA.Inspiring stories.
 Join us at our Cass MBA Leadership Series onThursday March 7th,as our experts debate whether the best way to get business back on track isto put women in charge.
The Cass MBA.Inspiring stories.
Competitionbody slamsaudit firms
 THE COMPETITION Commission will this morning find that theBig Four accountancy firms havetoo much control over theindustry, and call for measures toencourage Britain’s largestcompanies to change auditorregularly to boost competition.In its long-awaited provisionalreport, the commission isexpected to find no evidence of collusion, but will raise concernsthat PwC, KPMG, Deloitte andErnst & Young have an unfair gripon the books of big UK companies.Many blue-chip firms have “BigFour-only” rules in place, and thecommission is set to propose a ban on such measures, accordingto Sky News.But it is expected to be lessforthright about imposingmandatory rotation, in a movelikely to upset mid-sizedaccountancy firms attempting tocrack the FTSE audit market. The Competition Commission will also urge investors to becomemore vocal about a firm’s choiceof auditor. All but a handful of the FTSE100 use one of the Big Four toaudit their accounts, and a firm will keep their auditor for anaverage of 48 years, according to aHouse of Lords report in 2011. At least four blue-chipcompanies are believed to haveput their audit contract out totender in 2012, but only two –asset manager Schroders and oilexplorer BG Group – decided toswitch. Both continue to use theBig Four. The Competition Commissiondeclined to comment last night.
Financier Nat Rothschild arrived at the Honourable Artillery Company for the Bumi extraordinary meeting with his mother Lady Rothschild
BUMI co-founder Nat Rothschild yes-terday suffered an embarrassingdefeat at the coal miner’s EGM, with19 out of 22 proposals for a boardoverhaul flattened by shareholders ina public City showdown after monthsof increasingly bitter exchanges.Rothschild, who arrived at theextraordinary meeting with hismother Lady Serena Rothschild, pro-posed last month ousting 12 out of the 14 current Bumi directors and bringing in a team of his own.Investors yesterday chose to back the current Bumi board, with morethan 61 per cent of stakeholders sup-porting incumbent chief executiveNick von Schirnding and the deputy chairman director Sir Julian Horn-Smith.Rothschild’s proposed appointmentas an executive director was rejected by 63 per cent of investors, whichmarked the weightiest defeat of allthe resolutions. The outcome of the EGM, held atthe Honourable Artillery Company on City Road yesterday morning, willsee two current Bumi board members– former chief executive Nalin Rathodand independent non-executive direc-tor Jean-Marc Mirzhai – step down.In a narrow victory, one of Rothschild’s proposed new team, for-mer British ambassador to IndonesiaSir Richard Gozney, has been votedonto the Bumi board.In a statement following the resultsof the meeting, the FTSE 250 coal
miner welcomed Sir Richard’sappointment and the “decision of shareholders to support the board onsubstantially all resolutions”. The board will now speed up thedivorce of Bumi Resources from theLondon-listed Bumi PLC, as well as arestructuring of the board, which will be “pursued with a sense of urgency”.“The board will be re-structured and will be significantly smaller whileretaining a majority of independentdirectors,” the firm said last night.Speaking at the EGM, vonSchirnding said that the agreementsigned last week with the Bakries, which saw them put $50m (£33m) ina ringfenced account for the buyback of Bumi Resources, was a “tangiblestep forward” for shareholders. The powerful Indonesian investorslast night welcomed the outcome of the meeting.Hedge fund veteran Rothschild, alsospeaking last night, labelled theresult a “pyrrhic victory” for theBumi board, adding that a “substan-tial majority” of non-aligned share-holders voted for his proposals.Calling again for the full release of the probe by law firm Macfarlanes,the financier added that he will con-tinue to remain a shareholder of Bumi, and he will “continue to fightfor the rights of the minority inde-pendent shareholders”.
FTSE 100
6,291.54 -103.83DOW
13,880.62 -46.92NASDAQ
3,131.49 -32.92£/$
1.52 -0.01£/€
1.16 +0.01€/$
1.32 -0.01
See Page 13
Certified Distribution
from 31/12/12 to 27/01/13 is 127,008
Our new columnist on Page 43
allister.heath@cityam.comFollow me on Twitter: @allisterheath
Osborne faces £10bn holein the UK public finances
CHANCELLOR George Osborne isset to run a budget deficit £10bnor more larger than the £119.9bnpredicted by the budget watchdogduring the 2012-13 fiscal year,economists said yesterday. January’s public borrowing fig-ures, released yesterday by theOffice for National Statistics(ONS), looked positive on the sur-face, analysts said, with a larger-than-expected surplus of £11.4bn,£5bn better than last year.But analysts said this figure wasflattered by seasonal strength intax revenues and one-off transfersfrom the bank fund, known as the Asset Purchase Facility (APF), thatcarries out quantitative easing(QE) by buying gilts.“Excluding all the one-off trans-fers that muddy the waters, bor-rowing was £7.5bn higher in thefirst 10 months of the current fis-cal year than in the previous fiscal year,” said chief Berenberg Bank economist Robert Wood.Since the 4G auction brought in£1.2bn less than built into the budget numbers, the budgetcould be £10bn worse than pre-dicted by the OBR in the AutumnStatement, Wood forecast, echo-ing other economists’ numbers.“Osborne is very unlikely to be
Brussels turns up pressure on Libor
Banks and broker-dealers ensnared in theLibor-rigging scandal are facing freshpressure to settle with Europe’s topcompetition authority as it expands thescope of its probes. In a speech on Fridayin Paris, the EU’s competitioncommissioner will stress hisdetermination to pursue the cases andensure competition enforcementcomplements actions of global authoritiesagainst misconduct and corruption.Joaquín Almunia’s speech is intended as awarning to financial institutions.
Former Virgin exec to head centre
Will Whitehorn, a former senior VirginGroup executive, is to chair a governmentinnovation centre being created to deviseintegrated transport systems for export ina global market predicted to be worth£900bn by 2025.
Reyl & Co opens London office
Reyl & Co, the Swiss private bank, hasopened an office in London with a view tosetting up a corporate advisory business,highlighting how a clutch of smaller banksare pushing into traditional investmentbanking activities.
Mercedes and dealers fined
Mercedes-Benz and three commercialvehicle dealers have been fined £2.6m bya competition watchdog for rigging thesale of vans and trucks around Britain.TheOffice of Fair Trading imposed the fines.
Dyson puts its faith in £50m plant
Dyson is expanding its manufacturing inthe Far East by taking production of itsground-breaking electrical motors in-house. The private company is to open itsown production lines in Singapore.
Bankia to reveal largest loss
Nationalised Spanish lender Bankia isexpected to reveal a €19bn loss next week,the largest in the country’s corporatehistory. The bank has been struggling tosell assets since its bailout in 2012.
Merkel accused of unholy alliance
Angela Merkel has been accused ofengaging in an “unholy alliance” withBritain after backing David Cameron’sdemands for a cut to the European Unionbudget.
Heinz profit slips
H.J. Heinz’s earnings slipped 5.3 per centas the ketchup maker recorded a largerloss from discontinued operations,though organic sales continued toimprove in emerging markets.
Nielsen aims to gauge online TV
Nielsen Holdings is taking a step towardsextending its TV-ratings business tomeasure online viewing, aiming to gaugehow much viewership has drifted awayfrom traditional TV to online outlets.
THE EUROPEAN Central Bank (ECB)made €555m (£480m) in interestincome from its Greek bonds,accounts showed yesterday,indicating the whole Eurosystemmay have made several billion onthe emergency purchases.That is expected to be divided upamong the Eurozone’s nationalcentral banks, added to their ownearnings and given to Athens.The ECB made another €553m ininterest on other securities boughtunder the emergency programme,including those of Spain and Italy.
ECB profits onits Greek bonds
To contact the newsdesk email news@cityam.com
RITAIN is stuck in a rut. No wonder that investors andcredit rating agencies are losingpatience: the coalition doesn’thave the guts or decisiveness neededto jolt the UK out of its presentmediocrity, while the opposition is busy dreaming up new taxes, thinksthat a slightly looser fiscal policy  would transform our prospects andhas no real understanding of theextent of our fiscal crisis.Britain’s tax receipts confirm thatthe economy continues to do poorly,albeit not disastrously. So far this fis-cal year, receipts from Vat are up 2.2per cent, less than the rate of infla-tion. Income and capital gains taxreceipts are down 0.2 per cent and cor-poration taxes are down 8.4 per cent: while in both cases there have beentax cuts (a higher personal allowanceand lower corporation tax rates) these
Britain: a case study in low-growth economic mediocrity
don’t explain such shockingly badnumbers. Very limited pay rises, adrop in reported income from thehighest earners and weak profits areamong the answers. National insur-ance contributions are up a healthier3.4 per cent, though this not anything worth shouting about. What all of this suggests is an econo-my that is either stagnating or grow-ing a little, but by no more than a few tenths of a per cent. At best, the situa-tion looks only marginally rosier thanthe official GDP figures; at worst,there is no difference. Mediocrity undoubtedly rules OK. While revenues are poor, any progress the government is makingin trimming overall expenditure on wages, benefits and other currentspending is being more than can-celled out by increased interest on thegrowing national debt. During April2012-January 2013, central govern-ment current expenditure hit£525.7bn, 2.7 per cent higher than inthe same period of 2011-12.Depending on which measure of inflation one uses, real current spend-ing was therefore either up or downslightly. The real cuts are happeningin capex, the one area where statespending can be useful for long-termgrowth (though the private sector, if it were allowed to, could take overmany projects). So far this year, cen-the next five years, Barclays expectscash to provide negative inflation-adjusted returns of about -1.5 per centper year (with compounding effects,that means a very sharp drop in value), “safe haven” government bonds -2 per cent – in other words,even worse than cash – and equitiesannual growth of 3-4 per cent. Theauthors believe that the bull marketin government bonds – which peakedlast year – will end in a whimper,rather than in a 1994-style crash. I sus-pect the authors may be too opti-mistic, but their case is that ashortage of “safe” assets, combined with a decision by the authorities tokeep the monetary floodgates open, will do the trick. One thing is clear:savers are going to suffer.tral government net investment wasminus £6.4bn – with depreciationoverwhelming gross investment – amassive £27.7bn lower than in thesame period of the previous year. So we are still seeing the wrong kinds of cuts, stagnant growth and weak taxreceipts. Unless something drasticchanges soon, it is not just credit rat-ing agencies that will be running outof patience with the government.
One of this column’s themes is that we are now facing a world of low realreturns across financial assets, withhigh inflation gobbling up nominalgains, and that the bond markets,after years of astonishing returns, areset for a crash. There is lots of evi-dence to back up this thesis inBarclays’ latest annual equity-giltstudy. The conclusions are stark. Overable to say the deficit is falling inhis 20 March budget unless he canfind some other ways of massagingthe figures,” Wood warned.But the Treasury tried to shiftfocus onto spending, which wasdown £2bn compared to the samemonth a year earlier, and receipts, which were up, even excluding one-off moves, it said.Economists also criticised the Treasury for the level of “unneces-sary complexity” in the finances.“All of the messing around withnumbers makes it very difficult tosee the direction we’re going in,”Item’s Andrew Goodwin said.Goodwin said all the different ways official bodies state the deficitand borrowing numbers can con-fuse even economic experts. And the ONS decision yesterday morning to allow only £9.1bn of intra-government transfers into theofficial borrowing numbers overthe tax year confused matters fur-ther. Since £2.7bn of this wasalready taken up by previous trans-fers, even on the government’s fig-ures, which include one-off QEtransfers, it will only be able toinclude £6.4bn out of an expected£11.5bn in its borrowing numbers.
£92.3bn£99.9bn- £28bn- £3.8bn- £2.3bn£65.8bn
Underlying borrowingRoyal Mail pension planAsset Purchase FacilitySpecial Liquidity SchemeOfficial borrowing
he For
um, Page 2
Find your next step at
Is borrowing goingdown –as GeorgeOsborne said hethought it would in theAutumn Statement –or isit rising?
So far, 10 months into the 2012-13 fiscal year, borrowing was£65.8bn –£26.5bn lower thanduring the same period in 2011-12.But this includes some one-off  windfalls. Excluding the transfer of the Royal Mail pension plan, andthe Treasury’s raid on quantitativeeasing (QE) income, borrowing was£97.6bn, and therefore £5.3bn upon 2011-12. Further excluding the£2.3bn money gained from winding down the Special Liquidity Scheme, it was £7.5bn higher.
So will Osborne officially miss the Officefor Budget Responsibility’s (OBR) target?
 The OBR forecast borrowing would be £119.9bn over the year.Economists are now forecastingOsborne will overshoot the target by £10bn-£15bn. That is due to higher borrowing and also because theOBR assumed £11.5bn gained fromraiding the Bank of England’s QEincome. Actually this can only bringin a maximum of £6.4bn, as thetarget is for public sector net borrowing, which was yesterday defined to not include all the QEincome. The OBR also assumed a£3.5bn gain from this week’s 4Gauction (it brought in £2.3bn).
BANK of England policymaker DavidMiles yesterday called for at least anadditional £175bn of quantitative eas-ing (QE), arguing it is the best way tohelp boost the economy.Miles believes there is a large outputgap in the UK currently which could be reduced by printing more money, boosting demand and encouragingfirms to invest more, increasing out-put capacity in the longer term.Sir Mervyn King and Paul Fisher joined Miles in voting for another£25bn QE this month, a change fromhis recent lone call for more easing.
Miles: Print£175bn more
Public sector borrowing broken down
ChancellorGeorgeOsbornewould suffer apolitical blowif the deficitrises duringthis financialyear
 THE LONDON-based constructionduo behind the iconic Shard tower yesterday revealed their next building project – constructingthe biggest tower on earth.Mace and EC Harris, whohelped lead the construction of the imposing Renzo Piano-designed Shard, have beenappointed to project managethe construction of theKingdom Tower project in Jeddah, Saudi Arabia. The tower, set to cost $1.2bn(£780m), will stand at 3,300feet high when built and will be four times as high asthe Shard. It is due to startconstruction later this yearand will take just over five years to complete.Saudi Binladin Group isconstructing the building, with EC Harris and Mace incharge of projectmanagement. Jeddah EconomicCompany, the group behindthe tower, has appointed thecompanies. The tower is partof a bigger £13bndevelopment in Jeddah,overlooking the Red Sea.
Shard duo setto build tallesttower on earth
BILLIONAIRE investor David Einhorn yesterday pleaded with fellow Appleshareholders to vote against theiPhone maker’s proposals to changeits corporate practice.Einhorn’s Greenlight Capital hedgefund, which owns around $600m(£394m) in Apple shares, laid out pro-posals that would see billions of dol-lars returned to shareholders.Einhorn said that despite the com-pany’s history of product innovationits “attitude to managing itscash has been decidedly non-innovative”.Greenlight Capital wants the company todistribute a new classof preferential Appleshares – which hedubbed iPrefs – that would be handed out toinvestors andreturn a regu-lar, fixeddividend. Apple hassaid it isconsidering
Einhorn pleadswith investorson Apple vote
Einhorn’s proposals. However, a board proposal at its upcoming annu-al meeting would see it preventedfrom issuing the kind of preferentialstock suggested by Einhorn.Greenlight Capital is also taking thecompany to court, claiming the pro-posals would violate US corporatelaws. On Tuesday the judge presidingover the trial said Einhorn was likely to win the case.Einhorn said his suggestions wouldreturn value to investors, while leav-ing Apple with cash to make acquisi-tions, and preventing it from jeopardising its business. Apple’sshares have fallen by a third sincetheir summer highs.“[The proposals] don’t interfere with whatever business plan Applehas, we want them to keep innovat-ing and designing products we can’timagine living without,” Einhornsaid, imploring shareholders to“send [Apple] a clear mes-sage”. Apple did notcomment.
GLOBAL banking giant Citigroup yesterday introduced a new pay policy for top executives at thefirm to more closely align salariesand bonuses with the bank’sperformance.The move, revealed in aregulatory filing yesterday, followsshareholder concerns over payouts which led to the departure of former boss Vikram Pandit aftershareholders rejected his pay deallast year. Executive pay used toinclude a controversial profit-sharing plan, which has now beenshelved.
Citigroup reveals pay shake-upas Corbat gets $11.5m for 2012
“When our shareholders spokelast year about Citi’scompensation structure, welistened. We have stepped up ourefforts to solicit feedback frominvestors to better understandtheir concerns,” chairman MichaelO’Neill said. Citi said the newexecutive pay programme woulduse a “scorecard-based structure”to remove the discretionary nature of pay awards in the past.In light of the toughermeasures, shareholders agreed toaward chief executive MichaelCorbat $11.5m (£7.5m) for 2012, which included a $4.18m cash bonus and $6.27m of shares.
Citigroup boss Michael Corbat has a salary of $1m topped up with bonuses and sharesThe KingdomTower inJeddahEinhorn’s GreenlightCapital owns $600min Apple shares

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