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CityAM 29/06/2010

CityAM 29/06/2010

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FTSE 1005,071.68 +25.21 DOW10,138.52 -5.29 NASDAQ2,220.65 -2.83 £/$1 .51unc £/¤1.23 +0.01 ¤/$1.23 -0.01
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Pinewood shareholder
calls on Grade to resign

MICHAEL Grade, the former ITV chief executive and current chairman of soon-to-be floated online grocer Ocado will today be urged to resign as chairman of Pinewood Studios by one of the group’s larger shareholders.

The embarrassing challenge to Grade, which will be made at today’s shareholder meeting, comes from the 18 per cent holder Crystal Amber which yesterday held a meeting with him at its offices.

Grade attended the meeting
accompanied by one of Pinewood’s
advisers from JP Morgan Cazenove.

“We have tried to be constructive and we have given the chairman a number of suggestions about how to improve the group’s performance and improve perceptions about the group but we feel we have been get- ting nowhere,” a source close to Crystal Amber told City A.M. yesterday.

Crystal Amber’s move will not help sentiment towards Ocado, where hopes of reaching a £1bn valuation are being questioned in the City as overambitious.

Last night sources close to Ocado said the board is still “very support- ive” of Grade.

Michael Grade has been in the chair for 10 years at Pinewood
Picture: PA
Issue 1,165 Tuesday 29 June 2010

HOME prices fell for the first time in more than a year in May, Land Registry data showed yesterday, spark- ing fears of a second downturn in Britain’s fragile housing market.

The average residential property dropped 0.2 per cent in value during the month as uncertainty over auster- ity measures to be enforced by the incoming government weighed on market confidence. The south-east and London were insulated from the dip, gaining 0.9 per cent and 0.7 per cent respectively, but industrial areas such as North Tyneside and Sheffield suffered declines of up to 1.5 per cent.

Worst affected were the east Midlands and Welsh regions Blaenau Gwent and Denbighshire, which all saw monthly slides of 3.6 per cent. In Middlesbrough, where house prices fell by 0.1 per cent during the month, the average home has lost 9.2 per cent of its value since the start of the year.

A separate report from Hometrack suggested house price growth slowed from 0.2 per cent in May to 0.1 per cent in June.

The numbers come less than a week after poor new home sales fig- ures from the US sent a dramatic shudder through global equity mar- kets. Investors are concerned a dou- ble-dip retrenchment in the housing market on either side of the Atlantic would severely hit consumer spend- ing and risk dragging on the fledg- ling economic recovery.

Howard Archer of IHS Global Insight said: “The Land Registry data for May and the June Hometrack sur- vey both add substance to our long- held belief house prices will struggle to make significant gains over the coming months. Housing market activity remains well below long-term norms despite edging up recently.”

He added: “The economic funda- mentals of high unemployment, still falling full-time employment and low earnings growth are hardly ideal, a major fiscal squeeze is starting, credit conditions remain tight and house price-to-earnings ratios have moved back up.”

David Smith of property consultan- cy Carter Jonas said while properties in desirable locations would continue to gain in value, less fortunate areas would see further depreciation.

Evidence indicates more people are putting their homes on the market, moving the supply-and-demand bal- ance back in favour of buyers. The shortage of properties has been a strong driver of the pick-up in house prices from their low point in the first quarter of 2009.

Richard Donnell of Hometrack said: “The growing supply-and- demand imbalance spans the coun- try and under normal market conditions this would typically result in a downward pressure on prices. However, very low transaction vol- umes are exacerbating the scarcity of housing for sale and this is acting as a support to prices.”

Hometrack’s Richard Donnell (l) says sales
volumes are low while Carter Jonas’s David
Smith (r) says high-end homes will still gain

HECTOR Sants’ number two at the Financial Services Authority (FSA) has become the second high-profile casual- ty of chancellor George Osborne’s wholesale changes to banking regula- tion.

Managing director of supervision Jon Pain will join risk manager Sally Dewar in quitting the FSA. Pain leaves after it emerged Sants will keep his job while the FSA is wound down. Sants will then join the Bank of England as a deputy governor.

An FSA insider told City A.M. Pain is stepping down after realising his job will no longer exist under the FSA’s new structure.

The source said: “At the point of restructure it became clear to Jon his job would no longer exist – it’s as sim-

ple as that. The new internal structure just won’t offer the same scope for a job of Jon’s power. It’s a personal deci- sion and he has not been pressurised from above.”

Pain will leave the organisation next year as the watchdog’s powers start being shifted to the Bank.

Last week Osborne announced he will scrap the FSA in two years and make Bank governor Mervyn King one of the most influential central bankers in the world. A new prudential regula- tor, working under the auspices of the Bank, will replace the FSA in 2012.

Top exec set
to quit FSA
CITYA.M.29 JUNE 2010
Housing market is looking healthier

THE long upwards run for house prices has ground to a halt. The recent history of UK house prices has confounded many commentators: val- ues plunged when the credit crunch hit, albeit not as much as in the US, then regained over half of their losses over the past year. The present return to stagnation makes more sense: property remains expensive on price to earnings valuation measures and the last thing anybody needs is anoth- er property bubble, followed by another financial crisis.

So even home owners and property

investors should breathe a sigh of relief on the news that the Land Registry – the most comprehensive measure – has reported that house prices in England and Wales fell by 0.2 per cent month-on-month in May. This followed a modest increase of 0.2 per cent in April and a drop of 0.1 per cent in March – in other words, the market is going nowhere. The year-on- year increase in house prices eased back to 8.2 per cent in May from 8.5 per cent in April.

Over time, house prices tend to rise by roughly the same rate as nominal GDP – around 6.5 per cent this year. We may well end up at that rate of growth for 2010 as a whole, which would indicate a return to some sort of rationality, albeit from an exces- sively high price base.

Another way to look at all of these numbers is to say that property is a good way to enjoy the benefits of eco- nomic growth while hedging for inflation. The retail price index, a broader measure of inflation than

the official consumer price index, is up by 5.1 per cent over the past year; this is beginning to have a substantial effect on those who hold cash or gilts. As investors understand this, they will buy property and sell cash.

There is more good news for house prices. Primary residences do not incur capital gains tax. The hike in CGT to 28 per cent for top earners (and the failure to reintroduce index- ation for inflation) has made equities, buy-to-let properties and other invest- ments less attractive, as these are tax- able – but the rise has increased the incentive for people to buy even larg- er primary homes. It makes more sense to spend £150,000 on redoing or expanding one’s home than to pur- chase an investment property.

Buying property in and around London is partly a bet on the future health of the UK economy and of the financial and business services indus- try. Deleveraging, the bank tax and the US banking reforms will all cramp employment and earnings

growth. However, real nasties, such as truly crippling tax hikes on incomes and profits or a Tobin tax, have been avoided. Public spending will be squeezed across the UK but London and the South East, the least socialised regions, will suffer the least from this retrenchment and have the most to gain from increased growth in emerging markets. Many global investors have been reassured by the coalition’s election and especially George Osborne’s Budget, which was better than expected on the deficit and not as bad as feared on competi- tiveness-destroying tax hikes. The City and Canary Wharf are unlikely to become a desert of empty offices any time soon, and Russian and Middle Eastern demand for Mayfair assets is unlikely to dry up.

On balance, house prices are still over-valued. But as long as prices remain stable for the next year or so, the market will soon begin to look much healthier for investors.


RICHARD Lambert, the business lob- byist who caused a furore by warning excessively-paid executives risked being seen as “aliens”, is to step down as director-general of the CBI.

Lambert will leave next year after five years at the helm of the influen- tial body. Saxton Bampfylde, the spe- cialist headhunter, has been appointed to find his successor.

Lambert joined the CBI in 2006

after a lengthy career at the Financial Times, which he edited for a decade, and a stint on the Bank of England’s Monetary Policy Committee.

Lambert said: “Now is the right time in the political and economic cycle for me to hand over to a new director-general... The economy is moving into a new phase, in which business investment and trade will be essential engines of recovery.”

Chancellor George Osborne saluted Lambert as a “fantastic” figurehead who had “provided real leadership”.

Lambert to leave the CBI
Headhunters are looking for Richard Lambert’s successor Picture Micha Theiner/City A.M.
Blair wants public-private co-op

Tony Blair yesterday called for a flush of
private sector talent to brush the cob-
webs away from dusty Whitehall. The
former Labour leader effectively backed
a plea by Tory front-bencher Francis
Maude to reinvigorate the policy-making
corridors of power. Blair said rules limit-
ing interaction between public and pri-
vate employees, designed to prevent
conflicts of interest, should be examined.
But he defended the Labour party’s
attempts to centrally govern, saying “if
you are not driving things from the cen-
tre, nothing is going to happen.”

Siemens to set up its own bank

Siemens is seeking a banking licence to
manage its own risks and expand the
product portfolio of its financial services
unit, the German industrial conglomer-
ate said yesterday. Siemens, Europe's
biggest engineering company, said it had
applied for the licence to German finan-
cial regulator Bafin, which is now
reviewing the application. Chief financial
officer Joe Kaeser said Siemens was
seeking more independence from finan-
cial institutions as a result of the world-
wide financial crisis.


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FSA managing director
of supervision Jon Pain
will announce he is to
quit his number two
position next year


Shire is bracing itself for a significant boost in sales after European regula- tors authorised teh use of teh compa- ny’s experimental drug to treat an extremely rare disease. In a decision set to be ratified by the European Commission in the coming weeks, the European Medicines Agency has approved the Irish-domiciled pharma- ceutical group’s drug velaglucerase alfa, known by the brand name Vpriv, an enzyme replacement therapy for Gaucher’s disease.


Agricultural Bank of China, which hopes to raise as much as $23bn in the world’s biggest initial public offering, has been forced by the weak mainland stock market to offer its shares at a lower price range in Shanghai than in Hong Kong.


Noble, a Swiss oil drilling company, has agreed to purchase FDR Holdings, an independent driller, for $2.16bn, marking the second major deal in the industry since the Gulf of Mexico oil spill in April. The deal comes amid uncertainty over the future of off- shore drilling in the US, as the gov- ernment has sought a moratorium after the oil spill from a rig contract- ed by BP.


Steven Udvar-Hazy, one of the biggest names in aircraft financing, has raised almost $3bn as he returns to the aviation financing industry after his departure from AIG’s aircraft leas- ing division that he founded and ran until earlier this year. Udvar-Hazy’s new vehicle, Air Lease Corporation, has secured about $1.2bn in equity through a private offering, which is expected to complete this week.


Leaders of some of Britain’s biggest businesses last night gave their emphatic endorsement of the coali- tion Government’s decision to cut spending immediately in order to pay down the deficit. Senior business executives voiced their support for the approach at a summit organised by The Times and attended by the Prime Minister, the Chancellor and the Business Secretary.

Changing the electoral system for the
House of Commons and sticking to

targets to cut the deficit were amongst the key policy priorities put forward by The Times CEO Summit. The Summit was asked to vote on which the policy proposals put for- ward by seven taskforces during the day should become national priori- ties.


Drugs maker AstraZeneca, defence company BAE Systems and infrastruc- ture group Balfour Beatty have been named by Standard & Poor’s as poten- tial takeover targets for cash-rich US companies. Analysts at the credit rat- ing agency listed the three UK-listed companies among nine in Europe that most closely matched the charac- teristics of groups acquired by US cor- porates in the past 12 months.


Airline passengers could have their conversations and movements moni- tored under a EU project aimed at tackling terrorism. A combination of cameras, microphones, explosive snif- fers and a computer system would give a pilot early warning of danger.

Hindu’s elephant god of wealth,

Ganesh, once inspired contemporary- art star Bharti Kher to create a huge, fibreglass elephant lying slumped on the floor, possibly dying or napping. The artwork sends mixed signals, and the same could be said of Sotheby’s evening sale yesterday of contempo- rary art in London which included Ms. Kher’s £993,250 piece. Overall, Sotheby’s £41.m ($62m) total bested its £25.5m auction a year ago.


Two new studies released say the dia- betes drug Avandia is unsafe, heating up a controversy about a drug linked in a number of studies to an increased risk of heart attack and heart failure. The reports were pre- sented in the Journal of the American Medical Association.


BRITAIN’S tough Budget does not remove the need to start raising interest rates now, Bank of England Monetary Policy Committee mem- ber Andrew Sentance said yester- day.

Sentance shocked markets last week when it was revealed that he had voted to raise interest rates by a

quarter-point to 0.75 per cent, the first call for an increase by any mem- ber in nearly two years.

In the first interview with an MPC member since the new government last week announced the harshest Budget in a generation, Sentance said the fiscal plans were much as expected and did not change his view that it was time to start gradu- ally withdrawing the extraordinary stimulus now in place.

Shares gush
for oil firms
after big find

PREMIER Oil, EnCore Oil and Nautical Petroleum saw their shares rocket yesterday after a North Sea oil find which has the potential to be one of the area’s biggest in a decade.

The discovery at Catcher East, 110 miles east of Aberdeen, means the field is estimated to hold up to 300m barrels of oil, making it the biggest find since the billion barrel Buzzard reservoir off Aberdeen in 2001.

Now EnCore plans to drill a further
well to discover if it stretches further.

Premier, which owns a 35 per cent share in the licence, immediately upgraded its reserves estimate for the block to between 50-80m barrels – up on the 25-50m estimate it gave earlier in June. Its shares rose 6.6 per cent to close at £12.60.

It said in a statement that data indicates Catcher East and the earlier Catcher discovery are likely to be “part of a single oil accumulation”.

Meanwhile smaller British explor- ers EnCore and Nautical, which both own 15 per cent stakes in the licence, saw their shares shoot up by 48.6 per cent and 22.5 per cent respectively.

EnCore’s stock closed at 52.75p while
Nautical rose to 170p.

A further 20 per cent of the licence is privately owned by explorer Wintershall and a company backed by Lord Rothschild, Agora Oil & Gas, holds the remaining 15 per cent.

EnCore chief executive Alan Booth said the find was exceptional, adding “Initial analysis suggests a series of discoveries that would form one of the larger North Sea oil accumula- tions of recent years.”

Oil would likely start to be pro- duced at Catcher from 2013 or 2014 using a floating production storage and offloading unit, said Premier’s chief financial officer Tony Durrant.

He said that if the estimate of 300m barrels of oil in place at Catcher is accurate, and if around 50 per cent of that oil were recoverable, Catcher would be one of Premier’s largest oil fields and would boost the company’s total reserves by 15 to 20 per cent.

“Regardless of further upside, the discoveries are clearly commercial and we would expect that develop- ment studies will begin soon to bring the fields rapidly into production,” said Oriel Securities analyst Richard Rose.

Sentance: Interest
rates need to go up

BANK profits cannot continue to rise at their current levels, according to the Bank of International Settlements (BIS).

The institution says the hike in earnings seen in the wake of the col- lapse is temporary and the sovereign debt crisis could weigh heavily on their bottom lines.

They could also be hit by tumbling commercial property prices and volatile currency trading conditions.

BIS also said governments must slash budget deficits decisively and central banks should not wait too long to raise interest rates.

And it warned that if the support

provided to the banking industry and others in the private sector was kept in place for too long, policymakers ran the risk of creating “zombie” banks or companies, dependent on direct support.

But it acknowledged the tricky sit- uation for policymakers and said the stakes were high and the risks from capping lifelines too early loomed large.

In addition, central bankers may underestimate inflation risks as the crisis may have lowered the potential growth rate. But it said challenges for emerging economies were different as they were recovering strongly and inflation was picking up.

Banks are still at risk but support
packages must end, says BIS
CITYA.M.29 JUNE 2010
ANALYSIS l Encore Oil
21 Jun
11 May
1 Jun
20 Apr
29 Mar
28 Jun
ANALYSIS l Premier Oil
21 Jun
11 May
1 Jun
20 Apr
29 Mar
28 Jun

What could be
the biggest North
Seat oil find in a
decade boosted
the sector’s shares

Picture: REUTERS

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