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CityAM 05/08/2010

CityAM 05/08/2010

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FTSE 1005,386.16 -10.32 DOW10,680.43 +44.05
NASDAQ 2, 303.57 +20.05
£/$1.59 unc
£/¤1.21 unc ¤/$1.32 unc
Certified Distribution
31/05/10 till 04/07/10 is 103,725
www.cityam.com
Issue 1,192 Thursday 5 August 2010
FREE
BUSINESS WITH PERSONALITY
THE BATTLE TO
RUN LIVERPOOL
GATHERS PACE
REDS TAKEOVERP24

STATIC KILL HELPS
BP FINALLY PLUG
GULF OIL LEAK

RELIEF FOR OBAMAP3

TAXPAYERS stand to make a profit of £19bn if the government’s stakes in Lloyds Banking Group and Royal Bank of Scotland are wound down over the next five years, according to an inde- pendent consultancy.

The Centre for Economic and
Business Research (CEBR) made its pre-

diction as the state’s exposure to Lloyds moved into the black for the first time in nine months. Lloyds shares crossed 73.6p – the average pur- chase price of the government’s 41 per cent holding – after the bank revealed bumper first half results.

Shares in RBS, 81 per cent state- backed, are also trading above the 50p break-even level at 52.1p. RBS is tipped to make a slender profit when it

reports on Friday.

The CEBR said better-than-expected profits from the clearing banks – including Northern Rock, in which the taxpayer has an equity interest of around £1.4bn – pointed to a hand- some return for the general public over the medium term.

Chief
executive

Douglas McWilliams said: “Even on the conser- vative assumption that share prices

will rise with nominal GDP, the gov- ernment is likely to make a profit if it disposes of the banks in a phased sale over five years of £19bn.”

McWilliams said then-chancellor Alistair Darling succeeded in buying £65.8bn worth of Lloyds and RBS shares “on the cheap” by refusing to provide the banks with loans.

“Having ripped off the banks’ share-
holders… the government is now in

healthy profit on the shares after fees are taken into account,” McWilliams added. He said some of the original shareholders who were displaced by the Treasury at the bottom of the mar- ket “may yet take this issue to court”.

Although the nationalised banks are returning to health, City minister Mark Hoban has said a sale is unlikely to begin before the end of 2011.

ALLISTER HEATH: P2
TAXPAYERS TO MAKE £19BN FROM BAILOUT
BYOLIVER SHAH
BANKING
Lloyds’ Eric Daniels (left) and the Bank’s Mervyn King (centre) may clash over bank lending, while investors are pressuring Standard Charter’s Peter Sands (right) to keep its base in the UK
Picture: REUTERS

LLOYDS boss Eric Daniels fired a warn- ing shot across the government’s bows yesterday, insisting attempts to force banks to lend were doomed to failure.

Politicians have stepped up the rhetoric over bank lending in recent days, arguing that reports of tight credit conditions for small businesses are unacceptable in light of a robust round of first-half profits.

But Daniels, who unveiled a fore-
cast-beating £1.6bn profit haul for

Lloyds yesterday, said: “I don’t think that [forcing banks to lend] has ever been a good idea and it has never worked in the past with other coun- tries that have tried it. I don’t believe that will come down the pipe.”

The Lloyds boss, who came under fire after the disastrous acquisition of HBOS in 2008 pushed the group to the brink of bankruptcy, insisted that the bank is not “being mean and turning customers away”.

“We will make credit available to those who are credit worthy – but that is a big caveat,” he told City A.M.. “It doesn’t do a bank or its clients any

good to lend to those who cannot
afford to repay their debts.”

Daniels’ comments came as Prime Minister David Cameron yesterday met with Bank of England governor Mervyn King to discuss ways of mak- ing banks lend to small businesses.

However, the government is divided over how to boost lending. Business secretary Vince Cable has been talking up the introduction of compulsory lending targets for banks that fail to supply credit to small businesses, but chancellor George Osborne remains unconvinced of their effectiveness.

An aide to Osborne said lending

agreements had not been ruled out, but conceded there was a “general per- ception they don’t work very well”. Instead, he said the government would likely try to boost lending by extending the existing loan guarantee scheme, which provides banks a guar- antee for 75 per cent of their exposure to loans, and by kick-starting competi- tion in the banking sector.

Policymakers received a further blow yesterday over their heavy han- dling of bank regulation, when Standard Chartered – which con- tributes over $1bn (£630m) in annual tax revenues – warned it could quit

the UK.

Chief executive Peter Sands said investors were putting pressure on the bank over its decision to stay domi- ciled in Britain, adding: “At the moment we have no plans to move but we don’t want to be in a situation where having our headquarters in the UK gives us a competitive disadvan- tage. We are in danger of that.”

The imminent introduction of a levy on bank balance sheets has partic- ularly annoyed Sands, who has said a rise in corporation tax would be fairer and less complicated to implement.

BANK RESULTS: P4, P5, P6
DANIELS: FORCING US
TO LEND WON’T WORK
BYVICTORIA BATES, DAVID CROW
ANDSTEVEDINNEEN
BANKING
Lloyds boss fires warning shot amid
fears of compulsory lending targets
David Cameron and Mervyn King
pledge to ensure banks extend credit
Standard Chartered: Shareholders
want us to reconsider British domicile

GOLDMAN SACHS could hive off its proprietary trading activities within months to prevent talented traders defecting to hedge funds, as US finan- cial reform legislation takes effect.

Under the so-called “Volcker rule” banks have four years to cut their pro- prietary trading exposure to three per cent of tier one capital. But Goldman, which at 27 per cent has Wall Street’s highest exposure, wants to make a decision “the sooner the better” to reassure staff, a source said.

One option would be to move its 50 or so traders to an independent hedge fund. Another would be to roll them into its standalone investment division, Goldman Sachs Asset Management.

Under chief executive Lloyd

Blankfein, Goldman has increased its reliance on proprietary trading, with 10 per cent of its revenues coming from the area last year.

But Rochdale Securities analyst Dick Bove told City A.M. the Volcker rule would not necessarily reduce the flow of cash to Goldman’s coffers.

A carefully arranged third party contract would ensure the same level of cost-adjusted prop revenues, Bove said, while boosting Goldman’s capi- tal. “If you put a bunch of politicians up against Goldman, there’s no way the politcians will win,” he added.

BYOLIVER SHAH
BANKING
Goldman eyes
key unit rejig
News
2
CITYA.M.5 AUGUST 2010
China’s power is truly extraordinary

REMEMBER the days when manufac- turing was concentrated in the G7, while emerging economies supplied raw materials and components to feed rich nations’ demand? If you do, you are clearly showing your age. Even in 2008, as Stephen Lewis from Monument Securities points out, China produced more steel than the USA, the EU and Japan put together. Perhaps that is not surprising any more. But what will still shock many is that China is now also by far the world’s leading car producer, turning out 13.8m units in 2009, twice as

many as second-placed Japan’s 7.0m units. The fifth and sixth positions were held by South Korea and Brazil respectively. China’s share of world car production rose from 3.6 per cent in 2000 to 8.6 per cent in 2005 and 22.6 per cent in 2009. Output in the West may recover slightly this year but that won’t make any real difference; the strength and intensity of the Chinese tidal wave makes it wholly unstop- pable, while Western markets remain ludicrously over-supplied with low- productivity plants that are not oper- ating at full capacity but that cannot be shut down for political reasons.

It is not only China that is taking over the global car market. From 2000 to 2009, India’s production of motor vehicles rose more than threefold while Brazil’s doubled. Meanwhile, car output in all the “advanced” economies, including even Germany, declined, the Monument Securities figures reveal. Given that hardly any cars sold in the UK at present come from China, India or Brazil, the scale

of the challenge facing Western man- ufacturers is clearly even more monu- mental than previously realised. The truth is that there is very little hope, apart from in a few niche areas or when items need to be produced very close to their markets for ease of sup- ply. David Cameron’s strange claim – last week, during one of his trips abroad – that “we are actually starting to reindustrialise some parts of Britain” was bizarre. Of course, manu- facturing output is growing again for cyclical reasons, which is good news. But that has nothing to do with the coalition government’s policies (in fact, their sound budgetary measures, by pushing up sterling, will inadver- tently hit exports) and no renaissance in manufacturing lies on the horizon.

Industries in which we could still be competitive include finance, business services, research and development, high tech manufacturing, design, arts and entertainment and education. So it is bizarre that the coalition seems to be spending so much time bashing

the banks: if we are to earn a living as a nation over the next few decades, it won’t be by making cars.

BAILOUT MAKES A PROFIT

My story of the day: The forecast from the Centre for Economics and Business Research that the banking bailout will yield a profit of £19bn for the UK taxpayer. This newspaper has been predicting this for ages – yet hardly anybody is aware of the facts. This is not to claim that bailing out banks was a good thing – in fact, it was an economic outrage caused by a defective macroeconomic policy and regulatory system – merely that tax- payers’ weren’t ripped off (they actual- ly ended up exploiting those banks’ original shareholders).

If the bailout cost nothing and even made a profit, why is the deficit so high? The answer is general govern- ment overspending, not handouts to the City. The sooner people under- stand this, the better for everybody.

allister.heath@cityam.com

A US regulator has reached a $6.5m (£4.1m) settlement of civil insider trading charges relating to hoax takeover news allegedly issued last year by a Kuwaiti financier who later committed suicide.

The US Securities and Exchange Commission alleged that Hazem Al- Braikan, who was chief executive of a company in which Citigroup held a 10 per cent stake, reaped illegal prof-

its after misleading the public and media about possible takeover bids for

stereo
maker

Harman International Industries and corpo- rate jet builder Textron.

The commission said Al-Braikan traded in accounts held in his own name, in his company Al Raya Investment, and for himself and oth- ers at the Kuwaiti brokerage Kipco Asset Management. Citigroup held a 10 per cent stake in Al-Raya.

Al-Braikan was found dead of a
gunshot wound to the head in July.
BYHARRY BANKS
REGULATION
SEC settles Kuwaiti case
The SEC has reached as settlement regarding the late Hazem Al-Braikan Picture: REUTERS
NEWS | IN BRIEF
UBS told to pay $81m damages

UBS Financial Services has been ordered
to pay $81m (£50.1m) damages to an
investor, Kajeet, for losses related to
auction rate securities. The Financial
Industry Regulatory Authority said UBS
was responsible for damages incurred
by Kajeet, a children’s mobile phone
maker, which was unable to access
funds frozen in the auction rate securi-
ties market in February 2008. UBS
strongly denies culpability.

Infineon loses finance director

German semiconductor manufacturer
Infineon Technologies has lost its chief
financial officer. Marco Schröter has left
with immediate effect, although the
company said plans to sell its wireless
unit would be unaffected.

Barclays to defend big banking

Barclays chief executive John Varley is
expected to use today’s first-half results
to reiterate his defence of large, univer-
sal banks in the face of political pressure
to split investment banks from deposit-
holders. In February, Varley told a meet-
ing of MPs that separating banks “will
not lead to a safer system”.

EDITOR’S LETTER
ALLISTER HEATH

7th Floor, Centurion House,
24 Monument Street,
London, EC3R 8AJ

Tel: 020 7015 1200 Fax: 020 7283 5334
Email: news@cityam.com www.cityam.com
Editorial
Editor
Allister Heath
Deputy Editor
David Hellier
News Editor
Ben Griffiths
Night Editor
Katie Hope
Associate Editor
David Crow
Lifestyle Editor
Zoe Strimpel
Art Director
Darren Soulsby
Pictures
Alex Ridley
Commercial
Sales Director
Jeremy Slattery
Commercial Director
Harry Owen
Head of Distribution
Nick Owen
Editorial Statement

This newspaper adheres to the system of
self-regulation overseen by the Press Complaints
Commission. The PCC takes complaints about the
editorial content of publications under the Editor’s
Code of Practice, a copy of which can be found at

www.pcc.org.uk

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Distribution helpline

If you have any comments about the distribution of City A.M. Please ring 0207 015 1230, or email distribution@cityam.com

Goldman Sachs chief
executive Lloyd

Blankfein has pushed the bank toward pro- prietary trading

DIPLOMATS TO BECOME SALESMEN

The job description for Britain’s ambassadors is to be rewritten to include tough targets for trade pro- motion and a requirement for the country’s top diplomats to tour the UK’s regions to showcase commercial opportunities abroad. As well as glid- ing through the corridors of foreign ministries and cultivating contacts with potential investors and sover- eign wealth funds, ambassadors will now be expected to lead “road shows” in Britain, meeting entrepreneurs first hand to help them export.

REGULATOR BANS BT BROADBAND
ADVERTS

The advertisements that launched BT’s new super-fast broadband serv- ice, Infinity, have been banned after the regulator ruled their claims of “instant internet” were misleading. Consumers lodged four complaints.

BUSINESS EXPERTS TO JUDGE RED
TAPE PROPOSALS

Ministers will have to answer to a panel of business experts before pro- posing new red tape measures, under plans to be announced by Vince Cable today. The business secretary has decided to give the regulatory policy committee more power, allowing it to challenge rules before they are put in place. The independent quango is headed by Michael Gibbons, the for- mer Powergen executive, who advised the previous government.

SUCCESSOR SOUGHT FOR RATAN TATA

Tata Group, the Indian industrial con- glomerate, has called time on the career of its veteran chairman Ratan Tata by setting up a panel to find his successor. In a statement yesterday evening, Tata Sons, the group’s hold- ing company, said it had begun a global search for a successor, consid- ering external as well as internal can- didates, to replace Mr Tata when he retires in December 2012.

GSK TAKES ON THE BACTERIA THEY
CAN’T KILL

A breakthrough at GlaxoSmithKline could help to revolutionise the mar- ket for antibiotics, which has come under pressure as more bacteria become resistant to existing treat- ments after decades of over-prescrip- tion for minor ailments in the West. Yesterday it emerged that scientists at GSK, backed by a £4 million research grant from the Wellcome Trust, have discovered a compound that could lead to a new class of antibiotics.

NEW DEFAULT PENSIONS RIGHT UP
OUR STREET, SAYS L&G

Legal & General intends to pitch to manage money for the Government’s new flagship pension fund. Speaking as the insurer raised profits, Tim Breedon, its chief executive, said: “I’d be very interested in running money for Nest — it’s right up our street.”

SHUTL TO POWER 90-MINUTE
DELIVERY SERVICE FOR ARGOS

A web start-up that’s less than a year old has secured a potentially lucrative trial with Argos that will allow the retail giant’s customers to have prod- ucts delivered in as little as 90 min- utes. Shutl’s technology, which connects retailers with local same-day couriers, will power a six-month, London-based trial which will be avail- able for Argos customers using its ‘Check & Reserve’ online service.

ECUADOR’S “AMAZON BONDS”

Ecuador is seeking $3.6bn (£2.2bn) from rich countries -- in return for doing nothing for a decade. The unusual deal is part of a new United Nations initiative to persuade energy- rich countries not to drill for oil and gas in environmentally sensitive areas. Ecuador has agreed not to touch three Amazon oilfields.

YAHOO EXECUTIVE SRINIVASAN TO
LEAVE

Srinija Srinivasan, an original employee who helped launch Yahoo more than 15 years ago and develop its early internet search capabilities, announced yesterday that she is leav- ing the company. Vice President and editor-in-chief Ms Srinivasan’s depar- ture comes as chief executive Carol Bartz oversees an ongoing turn- around effort at Yahoo.

MORGAN CLOSE TO HEDGE DEAL

Morgan Stanley is nearing a deal to relinquish control of in-house hedge- fund firm FrontPoint Partners, according to people familiar with the situation, in what would be one of its first high-profile overhauls amid new management and financial regula- tion. Morgan Stanley’s full ownership of FrontPoint could go down to between 20 and 25 per cent.

WHAT THE OTHER PAPERS SAY THIS MORNING


US President Barack Obama said yes- terday that BP’s Gulf of Mexico spill is “close to coming to an end” after sci- entists agreed that three-quarters of the oil is gone and engineers success- fully killed the leaking well.

“The long battle to stop the leak and contain the oil is finally close to coming to an end,” said Obama, whose ratings in the US have been hurt by the government’s response to the Gulf disaster.

BP said it had reached a “mile- stone” in handling the incident, after mud pumped through the top of the well appeared to hold down pressure. BP hopes that the next phase of the static kill procedure, which will see cement pumped into the well, could seal the leak permanently.

A team of US scientists yesterday dampened fears that the spill, which was caused by the lethal 20 April explosion of the Deepwater Horizon

rig, was worse than expected after they estimated that only one-quarter of the crude remained in the water.

A report issued by the scientists said that out of the 4.9m barrels of oil that have spewed into the Gulf, one-quarter has been burnt, skimmed and recovered, while a fur- ther 25 per cent has either dissolved or evaporated. The remaining 24 per cent, said the report, had been dis- persed either naturally or chemically.

Meanwhile, BP’s new chief execu- tive Bob Dudley met with Russia’s deputy prime minister Igor Sechin to discuss possible asset sales and future projects in the region.

BP’s shares rose 1.5 per cent to
421.65p yesterday.
%
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Battle to halt
BP oil spill has
almost ended

PRIVATE sector firms in the United States upped their staff counts last month and added 42,000 jobs in the July, according to a survey from pay- rolls processor ADP Employer Services.

This was slightly more than econo- mists had forecast and was encourag- ing news only two days ahead of US non-farm payrolls. The better-than- expected jobs data buoyed global stock markets as economists expressed relief that the figure wasn’t any worse.

Paul Ashworth, senior US econo- mist at Capital Economics, said: “The ADP survey suggests that labour mar- ket conditions remain weak but, again, at least they aren’t getting any worse.”

Ashworth added that the official figures are likely to show that private payrolls increased by 75,000 in July. However, another 150,000 census- related lay-offs last month mean that non-farm payrolls probably fell by 75,000 in total, he added.

Ian Shepherdson at HFE Economics said: “A gain is better than nothing but it is not enough to generate a sus- tained decline in the unemployment rate, and we don’t see this picture changing much until next year.”

P12: ECONOMICS

TWO of the world’s largest media companies reported buoyant quarter- ly earnings yesterday amid signs of resurgent income from advertising.

News Corporation, whose portfolio includes satellite broadcaster BSkyB and The Times newspaper, swung to a profit of $875m (£550.7m) or 33 cents per share in the fiscal fourth quarter. It lost $203m at the same point last

year due to an impairment charge.

News Corp, run by Australian tycoon Rupert Murdoch, said an advertising rebound and cost cuts boosted operating income at its news- papers by 20 per cent.

Time Warner, the owner of US news channel CNN and the Warner Brothers film studio, said its second quarter net income was up seven per cent to $562m or 49 cents per share. Revenue climbed eight per cent to $6.4bn, the highest level in two years.

Private sector
payrolls better
than expected

Advertising rebound helps
News Corp and T Warner
News Corp’s Rupert Murdoch (l) and Time Warner’s Jeffrey Bewkes
Pictures: REUTERS
US ECONOMY

25 per cent of the crude remains in the Gulf.
25 per cent has been burnt or skimmed.
25 per cent has dissolved or evaporated.
25 per cent has dispersed naturally or chemi-

cally.
FAST FACTS |WHERE IS THE OIL?
News
CITYA.M.5 AUGUST 2010
BYOLIVER SHAH
MEDIA
3
BYEMMA SADOWSKI
BP INCRISIS

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