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Cityam 2011-06-09new

Cityam 2011-06-09new

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FTSE 100
5,808.89 -55.76
DOW
12,048.95 -21.87
NASDAQ
2,675.38 -26.18
£/$
1.64 unc
£/¤
1.12 unc
¤/$
1.46-0.01
Berlin setsin for fightwith ECB
GERMANY has made an audaciousattempt to seize the initiative in Greek  bailout negotiations, telling theEuropean Central Bank (ECB) that pri- vate investors in Athens’ debt mustaccept a seven-year increase in thematurity of their bonds.In a letter sent to the ECB, Germanfinance minister Wolfgang Schaeublesaid: “Any additional financial supportfor Greece has to involve a fair burden-sharing between taxpayers and privateinvestors.” The ECB has repeatedly blackballedany attempt to introduce even a mildform of debt restructuring for private buyers of Greece’s debt. ECB boardmember Christian Noyer recently called the idea a “horror story”.But Germany has dug in its heels,setting the stage for a pitched battleover the fate of the single currency.Schaeuble says a new bailout “has tolead to a quantified and substantialcontribution of bondholders to thesupport effort.” He says the best solu-tion is a seven-year increase in thematurity of all of Greece’s debt.But the ECB is firmly against arestructuring, in part because of itsown exposure to Greek debt after it bought up billions in an attempt toprevent the need for a bailout. The think tank Open Europe esti-mates: “Should Greece restructurehalf of its debt, which is needed to bring down the country’s debt to sus-tainable levels, the ECB is set to facelosses of 
 €
44.5 - 65.8bn (£39.6 - 58.6bn).”
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Pennsylvanianoil boom
1861-691870-791880-891890-991900-091910-19 1920-291930-391940-491950-591960-691970-791980-891990-992000-092010-191201101009080706050403020100
$ 2010$ money of the day
Yom Kippur warIranianrevolutionInvasionof Iraq
Oil prices are very high by historical standards but remain lower after inflation than they were in the 1970s.
 THE PRICE of oil jumped yesterday after cartel Opec failed to agree a dealto increase its output, making futuresupply uncertain and raising concernsover the economic recovery.Brent crude spot prices rose 2.1 percent to $117.84 a barrel after Opec’smeeting in Vienna ended withoutdeciding whether the 12 membersshould raise production quotas by 1.5m barrels a day, as suggested by Saudi Arabia.Six countries including Iran, Venezuela and Libya refused to follow Saudi Arabia’s lead, arguing about thelevel of global demand, in a sign of growing tensions between the mem- bers over the direction of the cartel.Opec’s own forecasts suggestdemand for the club’s oil will rise by 2.1m barrels a day between the secondand third quarters.“We were unable to reach an agree-ment – this is one of the worst meet-ings we have ever had,” Saudi oilminister Ali al-Naimi said after failingto convince other members. Venezuelan minister Rafael Ramirezsaid a rise in output would havecaused the price to “collapse” givencurrent volatility, but insisted: “Opecremains united and has emergedstrengthened from the meeting.”Oil futures shot up more than twoper cent just minutes after the meet-ing ended, having earlier fallen in
OIL SURGES AFTEROPEC STALEMATE
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www.cityam.comIssue 1,399 Thursday 9 June 2011
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BUSINESS WITH PERSONALITY
anticipation of a production hike.Brent crude for July delivery stood at$117.87 a barrel last night, a rise of oneper cent. The news added to a broader uncer-tainty in the equities markets, whichsaw the FTSE 100 close at its lowestlevel in almost three months.“It came as a surprise. If you look atdemand it will be very robust in thenext months and there is a big needfor extra Opec oil,” said Amrita Senfrom Barclays Capital. “It will beimportant to see if the Saudis are will-ing to supply more... Otherwise themarket will be very tight.” The International Energy Agency (IEA) said it was disappointed, adding:“What really matters is actual supply, which should move in line with sea-sonally rising demand, and we urgekey producers to respond accordingly.Otherwise, a further tightening in themarket and potential increases inprices risk undermining economicrecovery.” The IEA estimated lastmonth that Opec produced 28.75m barrels a day in the first quarter of the year, or just under a third of the globaloil supply. ALLISTER HEATH: P2
Certified Distribution04/04/11 - 01/05/11 is 103,899
ENGLAND’S leading clubs are jeopar-dising their futures by spendingincreasingly dangerous sums on player wages, one of the country’s mostprominent football finance experts warned last night.Premier League teams forked out arecord 68 per cent of their income onpay packets during the 2009-10 season,according to research published today  by Deloitte’s Sports Business Group. The total wage bill of £1.4bn consti-tuted a five per cent rise and wiped outa two per cent improvement in rev-enues that saw top-flight clubs collec-tively earn more than £2bn for the firsttime.Deloitte’s Dan Jones, who edited the Annual Review of Football Finance,told
City A.M.
the increase in wages-to-turnover ratio was cause for alarm.“The thing that concerns us is that we went through about 10 years of the wages-to-turnover ratio in the PremierLeague being around 60 per cent,” said Jones.“Then suddenly last year it went upto 67 per cent and this year it’s edgedup to 68 per cent. We think that is rightat the boundaries of where you want it be. We’ve always talked about 70 percent as being a warning level.“Obviously you have to look at eachindividual club, but for the PremierLeague overall to be edging towardsthat 70 per cent mark is a concern.”FULL ANALYSIS: PAGES 26-27
Soaring wages endangering football clubs, Deloitte warns
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CITYA.M.
9 JUNE 2011
Four directorsto leave ENRC
KEN Olisa, one of two directors yester-day voted off the board of resourcesgroup ENRC after voicing corporategovernance concerns at the FTSE 100company, said the firm must be “pret-ty vulnerable” to an investigation by the UK listing authorities.Olisa told
City A.M.: “ 
 When we wentpublic the people selling shares madecommitments that they would notget involved in the running of thecompany.”He added that the shares marketnow would decide “whether it wantsto invest in a company which is soclearly in the orbit of its controllingshareholders”.Olisa was removed from the boardalong with City grandee Sir RichardSykes after a vote by shareholders. The group is still controlled by itsmajority Kazakh shareholders, who voted against Olisa and Sykes. Twoother directors are understood tohave stepped down. The board of ENRC has been thesubject of repeated reports of internaldisagreements, particularly after acontroversial deal last year involvingthe purchase of a disputed licence tomine copper in the DemocraticRepublic of Congo, which is still thesubject of a legal dispute. The grouplaunched a “comprehensive” corpo-rate governance review.
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Rejoice: Opec’s days are numbered
 THERE was a time when theOrganisation of the PetroleumExporting Countries (Opec), the cartelof oil producing nations, was the world’s Enemy Number One. Thegroup wielded terrifying powers: itcould make or break economies by increasing or reducing the supply of oil, sending its price rocketing orcrashing. No longer: Opec, while still adestructive force, has mutated fromscary to ridiculous. Rather than fear-ing its meetings, people are starting tosee their funny side: a bunch of squab- bling, self-interested nations that areunable to agree on anything. Take yesterday’s meeting. It washoped Opec would hike output, per-haps by 5-6 per cent, to compensate forthe reduced supply from Libya and try and dampen oil prices, now so elevat-ed that they are cutting demand andactually hitting producers. It was notto be. The meeting descended intofarce, with members angrily gangingup on each other and describing thegathering as the worst-ever. Less amus-ingly, the price of oil jumped on newsof the bust-up.Marc Ostwald, a strategist atMonument Securities whose notes areinvariably interesting, convincingly argues that yesterday’s fiasco con-firms that Opec is moving closer to break-up. This would be wonderfulnews for oil consuming nations – andit would finally eliminate a 40-odd year distortion at the heart of the glob-al economy. All cartels are bad – butcartels of states are the worst. The problem for Opec is that itsmembership’s interests are so diver-gent. It has 12 member countries: sixin the Middle East (Saudi Arabia,Kuwait, Qatar, the United ArabEmirates, Iran and Iraq), four in Africa(Algeria, Angola, Libya and Nigeria),and two in South America (Ecuadorand Venezuela). Algeria, Venezuela,Iraq were definitely against increasingoutput, as almost certainly were Iran, Angola and Nigeria. This suggests only the Gulf Cooperation Council coun-tries, friends of the West, backed anincrease. The biggest beneficiaries of the cartel’s dwindling influence may  well prove to be non-Opec energy pro-ducers such as Russia and Kazakhstan. This would come with its own prob-lems, of course, but competition isalways better than monopolies,including in the supply of oil.So why did so many countries not want to increase output, despite thehigh price of oil? Opec countries aredesperate to use foreign exchangereserves from oil sales to subsidise theprice of increasingly expensive foodimports to avoid a popular uprisingand thus the fate of Egypt and Tunisia.Many Opec members would struggleto increase their production, mostnotably Iran, or need a lot more invest-ment to do so (Algeria, Angola, Iraq,Nigeria and Venezuela fall into thiscamp). Last but not least, many Opecnations hate the US as much as ever.Opec’s woes are another reminderthat the post-World War II interna-tional order is disintegrating. TheEurozone, the World Bank/IMF, thedollar’s rule as the world’s reserve cur-rency, the illusion of unity at the G20and even the United Nations are los-ing their credibility. Instead of  bemoaning this collapse of outdatedinstitutions, we should look forwardto building a much looser, less Western-centric, network-based globalorder, built on trade, globalisationand security pacts rather than on bureaucracies. One thing is sure: thenew world order has no room for obso-lete cartels such as Opec.
allister.heath@cityam.com Follow me on Twitter: @allisterheath
NISSAN is to make a £192m invest-ment to build the new version of theNissan Qashqai car in the UK.Prime Minister David Cameron, who invited Nissan chief Carlos Ghosnto Downing Street to announce thedecision, is keen to present the compa-ny’s decision as a coup for UK car man-ufacturing. Nearly a million NissanQashqai cars have been producedsince its release, with most of the partscoming from UK suppliers.Designing and building the new ver-sion is expected to preserve 6,000British jobs. The firm also has plans toinvest £420m in its Sunderland factory to produce the Nissan LEAF, an electriccar, from 2013 onwards.Ghosn said: “The UK has been a cor-nerstone of Nissan manufacturingsince 1986... It’s the home of theQashqai, one of Nissan’s biggest prod-uct successes.” Nissan employs 12,500across Europe and last year produced528,000 cars at factories in the region.
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PM cheers UK cars boost
 Prime Minister David Cameron said Nissan’s decision is “fantastic news” 
NEWS | IN BRIEF
Exxon spends $1.7bn on shale
Exxon Mobil said it bought privately heldnatural gas company Phillips Resourcesand related company TWP Inc for$1.69bn (£1bn) last week, picking upabout 317,000 acres for exploration in theMarcellus shale basin. The action high-lights the importance Exxon is placing onnatural gas assets after spending about$30bn last year to buy natural gas compa-ny XTO Energy, adding one of the leadingdevelopers of shale gas and a resourcebase of 45 trillion cubic feet of gas equiva-lent.
KKR eyes stake in ING business
Private equity giant KKR & Co is eyeing aminority stake in ING’s US online bank,ING Direct USA, a source familiar with thesituation said last night. General Electricand Capital One Financial are also under-stood to have submitted bids. ING wasforced to split its insurance and bankoperations and agreed to divest INGDirect USA by 2013 to obtain EuropeanCommission approval for €10bn (£8.9bn)of Dutch state aid received in 2008 duringthe financial crisis. The bank has said itwould repay the remaining €3bn by May2012.
EDITOR’S LETTER
ALLISTER HEATH
7
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Floor, Centurion House,24 Monument Street, London, EC3R 8AJTel: 020 7015 1200 Fax: 020 7283 5334Email: news@cityam.com www.cityam.com
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Allister Heath
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Editorial Statement
This newspaper adheres to the system of  self-regulation overseen by the Press ComplaintsCommission. The PCC takes complaints about theeditorial content of publications under the Editor’sCode of Practice, a copy of which can be found at www.pcc.org.uk 
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Ken Olisa, who is also aThomson Reutersdirector, criticisedENRC’s board and wasvoted off it
BRISTOL WATER SALE LOOMS
 The owners of Bristol Water haveappointed Citigroup to advise on a pos-sible sale of the company, according topeople familiar with the matter, in amove that paves the way for the firstdeal in the privatised UK industry since the financial crisis. Agbar, theSpanish water specialist majority-owned by France-based SuezEnvironnement, should expect tofetch about £370m for the utility, based on typical takeout multiples.
OPHIR SET FOR $1BN LONDON FLOAT
Ophir Energy, the African explorer backed by Lakshmi Mittal, one of Britain’s richest men, is set to tap intothe demand for energy stocks by announcing this morning its inten-tion to float on the London market. The flotation is expected to valueOphir at more than $1bn (£607m),making it one of the largest explo-ration IPOs in London. Ophir hopes toraise up to $400m through the sale of new shares to fund exploration.
TEMASEK CHIEF TO STEP DOWN
Ho Ching, the executive director andchief executive officer of Singapore’s Temasek investment fund, is likely tostep down in August, according to peo-ple familiar with the matter.If con-firmed, her departure would come ata time when the fund, whose soleshareholder is the Singaporean gov-ernment, has fully recovered from thefinancial crisis, during which the value of its portfolio fell from S$185bn($150bn) to S$130bn.
US SOLAR NEARS COMPETING ON PRICE
US solar power will compete on price with conventional generation withinthree years without subsidy thanks toplummeting costs, industry leaderssay. In a breakthrough for renewablegeneration, the cost of solar power inCalifornia is near that of gas-firedplants at times of peak demand.
FACEBOOK SPARKS PRIVACY ROW
Facebook secretly changed users’ pri- vacy settings to turn on technology that automatically identifies people inphotographs, renewing concernsabout the social networking site’spractices. The feature uses facial recog-nition technology to analyse photo-graphs of users then asks Facebook friends to “tag” them. But Facebook does not give its 500 million users theoption of not being tagged in this way.
L’ORÉAL PEACE TREATY IN TATTERS
 The family feud that racked theL’Oréal empire last year broke outagain yesterday after the daughter of heiress Liliane Bettencourt sought tohave her placed under legal protec-tion. Françoise Bettencourt-Meyerstook action after a judge ruled inMarch that her mother, who has a
 €
14.5 billion fortune, was no longer infull possession of her faculties.
ONE IN EIGHT STRUGGLE TO PAY BILLS
Sharp increases in energy and foodprices mean household budgets are being stretched to breaking point, leav-ing six million people unable to pay their bills on time. The figure has morethan doubled since last summer, from5 per cent to 12 per cent today. It meansmany are turning to debt to cover theshortfall in their household incomes.
HOUSE OF LORDS GETS £6M EXPENSES
Figures released by Parliament show that peers received more than £6 mil-lion in allowances during the firstthree months of the new regime, com-pared to around £4.25 million the year before, when the old system was stilloperating. Among those who claimed were two Conservative peers, Lord Taylor of Warwick and LordHanningfield, who have since beenconvicted of fraud after being foundguilty of cheating on their expenses.
GENETICS CLUE TO E. COLI OUTBREAK
 The culprit behind Europe's E. coli out- break appears to be an evolved andextremely toxic version of a bug firstidentified in Münster, Germany, in2001, according to genetic analyses.Identifying the bug’s ancestor may help scientists identify the origin,spread and source of the disease.
PORTUGAL BEGINS COALITION TALKS
Portugal’s prime minister-elect PedroPassos Coelho and the conservativeDemocratic and Social Center Party started official talks yesterday to forma coalition government that will allow Lisbon to quickly implement a
 €
78 bil-lion ($114.54 billion) bailout program.Passos Coelho’s center-right SocialDemocratic Party won general elec-tions late Sunday, defeating theSocialist Party of Prime Minister JoséSócrates, but falling short of having amajority in Parliament.
WHAT THE OTHER PAPERS SAY THIS MORNING
 
 THE heads of Britain’s four biggestlenders were at loggerheads over bank-ing reform yesterday, with RBS chief Stephen Hester saying that the VickersCommission’s proposals would“increase systemic risk” while HSBCchairman Douglas Flint said they are“required” to protect depositors.Following business secretary VinceCable’s latest attack on banks for insuf-ficient lending yesterday, the bank chiefs were debating Vickers’ proposalto ringfence retail banks from whole-sale at a committee hearing with MPs.Flint said that a ringfence could pro-tect depositors: “I think it is required… The primary responsibility of policy-makers should be to make sure thesupply of credit to the real economy isuninterrupted.”Lloyds chief António Horta-Osórioagreed, saying: “I do think that separa-tion protects customers and is a key part of any resolution plan.” He alsoattacked investment banks, claimingthe cost of their activities “does notfully reflect the risks being taken” dueto cross-funding between wholesaleand retail business lines.But this was flatly denied by BobDiamond, chief of Barclays, whichderives most of its revenues from itsinvestment bank. “Our retail depositsdo not fund our investment bank,” hesaid. “There’s no transfer of funding.”RBS’s Hester, whose investment bank is also its most profitable divi-sion, argued that ringfencing certainretail activities would “decrease banks’ability to withstand risk and increasecosts” and could “reduce the diversifi-cation of asset funding within banks”.He added that it would exacerbatethe problem of moral hazard by “creat-ing a protected beast, the domestic banks” that would have explicit gov-ernment backing.During three hours of hearings,Horta-Osório also came under fire forpressing on with the sale of 620 branches despite Vickers’ desire forLloyds to sell more. Committee chair Andrew Tyrie accused him of planningto present Vickers with a “fait accom-pli” on the deal in September.
Bank chiefsclash on planfor ringfence
 Barclays’ Bob Diamond (left), and HSBC’s Douglas Flint (right) Pictures: PA/REUTERS
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CITYA.M.
9 JUNE 2011
 Lloyds’ António Horta-Osório (left) and RBS’s Stephen Hester (right) Picture: REUTERS
BANK CHIEFS’ KEYPOINTS DURINGCOMMONS HEARING
RINGFENCING
The banks were split on Vickers’ proposalto create a firewall between retail andinvestment banking activities. RBS chief Stephen Hester said that if there must be aringfence, “make it incredibly small andtight so that in two generations’ time it’snot the halo of state protection”. ButHSBC’s Douglas Flint said that a ringfenceshould follow standard accounting rules tomake it easier to carve up banks’ balancesheets. Barclays chief Bob Diamond saidthat operational subsidiarisation, wherebythe banks’ payments infrastructure isringfenced, would be preferable. Hesteralso said that bail-in debt would be moreeffective at containing risk than a ringfence.
COMPETITION
All the bank chiefs denied that marketshare is key to competitiveness in the retailmarket, with Hester calling size a “red her-ring” in the debate. Lloyds chief AntónioHorta-Osório claimed that increasing theease of account-switching would do mostof the work to address competition issues,while HSBC’s Flint warned: “By designating[some banks] systemically important insti-tutions, you concentrate activity in them.”
CAPITAL RATIOS
Diamond said that Vickers’ recommenda-tion for a 10 per cent core tier one capitalratio is too high for a “pro-growth bank”.The other banks said 10 per cent was nowconsensus, but Flint warned: “If we gomuch beyond 10 per cent... we will riskcosts to the economy.”

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