BUSINESS WITH PERSONALITY
WARREN Buffett, the world’s most famousinvestor and head of Berkshire Hathaway, has been diagnosed with prostate cancer. The 81-year-old told investors the stage onedisease is “not remotely life-threatening oreven debilitating in any meaningful way”.Buffett will begin two months of daily radiation doses in mid-July. He said treatmentfor the cancer –the most common form inmen –will restrict his travel but not affect therest of his routine, adding: “I feel great – as if I were in my normal excellent health –and my energy level is 100 per cent.” The disclosure will fuel speculation over theidentity of his successor at BerkshireHathaway, which employs more than 270,000people in more than 70 businesses globally.Buffett said in February he had identified hissuccessor but did not reveal their name andsaid even the person chosen does not know.Berkshire shares fell 1.5 per cent in after-hours trading after Buffett’s announcement.BANKS have hired lawyers to look intosuing the EU if Brussels imposes new restrictions on bonuses that they say would wreck their businesses,
City A.M.
has learned. The Association for FinancialMarkets in Europe (AFME), an indus-try group representing banks acrossthe continent, has brought in top law firm Clifford Chance to see whether itcan use a precedent set by a Europeancourt ruling on footballers’ pay todefend banks’ right to award bonuses. The Bosman ruling by theEuropean Court of Justice (ECJ) estab-lished that EU treaties give footballplayers the right to free movement within the EU and the freedom tonegotiate their own pay with clubs. The 1995 judgment set the scene for alarge increase in footballers’ pay.Lawyers are examining whether aproposal from MEPs to impose a fixedone-to-one ratio between a banker’ssalary and bonus – meaning that a
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the European Council, made up of member states, the EuropeanCommission, led by Michel Barnier,and the EU parliament.But banks are fearful because,unlike with many radical MEPchanges, it is not clear if anyone onthe Commission or Council will wantto champion the politically toxiccause of bankers’ pay.Britain’s coalition governmentrejected the idea of imposing its own bonus-salary ratio earlier this year butis already fighting on many fronts inthe argument over capital rules. A spokesman for AFME said: “We’reconcerned about the proposals oncompensation, which fail to takeaccount of the significant progressthe industry has made and we partic-ularly strongly oppose quantitativeratios on pay.”But there is a sharp division amongEurope’s banks over the wisdom of pursuing a case even if they don’t gettheir way. Some suggest that even if they won, it would be tantamount topolitical suicide.
EXCLUSIVE
BY JULIET SAMUEL
BANKSPLOT TOSUE
EU OVER BONUSES
European Commission president Michel Barnier has been vocal in criticising bonuses, making banks worried he could support MEPs
Sage of Omaha Warren Buffett tells investors he has prostate cancer
bonus could never be more than basic pay – contravenes the rightsawarded by the Bosman ruling.MEPs have compiled a long list of suggested changes to European capi-tal rules, many of them to do withpay. But it is the bonus-salary ratiothat has spooked banks the most because they see it as the amend-ment most likely to make it into thefinal rules.If it were brought in, they argue it would turn their cost models upside-down, since most top bankers arerewarded mostly with a variable bonus that changes depending ontheir annual performance. With EU employment law alsomaking it harder to fire under-per-forming bankers, one expert saidthat it would simply result in “richerand less motivated bankers”.MEPs’ amendments are often vetoed during negotiations between
FRACKING BOOM: WHYTHE UK WILL BENEFIT
See Pages 34-35
HOW THE BLUES
CAN BEAT BARCA
allister.heath@cityam.comFollow me on Twitter: @allisterheath
STOCKBROKER Panmure Gordon haspoached the head of rival SeymourPierce to be its new chief executive.Panmure will today tell themarket that Philip Wale is beinghired to replace Tim Linacre, whoannounced his resignation inDecember after a profit warning. Wale is expected to leaveSeymour Pierce at the end of nextmonth. The former co-head of European equities at GoldmanSachs only joined Seymour inDecember 2010 but could not resistthe job at Panmure, one of theCity’s oldest stockbrokers.“Philip Wale has done a fantastic job in terms of recruiting a strongteam around him,” a source told
City A.M.
last night.“He leaves on good terms and islooking forward to the challenge of Panmure.”Staff at Seymour were told of Wale’s departure yesterday afternoon. The search for hisreplacement has begun and ashortlist of internal and externalcandidates is being drawn up. Wale joins Panmure at achallenging time. It has sufferedfrom a delay in a number of biginvestment banking deals whichforced it to issue a profit warning inNovember 2011.Both firms declined to commentand Linacre could not be reached.
Panmure hiresSeymour bossas new chief
BY PETER EDWARDS
G E T T Y
Spain slams Argentina forits move to seize oil firm
SPAIN rounded on Argentina’s moveto seize control of oil giant YPF yes-terday, threatening swift economicretribution for the nationalisationplan.Spanish industry minister JoseManuel Soria promised “conse-quences” in the coming days. “They will be in the diplomatic field, theindustrial field, and on energy,” hesaid. And Repsol, the current owner of amajority stake in YPF, also pledgedlegal action worth up to $10bn forthe “manifestly unlawful and grave-ly discriminatory” act.Shares in Repsol, which generatesmore than a fifth of its net incomefrom the stake, fell six per cent yes-terday. There were also reports inthe Chinese press that Sinopec had been in talks with Repsol to buy some of YPF’s stake before Argentinamade its plans known. Argentinian President CristinaFernandez de Kirchner on Monday tabled legislation to reclaim YPF, which Repsol has said is worth$18bn as a whole.European Commission president Jose Manuel Barroso urged Argentina to uphold international business accords with Spain.Europe’s trade chief will write tohis Argentinian counterpart to “reit-
Canadian approached for BoE job
Mark Carney, governor of Canada’s centralbank, has been informally approached tobe a candidate to replace Sir Mervyn Kingas head of the Bank of England in Junenext year. One of the world’s mostrespected central bankers, Carney alsoheads the Financial Stability Board, whichoversees global regulation. He wasapproached recently by a member of theBoE’s court, the largely non-executivebody, that oversees its activities,according to three people involved in theprocess. Carney declined to comment.
O1 Properties eyes London IPO
One of Russia’s largest high-end officeowners is set to list on the London StockExchange in the latest example of aEuropean property company looking todiversify its financing. O1 Properties,which owns about $2bn-worth of officesin Moscow, will announce its plans today.
BTG allows investors to pull out
BTG Pactual has given retail investors fivedays to pull out of its high-profile listingnext week after it emerged that the chiefexecutive of the Brazilian investmentbank had been fined by Italian regulatorsfor insider trading.
Missing month in the China inquiry
Britain failed to press China over thedeath of Neil Heywood for nearly a monthafter it emerged that the businessmanhad died under mysterious circumstances,ministers admitted yesterday.
Romney tells Obama to start packing
An emboldened Mitt Romney has toldPresident Obama to “start packing” inreadiness to leave the White House. Thecomment came as a new opinion pollshowed him moving slightly ahead of thePresident.
IKEA to sell TVs and sound systems
Flat-pack furniture took a leap into thefuture as IKEA announced it is pressinginto the electronics market with a range ofTVs and sound systems built into its units.
Move elected House of Lords toManchester, says Lord Adonis
An elected House of Lords should move toSalford like the BBC to save taxpayersmoney, the former transport secretaryLord Adonis has said in a letter to TheSpectator.
Nestlé nears deal for Pfizer unit
Pfizer is close to selling its infant-nutrition business to Nestlé SA for at least$9bn, people familiar with the mattersaid.
Sky Deutschland seals Germanfootball rights
Sky Deutschland retained key rightsyesterday for top matches of Germany'sBundesliga, but competition means thesum that Sky will pay to show matches isset to roughly double.
WHAT THE OTHER PAPERS SAY THIS MORNING
US markets posted their largest gainsin a month yesterday after banks leda string of quarterly results that beat Wall Street expectations.Goldman Sachs, US Bancorp, Coca-Cola and Johnson & Johnson alltopped analysts’ forecast for the firstthree months of the year despite thestill subdued US economy. The Dow Jones industrial averagerose 1.5 per cent to close at 13,115.54. The Standard & Poor’s 500 Indexgained 1.55 per cent to 1,390.78 andthe Nasdaq Composite climbed 1.82per cent to 3,042.82.“People were very pessimistic,marking down earningsexpectations so there was plenty of room for the market to be positively surprised,” said Paul Zemsky, head of asset allocation at ING InvestmentManagement. The rises reflect a surprisingly strong beginning to US earningsseason, with 29 out of the 39 S&Pfirms to have reported so far beatinganalysts’ estimates.One bank narrowly came in below expectations, however. State Streetsaid first-quarter profit fell 11 percent. The Boston-based custody bank’s net income was $417m, or 85cents a share, including preferredstock dividends and otheradjustments. Analysts’ averageforecast was 86 cents a share.
Results reliefpowers jumpon Wall Street
President Cristina Fernandez de Kirchner’s decision has proved popular in Argentina
2
NEWS
BY PETER EDWARDSBY MARION DAKERS
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XCUSES, excuses, excuses. Onceagain, the Bank of England hassuffered the humiliation of seeing consumer price index(CPI) inflation increase, rather thandrop, last month. The CPI measureincreased from 3.4 per cent to 3.5 percent; let’s never forget that the targetthat the Bank is meant to be stickingto is two per cent and that if it movesone per cent either higher or below that the governor is forced to write anopen letter to the chancellor. Therehave now been nine of these letters ina row, starting in February 2010. TheBank’s record over the past few yearshas been poor, even though it hastried to deemphasise its coreinflation-busting target.Now, don’t get me wrong: of course,the situation is not as bad as it previ-ously was and inflation is lower. Pricerises will probably dampen a little
EDITOR’SLETTER
ALLISTER HEATH
Bank of England’s inflation over-optimism must now end
WEDNESDAY 18 APRIL 2012
more as the year progresses. But my beef is that – once again – the Bank has been shown to be too optimistic, with no consequences. It is almostunthinkable that it will be back oreven below target by the end of the year, until recently the line peddledand amplified by the many doves inthe City. Inflation on the CPI measurein the first quarter as a whole was 3.5per cent (the same as for Marchalone): this was higher than the offi-cial Bank projection of 3.35 per centmade as recently as its February 2012Inflation Report. In February 2011,the Bank expected inflation to bedown to 2.86 per cent by the firstquarter (on the mean forecast of unchanged policy). Adam Posen, theMPC’s arch-dove, said in an interview in March 2011 that inflation wouldtumble to 1.5 per cent by the middleof 2012. As he put it, defending hissupport for continued low rates andgreater quantitative easing: “If I havemade the wrong call, not only will Iswitch my vote, I would not pursue asecond term.” A miracle could stillhappen – but it will be interesting tosee how that pans out.It is key to understand why inflationis rising. Simon Ward of Hendersondemolishes three excuses: it wasn’ttax. The CPI excluding VAT and indi-rect tax went up by exactly the sameas the overall index. Food and energy chancellor and an equally uselessreply simply won’t do any more.Britain is plagued both with an inef-fective and confused monetary policy and an equally over-optimistic fiscalpolicy. Regarding the latter, the cur-rent austerity until 2017 is just thestart. The IMF made it clear yesterday that massive age-related and health-care timebombs will require an 11.3per cent tightening by 2030. There is little hope of a realacknowledgment of the true scale of the fiscal disaster; but there is at leastsome hope that the monetary confu-sion could be tackled. The best way tostart is for the Bank’s next letter tothe chancellor to be much moredetailed, and for George Osborne toreply properly. It’s time to get a grip.prices were a driver – but remarkably,much of this was domestic in origin,not imported from overseas. Thekiller fact here is that the S&P GSCIall-commodities spot index rose by only 1.2 per cent in sterling terms inthe year to March, down from 26.2per cent in the prior 12 months. It wasn’t the weak pound either: ster-ling’s effective rate rose by 1.5 percent between March 2011 and March2012. The problem is excessively loosemonetary policy.Candidates for the job of next gover-nor should explain how they will do a better job of fighting inflation – or if they believe that higher inflation ison balance a good thing (a flawedidea) explain why they think the tar-get should be diluted. But the currentcharade – year after year of over-opti-mistic forecasts, often wildly so, fol-lowed by anodyne letters to theerate our serious concerns” while anEU-Argentina meeting this week would be postponed.Under international rules, however,Spain cannot limit imports from Argentina.But Argentina’s pounce on YPF couldgalvanise international opposition tothe nation’s claims of sovereignty onBritain’s Falkland Islands, one analystsaid yesterday.“What could be bad news forinvestors in Argentine operationscould in fact be good news in the longrun for those investing in theFalklands.” said Ian McLelland, head of oil and gas at Edinson InvestmentResearch.
US RESULTS:
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Repsol YPF SA
11 Apr12 Apr13 Apr16 Apr17 Apr
6.006.507.007.508.008.50
€
16.42
17 Apr
GOLDMAN Sachs slashed costs and boosted its dividend by over 31 percent to 46 cents yesterday as itunveiled first-quarter results that beatexpectations.Profits and revenues were downcompared to the first quarter of 2011earlier but, like its rivals, Goldmansaw a significant bounceback in busi-ness compared to the end of last year. The bank also cracked down oncosts, laying off 900 people in thequarter so that it has now shrunk its workforce by 3,000 over a year. That brought its total pay pot down by 16 per cent to $4.4bn, althoughthat was still nearly double what ithad to pay out in the fourth quarter.Revenues were down 16 per cent to$9.9bn year-on-year, but up 64 percent compared to a quiet fourth quar-ter of 2011, when investors sat ontheir hands due to the euro crisis.Similarly, net income was down 23per cent to $2.1bn, but that was morethan double what the bank made inthe fourth quarter. The recovery was driven by a strongrise in debt underwriting revenues, which more than doubled, and high-er trading volumes in fixed incomeand equities, where revenues rose 154
Goldman cutspay and boostsits dividends
BY JULIET SAMUEL
per cent and 100 per cent respectively.Chief executive Lloyd Blankfeinsaid: “Stronger global markets, togeth-er with the firm’s deep and broadclient franchise, drove improvedresults across most of our businesses.”Markets have been boosted in 2012 by a
€
1 trillion cash injection by theEuropean Central Bank in December, which freed up interbank markets.On a call with analysts, however,chief financial officer David Viniar warned that there have been signs inthe last fortnight that the effects of the ECB action are already wearing off.“Two weeks doesn’t really tell youanything but [the euro crisis] has hadsomewhat of a chilling effect inEurope as markets stalled,” he said.
Goldman Sachs Group Inc
11 Apr12 Apr13 Apr16 Apr17 Apr
115116117119118120
$
116.86
17 Apr
THE BANK of Spain yesterday warned that some of the country’s banks may face difficultiesmeeting tough requirements set by the government. As the central bank approved all135 Spanish institutions’ plans to boost capital, it said the planssubmitted included five mergerand acquisition operations in which 11 institutions areparticipating.No details were given in thestatement on which banks would be involved.
BY HARRY BANKS
The government set strictrecapitalisation requirements inFebruary to clean up the sectorafter a property crash and in aneffort to reassure investors itsailing lenders won't needinternational help.The Bank of Spain said 90lenders were already complying with the capital requirements while 45 had presented plans tocomply by the end of the year.Overall Spain's banks will need€53.8bn, with additionalprovisioning needs totalling€29.08bn and higher core capitalrequirements of €15.58bn.
WEDNESDAY 1
8
APRIL 2012
3
NEWS
cityam.com
GUARDSMEN MARK 100 DAYS TO GO UNTIL LONDON 2012 OLYMPICS
GUARDSMENwearing traditionaldress have gatheredat Horse GuardsParade in centralLondon to mark 100days to go until thestart of the London2012 OlympicGames. The 260Guardsmen aremembers of theGrenadier,Coldstream, Scotsand Welsh guards.The LondonOlympics will kickoff on 27 July withthe OpeningCeremony at theOlympic Stadium.
SHAREHOLDERS in Citigroup dealt a blow to the bank’s management by voting down its executive pay proposals yesterday. Although the vote is advisory rather than binding, it is a majorembarrassment to chief executive Vikram Pandit and reflects investors’fury that his promise to deliver a risein the firm’s dismal one centdividend has not yet been fulfilled. Just 45 per cent of shareholders voted for the remuneration report,meaning that under new Dodd-Frank regulations, the final tally is a55 per cent vote against it.Pandit was blocked fromincreasing the bank’s dividend pay-out by the Federal Reserve, whichsaid that although the bank hadpassed its stress tests, it was notsufficiently secure to start increasingshareholder rewards. And Pandit suggested yesterday that it might not be possible toincrease the dividend until next year. Despite that, his own pay wasrestored. He had been symbolically working for just $1 per year todemonstrate his commitment, butthat was thrown out in 2011, whenhe was awarded a $15m pay package. The vote at Citi’s annual generalmeeting in Dallas is a warning shotto other banks.
Shareholders vote down Citimanagement’s remuneration
BY JULIET SAMUEL
Spanish banks could merge tohelp meet capital benchmarks
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