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Cityam 2012-05-18

Cityam 2012-05-18

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BUSINESS WITH PERSONALITY
Facebook isset for recordbreaking IPO
FACEBOOK is set to become thethird largest float in US history latertoday, after pricing its shares at $38each –giving the social network a$104bn (£65bn) valuation and rais-ing an eye-watering $16bn.Only General Motors and creditcard firm Visa have had bigger IPOsand the offering gives the eight-year-old company, founded in a Harvard bedroom, a valuation equivalent to Amazon.com and exceeding that of Hewlett-Packard and Dell comput-ers combined. The valuation means that founderMack Zuckerberg will be wortharound $19bn –before the substan-tial gains in share price that areexpected today. The float comes atthe end of a week that has seenthe IPO jump in both size and priceas Facebook struggled to meetdemand for its shares.On Wednesday the firm increasedthe size of the offering by almost 25per cent to 421m shares, while theday before it had raised the targetprice range to between $34 and $38per share, up from $28-$35.Even that was not enough and lastnight analysts were speculating onhow much the stock will rise on itsfirst day of trading.“I think anything over 50 per cent will be considered a successful offer-ing,” said Jim Krapfel, an analyst atMorningstar. “A lot of retailinvestors are not concerned about valuation. That’s what is going todrive the first day pop.”Lee Simmons at Dun & Bradstreet, was more modest: “You’ve got alarge offering at an increased price,so a huge pop may be difficult toachieve. I’d think a 10 to 20 per centpop over the offer price is expected.”
Spanish Prime Minister Mariano Rajoy is struggling with soaring borrowing costs as contagion spreads
SIXTEEN Spanish banks and four of the country’s regions were downgrad-ed by ratings agency Moody’s lastnight as the sovereign debt crisisspread from Greece to the Eurozone’slarger troubled economies. The rating agency slashed thelong-term debt and deposit ratings of the embattled country’s banks by  between one and three notchesincluding those of its largest lendersBanco Santander and BBVA, andkept seven of them on review forfurther reductions.Moody’s also downgradedSantander UK to reflect its link toparent company Banco Santander, but said at “A2” its rating was onenotch above that of its parent. It alsopointed out that Santander UK had“no direct exposure to the Spanishgovernment (or regionalgovernments)”, and said the FSA wasunlikely to allow Santander UK tosubstantially weaken itself in orderto support its parent.Moody’s blamed the renewedrecession, a dramatic deteriorationin the country’s property portfolio,funding difficulties and the reducedability of the Spanish government tosupport its lenders as its owncreditworthiness diminishes, for themove. The downgrade came as Spain’sgovernment was forced to pay extraordinarily high interest rates to borrow money yesterday as fears of 
www.cityam.com
FREE
contagion grew, while shares in itsfourth-biggest lender Bankiaplummeted. Both the bank and thegovernment were forced to deny rumours of a
 €
1bn (£0.8bn) run to withdraw money from the bank, which pushed shares down another14.08 per cent.Bankia’s stock losses total 40 percent in the last month.Despite being part-nationalised just last week at a cost of up to
 €
10bn, analysts still expect the bank,and the whole sector, to have tomake more provisions against realestate losses.Meanwhile, the Spanishgovernment tried to sell
 €
4.5bn inthree- and four-year bonds yesterday, but only raised around
 €
2.5bn due tolow demand.It had to pay a yield of 4.876 percent on three-year debt, up sharply from 4.037 per cent earlier this
SHAREHOLDER SPRING HITS CAIRN AND PRUDENTIAL
BY JAMES WATERSON
FTSE 100
5,338.38 -66.87DOW
12,442.49 -156.06NASDAQ
2,813.69 -60.35£/$
1.58 -0.01£/€
1.24 -0.01€/$1.27 unc
BY TIM WALLACEAND KATIE HOPE
ISSUE 1,635 FRIDAY 18 MAY 2012
BLUES HEADFOR MUNICH
See Page 30-31See Page 3
Certified Distribution02/04/2012 till 29/04/2012 is 100,668
CITYREVOLTCONTINUES
Spanish 10-year bond yields spiked
AprMayMar
55.566.5
%
6.314
17 May
Bankia stock plunged again yesterday
18 Apr24 Apr30 Apr8 May14 May
2.22.42.61.82.02.8
1.422
17 May
month, and 5.106 per cent on thefour-year bonds, far higher than the3.374 per cent paid on a similarauction in March. Ten-year yields rose to 6.314 percent – levels last seen in December, before the European Central Bank eased market tensions by pumping
 €
1 trillion in cheap loans intoEurope’s banking system. The cost of credit default swaps on five year bonds rose 13 basis points (bp) to anall time high of 553bp, alsoreflecting the increased risks of lending to the country.“Spain’s banks have been broughtto their knees by a huge, speculativereal estate bubble to which the bankshad, and still have, large exposure,”said Ted Scott from F&C Investments.“The Spanish government willprobably be forced to pour moremoney into the banks before beingprevailed upon to seek assistancefrom the Eurozone bailout fund andthe IMF.” As chaos struck Spain, Fitchslashed Greece’s credit rating deeperinto junk, from B- to CCC, to “reflectthe heightened risk that [it] may not be able to sustain membership of themonetary union” and warned thatall Eurozone members would be atrisk of a downgrade if Greece exited. The concerns pushed the IBEXdown 1.44 per cent, while the FTSE100 dropped 1.25 per cent –a six-month low. Italy’s FTSE MIB fell 1.69per cent, while on Wall Street theDow Jones fell 1.2 per cent.
NOWSPAINFEELS
THE EURO PAIN
      G      E      T      T      Y
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ORE ON FA
 
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OK:
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, 23
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ORE ON EUR
 
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allister.heath@cityam.comFollow me on Twitter: @allisterheath
   G   E   T   T   Y
Recovery could be helpedby more QE, says Cameron
PRIME Minister David Cameron said yesterday that there is scope for evenmore monetary stimulus from theBank of England, putting him atodds with a senior Bank official.“Our responsible fiscal policy is being matched by active monetary policy,” Cameron enthused.“And the independent Bank of England is able to do more to sup-port the economy if necessary or if inflation falls below their target.” Yet inflation stuck at 3.5 per centon the latest consumer price index(CPI) measure, and this week theBank’s Inflation Report warned thatit could stay above target until thethird quarter of 2013. To date the CPI has remained abovethe Bank’s two per cent target for 28months in a row.“We are mindful of that and wedon’t want to take risks with credi- bility,senior Bank director PaulFisher said yesterday. “People’s infla-tion expectations have been remark-ably resilient through this episode. We need to justify that by gettinginflation back to target over the nextcouple of years.”Contrary to the Prime Minister’sdovish tone, Fisher said that theBank should only consider morequantitative easing if the economy takes a serious downturn, a scenario
TAXPAYERS could effectively pay about £2bn to wind down all of Northern Rock’s assets, theNational Audit Office hasestimated, in a report that alsoreveals that the governmentsuccessfully bid up the price of the bank it sold by some £60m.The NAO says that taxpayerscould be left hanging onto someassets from the “bad bank” for 10-15 years. The public purse willprobably escape losing money onthem because of its low cost of funding, the agency said, but if the government had to fund them at“typical” market costs, the netpresent cost is forecast to be £2bn.However, the Treasury and theagency UK Financial Investments(UKFI) acted “reasonably” inpursuing a sale of the “good bank”as soon as possible, the NAO said,concluding: “A delayed sale wouldnot have been better value.” And the report also documentsthe bidding process for the “good bank” in detail: it reveals that JCFlowers submitted an offer that would have partially mutualisedNorthern Rock and combined it with One Savings Bank. But theprivate equity firm withdrew its bid. Instead, NBNK and VirginMoney slugged it out over the bankuntil Virgin outbid its rival by about £90m.
NAO forecastsnet loss on Rockof up to £2bn
PM Cameron lauded monetary stimulus......Yet Bank official Fisher was less dovish
2
NEWS
BY JULIET SAMUELBY JULIAN HARRIS
To contact the newsdesk email news@cityam.com
I
 T is truly astonishing that one of the greatest company flotations inhistory is taking place in themiddle of one of the greatestfinancial crises in history. Facebook isgoing to market, raising $16bn and valuing the firm at a ridiculously optimistic $104bn in the biggesttechnology initial public offering(IPO) in history; meanwhile, Greece’s woes have spread to Spain, as theEurozone moves ever closer to thenext stage of its slow-motion crisis.Moody’s decision to downgrade 16Spanish banks last night, includingSantander’s UK subsidiary, wasmerely the latest blow. The symmetry is striking: as one bubble inflates, another deflates. Thedifference, of course, is that Facebook is a great company, albeit one that is being over-valued; the Eurozone wasalways a flawed construct, a
EDITOR’SLETTER
ALLISTER HEATH
Facebook’s bubble inflates while the Eurozone’s deflates
FRIDAY 18 MAY 2012
grandiose scheme that will eventually help destroy the region it was suppos-edly trying to unify. The two storiesare telling in other ways too. Greecemay once have been the world’s great-est civilisation – but tragically it isnow in an abject state. The great inno- vators were once in Athens and theGreek city-states; they have long sincemoved elsewhere, not least to MenloPark, California, home of Facebook. The problem for Britain is two-fold:it is not developing enough new  world beating companies. There isstill no British Facebook. And it isn’treally doing anything significant toprotect itself from the fallout fromthe Eurozone crisis – even more quan-titative easing, as the Prime Ministerimplied may be the answer yesterday,is hardly enough. What is needed is asolution to both problems simultane-ously. The coalition’s Plan A – lots of tax hikes, spending cuts of 1 per centa year for six years and even more redtape and tinkering – isn’t working;the opposition’s Plan B – spend a few  billion more than the coalition andtax the City even more – would makematters even worse. What we need isa plan A+: genuinely restrained publicspending combined with radicalderegulation and a tax system that ispro-growth, pro-entrepreneurs andpro-capital formation. That is where a major research proj-transparent and fairer tax systemmade in the UK for several decades. I will be writing about the detailed pro-posals we are advancing, as well assome of the findings from the dozensof academic papers we reviewed, onMonday; we will also be publishing aseries of articles in our Forum pageson various aspects of our findings. The Eurozone crisis means the UK government can no longer continue with business as usual. The chancel-lor’s plans cannot survive a majorimplosion of the single currency. Heneeds to be much bolder. We need to become an economy that can pro-duce its own Facebooks to grow our-selves out of recession – not one where the answer to every problem isto print more money.ect that I have been leading comes in.On Monday, the 2020 TaxCommission – a body of economists, business people, think-tankers and journalists – will be releasing its finalreport, a 417-page treatise on how toreform Britain’s tax system to boostgrowth and incentivise work andinvestment. The Commission – of  which I was privileged to be the chair-man – was set up by the TaxPayers’ Alliance and the Institute of Directors; its mission was to draw oneconomic research, internationalexperience, history, philosophy, psy-chology and opinion polling to mapout what a government that was seri-ously committed to boosting competi-tiveness would do to the tax system. The result is the most comprehen-sive, evidence-based and detailed casefor lower taxes, lower spending and adramatically different, simpler, more
   L   A   U   R   A   L   E   A   N   /   C   I   T   Y   A   M
that he does not envisage occurring.“We’ve had a couple of quarters of negative growth, but we haven’t really had a fall back into a deep recession,”Fisher said. “If I saw that risk re-emerg-ing, then personally I would want tothink again about restarting,” he said.“If there is not that serious possibilitof deflation down the road, then Ithink there is less impetus behinddoing more asset purchases.”In February Fisher told
City A.M.
thathe was open-minded about whetherthe Bank should do more QE or keepassets at the current level of £325bn.Since then, initial estimates from theOffice for National Statistics (ONS)have suggested that the UK hasentered a technical, shallow recession,although labour market figuresreleased on Wednesday showed thatemployment has risen, while businesssurveys appear to reflect mild growth,rather than economic contraction.“The key reason for restarting QE lastOctober was the possibility that the UK could topple over into a deep recessionagain. We seem to have hopefully headed that risk off at the pass,” Fishertold Dow Jones Newswires yesterday.
LME’s suitors’ bids pass £1bn mark
The three remaining contenders to acquirethe London Metal Exchange have allvalued it at more than £1bn and promisedto preserve its open outcry trading pit,setting the scene for a close-run contestas they attempt to snatch control of thehistoric bourse.
Graff on for $3bn-$4bn value at IPO
Graff Diamonds, known for sellingmultimillion-pound jewels to the super-rich, will be valued between $3bn and$4bn when it lists in Hong Kong,according to people familiar with theprocess.
De La Rue prepares for new drachma
A British company that producesbanknotes for more than 150 countries ispreparing for a potential reintroduction ofthe drachma. De La Rue, which printssterling and euros, has asked itsproduction staff to select potentialsecurity threads for use in new banknotesand retrieved covers from an oldcollection of copper moulds, used forwatermarks, should Greece exit the euroand an order come in from Athens.
No. 10 guide to changing nappies
New parents will be given governmentadvice on changing nappies,breastfeeding and “baby talk” under amulti-million pound initiative to supportfamily life. David Cameron said it was“ludicrous” that parents received moretraining in how to drive a car than in howto raise children.
Hugo Boss Dresses Up China Efforts
High-end fashion label Hugo Boss plans toopen about 60 new stores in China'smainland over the next three years just asgrowth in the country's luxury sectorseems to be cooling off.
US duties for Chinese solar panels
Trade tensions between the U.S. andChina are likely to ratchet up after theCommerce Department found severalChinese solar-panel companies guilty ofdumping and slapped 31% tariffs on theirproducts.
cityamactivetrader.com 0203 201 8900
In association withChampagne reception sponsor
 WHAT THE OTHER PAPERSSAY THIS MORNING
 
OIL explorer Cairn yesterday becamethe latest firm to suffer a defeat onexecutive pay as 67 per cent of investors voted against the firm’sremuneration reportBut because the poll is non- binding it seems that the board areset to push ahead with thepayouts –despite being hit by one of the largest ever shareholderrebellions on directors’ pay.“We have taken on board andacknowledge the way shareholdershave cast their proxy votes onremuneration,” Jackie Shepherd,head of the firm’s remunerationcommittee, said in a statement.Cairn’s share price has dropped by 72 per cent in thelast year and in January exasperatedinvestors forced the board to abandon aplan to givechairman andfounder Bill Gammellshare options worth £2.5m.
Shareholderssay no to Cairnexecutive pay
BY JAMES WATERSON
 THE SHAREHOLDER spring yesterday hit insurance giant Prudential, as athird of investors failed to back itsremuneration report while a simi-lar rebellion hit industrial materialsgroup Cookson.More than 30 per cent of Prudential shareholders votedagainst proposals to hand £29.8m inpay and benefits to seven executivedirectors at a tense AGM in centralLondon. A further three per cent of investors withheld their votes.It was particularly embarrassingfor chief executive Tidjane Thiam because the pay deal was given an“amber top warning” by the Association of British Insurers, thetrade body that is expected toappoint Thiam as its new head.“Those who voted against havestressed that they did so because of 
Prudential andCookson hit byinvestor revolt
BY JAMES WATERSON
concerns about specific issues,” saidchairman Harvey McGrath.“They went on to express their fullconfidence in the management of the group,” he added, before sayingthat the firm would consult share-holders on pay in the future.Prudential's best-paid director last year was Michael McLintock, the headof its M&G fund management arm, who received a total package worth£7.6m. This compares to £4.7m forchief executive Thiam.Shares in the firm closed down 1.5per cent at 690p. At Cookson’s AGM on the other sideof the capital, 32 per cent of share-holders voted against the remunera-tion report, in protest a long-termincentive plan that is set to give £20m worth of shares to three executives.Cookson responded by saying it willlook at breaking the firm up toimprove returns and will appoint anactivist shareholder to its board.
Santander’s AA mortgage dealshows appetite for securitisation
BANKING group Santander UK said yesterday it had raised £2.25bnthrough a residential mortgage- backed securitisation deal. The first AA-rated issuance by aUK institution since before thefinancial crisis was announcedcame just hours before the branchhad its credit rating slashed by Moody’s.Nonetheless, the UK arm of theSpanish bank has raised £5.25bn viaasset-backed deals so far this year, with strong demand for this latest
BY ELIZABETH FOURNIER
tranche, issued via its Fosse mastertrust programme. The vehicle – which packagestogether a portfolio of primeresidential UK mortgages sold by  Alliance & Leicester – included twotranches of debt rated at AA.Mortage-backed deals have beenout of favour for several years after banks lost huge amounts of money on packages of subprime loans thathad been given investment-graderating.But investors have slowly beenreturning to the securitisationmarkets in recent months, seekinghighly-rated and transparent deals backed by stable sources of cashflow. The Santander deal is made up of eight AAA tranches with a range of maturities and denominated in fivedifferent currencies including Australian and US dollars. An extra set of notes,denominated in Japanese Yen, wasadded at the last minute to meetinvestor demand. “Securitisationsform an important part of SantanderUK’s balance sheet management,and so far this year, we’ve raised£5.25bn through vehicles such astoday’s, backed by residentialmortgages,” said Stephen Jones,finance chief at the bank.
Chairman BillGammell lost thevote on pay
GLOBAL law firm Norton Rosereleased its first set of financialresults since its recentinternational mergers yesterday,reporting strong growth in itsrevenues compared to 2010.In the year to 30 Aprilpreliminary turnover at thecombined group hit $1.32bn(£835m), up from $814m last year compared to figures forNorton Rose LLP and NortonRose Australia.Including currency differences that equates to growth of nine per cent on alike-for-like basis.
Revenues grow at Norton Roseas global acquisitions add up
BY ELIZABETH FOURNIER
The group’s revenues nowinclude its recent acquisitions inSouth Africa, where it merged with local firm Deneys Reitz,and in Canada where it was joined by Toronto-based OgilvRenault.“The benefits of the group areobvious,” said Norton Rose chief executive, Peter Martyr.“We are seeing strong growthacross the businessinternationally.”Norton Rose is the first majorUK law firm to report full-yearrevenues for the latest financial year, with figures for 2011expected from the Magic Circlefirms and rest of the sector overthe next few weeks.
FRIDAY 18 MAY 2012
3
NEWS
cityam.com
How the shareholder spring developed(and where it might go next)
      2      J      U      N      E
WPPHoldings
AGM dates for potential shareholder rebellions
      1      2      A      P      R      I      L
30%
of investors atSmith & Nephewfail to backrenumeration
      2      7      A      P      R      I      L
31.5%
of shareholders of Barclays failto back renumeration
      1      7      M      A      Y
70%
do not backOil gorup Cairn’spay deal 
33%
do not back Prudential pay deal
      2      5      M      A      Y
HSBC
      3      1      M      A      Y
DeutscheBank
do not back
Cookson
pay deal
32%
      3      M      A      Y
40%
do not back
Inmarsat
pay deal 
37%
do not back
UBS
pay deal
Sly Bailey ofTrinity Mirrorquits to avoidshareholder revolt
do not back
 Aviva
pay deal
59%
      8      M      A      Y
Aviva’sAndrew Mosssteps down
do not back
 WilliamHill
pay deal
52%

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