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Cityam 2012-07-02

Cityam 2012-07-02

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Published by: City A.M. on Jul 02, 2012
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The Barclays chairman Marcus Agius has resigned after losing the confidence of investors
FTSE 100
5,571.15 +78.09DOW
12,880.09 +277.83NASDAQ
2,935.05 +85.56£/$
1.57 +0.01£/€
1.24 -0.01€/$
1.27 +0.03
e 2
s 4
…days to go
See Pages 18-19See Forum, Page 14
ISSUE 1,664 MONDAY 2 JULY 2012
Certified Distribution
30/04/12 till 27/05/12 is 132,076
BARCLAYS chairman Marcus Agius will resign this morning as theembattled bank struggles to containa growing crisis that began with last week’s £290m fine for abusing theLibor interest rate. The departure of Agius comes afterBarclays’ shareholders, politiciansand regulators have all expressedshock at the circumstances behindlast week’s settlement, which has hadsome calling for a public inquiry intothe entire banking sector. A source with knowledge of the situ-ation told
City A.M.
that Agius haddecided to quit of his own accordafter receiving feedback from share-holders. When asked whether Agius hadmet with investors the source said:“Shareholders have ways of gettingtheir message across.”Meanwhile embattledchief executive BobDiamond faces a chal-lenge to stay in his jobas leading politiciansline up to criticise hishandling of the affair.He will face a hostilereception when heappears in front of the House of Commons Treasury select com-mittee on Wednesday and will be questioned on how much the board knew about the rigging of Barclays’ Libor submissions. Agius, appointed as chairmanin January 2007, is due to becross-examined by the samecommittee on Thursday. Last night MPs on thecommittee said they are still hopefulhe will attend, despite his resigna-tion. Agius will refer to the “devastating blow to Barclays’ reputation fromthe Libor scandal” in his resignationstatement today.He will say that, as chairman, the buck rests with him, in an attemptto take the pressure away fromDiamond. He will also say: “I amtruly sorry.”Barclays declined to comment onspeculation linking Sir MichaelRake, currently the bank’s seniorindependent director, to the chair-manship. Sources say the board willembark on a search for a full-timechair and that in the meantime SirMichael is likely to move up to bedeputy chairman.Meanwhile the Bank of England lastnight reacted furiously to suggestionsthat one of its top officials influencedBarclays’ decision to rig the Liborinterest rate.Documents released as part of the bank’s settlement with regulatorsrefer to an October 2008 phone call between a top executive at Barclaysand an official at the central bank that caused Barclays managers to“mistakenly” believe they had beeninstructed to lower their Libor sub-missions. Yesterday the individuals involved inthe call were identified as Diamondand Paul Tucker, deputy governor atthe Bank of England, leading to ques-tions about whether Tucker wasaware that the Libor rate was beingabused. “It is nonsense to suggest thatthe Bank of England was aware of any impropriety in the setting of Libor,” aspokesman told
City A.M.
“If we had been aware of attempts to manipulateLibor we would have treated them very seriously. Although it is understood thatDiamond did discuss Barclay’s Liborrate submissions with Tucker, it wasas part of a routine conversation andfollowed press coverage of the issue. This version of events is backed up by the US Department of Justice’s(DoJ) report into the issue.
Barclays' shares have fallen since the scandal emerged
27 Jun28 Jun29 Jun25 Jun26 Jun
29 Jun
Sir MichaelRake moves upto deputy chair
   M   I   C   H   A   T   H   E   I   N   E   R   /   C   I   T   Y   A .   M .
EUROZONE leaders made only a few small steps towards easing the paincaused by the sovereign debt crisis,and remain far away from targetingthe root causes of the currency area’sproblems, economists have warned.Politicians agreed last week tomake plans for a “single supervisory mechanism” for Eurozone banks,probably run by the EuropeanCentral Bank (ECB) – a key steptowards creating a banking union,and a change which could allow theESM bailout fund to recapitalisetroubled banks directly.Borrowing costs fell for theSpanish, Italian and Irish govern-ments as the plans reduce their lia- bility to bail out failing banks.
120bn (£96.7bn) package to boostgrowth was also agreed.However, the plan remains vaguein parts and does not cover the mainproblems afflicting the Eurozone.
Italian PM Monti saw borrowing costs fall
To contact the newsdesk email news@cityam.com
 T took a few days too long but theLibor scandal has finally claimedits first senior scalp. Marcus Agius,Barclays’ chairman since January 2007, has quit, in a bid by the firm toshow senior staff are takingresponsibility for the rate-riggingscandal. That was the right thing for Agius to do: the Libor manipulation isa disaster, and while many other banks are also under investigation,someone at Barclays needed to pay. This scandal marks a truly horren-dous nadir for the City and the bank-ing industry’s reputation. Unlikeprevious lawsuits and scandals, thistime there are no redeeming circum-stances, no mitigating factors, noother side of the story: a key, trustedinterest rate, the supposed gold stan-dard for interbank lending, was ruth-lessly distorted. Many of thoseinvolved actually thought manipulat-ing Libor was some sort of joke, if their emails are to be believed. It’s apretty disgusting tale. The job of the next chairman will be
Barclays chair was right to resign over scandal
to decide whether more departures –and perhaps even a complete clear-out – are needed to stabilise the com-pany’s reputation. The big questionsurrounds Bob Diamond: far from being the monster he is often depict-ed as, he is a formidable, entrepre-neurial figure who has built Britain’sfirst successful investment bank sinceSG Warburg. He also built BGI, which was sold for a fortune to BlackRock.He was instrumental in snapping upLehman US for a song. He is fearedand respected by rivals. This record is why many shareholders would like tokeep him, though that wouldundoubtedly change soon if the scan-dal continues to build. Many are also worried that a complete clear-outcould leave Barclays rudderless and bereft of a talent. Yet the stark truth is thatDiamond’s undoubted ability meansnothing when one is confronted withsuch a major scandal. What didDiamond know, and what didn’t heknow? And what did he do about it?One reason bosses are paid so much isthat they must take responsibility forthe behaviour of their underlings.Diamond also shot himself in thefoot when he said that the time forcontrition for banks was over; yet hemust have known about Libor by then. It was an astonishingly stupidspeech. Diamond’s fate will now bedetermined by Wednesday’s Treasury Select Committee hearing, whichcould be the most brutal suchencounter to date with any businessleader. A lot will hinge on conversa-tions Diamond had with Paul Tucker,the deputy governor of the Bank of England, over Libor a few years ago,and the way this was subsequently interpreted by Barclays’ managers.Ultimately, the departure of seniorstaff won’t change the core issue. TheLibor system must be reformed toensure that it is properly reflective of the cost of money. If that is impossi- ble, perhaps because of the changedstructure of bank financing and of the money markets since the crisis,there is a case for ditching the metricentirely. The government also needsto legislate if necessary to make surethat deceit of the sort seen with Liborcan be prosecuted. It’s the old duck test: if it looks like a crime, andsounds like a crime, then it should betreated as a crime, assuming a fairlegal process of course. Crimes shouldmean prison sentences, not meresackings or reprimands. Agius’ depar-ture is welcome – but it is merely thestart of a painful and lengthy processfor the City of London.“Progress was made on the bankingunion,” said BNP Paribas economistPaul Mortimer-Lee.“However, there was no mention of either a deposit guarantee scheme or a bank resolution authority, the otherkey aspects of a banking union.”Barclays added that there was littleprogress on creating a fiscal or politi-cal union.“This package of measures stopsshort of new decisive measures that would definitely mark a turningpoint,” said analyst Fabio Fois, whoadded that Germany will have to givereal financial backing to weak govern-ments before the crisis will end.“Markets will also need some com-mitment that member states withhigh public debt levels could eventual-ly receive further significant supportfrom others.”Meanwhile IHS Global Insight’sHoward Archer cast doubt on the effec-tiveness of the
120bn fiscal stimulus.“This headline figure puts a highly positive gloss on what has been agreedgiven that some of the measures andfunds are not really new,” he said, “andit will not markedly lift Eurozonegrowth prospects in the near term.”
Other vital steps towards a bankingunion, including a deposit guaranteescheme or bank resolution authority
Eurobonds – German ChancellorAngela Merkel has made it clear she willnot put German taxpayers’ cash behindother countries’ debts, and that did notchange in the summit
Any steps to boost competitiveness ofperipheral countries, or even majoreconomies like France which have fallenbehind powerhouse Germany
Full details of how the bailout fundswill buy government bonds
On top of that, economists expressedconcern that the ESM will not be bigenough to buy government bonds andrecapitalise banks
age 1
allister.heath@cityam.comFollow me on Twitter: @allisterheath
Eurozone summit fails tosolve growing debt crisis
Esma probes agencies’ views onbanks
The pan-European markets regulator haslaunched a probe into the way the bigthree credit rating agencies evaluatebanks to determine if the process issufficiently rigorous and transparent, itschairman Steven Maijoor told theFinancial Times. The European Securitiesand Markets Authority has beguninspecting Standard & Poor’s, Fitch andMoody’s Investors Service and expects tofinish by the end of the year.
Gilts face disruption duringOlympics too
As London braces itself for fearedtransport congestion when the OlympicGames start this month, the disruptionlooks set to hit an unexpected victim: thegovernment bond market. The UKTreasury has called off gilt auctionsbetween mid-July and mid-August.
Heathrow decision on ice
The coalition is planning to delay adecision on whether to build new runwaysin the south-east amid deep splitsbetween the Tories and Liberal Democrats.
 Alarm as pension changes painthealthier picture
Employers are being warned not to flattertheir accounts by making unrealisticpension assumptions as it emerged oneemployer in eight defied all the evidenceon rising longevity and cut projections forstaff life expectancy last year.
Era of unmanned flight draws closer
The end of the RAF fighter pilot hasmoved a step closer as BAE Systems willtest unmanned aircraft in British airspace.
Pulling Xstrata deal could costGlencore £300m break fee
Glencore could be forced to pay almost£300m in break fees if it decides to walkaway from its planned merger withXstrata, documents show.
China manufacturing growth slows
China’s manufacturing activity expandedat its weakest pace for seven months inJune, despite government attempts toarrest the slowdown, raising fears aboutChina’s ability to power the global economy.
Global IPO Market Keeps Shrinking
The global IPO market continued itsdownward track in the second quarter,notching its fourth consecutive period ofdeclining deals in nearly every corner ofthe world.
Former Ruling Party Expected to Win Mexico Vote
The polls closed yesterday as Mexicanspicked a new president, a three-way racewidely expected to sweep its formerruling party back into power.
The new jobs website for London professionals
The creation of a single banksupervisor for Eurozone banks, with theinvolvement of the ECB
The recapitalisation of weak banksusing the European Stability Mechanism,avoiding adding to governments’ debt
ESM loans will not be senior to otherdebts, thus avoiding panicking privateinvestors further
A €120bn stimulus to boost growth
Referendumon EU splitsthe coalition
PRIME Minister David Cameron yes-terday reopened the battle lines within the coalition over Britain’smembership of the EU by signallinghe might yet hold a referendum.“For me the two words ‘Europe’and ‘referendum’ can go together,”Cameron wrote in the Sunday  Telegraph. But he added: “The prob-lem with an in/out referendum isthat it offers a single choice, whereas what I want…is to make changes toour relationship.”Business secretary Vince Cable toldSky News: “Reopening a big debateabout Britain being in or out of theEU and the referendum associated with it is horribly irrelevant at a timeof upheaval taking place in Europe.”Cameron’s vague commitmentalso drew fire from former defencesecretary Liam Fox. In a speech today,the Tory MP will say the UK shouldconsider leaving the EU as “life out-side the EU holds no terror”.
LONG-STANDING partner JP MorganCazenove is acting as financial adviser forHeritage during its purchase of oilfieldassets in Nigeria.JP Morgan, which is also helping underwritea $370m (£235.5m) equity raising to pay forthe deal, lists Barry Weir, James Taylor andNeil Haycock as the lead advisers on thisdeal.But Ian Hannam, who resigned from JPMorgan in April in order to work on hisappeal against a £450,000 FSA fine, is alsoon board to provide advice.The watchdog censured Hannam, JPMorgan’s former global chairman of equitycapital markets, for passing on informationabout Heritage’s oil finds to a potentialtakeover bidder in 2008.Alongside his appeal, Hannam is also beingkept busy with ongoing work on the trou-bled Glencore-Xstrata merger, after keepingon some of his JP Morgan clients for reasonsof continuity.Meanwhile, Canaccord is underwriting 27per cent of Heritage’s equity raising and willact as lead manager, with head of capitalmarkets Giles Fitzpatrick, chairman TimHoare, head of natural resources Rob Collinsand Tarica Mpinga leading the team.And Standard Bank will provide a $550msecured bridge finance facility, while actingas joint global coordinator and jointbookrunner on the rights issue. Leading thebank’s work on the Heritage mandate areoil and gas expert Roger Brown, head ofcapital markets Simon Matthews andDonald Hultman, who is head of mining,energy and infrastructure lending.
HERITAGE Oil is spending $850m(£541m) on assets in Nigeria, Africa’s biggest oil producer, the firmannounced yesterday. The firm will buy a 45 per cent inthe OML 30 fields from Shell, Totaland Eni in a bid to diversify. The firm has endured frustratingly slow progress at its Kurdistan wells, which has weighed down its shareprice in the last 18 months.Heritage shares will be suspendedfrom today as the firm embarks on areverse takeover through its Shorelinesubsidiary. The FTSE 250-listed group will fundthe acquisition with a $370m under- written rights issue and a $550mloan.Chief executive Tony Buckinghamsaid the deal would be “transforma-tional for Heritage, providing a mate-rial change in production and reserves whilst pursuing our strategy of gener-ating shareholder value”.Buckingham has pledged to use his33 per cent stake in Heritage to sup-port the deal. Other investors will voteon the takeover at a meeting in August. The deal, Heritage’s first in the oil-rich country, is set to boost the explor-er’s output from 605 barrels of oil perday to around 11,350 once it hasrepaired pipelines that have been van-dalised and improved production atother wells.It will also boost the company’s prov-able oil reserves by 356 per cent, andthe firm said in a statement it mightalso develop the 25 trillion cubic feetof natural gas in the fields if the priceof gas rises enough to make it worth- while. The OML 30 assets, near Warri onNigeria’s southern coast, have beensubject to a bidding war lasting morethan a year. London-listed rivals Afrenand Essar expressed an interest in theregion.Shell and other oil majors have beendivesting Nigerian assets in the wakeof violent attacks on rigs and pipelinescoupled with the government’s pushto return oil assets to local companies. The state-owned NNPC remainsinvolved with a 55 per cent stake inthe OML 30 site.
Tony Buckingham hopes to expand the business rapidly in NigeriaMONDAY 2 JULY 2012
HEN Arsenal last week announced it would play itsfirst pre-season friendly against Nigeria’s nationalteam in Abuja next month, the club won plaudits for bringinginvestment into the country. Tony Buckingham, theswashbuckling chief executive of Heritage Oil, must be hoping for asimilarly warm reception frominvestors after his own entry to thatregion. His firm is in sore need of asuccess story, having struggled toconvince shareholders that work inKurdistan will eventually come good,after last year’s galling gas find (ithad expected to strike oil). The price of oil might have fallen13 per cent in dollar terms in the last12 months, but Heritage’s shareprice has almost halved. Investors,displeased with the firm’s lacklustreperformance, took out theirfrustrations on Buckingham at lastmonth’s AGM via a 16 per centprotest vote against his re-election.But having won the bidding warfor the OML 30 assets, and survivedthe AGM with just a bloody nose,Heritage has stepped into the middleof another bust-up. Halfway throughan enormous reform of the oilsector, Nigeria’s government istrying to stamp out long-establishedcorruption following January’sdeadly protests. Shell estimates that150,000 barrels of oil per day isstolen in Nigeria, losing thegovernment a fifth of its revenues.In the last week alone, PresidentGoodluck Jonathan’s clean-up effortshave resulted in sackings at state oilfirm (and Heritage’s new partner)NNPC, the arrest of several peopleaccused of siphoning fuel from oilpipelines, and the final stages of anew law to toughen up regulation. Topped off with an $850m takeover,it was a week that underscored thehuge potential, and enormousobstacles, linked to Africa’s biggestoil producer. Buckingham is nostranger to risky endeavours, having bought a Libyan oil firm, set up shopin the Congo and battled Ugandaover tax claims, not to mention his work as a mercenary in the 1980s. This will be no easy victory, but sucha deal could transform his firm intoa Premier League explorer.
Buckingham’s team will haveto fight hard for a Nigerian win
Heritage spends £541mon oil assets in Nigeria

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