GUARDIAN Sun, 15 Jan 2012
We only need to look back a few years to find a chain facing problems of the kind now confronting Philip Clarke at Tesco
Does this ring a bell? Retailer smashes UK profit records, boosted by expansion overseas and years of unbroken success. Its grammar-school-educated chief executive is hailed as the finest shopkeeper of his generation and awarded a knighthood. After more than a decade of leadership, our hero bows out in glory. One of his lieutenants is promoted amid rumblings of discontent among rivals.
Within months, the company issues a profits warning, the first anybody can remember. The shares plunge and the new boss says mistakes were made in Christmas trading. The company is soon exposed as under-invested: its stores are seen as shabby, its products mediocre and its service indifferent.
Yes: it's Marks & Spencer, just before the turn of the century. M&S profits peaked at £1.2bn in 1998 and few anticipated the chaos that followed Sir Richard Greenbury's departure the next year. Is Tesco next? Will the later years of Sir Terry Leahy's long reign now be reassessed as the period in which Tesco lost its touch? Will the story of the M&S decline – years of boardroom infighting and strategic stumbles – be echoed in Cheshunt?
It's impossible to know, of course. Today it still seems absurd to think that Tesco could be knocked off its perch as comprehensively as M&S was. But, remember, at the time, M&S's difficulties were also presented as surmountable. In that famous profit warning in January 1999, Peter Salsbury, Greenbury's hapless successor, blamed over-ordering of stock before Christmas. Philip Clarke, Leahy's successor at Tesco, also pointed out a tactical mistake last week – a failure to react to rivals' discount coupons.
There is, however, one big difference between Salsbury and Clarke: the Tesco man is being explicit about its "longstanding business issues", as he described them. Quality, range and service needed to be improved, he said. On the principle that recognition of a problem is the first step towards a cure, Clarke is ahead of the plot. In M&S's case, it arguably took until 2004, and the arrival of Sir Stuart Rose, before it fully confronted its malaise.
So far, so good, from Clarke's point of view. But modern-day Tesco is a far more complicated machine than M&S circa 2000. It operates in 14 countries and employs 492,000 people. M&S's overseas distractions in the old days look tiny compared with Tesco's empire today. The UK still accounts for two-thirds of Tesco's profit but Clarke cannot afford to dedicate 100% of his energy to the troubles at home. The group has poured £700m into US startup Fresh & Easy, yet the future of that bold adventure is not secure. New fires could also break out: Tesco has 200 stores in troubled Hungary.
Meanwhile, the rules of retailing are changing. Growth in online shopping has exploded and Tesco's big-box hypermarkets, stuffed with electrical goods, garden equipment and clothing as well as food, suddenly look like a solution to yesterday's problem. Even Clarke says he wouldn't want many more. By contrast, M&S' property problems look straightforward in retrospect – it had too many small shops and its big stores needed new escalators, better lighting and paint.
But surely, it might be said, Tesco cannot possibly suffer the disastrous rounds of management upheaval that affected M&S in 2000-04. True, it probably won't. But nor can the top line at Tesco be described as settled. Andrew Higginson, former finance chief who now chairs Tesco Bank, is departing in search of the chief executive job he didn't clinch at Tesco. David Potts, another contender after 39 years at the company, is also going. The first outsider in the chairman's seat, Sir Richard Broadbent, is a new arrival.
Meanwhile, Tim Mason is chief executive of Fresh & Easy, but Clarke has handed him the extra titles of deputy chief executive and chief marketing officer. That's a lot of hats to wear in California – a..
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GUARDIAN Sun, 15 Jan 2012 00:06:14 GMT
Yes, Antony Worrall Thompson was wrong, but why not employ more people to serve him?
Poor Tesco. Profits down 16%; £5bn wiped off the value of the company. A packet of cheese and some onions gone mysteriously AWOL from its Henley branch. Oh, how the heart bleeds for chief executive, Phil Clarke, who, after a shareholder rebellion in June last year, was forced to limit his pay packet to a maximum of just £6.9m this year.
For who can't feel a twinge of sympathy in their hearts for the lovable corporate behemoth? Apart from the nation's pig farmers who protested outside Tesco's AGM last year that the supermarket had squeezed them so much, they were now subsidising them to the tune of £10 a pig, perhaps? Or the whales and dolphins that Tesco's subsidiary company in Japan sells as a tasty snack? Or the nation's wind-blasted high streets empty bar the occasional piece of tumbleweed?
In fairness, Tesco is simply applying the logic of early 21st-century capitalism. This, as eagle-eyed viewers of The Apprentice know, works roughly like this: take any old crap and then charge as much as you can possibly get away with for it. Or ideally more. In this, the episode in which one of the teams was charged with making sandwiches and used tuna so cheap that it had the texture and appearance of cat food, causing unsuspecting diners across the City of London to gag and make vomiting noises, is quite instructive. They won. Alan Sugar congratulated them for their initiative and enterprise.
That's capitalism. Just as cutting open women and inserting exploding bags of industrial-grade silicone into their breasts, and charging them handsome sums of money for it, is too. As is sacking all your check-out staff and outsourcing the labour to your customers. Industrial-grade silicone is cheaper than medical grade, after all. And may not cause cancer. And having no staff at all and letting your customers flail helplessly with unauthorised items in the bagging area is significantly cheaper than having lots. So what if breasts explode and shoppers despair? It's simply called increasing your margins.
So who can blame Antony Worrall Thompson who was caught after self-scanning? That was all he was trying to do. The small technicality of the law aside, is there really so much difference? On one occasion, he said last week, he paid Tesco £180 for three cases of champagne and then stole £4 worth of goods. His margin, admittedly, was pathetic. It's the kind of derisory profit line that would make shareholders laugh and point. But it was just a margin, not the Great Train Robbery. Or the Royal Bank of Scotland's balance sheet.
Worrall Thompson broke the law. But in other circumstances, if he was, say, a limited company and Tesco was, for example, a single mother, from whom he'd successfully managed to make an extra 31p profit, then there'd be no case to answer. Making money out of poor people is what we call "business".
Besides, we expect companies and corporations to rip us off. To overcharge us. To pass off substandard goods if they can get away with it. To pay their chief executives more money than existed in all of ancient Rome and have BBC programmes endorsing the sale of cat food sandwiches as simply sound commercial sense.
We've all experienced that startled moment of horror when we've done something rash, such as catching a train at rush hour. Or using our phones abroad. Or buying a cup of tea at a motorway service station. (Unit price, what? Maybe 2p? Sale price? £2.75. I'm a rubbish capitalist and can't do the sums but isn't that something like about 20,000% profit?)
Morality is a tricky business in the marketplace, especially now. When companies can't pay their debts, they go bankrupt. Or ask the government for a bailout. American financial writer James Surowiecki points out that American Airlines went into administration not because it couldn't afford to pay its debts but that it'd be "foolish" of it to waste more money doing so. By........
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GUARDIAN Fri, 13 Jan 2012 20:56:28 GMT
The concerted attempts by the French establishment to persuade S&P, Moody's and Fitch that Britain was more deserving of a downgrade have fallen on deaf ears
It had all been going so well for the euro before the curse of Friday the 13th struck. Spain and Italy had held successful bond auctions, the Greeks were holding fruitful talks with their creditors, the pressure from the financial markets was abating. There were the first whispers, with fingers firmly crossed, that a turning point had been reached in the crisis that has blighted the single currency for the last two years.
But around lunchtime rumours surfaced that the ratings agency S&P had chosen this singularly inappropriate moment to detonate the bomb that has been waiting to go off for the past five weeks – a debt downgrade of eurozone countries. The fact that the story was datelined Berlin was significant: this was a German source leaking the fact that Europe's most powerful economy was not on the list of shame.
France, though, has lost its coveted AAA status, leaving the state of play in the Anglo-French war of the rating agencies as David Cameron 1 Nicolas Sarkozy 0. The concerted attempts by the French establishment to persuade S&P, Moody's and Fitch that Britain was more deserving of a downgrade have fallen on deaf ears. France will be inconvenienced by having its debt status reduced by one notch but the real effects will be psychological and political.
For Sarkozy, months away from a presidential election, the news that France is being downgraded but Germany and the UK will remain AAA is nothing short of disastrous. Cameron should not be too smug, though. If, as looks entirely plausible, the UK economy is going backwards it will only be a matter of time before the rating agencies contemplate a downgrade on this side of the Channel.
There will, of course, be economic consequences of the S&P decision – most, if not all, of them deleterious. Europe's bailout fund for troubled single currency countries, the European Financial Stability Facility, relied on the AAA status of France for its own top-notch rating. The French downgrade means an EFSF downgrade, which will make it more difficult and more expensive to raise funds from financial markets and sovereign wealth funds.
Unsurprisingly, the European Central Bank was active in the bond markets on Friday afternoon buying Italian debt. One consequence of the downgrade rumour was that Italian bond yields – the interest rate Rome has to pay on the money it borrows – started to climb back towards 7%, but the ECB's intervention capped the rise. Further upward pressure can be expected next week.
Business and consumer confidence, already at a low ebb, will take another hit. The eurozone is already on course for a nasty double-dip recession this year: that downturn is now likely to be that bit deeper and longer.
On the foreign exchanges, the euro fell sharply against the dollar to a 16-month low, providing the one silver lining because a cheaper currency will be a boost for Europe's exporters.
With the global economy slowing, that will not be enough in itself to generate the growth necessary to reduce budget deficits and thus satisfy S&P and the others that eurozone nations are licking their public finances back into shape. An unsustainable mix of austerity, slow growth and rising debt means that this will not be the last downgrade seen in 2012, and although Germany emerged unscathed this time it too will come under scrutiny.
Why? Because Germany's export-led growth is vulnerable to a slowdown in the rest of the eurozone, and Berlin will now come under even more pressure to sign the cheques needed to keep monetary union in one piece. The knowledge of what has happened to Sarkozy will make Angela Merkel even more wary about doing anything that could trigger a German downgrade, and she will take an even more uncompromising approach in negotiations with countries seeking bail-out funds.
There could be some fun.....
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GUARDIAN Fri, 13 Jan 2012 16:41:33 GMT
Noel 'Bob' Robbins, Tesco chief operating officer sold 50,000 shares before the stock slumped on weak Christmas trading
Modern retailers receive detailed sales data at the end of every day so Noel "Bob" Robbins, UK chief operating officer at Tesco, surely knew on 4 January that the chain had had a lousy Christmas. That was the day he sold 50,000 shares in his employer at 404.5p apiece. One profits warning later, Tesco's share price is 316p, so Robbins is about £44,000 better off by selling eight days ago rather than on Friday.
Tesco says Robbins has done nothing wrong. And, by the letter of the book, he hasn't. On 4 January there were no restrictions on share sales by senior Tesco employees – or persons discharging managerial responsibilities (PDMR), as the regulatory handbook has it. The so-called "close" period for share trades by PDMRs started three days later. But common sense says that Robbins should have found another way to meet his pressing need for £200,000 for "necessary family expenditure."
Tesco argues that it wasn't only weak Christmas sales that contributed to plunge in the share price on 12 January. The lowering of profits guidance for the year ahead and the rejig to investment plans (stuff apparently unknown to Robbins on 4 January) were the "primary" causes, it claims. But, come on, the share price would surely still have fallen (albeit maybe not as heavily) if Tesco had published only bald Christmas sales numbers on Thursday – the figures were worse than the market had feared.
Tesco chief executive Philip Clarke authorised Robbins' sale himself. That was an error of judgement. He should have told Robbins to get a bridging loan, advising his underling that banks are still lending £200k to executive high-flyers who can offer collateral in the form of £4m-worth of Tesco shares.
The fact that Robbins sold only 5% of his holding suggests that this wasn't an attempt to make a killing. But the timing was appalling. Shareholders should rightly be furious and will ask what on earth Clarke thought he was doing in giving approval for a share sale that would inevitably cause a stink. The rules were obeyed, but common sense left the building.
Tesco
Supermarkets
Retail industry
Corporate governance
Profit warnings
Nils Pratley
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GUARDIAN Fri, 13 Jan 2012 18:11:30 GMT
• £9 upfront fee is response to government call for transparency, says easyJet
• Increased surcharge to be displayed at first stage of booking
EasyJet has responded to government calls to make surcharges for card payments fairer for customers by restructuring – and increasing – its fees.
The airline previously charged a booking fee of £8 for anyone paying for its flights by debit card. The credit card fee was either £12.95 or 2.5% of the costs of the booking, which ever was higher.
It will instead charge an administration fee of £9 for all passenger bookings, a fee that will now be included in all advertising and displayed as part of a full and final flight price at the first stage of the booking process.
This will be applied to all bookings regardless of payment method and how many flights are made. But the airline is also continuing to charge an additional £4.95 or 2.5% for those who pay by credit card. This means that credit card payments will now incur a fee of at least £13.95.
A spokesman for the airline said the new "administration fee" was to cover costs such as those associated with its IT infrastructure and added that the changes to transparency were "exactly what consumer groups have been asking for".
In a statement the airline said: "These changes have been made in order to address the concerns raised by consumer bodies and regulators across the European Union whilst retaining a simple, transparent and consistent booking process for all passengers regardless of nationality."
In December, Treasury minister Mark Hoban announced that the government was preparing to legislate to prevent airlines and other businesses from imposing hefty charges on credit and debit card bookings that are difficult to detect.
Under the legislation, airlines, cinemas and holiday firms will be stopped from imposing millions of pounds in "hidden last-minute" charges on internet bookings. The ruling will put the UK ahead of many other EU countries, all of which would have to ban the same fees from 2014 under the Consumer Rights Directive.
Ryanair enraged consumer groups last month when it reacted to the news by claiming that it does not charge its passengers any credit or debit card fees. Instead, it calls them administration fees.
Credit card fees
Credit cards
Debit cards
Consumer affairs
Banks and building societies
Easyjet
Airline industry
Cheap flights
Lisa Bachelor
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GUARDIAN Thu, 12 Jan 2012 18:05:54 GMT
New research by Goldman Sachs identifies Turkey and Russia as among the numerous developing nations most vulnerable to the eurozone downturn
Globalisation is a fickle business. The "interconnectedness" of economies around the world became startlingly clear in the aftermath of the collapse of Lehman Brothers in 2008, as the shock was transmitted and amplified through financial markets.
New research by Goldman Sachs suggests that as the eurozone slowdown bites in the coming months, families and businesses from Istanbul to Lima will be reminded that, like it or not, we're all in this together.
Emerging economies – including the ex-communist countries in the waiting room to join the euro – were hit hard by the Great Recession in 2008-09, but many managed to recover with the help of drastic cuts in interest rates by the ECB, the Bank of England and the Fed, which sent cheap credit flowing to firms and businesses far beyond the borders of Europe or the US.
While credit flows in the world's largest economies have all but ground to a halt since the crunch, in emerging markets they're back to pre-crisis levels. According to Goldman's analysis, that could be about to come to an end.
Depressed demand for exports from eurozone customers is the most obvious channel through which the turmoil in the euro area will hit other economies.
But Goldman's analysts identify two other ways in which the crisis that has spiralled out from Greece and Portugal to plunge the German economy into the red in the final quarter of 2011 will hit scores of other countries. First, "deleveraging" – the process of struggling banks withdrawing assets to get their balance sheets back in shape – will squeeze the flow of credit and make it harder for businesses in many emerging countries to raise capital from foreign investors.
At the same time, Goldman argues that a collapse in confidence could lead to a sharp decline in bank lending even in countries that aren't heavily dependent on lending from eurozone financial institutions.
By testing how closely linked recent economic growth has been to credit expansion – and therefore how vulnerable each country is likely to be to a so-called "sudden stop" in capital flows – Goldman identifies a disturbingly long list of economies that could be in the firing line.
Turkey, Colombia, Hong Kong, Peru, Indonesia, Russia and Poland have all attracted a healthy flow of investment since 2008, as City analysts have thumbed the pages of their atlases looking for alternatives to the clapped-out economies in the developed world. But that means they may now be heavily exposed to the sharp change in mood in Brussels and beyond. As Europe's leaders gear up for yet another make-or-break summit at the end of the month, there's much more than just the future of the euro at stake.
Eurozone crisis
Globalisation
Economics
Heather Stewart
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GUARDIAN Thu, 12 Jan 2012 20:00:04 GMT
The head of one of Britain's fastest-growing businesses is joining the executive burnout trend and stepping down
It is not hard to imagine what a former Sony boss used to the trappings of a five-star corporate lifestyle would think of Solarcentury's offices.
The renewable energy company's HQ is sandwiched between a betting shop and a newsagent offering money transfers in the colourful but scruffy market that shares the road behind Waterloo station in London.
Derry Newman made that journey. The softly spoken but steely Welshman went from head of European operations at the Japanese electronic group with more than 3,500 staff to a job at Solarcentury, where he had responsibility for 65 employees. "It was a shocking change," says the chief executive who gave up half his salary and company car to join a company that he has turned into one of Britain's fastest growing businesses, with a team that has almost doubled to 120 staff in his time there.
But Newman is now about to embark on another brave leap of faith: into unemployment. The official reason the 54-year-old is quitting is that he wants to spend more time with his family.
That is often a euphemism for a boardroom bust-up but in this case reflects the fact that both he and his wife have had health problems: "There have been times when my wife has had illness and I have had to rush back from business trips abroad, and we don't want to be in that position again."
His decision to leave Solarcentury in April, announced to the staff on Thursday, is not just about taking his marital duties seriously, it is also about looking after his children, himself – and the company. "One of the first things I will do is go out and buy a dog for my son. I have committed to do that for him – but only when I had time to look after it properly. I have had 33 years at senior-level appointments when I have not been able to support the family in the way that I should or could have done. I do not want to get to the age of 60 and look back with regret."
But Newman is also influenced by the fact that Solarcentury is at a turning point. The company, which is more often associated with its founder and chairman Jeremy Leggett, will hear in the appeal court on Friday whether the government had the legal right to cut the feed-in tariff (FIT), which reimburses small renewable energy generators, in the middle of a consultation period.
Solarcentury and a group of other renewables firms won an earlier judgment against the Department of Energy and Climate Change and they expect to win again. But the reality is that any judgment over this decision will not stop the industry here being badly hit. The FIT is to be cut in half and new rules on insulation standards will rule out 90% of UK properties from receiving solar panels in future, argues Newman, who describes the move as "draconian".
Solarcentury needs to find new markets in Asia and elsewhere fast, and the current says he is not the man for that job. "I do not want to find myself in a position where I am financially secure but emotionally bankrupt and physically not able to do what is needed for the business. The demands on a chief executive these days are extreme. There is a need to give financial returns to investors, there are kneejerk reactions from governments and the need to keep the staff together. Anyone who leads a company and thinks they can take all this in their stride is fooling themselves. It inherently chips away at you and causes emotional and spiritual stress."
Newman, born in Port Talbot and educated in engineering at Southampton, questions whether António Horta-Osório, the group chief executive of Lloyds Banking Group who recently took time off work due to fatigue, was right to rush back, and Newman says he does not want to end up like Steve Jobs, the Apple boss who kept on working despite having pancreatic cancer and being already one of the richest men in the world.
There are serious challenges at Solarcentury but Newman......
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GUARDIAN Tue, 10 Jan 2012 14:22:00 GMT
Ireland's one-time richest man now almost certain to be declared insolvent under the stricter regime in the Republic, where he would be unable to trade for another 12 years
Sean Quinn, once Ireland's richest man, has denounced the bank he once borrowed billions from for taking a "sledgehammer" to his business.
The former billionaire businessman was speaking after the Irish Bank Resolution Corporation succeeded in having Quinn's bankruptcy status in Northern Ireland overturned at Belfast high court. He now faces the prospect of bankruptcy under Irish republic rules, which would ban him from returning to business for 12 years. In the UK Quinn could have been trading again within 12 months.
The former Anglo Irish Bank had argued that the core of Quinn's business interests were in the Irish Republic and not in British territory. The now state-owned bank, which lent billions to Irish property speculators during the boom, said Quinn owes it, and thus the Irish taxpayer, €2.8bn (£2.3bn).
The businessman borrowed billions from Anglo Irish to create a property portfolio that stretched from the United States to the Middle East and Ukraine. His rise and fall personified the collapse in the Celtic Tiger economy.
Quinn had initially declared himself bankrupt in a Belfast court last November because he claimed he was operating in Northern Ireland from an office in Fermanagh, where he was born.
But speaking outside the court a bitter Quinn insisted he never worked in the Irish Republic and should have been protected by UK banking laws.
"I never did a day's work from southern Ireland in my life. I never done a day's work in my home. I never had any computers. I never had any IT system. Everything was done from Derrylin. What Anglo Irish has done to the Quinn group is like somebody taking a sledgehammer to a child's toy – they've destroyed it," he said.
During its challenge, which began last month, the IBRC claimed that a European directive that applies in insolvency cases stipulates that a person's centre of main interest has to be ascertainable to third parties, such as creditors. Judgment in the case at Belfast high court was given by Mr Justice Donal Deeny.
The judge found that a lease for an office in Derrylin, Fermanagh, had been drawn up to "bolster" Quinn's claim and that his centre of interest before bankruptcy was, in fact, in the Republic of Ireland between his home in County Cavan, offices in Belturbet and advisers' offices in Dublin.
Deeny described the Derrylin lease as "a somewhat curious document".
The judge added: "I conclude, on the balance of probabilities, that this lease has been prepared at some much later date to try and bolster the case now being made."
He commented that Quinn had failed to disclose the fact that he held an Irish passport and no British passport, that he was a voter in the Republic of Ireland and that, despite being a UK taxpayer, 20% of his taxes were paid to the authorities in the Republic.
Deeny added that he did not think he could safely conclude that this was a deliberate attempt to deceive on the part of Quinn, but found that it was sufficient grounds for him to exercise his discretion to rescind the bankruptcy order had he not already decided to annul it."
The judge ordered that if Quinn filed a fresh bankruptcy petition in Northern Ireland, notice should be given to the bank's solicitor in Belfast.
Deeny said it was likely that any future bankruptcy action by Quinn would be referred to him.
The bank's counsel, Gabriel Moss QC, said Quinn was now "bound to be made bankrupt" in the Republic of Ireland.
Moss is also seeking disclosure of who was funding Quinn's legal action so that they can be pursued for costs.
Ireland bailout
Ireland
Northern Ireland
Henry McDonald
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GUARDIAN Mon, 09 Jan 2012 20:54:20 GMT
Philipp Hildebrand maintains innocence of insider dealing but quits to protect the Swiss National Bank's reputation
The boss of Switzerland's central bank quit on Monday after he failed to dispel accusations that his wife profited from insider dealing.
Philipp Hildebrand, pictured below, stepped down as chairman of the Swiss National Bank with immediate effect, saying he wanted to protect the bank's reputation, which has come under sustained attack since leaks implicated his wife in currency trades only weeks before he pegged the value of the Swiss franc (SFr).
His resignation after two years in the job is another blow to the image of the Swiss banking industry. The country's two major publicly listed banks have suffered huge losses and record fines from regulators in recent years, leading to an exodus of business to other low-tax havens. The sale of private client information to the German government, which revealed widespread tax avoidance by wealthy customers, also proved highly embarrassing.
Hildebrand, whose salary of SFr861,900 (£587,000) made him the world's best-paid central banker, has maintained that he and his wife are innocent of collusion. He said his wife had conducted the trades without his knowledge and was cleared of any wrongdoing by a team from accountants PricewaterhouseCoopers before Christmas.
But he conceded that he could not prove that he was unaware his wife had traded in dollars while he was making key decisions as central bank chief.
"In view of the continued public debate centred on these financial transactions and following detailed examination of all documentation and reflection since the news conference, I have come to the conclusion it is not possible to provide conclusive and final evidence that my wife did initiate the transaction without my knowledge," he said.
He said the pressure might compromise his ability to take tough decisions to address what he called "probably the most threatening economic and financial situation since the second world war".
"I am sad to take this step, I loved this job, I fought like a lion for it," he said.
In a press conference before a scheduled grilling by parliamentarians, he denied allegations made in a local Swiss newspaper that he alone arranged the transactions. He maintained that the dealing was by his wife, Kashya, a former hedge fund trader who now runs a Zurich art gallery. "The fact is, my word is my bond, I had no knowledge of my wife's transaction on that day."
Hildebrand added that he hoped his resignation would "allow the SNB to retain its credibility, which is its greatest asset".
Following his efforts to bring down the value of the Swiss franc against the dollar and the euro, Hildebrand had been under sustained attack from the far-right Swiss People's party (SVP).
The SNB shocked foreign exchange markets last September when it imposed a cap on the value of the franc against the euro to stop the currency soaring and thereby hurting Swiss exporters' earnings.
SVP vice-president Christoph Blocher attacked the intervention in currency markets as a waste of precious Swiss francs.
A weekly newspaper close to the SVP, Die Weltwoche, claimed to have access to banking documents showing that in March alone Hildebrand bought US dollars worth SFr1.1m.
Bank Sarasin, which allegedly handled the transactions, said an employee had leaked client information by transmitting banking details to a lawyer close to the SVP. It said the member of staff had left the bank and could face prosecution.
Die Weltwoche said the same employee had lodged a complaint against Hildebrand for alleged insider trading.
Christoph Mörgeli, a politician from the SVP, welcomed Hildebrand's resignation. "There was nothing left for him to do," he told Reuters.
The SNB's supervisory council said in a statement that its vice chairman, Thomas Jordan, who joined the central bank in 1997, would take over as chairman for the time being and the vacancy on the three-person......
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GUARDIAN Mon, 09 Jan 2012 00:05:09 GMT
CBI survey found that despite strong quarterly growth eurozone crisis could fuel more job losses in the financial sector
The level of business in the financial services was regarded as "normal" in the last three months of 2011 following less than usual amounts of activity for more than four years, according to a survey published on Monday.
But the quarterly survey by employers' body the CBI and accountants PriceWaterhouseCoopers also found that optimism was waning and that the crisis in the eurozone was continuing to create uncertainty in the sector. More job losses could come and, unusually, firms also said they plan to invest less on marketing over the same period.
Even so the survey found that the volume of business in UK financial services at its fastest pace since June 2007 and that business levels were now regarded as "normal", after being regarded less than normal since September 2007.
As Ian McCafferty, CBI chief economic adviser, said it had been a "strong quarter", though he quickly warned: ""Firms are less optimistic, employment is down and investment intentions for next year are weaker, as concerns about the global recovery and troubles in the eurozone create uncertainty".
The survey is based on a balance of responses. Of the 106 financial companies surveyed, 53% said volumes rose in the quarter to December, while 24% reported a fall. The resulting balance of +29% is the highest since June 2007 (+51%) and higher than expectations of +5%.
Banking reported strong growth in business volumes and income values in the past three months, and considered the volume of business to be above normal for the first time since June 2007.
Kevin Burrowes, UK financial services leader at PwC said: "These latest results show pessimism for the coming months although banks have responded that they have seen high levels of business volumes and income over the recent period. We anticipate that this pessimism will translate into increasing concern over non-performing loans in 2012."
But he pointed to tougher times to come. "Further job losses across the sector seem inevitable as banks seek to manage their cost base. So eurozone turmoil, uncertainty in the global economy, UK austerity, weak household incomes, increased competition, significant regulatory changes, and reducing headcount, not to mention the fight for funding, all point to a challenging year for bank management," Burrowes said.
The latest survey is stronger than had been expected in October when the CBI had detected that the mood in the industry was weakening and firms were expecting growth to slow.
Confederation of British Industry (CBI)
Financial sector
Banking
Job losses
Financial crisis
Eurozone crisis
Jill Treanor
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GUARDIAN Sun, 08 Jan 2012 20:30:01 GMT
The Tories have caught the mood of dismay over executive pay, but their switch could be good for Labour in the long term
The coalition's new crackdown on fat cat pay is very cheering for the left but, for Labour, a little alarming. It's cheering because this agenda, including greater transparency on executive earnings and more shareholder power, originated in an independent left-centre campaign, which has now reached the door of Downing Street. Yet it ought to cause some agonised soul-searching for the Labour leadership because David Cameron and Vince Cable have planted their flags so cheerfully on ground prepared by others.
Let's not take the forceful-sounding words from the prime minister at their full face value until we've seen the detail of the proposals, and the legislation itself. Post-Blair, the difference between rousing language and actions that really make an impact is well understood in British political culture.
Cameron says he's open to having worker representatives on remuneration committees. Once the corporate bosses get lobbying, I have my doubts. He discusses the crucial question of proportion and percentage – how many times larger than the lowest, or average, salary in a company is the pot taken by the chief executive and his cronies? Perhaps we'll see some meaningful figures; but Cameron did not suggest there would be legal limitations. So let's be cautious.
Yet at one level, Cameron "gets it" because he has devoted his first big salvo of the year to the fairness agenda. This is an indication of how dramatically the country's political mood is shifting in response to hard times.
Like phone hacking or MPs' fiddled expenses, this is an issue that only needs to be described to seem reprehensible. We can all understand that a few brilliant inventors, entrepreneurs or leaders will reap big personal rewards, but the routine over-payment of FTSE 100 executives (getting an average of more than £2m a year) is something else.
While company profits and share prices boomed, it was an issue that most people simply never thought about. As profits and shares fall and people lose their jobs, it looks wrong. The system of corporate pay may be legal – but it is indeed "crony capitalism" when back-scratching non-execs fork out other people's money for one another, no matter whether the company is doing well or badly.
This had become a world where pay has little to do with proven skill, risk-taking or extraordinary ability, but is simply about the size of the company. The banking crisis exposed the greed of that industry but it didn't stop there. In the opaque world of pension fund investors and private remuneration committees, "shareholder power" had been reduced to a pious cliche. If your pension had money in MegaBucks Inc, it didn't mean you. If you worked for it, in a normal job, it didn't mean you, either.
So if Cameron and Cable are going to bring more transparency, and insist on shareholders voting on top salary proposals and pay-offs, and if we get meaningful published figures on pay disparities, company by company, then it's all welcome news. One day, it would be interesting to hear why as a culture we talk constantly about the importance of democracy and individual votes, yet never apply it to the commercial enterprises that rule our lives. Meanwhile, this feels like a start.
We shouldn't forget where this initiative started. The centre-left thinktank Compass was agitating about excessive executive pay in the New Labour years but failed to persuade the Brown government to fund a proper investigation. The excellent Rowntree Trust, which has done so much to promote fairness, stepped in, resulting in the independent High Pay Commission. And it is really that agenda that has seized the mood and moment at Westminster.
Ed Miliband might have lost his famous Zen calm for a moment or two as he heard Cameron accept most of that agenda, at least in principle. If he's going to make sure the coalition can't "own"...
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GUARDIAN Fri, 06 Jan 2012 11:57:04 GMT
BarCap analyst estimates further impairment charges on top of £100bn taken over past four years
Britain's two taxpayer owned banks are likely to have to make another £33bn of provisions on top of the £100bn impairment charges taken over the past four years, according to a new note on the sector.
Of the two, analyst Rohith Chandra-Rajan at BarCap prefers Royal Bank of Scotland to Lloyds Banking Group, forecasting the latter will not move back into profit before 2013. He said:
After £100bn impairments charged by Lloyds and RBS over the four years 2008 to 2011 we had anticipated a decline in provisions in 2012. However, a slow and fragile economic recovery has led us to reassess this view and we see a high risk of a renewed deterioration in credit quality.
With higher impairment forecasts, we now expect Lloyds to be loss-making again this year. Along with a relatively weak capital position, this leads us to reiterate our underweight rating on Lloyds. We continue to prefer RBS and
maintain an overweight rating.
He gave more detail on his forecast impairment charges:
Mortgages are a key area of concern, where we estimate that a further £5bn of provisions at Lloyds but less than £1bn for RBS. However, we expect the stress to be more widespread, affecting weakened corporates, particularly smaller ones, and consumer credit.
Our bottom-up analysis suggests a further £20bn in impairments for Lloyds and £13bn for RBS, equivalent to 50% and 30% of Core Tier 1 capital and 100% and 60% of 2012 to 2013 pre-provision profits. This prevents Lloyds from returning to profitability before 2013 on our estimates, also impacting its capital position. While this is also a headwind for RBS – we have cut 2012 estimated earnings by 45% – we expect it to be profitable and benefit from a strong capital position.
So far the market seems to be ignoring this analysis. Lloyds is up 0.63p at 26.98p while RBS has risen 0.24p to 20.51p.
Coincidentally, a sell note has also come out on BarCap's parent. Barclays is currently 3.4p higher at 187.05p despite Gary Greenwood at Shore Capital saying:
Yesterday afternoon, Barclays issued the results of the liability management exercise that it had announced on the December 5 2011. Overall the company has received valid acceptances in respect of just under £2.5bn (nominal) of debt securities, in line with expectations.
Taking into account the pre-announced prices at which the bank had agreed to buy back these securities, we estimate this will lead to a pre tax gain of approximately £450m, which should have the impact of adding around 10 basis points to the core tier 1 ratio. This represents a minor positive for the capitalisation of a bank that, in our view, will have to absorb a core tier 1 ratio headwind of around 300 basis points as it transitions to the new Basel III regulatory regime.
Royal Bank of Scotland
Lloyds Banking Group
Barclays
Nick Fletcher
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GUARDIAN Fri, 06 Jan 2012 13:24:42 GMT
Eurozone leaders are just the symptom – for the cause look to wealthy baby boomers hoping to profit from high asset prices
A theme running through coverage of the troubled eurozone is the supposed incompetence, indecisiveness and appalling lack of leadership shown by officials and politicians charged with sorting things out.
Paul Betts, the FT's senior foreign correspondent, said so last month. His former colleague, Clive Crook, repeated the argument in a long essay for Bloomberg on Wednesday in which he argued leadership and not capitalism is at fault. George Soros, in a thorough explanation of the crisis, implies leaders are at fault in his contribution to the Guardian economics blog today.
Of course politicians, like bankers, have the capacity to make the situation worse, and they've grabbed the opportunity.
Yet they are not the cause of the problem. They are a symptom. The real cause of the crisis and why leaders are forever advocating piecemeal policies lies beneath the speeches and posturing at summits. The tourniquet applied to the Brussels machine is held tight by voters and not politicians.
Whether it is Germans refusing to share with Greeks or rich Greeks with their fellow countrymen, the euro crisis is a case of democracy in action. The problem centres on the demographic development of recent decades that means many voters are over 55 and still retain much of the wealth they gained in the boom. Even those who have lost a large proportion of their pensions continue to vote for politicians who promise to do all in their power to protect what's left of their other assets.
Why else would the political map of Europe be coloured blue.
Right-wing policies mean that stock markets are artificially protected by the loose monetary policies of the US Federal Reserve, the Bank of Japan and the Bank of England. Low interest rates have also stabilised property prices.
Returns on bond purchases, while under pressure from downgrades, are still fully protected, especially if they are issued by governments or banks (Greece is the only exception).Cashing out
Senior EU politicians have embarked on a "fiscal austerity leads to growth" plan because it appears to please this audience. Many senior policymakers understand it will bring the reverse of what they want. But they are merely agents of wealthy, elderly voters who take a short-termist view of asset prices.
After all, they are looking to cash out pretty soon and want to charge the next generation an arm and a leg for their accumulated wealth. There is a strong argument for blaming the financial community for bamboozling both politicians and richer baby boomers into believing just one more turn on the roulette wheel will bring back former glories.
There is an element of victimhood. Bankers are tapping into a rich seam of greed and fear that older voters, hooked on their postwar dreams of leisure and wealth, remain wedded to.
Politicians are thrashing around trying to please this audience as best they can. As the visible representatives of a gerontocratic culture they deserve all the brickbats they get. But let's not delude ourselves that they are the cause of the problem.
Eurozone crisis
European Union
European monetary union
Economics
Financial crisis
Euro
Europe
Phillip Inman
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GUARDIAN Fri, 06 Jan 2012 14:30:00 GMT
Angela Merkel's pursuit of the stability culture espoused by 'ordoliberalism' leaves deficit economies facing greater austerity
At each stage of the euro crisis during the past two years, Chancellor Angela Merkel has seemed to do the absolute minimum needed to keep the single currency together – but no more. This minimalist approach to the euro crisis may have ultimately cost Germany more in terms of bailouts than it would have if it had acted sooner and more decisively. On the other hand, it has kept inflation down and the euro weak – both of which are good for German exports. In fact, a cynic might say the current situation – a weak but still existent euro – is ideal for the Germany's export-driven economy.
However, it is not so good for many other eurozone countries. That is illustrated by new figures this week showing the highest levels of employment in Germany since reunification, but higher-than-ever unemployment in Spain – a country that, unlike Greece, was not fiscally irresponsible and in fact has a lower debt-to-GDP ratio than Germany itself.
The economic theory behind this minimalist approach to the euro crisis, in so far as there is one, is ordoliberalism – a peculiarly German form of economic liberalism influenced by Adam Smith but also by 20th-century German history. Developed in the 1930s and 1940s by Walter Eucken and the Freiburg School, ordoliberalism is based on the idea that the role of the state is to create an economic and legal framework to enable the market to work efficiently – above all through the maintenance of price stability.
The ordoliberals (sometimes called neoliberals) had in mind both the failure of the Weimar Republic on the one hand and Nazism (to which Eucken was opposed) and communism on the other. Thus while they believed in greater state interference in the market than classical Anglo-Saxon liberals (in particular to prevent the emergence of monopolies and oligopolies), they believed in less interference than Keynesians. For example, ordoliberals staunchly oppose expansionary fiscal and monetary policy during an economic downturn.
Although ordoliberalism is little known elsewhere, it is hugely influential in Germany, particularly on the centre-right. It is seen as the basis for the post-war "social market economy" and the "economic miracle" it created in the Federal Republic in the 1950s. Merkel's economic advisers are deeply influenced by ordoliberal ideas – particularly on the role of the European Central Bank. To them, the role of a central bank is above all to maintain price stability – and thus promote growth only indirectly – rather than intervening to expand the money supply as the Federal Reserve and the Bank of England have done in the past few years.
Thus the former ECB chief economist Jürgen Stark – who called Eucken's book Principles of Economic Policy "a constant source of inspiration throughout my career" – resigned last September after it purchased Italian and Spanish government bonds. Bundesbank president Axel Weber quit last February for similar reasons. His successor, Jens Weidmann – formerly an adviser to Merkel – is equally opposed to the ECB's bond purchase programme.
However, ordoliberalism is predominantly a theory about how to make a national economy work efficiently rather than about how to organise the global economy or create a single currency zone. It therefore doesn't help much in the current context, in which imbalances between eurozone economies are a key problem. As a result, few mainstream German economists accept the idea that Germany's surpluses – themselves, in part, the result of the euro – are the flipside of other countries' deficits and therefore part of the problem. Instead, they see surpluses simply as the product of good economic management.
Thus ordoliberal ideas lead Germany to pursue economic policies that are in its own interests rather than those of the eurozone as a whole. Germany's "stability culture" may be influenced by.....
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GUARDIAN Fri, 06 Jan 2012 18:00:02 GMT
The problem with the financial crisis wasn't that big business was too free from governance – it was the opposite. Or so says the Republican party, which is pulling off a remarkable confidence trick that could yet swing this year's presidential election
Here are the two contradictory facts you must keep in your mind if you wish to understand American politics today:
1. We are entering the fifth year of a profound economic slump that was brought on, in large part, by our government's failure adequately to supervise financial institutions – a matter of deliberate national policy that was justified over the years by the familiar neoliberal faith that market forces would cause financial institutions to regulate themselves.
2. The main political effect of this slump has been the strengthening of the right wing of the Republican Party, with its doctrinaire insistence on further deregulation; in fact, of the various Republicans who have a realistic shot at the presidency, each one has publicly declared that regulation is one of the greatest evils facing the nation and has sworn to liberate banks and financial institutions from government supervision.
Now, maybe you are one of those inclined to dismiss Republican politicians as preening hypocrites whose moral posturing is possible only thanks to their followers' apparent separation from reality. And once you get over their absurdity, it occurs to you that they are also dangerous. Their ideas, if implemented, would crash the economy, wreck the regulatory state, exacerbate the already outrageous gap between the rich and everybody else. This can't be happening, you conclude. These people can't possibly win. But of course this is what's happening, and there's a very good chance that in this year's election, one of these Republicans will be chosen to be the next president of the US.
Bank deregulation was, for decades, the consensus wisdom of both American political parties. Visionary, tech-friendly Democrats joined with stern, patriarchal Republicans to circumvent the country's banking rules and to mute its supervisory agencies. In the noblest spirit of bipartisanship, they either repealed basic banking laws outright or took steps to ensure that such laws were no longer enforced. Self-interest is what would make bankers play fairly and oil companies drill safely.
Under the guidance of this doctrine, America's leaders exempted certain derivatives from regulatory oversight; they watered down requirements that banks balance their risk with safe assets; they overruled state-level predatory lending laws; they exempted credit default swaps from regulation as insurance products and they dialled back the Federal Reserve's regulatory powers.
In 2008, it all went wrong. The country's financial system suffered an epic breakdown, largely the result – as nearly every serious observer agrees – of the decades-long effort to roll back bank supervision and encourage financial experimentation. Unregulated lenders, we now know, pushed millions of Americans into home loans they could not afford. Much-deregulated investment banks packaged those lousy loans up into investments that the nation's ratings agencies promptly declared to be of the first quality. Insurance companies issued totally unregulated financial instruments against the possibility that these crappy investments would ever fail. And when the real-estate bubble inevitably burst, all of it plunged the nation and the world into the worst recession since the 1930s.
The reaction to these excesses was the feeble Dodd-Frank act that Congress passed in 2010, which is supposed to prevent some of the more outrageous financial misbehaviour of the last few years. And the reaction to that is the great crusade against the very idea of regulation that is presently burning its way back and forth across the early-voting states of Iowa and New Hampshire, whose elections began this month. It has suddenly dawned on Republican leaders that government......
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GUARDIAN Thu, 05 Jan 2012 20:48:06 GMT
Currency falls to 16-month low against sterling as Italy's UniCredit spells out risk of eurozone collapse
The Italian bank UniCredit warned its investors of the potential risk of a break-up of the single currency as the euro was battered to a 16-month low against the pound on anxiety about the health of eurozone governments and their banks.
Trading in the bank's shares was halted five times on Thursday because of huge falls as shareholders digested the terms on which it was trying to raise €7.5bn (£6.2bn) to plug a hole in its regulatory capital.
Italy's market regulator, Consob, said it was looking at whether short-selling rules had been broken because of the 30% fall in the shares in the 48 hours since the terms of the rights issue were announced. Short selling allows punters to make profits on falling share prices and has been prohibited in parts of Europe.
The anxiety about the banking sector and fears about the ability of eurozone governments to repay their debts drove the euro to its lowest level against the dollar since September 2010, an 11-year low versus the yen and a near 16-month low against sterling.
The prospectus issued by Unicredit – whose shares are at their lowest since its creation in 1998 – to entice its investors to support the €7.5bn cash call spelt out the possibility of a collapse of the eurozone. In a series of risk warnings that always accompany such share offerings, the bank said "concerns that the eurozone sovereign debt crisis could worsen may lead to the reintroduction of national currencies in one or more eurozone countries or, in particularly dire circumstances, the abandonment of the euro".
City sources believed this was the first time the warning – inserted by the army of lawyers working for the 27 banks underwriting the cash call – had been carried in such a document but would not be the last. However, the bank insisted that it was not predicting a collapse of the eurozone. The warning went on to say that "any deterioration of the political and socioeconomic situation in Greece, as well as a decision by the group to participate in restructuring plans for Greek debt could result in even bigger losses for the Group than those recorded on 30 September 2011".
The bank reported a €10.6bn loss for the third quarter as a result of writedowns on its holdings of sovereign debt. Its cash call – while expected – has knocked sentiment in the wider European banking sector. Germany's Deutsche Bank was caught up in the rout, falling 6%. Spain's banks were also unsettled by a Financial Times report saying its banks would need to make €50bn of provisions to cover further losses.
Federico Ghizzoni, the boss of UniCredit, insisted to Il Sole 24 Ore newspaper he was "optimistic" that the capital increase would be successful.
Even so, the plight of the banks put pressure on the euro, which was also affected by attempts by eurozone governments to issue new bonds. The euro fell to 82.50p, its lowest since mid-September 2010, and touched $1.2776.
While France raised €8bn smoothly on the markets, there was lingering anxiety about the strength of demand for the bonds. The 10-year borrowing costs for €4bn of bonds rose only slightly to 3.29% from 3.18%. Analysts at Capital Economics said: "The immediate focus is on concerns about the potential loss of France's AAA credit rating, which was reflected in another lacklustre bond auction."
Italy's borrowing costs were driven above the troublesome 7% level, while Hungary, where investors are alarmed by the risk of a debt default, was plunged into deeper financial crisis as its government was obliged to pay 9.96% for short-term debt and failed to raise the full amount it was seeking.
The currency, the forint, plunged to a fresh low against the euro, a damaging blow for many Hungarian mortgage borrowers who took on loans denominated in euros and Swiss francs. Analysts expect the country's central bank to raise interest rates for a third time in quick........
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GUARDIAN Wed, 04 Jan 2012 23:17:00 GMT
Eastman Kodak dismisses talk as 'speculation', but Wall Street Journal says firm is selling patents to stave off bankruptcy
Eastman Kodak, the 131-year-old photography pioneer and once the hottest tech firm on the planet, is reportedly preparing to file for bankruptcy.
The company is just weeks away from declaring itself bust and is making a last- ditch effort to sell patents in order to stay out of the bankruptcy court, according to The Wall Street Journal.
If sale plans fall through, the firm is preparing a chapter 11 bankruptcy, which would protect it from creditors while it reorganises its business. Similar moves have been made by other struggling American icons, including General Motors and American Airlines.
Kodak is not commenting on what the firm dismisses as "speculation." But the firm has disclosed that the New York Stock Exchange has warned the company it could be de-listed unless its fortunes rebound in the next six months. The company's shares have traded at under $1 for more than 30 days.
Kodak once sold 90% of the world's film but started to struggle in the 1980s as foreign competitors gained market share. However, the firm was hit really hard as photography entered the digital age. Its attempts to go digital did not meet with success and moves into new areas including pharmaceuticals, cheap printers and medical testing have not paid off.
More recently, the company seems to have concentrated on making money by suing competitors for patent infringements.
Last year the company hired restructuring advisers and it is now shopping around 1,100 digital-imaging patents estimated to be worth $2bn to $3bn.
Last November Kodak announced a third-quarter loss of $222m, and said it could run out of cash within a year unless it can sell its digital-imaging patents, or raise money selling debt.
Antonio Perez, Kodak's chairman and chief executive officer, is expected to be quizzed about the firm's future when address shareholders on January 26.
United States
Photography
US economy
Dominic Rushe
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GUARDIAN Wed, 04 Jan 2012 09:17:29 GMT
Jesse Norman attacks 'crony capitalism' and warns of a 'Nasty' decade – Noxious Austerity Stretching Ten Years
I prompted a little debate on Twitter last week when I bemoaned the lack of big beasts in today's political world. It was generally agreed that none of today's leaders is in the same league as the likes of Denis Healey, Barbara Castle and Michael Heseltine.
But we missed one thought. Junior beasts from the 2010 intake of MPs are starting to stalk the jungle in an increasingly impressive manner.
On the Labour side Chuka Umunna, the shadow business secretary, is making a mark after his appointment to one of the most senior roles in the shadow cabinet. Liz Kendall, the shadow social care minister, showed last week why she is going to be a major force when she published a survey which showed the soaring costs of care homes. Stella Creasy, the shadow home office minister, has possibly had a greater impact than any other backbench MP in the last year after mounting a highly successful campaign against unscrupulous companies providing payday loans.
On the Tory side the leadership is finally using the talents of John Glen, the MP for Salisbury who once held the coveted post of director of the Conservative Research Department. Glen, who is wrongly overlooked in profiles of the 2010 intake, will be a serious contender for high office in the next decade. Andrea Leadsom, the former head of corporate governance at Invesco Perpetual, is rapidly emerging as a major force as the co-chair of the cross party All Party Parliamentary Group (APPG) for European Reform.
Jesse Norman, a former director of BZW who advised George Osborne in opposition, has shown why he is regarded as one of the leading intellectuals on the Tory benches with a new paper on what he calls "crony capitalism". Norman's paper, which he explained in an FT article last week, is a highly significant contribution to what is likely to be one of the main debates of 2012.
This is the key passage:
In short, capitalism relies on, and so demands, trust. It does not exist to make the rich richer.
But there is a huge But. This is real capitalism, capitalism as it's supposed to work. That's not the capitalism we have in the UK at present. What we have now, in large parts of the UK economy, is crony capitalism. Not only that; we have failed to reflect on, let alone reach a public consensus on, the difference between real capitalism and crony capitalism, and the nature of capitalism itself. For many people capitalism has been identified with the rampant financial speculation that got us into the present mess in the first place. It has therefore come to seem both inevitable and deeply unattractive. Yet socialism and communism have failed. Thus the root cause of the current wave of huge social anger at bank bonuses and financial malpractice is precisely the fact that, however harsh and unfair capitalism may appear, no-one can articulate a remotely plausible alternative. Little wonder that protesters have occupied St Paul's for so long.
Again, the truth is very different. There are many varieties of capitalism. Without realising it the free-market West, most notably the US and the UK, has sleepwalked into a species of financial crony capitalism that has disguised economic reality, shielded underperformance, cosseted poor management and leached away value.
Norman then has this arresting phrase to describe Britain's future after what Sir Mervyn King called the NICE decade:
During the 1990s, when growth was at a premium...the UK coasted through the NICE decade – the decade of Non-Inflationary Continuous Expansion. Now, however, we are well into the NASTY decade: Noxious Austerity Stretching Ten Years. It may not prove to be that long. But however long it is, the policy response to the UK's current economic malaise cannot simply consist of measures to restore growth and battle deflation. Rather, the goal should be to wake up and smell the coffee: to address the economic....
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GUARDIAN Wed, 04 Jan 2012 09:52:33 GMT
High oil price lifts energy companies but retailers hit by caution from Next
Oil companies continued their recent gains as the crude price remained high, but banks were mixed after Italian bank Unicredit priced its €7.5bn rights issue at a hefty discount to its share price.
A rise in the likes of BP - up 9.95p to 481p after handing the bill for clearing up the Deepwater Horizon disaster to US group Halliburton - and BG, 22p better at 1450.5p has lifted the FTSE 100 higher on the second day of new year trading. The leading index is up 15.53 points at 5715.44 as investors continued to put their eurozone fears on the back burner. A number of European debt auctions are due within a few days, which are likely to keep the markets in a nervous mood.
Among the banks, Royal Bank of Scotland is down 0.08p at 20.93p while Lloyds Banking Group is off 0.04p at 270p and HSBC is 4.2p lower at 500.7p.
Retailers have been unsettled by Next saying it has a disappointing November and December despite sales in 2010 being hit by snow disruption. It was also cautious in the outlook, helping to send its shares down 93p to £26.48. Marks & Spencer is down 3.8p at 313.2p, while supermarkets are also under pressure ahead of their Christmas trading updates. Morrisons has slipped 3.9p to 324.1p despite Barclays Capital raising its target price from 315p to 345p while J Sainsbury is down 3.4p at 306.9p.
Online fashion specialist Asos has dipped 4p to £13.26 as analysts at Espirito Santo drew negative conclusions from the Next statement and issued a sell note:
Next [confirmed] that November and December was tougher than expected with higher level of competitor discounting. Having monitored the website, it feels like Asos was one of those discounting, so even if UK third quarter sales number is better than the second quarter's 1%, we think there must be some hit to UK gross margin.
For those who point to Next's strong directory/online performance (16.9%), Asos management itself said that this was not a like for like comparison at the interims as Next has a different (older), more resilient customer demographic. Also, while international growth momentum could continue to offset UK weakness, press stories suggesting that the Australian clothing market (one of the fastest growing markets for Asos) has been weak and heavily promotional over Christmas as a result of unseasonable weather (though would expect online to be outperforming bricks and mortar here).
A profit warning from Asos is unlikely in our view but any slowdown in growth momentum could lead to further de-rating.
Meanwhile Domino's Pizza has put on 22.2p to 436p after an upbeat trading statement.
BP
BG
Royal Bank of Scotland
Lloyds Banking Group
HSBC
Next
Marks & Spencer
Morrisons
J Sainsbury
Asos
Domino's Pizza
Nick Fletcher
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GUARDIAN Fri, 30 Dec 2011 09:00:00 GMT
A lawyer explains her patience with the demands of work on her spouse, as part of Joris Luyendijk's Voices of finance series
People in finance work incredibly long hours. What's it like being married to such a person? In an earlier post here, a banker's ex-girlfriend spoke of her failed attempts to make her relationship work. Her story made you wonder how other partners of bankers feel. There must be many who are happy with the lifestyle? Then a wife of an investment banker at a major American bank got in touch via email, responding to this post about the Occupy movement.
She agreed to sit for an interview, after warning: "I have no extravagant stories to share". We meet for lunch at a restaurant on Threadneedle in the heart of the City. She is a highly educated woman in her early 30s. She seems very much at ease in the slightly posh restaurant. Around us financial types seem engaged in deep discussion, jointly staring at screens filled with spreadsheets, like boys studying the map of treasure island. As this is a Friday, she orders a cocktail.
"I think it helps that I know what it's like for him. I used to work at a "magic circle" [top UK] law firm myself. I have pulled all-nighters, worked till one at night for weeks on end. I remember exactly how it works, how you become one with the team, this feeling of: we're going to do this, and we are going to win because we are the best.
"The world of finance is a way of life. I also know men in corporate law who were in a conference call when their wives went into labour. And trust me, they did not come out of that call until they had finished. That sort of thing happens in finance too, you either play the game or you sit on the sidelines. Nobody at my husband's bank with a certain level of responsibility knows how many days' leave they have for the rest of the year; nobody uses them anyway. There's no such thing as 'today, closed for business', and using an 'out of office' is not done.
"When the last crisis hit, at some point almost all our foreign friends had left London. There were these rounds and rounds of lay-offs and by the end most had returned to their home countries. Although head counts are now less frequent, things have not calmed down. In the old days people didn't care so much at which investment bank they were. Now most want to be with a bank seen as safe. Currently considered unsafe are UBS, Bank of America and BNP.
"I knew what I was getting into. Our first date was cancelled twice because of his work. I was living in another city back then, so initially it was long-distance love. I would travel to London to discover that he had to work all through the weekend. I would hardly see him. We were very much in love and I would plan an evening to introduce him to my friends. Then he would have to cancel. Initially my friends probably assumed he wasn't serious. The travel plus our demanding jobs was driving both of us mad. Then he was sent to the US and I decided to join him. After about a year-and-a-half there, we moved to London.
"You're asking, I sacrificed my career to come live with him, now what is he sacrificing for me? Well, you must know he really, really tried to find a job in the city where I was living. He genuinely tried. But it's hard, if you work in London in a complex and specific area of finance, to find something suitable in a much, much smaller city. It didn't work and I didn't mind that much really, I was keen after all that time to start our life together.
"On weekdays I do not include my husband in any of my after-office plans. He leaves home by 8.30am and is usually home by 10 or 11 in the evening, sometimes later, sometimes a bit earlier. Some days I actually quite like this, to be honest. I know that we get to see each other at least once every day, to touch base.
"It strikes me sometimes what a different life other people lead. When I go to gallery openings or expositions, some people are genuinely surprised my husband couldn't make..
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GUARDIAN Wed, 28 Dec 2011 14:54:34 GMT
The euro has fallen by more than a cent against the dollar, dropping below $1.30 after the US markets opened lower.
It was unclear exactly what the trigger was. Italian bond yields, having fallen after the country's successful debt auction earlier today, are now rising.
The difference between the benchmark German ten-year bond yields has also widened, with investors buying German government debt.
The euro hit 1.2970 at one stage, having been trading at 1.3080 earlier today.
Italian ten-year yields were just touching 7% according to Tradeweb figures reported by Reuters, up 2 basis points on the day. German ten-year yields were down 2 basis points.
The Dow Jones Industrial Average is down 36 points, a 0.3% fall, meanwhile. The FTSE 100 has been pegged back, too - up by just 16 points now, or 0.3%.
Euro
Dow Jones
Alex Hawkes
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GUARDIAN Wed, 28 Dec 2011 19:23:20 GMT
Consumers expected to slash another £1bn from spending
Research firm Verdict has predicted more pain for retailers in 2012 as higher living costs force Britons to slash another £1bn from spending on extras like furniture, electrical gadgets, CDs and books.
Store groups are in the eye of the storm, with Verdict predicting that retail sales will increase by just £3.5bn or 1.2% to £295.3bn in 2012, which would be the third weakest result of the last four decades.
Analyst Maureen Hinton said Britons began tightening their belts in 2007 and by the end of 2012 spending on clothing and household goods would have declined by nearly £10bn. "This is only a little under the total combined non-food sales of John Lewis, Next and Marks & Spencer … need and inflation have led food to become a much larger share of our expenditure. Inflation has led to us having to spend more for the same quantity."
The fashion chain White Stuff said it was slowing down its UK store opening plans."This year has been the toughest I've seen in more than 20 years in retailing," said its chief executive Sally Bailey. The financial crisis had finally reached its "middle class, middle England" customers who had been sheltered from the storm by the low interest rates, she said. Its pre-tax profits for the year to 30 April were flat at £14.9m as sales broke through £100m for the first time. Bailey warned profits in the current financial year would be down sharply due to investment in its infrastructure as well as tough trading conditions.
The Verdict report, compiled with business analysis firm SAS, will add to fears that retailers are in danger of collapsing in coming weeks amid unprecedented price reductions. Many retailers make the bulk of their profits at Christmas and Verdict warned that the first three months of 2012 will be their hardest period as consumers cut back after the holiday spending spree.
At the moment, the future of Millets owner Blacks Leisure and lingerie chain La Senza hang in the balance as buyers are sought for the troubled chains. The survival of entertainment retailer HMV hinges on robust Christmas trading.
The Verdict report predicts food sales will increase by more than 3% or £4.2bn as consumers eat at home more to save money while spending on clothing and footwear sales would rise by around £1bn or 2.4% - the equivalent of £14 extra per person - due to higher prices. That growth is countered by large declines elsewhere with spending on household goods and home entertainment products expected to fall by more than £900m and £500m respectively.
Retail industry
Marks & Spencer
John Lewis
Inflation
Economics
Blacks Leisure
Zoe Wood
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GUARDIAN Wed, 28 Dec 2011 09:58:27 GMT
The UK is outside the eurozone, and has its own currency, so there is no risk Britain will default on its debt
The French government just doesn't seem to understand the real implications of the euro, the single currency that France shares with 16 other European Union countries.
French officials have now reacted to the prospect of a credit rating downgrade by lashing out at Britain. The head of the central bank, Christian Noyer, has argued that the rating agencies should begin by downgrading Britain. The finance minister, Francois Baroin, recently declared that: "You'd rather be French than British in economic terms." And even the French prime minister, Francois Fillar, noted that Britain had higher debt and larger deficits than France.
French officials apparently don't recognize the importance of the fact that Britain is outside the eurozone, and therefore has its own currency, which means that there is no risk that Britain will default on its debt. When interest and principal on British government debt come due, the British government can always create additional pounds to meet those obligations. By contrast, the French government and the French central bank cannot create euros.
If investors are unwilling to finance the French budget deficit – that is, if France cannot borrow to finance that deficit – France will be forced to default. That is why the market treats French bonds as riskier and demands a higher interest rate, even though France's budget deficit is 5.8% of its GDP, whereas Britain's budget deficit is 8.8% of GDP.
There is a second reason why the British situation is less risky than that of France. Britain can reduce its current-account deficit by causing the British pound to weaken relative to the dollar and the euro, which the French, again, cannot do without their own currency. Indeed, that is precisely what Britain has been doing with its monetary policy: bringing the sterling-euro and sterling-dollar exchange rates down to more competitive levels.
The eurozone fiscal deficits and current-account deficits are now the most obvious symptoms of the euro's failure. But the credit crisis in Europe, and the weakness of eurozone banks, may be even more important. The persistent unemployment differentials within the eurozone are yet another reflection of the adverse effect of imposing a single currency and a single monetary policy on a heterogeneous group of countries.
President Nicolas Sarkozy and other French politicians are no doubt unhappy that the recent European summit failed to advance the cause of further EU political integration. It was French officials Jean Monnet and Robert Schuman who launched the initiative for European political union just after the second world war with the call for a United States of Europe. The French regarded the creation of the euro as an important symbol of progress toward that goal. In the 1960s, Jacques Delors, then the French finance minister, pressed for a single currency with a report, "One Market, One Money," which implied that the European free-trade agreement would work only if its members used a single currency.
For the French, achieving a European political union is a way to increase Europe's role in the world and France's role within Europe. But that goal looks harder to reach now than it did before the beginning of the European crisis. By attacking Britain and seeking to increase British borrowing costs, France is only creating more conflict between itself and Britain, while creating more tensions within Europe as a whole.
Looking ahead, stopping the eurozone financial crisis does not require political union or a commitment of German financial support. It depends on individual eurozone countries – especially Italy, Spain, and France – making the changes in their domestic spending and taxation that will convince global financial investors that they are moving toward budget surpluses and putting their debt-to-GDP ratios on a downward path.
France....
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GUARDIAN Tue, 27 Dec 2011 18:52:34 GMT
Big stores offer payment by Chinese bank card and Mandarin-speaking staff to serve growing number of visitors
As a harbinger of a gradual shift in global power it is easy to miss: a discreet red, blue and green banded symbol bearing the mysterious legend UnionPay. But walk into Harrods, Selfridges and other high-end stores and you will see it at many tills, meaning the shop accepts China's most popular bank card and is thus actively chasing income from one of the few global economies still expanding at speed.
The taste among mainland Chinese consumers for luxury brands is nothing new. Louis Vuitton first set up shop in Beijing in 1992, and now has almost 40 outlets inside the country; within a few years Burberry will have 100. More notable is the current effort being expended by UK stores to target high-spending Chinese tourists who will – they hope – plug the gap left by austerity-conscious Britons.
The biggest push so far to this end has just finished, a promotional tour of Beijing and Shanghai led by the VisitBritain tourism organisation. It included representatives from London's Westfield shopping centre, the luxury goods emporium at Bicester in Oxfordshire, and even Gretna Green, which now has its own similar retail park, as well as Harrods and Selfridges.
At stake is a slice of a still relatively small but fast growing and high-spending tourism market. China accounted for just under 110,000 visits to Britain last year, a 23% annual increase. Of equal significance for retailers, the overall spend by Chinese nationals rose even faster, by 57%. The trend appears to be accelerating, with VisitBritain recording a near-doubling of the spend per Chinese tourist during 2011.
"The reason all these retailers came with us to China is that at a time when domestic demand is, let's say, soft, the Chinese market is expanding," said Patricia Yates of VisitBritain, who led the mission. "If you're a retailer looking at where growth is going to come from then China is hugely important."
A spokesman for Selfridges said sales to Chinese customers had in recent years "consistently achieved high double-digit growth numbers".
He said: "Chinese customers are of growing importance to Selfridges, have been for the past four to five years and will remain so in the foreseeable future."
Even with annual growth still hovering near 10% China remains significantly poorer overall than the UK, with average incomes little more than a fifth of those here. However, the wealth is disproportionately based among an urban elite prone to conspicuous displays of economic status. While this group remains proportionately tiny,
China's 1.3bn population makes them sizeable in absolute terms – one report earlier this year said the country has 960,000 people worth at least £1m each. With luxury brands taxed at high rates in China, a trip abroad inevitably involves a fair degree of shopping for the country's new rich.
Britain lags some way behind countries such as France in popularity. Aside from the draw of well-known brands, France offers a Schengen zone-wide visa, allowing travel within Europe, while the UK requires a separate document.
With this in mind, UK shops are working all the harder to make Chinese shoppers welcome. A pioneer of this has been Bicester Village, where Mandarin-speaking "concierges" take groups round the shops, helping to explain mysteries such as UK clothes sizing. The complex is reaping the benefits, with takings from Chinese shoppers rising almost 80% year-on-year.
Chinese-speaking sales staff are common in some places, with Harrods alone employing more than 70. But there is another aspect, according to the association representing shops in London's upmarket Bond Street. A spokeswoman said: "It's not just about bringing in staff because they can speak Mandarin. They have to know about, say, the jewels and the mechanisms of a watch someone is buying. The Chinese tend to be very well informed. It's also the small things, like.....
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GUARDIAN Sat, 24 Dec 2011 13:00:01 GMT
The head of bond coverage for a bond market publication tells all, as part of Joris Luyendijk's Voices of finance series
We're meeting at 5.30pm in a bar just off St Paul's Square, a stone's throw from the Occupy tents. She is a funny and articulate woman in her early 30s who volunteered for an interview, writing: "I am a female financial journalist working in London. I have worked my way up to the position of head of bond coverage over the last decade in a company dominated by men." She orders a glass of white wine, then another one.
"I went to a shit comprehensive school, I am not white, I got a first-class degree and now I earn decent money and help run a successful business. That's the world of finance for you, it doesn't matter how you look or where you come from. It's about what you can do.
"Our work sits somewhere between journalism and an industry publication. We follow the bond market, announcing deals and auctions, then publish analyses of them. We write about the business done by people who pay us for that service. So there's a different dynamic than in mainstream journalism. At the same time we do work like journalists; checking facts, teasing out information.
"There's a great level of trust between players in the bond market and us, the industry press. If we hear about an upcoming deal, we call the banker in charge for confirmation. Occasionally he'll tell us: look it's true but don't publish it yet. And we don't. We may get asked by other bankers about this same deal and we tell them, yes it's happening but we're not putting it out yet. There's a lot of banter back and forth. We get fed rumours all the time. These days it's brutal out there, and we get calls from brokers sticking the boot in about certain deals: 'We hear they are struggling.'
"Everybody knows everybody in the bond market, it's a community. The coverage about the bond market in the mainstream press … basically we ignore them as they have very little inside knowledge. The only time they impact our work is when they fuck up and create misunderstandings or worse. This happens.
"That would be the number one taboo in my work: putting out information that is wrong. If we did that, within five minutes we'd get a million phone calls. When clients see something published by us, they must be sure it's correct. That's the business model.
"How the bond market works. Companies, countries, banks, development agencies, football clubs … they all need money. Either to do something new, or because an earlier loan or bond has 'matured' – when you borrow money it's usually for a definite period, often five or 10 years. After that you need to pay back the loan. So what you do when your loan 'matures', you take out a new one. This is what's called refinancing or 'rolling over' debt.
"So a company, country etc needs to borrow money, or as we call it, 'issue debt'. First they let investment banks pitch which one gets to do it. Usually the borrower (company, country etc) will chose a consortium of banks, as each brings its own network of relationships with investors to the table. If you're a European company issuing dollar debt in the US, you'd pick American banks for the American network, and then UK and continental banks for the European share. A UK company issuing debt in pound sterling would generally choose British banks for their domestic investor network.
"So this consortium of banks gets the so-called 'mandate'. Now there are two possibilities. If the company, country etc is well established, the bank will field investor calls to gauge interest in the bond, how much demand they can garner on what terms. On the basis of that they will determine an initial 'price' or 'spread' for the bond; basically what the interest or yield is going to have to be to interest enough investors – mind you I am simplifying, there are more intermediate steps.
"The other possibility is that the country, company etc is a relative newcomer to the bond market. In.....
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GUARDIAN Fri, 23 Dec 2011 19:05:16 GMT
• Fall in UK services output bigger than expected
• Spain and Italy hit by higher borrowing rates
Britain's economy looks on course for a second recession in three years after official figures for October showed the dominant services sector contracted at its fastest pace since the spring.
A fall of 0.7% in services output, which accounts for about three-quarters of the economy, was larger than many analysts expected and showed the economy had slipped into a lower gear recently.
Economists said the sector could contract further next year as the government cuts public-sector services.
The services sector was the main driver of growth in the third quarter, when the economy expanded by 0.6% on the quarter. If services stagnate or contract over the last quarter of the year, a recession is almost certain. The Office for National Statistics (ONS) said the big drags on services output were telecommunications, computer programming, and financial services excluding insurance and pension funds.
In the eurozone, Italy's government cleared the final legislative hurdle in its efforts to secure €30bn (£25bn) of cuts and tax rises after the upper house passed the package of austerity measures into law.
But the move fail to persuade investors that Rome's financial difficulties were in the past, and traders increased the cost of Italy's borrowing rates.
Yields on the 10-year Italian bond rose eight points to breach the all-important 7% mark that investors believe means a country is in effect locked out of debt markets.
Spain, which has signalled that its banks need a further injection of funds to shore up their fragile finances, also saw its 10-year bond yield, which reflects the real cost of borrowing for governments, increase two basis points to 5.41%.
By contrast German and UK bond yields fell, with UK yields tumbling to below 2%.
The UK is considered a safe haven largely because it has its own exchange rate and control over its money supply through the Bank of England.
The pound has lost about a quarter of its value since the banking crisis, easing the debt burden by the same amount.
The Bank of England has spent £275bn through its policy of quantitative easing (QE) to support bank lending and prevent the economy from contracting.
The European Central Bank (ECB) has shied away from QE, relying instead on direct loans. Outgoing ECB board member Lorenzo Bini Smaghi said his colleagues could copy the UK and the US Federal Reserve, and use their power to create new money if a deteriorating economy threatens the eurozone with falling prices.
However, Smaghi, who is leaving office next week, aligned himself with other ECB members who have resisted going beyond their mandate of keeping prices stable.
Urgent measures to reduce Spain's bloated deficits will be approved next week, said the deputy prime minister, Soraya Sáenz de Santamaría, after the new government's first cabinet meeting on Friday. Employers and unions have until 7 January to come up with a labour reform agreement to help get the country's near five million jobless back to work.
The deterioration in the UK services sector will increase pressure on the chancellor, George Osborne, to drop his austerity programme in favour of a slower schedule of cuts.
The Bank of England governor, Mervyn King, is known to be concerned that the UK economy will falter over the coming months. He is concerned that major industries are being starved of lending and are losing confidence in the ability of banks to support them through difficult times.
Earlier this month, the Markit/CIPS purchasing managers' index (PMI) showed that the services sector picked up slightly in November, defying forecasts that it would continue to slide.
But Markit's chief economist, Chris Williamson, pointed out that government spending, which provided the main boost to services growth in October, was likely to weaken as budget cuts hit.
"Worryingly, the government provided the main boost to services.......
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GUARDIAN Fri, 23 Dec 2011 20:30:00 GMT
There is much speculation about David Cameron calling a March election. But this, in reality, is out of the question
The shadow chancellor, Ed Balls, told the Independent this week that it would be "in the national interest" for senior Lib Dems – but not their leader, Nick Clegg – to form a coalition with Labour, and set up a new government without a general election. You'd imagine Balls would have learned, after Gordon Brown failed to go to the country after taking over as prime minister, that the electorate is not keen on politicians bypassing what little they have by way of democratic mandate. But apparently not. Politicians, almost by definition, think that the national interest always coincides spookily with their own interest. It's why they think that they should be in charge.
Technically, such a change of government could be achieved. There is much speculation about David Cameron calling a March election while he is leading the polls, gambling on gaining a Conservative majority. But this, in reality, is out of the question. In virtually their only politically astute move, the Lib Dems insisted, as part of the coalition agreement, on five-year, fixed-term governments. An incumbent prime minister can no longer call an election at the time he thinks will suit him best. This means, right now, that the support of the Lib Dems is more of a hindrance to the Conservatives than a help. Conversely, until such time as Labour can win an election, the Lib Dems serve Labour best exactly where they are.
The political stalemate in Britain at the moment is incredible. This state of affairs cannot continue for another three-and-a-half years. Yet, currently only one party has any real interest in disturbing the deadlock, and that is the Conservatives. Balls may imagine a midterm reconfiguration is possible if Labour gains byelection seats. But actually, there would not be much appetite for standing by and watching Ed Miliband becoming prime minister by default. This would be true even if Labour seemed to be bursting with great ideas for national renewal. But if they were, then Labour, not the Conservatives, would be keen to have an election, the Lib Dems would not be quite so stuck, and talk of back-room deals would be out. Even Balls can't believe what he is saying, not really.
Not that senior Lib Dems would give up their cabinet positions to anoint Miliband anyway, any more than Balls would stand aside to accommodate them in the shadow cabinet. Despite everything – including the way the chief secretary to the treasury, Danny Alexander, and the business secretary, Vince Cable, are used as a human shield to protect Osborne from media appearances – they obviously enjoy their power. Anyway, the Lib Dem sojourn with the Conservatives has already done much to strengthen the first-past-the-post status quo they exist in large part to challenge. A switch to Labour would shore up that wretched binary system even more.
The Lib Dems themselves may as well simply disband, join Labour or the Conservatives, and have done with it, if they are going to start crossing the floor. It would be the end of their party. They know that. It is why they haven't started doing it … yet. The Lib Dems are going to have to do something at some point before three-and-a-half long years are up if their party is to have a chance of surviving beyond their brief moment of coalition glory. Yet they are just as stymied as the other two parties. Cameron's bounce in the polls is because he flounced out of a European treaty meeting; one that was itself all about politics, and pretty irrelevant to the matter in hand, the continuing eurozone crisis. But, the Lib Dems are ardent supporters of Europe. So this thing that the electorate likes so much about Cameron, one can only assume, is something they particularly dislike about the Lib Dems. There may at last be some clear blue water between the Conservatives and their coalition partners. But the tidal currents favour only..
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GUARDIAN Fri, 23 Dec 2011 11:50:39 GMT
Banks worried about lending to rivals deposit €347bn with the European Central Bank, despite its massive loan offer this week
Banks from the 17 countries that use the euro have stashed €347bn (£289bn) with the European Central Bank, in another sign that they remain wary of each other despite a massive credit operation earlier this week.
The figure, which was announced on Friday, is the highest for 2011, topping €346.4bn earlier this month.
It is a sign of unease in the interbank lending market where banks raise operating funds. It suggests banks are depositing money with the ECB at low interest rates because they are afraid to lend it to other banks out of fear that they will not get paid back.
Europe is suffering from a debt crisis marked by worries that heavily indebted governments such as Italy may be unable to pay off their bonds. That means trouble for banks because they typically hold government bonds.
The large deposits come despite Wednesday's massive central bank credit operation, in which the ECB let banks borrow as much as they wanted for up to 3 years. As a result 523 banks took €489bn, the largest ECB loan operation in the 13-year history of the euro.
The ECB has increased lending to banks to help them get through the crisis. Some are finding it impossible to raise money elsewhere, so the ECB steps in as lender of last resort, a typical role for central banks in times of turmoil.
But the ECB has refused to play the same role for governments by buying large amounts of their bonds, saying that they must get their debt under control through their own efforts and not wait for a rescue.
Banking
European Central Bank
European Union
European monetary union
Economics
Europe
Eurozone crisis
European banks
Financial crisis
Financial sector
Euro
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GUARDIAN Thu, 22 Dec 2011 13:54:45 GMT
Joris Luyendijk gets the inside story from a mergers and acquisitions lawyer, as part of the Voices of finance series
We're meeting in a favourite restaurant of his in north London, where he lives. He is in his early 50s, with more than 25 years as a lawyer under his belt. Born in continental Europe he has been living and working in London for decades. Confident but inconspicuous, he comes across as a realist who wastes no time on cynicism.
"You want war stories. OK. This is a little while back. One of our clients is in the process of bidding for a company. Lehman Brothers was doing the sale for its client. We are invited into the Lehman offices for the final stage. Now, we know that one floor above there is one other group of bidders. Of course Lehman is not going to tell us who that is. In fact, they have posted security people at the stairs and lifts, to prevent us taking a look upstairs. In bidding you want the bidders to have as little information as possible. But for us knowing the identity of the others could help our bidding strategy considerably. One hypothesis was that they were a French group of investors. So there we are, holed up in our room when suddenly the caterers come in. So we say something innocent about the sandwiches, then add casually, 'those French people upstairs were probably very fussy and critical about these, weren't they?' The caterers nodded in full agreement and all of us went: bin-go!
"I am a partner at one of the major law firms in the City of London, what some call the magic circle. Eighty per cent of our firm's turnover is financial services, and eight out of our 10 biggest clients are banks. Companies, even major ones, may buy another company or sell off a subsidiary maybe once every two years. They require much less advice.
"Banks permanently need legal advice. When they write a loan, everything needs to be documented. When they advise a client who is buying or selling a company, again, loads of legal stuff comes up. Investment banks contract that legal stuff out to us.
"How it works is investment banks have divvied up the business world into sectors. So there's TMT, telecom, media and technology, there's automotive, natural resources (mining etc), transport, heavy industries, pharma. We have copied this classification, and I am the head of one of these sectors at my firm.
"There are two main departments at our firm, one focusing on mergers and acquisitions, the other on corporate finance (securing loans for companies). My colleagues in the latter group are in groups that are on call 24 hours a day. Especially these days with the eurozone and sovereign debt problems, they need to be able to react to events immediately. In some contracts there are now special clauses in case the euro explodes.
"A typical day for me: I maintain contact with people from the companies in my sector, and with the investment bankers specialised in my sector. One way is email, I have to work through 250 of those every day, there's the phone, and there are meetings. It involves a lot of travel. I have made at least 50 return flights over the past 12 months alone.
"My meetings can be about maintaining relations with existing clients, winning new clients, or about harvesting strategically important information about my sector.
Banks are our most important clients, and it's important that from to time I show them how much we love them. They are also a source of information for us about what's happening across the sector. And they are an indirect sales channel – if they land a big job they need a law firm to help them out.
"A typical question from a bank: we want to go our client company X and pitch the idea that they buy company Y. Would such an acquisition run into difficulties with the competition or anti-trust authorities (government agency that ensures no company controls too large a part of the market)?
"I also meet companies in our sector. We exchange strategic insights and I may give them.......
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GUARDIAN Wed, 21 Dec 2011 14:01:00 GMT
Tens of thousands of Irish, Greek and Portuguese people leave in search of a new life as the eurozone's woes worsen
Since its conception, the European Union has been a haven for those seeking refuge from war, persecution and poverty in other parts of the world. But as the EU faces what Angela Merkel has called its toughest hour since the second world war, the tables appear to be turning. A new stream of migrants is leaving the continent. It threatens to become a torrent if the debt crisis continues to worsen.
Tens of thousands of Portuguese, Greek and Irish people have left their homelands this year, many heading for the southern hemisphere. Anecdotal evidence points to the same happening in Spain and Italy.
The Guardian has spoken to dozens of Europeans who have left, or are planning to leave. Their stories highlight surprising new migration routes – from Lisbon to Luanda, Dublin to Perth, Barcelona to Buenos Aires – as well as more traditional migration patterns.
This year, 2,500 Greek citizens have moved to Australia and another 40,000 have "expressed interest" in moving south. Ireland's central statistics office has projected that 50,000 people will have left the republic by the end of the year, many for Australia and the US.
Portugal's foreign ministry reports that at least 10,000 people have left for oil-rich Angola. On 31 October, there were 97,616 Portuguese people registered in the consulates in Luanda and Benguela, almost double the number in 2005.
The Portuguese are also heading to other former colonies, such as Mozambique and Brazil. According to Brazilian government figures, the number of foreigners legally living in Brazil rose to 1.47 million in June, up more than 50% from 961,877 last December. Not all are Europeans, but the number of Portuguese alone has jumped from 276,000 in 2010 to nearly 330,000.
Gonçalo Pires, a graphic designer who has swapped Lisbon for Rio de Janeiro, said: "It's a pretty depressing environment there [in Portugal]." In Brazil, by contrast, "there are lots of opportunities to find work, to find clients and projects".
Joy Drosis, who left her Greek homeland for a life in Australia, expressed similar motives. "I had to do something. If I had stayed in Greece, we were all doomed," she said. "I'm lucky that I can speak the language: many others can't." The key moment in this southerly migration may have come last month, when the Portuguese prime minister, Pedro Passos Coelho, made a humbling visit to Angola, begging for inbound investment. Just 36 years after the end of Portuguese colonial rule in Angola, its president was ready to show mercy. "We're aware of the difficulties the Portuguese people have faced recently," said José Eduardo dos Santos. "Angola is open and available to help Portugal face this crisis."
But the Portuguese making this move will not have it easy: life expectancy in Angola is still just 39, compared with 79 in Portugal, and crime is rife.
In Ireland, where 14.5% of the population are jobless, emigration has climbed steadily since 2008, when Lehman Brothers collapsed and the bottom fell out of the Irish housing market. In the 12 months to April this year, 40,200 Irish passport-holders left, up from 27,700 the previous year, according to the central statistics office. Irish nationals were by far the largest constituent group among emigrants, at almost 53%.
The Guardian spoke to one Dublin under-19s football and hurling club that had lost eight out of 15 players in the past 18 months. Most of the nascent sports stars had headed to Australia. Experts believe the exodus will increase, given the £1.4bn tax rises and austerity measures just announced. The thinktank the Economic and Social Research Institute (ESRI) forecast this month that 75,000 people would emigrate from Ireland in 2012 .
Given the state of its economy, it is no surprise that Greece is in the same boat. In 2010, 1.21 million people emigrated, according to the World Bank, equalling 10.8% of..
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GUARDIAN Wed, 21 Dec 2011 14:54:51 GMT
Central bank's huge liquidity operation won't resolve the eurozone crisis
The figure is astonishing: eurozone banks have borrowed €489bn from the European Central Bank via three-year loans. That's not only more than expected, it's more than was borrowed in a similar operation in 2009 during the height of the credit crisis. Eurozone banks are grabbing the cheap money with both hands; the stigma of accepting help from a central bank is not what it used to be.
Two interpretations are possible. It's either terrific news that the ECB, after being booed for sitting on its hands for most of 2011, has sprung into dramatic action to ensure that eurozone banks can fund themselves through 2012 and thereby (it's hoped) give a shove to economic growth. Alternatively, the stresses in the eurozone banking system are worse than imagined.
The market's reaction this morning to the €489bn figure is wary, which is not what the pundits had expected. The guess beforehand was that a "big" number would be received enthusiastically because investors would have one fewer eurozone problem to worry about if banks' funding is secure; after all, the fear that a big European bank could collapse has been terrifying investors for months.
Why hasn't the big number produced a big rally today? Probably several reasons. First, nobody knows what banks will do with their new cash. There will be a lot of substitution of funding lines, so don't imagine that €489bn will suddenly become available to hard-pressed companies and households in euroland. There will be benefits to banks' liquidity positions but that's not the same as a benefit to the real economy. As we've learned in the UK, the trick is to ensure banks don't hoard the cash – and, as we also know, it's not easy to perform.
Second, banks might engage in a huge gamble on eurozone sovereign debt. This is the so-called carry trade in which 1% loans are used to buy, say, Italian government bonds yielding 6% plus. If that's what happens, alarm bells will rightly sound. Banks would, in effect, be funding governments with the connivance of the ECB. That might bring down sovereign bond yields for a while but the long-term effect would be to bind government, banks and the ECB even closer together. That's dangerous if the sovereign IOUs end up being downgraded anyway. It's also questionable under the ECB's mandate, a point Nicolas Sarkozy, the French president, ignores when he appears to encourage banks to buy government debt.
Third, the ECB's huge liquidity operation will only be useful if it is seen for what it is – temporary bridging finance. Its aim is to ensure security in the banking system to allow the politicians to address the eurozone's deeper problems of lack of growth and wide differences in countries' competitiveness. The danger is that the politicians breathe a sigh of relief and pretend that their fiscal pact agreed in Brussels this month is a comprehensive remedy. The pact certainly isn't that: it looks to most independent observers like a formula for deeper recession. If that's right, all the liquidity in the world won't prevent bad debts washing up in banks' accounts.
The ECB's action is helpful but the euro crisis remains an unsolved political crisis. Wariness is the right response.
Eurozone crisis
Economics
European banks
Euro
Europe
Nils Pratley
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GUARDIAN Wed, 21 Dec 2011 15:26:18 GMT
Boost from ECB's cheap loans fades, with mixed housing data from US
The so-called Santa rally seems to have fallen off its sleigh.
Early euphoria at the European Central Bank flooding the European banking sector with a higher than expected €489bn of cheap three year money has now well and truly faded. Investors are asking themselves whether even this figure is enough to help the battered banking system, and more to the point, what the money will be used for. Banks have been encouraged to buy sovereign bonds in an attempt to push their prices up, but the fact that Spanish and Italian yields are edging higher suggests this may be a false hope. And new figures also show a drop in European consumer confidence.
An opening fall on Wall Street has not helped matters. US existing home sales rose 4% in November but downward revisions to the past four year's data showed the housing market recession was deeper than thought. Poor results from Oracle overnight have added to the downbeat mood. So the Dow Jones Industrial Average is down around 30 points after Tuesday's rise, while the FTSE 100 is now 23.08 points lower at 5396.52.
Despite worries about the banking system only partially eased by the ECB's move, Lloyds Banking Group is still the leading riser in the FTSE 100, up 1.205p to 24.825p after analysts at Exane BNP Paribas moving their recommendation from underperform to outperform.
Software group Sage has slipped 6.7p to 285.1p after the Oracle news, but Gem Diamonds has climbed 7.7p to 190.1p after Goldman Sachs moved from neutral to buy. Goldman said:
Recent underperformance [presents] an attractive entry point, in our view. We increase our 12-month price target by 20% to 290p, implying 57% upside potential. Our positive view of Gem is based on the strong growth profile at its flagship Letšeng mine and our belief that the diamond market is set to experience a prolonged period of tightness. With Gem set to deliver an increasing amount of specials into a tight market, we believe the stock is positioned to outperform.
We see three catalysts for the shares: (1) we believe the market for larger, higher-valued stones marketed to high-net-worth individuals will remain strong in 2012, being more immune to cyclical downturns than the mid-tier luxury segments. The Letšeng mine has around 55% of the above 10.8 carat market and Gem is well positioned to exploit this market share through continued high prices; (2) the growth of Letšeng through the Kholo project will add an extra 90,000 carats by 2017; production increases coming through from 2012 should act as an additional catalyst for the shares; and (3) the focus on Letšeng should provide a clearer investment case for the stock.
Lloyds Banking Group
Sage
Gem Diamonds
Nick Fletcher
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GUARDIAN Wed, 21 Dec 2011 17:08:36 GMT
Euphoria over ECB loan fades, but Lloyds leads banks higher
A day after its shares slumped following two drug trial disappointments, AstraZeneca announced moves to bolster its pipeline of new products.
It has signed deals with two Asian companies, although the drugs involved are both in their very early stages. Firstly Astra said it would co-develop Volitinib, a cancer treatment from Hutchison China MediTech, for which it will pay $20m upfront. Hong Kong-based Chi-Med will get up to $120m if the drug is successful, plus more if it reaches certain milestones and from royalty payments.
Astra has also bought options on a possible new class of diabetes drugs from Japan's Astellas Pharma. But the City seemed less than impressed with Astra's attempts to seek out new products. After falling 44p on Tuesday, Astra shares fell another 22p to £28.83. Chi-Med, however, jumped 57p to 320p.
Early euphoria following news that the European Central Bank had supplied a higher than expected €489bn of cheap three year loans to Europe's beleagured banks soon wore off, as analysts questioned how successful the move would be in tackling the eurozone crisis. So after climbing to 5479, the FTSE 100 finished down 29.86 points at 5389.74.
Banks held on to some of their early gains after the ECB move, with Barclays 0.55p better at 171.95p and Royal Bank of Scotland rising 0.15p to 19.82p. But Lloyds Banking Group was the pick of the bunch, up 1.315p to 24.935p after Exane BNP Paribas lifted its recommendation from underperform to outperform. Exane said:
If economic conditions stabilise and Lloyds is able to avoid raising capital, the valuation of the core business starts to look highly compelling.
Essar Energy, the Indian power group, the biggest faller in the leading index, down 6.1p to 171.9p after announcing its chairman was temporarily stepping down.
Ravi Ruia, who will remain as a director of the Indian energy business, is involved in a probe by India's Central Bureau of Investigation into the award of mobile phone licences. There are no charges of bribery or corruption but the CBI is looking at ownership in licensee companies and claims Ruia suppressed facts relating to a holding by Essar Group in Loop Telecom.
The company said the charges did not relate to Essar Energy, and it was surprised at the CBI's stand. Ruia and Essar Group deny all the charges.
Software group Sage slipped 7p to 284.8p after disappointing results from US technology group Oracle, while retailers were weaker on worries about Christmas trading.
Chocolate specialist Thorntons dropped 14.25p to 23.75p after it issued a profit warning as cash strapped consumers stayed away from its stores, prompting heavier spending on promotions to attact custom.
But Gem Diamonds climbed 9.3p to 191.7p after Goldman Sachs moved from neutral to buy. Goldman said:
Recent underperformance [presents] an attractive entry point, in our view. We increase our 12-month price target by 20% to 290p, implying 57% upside potential. Our positive view of Gem is based on the strong growth profile at its flagship Letšeng mine and our belief that the diamond market is set to experience a prolonged period of tightness. With Gem set to deliver an increasing amount of specials into a tight market, we believe the stock is positioned to outperform.
We see three catalysts for the shares: (1) we believe the market for larger, higher-valued stones marketed to high-net-worth individuals will remain strong in 2012, being more immune to cyclical downturns than the mid-tier luxury segments. The Letšeng mine has around 55% of the above 10.8 carat market and Gem is well positioned to exploit this market share through continued high prices; (2) the growth of Letšeng through the Kholo project will add an extra 90,000 carats by 2017; production increases coming through from 2012 should act as an additional catalyst for the shares; and (3) the focus on Letšeng should provide a clearer investment case for the.....
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