RBS share drop accelerates on stress test flop

Stressed. Shares in Royal Bank of Scotland have accelerated their losses this morning, falling over 4.5 per cent after the state-backed lender came in bottom of the heap in the Bank of England’s latest stress tests. RBS failed the toughest ever stress tests carried out by the BoE, with results this morning showing the lender’s […]

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Renminbi strengthens further despite gains by dollar

The renminbi on track for a fourth day of firming against the dollar on Wednesday after China’s central bank once again pushed the currency’s trading band (marginally) stronger. The onshore exchange rate (CNY) for the reniminbi was 0.28 per cent stronger at Rmb6.8855 in afternoon trade, bringing it 0.53 per cent firmer since it last […]

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Sales in Rocket Internet’s portfolio companies rise 30%

Revenues at Rocket Internet rose strongly at its portfolio companies in the first nine months of the year as the German tech group said it was making strides on the “path towards profitability”. Sales at its main companies increased 30.6 per cent to €1.58bn while losses narrowed. Rocket said the adjusted margin for earnings before […]

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Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

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Archive | November, 2016

Greece hires Lazard to advise on debt

Posted on 31 January 2015 by

Greek finance minister Yanis Varoufakis©Reuters

Greek finance minister Yanis Varoufakis

The Greek government has hired US investment bank Lazard to advise it on its debt burden as it prepares to enter talks with the troika of international lenders that has overseen its four-year bailout programme.

Since the far-left Syriza party won last weekend’s elections it has alarmed creditors and investors with pledges to freeze privatisations, rehire state workers and roll back reforms adopted by previous administrations as part of the bailout.

But on Saturday, Greek prime minister Alexis Tsipras issued a statement saying he was confident “we will soon manage to reach a mutually beneficial agreement, both for Greece and for Europe as a whole”.

    “No side is seeking conflict and it has never been our intention to act unilaterally on Greek debt,” Mr Tsipras said, adding that his approach “in no way entails that we will not fulfil our loan obligations to the ECB or the IMF”.

    The comments appeared to be a sign that Athens was moderating its position from the confrontational stance taken on Friday by its finance minister.

    Patience for Greece is running particularly thin in Germany. Chancellor Angela Merkel on Saturday ruled out the possibility of debt forgiveness for Greece’s new government, insisting that the indebted country should abide by the terms of its bailout arrangement. Speaking to the Hamburger Abendblatt newspaper, Ms Merkel said she did “not envisage fresh debt cancellation” for Greece.

    Wolfgang Schäuble, Germany’s finance minister, also warned Athens on Friday against trying to “blackmail” Germany with its financial demands.

    The hiring of Lazard indicates that the new government is preparing for bruising negotiations with the troika, which is made up of the International Monetary Fund, European Central Bank and European Commission.

    Without an extension of its EU bailout, which expires at the end of February, Greece’s banks could be cut off from ECB funding. The country’s four big banks were put on review for a potential downgrade of their credit ratings on Friday by Standard & Poor’s, capping a week in which their share prices fell sharply.

    Erkki Liikanen, an ECB governing council member, said that the ECB would cut any further lending to Greek banks if a deal was not reached by the deadline, adding: “Some kind of solution must be found, otherwise we can’t continue lending.”

    Yanis Varoufakis, Greece’s new finance minister, said on Friday that the country would no longer co-operate with the troika. He added that Greece was “working from the standpoint of the best possible co-operation with its institutional partners and the International Monetary Fund but not with a [bailout] programme that we think is anti-European”.

    Jeroen Dijsselbloem, chairman of the eurogroup of eurozone finance ministers, rejected the call by Athens for an international conference that would consider writing off part of Greece’s €315bn of debt, which last year amounted to 175 per cent of national output.

    He warned the new government against taking unilateral steps or ignoring arrangements with lenders, saying “the problems of the Greek economy have not disappeared overnight with the elections”.

    We — Germany and the other European partners — will now wait and see what concept the new Greek government comes to us with

    – Angela Merkel

    Lazard advised Greece on its original bailout in 2012. The US-listed investment bank has a long history of providing advice to over-indebted sovereign and municipal governments, including Argentina, Iraq, Ivory Coast and New York.

    Standard & Poor’s said on Friday that domestic deposits at Alpha Bank, Eurobank, National Bank of Greece and Piraeus Bank had decreased by €5.4bn to €213.3bn at the end of December, adding: “We expect deposit outflows to have likely accelerated in January.”

    Bankers familiar with the matter told the FT this week that between €700m and €1bn a day has been withdrawn from Greek lenders this week.

    Mr Varoufakis and Mr Tsipras will embark on a round of visits next week to London, Paris and Rome to seek backing for Greece’s position.

    Mr Varoufakis will meet his French counterpart Michel Sapin on Sunday before flying to the UK for a meeting with chancellor George Osborne. He may also meet investors in London, where Merrill Lynch and Deutsche Bank are trying to fix meetings.

    Ms Merkel said on Saturday that Europe would continue to show solidarity with Greece and other nations hit by Europe’s debt crisis as long as they undertook their own reform and austerity programmes. “We — Germany and the other European partners — will now wait and see what concept the new Greek government comes to us with,” she said

    ECB dismisses supply side view of eurozone woes

    Posted on 31 January 2015 by

    European Central Bank (ECB) President Mario Draghi and Vice President Vitor Constancio (L) leave after addressing an ECB news conference in Frankfurt January 22, 2015. The European Central Bank took the ultimate policy leap on Thursday, launching a government bond-buying programme which will pump hundreds of billions of new money into a sagging euro zone economy. The ECB said it would buy government bonds from this March until the end of September 2016 despite opposition from Germany's Bundesbank and concerns in Berlin that it could allow spendthrift countries to slacken economic reforms. Man at right is a security guard. REUTERS/Kai Pfaffenbach (GERMANY - Tags: BUSINESS)©Reuters

    The ECB vice-president has launched a staunch defence of the central banks’s quantitative easing programme, saying large-scale asset purchases were necessary to counter Europe’s problem of insufficient demand.

    Speaking at the Cambridge Union in Cambridge, Vitor Constâncio attacked what he called a ‘misguided view’ that the Eurozone economic problems were solely the result of supply side problems.’ He insisted that the Eurozone needed to ‘raise aggregate demand’ to escape the risk of a debt trap.

      Last week, the ECB launched a €1.1tn programme of quantitative easing, which included for the first time large-scale purchases of sovereign bonds from all Eurozone countries. The measures are aimed at preventing the risk that the currency union falls into a prolonged period of deflation.

      On Friday, Eurostat, the Eurozone statistical office, reported that inflation in the currency area stood at -0.6 per cent, significantly below the central bank’s target of just under 2 per cent.

      Mr Constâncio said the ECB was facing a ‘very risky situation’ involving the possible dis-anchoring of medium-term inflation expectations. The widely-followed indicator showing the average expected inflation rate over five years starting in five years as priced by swaps markets had fallen below 1.7 per cent in the weeks before the ECB launched its QE programme, but has edged up since.

      He added that the current economic problems of the Eurozone resulted from a ‘negative aggregate demand shock’ which was already causing social and political tensions in the currency area. This was different from the situation in 2011 and 2012, when the Eurozone had suffered from a financial shock. ‘The default risk is now the result of the risk of a prolonged depression,’ he said.

      The ECB vice-president acknowledged there was a risk that countries could slow down on efforts to reform their economies as a result of the central bank’s sovereign bond purchases. This argument is often made in Germany, where policy makers have been long opposed to QE. But he said ‘a central bank could not be reduced to inaction’ by arguments over the possibility of so-called moral hazard.

      He added that while asset purchases had the potential to trigger a dangerous search for yield by investors, the primary responsibility of the ECB was over the price of goods and services, not financial assets. This should be addressed via other instruments, such as macroprudential policies.

      With regard to the situation in Greece, Mr Constâncio said the ECB’s rules over the provision of liquidity to Eurozone banks were ‘public and there would be no surprises in that sense’. The ECB will continue to provide a waiver on collateral below investment grade in normal monetary policy operations provided Greece stayed in an adjustment programme.

      With regard to the risk that the ECB could cut emergency liquidity assistance to Greek banks, he said this was a decision for the governing council to take.

      Take off shades to peer behind numbers

      Posted on 31 January 2015 by


      It has been a week to be blinded by the big numbers. Apple produced the largest quarterly profit in corporate history — $18bn of it. Alibaba said on Thursday that $126bn of goods were sold over its website in the three months to December. Oil major Shell is to reduce its capital spending by $15bn over the next three years. And Greek bank shares fell 40 per cent in the first half of the week as fears grew about exactly how radical the new leftwing government will be. Wow.

        But take off your shades and squint at the smaller numbers too — they can often be more revealing. Take Apple, for example. Lots of people are getting excited about its potential in China, but the $700 average cost of an iPhone 6 is 10 per cent of per capita GDP of $7,000. It will be hard for the company to achieve the same penetration there that it has in the US.

        Or at Alibaba, look at the $160m that the company has spent over the past two years to combat counterfeits. That might sound like a big effort, but will it be enough to please Chinese regulators who investigated ecommerce sites last autumn? A nasty spat is brewing.

        Yahoo is to spin off its Alibaba stake into a separately listed company. A big move (and a welcome one) for sure, but the spun off company will contain some smaller businesses that Yahoo no longer wants, as well as the Alibaba stake. Those small businesses will muddy the valuation.

        Over at Deutsche Bank, the small number to look at was 7 per cent — that’s the return on equity that the core part of the bank made last year. It was 3 per cent if non-core losses are included. Not good enough. There are big hopes, then, for a strategy review due to be unveiled in the second quarter of the year.

        Shake Shack, the US burger chain that got its IPO away this week, says that same-store (sorry, same Shack) sales growth is a skinny 1.2 per cent. For the moment that may not matter too much as it opens new outlets. But eventually, it will need existing stores to be part of the growth story.

        Even that 1.2 per cent, though, looks big next to what McDonald’s reported this week. Same store sales dropped by 1 per cent throughout 2014 as diners switched to more upmarket chains. A new chief executive is in place. One of his aims should be to push same-store sales to even the small level that Shake Shack manages.

        Whether you have big plans or small ones, have a good weekend.

        Oliver Ralph, deputy head of Lex

        Battle intensifies for control of Towergate

        Posted on 30 January 2015 by

        Directors of the heavily-indebted insurance broker Towergate are holding crunch talks as they weigh up rival restructuring proposals that will determine the fate of one of Britain’s biggest private companies.

        The board, led by Alastair Lyons, is expected to reach a decision this weekend on the fate of Kent-based Towergate, which employs about 5,000 people at more than 120 offices.

        People familiar with the situation indicated the board might favour a bid from a group of secured creditors. However, no decision had been taken as of Friday night.

          At least two other parties have tabled rival last-minute proposals. A group of unsecured bondholders — led by KKR, the Bain Capital affiliate Sankaty Advisors, and alternative investment manager Highbridge — has offered to inject £200m into Towergate as part of their plan, according to people with knowledge of the situation.

          Meanwhile, Marsh & McLennan, the US-listed broker that has been eyeing Towergate for several weeks, has made a cash offer of more than £600m. The final bid from Marsh, which declined to comment, was first reported by the Insurance Insider trade publication on Friday evening.

          A series of buyout houses, hedge funds and other investors are scrambling to minimise losses from Towergate, one of the UK’s largest insurance brokers.

          It has run into financial difficulties after a debt-laden acquisition spree and a big drop in profits. Debt holders are collectively owed about £1bn.

          Secured creditors that hold about two-thirds of the company’s £715m worth of senior debt have proposed buying the equity for £1 in return for reducing the amount they are owed in a “prepackaged” administration — in effect the pre-negotiated sale of an insolvent business.

          People with knowledge of the process highlighted that the plan from the secured creditors, being advised by Moelis, would leave the company with less debt leverage.

          However, the unsecured bond holders — whose bonds are trading at 13p in the pound — would face heavy losses under the plan.

          Under their rival plan, Towergate would avoid administration. Instead, the unsecured creditors — being advised by Houlihan Lokey — would convert their debt into equity, and plough cash into the business.

          Towergate’s equity backer, the buyout group Advent, would be wiped out under both proposals.

          A bill on Towergate’s debt pile is due on Monday to secured creditors. Another payment, to the unsecured creditors, is due two weeks later. Together they are estimated to total about £30m.

          Towergate hired Evercore and Rothschild in November to advise on its future. They warned it might not survive as a going concern if a restructuring could not be agreed.

          BofE report into forex-rigging cost £3m

          Posted on 30 January 2015 by

          The Bank of England is being urged to raise rates©Bloomberg

          The Bank of England paid almost £3m of taxpayers’ money for a report on whether any of its staff knew about or were involved in alleged manipulation of one of the world’s biggest financial markets.

          More than £400,000 was paid to Lord Grabiner QC, a senior barrister, according to BoE correspondence published on Friday.

            During a testy hearing earlier this month, Lord Grabiner told the Treasury select committee that he did not know how much he charged, or whether he had been paid by the central bank to lead the investigation, which reported its findings in November.

            Lord Grabiner has been involved in some high-profile inquiries. He chaired News International’s independent standards committee in the wake of the phone-hacking scandal. He charges an hourly rate said to be up to £3,000.

            The BoE gave no breakdown of how many hours he or other members of the legal team worked to compile the report, which cleared central bank officials of behaving improperly. The report did, however, criticise the former chief foreign exchange dealer, who has since left the institution, for not passing on concerns about possible collusion among traders.

            An international probe has investigated whether banks rigged the $5tn-a-day forex market. So far, six banks have paid $4.3bn to US, UK and Swiss authorities.

            Lord Grabiner told the Treasury committee, which questioned the thoroughness of parts of his report, that he had given a “serious discount” to the BoE, but did not specify the amount.

            “Barristers don’t get into the grubby world of negotiating their fees,” he said at the time.

            MPs on the committee said they would push the BoE to disclose how much it had paid for the investigation.

            “This was, by necessity, a substantial and thorough investigation that spanned the best part of a year and retrieved close to two million documents,” said the BoE.

            “While it was costly, the potential cost to the Bank’s credibility, and thus capacity to carry out its responsibilities effectively, would also have been considerable, had we not carried it out.”

            The disclosure of Lord Grabiner’s fees comes after the Financial Conduct Authority revealed it had spent £3.8m on an independent lawyer-led inquiry into a press briefing that caused shares in life insurers to plunge last year.

            Lord Grabiner is also leading an unrelated inquiry on whether BoE officials knew about or participated in alleged manipulation of a series of money market auctions launched at the start of the financial crisis, people familiar with the situation have told the Financial Times.

            The BoE correspondence, published on Friday, revealed that the bulk of the fees for the foreign exchange inquiry — £2.2m — was paid to Travers Smith, a London-headquartered law firm that assigned as many as 12 lawyers to the data trawl that formed the foundation of the investigation.

            Lord Grabiner’s junior barrister, Adam Rushworth, received another £106,000, while three specialist technology companies collected just under £200,000 between them.

            Andrew Tyrie, who chairs the Treasury committee, said the central bank’s decision to make the fees public was welcome and that “the cost of Lord Grabiner’s inquiry is a matter of public interest”.

            A clerk for Lord Grabiner at his chambers at One Essex Court declined to comment.

            Week in Review, January 31

            Posted on 30 January 2015 by

            week in review

            A round up of some of the week’s most significant corporate events and news stories.

            iPhone sales push Apple profits to world record

            iPhone 6©Getty

            Apple reported the largest profits in corporate history this week, as sales of its iPhone overtook smartphones made by rival Samsung, pushing its stock back towards a record high, writes Tim Bradshaw in San Francisco.

            Huge sales of the iPhone 6, with 74.5m units sold in the three months to December, surprised even the most optimistic forecasters when Apple reported earnings on Tuesday. Tim Cook, chief executive, said demand for the iPhone was “staggering”.

            The company’s success was driven by growth in China, where sales of iPhones were twice that of the same period a year ago. With gross profit margins climbing to the highest level in more than two years, Apple reported $18bn in net income, beating ExxonMobil’s $15.9bn in 2012 as the most lucrative quarter on record.

            First-quarter sales grew overall 30 per cent to $74.6bn, ahead of Wall Street’s expectations.

            Corporate Person in the News: Marissa Mayer

            Bloomberg's Best Photos 2014: Marissa Mayer, chief executive officer of Yahoo! Inc., looks on at the Cannes Lions International Festival Of Creativity in Cannes, France, on Tuesday, June 17, 2014. The Cannes Lions International Festival of Creativity, formerly the International Advertising Festival, attracts thousands of delegates working in the creative communications, advertising and related fields, and runs from June 15 to June 21. Photographer: Simon Dawson/Bloomberg *** Local Caption *** Marissa Mayer

            Yahoo chief buys time with gift of Alibaba’s treasure

            Continue reading

            Apple’s earnings report on Tuesday fuelled a fresh surge in the share price of what was already the world’s most valuable company. Shares in the iPhone maker touched $120 on Friday, surpassing the previous intraday high of $119.40 reached last November.

            Apple’s booming sales contrasted with Samsung’s report this week of a 21 per cent fall in revenues at its mobile business. Based on those numbers, market researchers at Strategy Analytics and Counterpoint Research concluded that the iPhone overtook Samsung smartphones worldwide to put it back on top with a 20 per cent market share.

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            ● Related FT Alphaville blog: If Apple were a country…

            ● Related Short View with video: Apple rises to top of earnings tree

            ● Related Lex note: Apple in China — big country, big company

            New McDonald’s chief  faces tough test over stalling sales

            Cartons of McDonald's french fries sit at a restaurant in London, U.K., on Monday, Feb. 1, 2010. McDonald's Corp., the world's largest restaurant company, plans to increase its number of Russian outlets by 20 percent this year to capitalize on its fastest growing market in Europe. Photographer: Jason Alden/Bloomberg©Bloomberg

            McDonald’s appointed Englishman Steve Easterbrook to replace Don Thompson as chief executive, as it seeks a new direction in the face of perhaps the greatest challenge in its 60-year history, writes Neil Munshi.

            Mr Easterbrook, a former Watford grammar schoolboy, takes over after a rocky two-and-a-half years that have seen sales growth stall at the world’s largest restaurant chain.

            Last year the company recorded its first annual drop in global same-store sales in a dozen years.

            The company has been accused of being caught flat-footed in the face of fundamental shifts in the restaurant business, including rising consumer demand for fresher, natural ingredients exemplified by the massive growth of burrito chain Chipotle and upmarket burger chains such as Five Guys.

            ©AFP/Getty Images

            Steve Easterbrook

            Mr Easterbrook has turnround experience. He became the head of McDonald’s UK when that division was struggling with similar challenges, and quickly returned it to growth.

            But turning round an $87bn company, and convincing key low-income customers still struggling to recover from the financial crisis to return to its roughly 35,000 stores, will be difficult — particularly in the US.

            Analysts have questioned whether a nearly 20-year veteran of the company is the right person to implement the necessary fundamental changes.

            As chief brand officer since 2013, Mr Easterbrook has already rolled out some of the strategies that worked in the UK on the US market, the company’s largest.

            ● Related Lex note: McDonald’s — big game hunter

            ● Related news story: Shake Shack soars to $1.7bn on debut

            Plunge in crude sees slew of oil majors slash spending

            Royal Dutch Shell and ConocoPhillips, two of the world’s largest energy groups, this week set out plans for billions of dollars worth of cuts in their investment programmes in response to the plunge in crude prices, writes Michael Kavanagh.

            (FILES) A file picture taken on June 30, 2014 shows a flame torch at the French oil giant Total refinery in Donges, western France. The OPEC oil producers cartel meets in Vienna on November 27, 2014 for a pivotal decision on whether to reduce the amount of oil it produces, faced with a global supply glut that has massively depressed crude prices.AFP PHOTO / JEAN-SEBASTIEN EVRARDJEAN-SEBASTIEN EVRARD/AFP/Getty Images©AFP

            The announcements follow indications of spending cuts by French oil major Total and by Schlumberger, the biggest oil services group, before the sector’s results season. Shell said it would “curtail” its capital spending by $15bn over 2015-17, adding that 40 projects would be delayed or cancelled.

            Conoco, the largest US exploration and production company, said it planned a steeper 33 per cent cut in its capital spending this year to $11.5bn, which is $2bn less than it had suggested in previous guidance issued only last month. Occidental Petroleum, the fourth-largest US oil producer by market capitalisation, also said it would cut this year’s spending by 33 per cent.

            Chevron, Conoco’s larger US-listed peer, joined the pack on Friday by saying that it would cut its exploration and capital spending budget by 13 per cent to $35bn in 2015.

            ExxonMobil, the world’s biggest listed oil company by market value, is set to outline its response to a 60 per cent decline in crude prices when it issues its full-year results on Monday.

            BP, the UK oil major, follows on Tuesday.

            Brent crude, which earlier this month dropped as low as $45.19 a barrel, was trading just over $49 on Friday — at least showing some signs of short-term stability in price following the rout of recent months.

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            ● Related in depth: Oil: The Big Drop

            ● Related Lex note: Royal Dutch Shell — parenthood

            Lower litigation provisions buoy Deutsche Bank results

            Deutsche Bank reported fourth-quarter results that beat expectations thanks to lower than expected litigation charges, and a resilient performance from its investment banking arm, writes James Shotter in Frankfurt.

            In the last three months of 2014, Germany’s biggest lender made a net profit of €441m, up from a net loss of €1.37bn a year earlier.

            Pedestrians pass the entrance to Deutsche Bank AG's offices in London, U.K., on Wednesday, Dec. 12, 2012. Major international banks are looking to move more of their U.K. staff out of London to regional offices. Photographer: Simon Dawson/Bloomberg©Bloomberg

            Analysts had forecast that it would make a net loss of €157m, mainly because they were expecting Deutsche, which is embroiled in a number of probes, to take litigation provisions of €772m.

            In the event, the bank took legal provisions of just €207m, although it was also hit by a €330m charge to cover consumer loans contracts claims.

            BaFin, the German finance watchdog, said that it was “routinely” looking at whether Deutsche should have released its better than expected numbers via an ad hoc statement. Deutsche declined to comment.

            Deutsche Bank’s investment banking division posted strong results, with overall revenues climbing
            20 per cent. Revenues at its currency and debt trading arm rose 13 per cent, while proceeds from equity sales and trading rose 35 per cent.

            The run-up to Deutsche’s results was dominated by speculation that the Frankfurt-based lender could decide to spin off part or all of its retail banking operations under a strategy review, which is due to be completed in the next few months.

            However, Deutsche’s co-chief executives, Anshu Jain and Jürgen Fitschen, gave few hints about how their planning was progressing.

            ● Related Lex note: Deutsche Bank — universal truths

            And finally … the lighter side of the news


            ● Cats, the true masters of the internet, are staking their claim to yet more terabytes. While their antics have long been ubiquitous and the web equivalent of catnip, they are now providing privacy protection for Facebook users. A new Wickr Timed Feed (WTF) photo app offers to encrypt Facebook albums so that all snooping third parties can see are random pictures of kittens. And so the stealthy feline takeover continues.

            ● Who would win in a fight between Peppa Pig and Katniss Everdeen from The Hunger Games films? Ask the bean counters at Entertainment One and the plucky porker might carry the day over Jennifer Lawrence’s master archer. It seems Ms Pig’s merchandise is flying off the shelves, while box-office receipts for JLaw’s latest movie are down. Rumour has it the next instalment has been renamed The Hunger Games: Bacon Sandwich.

            A customer carries cans of Carlsberg lager beer, produced by Carlsberg A/S, at a supermarket in London, U.K. on Wednesday, Aug 24, 2011. Carlsberg A/S, the world's fourth-biggest brewer by volume, is looking to expand "primarily in Asia" as it seeks further growth in emerging markets, according to Chief Executive Officer Joergen Buhl Rasmussen. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

            ● Historically speaking, trying to invade Russia seldom ends well. Just ask Napoleon. Now, Danish beer peddler Carlsberg is learning that even the country’s beverages market is tough to conquer: it has had to close two breweries because of falling demand. A combination of tax increases, advertising bans and sales restrictions have meant that if Russians are marching anywhere, it will be on stomachs full of vodka, not lager.

            A Toyota badge at a dealership in London©Getty

            ● When the search engine becomes as important as its internal combustion cousin, the self-driving car in front is less likely to be a Toyota. In fact, the autonomous vehicle looming large in the rear-view video looks increasingly like it was designed by Google. No wonder analysts have said Japanese carmakers risk the same fate as the country’s electronics groups: being overtaken by fast-moving US software companies.

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            Data experts admit housing inflation error

            Posted on 30 January 2015 by

            File photo dated 12/07/12 of an aerial view of houses on residential streets in Muswell Hill, north London, as rents have increased at six times the rate of inflation over the last year and there appears to be "a new fire in the market" as it enters 2015, a lettings index has found. PRESS ASSOCIATION Photo. Issue date: Friday January 16, 2015. Across the course of 2014, rents increased by 3%, according to the latest index from estate agents Your Move and Reeds Rains. This is six times the Consumer Price Index (CPI) rate of inflation, which fell to 0.5% in December, its lowest level on record. The average monthly rent across the country stood at £767 in December, compared with £745 in December 2013. However, on a month-on-month basis, rents edged down slightly, by 0.1% between November and December. See PA story MONEY Rent. Photo credit should read: Dominic Lipinski/PA Wire©PA

            The Office for National Statistics admitted on Friday that it had badly underestimated the increase of costs of private renting in its inflation statistics and that prices had risen at roughly twice the officially recorded rate.

            With private renting only a small part of households’ overall spending, the errors would not have had a large effect on overall consumer price inflation. But they did severely distort the CPIH measure

            , which includes owner occupiers’ housing costs and which statisticians want to become the headline rate.

              Analysts said the new and higher estimates for rent inflation were more realistic and helped to relieve fears of a bubble in house prices.

              In early 2013, the ONS decided to revamp the collection and measurement of private rents, using a Valuation Office Agency database, but the inflation figures were soon challenged. After initially resisting a review, the increasing disparity between ONS data on private rents and those collected elsewhere forced the issue, and the ONS found analytical errors in the way it had been analysing VOA data.

              The main problems arose where rents were not collected for a property on a regular basis. The statistics agency either assumed they were unchanged for 18 months or rejected the data completely, rather than substituting rent changes in similar properties.

              These procedures and others all gave a downward bias to the rent inflation figures leading to an estimate of 1.2 per cent annual rent inflation between January 2011 and December 2014 — far lower than the latest estimate of 2.1 per cent. The gulf was wider in the years before 2011.

              With private rents rising faster than the ONS thought, the jump in house prices during the past two years was easier to explain. James Carrick of Legal & General said that on the old measures, “house prices appeared severely overvalued” compared with rents, and were in bubble territory. The upward revisions to rents made high house prices seem more reasonable.

              David Whittaker, managing director of Mortgages for Business, said: “Rents have been rising much faster than the ONS previously estimated, and this is no surprise to those in the industry.”

              Private rents are a component of the headline consumer price index, but the ONS said that in the 18 months when the errors were part of the series, measured inflation would have been considerably less than 0.1 per cent higher, leading it to conclude that there was no need for a revision to the series.

              It has decided, however, to revise the CPIH measure, which includes an estimate of the costs of owner-occupied housing. The ONS used private rents as a proxy for the costs of ownership, reasoning that people who owned had the option of selling and receiving the same housing services — shelter, location and amenity — from private renting.

              The CPIH measure was understated by about 0.1 percentage points every month, the ONS said, adding that it would produce a revised back-series in March.

              Paul Johnson, director of the Institute for Fiscal Studies, who led a recent review of inflation statistics, welcomed the changes that would be made to CPIH, which was his favoured option for a headline inflation series once such problems had been ironed out.

              “The reason CPIH was stripped of its national statistics kitemark was entirely down to the measurement of private sector rents and not the methods of estimating the costs of owner-occupied housing,” he said.

              “Once it is happy with estimates of private sector rent inflation, the ONS will be in a position to move to using CPIH as the main measure of inflation.”

              Outflows seep out of Franklin funds

              Posted on 30 January 2015 by

              Franklin Resources, the asset management group that counts bond investor Michael Hasenstab among its top managers, missed earnings estimates in the last quarter as money continued to seep out of its funds.

              But Franklin said on Friday that the outlook for Mr Hasenstab’s global bond franchise was strong, despite high-profile losses on Ukrainian debt, in response to questions about outflows and fund liquidity.

                Mr Hasenstab’s $69bn global bond fund has been one of the largest holders of Ukrainian government bonds as concerns mount over the country’s ability to pay its debts. It is down approximately $3bn on its $7bn investment, according to Bloomberg bond data.

                Although the fund has fallen behind a majority of peers in the past month, it has still outperformed 85 per cent of similar funds on a five-year view, and has recently been taking profits from lucrative bets on Irish government bonds at the nadir of the eurozone crisis.

                Analysts have been cutting their earnings forecasts for Franklin after clients withdrew more money than expected in December, particularly from the global bond portfolios. Morningstar research showed that last month was the worst to date in terms of outflows for Mr Hasenstab’s main fund, which saw clients pull $1.6bn.

                Greece will no longer deal with ‘troika’

                Posted on 30 January 2015 by

                Greek economist Yanis Varoufakis is seen outside the Syriza party headquarters in Athens on January 25 2015©Reuters

                Yanis Varoufakis

                Greece will no longer co-operate with the “troika” of international lenders that has overseen its four-year bailout programme, the country’s finance minister said, as the new Greek government adopted a defiant posture toward its creditors.

                Yanis Varoufakis also said Greece would not accept an extension of its EU bailout, which expires at the end of February, and without which Greek banks could be shut off from European Central Bank funding.

                “This position enabled us to win the trust of the Greek people,” Mr Varoufakis said during a joint news conference with Jeroen Dijsselbloem, chairman of the euroroup of eurozone finance ministers, who was visiting Athens for the first time since a leftwing government came to power this week.

                  Mr Dijsselbloem countered by rejecting the government’s call for an international conference that would consider writing off part of Greece’s huge debt, which last year amounted to 175 per cent of national output.

                  “As for the thought of a conference on debt restructuring, you must realise that this conference already exists and it’s called the eurogroup,” Mr Dijsselbloem said.

                  The exchange — along with tough words from Berlin — captured the adversarial mood as the new government and its eurozone partners made their first formal contact, and set the stage for a tense stretch of negotiations that could determine Greece’s future in the eurozone.

                  Speaking to the Financial Times in London, Pierre Moscovici, Europe’s economics commissioner, urged calm, saying: “We all need to be careful about the economic situation in Greece. Our common goal is to enhance growth. For that we need pragmatism and respect for commitments, from both sides.”

                  But, since taking power this week, Greece’s government has alarmed creditors and investors with pledges to freeze privatisations, rehire state workers and otherwise roll back reforms previous governments adopted as part of the bailout.

                  Mr Varoufakis, emboldened by his far-left Syriza party’s success in last Sunday’s election, said Greece “is working from the standpoint of the best possible co-operation with its institutional partners and the International Monetary Fund, but not with a (bailout) programme that we think is anti-European.”

                  He also blasted the deeply unpopular bailout monitors from the European Commission, IMF and ECB — also known as “ the troika” — saying: “We are not going to co-operate with a rottenly constructed committee.”

                  But Mr Dijsselbloem warned the new government against taking unilateral steps or ignoring current arrangements with lenders, saying “the problems of the Greek economy have not disappeared overnight with the elections.”

                  We’re prepared for any discussions at any time, but the basis can’t be changed. Beyond that, it is hard to blackmail us

                  – Wolfgang Schäuble

                  Patience for Greece is running particularly thin in Germany, where Wolfgang Schäuble, finance minister, warned Athens on Friday against trying to “blackmail” Germany with its financial demands.

                  Speaking at a business conference, Mr Schäuble said Germany was ready to co-operate but only on the basis of current agreements, which involve Athens completing structural reforms in return for financial support. “We’re prepared for any discussions at any time, but the basis can’t be changed,” he said. “Beyond that, it is hard to blackmail us.”

                  Mindful of many Germans’ concerns about pouring more money into Greece, Mr Schäuble said the current €240bn bailout programme was “exceptionally generous” and that Berlin would work only “in this framework and no other”.

                  If the bailout is not renewed before February 28, Greece would lose access to desperately needed ECB credit lines for its banks, raising the possibility of a liquidity crisis that could trigger “a credit event” similar to the forced closure of Cypriot banks in 2013 and the imposition of the eurozone’s first exchange controls.

                  Martin Jäger, the finance ministry spokesman, said that any request for an extension of the existing financing programme would only be acceptable when it was “tied with a clear readiness of Greece to implement the agreed reforms”.

                  The finance ministry did nothing to conceal the tension between Mr Schäuble and Mr Varoufakis, confirming that there had been no exchange of phone calls between ministers, as is normal with new EU appointments.

                  The chancellery said there were no plans for Angela Merkel to meet Alexis Tsipras, the Greek prime minister before the next EU summit on February 12.

                  Mr Tsipras softened his anti-German rhetoric during the election campaign but insisted there was “no reason” to visit Berlin immediately to discuss Greece’s plans for exiting its bailout and seeking a debt write-off.


                  Regulator steps up monitoring of Deutsche

                  Posted on 30 January 2015 by

                  epa04213719 (FILE) A file photo dated 23 February 2011 shows a Deutsche Bank headquarters in Frankfurt Main, Germany. Reports on 19 May 2014 state that Deutsche Bank announced a capital increase with proceeds expected to be approximately 8 billion euros. The capital increase will include an ex-rights issue of 1.75 billion euros which has already been placed with an anchor investor and a fully underwritten rights issue. The rights issue is expected to raise 6.3 billon euros of new equity. EPA/MARIUS BECKER©EPA

                  A string of alleged failings at Deutsche Bank has prompted the UK’s financial watchdog to more closely monitor the bank’s London office in the most high-profile use to date of a new regulatory tool.

                  The Financial Conduct Authority has put Deutsche into so-called enhanced supervision, according to people familiar with the situation. The FCA has been able to use the intensive-monitoring programme since the summer. The new powers allow it to demand that a bank’s board commits to a remediation programme, and if failings are deemed serious enough an enforcement probe can follow.

                    Enhanced supervision was introduced in response to recommendations made by the Parliamentary Commission on Banking Standards, which put forward proposals that led to tougher laws against errant bankers in the wake of scandals that tainted the City.

                    While it is not the first time the FCA has used enhanced supervision — which is normally kept confidential — Deutsche is the largest institution where the application has been revealed, first reported by the Times on Friday.

                    “We have been working diligently to further strengthen our systems and controls and are committed to being best in class. We have invested €3.6bn since 2012 as part of this effort,” the bank said in a statement. The FCA declined to comment.

                    The FCA cannot use enhanced supervision in response to a single incident of wrongdoing but instead must have concerns over “a serious failure of culture, governance or standards”, according to its own rule book.

                    Red flags can include “occurrence of failings in several business areas” and a weak board, the rule book states.

                    The watchdog fined Deutsche £4.7m in August for poor transaction reporting but far heavier penalties could be levied as a result of the ongoing investigation into whether Libor, the key benchmark rate, was rigged. While other banks have already paid fines that have topped £1bn over alleged Libor-rigging, the investigation into Deutsche by both the FCA and other authorities continues.

                    A separate probe into alleged manipulation of the $5tn-a-day foreign-exchange market is also ongoing. While the FCA will not fine Deutsche over the scandal, other authorities around the world are investigating the bank.

                    Germany’s financial watchdog, BaFin, meanwhile confirmed this week that it is probing whether Deutsche should have put out a so-called ad hoc statement ahead of its quarterly results on Thursday, which saw the bank swing back into profit ahead of market expectations and despite a €330m charge to cover consumer-loan contracts.

                    Such statements are necessary for information likely to have a material impact on a company’s shares.

                    “The potential to materially influence prices can exist, for example, when financial results diverge significantly from the previous year’s numbers or from market expectations,” BaFin said in a statement. The bank declined to comment on the matter.