Azure Global : October 2013

Thursday 31 October 2013

Bill Adderley unmasked as Marks & Spencer's biggest private shareholder

Billionaire founder of homeware chain Dunelm built £250m stake in M&S during 18-month period in which shares rose by 40%

Bill Adderley, the billionaire founder of the homeware chain Dunelm, has secretly built a near £250m stake in Marks & Spencer, it has emerged.

The entrepreneur acquired the shares during the past 18 months, a period in which the M&S share price has risen by almost 40%.

The disclosure, triggered by stock market rules that unmask shareholders who own more than 3% of a company, revealed Adderley as M&S's largest private shareholder. He will receive dividends on his stake of more than £8m a year.

An M&S insider said: "We do know him and have met him, being as he has been our largest private shareholder for some time. It was a small purchase [that took Adderley over the 3% disclosure threshold] so this has not come out of the blue."

Adderley founded Dunelm on a Leicester market stall with his wife Jean in 1979 after leaving his job as manager of Woolworths in the city, eventually floating the business on the stock exchange.

The business is now worth about £1.8bn and boasts more than 100 stores making sales of £677m and profits of £108m. It is still majority owned by the Adderley family, who live near Uppingham, Rutland, and are collectively worth £1.1bn, according to the 2013 Sunday Times Rich List. Shares in Dunelm have more than doubled since the financial crisis and risen by about 30% during 2013.

Adderley, who has avoided the public spotlight, was not available to comment but sources close to the family suggested he had merely spotted an investment opportunity and taken it. When asked if he was planning to lead a consortium to bid for control of M&S, the source said: "This would be an extraordinarily clumsy way of going about it."

The news that M&S has attracted such a large private shareholder comes at a propitious time for the retailer, which has struggled to impress the City under the leadership of chief executive Marc Bolland.

The Dutchman is in the final year of a three-year, £2.3bn plan designed to address decades of under-investment. His efforts were insufficient to prevent clothing sales falling for eight straight quarters, although this week it emerged that M&S has stemmed the erosion of its share of the clothing market – albeit while suffering continued declines in its share of the women's clothing market. It is due to report its half-year figures next week.

Efforts to repair flagging clothing sales and pull in younger shoppers have also been knocked by the imminent departure of Gillian Ridley Whittle, development and buying director for womenswear, which was announced last week.

Next week M&S is expected to report a 1.5% fall in underlying sales of general merchandise – a category mainly made up of clothing – for the six months to the end of September. That would be on a par with the 1.6% slide reported in the three months to the end of June. Some analysts have downgraded their sales expectations amid unseasonably warm autumn weather.

The retailer is also launching its Alice in Wonderland-inspired Christmas adverts, featuring actor Helena Bonham Carter and models David Gandy and Rosie Huntington-Whiteley.

M&S shares added 2.09% yesterday to close at 503.5p. Adderley's 48.5m shares are therefore worth £244m.

City analysts have a mixed view on the shares. Of the 23 following the company, 11 rate the shares as a buy, seven as a sell, while five are neutral, according to the financial website Digital Look.

Nick Bubb, an independent retail analyst in London, told Bloomberg: "He's brave to take such a big punt on an M&S recovery."

Recent M&S successes have included its food business - Bolland's area of expertise, having joined from the grocer Morrisons - that has enjoyed 17 consecutive quarters of underlying sales growth and contributes 54% of group sales. Meanwhile, online sales growth is running ahead of the market and solid progress has been made overseas.

Article Source : http://www.guardian.co.uk
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UK discount supermarkets aim Christmas campaigns at middle-class

Lidl runs first-ever nationwide British TV adverts, while Aldi doubles size of Christmas range, including fresh lobster

Britain's two biggest discount stores will be taking their battle to attract middle-class shoppers on to the small screen this Christmas as Lidl launches its first ever national TV advertising campaign on Thursday.

Lidl's ad for its Deluxe range, featuring whole cooked lobster and mini Stollen, will run on several channels including ITV, Channel 4 and Sky. The company is increasing the number of products in its luxury selection by two-thirds in an effort to lift sales by 50% to nearly £64m.

Aldi will launch its festive campaign on Monday having doubled the size of its Christmas range this year to include fresh lobster tails and a fresh version of its three-bird roast, which has been a popular frozen item in recent years.

Lidl originally introduced its Deluxe range as a speciality for Christmas but rapidly expanded it last year when sales nearly doubled to £40.2m compared with £19.5m in 2011. This year Lidl is adding 200 new products to its Deluxe range including Serrano ham and a British fresh bronze turkey. They will sit alongside 300 existing luxury favourites including reindeer and caviar.

Lidl managing director Ronny Gottschlich said: "Our Deluxe products have proven to be our best selling, along with our Comte de Brismand champagne, which speaks volumes for what our customers want. We feel now is the time to fully showcase the quality of these products."

The move comes as Lidl and its fellow German discounter are stealing market share from major supermarkets including Asda, Tesco and Morrisons as shoppers search for a way to save cash.

The retailers now control nearly 7% of the UK grocery market, up from just under 6% a year ago according to data from Kantar Worldpanel.

Aldi, which has been promoting its luxury foods in press and television advertising campaigns for several years, has been outgrowing its closest rival. The retailer, which opens its 500th store on Thursday, increased sales by 31.7% in the 12 weeks to 14 October while Lidl's sales rose by 13.1%, according to Kantar.

Meanwhile, the number of shoppers using Aldi for their main weekly shop has soared 31.7% in the past year, according to the research firm Verdict. It also suggests that the proportion of well-off shoppers visiting Aldi has more than doubled to 4% year on year as nearly a third, 32.3% of the shoppers using Aldi for their main shop this year have switched from shopping at rival grocers in 2012.

Andrew Stevens, food and grocery specialist at Verdict, said: "Aldi has been the biggest winner in terms of switching and shopper number growth in 2013. This has been largely driven by shoppers switching to Aldi from the likes of Tesco and Asda."

The largest proportion of Aldi's new fans came from Tesco, which is not surprising given that it is by far the UK's biggest supermarket. The biggest switch, relative to its share of the market, came from Asda, at 19.7%.

Barclays assisting with investigation into currency market manipulation

Regulators request foreign exchange activity information from Barclays in investigation that could match scale of Libor scandal

Barclays is involved in the new investigation by global regulators into the potential manipulation of the £3tn-a-day currency markets, in a fresh setback for the bank as it attempts to clean up its reputation in the wake of the Libor rigging scandal.

As it published its third quarter financial results, Barclays disclosed that it has received official requests for information about its foreign exchange activities. Barclays is joining a number of other banks – including Royal Bank of Scotland, Deutsche Bank and UBS – in co-operating with the authorities and also shedding light on the nature of the investigation by regulators in the UK, the US and Asia.

RBS said it was already reviewing its processes in the foreign exchange markets.

Barclays also confirmed it is continuing to contest a £50m penalty from the Financial Conduct Authority for behaving recklessly in the way it raised funds from Qatar to avoid a taxpayer bailout in 2008.

The foreign exchange investigations are at an early stage and could be on the scale of the Libor scandal. Barclays was the first bank to be fined for rigging the key interest-rate benchmark, in June 2012, and was handed a fine of £290m. That led to the departure of its chief executive,Bob Diamond, and the promotion of Antony Jenkins, who has since embarked on a strategy to restore the reputation of the bank through his so-called transform programme.

Jenkins used the results to outline a vision for more technology at the bank – which, it is suggested, could lead to 40,000 job cuts – and said that he was embarking on a new review of the bank's 75 business lines to gauge the riskiness of the operations.

Last month the bank was forced to tap shareholders for £6bn to bolster its financial strength. Jenkins said the new finance director Tushar Morzaria, who joined a fortnight ago, would reassess each business line to assess how much capital they are using.

He refused to elaborate on the bank's legal disclosure that regulators are investigating foreign exchange trading "including possible attempts to manipulate certain benchmark currency exchange rates or engage in other activities that would benefit their trading positions".

The bank said: "The investigations appear to involve multiple market participants in various countries. Barclays has received enquiries from certain of these authorities related to their particular investigations, is reviewing its foreign exchange trading covering a several-year period through August 2013 and is co-operating with the relevant authorities in their investigations."

The investigations emerged after reports of allegations that traders at major banks were putting in client orders before a 60-second window when benchmarks run by WM/Reuters – and used by fund managers to value their investments – are set.

Jenkins said his new team – as well as a new finance director, he has a new retail head and new bosses of the investment bank – needed to "push harder" in the final quarter of the year and into 2014.

After being forced into the cash call by the Bank of England, Jenkins said the bank was continuing to "reassess the balance sheet for further leverage reduction opportunities consistent with preserving our strong franchises, supporting lending to the UK economy".

When he took the helm he had originally assessed 75 business lines in terms of reputation risks and said he would withdraw from some businesses. The investment bank – the traditional powerhouse of the business and once known as Barclays Capital – took a hit to income as a result and also suffered a fall in its fixed-income trading. Third quarter profits in the investment bank fell 53% to £463m, although the bank did not disclose any reduction caused by shutting down the controversial tax planning department known as structured capital markets.

Overall, in the third quarter, profits fell to £1.4bn from £1.9bn as losses in continental Europe widened. In the first nine months of the year Barclays's profits rose to £2.8bn from £962m, although this included the cost of buying back its own debt. The shares rose 3.5% to 274p in early trading.

Barclays is in discussions with its shareholders about ways to avoid an EU cap on bonuses being introduced by the EU at the start of next year by introducing a new allowance for its highest paid staff. It said the closely-watched compensation to income ratio at its investment bank – measuring what proportion of its income it was paying out to its staff – had risen to 41% from 40% and remains above its target of 35%.

Madame Tussauds owner prepares for multibillion pound flotation

Merlin Entertainments, owned by Lego family trust and Blackstone and CVC, expects to raise £800m in share offer

The owner of Madame Tussauds waxworks and the Legoland theme parks has launched the latest in a new wave of London flotations, in a move that will value the stakes of its private equity backers at billions of pounds.

Merlin Entertainments, which is 98% owned by the Lego family trust Kirkbi and the buyout firms Blackstone and CVC, said it plans to raise up to £800m via the share offer that will value it at up to £3.34bn.

The move is the latest in what is being seen as a revival in the London flotations market, coming after the privatisation of Royal Mail where investors have immediately made large profits. London has seen 61 flotations so far this year, according to the analyst firm Dealogic, raising a total of £8.7bn from floats that have included estate agent Foxtons and the insurer Esure. For the whole of last year, London flotations raised £3.5bn via 46 issues.

Merlin, which also owns Alton Towers, the London Eye, and Warwick Castle, is perhaps best known in the UK as the owner of the waxworks museum on Marylebone road in central London, which traces its UK roots back more than 200 years. Madame Tussaud brought her exhibition on tour to Britain in 1802, and established The Baker Street Bazaar in 1835, while the attraction moved to its current site in 1884. It claims to have received 500 million visitors since its creation.

Despite the waxworks being widely known, Merlin's other brands are its biggest money earners. In total the company runs 99 attractions across 22 countries, taking £1bn in revenue last year from 54 million visitors and making £98m of profit. Of those venues, six of Europe's top 20 most visited theme parks are run by Merlin, according to analysts Aecom, three of which – Alton Towers in Staffordshire, Legoland in Windsor and Thorpe Park in Chertsey – are based in Britain.

Now the holding company is set to go public, valuing the 36% stake currently held by Kirkbi at about £1.2bn, Blackstone's 34% at £1.1bn and CVC's 28% at £900m, although the firms will be cashing in £600m worth of shares. Merlin was last valued in 2010 when CVC acquired its stake, and the whole business was worth £2.25bn.

Senior management and around 2,000 employees, who will end up owning about 8% of the firm are also preparing for windfalls, particularly chief executive Nick Varney, and finance director Andrew Carr who completed a private-equity backed management buyout of the company in 1999 to create Merlin. Since then the group has acquired the Tussauds Group, which also included Chessington World of Adventures and Thorpe Park, plus the Italian theme park Gardaland.

"Our destiny was always to be a public company," said Varney as he recalled a previous aborted effort to float his management buyout, plus a series of different private equity owners, including Apax and Hermes, before settling on the current shareholders. "Being bought every three years can be disruptive. Now is the time for long-term share ownership".

It is also the time to re-jig its corporate structure that means the company is based in Luxembourg. The exact tax that the company pays in the UK, therefore, is tricky to find, although the company seems to have realised that such arrangements have the potential of upsetting its customers. It plans to domicile the company in the UK after the float, when it is understood that its effective tax rate will move towards 28%.

A spokesman said: "Merlin Entertainments pays the correct level of tax in the countries, or jurisdictions, in which we operate, in relation to our capital structure".

On the flip side, however, there are those who argue Merlin has been a huge contributor to the UK economy. A spokesman for VisitBritain, the national tourism agency, said: "Merlin attractions have brought more than a million pounds in revenue so far this year to VisitBritain's shop and around 14% of our sales have come from the top-selling Merlin products. Our sales figures suggest that Merlin's attractions continue to attract overseas visitors, with numbers showing no signs of abating."

Of the remaining flotation proceeds, around £200m will be used to reduce the group's debt, the company said, while the company also has unveiled expansion plans.

Next year Merlin will open a huge Madame Tussauds near Tiananmen Square in Beijing, while in the US there are plans for a Madame Tussauds and a "dungeon" for San Francisco, a Sealife Centre in Charlotte, North Carolina and a small indoor Legoland discovery centre in Boston.

Merlin plans to float up to 30% of its shares, with up to 15% targeted at members of the public. The group is also trying to tempt customers into buying the shares, by offering members of the public spending at least £1,000 on the shares a 30% discount for one year on theme park annual passes.

The discount has been dismissed as a gimmick by analysts – Merlin is currently offering the public a 25% discount on its website – but Varney insisted it was "a pretty good deal".

"We think that is a nice thing to offer to people who want to invest at a retail level," he said. "But the real reason to invest is to own a part of the company that owns Legoland, the London Eye and Madame Tussauds, which has got an expanding international footprint and a very strong growth trajectory."

Royal Mail workers call off one-day strike after talks progress

Union and management say new agreement will include an improved pay offer and separate pensions agreement

A strike planned by Royal Mail workers in the aftermath of the company's recent privatisation has been called off after unions and management said talks were progressing.

The Communication Workers Union (CWU) had given notice of a one-day strike by its 115,000 members in the postal service next Monday over issues including pay, pensions and the legal protections offered to employees.

However, in a joint statement issued on Wednesday afternoon, Royal Mail and the CWU said they had made progress in talks and committed to finalising an agreement in the next two weeks.

Workers had voted 4-1 in favour of industrial action in a ballot earlier this month, despite the company offering all staff a £300 bonus if they committed not to strike. Royal Mail had made an initial offer of an 8.6% pay rise over three years but an improved offer will now be made.

The new agreement will include legal protections for employees that extend beyond the current three years and a separate pensions agreement. According to the nine-point draft agreement, both parties also commit to "an agenda for growth underpinned by a culture of consensual change, timely decision making and industrial stability supported by alternative dispute resolution processes".

With controversial changes to the 500-year-old service being implemented, there was also a commitment to a "joint company/CWU charter shaping the ongoing values and principles of the Royal Mail Group".

Royal Mail agreed to extend the legal validity of the CWU's strike ballot until 20 November, giving the union the opportunity to still enact a strike if agreement is not finalised. But both parties pledged to "clear diaries to ensure all our efforts are focused on reaching an agreement by 13 November".

While Royal Mail staff will not be walking out, the 4,000 members of the CWU who work in the 372 crown post offices are still due to strike on Monday, in a separate dispute over pay, branch closures and job cuts.

Tuesday 29 October 2013

Rabobank faces £600m fine as Libor scandal resurfaces

Dutch mutual expected to become fifth financial institution to face huge penalty for attempting to rig benchmark interest rate

The Libor rigging scandal could be reignited on Tuesday when Dutch mutual Rabobank is expected to become the fifth financial institution to be hit with a huge fine for attempting to rig the benchmark interest rate.

The bank is thought to be facing fines of more than £600m from regulators on both sides of the Atlantic, who are continuing their investigations into alleged manipulation of the key interest rate.

London's Financial Conduct Authority (FCA) and regulators in the US are thought to be poised to levy larger than expected penalties on Rabobank, a co-operative-style institution whose roots lie in financing agriculture and which escaped the financial crisis without a taxpayer bailout.

The bank has been warning that it faced a fine for Libor rigging since the summer when it revealed it had made a provision of an undisclosed sum in preparation for the regulatory action.

The Libor scandal was first exposed in June 2012, when Barclays was fined £290m for its role in attempting to manipulate the rate; its top management was subsequently forced out. Since then Royal Bank of Scotland, Swiss bank UBS and the money broker Icap have been fined. UBS received the highest penalty of £940m.

Rabobank said last week that details of its punishment were getting closer to publication. "Various authorities have almost completed their investigation into Rabobank's role in the Libor and Euribor setting process," the bank said. "Rabobank expects to be able to enter into settlements with these authorities within the next two weeks. Rabobank is not yet in a position to comment on possible settlement amounts."

When it took a provision for Libor, it said it had been named as defendant in civil litigation in the US and that it would defend itself against any such claims.

At the time of the fine against Barclays City regulators said they were investigating seven other potential cases, which appears to indicate there are still three outstanding.

The regulator declined to comment on Monday night and Rabobank declined to elaborate on its previous statements.

Since the Libor scandal broke regulators have begun to scrutinise the way other benchmarks are set, such as those in the foreign exchange markets.

Earlier this month the FCA began an investigation that is expected to be on the scale of Libor after gathering information on the £3tn-a-day currency markets. The regulators are looking at the way traders may have been able to influence the way currency benchmarks are set and scrutinising the way energy markets operate.

HMRC confirms Google investigation during committee hearing

Officials are examining whistleblower's evidence but what effect, if any, it will have on firm's tax structuring remains unclear

Top HMRC officials effectively confirmed they were investigating the UK tax affairs of Google on Monday, giving evidence to the indomitable Margaret Hodge and her public accounts committee. Away from the Palace of Westminster, meanwhile, Google privately confirmed to the Guardian that an HMRC review of its intra-company dealings between operations in the UK, where many sales staff are employed, and Ireland, where UK sales are booked, was ongoing. In fact, it has been ongoing since at least 2010, or 2009 according to the recollection of Google's northern European boss Matt Brittin.

Not only is the investigation still live, but HMRC bosses on Monday confirmed their inquiries had been assisted by piles of documents received, via Hodge and her committee, from an ex-Google staffer turned whistleblower. "We have taken evidence from him and we took it very seriously," said Jim Harra, HMRC head of business tax. Without referring directly to Google, he added: "We always act upon it if there is evidence of non-compliance."

Harra's tone was in contrast to previous commentary from HMRC chief executive Lin Homer, who was unable to appear before MPs. At a hearing in May, however, she had bristled at suggestions from Hodge that the MPs were better able to get to the truth of Google's tax affairs than HMRC. "We see – but sometimes understand more fully – some of the issues that to the general public can look surprising," she told MPs through gritted teeth in May. "That is probably why some of what appears in public, while being known to us, may not lead to the same results that you would expect it to."

On Monday night, Google was still insisting privately that there was nothing in the whistleblower's evidence to suggest the search firm had underpaid UK tax.

Meanwhile, HMRC have clearly decided they want to be seen to be using this new information – but it remains to be seen if it can really help torpedo Google's tax structuring. Don't hold your breath.

UK retailers suffer sharp slowdown in sales, says CBI

Retail sales ground to a halt at the start of October – coming in well below City forecasts

Retailers suffered a sharp slowdown in sales this month, according to an industry survey that has cast doubt on the pace of the wider UK economic recovery.

After a strong run of growth, sales ground to a halt at the start of October and came in well below City forecasts, the CBI business group said.

The main sales balance in its monthly survey came in at +2, down sharply from +34 recorded in September and much lower than +33 forecast by economists in a Reuters poll.

The balance, which is the difference between the percentage of retailers reporting an increase and those reporting a decrease in sales, was the weakest since June and breaks a three-month run of strong sales growth.

Some economists said the slowdown underlined the pressures on households as lacklustre pay growth fails to match rises in living costs. If consumer demand remains weak, economic growth in the final three months of the year may fail to match the 0.8% reported for the third quarter in official figures last week.

But the CBI and other analysts said there were signs sales would soon bounce back. In particular, the business group emphasised that a majority of retailers were placing bigger orders with their suppliers.

Barry Williams, from Asda and chair of the CBI's survey panel, said: "Although the high street recovery stalled this month, there is optimism that it was just a blip on the previous run of three months' growth. Retailers expect sales to pick up next month."

For October, most sub-sectors saw sales growth slow, the CBI said. In particular, grocers saw the first year-on-year fall in sales volumes in eight months but there were some areas that enjoyed stronger trade.

"Signs are pointing towards increased consumer confidence – backed up by continuing growth in certain areas such as furniture and carpets; recreational goods; footwear and leather – all did particularly well in October," added Williams.

James Knightley, economist at ING Financial Markets suggested the surprise collapse in this month's sales balance was weather related.

"October has been far warmer than usual and as such demand for autumn/winter clothing has been very weak. As temperatures drop we should see demand for these items strengthen. In any case consumer confidence continues to strengthen while the pickup in the housing market appears to be supporting furniture and carpet sales," he said.

Howard Archer, an economist at IHS Global Insight, said the survey underlined the pressure on consumers, who are "taking at least a temporary breather".

"The survey fuels suspicion that GDP growth is likely to moderate in the fourth quarter from the robust 0.8% quarter-on-quarter expansion seen in the third quarter.

"With purchasing power currently being limited by consumer price inflation running well above earnings growth, it is likely that many people are feeling the need to rein in their spending at least temporarily, particularly if they want to build up their funds for spending over the Christmas period."

Monday 28 October 2013

House prices rising in every region in England – Land Registry

Official data showing house prices have increased 3.4% in a year on average reignites fears of housing bubble

House prices in every region of England rose in September, according to official data published on Monday which reignited the debate about the prospects of a new house price bubble.

The Land Registry data showed that even before the government accelerated the second phase of its Help to Buy mortgage guarantee scheme, prices had increased 3.4% in a year on average, and were higher than in September 2012 in all English regions. However, prices in Wales were down by 1.7% year on year and fell by 0.4% in September.

Howard Archer, chief UK economist at IHS Global Insight, said: "There is a mounting danger that house prices could really take off over the coming months, especially if already significantly improving housing market activity and rising buyer interest is lifted appreciably further by the Help to Buy mortgage guarantee scheme, which will take full effect in January."

Overall house prices in England and Wales continued to rise in September, increasing by 1.5% over the month to an average of £167,063, according to the Land Registry. This remained below the peak reached in November 2007, when average prices hit £181,839. There was also a jump in the number of homes sold for more than £1m.

The data, which does not include newbuild homes or those which have not changed hands since 1995 – but unlike other indices does include cash sales – covers the period before the launch of the second part of the government's controversial Help to Buy scheme earlier this month. The scheme gives a taxpayer-backed guarantee to lenders offering 95% mortgages that are open to first-time buyers and home movers on newbuild homes worth up to £600,000. Critics have argued it will further fuel an already rising market.

But the Land Registry showed discrepancies among the regions and within the regions. London's housing market experienced the greatest annual price increase in September, of 9.3%, and while all the English regions showed growth, some boroughs experienced falls. Hartlepool, for instance, recorded the greatest annual price fall, of 9%, while even within London there were variations.

Matthew Pointon, property economist at Capital Economics, said he was still doubtful that the boom in house prices seen in some areas of the capital would spread to other parts of the country. "House prices are already elevated, real earnings are falling and although mortgage lending is beginning to recover, there is no evidence banks are desperate to expand their mortgage books," he said. "That said, by stoking up expectations of a house price boom, the Help to Buy scheme does represent an upside risk to prices. And if prices rise without a surge in mortgage lending, the Bank of England will be less willing, and able, to use their new powers to take the heat out of the market."

The latest snapshot of the market shows that over the past 12 months, prices have increased by 3.4% on average, and are higher than in September 2012 in all English regions. In Wales, however, prices are down by 1.7% year-on-year and fell by 0.4% in September.

The Land Registry figures show that house sales increased by more than 15% in the early summer, with an average of 62,034 a month between April and July, compared with 53,698 in the same period the previous year.

The number of properties sold for more than £1m in July was up by a third on the previous year at 1,143, of which 801 were in London. The imbalance of demand for homes and properties on the market in some areas has been one factor driving up prices, and in London, where there are large numbers of would-be buyers, the Land Registry said prices were up by 9.3% annually and by 1.9% over the month. The monthly rise was larger in the north-east of England, which recorded a 2.7% increase; however, annually prices were up by just 1.3% to an average of £101,262.

In London, the average price of a home is now £393,462, the Land Registry said. However, prices and price inflation range widely across the capital. In Hackney, prices were up by 12.8% year on year, and by 1.2% in September, to an average of £474,202, while in Newham they fell by 2.5% over the year and 0.3% over the month to an average of £225,738. In the UK's most expensive borough, Kensington & Chelsea, prices rose by 7.5% over the past 12 months to an average of £1.16m.

Outside London, prices are still plummeting in some parts of the country. In Hartlepool they dropped by 2.1% over the month and were down 9% on the previous year, to an average of £76,597, while in Torfaen in south Wales prices dropped by 2.8% in September and by 6.9% over the year.

RBS boss faces results test as break-up looms

Release of third-quarter figures comes amid questions over whether government will recommend hiving off "bad" bank

Ross McEwan, the new boss of Royal Bank of Scotland, will present his first set of results to City analysts this week amid speculation about the future structure of the bailed-out bank.

McEwan, who replaced Stephen Hester at the start of the month, will oversee the release of third-quarter figures on Friday which are likely to be overshadowed by questions about whether the government will recommend hiving off a "bad" bank.

His presentation will come days after the Lloyds boss, António Horta-Osório, also presents third-quarter results amid focus on the share price. The Portuguese banker stands to collect 3m shares – worth £2.4m at current prices – next month if the share price remains above 73.6p until the middle of the month.

That price, which must be maintained for 30 consecutive days, is regarded as the level at which the taxpayer breaks even on its stake. It has traded over that price since mid-October. The government sold off the first tranche of its stake in the bank in September.

George Osborne has commissioned bankers at Rothschild to consider the merits of splitting up RBS into a bad bank containing problem loans and a good bank that can be more easily privatised.

As much as £120bn of the bank's loans is said to have been considered in the review which was sparked by the parliamentary commission on banking standards. Osborne signalled the review in his Mansion House speech in June, seeming to contradict his previous position on a potential break-up of RBS.

In an interview a week ago the chancellor said: "We are looking at the case for a bad bank, and if not a bad bank what is the alternative strategy that really gets on top of the problems in that bank and goes on being what I want it to be which is a bank supporting the British economy."

McEwan has already prepared staff for the outcome the Rothschild review, telling them that the organisational structure of the bank is less important than their day-to-day role in handling customers.

While the chancellor commissioned the report, the board of RBS will have to decide on its implementation. The bank has warned that the government could be prevented from creating a bad bank by other RBS shareholders, who would need to approve any such move.

McEwan is not expected to use the third quarter results to set out his vision for RBS, a bank he joined a year ago to run the high street operations before being promoted. His strategy update is expected to take place in February.

Co-operative Bank rescue by hedge funds deals blow to pioneers' dream

It was meant to be a genuine alternative to the big four, but now the Co-operative's banking arm looks just like its rivals

In an austere basement of a wool warehouse in Lancashire, 28 men huddled together. They had a goal: hard-working and aspirational, they wanted to find a way to help working people help themselves. They each put a week and half's wages – £1 – into a pot and formed a new group: the Rochdale Society of Equitable Pioneers. It was 1844.

Visitors to Rochdale are still reminded of the heritage of those pioneers, who used their £28 to set up a co-operative shop and invest the profits in community-owned housing. The houses still stand in the market town today and the railway bridge, in bold white letters, declares: "Rochdale – birthplace of co‑operation".

But last week, almost 170 years after the 28 pioneers started out on their mission, the future of the co-operative movement they founded was called into question. The Co-operative Group, now spanning grocers, funeral homes and pharmacies, was forced to relinquish control of its once-ambitious bank under pressure from two US hedge funds.

The race to fill the bank's £1.5bn capital shortfall – caused by bad loans and the poorly timed merger with Britannia building society in 2009 – forced the group to heed the demands of hedge funds who, along with other bondholders, will own 70% of the bank when it is listed on the stock market next year.

"Is that what the pioneers who formed the Co-op anticipated? That it would be in the hands of American hedge funds?" barked John Mann, the Labour MP, at the former boss of the Co-operative Group last week.

Former chief executive Peter Marks, who had spent 45 years at the Co-op, told Mann and the other members of the Treasury select committee: "It is a tragedy." More details about the terms that Silver Point and Aurelius have extracted from Co-op in gruelling late-night meetings were expected on Monday, but have now been delayed by another week.

Despite assurances that the bank's ethical stance – under which it has turned away £1.2bn of business since they were adopted in 1992 – will be enshrined in the listed bank, there are still doubts that the lender will be able to keep its values. "If it's not majority-owned by the Co-op any more, it's not credible to suggest that it's the same beast: it can't sacrifice profits for social goals any more," said Tony Greenham, head of business and finance at the New Economics Foundation. Marks was even blunter about the situation in his appearance before MPs: "It's not a co-op, is it."

In Rochdale, 55-year-old council worker and longtime Co-op customer Eric Holliday admitted to being "a little sad". He said: "It's a local tradition that we are losing."

It is not just a local tradition. Co-op boasts it has a presence in every postal code in the UK – largely as a result of its grocery stores, which expanded rapidly under Marks, who oversaw the takeover of Somerfield. Its farms can be found as far afield as Herefordshire, Norfolk and Perthshire, growing strawberries, peas and apples and making flour. It even brews its own cider.

Its ambitions spread to politics. It makes donations to the Co-operative Party – a sister party to Labour – which boasts 32 members of parliament, the highest-profile of which is shadow chancellor Ed Balls.

But Marks has raised questions about whether the group at which he spent his working life is trying to do too much. He stunned MPs when he said the interventions by the hedge funds could be "seen as a good thing". "In actual fact, it will force the Co-op to focus on fewer businesses and not stretch its capital in the way it has done," Marks said.

In some ways Co-op has all the accoutrements of big business: a swanky new £100m head office in central Manchester, glass-fronted and cylindrical, and big pay cheques for its bosses. Yet its management structure is stuck in the past. It has a board of 20 members – the height of democracy, according to the Co-op – but it does not allow a seat at the table for the chief executive.

Len Wardle, the university fellow who has chaired the Co-op Group since 2007, took the first steps last week to shaking up governance. He announced he would quit next year and that at this week's half-yearly board meeting he would try to convince his fellows to seek his successor from outside the movement.

Wardle is typical of the individuals who sit on the Co-op board. Andrew Tyrie, the Tory MP who chairs the Treasury select committee, describes it as an organisation "run by a plastering contractor, a farmer, a telecoms engineer, a computer technician, a nurse, a Methodist minister – who, incidentally, also chaired the bank – and two horticulturalists".

The former Methodist minister – Paul Flowers – will appear before Tyrie's committee next week alongside Barry Tootell, who quit in May when Moody's downgraded Co-op Bank to junk and began to lift the lid on its troubles.

It is all so different from a year ago, when the Co-op was picked to take control of 631 branches being sold by Lloyds Banking Group – a move that would have quadrupled its branch presence to 1,000 and made the enlarged bank a real competitor to the big four lenders.

Then, campaigners for mutuality were thrilled. Now they are being pragmatic and seeking solutions.

Greenham said: "[The Co-op bank] was a rather flawed model; you can't really judge mutuality on the basis of this one faulty example."

Chris Leslie, a Co-op MP who sees the organisation's travails as a "very sad saga", points to a private member's bill going through parliament that aims to find a way to help mutuals raise capital. Listed companies are able to achieve that simply by issuing shares. The bill is sponsored by Conservative peer Lord Naseby, who put his idea to Treasury minister Sajid Javid at a private meeting earlier this month. Naseby said: "What this does is allow a mutual to go to its members and appeal to them to take some equity out."

Grant and his friend Mark Dancer, a train conductor, had come from Machynlleth in mid-Wales especially to visit the recently renovated museum. Dancer once had a Saturday job stacking shelves in his local Co-op supermarket and remembers being taught the ethics and principles of co-operation as part of his induction: "We were taught why the Co-op is different," he said.

Now its 7 million members will be hoping that that difference, inspired by the pioneers, can survive the invasion of the hedge funds.

UK economic recovery built on shaky foundations - again

Growth will depend on easy money, rising debt and a temporary fall in inflation from falling food and commodity prices

Cast your mind back to the last year of Tony Blair's premiership. Growth is strong. The City is booming. House prices are rising. Boom and bust has been abolished. The shops are full to bursting.

Yet something is not right. The economy depends far too heavily on private and, to a lesser extent, public borrowing. Growth is heavily concentrated in certain sectors and in the south-east corner of the country, the manufacturing base is shrinking and the trade deficit is growing.

A book published just before Blair left Downing Street described Britain as Fantasy Island. Its thesis was that the economy was built on shaky foundations and that an almighty crash was coming. Full disclosure obliges me to record that I was a co-author of that book, for which the timing could hardly have been better as the financial crisis began within three months of its publication. My colleagues, somewhat harshly, said that even a stopped clock is right twice a day.

Six years on, it's worth asking what – apart from the arrival of a new government – has fundamentally changed. Is the UK in any better shape now than it was six years ago?

Here's the state of the nation. The economy grew by 0.8% in the third quarter of 2013, the fastest pace of expansion in just over three years. All four sectors, from tiny agriculture, which accounts for less than 1% of GDP, to services (77.8%), expanded, providing hope that the long-awaited recovery will be broad-based.

Scratch beneath the surface, though, and a different picture emerges. The service sector has just about regained all the ground lost during the recession of 2008-09, but the same cannot be said of industrial production and construction. After declining gently in the eight years leading up to the recession, industrial production subsequently contracted by 12% and after a double-dip downturn is now 15% below its peak. Construction has shown a similar profile. Activity flat-lined in the four years before the crash, dropped by almost 20% and is still 15% down even after the recent pickup.

As a result, the economy is even more sectorally unbalanced than it was before the financial crisis, and because the service sector is loaded towards the richer parts of the UK, more geographically skewed as well.

There are four ways in which an economy grows. Companies can decide they need new kit (investment); Britain can sell more overseas than other countries sell here (net exports); the state can play a bigger role (government spending) or households can spend more (consumption).

It has been the last of these sources of growth that has driven the rise in GDP since the turn of the year. Prices have been rising more rapidly than earnings, but that has not stopped consumers for going out on a bit of a spree. They have dipped into their savings and started to respond to the offers of unsecured lending, which, after a lull of a few years, have started to drop onto the doormat once again.

Consumer confidence has improved and the housing market has come back to life. Mortgage approvals are up, transactions are up and prices are up. The next thing to look out for is the return of equity withdrawal, borrowing against the rising value of a home.

When he was shadow chancellor, George Osborne used to express grave concern about what he considered Labour's flawed economic model. So did Vince Cable, in even more forceful terms. Accordingly, the strategy of the coalition was double-barrelled: less public and private debt, coupled with a greater reliance on investment and exports.

Things have not gone to plan. Business investment fell by 25% during the slump of 2008-09 and has flatlined ever since. Instead of splashing out on new plant and machinery, companies have employed more cheap labour to meet demand. Britain is a nation of zero-hour contracts and an ageing capital stock.

For the past three decades, UK trade has been the story of a growing deficit in manufactured trade offset by surpluses in oil, services and investment income. This picture has, however, changed in recent years. Oil can no longer be relied upon to balance the books and nor can investment income, which has declined markedly since the start of the financial crisis. A cheaper pound has made a slight dent in the deficit in goods, but weak growth in Britain's main market – the eurozone – has meant that the impact of the depreciation has been far more limited than in the past.

Britain has historically had a comparative advantage in traded services such as banking, insurance, consultancy and law, and runs a quarterly surplus of around £20bn. But this is still not enough to cover the deficit in goods, which runs at around £25bn a quarter.

Recovery begins with the nation's current account in a poor state, and the hollowing out of the UK's industrial base makes it a cast-iron certainty that a consumer-led recovery will suck in imports and crowd out exports.

Over time, these structural weaknesses in the economy will be exposed. In the short-term, however, the economy will continue to grow at a fair old lick. It is quite conceivable that a combination of easy credit, a pickup in investment and a recovery in world trade will lead to growth in excess of 3% next year.

Cheap borrowing will continue. The Bank of England has been surprised by the strength of the economy since its last inflation report in August, and Threadneedle Street is in no hurry to bang up interest rates too quickly, for fear of choking off the recovery.

Investment is the big imponderable. If businesses believe the increase in consumer demand or world trade is for real, they might decide the time is right to invest more. Parts of the corporate sector are cash-rich, so this might happen. But only if firms are sure that the brakes are not going to come on after the general election, when the Bank of England may decide to do something to rein in the housing market.

A big boost from world trade looks unlikely for the time being. Europe has a broken-backed banking system, the US a dysfunctional political system and the expansion of China and some of the other leading emerging nations is starting to slow. Ahead of the financial crisis, the global economy was growing at 5% a year. The new normal is around 3% a year, making an export-led recovery problematic.

Most likely, growth will be dependent on easy money, rising debt and a temporary fall in inflation prompted by falling food and commodity prices. It may take a couple of years before Britain again steams into the harbour on Fantasy Island, but if you look toward the horizon it's easy to see the palm trees swaying in the breeze.