The great Royal Mail sale: 700,000 want shares

Government reveals that sell-off is seven times oversubscribed, fuelling criticism that price is too low

More than 700,000 people have applied for shares in Royal Mail, the government has revealed, reviving privatisation fever last seen in the 1980s and intensifying fears that the postal service is being sold too cheaply.

Vince Cable, the business secretary, said the public had placed orders for more than seven times the number of shares available to them. Small investors could have bought the entire company if 70% of the shares on sale had not been reserved for City investors and pension funds.

"We haven't yet got the final figures but my very rough estimate is that we've had about 700,000 applications and it's about seven times oversubscribed," Cable told MPs. The huge demand for the shares means that applications are bound to be scaled back.

Those applying for the minimum £750 of shares may be the only ones to get what they have applied for while those who applied for shares worth thousands are expected to get just a fraction of what they had wanted.

The frenzy for the shares – fuelled by expectations of an immediate paper profit of 20% to 30% when trading begins on Friday – is more intense than demand for British Gas or British Telecom was at the height of the privatisation drive in the 1980s and 1990s.

The public put in orders for just four times the number of British Gas shares available in its 1986 privatisation despite its multimillion-pound "Tell Sid" advertising campaign. The privatisation of BT in 1984 was 3.2 times oversubscribed. More than 4 million people applied for British Gas shares, while 2 million applied for BT shares.

Cable said he was confident the shares had been "priced in the right place" despite claims from City analysts that the government undervalued the company by more than £1bn.

The business secretary said the claim by stockbroker Panmure Gordon that Royal Mail is worth £4.5bn compared with the government's maximum valuation of £3.3bn was "way outside the estimates of most of the equity analysts".

The shares will almost certainly be priced at 330p and will make their debut on the stock market on Friday. Stockbrokers predict the shares could rise to between 385p and 405p on the first day. A rise to 400p would mean investors would make an immediate 21% paper return.

If the shares rise by 20% on Friday, £750 of shares will be worth £900 by the end of the afternoon. It also means the government will have lost out on collecting an extra £400m for taxpayers on top of the £2bn it will collect from selling the 60% stake of Royal Mail. A further 10% is being given to the company's 150,000 employees – each will collect shares worth about £2,200.

Cable said people should ignore the immediate "froth" of the expected share price jump on Friday and concentrate on Royal Mail's secure long-term future on the public market.

Ian Murray, the shadow minister for postal affairs, said: "I don't think taxpayers losing millions is froth."

Selling Royal Mail, which traces its roots back to a forerunner founded by Henry VIII in 1513, has been on the political agenda for decades. Margaret Thatcher, the pioneer of privatisation in the 1980s drew the line at Royal Mail, saying famously that she was "not prepared to have the Queen's head privatised". But both the Tories' Lord Heseltine and Labour's Lord Mandelson tried, and failed, to sell it.

The sale now comes despite massive opposition from staff, 96% of whom are adamantly against the sell-off despite picking up free shares. Royal Mail's army of 150,000 workers are currently balloting on holding days of paralysing strike action in the runup to Christmas.

Because the shares are so oversubscribed orders from the public as well as from banks are likely to be significantly scaled back. The government is likely to honour all public orders for the minimum £750 of shares, but larger orders will be severely cut back. Michael Fallon, the business minister, has said he is committed to making sure small investors "get their fair share" of Royal Mail shares.

The government has only committed to granting 30% of the £2bn of shares available to the public but the government refused to say whether a greater proportion of the shares on offer will be transferred to the public rather than institutional investors.

The 30% earmarked for the public would work out at only £857 each if split evenly between the 700,000 applicants. A government spokesman said the exact details of how the shares will be distributed will not be announced until Friday morning.

On top of the massive public demand, hedge funds and other institutional investors are understood to have placed orders for more than £30bn of Royal Mail shares.

Cable said institutional demand was so strong that the government would be able to block shares from going to "spivs and speculators" in favour of "responsible long-term institutional investors".

"We are in a position to ensure we do get the right type of investor community – pension funds insurance companies that hold the savings of millions of people," he said. "That's the type of community we want."

Cable said demand from institutional investors at the maximum 330p is so strong that hedge funds and other speculators "in it to make a killing" are unlikely to end up with any shares in the flotation. "The aim is to place the shares with long-term investors, we are absolutely confident that will happen."
Article Source : http://www.guardian.co.uk
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Jury selection begins in trial of Bernard Madoff's former employees

Prosecutors accuse defendants of helping Madoff operate a fraud over decades that caused more than $17bn in losses

The trial of five former employees of imprisoned swindler Bernard Madoff began on Tuesday with questions for dozens of potential jurors, including whether they were familiar with some of the most famous victims of the multibillion-dollar fraud.

About 200 juror candidates filled the ceremonial courtroom in federal court in Manhattan, the judge asking each defendant, their lawyers and the prosecutors to stand and turn slowly as she introduced them.

Prosecutors accuse the defendants of helping Madoff, once a respected investment manager, operate a fraud over decades that caused more than $17 billion in losses. Madoff, 75, is serving a 150-year prison sentence after pleading guilty in March 2009 in a case that shook public confidence in regulators.

The prosecution said the five created false records and fabricated exotic-sounding transactions to fool investors and regulators. All have pleaded not guilty to dozens of charges, including securities fraud and conspiracy to defraud Madoff's clients. Some have indicated in court filings that they were unaware of the fraud, or that Madoff fooled them.

On Tuesday, US district judge Laura Taylor Swain asked the potential jurors if they were familiar with famous reported victims of Madoff's swindle, including Steven Spielberg, Kevin Bacon and Zsa Zsa Gabor, and New York Mets owner Fred Wilpon.

While Madoff, who was arrested in December 2008, said he acted alone, prosecutors have charged 15 of his associates. Of them, nine have pleaded guilty and six, including the five on trial, have pleaded not guilty.

The defendants on trial are Daniel Bonventre, the director of operations for the firm's back office, who started working for Madoff around 1968; Annette Bongiorno and Joann Crupi, who managed clients' investment accounts; and computer programmers Jerome O'Hara and George Perez.

All except Bonventre previously declined plea offers from prosecutors, their lawyers told Swain at a hearing on Tuesday morning before jury selection began.

Selecting 12 suitable jurors and six alternates for what is expected to be a five month trial could take days.

The judge also queried dozens of potential jurors on where they lived, what they and their family did for a living and entertainment they enjoyed.

"Nothing really, not since Two and A Half Men's not on," a man from Westchester County said when asked about what he watched on television.

Potential jurors included a part-time art teacher, a hospital worker and a theater student.

Swain said she would address on Wednesday the question of whether the jury will see a video of Madoff speaking to a conference in October 2007, about a year before his firm imploded.

Eric Breslin, a lawyer for Crupi, asked in a court filing on Monday for permission to show the videoduring opening arguments, saying it shows Madoff's "power and believability; the aura of confidence he exuded."

Article Source : http://www.guardian.co.uk

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IMF urges George Osborne to spend on infrastructure

Fund triggers fresh dispute between chancellor and Ed Balls about impact of austerity programme on recovery

The International Monetary Fund is urging George Osborne to boost spending on Britain's infrastructure despite revising upwards its forecast for UK growth by more than for any other developed country.

In a generally downbeat assessment of the state of the global economy, the Washington-based fund said it now expected the pace of expansion to be significantly higher than three months ago.

But it triggered a fresh dispute between Osborne and his Labour shadow Ed Balls over whether the government's austerity programme had helped or hindered recovery from Britain's deepest recession of the postwar era.

The fund's half yearly world economic outlook cut its forecast for global growth in 2013 and 2014, blaming the impact of ham-fisted attempts to cut the budget deficit in the US and a slowdown in top emerging market economies. But it said the UK had bucked the trend, revising its estimates of growth up by 0.5 points to 1.4% in 2013 and by 0.4 points to 1.9% in 2014.

The IMF embarrassed the chancellor in its WEO in April this year, when it called on the UK to ease up on its austerity plans in order to boost the recovery prospects. Although theCity expects growth of about 1% in the third quarter, the fund repeated its call for higher public spending.

"In the UK, recent data have shown welcome signs of an improving economy, consistent with increasing consumer and business confidence, but output remains well below its pre-crisis peak", the fund said.

It encouraged Osborne to take advantage of cheap borrowing to improve the UK's infrastructure, something it said could be done without jeopardising the government's budget plans, saying: "In an environment of still-low interest rates and underutilisation of resources, public investment can also be brought forward to offset the drag from planned near-term fiscal tightening, while staying within the medium-term fiscal framework."

A spokesperson for the Treasury said: "The IMF has confirmed that the UK economy is turning a corner, by revising up its forecast for growth over the next two years by more than for any other G7 economy. But risks to the global economy remain high, and the recovery cannot be taken for granted. That is why the government will not let up in implementing its economic plan, which has cut the deficit by a third, kept interest rates near record lows and created over a million and a quarter jobs."

Olivier Blanchard, the fund's economic counsellor and chief economist was challenged at a press conference about his comment six months ago that the chancellor was "playing with fire" by pressing ahead with deficit-cutting plans. Blanchard said he had been "pleasantly surprised", by the stronger-than-expected growth in the UK. However, he insisted that the recovery had not, "settled the debate" over the right fiscal policy. "It doesn't tell us if the pace of fiscal consolidation was wrong, or if growth could have come back earlier with a different fiscal framework".

Balls said Britain was experiencing the slowest recovery for 100 years and called on the government to take action to boost growth.

"Despite these welcome changes to its forecasts, the IMF rightly warns that the UK economy will remain below potential for many years. That's why the IMF has repeated its view that the government should bring forward infrastructure investment now, which could be used to build thousands of affordable homes," he said.

The IMF now expects the global economy to expand by 2.9% in 2013 and 3.6% in 2014 – down by 0.3 and 0.2 points respectively on its last predictions, made in July – despite stronger growth in the UK and signs of recovery in the euro area.

"Global growth is still weak, its underlying dynamics are changing, and the risks to the forecast remain to the downside," the fund said in its World Economic Outlook (WEO). It pointed out that growth had slowed markedly in the bigger developing economies, cutting its 2014 forecasts from 7.7% to 7.3% in China, from 6.2% to 5.1% in India and from 3.2% to 2.5% in Brazil.

The fund warned that the budget row in Washington would have dire consequences if it escalated and resulted in America defaulting on its debts.

Blanchard said growth had been "hobbled" by excessive deficit-reduction action and described across-the-board spending cuts as a "bad way" to improve the US public finances.

"If there was a problem lifting the debt ceiling, it could well be that what is now a recovery could turn into a recession, or even worse."

Article Source : http://www.guardian.co.uk

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