Azure Global : September 2013

Thursday, 26 September 2013

GDP grows 0.7% as UK economy shows steady recovery

Manufacturing and construction estimates were upgraded while GDP figure for second quarter unrevised at 0.7%

Britain's economic recovery is on a steady course after stronger-than-expected growth in manufacturing and construction output offset falls in consumer and government spending during the second quarter of the year.

The Office for National Statistics said GDP was unrevised at 0.7% in the three months to the end of June and the trade deficit narrowed to £5.5bn from £6.3bn in the first quarter, leading several analysts to forecast even stronger growth in the second half of the year.

The improving picture will add to pressure on the Bank of England to explain its new policy of forward guidance, which has set a target for unemployment that it says is likely to be reached in 2016, but could arrive earlier should this year's rise in GDP be maintained.

Chris Williamson, chief economist at the financial data provider Markit, said: "The UK economic recovery gained momentum in the second quarter, and a further acceleration of growth looks likely in the third quarter in what's looking like an increasingly broad-based and sustainable-looking upturn."

The ONS said industrial production rose 0.8%, upgraded from 0.6%, while manufacturing output jumped by 0.9%, up from a previous estimate of 0.7%. Construction output surged 1.9%, up from a prior estimate of 1.4%.

However, Vicky Redwood, chief UK economist at Capital Economics, pointed out that much of the rise in these sectors was accounted for by stock building rather than sales.

The reliance on stock building for growth was emphasised by a more modest rise in household spending of 0.3%, while export growth slipped to 3.0% from the previous estimate of 3.6%.

Redwood said: "The breakdown now looks a bit less favourable than before. In particular, stock building is now thought to have accounted for about a third of the rise in GDP, whereas the contributions from consumer spending, investment and net trade have all been revised down.

"And there are some other slightly disappointing revisions. The annual rate of GDP growth in the second quarter has been revised down from 1.5% to 1.3% and GDP growth in 2012 has been nudged down from 0.2% to 0.1%.

"There are clearly still reasons to be cautious about assuming that the recovery can maintain its recent impressive pace," she said.

Williamson said he recognised that the underlying picture was not all rosy, especially following a steep downward revision to business investment. Instead of growing 0.9%, investment fell 2.7%.

"However, the extent of the revision and the volatility of these numbers should perhaps be seen more as a reminder of how unreliable the GDP statistics can be rather than a genuine cause for concern at this stage."

Annalisa Piazza, a UK economist at Newedge Strategy, said: "Looking ahead, we see chances that GDP might even be stronger, with a 1% quarter-on-quarter [rise] pencilled in for the third quarter.

"That said, the solid performance of UK GDP doesn't seem to convince Bank of England monetary policy committee members that the country needs a less accommodative policy stance.

"In a recent speech, the MPC's Paul Tucker suggested that the UK recovery will remain bumpy. Policymakers are clearly still concerned about the UK's slow productivity growth and the possible negative effects on the labour market. Such a scenario is consistent with the current policy stance."

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

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JP Morgan boss in talks over penalty fine for sub-prime bond sales

Bank's Jamie Dimon may have to settle on record $11bn penalty following recent $920m fine over 'London Whale' incident

The boss of America's biggest bank, JP Morgan, was on Thursdaypersonally negotiating a new financial settlement with US regulators over allegations stemming from the way the bank sold sub-prime mortgage bonds before the banking crisis. The settlement could reach a record $11bn (£7bn)

Jamie Dimon, one of the few bankers still at the helm of a big bank following the 2008 financial meltdown, turned up for face-to-face talks with the US attorney general, Eric Holder, at the department of justice in Washington. The negotiations prompted fresh speculation that Dimon will be forced to agree to a payout bigger than the $4.5bn paid by BP over the Gulf of Mexico oil spill.

There are suggestions JP Morgan could be forced to make $4bn of payments to consumers and $7bn of penalties to cover losses incurred from the way mortgages were packaged by JP Morgan as the financial crisis took hold.

The new payout negotiations come only a week after JP Morgan was fined $920m by regulators in the US and the Financial Conduct Authority in Britain over the $6.2bn trading losses that became known as the "London Whale" incident a year earlier.

In an unusual move, JP Morgan admitted wrongdoing and was accused of "unsafe and unsound practices" in derivatives trading taking place in the so-called chief investment office. On the same day the bank was forced to hand over $390m in fines and refunds for overcharging credit card customers.

If the new payout reaches $11bn the bank will have had to pay $30bn in fines and settlements over the past four years. It has already incurred $17.3bn in regulatory fines in the three years to 2012 and in recent regulatory filings – which contain 10 pages of legal disclosures – the bank estimated it faced a possible $6bn of further costs. The sums being discussed in Washington would be well in excess of that figure.

The timescale for concluding the discussions is so far unclear owing to the complexity of the issues and the number of US authorities involved. They include not just Holder's justice department but also the New York attorney general, the securities and exchange commission and federal housing departments.

During the crisis, JP Morgan stepped in to take over Washington Mutual and Bear Stearns and Dimon was viewed as one of the only bankers to have escaped the crisis with his reputation intact. However, the string of punishing regulatory scandals has now put him under pressure.

When US prosecutors levelled criminal charges against former JP Morgan traders in relation to the Whale incident, Preet Bharara, New York attorney general, said: "This was not a 'tempest in a teapot' [a phrase used by Dimon to describe the incident when it emerged], but rather a perfect storm of individual misconduct and inadequate internal controls."

After the Whale fine, Dimon warned that "in the coming weeks and months we need to be braced for more to come" amid speculation that his relationship with regulators is deteriorating.

Even if a settlement can be reached over the way sub-prime mortgages were packaged and sold to investors ahead of the banking crisis, JP Morgan faces a string of other potential wrangles. It is not clear if some of these could be part of the current talks.

Some of the problems related to the takeover of Bear Stearns and Washington Mutual which were big players in the once lucrative business of packaging up mortgages into what looked like safe investments. When the credit crunch hit in 2007 the value of these products collapsed and left holders with large losses.

Dimon, who earlier this faced down calls for his roles as chairman and chief executive of the bank to split, has been softening the ground for hefty settlements in recent weeks. In a staff memo last week he wrote that since 2012 more than 4,000 extra staff had been assigned to risk, compliance, legal and finance departments with an extra $1bn being spent on controls. Staff have undergone 750,000 hours of training on compliance procedures.

JP Morgan fines and settlements: the last two years

2011 Hands over $228m to settle allegations that the bank manipulated the bidding process for municipal bonds

2012 Among five banks made to pay $25bn in penalties and compensation over the robo-signing scandal (illegal repossession procedures which evicted many people from their homes unecessarily or prematurely)

2013 Among 13 banks that have to pay $9bn in cash and other help to homeowners over the robo-signing scandal

2013 Hands over $920m in fines relating to its lack of internal controls in the wake of the $6bn trading loss run up by the "London Whale" trader

2013 Hands over $410m to settle allegations of manipulating the electricity market in California

2013 Hands over $390m in fines and rebates for overcharging credit card customers

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

Bank of England holds off action on house prices despite bubble fears

FPC will 'closely monitor' property market, while FCA will assess vulnerability of hedge funds to rate changes

The Bank of England has stepped back from taking immediate action to cool the housing market but is monitoring property values closely afterhouse prices returned to their pre-crisis levels.

The Bank's financial policy committee, which meets quarterly to assess risks to the financial system, said it is also reviewing work by the Treasury on preventing the risk of cyber-attacks to the banking industry and stepping up its assessment of the vulnerability of hedge funds to sudden changes in interest rates.

At a time when George Osborne's housing market schemes are raising concerns about sharp rises in house prices – particularly in London – the FPC said it would "closely monitor developments in the housing market and banks' underwriting standards".

"The committee would be vigilant to potential emerging vulnerabilities," it said in a statement released following its meeting on 18 September. The committee, which is chaired by Bank of England governor Mark Carney, said if it did decide to deploy any of its powers to cool the market – such as forcing banks to hold more capital – it would do so gradually.

But while it is not moving immediately to cool the housing market, the FPC has been assessing the impact that sharp upward moves in long-term interest rates could have on households and major financial institutions.

While it concluded that there was no immediate threat to banks and insurance companies it wants more information about the impact on hedge funds, which borrow money to take bets on stock markets, currencies and commodities.

The City regulator, the Financial Conduct Authority, will now assess the "potential amplification" through the financial system of interest rate changes – or perceptions of interest rate changes that may be caused by central bank policies on reducing the stimulus currently being pumped into markets to keep interest rates low.

"The levels of leverage within, and therefore the vulnerability of, hedge funds needed to be looked at more closely," the FPC said.

The FPC's comments on the housing market will be closely watched by the market as the chancellor has insisted he is not creating a housing bubble – even though property prices have broken through their pre-crisis peak. The average price of a UK house has passed the peak five years ago of £245,000 but Osborne has said the FPC will have powers to stop any over-inflation in house prices.

The FPC noted that while mortgage approvals in July were 30% higher than a year earlier and average house prices in August were 5% higher, activity in the housing market was nevertheless below historic averages. "Households' debt servicing costs were low and the ratio of house prices to earnings was at its level of a decade ago," the FPC said.

The committee said it could force banks to change their lending criteria, impose additional capital requirements and make recommendations to the regulators on tightening affordability tests for borrowers.

Martin Beck, UK economist at Capital Economics, said it was reasonable for the FPC to hold back on intervention even though house prices compared with earnings are still above the level of the 1980s housing boom. "This growing unaffordability should act as a natural check on house price growth. There is no suggestion that banks are about to return to the very loose lending conditions of the mid-2000s, with 110% mortgages and self-certified loans. So the workings of the market may stay the hand of the FPC in having to intervene."

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

Strong carpet and furniture sales boost UK retailers, CBI says

Shops and stores had a better September than expected as the recovering property market affected rest of economy

Sales of furniture and carpets are rising strongly as the impact of Britain's recovering housing market affects the rest of the economy, the CBI has said.

The latest snapshot of retailing from the employers' organisation showed that shops and stores had a better September than anticipated and expect the improved trading environment to continue into October.

The pickup in activity was led by the furniture and carpets sector, where for the first time since 1996 every one of the retailers questioned by the CBI said sales were higher in September than a year earlier.

But the monthly distributive trades survey found that the pickup was broad based, with grocers and retailers selling recreational goods also reporting strong growth in sales volumes.

Overall, 46% of the 111 firms questioned said business was better than in September 2012 while 12% said it was worse. The balance of +34% was the highest since June 2012 and was accompanied by retailers placing more orders with suppliers.

Barry Williams, Asda's chief merchandising officer for food and chairman of the CBI distributive trades survey panel, said: "It's encouraging to see the high street on the road to recovery, with particularly strong growth from furniture and carpet retailers, department stores and recreational goods retailers.

"But the retail sector is not out of the woods yet with consumer confidence still fragile despite the rise in spending."

The CBI reported that 22% of retailers said sales volumes were above average for the time of year, while 10% said they were below average. The balance of +12 points was the highest since December 2010.

David Tinsley, economist at BNP Paribas, said: "The most obvious caveat to reading too much into this survey is that the relatively good result in August was not reflected in the official retail sales data for that month, which fell 1%. Still, the broad momentum of sales appears firm and upwards. And the CBI survey suggests this remains the case."

Richard Lowe, the head of retail and wholesale at Barclays, said: "Retail sales have grown for the third month running, and these strong figures will no doubt provide a fillip for the high street.

"Retailers will now be hoping for more seasonal weather to help sales of new autumn/winter collections and for consumer confidence to tick up as we head towards the crucial Christmas trading period".

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

Icap fined £55m as ex-staff charged over Libor rigging

Former Tory treasurer Michael Spencer runs into political row as firm he founded given stiff penalty and ex-employees charged

The City dealer run by former Conservative party treasurer Michael Spencer has been fined £55m by regulators and three of its former employees charged with criminal offences in the United States as part of the global investigation into Libor rigging.

Spencer said he regretted the actions of the three – one of whom was known to colleagues as "Lord Libor". Regulators hit the Icap money broking firm he runs with huge fines and released pages of embarrassing email exchanges showing offers of a curry night out, a Ferrari and "bubbly on its way" in return for moving the yen Libor rate.

One of the City's highest profile figures, Spencer was drawn into a political row as the Labour MP John Mann called for his donations to the Conservative party to be handed to the armed forces charities where Libor fines are sent.

Labour's vice-chairman Michael Dugher also called for the money to be returned. "David Cameron fought tooth and nail to avoid launching a proper inquiry into the scandal of rigging interest rates, the very scandal which has now engulfed one of his big donors – a man who has given him nearly £5m," Dugher said. "It just goes to show what we already knew. In the end it's a privileged few whose voices he hears, and whose interests he acts in."

Each of the one-time employees – Darrell Read, who lives in New Zealand, Daniel Wilkinson and "Lord Libor", Colin Goodman – face 30 years in jail for each of the three charges levelled against them by the US department of justice (DoJ). They have been charged with conspiracy to commit wire fraud and two counts of wire fraud. In the US a criminal complaint is not evidence and a defendant is presumed innocent until convicted.

Spencer's tenure as treasurer of the Conservative party overlapped with the period of the fines – between July 2006 and December 2010 – but he claimed that this was not relevant. Even if he had not been holding the senior political role Spencer said: "I can't believe I'd have been able to pick it up."

A Tory official said the demands to repay Spencer's donations were "nonsense".

Spencer has attended a series of dinners in Downing Street and close links with the party since leaving his post as co-treasurer. Last year he was described as a personal friend of the prime minister by cabinet minister Francis Maude.

Spencer described the 10 former and current employees as "rotten apples" but acknowledged the desk on which they worked had never been audited during the relevant four-year period.

Announcing the latest development in the Libor scandal, which erupted in June 2012 when Barclays was fined £290m, Scott Hammond, deputy assistant attorney general for the antitrust division's criminal enforcement programme, said: "In exchange for bigger bonus checks, the three defendants undermined financial markets around the world by compromising the integrity of globally used interest rate benchmarks."

Icap, in which Spencer and his family own a 16% stake worth £400m, will pay £14m to the Financial Conduct Authority. It is the FCA's fourth fine for Libor rigging and first against a non-bank. The remainder of the £55m will go the US authorities.

According to the FCA one of the brokers received £5,000 every quarter in "corrupt bonus payments".

The regulators link the activities to those of UBS, the Swiss bank which has so far faced the largest Libor fine of £940m. The DoJ's complaint names former UBS trader Tom Hayes as a "co-conspirator" in its charges against former Icap employees along with "others known and unknown".

According to the FCA, which does not name individuals, there were 300 written requests to change Libor rates to brokers at Icap, and more orally which were harder to chart.

Libor – the London interbank offered – is a benchmark rate based on submissions by major banks about the price they think rivals would charge them to borrow money over different periods of time. It in turn is used a benchmark against which £300tn of financial contracts around the world are set.

According to the DoJ, Goodman distributed a daily email to individuals outside of Icap, including derivatives traders at several large banks as well as those responsible for providing Libor submissions to the British Bankers' Association. The BBA is now being stripped of its involvement in the rate.

Goodman's email contained what were termed his "SUGGESTED LIBORS", purported predictions of where yen Libor ultimately would fix each day across eight specified borrowing periods. Read and Wilkinson, along with Goodman himself, often referred to Goodman as "Lord Libor"," the DoJ said.

Spencer did not rule out taking a bonus for this year but said top executive payouts would be affected. "None of the three individuals at the centre of the activity remains with the firm. Others are either no longer with the company or are being disciplined," he added. "We deeply regret and strongly condemn the inexcusable actions of the brokers who sought to assist certain bank traders in their efforts to manipulate yen Libor. Their conduct contravenes all that Icap stands for."

'Will buy you a Ferrari if you move 3 month up'

Desk head: "Lord Baliff, I would suggest a lunch over golden week. Monday or Tuesday, if you are around ... As for kickbacks etc, we can discuss that at lunch and I will speak to [senior yen trader] about it next time he comes up for a chat."

Trader: "OK with an annual champagne shipment, a few p*** ups … and a small bonus every now and then."

Broker: "How about some form of performance bonus per quarter from your b bonus [sic] pool to me for the Libor service …"

Derivatives broker: "Morning Lad, on the scrounge again, if possible keep 3 [months] the same and get 6 [months] as high as you can. My guy … will want it has high possible. Waiting for my credit card to get returned to me from a drunken night out bowling but will be supplying you with copious amounts of curry on it's imminent return.

Derivatives broker: "Make 6m go lower! They r going up. [Trader] will buy you a Ferrari next year you move 3 [month] up and no change 6 [month]"

Derivatives broker: "brooliant!! they are making fortunes with these high fixings!!! :-)

Trader told broker that he "need[ed] high at the start of Oct". Broker replied: "Gotcha … just give me a 'wish list' at the start of each day."

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

Wednesday, 25 September 2013

Lamborghini targets India's super-rich with New Delhi showroom

Sports carmaker hopes to sell 20 cars in India this year, despite potholed roads and high taxes on luxury vehicles

Luxury carmaker Lamborghini has opened a second showroom in India, in a bid to accelerate sales in Asia's third largest economy, amid a crackdown on flashy goods in China.

The maker of the gas-guzzling sports cars that cost up to $500,000 (£312,000) each expects to sell 20 cars in India this year, up from 17 in 2012 and 15 in 2011.

Lamborghini, which is owned by Volkswagen, thinks India's super-rich have an appetite for their expensive cars, despite the country's high taxes on luxury vehicles and notoriously potholed roads.

Speaking at the opening of the showroom in New Delhi, Lamborghini's chief executive, Stephan Winkelmann, said India was an opportunity for the future. "We hope that sooner or later, in terms of taxation, in terms of infrastructure, this is going to be easier to market, and then you have the opportunity to grow in numbers," he told Reuters.

He admitted that the company has more Indian customers outside the country than inside, in part because the traffic and roads "are not so suitable".

In India, Lamborghini sells two models: the Gallardo, and the Aventador, which has a top speed of 217mph.

Winkelmann said Lamborghini's Indian customers were "much younger" than those in Europe, with a typical buyer being a first-time entrepreneur in their 30s.

India is still a long way from offsetting falling sales in China, which is Lamborghini's second-largest market behind the US. The combination of the Chinese authorities' crackdown on lavish spending by government officials and the slowing rate of economic growth are curbing sales of luxury goods, from gems to handbags to fast cars.

"China, for us, is a challenge right now," Winkelmann said. "What the government is doing, for the time being, [means] it is a little difficult to buy these type of goods."

The Bologna-based company, founded by tractor magnate Ferruccio Lamborghini in 1963, sold around 230 cars in China in 2012, 11% of its total sales for that year. Lamborghini expects to sell 2,000 cars worldwide in 2013, slightly down on last year.

But analysts do not expect the Chinese market for premium cars to be restrained for too long. McKinsey expects that 3m of the cars sold in China in 2020 will be "premium" – such as Lamborghini, Ferrari, Mercedes Benz and Audi – compared with 1.25m in 2012.

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

How BlackBerry buyout could bear fruit

The man billed as Canada's answer to Warren Buffet is preparing to take a gamble on technology industry basket case

BlackBerry is changing fast: not so long ago, it was a go-go smartphone firm with two bosses and two private jets. Now, following the collapse in sales, there is just one boss and this week it emerged that his (new and bigger) jet will soon be sold. Further down the food chain, however, the changes have been more painful. Come next summer, the firm will employ 9,500 fewer full-time staff than it did in 2012.

But by then, Canada's biggest technology group may no longer exist in its current form. Prem Watsa, the hedge fund boss with an appetite for distressed assets, is ready to spend $4.7bn taking BlackBerry private. The man billed as Canada's answer to Warren Buffet is preparing to take a gamble on the technology industry's biggest basket case.

Opinion is divided on whether Watsa's hedge fund and insurance group, Fairfax, will actually succeed in raising the required funds. But if BlackBerry is privately acquired, there are those who believe the time has come for it to stop making its email phones completely, and focus instead on less competitive fields.

"It is very difficult to see how BlackBerry's devices business is sustainable in the long term," says Ben Wood, chief of research at CCS Insight. "A BlackBerry is a phenomenal phone for email but the world has moved around them."

In the last quarter, it has been marketing improved phones. But it has been aiming at a largely uninterested public and the effort put a $500m dent in BlackBerry's kitty. It now has cash reserves of just $2.6bn to see it through the tough times ahead, which at the current rate of spending will not last long.

"We estimate that without another major round of layoffs, BlackBerry may run out of cash in 12 to 24 months," Mark Sue, an analyst at RBC Capital Markets, predicted. He warned up to 3,000 more jobs may need to go "to right-size the organisation".

If Watsa's offer materialises, investors are being urged to accept it. "It's still a long shot that new owners can turn the company around," said Kris Thompson at National Bank in Montreal. "Shareholders should take the money and run."

Apple and Samsung are too far ahead. Nokia is bailing, selling its phones arm to Microsoft. Sony is still trying, with some success, to kindle interest in its handsets. But these are all multinationals whose activities range from making fridges and televisions (Samsung) to Hollywood studios (Sony), to one of the biggest digital shopfronts for music and TV series (Apple's iTunes).

Like the troubled Taiwanese specialist HTC, BlackBerry no longer has the cash needed to give it a fighting chance in the smartphone world war. But if it pulls out, there are at least three other ways it could generate value.

The most achievable, if least exciting, would be selling and managing secure mobile phone servers to companies and government agencies. The new generation of BB10 servers can be used to send encrypted emails, over BlackBerry's own secure network, to a whole range of phones including Apple and Android devices. In a world where many people now use their personal phones for work, these servers solve a headache.

Microsoft is pushing into this space, and IBM, alongside smaller groups like Citrix, but BlackBerry has a head start. It claims 90% of America's top 500 companies already use its technology, and 25,000 customers are currently on its new generation enterprise servers.

Watsa has not set out his plans in detail, but on Monday night he indicated the firm's future lay with business customers, saying the focus would be "on delivering superior and secure enterprise solutions to BlackBerry customers around the world."

If Fairfax decides to close the handset business, it could afford to auction much of BlackBerry's intellectual property, most recently valued in company accounts at $3.4bn. The true worth is disputed, with Bernstein Research putting the total at between $800m and $1.5bn, with a discount for redundant 2G technologies.

But there is value in the inventions of BlackBerry's founder, Mike Lazaridis, and the portfolio was boosted in 2011 when BlackBerry joined a consortium to buy up patents once owned by telecoms equipment firm Nortel. It spent $775m picking the bones of the last big Canadian technology group to fall on hard times.

Then there is BlackBerry's Messenger service, to which an estimated 60 million active users devote an average of 90 minutes a day. Their numbers may be thinning, but those who remain make full use of the grapevine that was once so dominant that politicians blamed it for sparking the London riots. BBM carries 10 billion messages each day.

WhatsApp, which offers a similar free service via a smartphone application, has 300m active users, and is considered a likely candidate for an Instagram-style billion dollar takeover. BBM could be worth a similar sum if spun off to shareholders or sold.

"This is a break up story," says Benedict Evans, mobile expert at Enders Analysis. "There is nothing a new owner is going to do to make people start buying BB10 devices in enough volume to be viable. They should have built on top of Android two years ago."

BB10 was in fact built on QNX, software produced by a company BlackBerry acquired for the purpose. Some say its future lies with QNX. The technology is already used in cars, medical machinery and even military drones and air traffic control towers. BlackBerry may no longer be able to afford the company jet, and its future in mobile phones hangs in the balance, but it could live on in the skies.

• This article was amended on Wednesday 25 September 2013 to make it clear that HTC is Taiwanese not South Korean.

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

British Airways chief attacks Heathrow boss for 'ripping off passengers'

Willie Walsh calls on 'pathetic' Heathrow chief to resign in row over planned rise in landing fees and cuts in airport spending

The boss of Britain's biggest airline has accused Heathrow of ripping off passengers and employing too many overpaid staff, calling for the airport's chief executive to be replaced.

Willie Walsh, chief executive of British Airways' parent company IAG, said the airport was planning to raise prices by £600m over five years while cutting spending on facilities.

In a strident denunciation of the London airport's "abusive monopoly", Walsh said that Heathrow's boss, Colin Matthews, had been "pathetic" in trying to make a political argument linking higher airport charges to Britain's need for more overseas investment.

With the Civil Aviation Authority (CAA) scheduled to rule on the fees that Heathrow can charge airlines, Walsh warned the regulator not to be "hoodwinked" again, and to correct its mistakes of the recent past which Walsh said involved Heathrow being "grossly over-rewarded".

Walsh said Heathrow's management seemed "incapable of running their business efficiently within a routine cost-control environment". He added: "What we see is an airport that has too many people; those people are paid too much."

The CAA is due on October 3 to set fees that the airport can charge from 2014. It has proposed raising charges below inflation, at RPI -1.3%, over the next five years – a level some way below Heathrow's demands. Airlines led by BA, the airport's biggest customer, have demanded a real-terms cut of almost 10% after five years in which charges rose by RPI +7.5%.

Walsh insisted the CAA was "not being robust enough". He added: "If the CAA does not take a stronger line on this it will continue to be inefficient and that will be at the expense of passengers."

According to BA's calculations, increased landing fees will mean every passenger journey costs £7 more than the airline believes is reasonable.

Matthews had provoked Walsh's ire by saying that lower charges gave no incentive for shareholders to invest and that Britain would not be able to attract foreign capital.

Heathrow's major shareholders are the sovereign wealth funds of Qatar, Singapore and China, as well as a Canadian pension fund and Spanish construction giant Ferrovial.

Walsh said: "Passengers are paying more than they should and the benefits of that are going to higher-than-average rewards for the shareholders.

"If Colin Matthews is incapable of running the airport and making the investment that's necessary, and requires an excessive return to justify that investment, then he should be replaced.

"If he was the CEO at a listed entity and came out with the statements he's come out with, I suspect shareholders would take a completely different view because of the impact on the share price."

Walsh feared the regulator was succumbing to external pressure to adjust its proposal in Heathrow's favour. "It makes London, certainly Heathrow, less competitive than the rest of Europe."

He admitted BA could not leave Heathrow, but vowed to appeal if the CAA did not cut its charges.

Heathrow has said that the CAA's current proposed charges would mean less maintenance of the airport, and the curbing of planned improvements to baggage facilities and other aspects affecting passengers.

A Heathrow official said: "We have put forward plans for more than £400m of cost savings over the next five years. We want to continue the investment that has been improving Heathrow for passengers.

"Airlines' proposals for 40% price cuts can't be achieved without risking under-investment and a return to the out-dated Heathrow of the past."

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

Tuesday, 24 September 2013

Centrica abandons North Sea gas storage plans, blaming government

British Gas owner's decision could cost it £240m and follows move by energy minister to block subsidy to finance project

Centrica on Monday blamed the government as it abandoned plans to build two gas storage facilities that would have created hundreds of jobs and increased the security of energy supplies in the UK.

With the owner of British Gas expected to increase prices to consumers in the coming days, the company said it would not build a gas storage plant at Baird, in the North Sea, and put on hold "indefinitely" a project at Claythorpe in East Yorkshire.

The decision will cost Centrica £240m, which will be taken as an exceptional cost in its 2013 results, and was made after energy minister Michael Fallon concluded this month that subsidies would not be offered to encourage companies to build more gas storage.

Centrica said the move left the UK with the capacity to store 21 days of gas supplies, in stark contrast to countries in continental Europe, where France and Germany, for instance, have 122 days and 99 days respectively.

The company owns the biggest storage facility, Rough, capable on its own of holding 15 days' supply of gas. Baird, if it had gone ahead, would have added a further 13.5 days and potentially created hundreds of jobs building the site and more permanent ones after it was completed.

The UK has become increasingly reliant on gas imports in recent years and the lack of gas storage was highlighted this year when it emerged the country had come within hours of running out.

In May Rob Hastings, director of energy and infrastructure at the Crown Estate, which owns gas storage under the sea bed, admitted the UK had at one point in March just six hours of supply left in storage.

Hastings told the Financial Times: "We really only had six hours' worth of gas left in storage as a buffer." It followed the record low temperatures in March, which bolstered demand for heating at time when a pipeline was also damaged. Energy suppliers were later criticised for holding back supplies during this critical period.

The Department of Energy and Climate Change (Decc) insisted it had no concerns about storage facilities as stored gas was never used on its own but only in addition to other sources of supply – notably the North Sea, which still contributes 50% of supply, as well as pipelines and terminals.

"We get gas from a diverse range of sources, with around half from UK gas fields, a third from Norwegian and EU pipeline imports, a fifth from LNG (liquefied natural gas) imports from global markets and 7% from gas storage (in 2012)," a spokesperson for Decc said.

"The UK has the capacity to deliver twice the amount of gas required on a normal winter's day, and has coped well with recent extreme winter conditions. Gas storage, while important, only provides a small proportion of UK total supply," a spokesperson said.

Fallon argued this month that by not subsidising the cost of gas storage facilities the government would save customers £750m over a decade. The government did not just look at whether to provide subsidies but also considered forcing gas companies to secure a certain amount of supply or to hold more gas in storage.

Centrica, which has pulled out of building nuclear plants in the UK, cited "weak economics" for withdrawing from the gas storage facilities.

This relates to the narrowing difference between the price of gas in the winter and the summer, which had previously allowed companies to rely on selling gas more expensively in the winter than it was bought in the summer.

Centrica had warned in July that it might need government support for the projects because of the market conditions.

Decc pointed to two more storage facilities under construction in Cheshire, at Stublach and Hill Top Farm, as adding to storage next year and said two storage facilities were opened at Aldbrough, Yorkshire, in November 2012, and Holford, Cheshire, in February 2013.

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

Chrysler files for stock market IPO

Fiat seeking to buy United Auto Workers' stake but auto giant set to join General Motors and Ford in being publicly traded

Chrysler filed for an initial public offering on Monday, in a move that will put all three US car giants back on the stock markets after their brushes with disaster.

Italy's Fiat owns 58.5% of Chrysler and had wanted to buy the remaining stake, which is held by the United Auto Workers (UAW) Retiree Medical Benefits Trust. The two sides have negotiated for months but failed to reach an agreement. The UAW's retiree healthcare trust has not disclosed how much it wants for its 41.5% stake, which it gained as part of the US's government's bailout of the company.

Should the IPO go ahead, this will be the first time since 1998 that all three Detroit auto firms will be publicly traded companies on the US stock markets. Chrysler and General Motors both filed for bankruptcy in 2009 as the recession brought their already struggling businesses to the point of collapse. GM conducted an IPO in November 2010.

Sales have been surging at Chrysler, which is the third-biggest American carmaker after General Motors and Ford. The recovery in the housing market and construction have boosted truck sales and new vehicles have attracted more confident consumers. In the second quarter its profits rose 16% to $507m. Chrysler has reported full-year profits for the last two years.

The company's earnings have been a boost Fiat, which has been struggling with the continuing aftermath of the financial crisis in the European market. An IPO would be a blow to Sergio Marchionne, chief executive of both Fiat and Chrysler. Marchionne has overseen a remarkable turnaround in the US company and had been keen to take full control.

Fiat was allowed to take control of Chrysler in 2009, in return for a pledge to develop and build fuel-efficient cars in the US. The deal does not give Fiat access to Chrysler's cash, an issue that would be resolved if Marchionne is able to merge the two firms.

The IPO could be derailed if Marchionne can restart negotiations with the UAW. "Fiat remains available to continue the discussion," he told analysts after the second-quarter earnings. He has previously said he would IPO a joint company on the US stock markets.

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