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Thursday, 5 September 2013

Ex-Co-op boss fights back, dragging Bank of England into Britannia row

Neville Richardson counters regulator's claims that Co-op's problems stemmed from bad debts on loans by Britannia building society

The former chief executive of the Co-op Bank blamed his bosses and regulators at the Bank of England for the bank's current financial problems and said they had wrecked the mutual society's chances of becoming a major high-street lender.

Neville Richardson told MPs that he resigned in 2011 when the Co-op Group board ignored his repeated warnings that plans to buy more than 600 Lloyds branches were a step too far for a bank wrestling with a poor economic situation and the after-effects of a major merger. He also warned against a cost-cutting drive that undermined the day-to-day running of the bank.

He told the Treasury select committee that the bid was the "right deal at the wrong time" and put Co-op Bank at "unacceptable risk". "The board and chief executive of the Co-op Group at that time did not accept my warnings and were determined to press ahead. That is why I stepped down."

Richardson was defending his record after Andrew Bailey, the head of the Prudential Regulatory Authority, alleged that the Co-op bank's problems related to bad debts on loans granted by Britannia building society prior to its merger with the Co-op. Richardson is a former chief executive of the Britannia and moved to the top job at the Co-op after the merger.

He argued that he left the bank in good shape, with "no issues". He denied that Britannia had brought with it a history of bad debts on its corporate loans, saying the debts were well managed and in line with other major lenders.

After Richardson left, impairment charges soared. In 2012 the Co-op Bank set aside £468m to cover poorly performing loans, up from £115m in 2011. Richardson blamed the bank's parlous situation on a change in the way regulators account for bad debts and mismanagement of the business.

The Bank of England immediately issued a terse statement defending Bailey. It said: "We strongly disagree with Neville Richardson's view regarding the Britannia loan book situation. The evidence that Andrew Bailey gave to the TSC was correct."

Richardson, who left the business with a £2.5m payoff and £2.1m in pension payments, was freed by parliamentary privilege to talk about his tenure after he signed a non-disclosure agreement with the Co-op.

The Co-op now needs to find £1.5bn in extra capital. Some will come from a "bail-in" of small investors holding Co-op bonds and the mutual also faces having to float up to 49% of the business on the stock exchange to raise further funds.

The regulator said he warned the Lloyds board when Co-op bank was named as the preferred bidder that it lacked the necessary capital to support its bid.

MPs are investigating why the deal under which Co-op was to buy the Lloyds branches collapsed this year. The probe reflects widespread concern at the failed attempts to break up the dominance of the major high-street lenders, which the government has been keen to encourage.

Virgin Money, which took over Northern Rock, has made only limited inroads, while the Nationwide building society, which absorbed several smaller societies in the aftermath of the financial crash, has also struggled under the weight of new capital requirements.

The Co-op Bank expanded from 100 branches to more than 300 following the merger with Britannia and was due to hit the 1,000 mark once it absorbed the Lloyds branches.

Andrew Tyrie, the chairman of the Treasury committee, said: "There appears to be a yawning gulf between the evidence the committee heard today from Mr Richardson and the evidence we heard previously from Mr Bailey. The committee will be investigating this a good deal further."

Bailey is now expected to be recalled before the committee along with several senior officials from the Co-op and Lloyds to discover when the bad debts came to light.

Speaking in front of the committee in June, the chief executive of Lloyds, Antonio Horta-Osorio, said Lloyds had been aware of Co-op's capital problems long before the deal collapsed.

Co-op Bank withdrew its offer for the branches in April, blaming the "economic environment" and "increasing regulatory requirements on the financial services sector".

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

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Strong services data signals UK growth is on track to outstrip rest of Europe

PMI survey's all-sector reading hits 15-year high, with order books growing at fastest pace since Tony Blair became PM

Britain's recovery is on track to outstrip the rest of Europe following a strong performance by the services sector in August.

The purchasing managers index, published by Markit, jumped to a new post-financial-crash high of 60.5 in August, up from 60.2 in July and its highest level since December 2006.

Markit said the latest survey of the all-important sector, which accounts for around 78% of the economy, sent the all-sector PMI to its highest level since the series began in 1998.

Chris Williamson, the data provider's chief European economist, said growth was now accelerating in manufacturing, services and construction, and that GDP growth could exceed 1.0% in the third quarter of the year.

The broad-based nature of the recovery will encourage George Osborne, who in public has remained careful to highlight the risks to the recovery.

Williamson said the latest data showed that growth was principally supported by a rise in new business.

Order books at companies ranging from banks to restaurants rose at the fastest pace since May 1997, the month Tony Blair first became prime minister.

"There were many reports of an ongoing strengthening of market confidence which helped companies convert enquiries into hard contract wins. Marketing and an improvement in the housing market were also noted as reasons for higher sales volumes," he said.

However, hopes that growth would bring a quick end to persistently high unemployment were dashed after the survey of services firms showed a slowdown in hiring.

The sector reported a net increase in employment for an eighth month in a row, but the rate of growth was described as "marginal".

Markit said: "A number of panellists attributed the slowdown to the non-replacement of leavers or cost considerations."

The lack of jobs growth will dash expectations that the Bank of England will raise rates earlier than expected in 2016.

The Bank of England governor, Mark Carney, said last month that he wanted to wait until the economy created an extra 750,000 jobs before considering a rise in base rates.

Martin Beck, UK economist at Capital Economics, said the services survey "adds to the relentlessly good news on the UK economy".

He said: "Following surprisingly strong gains in August's manufacturing and construction surveys, today's services result at face value points to quarterly GDP growth in Q3 not far off a rip-roaring 2%.

"However, this does not necessarily indicate that interest rates will have to rise earlier than the MPC expects. In common with the manufacturing and construction surveys released earlier this week, the expansion in services output suggested by the CIPS survey was accompanied by a softening in the survey's employment balance, which dropped from 53.6 to 50.6.

"This supports our, and the MPC's, view that rising productivity will accommodate much of the recovery in demand, with the unemployment rate taking a stubbornly long time to fall to the Bank's 7% threshold."

Across Europe's major economies services firms signalled that a year-long recession was coming to an end, with the exception of Italy, which failed to improve on July's poor performance.

The Italian services PMI improved only slightly on the previous month following a rise from July's 48.7 to 48.8. The August figure means another monthly contraction, in an economy that is already expected to shrink steadily this year. The City had hoped for a number close to 50, the cut-off between growth and contraction.

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

Wednesday, 4 September 2013

Microsoft buys Nokia handset business for €5.4bn

Deal delivers Europe's last big handset maker into US ownership and moves Microsoft firmly into device-manufacturing business

Microsoft is to acquire Nokia's mobile phone arm in a swansong deal for the software giant's long-serving chief executive, Steve Ballmer, delivering Europe's last big handset maker into American ownership.

For €5.44bn (£4.6bn), Nokia is casting off the business that once represented Finland's most important export, in a deal that will result in 32,000 staff transferring to Microsoft.

Overtaken in the smartphone arena by Apple and Samsung, Nokia's board agreed to end the company's decades-long role as a pioneer and once-dominant player in one of the most revolutionary technologies in modern history.

Nokia's chief executive, Stephen Elop, has stepped down from the company's board, and will transfer with the handset business to Microsoft, where he will become head of the devices division after the transaction's expected completion in the first quarter of 2014.

"Today's announcement is a bold step into the future," said Ballmer. "For Microsoft it is a signature event in our transformation."

The acquisition marks the boldest step yet taken by Microsoft in its recently announced strategy of moving decisively into the device-manufacturing business, so that it can design for the software and hardware of its products. It is a move Ballmer hopes will bring the kind of success currently being enjoyed by Apple.

In a dramatic month for America's most successful consumer software group, Ballmer announced his retirement from the company within 12 months after 13 years at the helm. Elop, already tipped as a potential successor, is now seen as the most likely heir to the company still chaired by its founder, Bill Gates. "Elop becomes a really strong candidate for the CEO role," said Roberta Cozza, a research director at Gartner. "He is someone who has demonstrated that he can run a software unit at Microsoft and has his tenure as the CEO of a hardware company."

"I feel sadness because we are changing Nokia and what it stands for," said Elop, at an emotional press conference at Nokia headquarters in Espoo. "We are a challenger and as the news ripples around the world today we will be recognised as an even greater challenger to our competitors."

Nokia has staked a claim to a growing but small share of the smartphone market, with 7.4m of its Lumia handsets shipped in the most recent quarter. Samsung shipped 71m smartphones in the second quarter, according to Gartner, and Nokia is no longer among the global top five.

"I share the frustration that comes from being so far behind two very large competitors," said Elop. "We are going faster than Nokia has ever done before. Achieving our goal of becoming the third ecosystem is becoming very real."

Elop, who formerly headed Microsoft's business services unit, intertwined Nokia's fortunes with Microsoft two years ago when he announced he would abandon the Finnish company's attempts at creating its own smartphone software, opting instead for the Windows Phone operating system.

Microsoft heavily subsidised Nokia's strategy, providing hundreds of millions in marketing dollars per quarter to support the significant advertising spend needed to tempt customers unfamiliar with the Windows Phone interface.

As head of Microsoft's devices unit, Elop will oversee not only phones but its best selling Xbox games console and its Surface tablet computer, which has so far failed to register with consumers. Julie Larson-Green, who currently heads devices and studios at Microsoft and had been seen as a contender for the top job, will report to Elop.

Risto Siilasmaa, Nokia's chairman, will take over as chief executive of the company in the interim. "This transaction makes all the sense rationally but emotionally it is complicated," he admitted, saying the decision was made because Nokia needed more cash if it was to compete with larger smartphone rivals.

The market, he said, "is becoming a duopoly with the leaders building significant momentum with a scale not seen before, while many established players have disappeared or faced difficult choices".

Microsoft will retain its mobiles research and development facility in Finland, where 4,700 Nokia staff are currently employed, and Ballmer said: "We have no significant plans to shift around the world where work is done. We are deeply committed to Finland."

The US company said it would build a datacentre in Finland to serve customers in Europe.

Microsoft is also providing €1.5bn of "immediate financing" to Nokia, implying that the Finnish company has hit a cash crunch. Its debt has already been reduced to "junk" status. If used, the loan will be repayable when the deal closes.

The remaining part of Nokia will be dominated by Nokia Siemens Networks (NSN), which builds mobile phone infrastructure and a mapping platform called Here. Elop recently completed the acquisition of 50% of NSN that was owned by Siemens. These rump assets currently employ 56,000 people and have revenues of €15bn.

But even inside cash-rich Microsoft, Nokia's phone business faces serious challenges. Its handset business has slumped in size from a peak in the third quarter of 2010, with revenues of €7.2bn, to just €2.72bn in the second quarter of this year, its smallest size in more than a decade. It has also been loss-making for five of the past six quarters.

While it is strong in the "feature phone" business in the developing world, it has struggled in the all-important smartphone business. Apple's iPhone and handsets running Google's Android together make up over 95% of sales in the US and China, the world's two largest smartphone markets, according to Kantar Worldpanel's latest figures. Windows Phone only has shares above 10% in Mexico and France, according to the company's figures.

Under the deal, Microsoft is buying the Lumia and Asha brand names that Nokia has used for its smart and intermediate phones. It has licensed the use of the Nokia brand on handsets for 10 years, but the Finnish business will retain ownership of the brand. That will probably mean that the Nokia brand disappearing from handsets in the next decade, ending over 30 years' history in the business.

Having started in 1865 with a pulp mill in the Finnish town of Tampere, Nokia reinvented itself repeatedly, shifting to rubber boot production early in the 20th century, and then making its first telephone exchange in the 1970s. Its first mobile phone appeared in 1981.

Rumours that Microsoft intended to buy Nokia had been floated since Elop joined the company. Reaction to the deal was mixed.

"Microsoft buying Nokia looks like doubling down on the current failing strategy, without changing the dynamics that are preventing success," cautioned Benedict Evans at Enders Analysis.

Ben Wood at CCS Insight described the deal as a "bold, but entirely necessary gamble by Microsoft".

"Mobile needs to be a cornerstone of Microsoft's business for future success," said Wood.

"This is by no means a silver-bullet solution to Nokia and Microsoft's current difficulties. The massive restructuring that has taken place within Nokia over the last two years offers Microsoft a more stable foundation on which to focus its efforts in mobile, but Windows Phone remains a distant third place in the smartphone race."

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

Tesco rapped for implying horsemeat scandal affected whole food industry

Supermarket's ad at height of crisis tarred all food retailers and suppliers when relatively few instances had been identified, says ASA

Tesco has been criticised by the advertising watchdog for claiming that the horsemeat scandal affected the entire food industry.

The Advertising Standards Agency (ASA) ruled that an ad run by Tesco in February, at the height of the food crisis, "implied that all retailers and suppliers were likely to have sold products contaminated with horsemeat" when "relatively few instances of contamination had been identified at the time".

The ad now banned by the ASA, entitled "What burgers have taught us", said: "The problem we've had with some of our meat lately is about more than burgers and bolognese. It's about some of the ways we get meat to your dinner table. It's about the whole food industry."

Two people, including an independent butcher, complained that the ad was misleading because it implied there were issues with meat standards across the whole food industry, unfairly denigrating suppliers who had not been involved in the supply of mislabelled products.

The news comes at a sensitive time for the UK's biggest supermarket as it attempts to rebuild its reputation and market share in the wake of the scandal and problems with customer service. It recently launched a high profile ad campaign called "Love Every Mouthful" in a bid to highlight the quality of its food after promising to source more meat from the UK and Ireland and step up testing to avoid future contamination.

Tesco's share price plummeted in January after tests carried out by Ireland's food watchdog identified traces of horsemeat in burgers sold in its stores, as well as Iceland, Aldi and Lidl.

Tesco launched an internal investigation and placed a series of national newspaper ads apologising for the incident and explaining how it planned to change.

In response to the ruling Tesco said it accepted that not all those involved in the food industry had been implicated in the sale of products containing horsemeat. Rival supermarkets including Sainsbury's, Marks & Spencer and Waitrose were never found to have sourced food contaminated with horsemeat.

However Tesco said it had not operated in a vaccuum and the meat contamination problem it and others had encountered was due to systemic failings in the food supply chain. It submitted opinion and evidence from an expert to back that view, which the supermarket said was supported by the actions of the European commission and planned legislation on the supply chain which would apply to the whole European food industry.

A spokesman said: "We are disappointed with this decision, but accept that the ASA has taken a very literal view of the wording in the advert. We think our customers understood that our aim with the advert was to set out the action we had taken in relation to the horsemeat crisis and to acknowledge the fact the issue had serious consequences not just for Tesco, but for the whole of the food industry."

The ASA said the ad made the "definitive statement" that the crisis was "about the whole food industry" and concluded that consumers would understand that it referred to all food suppliers rather than Tesco alone. However it said the ad did not denigrate other companies because it did not name any particular supplier.

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

UK economy upgraded by OECD

Organisation for Economic Co-operation and Development gives vote of confidence, revising growth forecast from 0.8% to 1.5%\

Paris-based thinktank the Organisation for Economic Co-operation and Development has lifted its forecast for UK growth in 2013, in the latest vote of confidence for the fledgling recovery.

In May, when it last released projections for the world's major economies, the OECD was expecting 0.8% growth in the UK for 2013. On Tuesday, it said recent survey evidence suggested GDP would expand by 1.5%, grouping the UK with the US and Japan as economies where, "activity is expanding at encouraging rates".

The upgrade from the OECD comes after a string of positive indicators for the UK, including stronger-than-expected growth of 0.7% in the second quarter, falling unemployment, and survey evidence suggesting the strongest growth in manufacturing output for almost two decades.

Alongside revising up its forecast for the UK, the OECD used its interim economic assessment to warn that while a moderate recovery is underway in many major economies, global growth remains sluggish, and there are still risks to the upturn.

The OECD's economists single out the impact of the Federal Reserve's plans to phase out its massive programme of quantitative easing as creating particular problems for some economies.

"In many emerging economies, loss of domestic activity momentum together with the shift in expectations about the course of monetary policy in the United States and the ensuing rise in global bond yields have led to significant market instability, rising financing costs, capital outflows and currency depreciations," it said.

Countries including India, Indonesia, Brazil and Turkey have been battling to control a potentially destabilising decline in their currencies since the Fed chairman, Ben Bernanke, announced his plans to "taper" QE in May.

The OECD's experts warn that the slowdown in emerging economies – which have been major drivers of world growth in recent years – would offset the improvement in advanced economies, so that the global recovery would continue to be, "sluggish".

In the US, the OECD expects growth to be 1.7% in 2013, slightly down on its May estimate of 1.9%. It also warns that the crisis in the eurozone is far from over, saying: "The euro area remains vulnerable to renewed financial, banking and sovereign debt tensions. Many euro area banks are insufficiently capitalised and weighed down by bad loans."

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

Tuesday, 3 September 2013

GSK ran hospital bribery programme, say Chinese police

State media report claims wrongdoing was part of GlaxoSmithKline's corporate strategy and not caused by rogue salespeople

Chinese police claim to have found evidence showing GlaxoSmithKline organised a bribery programme targeted at major hospitals at a company level in China, dismissing suggestions that abuses may have been the result of overenthusiastic or rogue sales staff, according to a state media report.

An increasing number of individuals reputedly involved in corrupt payments are said to have made confessions, according to the Xinhua news agency. "As the investigation is moving on, it is becoming clear that it is organised by GSK China rather than drug salespeople's individual behaviour."

GSK issued a statement denying that wrongdoing had been part of a sanctioned corporate strategy. "The issues identified would be a clear breach of our corporate values and we have zero tolerance for any behaviour of this nature."

GSK accepted in July that some of its executives appear to have "acted outside of our processes and our controls to both defraud the company and the Chinese healthcare system". The drug firm is accused of funnelling up to 3bn yuan (£312m) to travel agencies to facilitate bribes to doctors and officials.

The GSK chief executive, Sir Andrew Witty, told investors the company's headquarters had "no sense" of the "shameful" and "deeply disappointing" allegations.

Tuesday's report from the Xinhua news agency quoted Huang Hong, a general manager for GSK in China and one of the detained executives, saying the company had set goals for annual sales growth as high as 25% – 7% to 8% higher than the average growth rate for the industry.

"Huang admitted that the growth rate of sales could not reach such a high number only by the efforts of the salespeople themselves if there was no dubious corporate behaviour," Xinhua reported.

Chinese police reportedly claim to have evidence that GSK China "went through the motions in internal auditing so as not to discover these violations".

The Xinhua report followed an article in the official People's Daily newspaper that quoted Guo Jianhua, head of recruitment at GSK China, saying the company had turned a blind eye to illegality.

"When the problems were exposed, the company pushed all responsibilities to individual employees," Guo said. It was unclear to which problems Guo was referring or if he was one of the detained executives.

Official media routinely get access to detainees in China. Other detained GSK executives have been interviewed on state television.

Bribes in China's drug industry are reportedly commonplace, fuelled in part by low salaries for doctors. A number of other multinational drugs firms are facing investigations similar to the GSK inquiry as whistle-blowers have come forward.

GSK's continuing controversy in China comes after the drugmaker last year reached a $3bn (£1.9bn) deal with criminal prosecutors in the US, pleading guilty to a raft of offences linked to the illegal promotion of drugs. Many of the allegations related to extravagant travel provided to doctors whose business GSK was courting.

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

Large retail chains urged to pay levy to help revive high streets

Bill Grimsey, who is leading review into plight of town centres, calls for national chains to 'put something back'

Major retail and leisure chains should pay a one-off levy on UK sales that would raise £550m to help revive Britain's high streets, according to Bill Grimsey, the veteran retail boss, who is fronting a review into the plight of town centres this week.

Every local area should also set up a town centre commission to produce a 20-year vision for their high street, supported by costed, five-year business plans.

Grimsey, former boss of the now defunct DIY chain Focus and the Iceland frozen food chain, is leading a group of eight industry experts who have put together an alternative review to that by Mary Portas, the self-styled Queen of Shops.

He dismissed Portas's effort as "little more than a PR stunt" that simply served as the basis of her "lucrative TV makeover show", as he produced 31 recommendations including changes to business rates and more defined targets for town centre teams, which should be co-ordinated with all local planning decisions.

After sending out 100 freedom of information requests his review found that more than half of the local authorities questioned had no town centre plan in place, despite widespread concerns about the health of high streets.

His report was released as Portas appeared in front of a parliamentary committee on Monday to provide an update on progress since her review, launched nearly two years ago. She defended her efforts amid complaints that high streets continue to suffer during the economic downturn as national chains pull out and supermarkets continue to expand.

Grimsey is calling on national chains with a turnover of more than £10m to invest 0.25% of one year's UK sales from 2014 – about £550m between them – into a local economic development fund to help sponsor startups and new ventures that could entice shoppers back to local high streets.

The fund would dwarf the £18m the government has spent on high street initiatives including 24 "Portas pilots" which each received £100,000 grants to improve their town centres, and nearly 330 town teams which have been handed smaller grants.

"I honestly think the time has come for the big chains to put something back and help redesign the high street," said Grimsey. "What we've seen in a lot of secondary town centre locations is that as the chains move out to more lucrative out-of-town sites they're hollowing out the high street."

Grimsey said a central fund could be overseen by independent trustees that would include some of the biggest contributors.

But some industry groups, including representatives of smaller shops, have dismissed the idea. Michael Weedon, of the British Independent Retailers Association, said: "A one-shot solution to try to solve the problems is not what's needed. We think addressing the longer term issues by rewriting the way that business rates work will enable the high street to change sustainably."

The BIRA's call for change is part of pressure on the Treasury to adapt the property-led rates system to reflect a changing retail environment in which major players are less reliant on physical outlets because of online sales while small businesses on high streets are suffering. The British Retail Consortium has called for a complete overhaul of the system after a string of major retail failures this year.

Helen Dickinson, the BRC director general, said: "There is a growing consensus that the business rates system is no longer fit for purpose, and a complete reform of it would be the single most important step towards reviving our high streets and boosting retail jobs across the country."

Grimsey's group of eight experts also endorsed more short-term ideas such as discounts for businesses moving into empty shops and a freeze on rates in 2014.

The Treasury has so far been silent on the issue of a rates rethink, but the government has doubled small business rate relief for three and a half years.

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