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Friday, 6 September 2013

First-time house buyers and car sales fuel summer mini-boom

Sharp rise in numbers getting on property ladder while vehicle registrations show 18th straight monthly rise

Strong car sales and new data showing that the number of first-time buyers in Britain's housing market jumped by 45% in the year to July have reinforced the picture of an economy in the grip of a summer mini-boom.

An analysis by LSL Property Services, which owns estate agencies including Your Move, suggests there were more than 26,000 first-time buyer transactions in July – a dramatic increase of 45% on the same month in 2012.

David Newnes, director of LSL Property Services, said: "Mortgages are much more affordable for first-time buyers compared to last year, which has opened the door to thousands of would-be buyers who were shut out of the market. Economic confidence is returning, nudging many more buyers in the direction of property, and nudging lenders to offer more loans to buyers with smaller deposits."

Car sales have also been strong, echoing robust growth in high street sales. The number of new cars registered last month rose 10.9% to 65,937 compared with a year earlier, according to the Society of Motor Manufacturers and Traders (SMMT).

That marked the 18th successive monthly rise in new car sales and pushed year-to-date sales to 1.39m vehicles, 10.4% higher than a year ago. By the same point in 2007, before the financial crisis, 1.52m new cars had been sold.

Private purchases were the biggest drivers of growth, but fleet and business purchases also rose in August.

"UK new car registrations have now risen consecutively for a year and a half. Private and fleet buyers are clearly capitalising on attractive deals and new technologies against a backdrop of increasing economic confidence," said Mike Hawes, chief executive of the SMMT.

However, the strong data intensified the sell-off in the bond markets on Thursday, increasing the pressure on Bank of England governor Mark Carney's policy of "forward guidance". Carney, who was hand-picked by the chancellor, George Osborne, hoped to keep borrowing costs low across the economy by sending a clear signal that he would not raise interest rates until unemployment falls below 7%, which the Bank's nine-member monetary policy committee expects to take at least three years.

But a batch of data suggesting the economy has started to recover have prompted investors to bet against the Bank, in the belief that Carney will be forced to raise rates before 2016.

When the MPC opted not to deliver a fresh warning to the markets after its monthly rate-setting meeting on Thursday, the yield – effectively the interest rate – on 10-year government bonds, or gilts, surged through 3% for the first time since July 2011. Yields are now higher than in July this year, when the MPC released a statement within days of Carney's arrival saying that recent moves in financial markets had been "unwarranted".

There are growing concerns that the continuing sell-off in bond markets is driving up long-term interest rates, which could threaten the recovery, since many loans – particularly to businesses – are priced according to bond yields rather than the Bank's base rate.

"Ever higher market interest rates challenge the Bank's assessment of the outlook. Either the MPC needs to confront these market moves by stating that rate expectations are unwarranted – and thus guide rates lower – or it needs to acknowledge that the improving fundamentals have changed the position vis-à-vis the July and August meetings," said Ross Walker, UK economist at Royal Bank of Scotland.

Howard Archer of consultancy IHS Global Insight said: "The MPC is increasingly facing a real dilemma, resulting from the surprisingly strong growth that the economy is currently experiencing. While this robust growth is a hugely welcome development following the economy's prolonged struggles, it is making the markets even more sceptical that the Bank of England will not raise interest rates from 0.50% before mid-2016."

Carney will appear before MPs on the Treasury select committee to explain the policy of forward guidance next Thursday.

Mario Draghi, the president of the European Central Bank, also left interest rates on hold yesterday, after the 18-member eurozone clambered out of recession in the second quarter of the year; but he admitted that the bank's governing council had considered a rate cut.

At his press conference after the ECB's meeting, Draghi said: "I am very, very cautious about the recovery, I can't share the enthusiasm. These shoots are still very, very green."

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

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Thursday, 5 September 2013

Barclays' £6bn cash-raising efforts to begin on Friday 13th

Bank prepares for trading of new shares after being ordered to make itself less vulnerable to future financial shocks

Barclays has chosen the inauspicious date of Friday 13 September to fire the starting gun on a near £6bn cash-raising after the bank was ordered by the regulator to make itself less vulnerable to financial shocks.

Investors have been told they must be on the share register by next Friday to take up Barclays' offer of one new share at 185p for every four currently owned. The price is a 40% discount to the value of the shares before the money-raising was first announced.

Barclays, which was told by the Prudential Regulation Authority in July it must plug a £12.8bn hole in its balance sheet, said it would be issuing a prospectus for the rights issue in due course but gave no exact date.

The new shares are scheduled to start trading on 3 October after what would be the largest rights issue by a bank since 2009 when the country's lenders were engulfed in the worst of the recent financial crisis.

Barclays also plans to issue £2bn of bonds, shrink the size of the bank by £2.5bn and make up the rest of the capital shortfall by holding back earnings rather than paying them out to shareholders or as staff bonuses.

Antony Jenkins, who came as chief executive a year ago, said in July that the cash call was part of a "bold and balanced plan" to bolster the bank's leverage ratio – a measure of the riskiness of its lending – from 2.2% to 3% by June 2014.

Barclays avoided the need for a government bailout in the financial crisis, unlike competitors Lloyds and Royal Bank of Scotland, but still announced a net loss of more than £1bn for 2012.

Shares in Barclays rose 1.5% last night but there had earlier been nervousness about the rights issue when the man who would have been at the centre of it, finance director, Chris Lucas, announced plans to step down on 16 August. The 52-year-old was expected to leave next year but said he was departing early due to ill health.

Lucas is one of four current and former directors being investigated by City regulators over a previous controversial cash raising from Qatar that made it possible for the bank to avoid a government bailout. He is being replaced by Tushar Morzaria, who is based in New York, and was expecting a long handover period with Lucas.

It is the latest personnel change at the top of the bank since Jenkins was promoted to take over from Bob Diamond, who quit following a £290m fine on Barclays for rigging Libor inter-bank lending rates.

The former chairman, Marcus Agius, and chief operating officer, Jerry del Missier, also left a year ago.

Jenkins has been desperately trying to open a new chapter for the scandal-hit Barclays, which in the last six months of 2012 was the most complained about high street bank in Britain. He has introduced a range of strategies but some aspects of the bank's past are proving hard to shrug off. In July US regulators upheld a fine on Barclays and four of its traders of $453m (£300m) for allegedly manipulating electricity prices in California. The bank said it intended to "vigorously defend this matter" but one analyst warned that the decision by the Federal Energy Regulatory Commission could derail a deferred prosecution agreement signed with the US Department of Justice over the bank's involvement in Libor-rigging.

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

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

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