The great Royal Mail sale: 700,000 want shares

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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IMF urges George Osborne to spend on infrastructure

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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East coast rail pays out millions in dividends to taxpayers

State-run train service paid out more than £200m in 2012-13 and is expected to return around £1bn over next five years

East coast, the sole state-operated train service in the national rail network, paid more than £200m in dividends and premiums to the taxpayer in 2012-13, figures to be published on Tuesday show.

Industry sources now predict that Directly Operated Railways (DOR), the Department for Transport's arms-length company, will return around £1bn in total to the government over the five years it expects to run the service.

DOR stepped in after National Express handed back the keys two years into the seven-year franchise it won in 2007 to run the long-distance train service from London to Edinburgh.

Action for Rail, a trade union-backed campaign, is pressing to keep the line in public hands. The Labour party has also criticised the government for prioritising the privatisation of east coast in the redrawn rail franchising timetable.

Sir Richard Branson's Virgin has expressed an interest in running the line, along with a host of foreign, state-backed train operators. Last week a French joint venture of Keolis-Eurostar, two companies majority owned by state railways SNCF, confirmed it would bid to run the line.

An invitation to tender will be issued to shortlisted operators in February 2014. The contract is due to be awarded in October next year for a handover in February 2015, just ahead of the next general election. Any delay would give a potential Labour government the opportunity to keep the line in public hands.

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

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China says US has 'responsibility' to resolve debt ceiling row

Vice-finance minister Zhu Guangyao outlines concern over 'safety of Chinese investments in the United States'

A senior Chinese government official on Monday publicly warned Washington about the dangers of the current row over the US’s debt ceiling.

In the Chinese government's first public comments on the deadlock Zhu Guangyao, the vice-finance minister, told reporters in Beijing: “The United States is totally clear about China's concerns about the fiscal cliff. We ask that the United States earnestly takes steps to resolve in a timely way before 17 October the political [issues] around the debt ceiling and prevent a US debt default to ensure safety of Chinese investments in the United States and the global economic recovery. This is the United States' responsibility.”

China is the largest foreign holder of US debt, owning about $1.277tn of US Treasury bonds at the end of July, according to the Treasury. For bond holders, economists and other investors, the row over the debt ceiling is likely to have a far greater impact than the current government shutdown.

The US Treasury secretary, Jack Lew, warned again on Sunday that by 17 October the US will be left with about $30bn in cash to meet its obligations – which are about $60bn a day – unless Congress acts soon to increase the US’s borrowing limit. “Congress is playing with fire,” Lew told CNN”s State of the Union. “If the United States government, for the first time in its history, chooses not to pay its bills on time, we will be in default. There is no option that prevents us from being in default if we don’t have enough cash to pay our bills.”

Republican House Speaker John Boehner said at the weekend that his colleagues would not agree to raise the debt ceiling unless any deal included measures to rein in public spending. President Barack Obama has accused Republicans of “blackmail” in their attempts to kill his healthcare reforms, known as Obamacare.

Zhu said China and the US were "inseparable". "The executive branch of the US government has to take decisive and credible steps to avoid a default on its Treasury bonds," he said. "It is important for the US economy as well as the global economy."

"We hope the United States fully understands the lessons of history," Zhu added, referring to a similar row over the debt ceiling in 2011 that led to a historic downgrade of the US's AAA credit rating and panic on stock markets worldwide.

Zhu’s comments came as US stock markets fell following the continued impasse over the shutdown and debt ceiling over the weekend. The Dow Jones Industrial Average fell 136.34 points, or 0.9%, to 14,936.24, below the 15,000 mark it reached for the first time last May. All the other US markets closed down, with the S&P 500 dropping 37.38 points (0.98%). Most European and Asian markets closed down as rises were seen in US Treasury notes and gold prices, both traditionally seen as safe havens. The dollar lost ground against the yen and the euro.

Daniel Rosen, founding partner of the research firm Rhodium Group, said political infighting in Washington was likely to have a profound impact on Sino-US financial relations.

“I believe that in the final analysis the US is going to pay its debts and is not going to default on its obligations,” he said. “Even assuming that case, it is politically untenable for the government of China to be in a position, whether frequently or occasionally, where the life savings of the country are going to eroded by the political shenanigans of another country.”

Rosen said China was looking at ways to move its huge dollar denominated investments into the private sector and out of the government’s coffers before the current crisis began. “But for the moment they are trapped and they have to deal with the portfolio they have,” he said.

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

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Royal Mail IPO: ministers to increase amount of public shares

Government is making plans to ensure 'smaller investors get their share', and do not lose out to banks and hedge funds

The government will bow to a mounting outcry and ensure the public do not lose out to banks, hedge funds and other financial speculators in the £3bn selloff of Royal Mail shares.

The Guardian understands that ministers are making plans to increase amount of Royal Mail shares available to the public at the expense of those set aside for banks, following overwhelming demand in the biggest privatisation since the sale of the railways in the 1990s.

Michael Fallon, the business minister in charge of the flotation, said he would do all he could to ensure "smaller investors get their fair share", ahead of Tuesday's midnight deadline to buy stock.

Fallon had promised that about 30% of the shares on offer would be reserved for the public but is now understood to be planning to increase this proportion available for small investors and cut back on the amount going to banks if public demand massively exceeds supply.

He said: "No decisions have been taken on allocation but I'm committed to making sure smaller investors get their fair share."

The government has been under pressure to ensure the public do not lose out to banks and hedge funds, which are hoping to make instant profits from the sale of the 500-year-old postal service.

Chuka Umunna, the shadow business secretary, said: "This is turning into a dream and a bonanza for City speculators and hedge funds, meanwhile the taxpayer … is getting massively shortchanged."

Financial institutions have ordered several times the number of shares available to them, amid reports that the government hugely undervalued the company, and the shares could soar by more than 30% on their first day's trading on Friday.

Stockbrokers have also reported unprecedented public demand for the shares, to be priced at between £3-3.30 each, with some staying open all weekend and until midnight Tuesday when applications close.

Alastair McCaig, market strategist at IG Index, said public demand for Royal Mail's shares has been "even stronger than we saw in Facebook".

IG said excitement over the flotation had sparked a frenzy in the pre-trading "grey market", with investors betting the shares will rise to £4 on Friday – 70p more than the maximum the government has allowed itself to sell them for.

If they do reach £4, the government will have lost out on an extra £400m it could have made if it priced the shares at £4, rather than £3.30.

Panmure Gordon analyst Gert Zonneveld – the only analyst to have published research on the shares – has said he is convinced the government undervalued Royal Mail by more than £1bn. Zonneveld said the shares should have been sold between £3.70 and £4.50, considerably higher than the government's initial range.

Vince Cable, the business secretary, on Monday hit back at Umunna for accusing the government of undervaluing the company and selling it on the cheap.

"It is irresponsible to imply that a share offering looks significantly undervalued," he wrote in a letter.. "I think you should consider the risk that you may be influencing the decisions of retail investors. Equity investment always involves risk, particularly when the company in question is new to the market. In the light of this it is dangerous to imply that there is an easy bargain to be made.

"Panmure Gordon is only one voice and their report notes both near term risks and opportunities. We are alert to value for money criticism and have learnt from the mistakes of previous governments' asset sales. QinetiQ is one key example under the last government."

In 2007, the National Audit Office criticised the float of defence company QinetiQ saying taxpayers lost out to the tune of tens of millions of pounds.

The government's valuation of Royal Mail is based on advice from investment banks Goldman Sachs and UBS after £21.7m in fees was paid to advisers. Applications for shares close at 11.59pm on Tuesday. The minimum public application is £750. If the public apply for more shares than those available they will "scaled back", meaning applicants will not be able to buy all the shares they have applied for. Big applications will be scaled back at a greater rate than small applications.

Up to 62% of the company will be listed on the stock market on Friday. A further 10% will be given to Royal Mail's 150,000 employees.

The final price the shares sell at will not be decided until the company floats on the stock market on Friday.

Trading places

One of the accusations levelled at the Thatcher and Major governments was that they sold off Britain's nationalised industries too cheaply. A look at how the shares fared on their first day of trading lends weight to this argument, although long-term returns give a clearer picture of a company's value.

British Telecom was the Thatcher government's first big privatisation. Its shares jumped 35% on the first day of trading in 1984, but when two later tranches were offered the price rose only 5% each time. British Gas followed in 1986, helped by its "Tell Sid" campaign. Its shares rose 10% on the first day. Powergen and National Power both soared by about 22% on their first trading days but when further batches of shares were sold later the price rose less than 5% in both cases.

In 1987, British Airways' shares leapt by two thirds on their first day of trading. But later that year BP's privatisation was launched at the time of Black Monday when shares plunged in New York and London on 19 October. Underwriters were left holding shares priced at 330p that were trading at 262p.

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

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New car sales hit five-year high

SMMT figures show rise for 19th consecutive month as car market 'reflects growing economic confidence'

Car sales jumped in September to record the strongest monthly figures in more than five years as the automotive industry underlined its importance to the UK's economic recovery.

According to the Society of Motor Manufacturers and Traders (SMMT) sales rose 12.1% last month to 403,136 vehicles, following 10.9% annual growth in August and 12.7% growth in July.

The car industry has now registered 19 months of improving sales and become widely regarded as one of the main reasons why the UK avoided a triple dip recession this year. The numbers for September – a key sales month when new registration plates are issued – represent the highest monthly total since March 2008.

Along with mobile phone contract sales and a surge in demand for hotels and restaurants, cars have proved to be the main big-ticket item favoured by consumers, who until recently have shunned new furniture and clothes in favour of new vehicles.

Private new car sales were particularly healthy, which Howard Archer, UK economist at IHS Global Insight, said was "fuelled by sharply improved consumer confidence and record high employment".

He said consumers were also taking up special offers and packages, and shifting to more fuel-efficient cars at a time of high petrol prices.

"The rise in consumer confidence to a 70-month high in September and ongoing improvement in business confidence came at a particularly good time for the car industry given that September is a key month for sales," he said.

UK car sales. Source: SMMT

"Furthermore, there are likely to be a significant number of people who have held off for an extended period from replacing their car, due to difficult times, who have now reached the stage where they really need to act and are more prepared to do so due to the brighter outlook."

The mis-selling of payment protection insurance has also been singled out as a boon for car sales, with some of the £11.5bn in compensation paid out to consumers being spent on new vehicles.

Private car sales climbed 17.9% year-on-year to reach 208,844 in September. Overall, private car sales were up 16.7% year-on-year in the first nine months of 2013.

However, several economists have issued warnings that sales may plateau as the capacity of consumers to borrow to buy new cars begins to wane.

The latest figures show that annual earnings growth was limited to 1% in the three months to July while consumer price inflation stood at 2.7% in August.

On the plus side, real household disposable income rose by 1.5% quarter-on-quarter in the second quarter, mainly as a result of the coalition government's hike in the personal tax threshold, but this followed a dip of 1.7% in the first quarter and disposable incomes were down by 0.7% year-on-year.

Most of Britain's car manufacturing is exported and the Nissan Note, which recently began production at the company's UK base in Sunderland is no exception. Honda, Toyota and BMW's Oxford plant making Mini Coopers are all working at capacity and exporting around eight out of 10 cars they produce.German carmaker Daimler said on Friday that it sold a record number of Mercedes-Benz cars in September. The Stuttgart-based firm said it sold 142,994 vehicles in September, up 15.9% on the same month a year before.

It credited new versions of its E-Class and S-Class sedans, as well as increased sales of its smaller models such as the A, B and CLA classes. Compacts increased sales as a group by 68.3% in the first nine months of the year.

September sales rose 6.7% in the US, the brand's biggest single market, and 21.2% in China. Sales at home in Germany rose only 1.5%, however.

Mercedes-Benz also increased sales 14.2% in Europe, much of it in Britain and areas such as Sweden that have recovered more strongly.

Archer said: "The motor industry will be hoping that the recent improvement in UK economic activity is sustained and extended, and that this leads to further strengthening in consumer and business confidence, and their willingness to splash out on new cars."

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

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