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Thursday, 25 July 2013

Vince Cable has swallowed the bankers' line on capital

Business secretary used the phrase 'capital Taliban' to describe Bank of England officials, which was both unhelpful and wrong

Hark the words of Robert Jenkins, former external member of the Bank of England's financial policy committee, earlier this month: "I fear that the banks have bamboozled government into believing that society must choose between safety and growth, between safer banks and bank shareholder value, and between a safer financial framework and a competitive City of London. These are all false choices."

Bad news, Mr Jenkins, your fears are well founded. On the evidence ofVince Cable's extraordinary outburst to the FT, the government has indeed been well and truly bamboozled.

The business secretary used and endorsed the phrase "capital Taliban" to describe Bank of England officials. The term is bankers' favourite way to insult the Bank and, aside from bad taste, there are two reasons why a cabinet member should not use it.

First, the criticism of the Bank's Prudential Regulation Authority (PRA) is plain wrong: asking banks to hold more capital should not impede lending.

Second, ministers should keep their noses out of the day-to-day judgments of the independent regulator.

This row has broken out after the PRA demanded that lenders achieve leverage ratios of 3% – that is, that they should hold £3 of capital to support £100 of lending. By no stretch of the imagination can 3%, implying a 33 times levered balance sheet, be regarded as an onerous demand. The Vickers commission argued for 4%, meaning a leverage cap of 25 times, and the US is heading towards 5%.

Nor is a 3% leverage ratio for British banks hard to achieve in practice. All the main lenders apart from Nationwide and Barclays are there already. Nationwide – conceivably an institution with a "safe" book of mortgage assets – has been given until the end of 2015 to fall into line. The PRA's verdict on when Barclays must conform is awaited eagerly, making the timing of Cable's comments appalling.

The key point is that more capital and more lending go hand-in-hand, as Sir Mervyn King stressed time and again when he was governor. "Capital supports lending and provides resilience. And, without a resilient banking system, it will be difficult to sustain a recovery," King said in his last Mansion House speech.

Business secretary Vince CableCable seems to have swallowed the bankers' line that the regulator is making them assemble vast sums of capital that could otherwise be used to lend to small businesses. No, that is not how the system works: to repeat, weakly capitalised banks won't lend because they can't lend. And getting more capital into the system looks a sensible policy when the starting point is a banking industry that is still hugely over-leveraged by historical standards. As Jenkins says, we don't have to choose between safety and growth.

Of course, it suits the lenders to muddy the waters. Barclays would be unpopular with its shareholders if it had to whack them with a rights issue to find capital in a hurry. Nationwide has a particular reason to worry because it is a building society without access to shareholder capital. But the PRA's job is to manage financial stability. By speaking out, Cable makes it harder for the Bank to be seen to act independently.

What if Barclays is next week given a Nationwide-style waiver to meet the 3% ratio by the end of 2015? Would that be because the PRA is satisfied with the current financial strength of Barclays or because the regulators have been intimidated by Cable and the Treasury, which apparently shares the view that jihadists are running amok in Threadneedle Street?

Mark Carney, the new governor, should be spitting blood. He's got a tough job. He doesn't need politicians who make it harder. Cable, who in opposition was quick to spot the danger in running an under-capitalised banking system, should know better.

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

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Unilever sales miss forecasts as emerging markets growth slows

Anglo-Dutch maker of Marmite, Ben & Jerry's, Hellman's and Persil shows little sign of recovery in North America or Europe

Consumer goods giant Unilever has warned that growth in emerging markets was slowing, while there was "little sign" of recovery in North America or Europe.

The Anglo-Dutch firm reported underlying sales growth of 5% in the second quarter on Thursday, just below market expectations.

The maker of Marmite and Persil said growth in emerging markets in the quarter was 10.3%, compared with 10.4% in the previous quarter, while developed markets fell by 1.3%.

"Growth is slowing in emerging markets, as macro-economic headwinds influence consumer behaviour," the company said.

"Within this overall trend we see a mixed picture across the major countries reflecting different local circumstances. Developed markets remain sluggish with little sign of any recovery in North America or Europe."

Unilever makes products including Marmite, Cornetto, Pot Noodle, Flora, Vaseline and DomestosShares in Unilever fell 1.5% in early trading, losing 41p to £26.74.

The FTSE 100 company's strongest growth came from its home care and personal care divisions, while refreshment was held back by "adverse weather" which hit ice cream sales. Its ice cream brands include Ben & Jerry's, Magnum, Wall's and Carte D'Or.

In its foods division, the good growth of Knorr and Hellmann's was offset by a decline in spreads.

Group turnover in the first half overall rose 0.4% to €25.5bn (£21.9bn), while pre-tax profit rose 14% to €3.6bn.

The chief executive, Paul Polman, said: "Our innovation pipeline is robust which will be vital as we navigate the slowdown in many parts of the world.

"The tougher economic environment and reinvigorated competition require us to set the bar higher on innovation and to increase investment behind our brands. At the same time we need to continue to take costs out of the system to help finance this investment."

The International Monetary Fund warned earlier this month that emerging markets are slowing down, as it cut its forecasts for global growth this year.

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

GlaxoSmithKline CEO: London HQ knew nothing of China scandal

Sir Andrew Witty said the drug firm had 'no sense' of the 'shameful' allegations that some GSK China executives bribed doctors with cash and sexual favours worth £320m

The chief executive of GlaxoSmithKline has insisted the British drugs group had no knowledge of the alleged cash and sexual favours bribery scandal which has engulfed the company in China before the police arrested four of its senior Chinese executives last week.

Sir Andrew Witty, GSK's chief executive, said the company's headquarters had "no sense" of the "shameful" and "deeply disappointing" allegations that some GSK China executives are the "godfathers" of a criminal scam, bribing doctors with cash and sexual favours worth £320m.

Witty, who was speaking publicly about the "fraudulent behaviour" for the first time, said: "It appears that certain senior executives in the Chinese business have acted outside of our processes and our controls to both defraud the company and the Chinese healthcare system."

He said the company has "zero tolerance" for the alleged behaviour, which is "totally contrary" to GSK's values.

However, he repeatedly refused to say if he would hand back some of his bonus this year if the company was found to have broken the law in China. He said the level of his bonus – which totalled £2.7m last year – is "really a matter for the board".

Witty added that he was "absolutely committed to rooting out corruption and we are absolutely committed to getting to the bottom of what has happened".

The GSK boss, who was paid £3.9m last year, said he was "absolutely willing and ready" to go to China to head up the company's investigation. However, he is leaving the day-to-day handling of the crisis to Abbas Hussain, GSK's head of emerging markets, who flew out to China take control of the situation last week.

He refused to provide details of how the alleged fraud operated, but said the Chinese policeinvestigation is focused on the four Chinese nationals already detained by the police. He said they appear to have been "potentially defrauding GSK and also at the same time allegedly doing some things in the market which are clearly inappropriate and illegal".

The Chinese investigators have "no allegations" against Mark Reilly, the British head of GSK China, or Steve Nechelput, its finance director in the country, Witty said. He said Reilly, who has left China for the UK, and Nechelput, who the Chinese have banned from leaving the country, have been helping GSK with its investigation.

GlaxoSmithKline (GSK) headquarters in London. CEO says HQ was unaware of the alleged bribery in ChinaWitty said GSK's head office in London had no knowledge of the alleged fraudulent activity until the Chinese police raid its offices in Shanghai earlier this month. "As far as headquarters, we had no sense of this issue."

This is despite GSK declaring last month that a four-month internal investigation into allegations of bribery and corruption in China found "no evidence of corruption or bribery in our China business".

Witty said the previous allegations raised by a whistleblower were "quite different" to the new charges. "They are two completely different sets of issues: we fully investigated the first and of course this has now surfaced in the last couple of weeks," he said.

GSK has already pumped in extra cash into its investigations team in China to help them to get to the bottom of the scandal, Witty said.

Despite the apparent serious breach of compliance, Witty said GSK's controls and audit systems are "extremely robust", but promised the company would "learn from this and make changes".

It comes a year after Witty promised a company-wide overhaul to prevent a repeat of a scandal in which GSK staff tricked and bribed doctors into prescribing dangerous antidepressants to children in the US. "We're determined this is never going to happen again," he said last summer after GSK paid a record $3bn (£1.9bn) fine to settle the claim.

GSK has "reached out" to regulators in the UK and the US and has "consulted with the UK government" about the Chinese investigation.

He warned that the allegations are likely to have "some impact" on GSK's future performance in China, but said it was "too early to quantify the extent".

GSK reported a 2% rise in second-quarter sales to £6.6bn. Its drug and vaccine sales in China rose 14% to £212m. China accounts for just over 3% of the company's global sales.

China indicated that its investigation into the "rampant" bribery scandal will be extended to other foreign and local drug companies. "It will not be surprising if more pharmaceutical companies and hospitals, domestic or international, are to be involved in probes in the days to come," the Chinese state news agency said yesterday. "Big international firms should shoulder [their] due responsibilities to bid farewell to malpractice, setting a good example and serving as a wake-up call for domestic pharmaceutical companies."

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

UK GDP growth of 0.6% shows 'Britain is on the mend,' says George Osborne

The pace of second-quarter economic growth doubled from the first three months of 2013, ONS data shows

Britain's recovery picked up pace in the second quarter, official figures have confirmed, with GDP expanding by 0.6%.

George Osborne, the chancellor, welcomed the fresh evidence that the economy has moved, as he has put it, "out of intensive care".

"Britain is holding its nerve, we are sticking to our plan, and the British economy is on the mend," he said, "but there is still a long way to go and I know things are still tough for families. Unlike the unbalanced economy before the crisis, we are going to make sure that everyone benefits from this recovery."

Labour's shadow chancellor, Ed Balls, speaking from the US, said the stronger growth was "both welcome and long overdue" – but he stressed that for most families, living standards are still falling. "While millionaires have been given a huge tax cut, for everyone else life is getting harder with prices still rising much faster than wages." Balls added that the US economy has grown almost three times as fast as the UK's since mid-2010.

George Osborne meets workers on a section of the M6 motorway near Birmingham on Wednesday night.The 0.6% quarterly rate of growth was twice the pace of the first three months of 2013, and exactly as predicted by economists, after signs of a pickup in retail sales and strong readings in business surveys.

"The economy is coming out of the shadows, with a doubling in its quarterly growth rate from 0.3% in Q1 to 0.6% in Q2. The recovery is not quite on dry land yet, but at least it is a step in the right direction," said David Brown, of consultancy New View Economics.

The Office for National Statistics (ONS) said that all sectors of the economy recorded growth between April and June. Both industrial production, and the key services sector, expanded by 0.6%, the ONS said, with construction – which has been a heavy drag on the economy in recent quarters – picking up by a healthier than expected 0.9%.

Within services, which makes up almost 78% of economic output, the ONS said there was "widespread growth" with retail and hotels, transport and communications, and business and government services ,all showing an improvement.

John Longworth, director-general of the British Chambers of Commerce, said its members had become more optimistic in recent months. "Firms are feeling upbeat and are capable of expanding. More and more are adopting a 'have a go' attitude when it comes to exporting, which is really encouraging as this will go a long way to driving growth further still."

Measured at an annual rate, GDP was 1.4% higher than the same quarter a year ago, but the ONS stressed that the extra working day, after 2012 output was trimmed by the jubilee bank holiday, had flattered the calculation.

Despite the modest upturn, the economy still has not recovered the output that was lost during the deep recession of 2008-09: the ONS said GDP remains 3.3% below its pre-crisis peak.

The Treasury hopes that with the eurozone crisis in remission, the economy is now poised for a more solid recovery, after almost three years of flatlining. As recently as April, there were fears that after shrinking in the final quarter of 2012, the UK could have slipped into a renewed recession.

Chris Williamson, chief economist at City data provider Markit, said: "Prospects look good for a continuation of the recovery in the third quarter, with consumers and businesses both helping drive the upturn. There are even signs that exporters will see improved sales, helping drive the long-awaited re-balancing of the economy.

The relatively firm growth figure is also likely to influence the Bank of England's thinking, as it prepares to decide whether to deliver renewed stimulus to the economy in August. The new governor, Mark Carney, favours giving growth an extra fillip through so-called "forward guidance", which reassures financial markets and consumers that interest rates will remain low for a prolonged period; but other members of the Bank's monetary policy committee are known to be more sceptical.

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

Wednesday, 24 July 2013

Demand for real ale drives JD Wetherspoon sales rise

Value pub chain's like-for-like sales rose 3.5% in the 11 weeks to 14 July

Investors in JD Wetherspoon have raised a glass to the value pub chain after it reported better-than-expected sales, on the back of strong demand for real ale, steak meals and hot drinks.

The pub chain's like-for-like sales rose 3.5% in the 11 weeks to 14 July, putting the company on track for improved results at the end of the financial year. Shares in the business rose 6% to 708.5p in early trading.

JD Wetherspoon, which opens its 888th pub next week, is selling record numbers of Aberdeen Angus steaks, said non-executive chairman and founder Tim Martin.

Hot drink sales were also doing very well, he added, with a typical Wetherspoon's pub selling nearly 1,000 cups of tea and coffee a week – "by some way the highest in the industry".

Real ale sales were also up, he said. Although overall beer sales were flat, this compares favourably to an industry average of declining sales.

The recent spell of hot weather has led to "slightly subdued sales", Martin said, as the pub chain has fewer gardens than the industry average. But last winter's lighter snowfall – following the preceding year's heavy snows that kept people indoors – helped the company to raise like-for-like sales by 6% in the 50 weeks to 14 July.

JD Wetherspoon is on track for improved results at the end of the financial year. Prospects for the economy are improving slowly, Martin said.

"People are thinking by the skin of our teeth we have dodged financial Armageddon and maybe we will celebrate with a few pints at Wetherspoons. I think if you summed up the great British consumer that would be their attitude. They are not planning on splashing out at the Ritz." He added: "We have had a massive debt binge; we have now got a hangover and it is going to take a decade or two for the hangover to subside."

The pub entrepreneur also said that the pub industry continued to lose business to the supermarkets, which do not charge VAT on food, while pubs must charge the tax at 20%. "We are affected by [the VAT disparity], but we have been able to fight a rearguard action."

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

Manufacturers see first rise in new orders for a year

CBI survey finds firms have increased production and employment as outlook improves

Manufacturers started the summer in buoyant mood following the first rise in new orders for a year, according to a survey by the business group the CBI.

Firms increased production and employment as the outlook for the sector improved in the three months to the end of July.

The quarterly industrial trends survey also found that firms anticipated a further modest rise in orders and output in the coming three months, while expectations for growth in new domestic orders were at their highest since April last year.

However, the improving situation, which is also reflected in other surveys of manufacturers, failed to persuade firms to increase investment in new equipment.

The CBI said planned capital expenditure on plant and machinery over the next 12 months had deteriorated slightly. "When asked about factors likely to limit investment, manufacturers most often cited uncertainty about demand, which was of slightly greater concern than usual," the CBI said.

The government has waited several years for a strong boost to investment after a severe slowdown in the wake of the financial crash. But the eurozone crisis and the government's own austerity measures have delayed the expected return of consumer confidence, widely seen as a precursor to a rise in investment spending.

The Office for Budget Responsibility, which monitors the economy for its impact on the government's finances, has pencilled in a recovery in investment over the next two years to underpin a return to average growth levels.

Manufacturers' intentions to invest in plant and machinery dipped -1% compared to -9% in the previous quarter.

he production line at Nissan's factory in Sunderland. The CBI said optimism in the manufacturing sector had risen again.The survey's main total orders balance picked up from -18 in June to -12, which is its strongest level since last December. Striking an even brighter note, 32% of firms reported an increase in total new orders against 27% that said they decreased, giving a balance of +5%.

Samuel Tombs, UK economist at the consultancy Capital Economics, said the sector's recovery was gathering momentum, though at a slower pace than the services sector.

"This improvement brings the CBI's survey in line with the relatively upbeat tone of the other surveys. But with demand for exports weak in the UK's largest market, the eurozone, and domestic consumers' real pay still being squeezed, it is hard to see how the manufacturing sector's recovery can gather much more pace in the near term," he said.

Stephen Gifford, the CBI's director of economics, said manufacturers had seen a pick-up in activity across the board, but agreed there was still a degree of nervousness around the boardroom tables of many firms.

"Optimism in the sector has risen again, and demand conditions are expected to improve further in the coming three months," he said.

"The gentle rise in confidence is being reflected in firms' headcount, which is rising at the fastest rate in a year.

"But manufacturers remain concerned about political and economic conditions abroad limiting export orders, which is likely to reflect heightened uncertainty over the global economic outlook."

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

Tuesday, 23 July 2013

Archbishop of Canterbury warns of 'lynch mob' out to blame bankers

But Justin Welby also says it is unacceptable that top executives deliberately made sure they did not know what was going on so they could plead ignorance

The archbishop of Canterbury, Justin Welby, has described blaming individuals for the banking crisis as "lynch mobbish". But the archbishop, a member of the parliamentary commission on banking standards, also said top bankers had avoided responsibility by ensuring they did not know what was going on in their banks.

"Certainly one of the trends that has been very unfortunate, to put it mildly, is that in some financial services companies there was a clear policy of not telling the top people. They made sure they weren't told things, because then they could plead ignorance, and that's just unacceptable.

"But this business of somehow saying that one individual bears the whole blame as opposed to simply the accountability – it feels lynch mobbish."

The archbishop was speaking to the bishop of Liverpool for a BBC Radio 4 documentary to be broadcast on Monday night, in his first public comments on the banking industry since the parliamentary commission published its damning report in June. The cross-party commission, led by Conservative MP Andrew Tyrie, made more than 80 recommendations, from introducing a new criminal offence to make it easier to send reckless bankers to jail to getting more women on the trading floor.

Justin Welby worked as an oil executive before he became a priestIt also accused senior bankers of evading their responsibilities by closing their eyes to what was happening on the front line.

Welby told the BBC he felt some sympathy for banking executives and admitted he was not sure he would have behaved differently had he been in their place. Welby also described the tensions between his faith and the business world when he worked as an oil executive, before taking orders.

"What I remember is the sense that the culture and values of the financial world enveloped you and began to shape one into a new ethical shape," he said. "You were aware that you were struggling with this and often rather frightened by what was going on."

The bishop of Liverpool also spoke to Antony Jenkins, chief executive of Barclays, who said he was not convinced that a criminal offence of negligence within the financial services industry would solve the problem.

"The biggest driver of change in the behaviours of banks has to come from within the banks themselves – they have to come to a realisation that they will be better businesses commercially and ethically if they change their behaviour."

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