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Monday, 4 November 2013

Twitter claims $13.6bn market valuation as tech rivals take aim

'Elite' social media company raises its IPO asking share price by 25% and reveals IBM has accused it of violating three patents

Twitter, after canvassing professional investors for a week on how much they would be willing to pay for its shares, raised the asking price of its stock by 25% on Monday.

The company said it would value its IPO at between $23 and $25 a share, up from the $17 to $20 range, indicating that it was a popular potential investment. Traditionally, however, the banks advising companies on their public debuts start out with a modest asking price, in the hopes that investors will prove willing to pay more.

Twitter also stopped selling its shares a day early, according to a news report by Reuters. It's common for companies to keep order books open for investors until the day before the IPO, but Twitter plans to close the books on Tuesday at noon, Reuters said. In the traditional signals of Wall Street, that move could be interpreted in two ways: it could indicate either high demand for the shares or that investors are tapped out.

Twitter, which plans to list its shares for the first time on the New York Stock Exchange on Wednesday, can now claim a market value of $13.6bn before its shares have even started trading. The company could raise as much as $1.4bn in the offering.

MKM Partners, a research firm for professional investors, said Twitter will be in the competitive "elite" of tech companies by its market value.

"We look at a [comparison] group including Facebook, LinkedIn, TripAdvisor, Yelp and Zillow," MKM analyst Rob Sanderson wrote in a client note late last week. "These companies are regarded as 'category killers', each with very strong operating momentum, disruptive characteristics and open-ended opportunities."

That doesn't necessarily mean smooth sailing ahead, however. Twitter is facing business challenges from rivals as well as skepticism from investors burned by the Facebook IPO.

Twitter is not seen as a good investment by nearly half of active investors, according to a new CNBC-AP poll out Monday.

"That sentiment is stronger from higher-income respondents; some 56% of those with incomes of $75,000 a year have doubts about its investment prospects," CNBC wrote.

In addition, as Twitter's profile rises, rivals are taking aim at its business prospects. "We presently are involved in a number of intellectual property lawsuits, and as we face increasing competition and gain an increasingly high profile, we expect the number of patent and other intellectual property claims against us to grow," the company said.

Twitter revealed on Monday, for instance, that tech giant IBM has claimed that Twitter has violated three of its patents. The patents involve the presentation of advertising and the process of searching for user contacts.

By striking at Twitter's advertising plans, IBM is striking at the company's heart. Twitter gained 85% of its revenue from advertising in 2012, and an even higher percentage – 89% – in the first nine months of this year. "We generate substantially all of our advertising revenue through the sale of our three promoted products: promoted Tweets, promoted accounts and promoted trends."

Twitter said IBM was not suing, however, and only inviting a negotiation. In its public filing, Twitter said "we believe we have meritorious defenses," although it also said "there can be no assurance that we will be successful" in resolving the dispute.

Article Source : http://www.guardian.co.uk
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China prepares to liberalise finance as hedge funds and estate agents salivate

Beijing is making prepartions to let its money off the leash, and the repercussions will be felt everywhere

It's a long way from Beijing to Belgravia but London's upmarket estate agents would be well advised to keep a close eye on developments in China over the next 10 days. The price of a mansion in London's more fashionable districts is rising fast. Cash buyers from overseas have snapped up houses with little or no regard of the cost, creating a property microclimate divorced from the rest of the market.

The Bank of England is keeping tabs on the boom, concerned that the flood of foreign cash pushing up the price of mansions could – if left unchecked – herald the start of the next bubble.

Well, you ain't seen nothing yet. The freeing up of China's economy over the past 35 years has been methodical. First it was agriculture. Then it was industry. Now, the next phase of liberalisation planned by the ruling cadre of the Communist party includes finance.

A host of possible reforms are being considered. These include offering higher interest rates for domestic savers backed up by deposit insurance for savings accounts and making China's currency, the renminbi, convertible.

Unfettered movement of capital out of China is not going to happen overnight, but it could happen within five to 10 years. That's why George Osborne was in China last month seeking to make London the global hub for dealings in the renminbi. That is why fund managers, hedge funds, private equity firms and property specialists in Britain are licking their lips.

China's leaders have encouraged speculation that radical change is afoot by talking about a "masterplan" for the economy. There have been signs that Beijing is prepared to sacrifice quantity for quality: accepting that growth needs to be slower but more sustainable.

Although living standards have risen sharply, China's economic model is investment-intensive. There has been a rapid expansion of industrial capacity to provide goods for export. Heavy debts have been incurred in the process, particularly by local government. The sluggish recovery in the global economy that followed the financial crisis of 2007-08 means that demand for China's manufactured products is growing less quickly than it once was. Hence the feeling that the economy needs more of a domestic focus and that capital should be used less wastefully.

The internal debates about the future of the economy will come to a head next weekend when the central committee of the Communist party meets in its third plenary session since it was elected for a five-year term in 2012.

Historically, the so-called third plenum has been the occasion for the party hierarchy to focus on the economy, followed by big shifts in policy. It was at the third plenum in 1978 that Deng Xiaoping announced the opening up of the Chinese economy: the move that triggered 35 years of stupendous growth.

Fifteen years later, Deng said the economy needed more investment and had to become more export-focused. Within a decade, the country's success in breaking into western markets was crowned by admission into the World Trade Organisation. WTO membership, together with a period in the early 2000s when the global economy was expanding at its fastest rate since the late 1960s and early 1970s, meant there was little pressure to reform China's economy. It was hard to argue with growth rates of 10% and record rates of poverty reduction. Now, though, expectations are high that President Xi Jinping and Premier Li Keqiang will act.

Analysts at Capital Economics say the third plenum will come up with a direction of travel rather than a detailed policy programme. But they expect the new leadership to address three key issues: the low share of national income going to average households; the dominant role of the state in much of the economy; and the inefficient use of capital.

Xi and Li are likely to proceed with caution. There will be strong opposition to reform from vested interests who like the status quo. What's more, China's fragile financial sector needs handling with care. The balance sheets of commercial banks and the shadow banking sector are bloated with loans to state-owned enterprises and real estate companies. Many of these loans are non-performing, and there are enough parallels between China today and the United States half a dozen years ago if Beijing wishes to observe the consequences of over-hasty or badly sequenced reforms.

Even so, the feeling seems to be that ducking the need for change will merely store up even bigger problems for the future. Deregulation, land reform and a strengthening of the social security system are on the agenda.

But it will be financial reform that will be of most interest to the outside world. There has been liberalisation in this sector but Capital Economics says this is set to accelerate by allowing the renminbi to operate in a wider trading band, allowing full private ownership of banks, facilitating the development of the corporate bond market and loosening curbs on cross-border capital flows.

In the US, there has been much agonising over the emergence of China as a rival economic superpower. America's trade deficit with China has been a particular cause of concern, with Beijing accused of manipulating the renminbi exchange rate to dump goods in the west. Fears have been expressed that America is vulnerable to a financial Pearl Harbor: a sudden decision by Beijing to stop buying US Treasury bills.

In the light of what is going to be discussed later this week, such fears look overblown. That's not just because such a move would be a pyrrhic victory for China, since it would destroy the value of its assets. It's also because bit by bit, China's economy – if not its political structure – is being reshaped along the lines sought by Wall Street and by American-owned transnational corporations.

Back in the late 1990s, US multinationals demanded that China accept more stringent conditions than had been imposed on other developing countries in order to secure WTO membership. Beijing accepted. Now America wants two things: China's financial sector to be opened up to US banks and the country's savings to boost western capital markets. More than likely, Washington will get its way, perhaps not immediately but with profound effects.

Why? Well, consider this. America, the world's biggest economy, has savings of $2.8tn (£1.7tn); China has more than $4tn. As a result, the impact of financial liberalisation in China will make the flow of funds into the west from Russian oligarchs look inconsequential.

As Diana Choyleva of Lombard Street Research notes, China's elite already sends its children to Britain to be educated. The money is about to follow. Which is why the hedge-fund owners of Mayfair and the estate agents of Belgravia have every reason to be cheerful.

Co-operative Bank to cut hundreds of jobs as new chiefs clamp down on costs

Company has sunk to a loss and aims to return to profit – but also has plans to state its ethical stance officially for first time

Co-operative Bank is expected to signal on Monday that hundreds of jobs could be under threat as part of a pledge by the new management team to cut costs.

In documents due to be published by the bank, it will signal a need to shed costs from a business that employs 10,000 people as it scrambles to return to profit.

The bank, which declined to comment, has sunk to a loss and needs to raise £1.5bn under a controversial proposal that will require the Co-operative Group to concede control of the bank after pressure from two major US hedge funds.

Prospectuses setting out details for bondholders are scheduled to be published on Monday to provide information about the new business plan of the bank and the exact terms being offered to bondholders who are to own 70% of it.

The Co-operative Group, which owns funeral homes, supermarkets and pharmacies, will set out that it now expects to put between £400m and £500m into the bank, while bondholders will find the remainder.

Under a previous plan, announced in June, the group planned to put in £1bn and keep a 25% stake, but that sum has now been reduced after protracted discussions with a group of bondholders under the name LT2 – so called because they own lower tier two debt.

Two hedge funds, Silver Point Capital and Aurelius, have led the LT2 Group and will end up with shares in the Co-op Bank which is to be floated on the stock market.

The Co-op Group will be the largest single shareholder with a 30% stake and none of the others will own more than 10%.

The bank hopes to quell concerns that its ethical status will be undermined by the stock market flotation, and the involvement of the hedge funds, by writing its commitment to an ethical stance in its articles of association. This will be the first time its stance has been spelled out so clearly.

The bank, which is already a plc but owned by a mutual, will also focus on retail and small business banking and pare back costs, although precise details of the scale of job losses are not expected to be published in the prospectuses.

The failure of the Co-op to take over 631 branches from Lloyds Banking Group in the Project Verde deal will continue to be examined this week when the former chairman of the bank appears before the Treasury select committee of MPs.

Former chairman Paul Flowers is likely to be asked about his banking qualifications when he gives evidence, which was delayed from last week when former chief executive Barry Tootell appeared.

The committee has already heard from Peter Marks, who was chief executive of the overall group until May, who described its problems as a "tragedy".

Some of loans that the bank inherited from the 2009 deal to buy the Britannia building society are now being wound down by the Co-op.

Friday, 1 November 2013

Ross McEwan to make first presentation to City as RBS boss

New Zealander expected to set out ambitions for RBS amid speculation he will also announce outcome of 'bad bank' review

Ross McEwan is to make his first presentation to the City as boss of Royal Bank of Scotland on Friday amid speculation that the outcome of a government review into spinning off a bad bank will be announced with the third quarter results.

The New Zealander is expected to set out an ambition to end lingering concerns about the bank's financial strength after taking over from Stephen Hester on 1 October. It is thought McEwan will outline the outcome of the government-commissioned review into whether a "bad bank" of underperforming loans should be spun out of 81% taxpayer-owned RBS.

He is also expected to publish a report the bank commissioned from the former Bank of England deputy governor Sir Andrew Large after it faced criticism about its lending to small businesses.

It is thought the government will step back from asking RBS to create an extensive bad bank holding as much as £120bn of problem loans. But McEwan is expected to set out his thoughts on the future of the RBS investment bank, its US arm, Citizens, and its private bank Coutts – banker to the Queen.

Citizens, already due for a stock market flotation in 2015, could be sold off more quickly, and there has been repeated speculation that Coutts could also be earmarked for sale. The investment bank, where the headcount has already shrunk from 25,000 before the bailout to 9,000, could be forced to retrench further.

The new chief executive is not expected to use the third quarter results to outline his strategic vision for the bank he joined a year ago as head of the retail operations. Sky News reported last night however that he would open talks with the government over restarting dividend payments to shareholders, although it could be years before such a move was approved.

McEwan has been readying the bank's staff for the outcome of the government review into a breakup. He recently told them he believed it would resolve an outstanding uncertainty about the future of the bank, bailed out five years ago with £45bn of taxpayer money.

In an email to staff a fortnight ago, he said: "The future of this company will not be about whether we operate in particular areas or where our problem assets sit. The future of this company is about how good a job we do for our customers, including those who are having difficulty repaying their loans. And it will be about how well we live up to all our responsibilities, particularly those we have to the UK."

The same week, George Osborne told the Daily Telegraph he was close to a decision on RBS. "We are looking at the case for a bad bank and if not a bad bank, what is the alternative strategy that really gets on top of the problems in that bank and goes on being what I want it to be, which is a bank supporting the British economy," he said.

The City is anxious about the creation of a bad bank although speculation in recent days has focused on the expansion of the existing non-core division. Even so, Ian Gordon, banks analyst at Investec, said: "We still fear that, even in the absence of an outright good bank/bad bank split, more covert steps may still destroy value".

Mortgage firm sues over Libor

US mortgage finance company Fannie Mae sued nine of the world's largest banks yesterday, including Barclays and Royal Bank of Scotland, accusing them of colluding to manipulate interest rates and seeking more than $800m of damages.

In a complaint filed in the US district court in Manhattan, the company accused the banks of manipulating the London Interbank Offered Rate, or Libor, as well as other interest rate benchmarks.

Fannie Mae said this manipulation caused it to lose money on interest-rate swaps and other transactions. It is also seeking punitive damages.

Smaller rival Freddie Mac filed a similar lawsuit in March against more than a dozen banks.

"Fannie Mae filed this action to recover losses it suffered as a result of the defendants' manipulation of Libor," a spokesman said. "We have a responsibility to be good stewards of our resources."

Four of the banks sued by Fannie Mae – Barclays, Rabobank, Royal Bank of Scotland and UBS - have previously settled with regulators over similar allegations and admitted wrongdoing.

The other bank defendants are Bank of America, Citigroup, Credit Suisse, Deutsche Bank and JPMorgan Chase.

Representatives of Bank of America, Barclays, Citigroup, Deutsche Bank, JPMorgan and RBS declined to comment. The other banks did not immediately respond to requests for comment.

The case is Federal National Mortgage Association v Barclays Bank Plc et al, US District Court, Southern District of New York, No. 13-07720.

RBS has already signalled it is involved in the new global investigation into foreign exchange trading and last night it was reported to have suspended two traders.

Consumer borrowing grows at fastest rate since 2008 crash

Bank of England corrects figure on net unsecured lending, with jump adding to fears UK is relying on debt-fuelled recovery

The Bank of England has admitted to an error in its data and said consumer borrowing has been growing at its fastest rate since before the financial crisis five years ago.

The Bank said on Thursday that net unsecured lending to consumers – overdrafts, personal loans and credit cards – rose by £864m last month, the biggest increase since December and more than double the £411m figure it first reported.

The jump meant unsecured lending in the three months to September increased by 5.8% on an annual basis, the strongest growth since April 2008.

The surge in borrowing will raise concerns that Britain is relying on a debt-fuelled recovery at a time when policymakers have repeatedly stressed the need to rebalance the UK economy away from spending and towards manufacturing and exports.

Ross Walker, UK economist at Royal Bank of Scotland, said: "There is an amber warning light here – not an immediate risk but a medium-term financial stability concern. The notion that we have gone through a full deleveraging cycle is abject nonsense."

On Thursday, new data showed UK consumer confidence has risen to its highest level for six years despite the ongoing squeeze on disposable incomes. While levels of confidence lag those reported in Germany, Australia and the US, and a degree of pessimism remains, confidence has grown at a faster rate in the UK than in most European countries, according to figures from the market research firm Nielsen.

Its survey of more than 30,000 online consumers in 60 countries found those in the UK rated their confidence at 87 in the three months to the end of September, with levels above 100 indicating optimism and below pessimism. German confidence stands at 92 and the US at 98, France stands at 61 and Portugal and Spain at 55 and 56 respectively.

Chris Morley, managing director of Nielsen in the UK and Ireland, said British consumers had coped with rising household costs and falling real-term wages by shopping carefully and hunting bargains.

He added: "Throughout this period, British consumer confidence remained stubbornly weak, but in recent months it has finally taken an upward turn as the green shoots of economic recovery start to show."

Positive news on the UK housing market has boosted sentiment. But Nielsen also revealed a growing perception that the economic downturn in Britain is over.

With a move towards optimism, the proportion saying they were willing to spend crept up five percentage points to 39%.

Utility bills are now by far the biggest concern for people living in the UK. Energy and water bills were highlighted as a top concern by 31% of those questioned, compared with 27% a year ago as several of the major gas and electricity providers have raised prices in recent weeks.

BT Sport channels attract 2 million customers

Telecoms company enjoys rekindling of consumer business with sales rise of 4% in second quarter, the best for 10 years

BT's multimillion-pound venture into sports broadcasting has rekindled its consumer business, with 2 million viewers now signed up to the BT Sportchannels.

Revenues from consumer sales are up 4% in the September quarter, the best performance for 10 years, and BT's television service has added 70,000 subscribers, more than in any quarter since 2008. A further 156,000 customers signed for broadband, meaning BT grabbed the lion's share of new internet subscribers in the quarter.

BT is spending an estimated £1.5bn over three years on premier league football rights, big name presenters Jake Humphries and Clare Balding and lavish television studios in the former Olympic park, in an effort to stop the leakage of customers to rivals Sky and TalkTalk.

The loss of customers with a BT telephone line – a key measure of defections from the company – fell to 65,000 for the quarter, the best performance in five years. The telecoms firm beat City forecasts to report revenues flat at £4,491m, comfortably outstripping the consensus forecast of £4,440m, while profit before tax was also ahead at £499m.

"BT Sport has made a confident start and is already delivering for viewers," said chief executive Gavin Patterson, presenting his first financial results since taking over from Ian Livingston. "More than 2 million of our customers are signed up to it and our wholesale contract with Virgin Media means it is available to around four million homes in total."

BT now has 900,000 television customers – still some way behind Virgin's 3.8m and Sky's 10.5m. But its broadband and TV signings were ahead of Sky for September – the satellite broadcaster added 111,000 broadband customers and 37,000 to its television service.

Jerry Dellis, an analyst at Jefferies bank, said fears Sky had successfully countered the impact of BT Sport by giving away broadband free to TV subscribers had been overblown. "Robust broadband net adds from BSkyB … had raised some concern that BT's heavy investment in TV might be having rather limited initial impact at stemming the loss of retail lines within the BT base. In fact BT Retail KPIs are quite encouraging."

BT increased its interim dividend by 13% to 3.4 pence per share, and investors bumped the stock up 6.5p to 376p in early trading before the shares fell back to 372p.

Days after its August launch, BT Sport reached 1 million direct subscribers. That number has now doubled to 2 million. More than half are Sky subscribers watching via satellite, while others are viewing the programmes online or via the BT Sport app.

Following a deal signed a £75m a year deal with Virgin Media, which is offering the channels free to the 2 million customers who are already signed up to its most expensive TV package, the BT channels now have a potential audience of 4 million.

Thursday, 31 October 2013

Bill Adderley unmasked as Marks & Spencer's biggest private shareholder

Billionaire founder of homeware chain Dunelm built £250m stake in M&S during 18-month period in which shares rose by 40%

Bill Adderley, the billionaire founder of the homeware chain Dunelm, has secretly built a near £250m stake in Marks & Spencer, it has emerged.

The entrepreneur acquired the shares during the past 18 months, a period in which the M&S share price has risen by almost 40%.

The disclosure, triggered by stock market rules that unmask shareholders who own more than 3% of a company, revealed Adderley as M&S's largest private shareholder. He will receive dividends on his stake of more than £8m a year.

An M&S insider said: "We do know him and have met him, being as he has been our largest private shareholder for some time. It was a small purchase [that took Adderley over the 3% disclosure threshold] so this has not come out of the blue."

Adderley founded Dunelm on a Leicester market stall with his wife Jean in 1979 after leaving his job as manager of Woolworths in the city, eventually floating the business on the stock exchange.

The business is now worth about £1.8bn and boasts more than 100 stores making sales of £677m and profits of £108m. It is still majority owned by the Adderley family, who live near Uppingham, Rutland, and are collectively worth £1.1bn, according to the 2013 Sunday Times Rich List. Shares in Dunelm have more than doubled since the financial crisis and risen by about 30% during 2013.

Adderley, who has avoided the public spotlight, was not available to comment but sources close to the family suggested he had merely spotted an investment opportunity and taken it. When asked if he was planning to lead a consortium to bid for control of M&S, the source said: "This would be an extraordinarily clumsy way of going about it."

The news that M&S has attracted such a large private shareholder comes at a propitious time for the retailer, which has struggled to impress the City under the leadership of chief executive Marc Bolland.

The Dutchman is in the final year of a three-year, £2.3bn plan designed to address decades of under-investment. His efforts were insufficient to prevent clothing sales falling for eight straight quarters, although this week it emerged that M&S has stemmed the erosion of its share of the clothing market – albeit while suffering continued declines in its share of the women's clothing market. It is due to report its half-year figures next week.

Efforts to repair flagging clothing sales and pull in younger shoppers have also been knocked by the imminent departure of Gillian Ridley Whittle, development and buying director for womenswear, which was announced last week.

Next week M&S is expected to report a 1.5% fall in underlying sales of general merchandise – a category mainly made up of clothing – for the six months to the end of September. That would be on a par with the 1.6% slide reported in the three months to the end of June. Some analysts have downgraded their sales expectations amid unseasonably warm autumn weather.

The retailer is also launching its Alice in Wonderland-inspired Christmas adverts, featuring actor Helena Bonham Carter and models David Gandy and Rosie Huntington-Whiteley.

M&S shares added 2.09% yesterday to close at 503.5p. Adderley's 48.5m shares are therefore worth £244m.

City analysts have a mixed view on the shares. Of the 23 following the company, 11 rate the shares as a buy, seven as a sell, while five are neutral, according to the financial website Digital Look.

Nick Bubb, an independent retail analyst in London, told Bloomberg: "He's brave to take such a big punt on an M&S recovery."

Recent M&S successes have included its food business - Bolland's area of expertise, having joined from the grocer Morrisons - that has enjoyed 17 consecutive quarters of underlying sales growth and contributes 54% of group sales. Meanwhile, online sales growth is running ahead of the market and solid progress has been made overseas.